-----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, Od4a3L78tJSv0yqD4VwN6fn/d9iWavhhHUTHLC4q2Ds1vO4zOoj7F7n0sTym20IN Ay3Ec0OB0Sr3uI19CGYo5Q== 0000856465-99-000005.txt : 19990403 0000856465-99-000005.hdr.sgml : 19990403 ACCESSION NUMBER: 0000856465-99-000005 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990401 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/A SEC ACT: SEC FILE NUMBER: 001-10398 FILM NUMBER: 99584018 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/A 1 GIANT INDUSTRIES INC. 1998 10-K FORM 10-K405/A 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, 1998. 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 26, 1999, 10,838,767 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 $47,161,000 based on the New York Stock Exchange closing price on February 26, 1999. 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 1999 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, together with its subsidiaries, 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. In addition, Phoenix Fuel Co., Inc. ("Phoenix Fuel"), a wholly-owned subsidiary of Giant Arizona, operates an industrial/commercial petroleum fuels and lubricants distribution operation. The Company recently created three strategic business units, the Refining Group, the Retail Group and Phoenix Fuel. The Refining Group consists of the Company's two refineries, its fleet of crude oil and finished product truck transports, its crude oil pipeline gathering operations and its finished product terminaling operations. The Company's two refineries manufacture various grades of gasoline, diesel fuel, jet fuel and other products from crude oil, other feedstocks and blending components. These products are sold through company-operated retail facilities, independent wholesalers and retailers, industrial/commercial accounts and sales and exchanges with major oil companies. Crude oil, other feedstocks and blending components are purchased from third party suppliers. The Retail Group consists of service station/convenience stores and one travel center. These operations sell various grades of gasoline, diesel fuel, general merchandise and food products to the general public through retail locations. The petroleum fuels sold by the Retail Group are supplied by the Refining Group, which either manufactures these refined products or acquires them through exchange arrangements, third party purchases, or from Phoenix Fuel. General merchandise and food products are obtained from third party suppliers. Phoenix Fuel is an industrial/commercial petroleum fuels and lubricants distribution operation, which includes a number of bulk distribution plants, an unattended fleet fueling ("cardlock") operation and a fleet of finished product truck transports. The petroleum fuels and lubricants sold are primarily obtained from third party suppliers and to a lesser extent from the Refining Group. Company operations, consisting primarily of the Company's corporate office operations, are not included in any of the strategic business units. The Company believes that the Refining Group, the Retail Group and Phoenix Fuel are its only material business segments for financial reporting purposes. See the discussion of Company segments contained in Item 8, Note 2. Giant was incorporated in 1989 in connection with the concurrent initial public offering of common stock by Giant and the reorganization of Giant Arizona and Hixon Development Company ("Hixon"). As a result of the reorganization, Giant Arizona and Hixon became the principal wholly-owned subsidiaries of the Company. Subsequent to the reorganization, Hixon was renamed Giant Exploration & Production Company ("Giant E&P"). Giant E&P sold substantially all of its assets in August 1996. Giant Arizona was founded in 1961 and operated as a sole proprietorship until incorporation in the State of Arizona in 1969. The Company's 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 GROUP REFINING Giant Arizona owns and operates two refineries. The Ciniza refinery is located on 880 acres near Gallup, New Mexico, and the Bloomfield refinery is located on 285 acres near Farmington, New Mexico. Both of these refineries are located in the Four Corners area. This area serves as the Company's primary market for its refined products and as the primary source of its crude oil and natural gas liquids ("NGLs") supplies. Management believes that the technical capabilities of both refineries, together with the high quality of locally available feedstocks, enable the Company to achieve refinery yields which are comparable to that achieved by some larger more complex refineries located outside of the area. Both refineries are equipped with fluid catalytic cracking, naphtha hydrotreating, reforming, and 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, ---------------------------------------------------------------- 1998 1997 1996 1995(1) 1994 ------ ------ ------ ------ ------ Feedstock throughput:(2) Crude oil . . . . . . . . 32,500 33,700 34,800 23,700 19,100 NGLs and oxygenates . . . 5,700 6,500 5,400 5,000 4,500 Total. . . . . . . . 38,200 40,200 40,200 28,700 23,600 Crude oil throughput (as a % of total). . . 85% 84% 87% 83% 81% Rated crude oil capacity utilized 84% 87% 90% 88% 92% Refinery margin ($/bbl) . . . . . $ 4.83 $ 6.39 $ 6.21 $ 5.13 $ 5.60 Products:(2) Gasoline. . . . . . . . . 23,800 24,800 24,900 18,500 15,200 Diesel fuel . . . . . . . . . . . 11,400 11,000 10,900 7,200 5,200 Jet fuel. . . . . . . . . - 800 1,100 900 1,300 Other . . . . . . . . . . 3,000 3,600 3,300 2,100 1,900 Total. . . . . . . . 38,200 40,200 40,200 28,700 23,600 High Value Products: Gasoline. . . . . . . . . 62% 62% 62% 65% 64% Diesel fuel . . . . . . . 30% 27% 27% 25% 22% Jet fuel. . . . . . . . . - 2% 3% 3% 6% Total. . . . . . . . 92% 91% 92% 93% 92%
(1) The 1995 operating data reflects the operations of the Bloomfield refinery effective October 4, 1995. The purchase of the Bloomfield refinery increased the Company's total rated crude oil refining capacity owned by 18,000 bpd. (2) Average barrels ("bbls") per day ("bpd"). Each refinery operating unit requires regular maintenance 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. Capitalized costs are then amortized over the estimated period until the next turnaround, which is generally 24 to 48 months depending on the unit involved. In general, a major refinery turnaround is scheduled every four years. During 1998, the Ciniza refinery underwent a major planned turnaround involving all units. Extensive work was performed on the alkylation unit and fluid catalytic cracker unit. A somewhat lower level of work was performed on the other units. In addition to normal repairs and maintenance, significant capital was spent in replacing, rebuilding and upgrading systems and equipment that is expected to improve operating efficiencies and extend the estimated useful lives of the various units. The Ciniza refinery turnaround began in mid-April 1998 and was completed in early June 1998, approximately twenty days beyond the anticipated completion date. The delay in returning to normal operations was due to a number of factors, including but not limited to, unexpected mechanical repairs encountered, problems related to a key contractor and a number of startup problems. This seven week shutdown affected 1998 output by approximately 750,000 barrels. Unscheduled maintenance shutdowns also occur at the refineries, but the Company believes that the record of both refineries with respect to unscheduled maintenance shutdowns is generally good compared with the industry as a whole. RAW MATERIAL SUPPLY The refineries primarily process a mixture of high gravity, low sulfur crude oil, condensate and NGLs. The locally produced, high quality crude oil known as Four Corners Sweet is the primary feedstock for the refineries. The Company believes that because of recent low crude oil prices there has been a reduction in field maintenance work and drilling activity in the Four Corners area, which has resulted in a decline in local crude oil production. Based upon history and discussions with local producers, the Company believes that production will increase when crude oil prices recover. In the past, the Company was able to supplement local crude oil supplies and process up to 1,500 bbls per day of Alaska North Slope crude oil ("ANS") through its gathering systems interconnection with the ARCO and Texas-New Mexico common carrier pipeline systems. The Company understands that the ARCO Pipeline mainline, which was used to transport ANS to the Four Corners area, has been sold and is in the process of being converted to a natural gas pipeline. The Company did not purchase any ANS in 1998 and does not expect the loss of this supply source to have a material impact on the Company. Based on projections of local supply availability from the field, which take into account current low crude oil prices, the Company believes that its refining feedstock needs could exceed the supply of crude oil and other feedstocks that will be available from local sources until crude oil prices recover. The Company believes that any shortfall in local supply can be supplied from other sources and transported to the Four Corners area by pipeline or other transportation means, which could result in higher acquisition costs. There is no assurance that current or projected levels of supply will be maintained. Any significant long-term interruption in crude oil supply, due to prices or other factors, or any significant long-term interruption of crude oil transportation systems, would have an adverse effect on the Company's operations. The Company continues to evaluate supplemental crude oil supply alternatives for its refineries on both a short-term and long-term basis. There is no assurance that any supplemental crude oil alternative will be economic or capable of implementation as some alternatives require the consent or cooperation of third parties and other considerations beyond the control of the Company. The Company acquires crude oil from a number of sources, including major oil companies and large and small independent producers, under arrangements which contain market-responsive pricing provisions. Many of these arrangements are subject to cancellation by either party or have terms that are not in excess of one year. In addition, these arrangements are subject to periodic renegotiation. Some of the refineries' purchases are structured as exchange agreements. In such exchanges, purchases are made in conjunction with matching sales to the supplier at other domestic locations, as may be negotiated periodically. The effect of such arrangements is to make a portion of the cost of the refineries' supply dependent upon market conditions in other locations, which may differ from those pertaining to the Four Corners area. In addition, 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 increases the Company's refining margins. NGLs further enhance refinery margins because the Company has historically been able to purchase NGLs at a lower cost per barrel than crude oil. An adequate supply of NGLs is available for delivery to the Ciniza refinery, primarily through a Company-owned pipeline connecting the Ciniza refinery to natural gas liquids fractionation plants operated by third parties. NGLs also can be transported to the Ciniza refinery by rail or transport truck. The Company currently acquires substantially all of its NGL feedstocks pursuant to two long-term agreements with suppliers under which NGLs are made available to the Company at the fractionation 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 certain areas in which the Company sells motor fuel. 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 1998, 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 44% of the refineries' sales barrels in 1998. The balance is transported by customer or common carrier trucking. FLAGSTAFF TERMINAL. In 1998, the Company began construction of a 6,000 bpd capacity finished products terminal near Flagstaff, Arizona (the "Flagstaff Terminal"). The terminal is located approximately 14 miles east of Flagstaff and approximately 1/2 mile north of Interstate 40. Initial construction will include a 30,000 bbl unleaded tank, a 20,000 bbl diesel tank and a 15,000 bbl premium tank, in addition to a truck loading rack with 3 loading spots. The Company anticipates that the Terminal will be completed in the second quarter of 1999. The cost of the initial construction is estimated to be approximately $7,120,000, of which $4,800,000 was spent in 1998. In the future, terminal capacity could be expanded to 12,000 bpd of finished product. Product deliveries to the Terminal will be made initially by truck transport from Phoenix or the Company's refineries. The Company currently is reviewing the economics for construction of a pipeline between the terminal and the Ciniza refinery, including the costs of rights-of-way across the Navajo Reservation. REFINED PRODUCT SALES. During 1998, the Company sold approximately 8,700,000 barrels of gasoline and 4,200,000 barrels of diesel fuel from its refineries. The Company's retail units sold an equivalent of approximately 48% of these gasoline and 19% of these diesel sales. Gasoline and diesel deliveries made through product exchanges with large oil companies accounted for approximately 12% of the volume sold by the refineries. The remaining gasoline and diesel sales were made to wholesalers, retailers and industrial/commercial customers. Supplementing sales barrels sourced from both refineries were purchases, for resale, of gasoline and diesel from other sources. The Company's other refined products are marketed to various third party customers. RETAIL GROUP At December 31, 1998, the Company operated 166 service station/convenience stores located in New Mexico, Arizona, Colorado and Utah. This represents an increase of 29 units since December 31, 1997. 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 209,300,000 gallons of gasoline and diesel fuel in 1998 compared to approximately 144,700,000 gallons in 1997, a 45% increase. Merchandise sales increased approximately 37% in 1998, to $102,800,000 from $75,000,000. The increases were primarily due to an increase in the number of stores, primarily from acquisitions, and the length of time they were operated by the Company in 1998 as compared to 1997. In addition, the implementation and execution of improved merchandise marketing programs contributed significantly to increased merchandise sales. For 1998, same store sales increased 34% for merchandise and increased by 8% for gasoline and diesel fuel compared to 1997. During 1998, the Company continued to look for acquisition opportunities to expand its retail market. In February 1998, the Company completed the acquisition of seven retail units in the Southern Colorado area. These units were and continue to be operated under a Conoco branding agreement. In June and July 1998, another 32 units were acquired and one additional unit was leased. Of these units, 15 are located in the Phoenix area and 11 in the Tucson market, with the remainder located in southern and eastern Arizona. Also in 1998, the Company opened two new Company-constructed service station/convenience stores, completely rebuilt one other unit, and started construction on three others. In addition, a number of new land sites were acquired for planned growth through construction in 1999. As part of an ongoing effort to dispose of non-strategic or under-performing assets, the Company disposed of 19 stores in 1998. In 1997, Giant and Conoco Oil Co. entered into a strategic branding/licensing agreement that allows the Company to brand approved gasoline locations with the Conoco gasoline brand. Presently, 49 units (including the Travel Center) have been converted to the Conoco brand and, based upon expected improvements in gasoline volumes and gross profit, an additional 29 units may be branded Conoco in 1999. Early in 1998, Giant operated service station/convenience stores under eight different brand names as a result of the acquisitions made in 1997 and 1998. The Company developed the Mustang Brand to consolidate the existing trade names and provide brand synergy within Giant. During 1998, approximately 50 stores were renovated and re-branded Mustang. Many of the Company's service stations are modern, high-volume self-service stations. During 1998, the Company substantially remodeled 43 units and continued its program to install credit card readers in dispensers at its higher-volume units. The Company's service stations are augmented with convenience stores at many locations, which provide items such as general merchandise, alcoholic and nonalcoholic beverages, fast foods, health and beauty aids and automotive products. In 1999, the Company intends to 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 approximately 13 new units. This additional growth is expected to be in the Arizona and New Mexico market areas. Additional land sites are also expected to be acquired in 1999, along with the rebuilding or remodeling of several units. The Company owns and operates a Travel Center adjacent to the Ciniza refinery on I-40. The Travel Center provides a direct market for a portion of the Ciniza refinery's diesel production and allows diesel fuel to be sold at virtually no incremental transportation cost. In the 12 months ended December 31, 1998, the Company sold approximately 23,000,000 gallons of diesel fuel at the Travel Center (approximately 24% 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 1998, the Company held a grand reopening at the Travel Center, introducing nationally recognized fast food chains A&W Root Beer, Taco Bell and Pizza Hut Express. PHOENIX FUEL On June 3, 1997, Giant Arizona purchased all of the outstanding stock of Phoenix Fuel. Giant Arizona operates Phoenix Fuel as a wholly-owned subsidiary. Phoenix Fuel is an independent industrial/commercial petroleum products distributor with current wholesale fuel sales of approximately 18,400 barrels per day and cardlock sales of approximately 2,000 barrels per day, including gasoline, diesel fuel, jet 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, grease and various chemicals and solvents. Phoenix Fuel has 8 lubricant and bulk petroleum distribution plants, 21 cardlock fueling locations, a bulk lubricant terminaling facility and operates a fleet of 34 finished product transports and 26 finished product tankwagons. These assets and related operations are located throughout the state of Arizona and in Las Vegas, Nevada. In February 1998, Phoenix Fuel took over the operations of a Mobil distributorship in Las Vegas, Nevada from Reinhart Oil Company. This facility supplies a wide range of Mobil products to customers in Southern Nevada and northwest Arizona. For the 12 months ended December 31, 1998, Phoenix Fuel sold approximately 4,854,000 barrels of diesel fuel and 2,640,000 barrels of gasoline. Sales of additional products, including lubricants and related items, totaled approximately $26,294,000 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 operations into southern Arizona. With the acquisition of 32 service station/convenience stores and the lease of one other from Kaibab Industries, Inc., the Company further increased its presence in this market. In addition, the Company expects to construct approximately 13 new units in 1999, with the majority being constructed in the Phoenix and Tucson markets. EMPLOYEES The Company and its subsidiaries employed approximately 2,740 persons on February 28, 1999, including approximately 2,410 full-time and approximately 330 part-time employees. Approximately 2,330 were employed in refining and marketing operations including 320 part-time employees. Of these, 1,650 (including 300 part-time) were employed in the service station division and 240 (including 10 part-time) were employed at the Travel Center. Phoenix Fuel employed approximately 230 persons, including 10 part-time. The Company currently has no employees covered by a collective bargaining agreement. OTHER MATTERS COMPETITIVE CONDITIONS The industry in which the Company is engaged is highly competitive. Many of the Company's competitors are large, integrated oil companies which, because of their more diverse operations, stronger capitalization and better brand name recognition, 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 (i) the quality, quantity and delivered costs of crude oil, NGLs and other refinery feedstocks, (ii) refinery processing efficiencies, (iii) refined product mix, (iv) refined product selling prices, (v) the cost of delivering refined products to markets, and (vi) the ability of competitors to deliver refined products into the Company's primary market area by pipeline. The Company's larger competitors have refineries which are located outside the Four Corners area, but which are larger and more efficient than the Company's refineries and, as a result, have lower per barrel crude oil refinery processing costs. The Company competes with major and larger integrated oil companies and with independent refiners in Southeastern New Mexico, West Texas, the Texas Panhandle, Utah, Colorado and Southern California for selling refined products. Refined products from the Texas and Southeastern New Mexico refineries can be shipped to Albuquerque, New Mexico, primarily through two common carrier pipelines, one originating in El Paso, Texas and the second originating in Amarillo, Texas. In addition, mergers between large integrated oil companies and upgrades to competitors' refineries have resulted in increased competition. The Company is aware of a number of actions, proposals or industry discussions regarding product pipeline projects that could impact portions of its marketing areas. One of these projects is the sale and possible conversion and extension of the existing Texas-New Mexico crude oil pipeline to transport refined products from West Texas to New Mexico and ultimately to Salt Lake City, Utah. Separately, an existing natural gas liquids ("NGL") pipeline is in the process of being converted to a refined products pipeline that will be capable of delivering finished product from Southeastern New Mexico to the Albuquerque and Four Corners areas. This conversion is reportedly scheduled for completion in 1999. 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 area 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 areas, as well as allowing additional competitors improved access to these areas. The principal competitive factors affecting Phoenix Fuel are much the same as those affecting the Company's refining and marketing operations except that much of the fuel and all of the lubricants sold by Phoenix Fuel are purchased for resale from other refiners and marketers. Phoenix Fuel must compete with others in the marketplace to purchase the refined products and the lubricants that it sells. To be successful, this must be done at prices that result in margins sufficient to cover fixed and variable expenses. The principal competitive factors affecting the Company's retail marketing business are location of service stations, product price, product quality, appearance and cleanliness of service stations and brand identification. REGULATORY, ENVIRONMENTAL AND OTHER MATTERS OPERATIONS. The Company's operations are subject to a variety of federal, state and local health and environmental laws and regulations governing (i) the discharge of pollutants into the soil, air and water, (ii) product specifications, and (iii) the generation, treatment, storage, transportation and disposal of solid and hazardous waste and materials. The Company believes that the refineries are capable of processing currently utilized feedstocks in substantial compliance with currently effective environmental laws and regulations. Environmental laws and regulations, however, are becoming increasingly stringent. The following currently appear to the Company to be the most significant of such laws and regulations as they relate to the Company's operations. 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. Permit applications have been filed for both of the Company's refineries, and the Company anticipates that the permits will be received in 1999. Although additional costs will be incurred in connection with these permits, the Company currently does not believe these costs will be material. Underground storage tanks installed before December 1988 had to be in compliance with certain specified EPA standards by December 1998. In particular, steel tanks, and associated steel piping, had to be protected against corrosion and devices had to be in place to prevent tank spills and overfills. Underground storage tanks installed after December 1988 were already subject to these requirements. The Navajo Nation has enacted its own substantially-similar requirements. The Company has taken all necessary action to bring its service stations into compliance with the 1998 EPA standards and their Navajo Nation counterparts. The Company does not presently manufacture gasolines that satisfy Arizona cleaner burning gasoline ("CBG") specifications. The specifications are currently applicable to gasolines sold or used in Maricopa County and a portion of Yavapai County, and are expected to become effective in Pinal County by 2001. The Company operates approximately 20 service stations in these areas, and also conducts wholesale marketing operations there. The Company currently does not intend to make the changes necessary to produce CBG because the capital costs associated with manufacturing large quantities of such gasolines would be significant in amounts not yet determined by the Company. The Company has the ability to purchase or exchange for these gasolines to supply its operations in the CBG areas, including Pinal County. It is possible that additional legislation or regulations affecting motor fuel specifications may be adopted that would impact geographic areas in which the Company markets its products. The Company 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. The Company continues to await the approval of its closure plan, which would cost approximately $50,000 to implement. 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. 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. CLEANUP ACTIVITIES BLOOMFIELD PROPERTY. The Company has discovered hydrocarbon contamination adjacent to a 55,000 barrel crude oil storage tank (the "Tank") that was located in Bloomfield, New Mexico. The Company believes that all or a portion of the Tank and the 5.5 acres owned by the Company on which the Tank was located may have been a part of a refinery, owned by various other parties, that, to the Company's knowledge, ceased operations in the early 1960s. The Company completed a site investigation in 1995, which indicated that contaminated groundwater may extend approximately 300 feet south of the property boundary. Without admitting liability for contamination, the Company intends to conduct hydrocarbon remediation activities under the oversight of the New Mexico Oil Conservation Division ("OCD"). These remediation activities, however, cannot be undertaken until issues relating to the potential presence of lead in the soil have been resolved. Without admitting liability for any such contamination, the Company is conducting an investigation into the extent and magnitude of lead contamination under OCD oversight. The investigation arises out of the removal of the Tank by a contractor. Although it is possible that the Company may ultimately incur liability for lead clean-up costs, a reasonable estimate of the amount of the Company's liability, if any, cannot be made at this time because all potentially-applicable factual and legal issues have not been resolved, including whether there is lead at the site in amounts exceeding applicable remediation levels and whether remediation costs, if any, can be recovered from third parties. The Company has approximately $250,000 accrued as an environmental reserve in relation to hydrocarbon contamination on or adjacent to the site. ALBUQUERQUE TERMINAL. The Company, and several other entities, have received a notice of intent to file suit from the New Mexico Office of the Natural Resources Trustee (the "ONRT") for the recovery of $260.0 million in alleged damages to natural resources, including alleged damages to ground water, surface water and soil. The notice relates to the South Valley Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") Superfund site in Albuquerque, New Mexico. The site allegedly includes contamination that originated from a GE Aircraft Engines/U.S. Air Force facility, as well as contamination that allegedly originated from a petroleum products terminal that was acquired by the Company in 1995 (the "Albuquerque Terminal"). Potentially responsible party liability is joint and several, such that a responsible party may be liable for all natural resources damages at a site even though it was responsible for only a small part of such damages. At the time of purchase by the Company, Texaco Refining and Marketing Inc. ("Texaco") agreed to defend, indemnify, reimburse and hold the Company harmless from and against all claims and damages arising from, or caused by, pre-closing contamination. Texaco has acknowledged its obligation under this agreement, subject to any evidence that the ONTR intends to assess damages for any releases resulting from the Company's operations. The Company believes that any natural resources damages associated with the South Valley Superfund site relate to releases that predate the Company's acquisition of the Albuquerque Terminal. FARMINGTON PROPERTY/LEE ACRES LANDFILL. In 1973, the Company constructed the Farmington refinery that was operated until 1982. The Company became aware of soil and shallow groundwater contamination at this facility in 1985. The Company hired environmental consulting firms to investigate the contamination and undertake remedial action. The consultants identified several areas of contamination in the soils and shallow groundwater underlying the Farmington property. A consultant to the Company has indicated that contamination attributable to past operations at the Farmington property has migrated off the refinery property, including a hydrocarbon plume that appears to extend no more than 1,800 feet south of the refinery property. Remediation activities are ongoing by the Company under OCD's supervision, although no cleanup order has been received. The Company had reserved approximately $1,000,000 for possible environmental expenditures relating to its Farmington property, of which approximately $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 Landfill was added to the National Priorities List as a CERCLA Superfund site in 1990. In connection with this listing, EPA defined the site as the Landfill and the Landfill's associated groundwater plume. EPA excluded any releases from the Farmington refinery itself from the definition of the site. In May 1991, EPA notified the Company that it may be a potentially responsible party under CERCLA for the release or threatened release of hazardous substances, pollutants or contaminants at the Landfill. BLM made a proposed plan of action for the Landfill available to the public several years ago. Remediation alternatives examined by BLM in connection with the development of its proposed plan ranged in projected cost from no cost to approximately $14.5 million. BLM proposed the adoption of a remedial action alternative that it believes would cost approximately $3.9 million to implement. BLM's $3.9 million cost estimate is based on certain assumptions which may or may not prove to be correct and is contingent on confirmation that the remedial actions, once implemented, are adequately addressing Landfill contamination. For example, if assumptions regarding groundwater mobility and contamination levels are incorrect, BLM is proposing to take additional remedial actions with an estimated cost of approximately $1.8 million. BLM received public comment on its proposed plan. The final remedy for the site, however, has not yet been selected. It is believed that BLM, EPA and NMED will all be involved in the remedy selection process. 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 BLM. The figure was also based on the consultant's evaluation of such factors as available clean-up technology, BLM's involvement at the site and the number of other entities that may have had involvement at the site, but did not include an analysis of all of the Company's potential legal defenses and arguments, including possible setoff rights. Potentially responsible party liability is joint and several, such that a responsible party may be liable for all of the clean-up costs at a site even though the party was responsible for only a small part of such costs. Although it is possible that the Company may ultimately incur liability for clean-up costs associated with the Landfill, a reasonable estimate of the amount of this liability, if any, cannot be made at this time because, among other reasons, the final site remedy has not been selected, a number of entities had involvement at the site, allocation of responsibility among potentially responsible parties has not yet been made, and potentially-applicable factual and legal issues have not been resolved. Based on current information, the Company does not believe that it needs to record a liability in relation to BLM's proposed plan. BLM may assert claims against the Company and others for reimbursement of investigative, cleanup and other costs incurred by the BLM in connection with the Landfill and surrounding areas. It is also possible that the Company will assert claims against BLM in connection with contamination that may be originating from the Landfill. Private parties and other governmental entities may also assert claims against BLM, the Company and others for property damage, personal injury and other damages allegedly arising out of any contamination originating from the Landfill and the Farmington property. Parties may also request judicial determination of their rights and responsibilities, and the rights and responsibilities of others, in connection with the Landfill and the Farmington property. Currently, however, there is no outstanding litigation against the Company by BLM or any other party. 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 the Resources Conservation and Recovery Act (the "Order"). The Order required BRC to investigate and propose measures for correcting any releases of hazardous waste or hazardous constituents at or from the Bloomfield refinery. The Company established an environmental reserve of $2.25 million in connection with this matter, of which approximately $1.9 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. The Company has received several tax notifications and assessments from the Navajo Tribe relating to Company operations outside the boundaries of the Navajo Indian Reservation in an area of disputed jurisdiction, including a $1.8 million severance tax assessment issued in November 1991 in connection with crude oil removed from properties located within this area. The Company has invoked its appeal rights with the Tribe's Tax Commission in connection with this assessment and intends to oppose the assessment. In November 1998, the Company received a notice of proposed assessment from the Navajo Tribe for an additional $2.1 million involving severance tax issues similar to those raised in connection with the $1.8 million assessment. The Company has responded to the notice of proposed assessment and intends to oppose any final assessment issued by the Navajo Tribe in connection with the area of disputed jurisdiction. Although it is probable that the Company will incur liability in connection with tax notifications and assessments from the Navajo Tribe relating to the area of disputed jurisdiction, it is not possible to reasonably estimate the amount of any obligation for such taxes at this time because the Navajo Tribe's legal authority to impose taxes throughout this area has not been legally established and all potentially-applicable factual issues have not been resolved. The Company has accrued a liability for assessments that it has received from the Navajo Tribe for substantially less than the amount of the assessments. It is possible that the Company's assessments will have to be litigated by the Company before final resolution. In addition, the Company may receive further tax assessments. The Company may potentially be able to request reimbursement from third party oil lease interest owners in connection with any severance tax amounts ultimately paid by the Company that relate to purchases from them. The Company intends to continue purchasing activities in the area of disputed jurisdiction. DISCONTINUED 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 from the retained wells will be realized by the Company and, when earned, will be used to offset income taxes payable through the year 2002. These wells are subject to (i) a production payment to the buyer of the Company's other oil and gas assets, under which the natural gas reserves related to these wells will be produced for the benefit of the buyer, and (ii) a "suboperating" agreement under which the buyer assumes substantially all of the responsibilities and risks of operation of the wells. ITEM 3. LEGAL PROCEEDINGS. The Company is a party to ordinary routine litigation incidental to its business. There is also hereby incorporated by reference the information under the headings "Regulatory, Environmental and Other Matters" in Items 1 and 2, the discussions contained in Item 7, and the information regarding contingencies in Note 18 to the Consolidated Financial Statements in Item 8. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT. Executive officers of the Company as of March 1, 1999 are listed below: Executive Name Age Position Officer Since - ---------------- --- ------------------------- ------------- James E. Acridge 58 Chairman of the Board, October 1989 President and Chief Executive Officer Fredric L. Holliger 51 Executive Vice President October 1989 and Chief Operating Officer Morgan Gust 51 Executive Vice President August 1990 Monte N. Swetnam 62 Executive Vice President December 1998 Administration and Corporate Affairs Jack W. Keller 54 President of Phoenix Fuel February 1999 Co. Inc. Philip W. Tomczyk 46 President of the Company's February 1999 Retail Group Business Unit Guy W. Yates 59 President of the Company's February 1999 Refining Group Business Unit Kim H. Bullerdick 45 Vice President; Director, February 1999 Legal Department; and Secretary Mark B. Cox 40 Vice President, Treasurer, February 1999 Financial Officer and Assistant Secretary Gary R. Dalke 46 Vice President, Controller, February 1999 Accounting Officer and Assistant Secretary The officers of the Company are elected annually by the Board of Directors and each officer serves until his successor is chosen and qualified or until his earlier resignation or removal. There are no family relationships among the officers of the Company. James E. Acridge has served as Chairman of the Board of Directors, President and Chief Executive Officer of the Company since October 1989. Mr. Acridge also serves as Chairman of the Nominating Committee. Mr. Acridge started Giant Industries Arizona, Inc. ("Giant Arizona"), the Company's principal wholly-owned subsidiary, in 1969. The Company was formed in 1989 in connection with the concurrent initial public offering of stock by the Company and the reorganization of Giant Arizona and Hixon Development Company ("Hixon"). As a result of the reorganization, Giant Arizona and Hixon became the principal wholly-owned subsidiaries of the Company. Subsequent to the reorganization, Hixon was renamed Giant Exploration and Production Company ("Giant E&P"). Giant E&P sold substantially all of its assets in August 1996. Mr. Acridge has served continuously as the Chairman of the Board of Directors, President and Chief Executive Officer of the Company and Giant Arizona since their formation. Since June 1997, Mr. Acridge also has served as Chairman of the Board of Phoenix Fuel Co., Inc. ("Phoenix Fuel"), an industrial/commercial petroleum products distributor, all of whose stock was acquired by Giant Arizona in June 1997. Fredric L. Holliger has served as a director, Executive Vice President and Chief Operating Officer of the Company since October 1989. Mr. Holliger joined Giant Arizona as Senior Vice President, and President of the Giant Arizona refining division, in February 1989, and continues to serve as a director, Executive Vice President and Chief Operating Officer of Giant Arizona. Mr. Holliger also has served as a director and Chief Executive Officer of Phoenix Fuel since June 1997. Morgan Gust has served as Executive Vice President of the Company and Giant Arizona since February 1999. From September 1990 through September 1998, Mr. Gust served in various senior management positions for the Company and Giant Arizona, including Vice President, Vice President Administration, General Counsel, and Secretary. From October 1998 until January 1999, Mr. Gust was not with the Company. Upon returning to the Company in January 1999, Mr. Gust was part of senior management until being elected Vice President by the Board of Directors of the Company on February 25, 1999. Monte N. Swetnam has served as Executive Vice President Administration and Corporate Affairs of the Company and Giant Arizona since December 1998 and as Executive Vice President of Giant E&P since January 1994. From October 1997 to December 1998, Mr. Swetnam served as Vice President, Corporate Affairs for Giant Arizona. From November 1996 to October 1997, he served as Vice President, Refining Operations for Giant Arizona. Jack W. Keller has served as the President of Phoenix Fuel since December 1996. From 1989 to December 1996, Mr. Keller served in various senior management roles with Phoenix Fuel, including Chief Operating Officer from 1993 to 1996 and General Manager from 1989 to 1993. From December 1997 to September 1998, Mr. Keller also served as Senior Vice President, Marketing Division of Giant Arizona. Philip W. Tomczyk has served as the President of the Company's Retail Group Business Unit since February 1999. From December 1997 to February 1999, Mr. Tomczyk served as Senior Vice President of Giant Arizona's Retail Division. From February 1997 to November 1997, Mr. Tomczyk provided consulting services to the Company. From August 1996 to February 1997, Mr. Tomczyk was the President of Discovery & Solutions, a strategic planning consulting firm that he founded. In May 1996, Mr. Tomczyk purchased three apartment buildings that he remodeled and continues to own and operate. From February 1992 to April 1996, Mr. Tomczyk served as a Senior Vice President of Circle K Corp. where he was responsible for gasoline, engineering, construction, real estate and mergers and acquisitions. Guy W. Yates has served as President of the Company's Refining Group Business Unit since February 1999. Prior to that, Mr. Yates served as Senior Vice President, Acquisitions of Giant Arizona from 1997 through February 1999. From 1989 to 1997, Mr. Yates served as Giant Arizona's Vice President, Marketing and Product Supply. From 1982 through 1989, Mr. Yates served as Giant Arizona's Vice President, Marketing. Kim H. Bullerdick has served as Vice President; Director, Legal Department and Secretary of the Company and Giant Arizona since December 1998. From September 1998 to December 1998, Mr. Bullerdick served as an Assistant Secretary of the Company and Giant Arizona. Mr. Bullerdick joined Giant Arizona in June 1987 as Corporate Counsel. In August 1995, he was appointed Assistant General Counsel of Giant Arizona, and in 1998, he was appointed Associate General Counsel; Manager, Legal Department; and Manager, Regulatory Affairs. Mark B. Cox has served as Vice President, Treasurer, Financial Officer and Assistant Secretary of the Company and Giant Arizona since December 1998. From September 1998 to December 1998, Mr. Cox served as Treasurer and Assistant Secretary of the Company and Giant Arizona. From 1997 to September 1998, Mr. Cox served as Treasurer of the Company and Giant Arizona. From 1994 to 1997, Mr. Cox served as Assistant Treasurer of Giant Arizona. Gary R. Dalke has served as Vice President, Controller, Accounting Officer and Assistant Secretary of the Company and Giant Arizona since December 1998. From September 1998 to December 1998, Mr. Dalke served as an Assistant Secretary of the Company and Giant Arizona. From April 1998 to September 1998, Mr. Dalke served as Chief Information Officer of Giant Arizona, and from July 1998 to December 1998, Mr. Dalke served as the Controller for Giant Arizona. From January 1990 to July 1998, Mr. Dalke served as Chief Financial Officer of Phoenix Fuel. From January 1997 to July 1998, Mr. Dalke also was Vice President of Phoenix Fuel, and from June 1997 to September 1998, he was also Treasurer of Phoenix Fuel. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The principal United States market on which the Company's common stock is traded is the New York Stock Exchange. The high and low sales prices for the Common Stock for each full quarterly period as reported on the New York Stock Exchange Composite Tape for the last two fiscal years are as follows: Quarter Ended High Low ------------- ---- --- December 31, 1998 13 1/2 8 9/16 September 30, 1998 18 9/16 10 3/4 June 30, 1998 23 11/16 17 5/16 March 31, 1998 21 1/16 16 3/4 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 During 1998, the Company's Board of Directors declared cash dividends on common stock for the first three quarters of $0.05 per share. During 1997, the Company's Board of Directors declared four 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 (the "9% Notes") and $100,000,000 of 9 3/4% Senior Subordinated Notes (the "9 3/4% Notes"). The 9% Notes were issued pursuant to an Indenture dated August 26, 1997 (the "9% Indenture") and the 9 3/4% Notes were issued pursuant to an Indenture dated November 29, 1993 (the "9 3/4% Indenture" and collectively with the 9% Indenture the "Indentures"). The Indentures are among the Company, its Subsidiaries, as guarantors, Bank of New York, as trustee under the 9% Indenture and NBD Bank, National Association, as trustee under the 9 3/4% Indenture. The Indentures contain a number of covenants, which, among other provisions, place restrictions on the Company's payment of dividends and purchase of its common stock. The Indentures include the payment of dividends and purchase of the Company's common stock in their definitions of "Restricted Payments." The Indentures place limitations on "Restricted Payments," the most significant of which are summarized as follows: The Company cannot, and cannot permit any of its Restricted Subsidiaries to, directly or indirectly, make any Restricted Payment, unless: (a) no Default or Event of Default shall have occurred and be continuing at the time of or immediately after giving effect to such Restricted Payment; (b) at the time of and immediately after giving effect to such Restricted Payment, the Company would be able to incur at least $1.00 of additional Indebtedness pursuant to the first paragraph of the covenant captioned "Limitation on Incurrence of Additional Indebtedness"; and (c) immediately after giving effect to such Restricted Payment, the aggregate amount of all Restricted Payments declared or made after the Issue Date does not exceed the sum of (A) 50% of the Consolidated Net Income of the Company and its Restricted Subsidiaries (or in the event such Consolidated Net Income shall be a deficit, minus 100% of such deficit) during the period (treated as one accounting period) subsequent to September 30, 1997 in the case of the 9% Indenture and September 30, 1993 in the case of the 9 3/4% Indenture and ending on the last day of the fiscal quarter immediately preceding the date of such Restricted Payment and (B) $30 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. At December 31, 1998, retained earnings available for dividends under the most restrictive terms of the Indentures was approximately $8,626,000. The Company, however, is unable to pay any dividends at the present time under the terms of its 9 3/4% Indenture. At December 31, 1998, and as of the date hereof, the Company does not satisfy the 9 3/4% Indenture's consolidated coverage ratio test and, therefore, is prevented from making "Restricted Payments," including payment of dividends and the purchase of its common stock. 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 270 holders of record of Common Stock on March 19, 1999. 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, ---------------------------------------------------- 1998 1997 1996 1995 1994 -------- --------- --------- --------- -------- Financial Statement Data Continuing Operations: Net Revenues $ 642.5 $ 657.3 $ 499.2 $ 332.9 $ 291.6 Operating Income 19.9 41.1 39.7 20.6 20.1 Net Earnings (Loss) (2.2) 15.3 17.0 7.7 7.4 Earnings (Loss) Per Common Share - Basic (0.20) 1.38 1.52 0.68 0.61 Earnings (Loss) Per Common Share - Diluted (0.20) 1.37 1.50 0.67 0.61 Discontinued Operations Net Earnings (Loss)(1) 0.2 (2.9) Earnings (Loss) Per Common Share - Basic and Diluted 0.01 (0.24) Weighted Average Common Shares Outstanding 11.0 11.1 11.2 11.5 12.1 Dividends Paid Per Common Share 0.20 0.20 0.20 0.20 Stockholders' Equity 127.7 133.5 122.1 109.7 109.7 Book Value Per Common Share 11.78 12.14 11.00 9.75 9.15 Return on Average Stockholders' Equity 12.0% 14.7% 7.2% 4.2% Total Assets 525.8 535.4 324.0 324.9 279.4 Working Capital 91.1 111.7 21.5 50.3 86.4 Long-Term Debt as a Percentage of Total Capitalization 68.9% 67.4% 48.1% 56.5% 51.4% Long-Term Debt 282.5 275.6 113.1 142.7 116.1 OPERATIONS DATA - CONTINUING OPERATIONS:(2) REFINING AND MARKETING: Rated Crude Oil Capacity Utilized 84% 87% 90% 88% 92% Refinery Sourced Sales Barrels (Bbls/Day) 37,898 39,037 38,814 27,430 23,054 Average Crude Oil Costs ($/Bbl) $ 14.29 $ 20.60 $ 21.80 $ 18.41 $ 16.97 Refinery Margin ($/Bbl) $ 4.83 $ 6.39 $ 6.21 $ 5.13 $ 5.60 Service Stations: Fuel Gallons Sold (In Thousands) 184,374 125,219 87,499 85,872 85,550 Product Margin ($/Gallon) $ 0.206 $ 0.213 $ 0.201 $ 0.196 $ 0.200 Merchandise Sold ($ In Thousands) $ 95,496 $ 67,601 $ 42,037 $ 38,091 $ 32,727 Merchandise Margin 30% 30% 30% 30% 29% Number of Outlets at Year End 166 148 52 51 50 Travel Centers:(3) Fuel Gallons Sold (In Thousands) 24,950 19,434 18,298 21,522 30,337 Product Margin ($/Gallon) $ 0.111 $ 0.111 $ 0.104 $ 0.102 $ 0.118 Merchandise Sold ($ In Thousands) $ 7,331 $ 7,382 $ 7,092 $ 7,640 $ 9,929 Merchandise Margin 45% 44% 46% 47% 45% Number of Outlets at Year End 1 1 1 1 1 Retail Fuel Volumes Sold as a % of Refinery Sourced Sales Barrels(3) 36% 24% 18% 26% 33% PHOENIX FUEL: Fuel Gallons Sold (In Thousands) 314,763 172,121 Product Margin ($/Gallon) $ 0.067 $ 0.075 Lubricant Sales ($ In Thousands) $ 22,517 $ 12,923 Lubricant Margin 14% 14%
(1) The 1994 amount includes a $2.2 million net of tax charge 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, the Thriftway and Phoenix Fuel acquisitions from approximately June 1, 1997, the DeGuelle acquisition from February 10, 1998, and the Kaibab acquisition from approximately July 1, 1998. (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, 1998 AND DECEMBER 31, 1997 - --------------------------------------------------------------------- The primary factors affecting the results of the Company's 1998 operations as compared to its 1997 operations were (i) a decline in refinery margins, partially related to (a) a sharp decline in crude oil and finished product prices resulting from, among other things, a decline in worldwide demand for crude oil and finished products, and (b) non-cash charges for reductions in the carrying value of inventories; (ii) the acquisition of ninety-six service station/convenience stores and related assets in May 1997 from Thriftway Marketing Corp. and affiliates (the "Thriftway Assets"), the June 1997 acquisition of independent industrial/commercial petroleum products distributor Phoenix Fuel Co., Inc. ("Phoenix Fuel", and collectively with the Thriftway Assets, the "1997 Acquisitions"), the acquisition of seven service station/convenience stores and related assets in February 1998 from DeGuelle Oil Company and DeGuelle Enterprises (the "DeGuelle Assets") and, in June and July 1998, the acquisition of thirty-two service station/convenience stores and related assets and the lease of one other service station/convenience store from Kaibab Industries, Inc. (the "Kaibab Assets", and collectively with the DeGuelle Assets, the "1998 Acquisitions"); (iii) increased interest costs related to the issuance of $150.0 million of 9% Senior Subordinated Notes (the "9% Notes") in August 1997, to partially finance the 1997 and 1998 Acquisitions; (iv) increased operating costs, including depreciation and amortization, and selling, general and administrative expenses ("SG&A") primarily related to the above acquisitions and planning for future growth; (v) a decrease in refinery sourced sales volumes due in part to a major maintenance turnaround at the Ciniza refinery in the second quarter of 1998; and (vi) a write-off of costs incurred in connection with the termination of a proposed merger with Holly Corporation that had been approved by the Company's Board of Directors on April 14, 1998. EARNINGS (LOSS) BEFORE INCOME TAXES - ----------------------------------- For the year ended December 31, 1998, the Company incurred a loss before income taxes of $3.7 million, a decrease of approximately $28.8 million from earnings before income taxes of $25.1 million for the year ended December 31, 1997. The decrease is primarily due to (i) a 24% decline in refinery margins; (ii) a 40% increase in interest costs; (iii) a 21% increase in operating expenses, including depreciation and amortization; (iv) a 31% increase in administrative expenses, including a write-off of approximately $1.4 million of costs incurred in connection with the terminated merger with Holly Corporation; and (v) a decrease in refinery sourced sales volumes for approximately 3%. These items were offset in part by contributions from the 1997 and 1998 Acquisitions and a reduction in 1997 pretax earnings for a $1.2 million loss incurred in connection with the sale of the Company's ethanol processing plant. REVENUES - -------- Revenues for the year ended December 31, 1998 were $642.5 million, a decrease of approximately $14.8 million or 2% from $657.3 million in the comparable 1997 period. The decrease is primarily due to a 27% decline in refinery weighted average selling prices and a 3% decrease in refinery sourced finished product sales volumes. These decreases were offset in part by increased revenues attributable to the 1997 and 1998 Acquisitions and an 11% increase in merchandise sales for retail operations other than those associated with the Acquisitions. For the year ended December 31, 1998, volumes of refined products sold through the Company's retail units increased approximately 45% from 1997 levels primarily due to the acquisition of the Thriftway, Kaibab and DeGuelle Assets. In addition, the volumes of finished product sold from the Company's other retail operations increased approximately 8%. This increase was largely due to a 28% increase in the volumes of finished product sold from the Company's travel center, due in large part to improved marketing programs put in place during 1997, and a 3% increase in finished product volumes sold from the Company's other retail service station/convenience stores. COST OF PRODUCTS SOLD - --------------------- For the year ended December 31, 1998, cost of products sold decreased $22.1 million or 5% to $465.6 million from $487.7 million in the corresponding 1997 period. The decrease is primarily due to a 31% decline in average crude oil costs and a 3% decrease in refinery sourced finished product sales volumes. These decreases in costs were offset in part by increases in costs related to the 1997 and 1998 Acquisitions. In addition, 1998 cost of products sold increased by approximately $8.5 million as a result of a reduction in the carrying value of inventories related to a decline in crude oil and refined product prices. Cost of products sold in 1997 was higher by approximately $2.9 million as a result of similar reductions in inventory carrying values. OPERATING EXPENSES - ------------------ Operating expenses for the year ended December 31, 1998 were $102.5 million, an increase of approximately $17.3 million or 20% from $85.2 million for the year ended December 31, 1997. Substantially all of the increase is due to the 1997 and 1998 Acquisitions, including increased administrative and support costs related to expanded retail operations. For the Company's other operations, 1998 operating costs were relatively comparable to those experienced in 1997. DEPRECIATION AND AMORTIZATION - ----------------------------- For the year ended December 31, 1998, depreciation and amortization increased approximately $5.2 million or 22% to $29.2 million from $24.0 million in the same 1998 period. Approximately 61% of the increase is due to the 1997 and 1997 Acquisitions. The remainder of the increase is primarily related to construction, remodeling and upgrades in retail, refining and transportation operations; and the amortization of 1997 Bloomfield refinery turnaround costs. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - -------------------------------------------- SG&A expenses for the year ended December 31, 1998 were $25.3 million (including approximately $1.4 million for the write-off of merger costs), an increase of approximately $6.0 million or 31% from $19.3 million in the corresponding 1997 period. Approximately 7% of the increase is due to SG&A associated with the operations of Phoenix Fuel. The remainder of the increase is primarily the result of higher 1998 payroll and related costs, and higher 1998 outside services and other costs, both in large part due to the 1997 and 1998 Acquisitions and planning for future growth. These increases were partially offset by a $1.4 million decrease in management incentive bonus expense in the 1998 period due to the Company incurring a net loss for the year. WRITE-OFF OF MERGER COSTS - ------------------------- On April 14, 1998, the Board of Directors of the Company approved an Agreement and Plan of Merger (the "Merger Agreement") whereby Holly Corporation ("Holly") would be merged with and into Giant (the "Merger"). The Merger was subject to various conditions stated in the Merger Agreement. On September 1, 1998, Giant and Holly mutually agreed to terminate the proposed Merger after considering various factors, including the inability of the companies to reach a satisfactory resolution of concerns expressed by the Federal Trade Commission relative to the possible impact of the Merger on portions of the market served by the companies and uncertainty caused by a lawsuit filed against Holly by Longhorn Partners Pipeline, L.P. For the year, the Company has written off approximately $1.4 million of costs incurred in connection with the proposed Merger. These costs were primarily for fees paid to investment bankers, attorneys, accountants and regulatory agencies, and printing and distribution costs related to documents delivered to shareholders. INTEREST EXPENSE (INCOME) - ------------------------- For the year ended December 31, 1998, interest expense increased approximately $7.3 million or 40% to $25.4 million from $18.1 million in the comparable 1997 period. The increase is primarily due to additional interest expense related to the 9% Notes. This increase was partially offset by a reduction in 1998 interest expense due to lower direct borrowings from and interest rates related to the Company's credit facilities. For the year ended December 31, 1998, interest and investment income decreased approximately $0.3 million or 14% to $1.8 million from $2.1 million. The decrease is primarily due to the use of some of the proceeds from the issuance of the 9% Notes, which had been invested in short-term instruments, for the 1998 Acquisitions. The effects of fluctuations in interest rates applicable to invested funds were nominal. INCOME TAXES - ------------ The benefit for income taxes for the year ended December 31, 1998, and the provision for income taxes for the year ended December 31, 1997, resulted in an effective benefit rate of approximately 40% for the year ended December 31, 1998, and an effective tax rate of approximately 39% for the comparable 1997 period. OUTLOOK - ------- This Outlook section and other parts of this Management's Discussion and Analysis ("MD&A") contain forward-looking information and involve risks and uncertainties that could significantly impact expected results. Certain important factors that in some cases have affected, and in the future could affect, the Company's results of operations, and that could cause such future results of operations to differ are described in the "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995 at the end of this MD&A. The Company anticipates improvements in refining margins for 1999 as compared to 1998. Additionally, the Company plans to implement programs to reduce operating costs and to increase purchasing power. The Company also intends to focus on increasing its retail operations through construction and acquisition, expanding upon its marketing alliance with Conoco and implementing the Company's new Mustang branding strategy. Further, the Company intends to implement a new jobber/open dealer program that the Company believes is unique to the industry and to continue to improve the integration of, and to develop synergies related to, the 1997 and 1998 Acquisitions. The Company will also continue 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, 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 were the acquisition of the Thriftway Assets and Phoenix Fuel near the end of May 1997, higher interest costs related to the financing of the 1997 Acquisitions, including the issuance of the 9% Notes in August 1997, increased refinery margins and higher operating and 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 was primarily due to increased SG&A and operating costs for operations other than the 1997 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 approximately $8.0 million from the 1997 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 was primarily due to the 1997 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. The decline reflected a 2% decrease 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 1997 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 was due to the 1997 Acquisitions. For the Company's 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 $24.0 million from $17.7 million in the same 1996 period. Approximately 43% of the increase was due to the 1997 Acquisitions. The remaining increases were 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 was due to the selling, general and administrative activities of Phoenix Fuel. The remaining increases were 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 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 was primarily due to an increase in interest expense because of additional long-term debt related to the 1997 Acquisitions, including the issuance of the 9% Notes in August 1997. The increase was 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 Thriftway Assets 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 was 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 resulted in effective tax rates of approximately 39% for each period. LIQUIDITY AND CAPITAL RESOURCES CASH FLOW FROM OPERATIONS - ------------------------- Operating cash flows for the year ended December 31, 1998, decreased compared to the year ended December 31, 1997, primarily as the result of a decline in net earnings. The decline, however, was offset in part by an increase in cash flows related to operating assets and liabilities in each period. Net cash provided by operating activities totaled $26.9 million for the year ended December 31, 1998, compared to $31.3 million for the comparable 1997 period. WORKING CAPITAL - --------------- Working capital at December 31, 1998 consisted of current assets of $171.7 million and current liabilities of $80.6 million, or a current ratio of 2.13:1. At December 31, 1997, the current ratio was 2.17:1 with current assets of $207.1 million and current liabilities of $95.4 million. Current assets have decreased since December 31, 1997, primarily due to a decrease in cash and cash equivalents, receivables and inventories. Accounts receivable have decreased primarily as the result of a decline in the selling price of finished products. Inventories have decreased primarily due to a decline in crude oil and refined product prices. In addition, the volume of finished product stored at the Company's refineries and at terminal locations has declined. These decreases were offset in part by an increase in the volume of retail finished product and merchandise inventories, resulting primarily from the recent service station/convenience store acquisitions. Current liabilities have decreased due to a decrease in accounts payable and accrued expenses. Accounts payable have decreased primarily as a result of a decline in the cost of crude oil and other raw materials. Accrued expenses have decreased primarily due to a reduction in the amount accrued for contingency payments related to the acquisition of the Bloomfield refinery, reduced accruals for management incentive and other bonuses, and no accrual for a 1998 ESOP contribution. CAPITAL EXPENDITURES AND RESOURCES - ---------------------------------- Net cash used in investing activities for the purchase of property, plant and equipment and other assets, excluding business acquisitions, totaled approximately $60.3 million for the year ended December 31, 1998. Expenditures included amounts for the Ciniza refinery second quarter turnaround, refinery and transportation equipment and facility upgrades, capacity enhancement projects for the refineries, the start of construction of a finished products terminal, which the Company anticipates will be completed in the second quarter of 1999 (the "Terminal"), construction of various new retail units, acquisition of land for future retail units, rebranding and reimaging various retail units to further the Conoco marketing alliance and to establish the Mustang brand, and continuing retail equipment and system upgrades. On February 10, 1998, the Company completed the purchase of the DeGuelle Assets for $9.75 million. 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 are supplied by the Company's refineries. For the year ended December 31, 1997, prior to the purchase by the Company, these operations had sales of approximately 10.0 million gallons of gasoline and diesel fuel in addition to 35,000 gallons of lubricants. The Ciniza refinery began a major, every four-year, maintenance turnaround in mid-April 1998 that was completed in early June 1998, approximately twenty days beyond the anticipated completion date. The delay in returning to normal operations was due to a number of factors, including but not limited to, unexpected mechanical repairs encountered, problems related to a key contractor and a number of startup problems. During this turnaround, the major operating units at the refinery were inspected and necessary repairs and maintenance performed. In addition to the repair and maintenance procedures, certain other procedures were performed that are expected to increase reformer capacity from 6,700 bbls per day to 7,300 bbls per day. The expansion of the reformer increases the Company's ability to produce high-value products, provides flexibility in gasoline conversion and increases the refinery's capability to process condensate. In June and July 1998, the Company completed the acquisition of the Kaibab Assets for approximately $28.4 million. The assets acquired included thirty-two service station/convenience stores, equipment, fuel truck/transports and undeveloped real estate. In addition, one other unit was leased under an operating lease arrangement for a period of two years. The retail units, located throughout Arizona, include fifteen in the greater Phoenix area and eleven in the Tucson market, with the balance located primarily in southern and eastern Arizona. These units had sales of approximately 70.0 million gallons of refined petroleum products for the fiscal year ended September 30, 1997. Goodwill of approximately $4.6 million was recorded in connection with the acquisition of the Kaibab Assets. On December 31, 1998, the Company, through two of its wholly-owned subsidiaries, Giant Industries Arizona, Inc. and Giant Four Corners, Inc., and Franchise Finance Corporation of America ("FFCA"), completed a sale-leaseback transaction. Under the terms of the Sale and Lease Agreement (the "Agreement"), FFCA purchased eighty-three service station/convenience stores from the Company for approximately $51.8 million, including six of the seven DeGuelle Asset units and twenty-six of the Kaibab Asset units, with the remainder having been acquired as part of the acquisition of the Thriftway Assets in 1997. The Company in turn leased the eighty-three service station/convenience stores back from FFCA under an operating lease arrangement with an initial term of fifteen years and three separate options to continue the lease for successive periods of five years. Initial annual rental payments under the lease agreement are approximately $5.1 million and will be adjusted upward by six percent on the second anniversary of the Agreement and every second anniversary thereafter, on a compounded basis, during the initial lease term and any extension thereof. The Company has a right of first refusal to acquire the leased assets upon an offer to purchase the assets by a third party. Net proceeds to the Company, after expenses, were approximately $50.1 million. The Company recorded a gain of approximately $4.0 million on the sale of the assets. This gain has been deferred and will be amortized over the initial lease period of fifteen years. In accordance with the Indentures supporting the Company's 9% Notes and the $100.0 million of 9 3/4% senior subordinated notes, issued by the Company in 1993 and due 2003 (the "9 3/4% Notes," and collectively with the 9% Notes, the "Notes"), the Company must either use the net proceeds from the FFCA transaction to make a permanent reduction in senior indebtedness (as defined in the respective Indentures), or make an investment in capital assets used in the Company's principal business (as defined in the respective Indentures). The Company has 360 days in which to use the net proceeds for such a purpose under the terms of the Indenture supporting the 9% Notes, and has 270 days under the terms of the Indenture supporting of 9 3/4% Notes. In each case, upon completion of the specified period, if all of the net proceeds have not been used for such a purpose, the Company may be obligated, under certain circumstances, to repurchase the respective senior subordinated notes with the unused portion. The Company anticipates that it will use the net proceeds from the FFCA transaction to invest in capital assets or to reduce senior indebtedness before the applicable periods expire. The Company has budgeted approximately $37.6 million for capital expenditures in 1999, excluding any potential acquisitions. Of this amount, approximately $12.3 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. The remaining budget of $25.3 million is for discretionary projects to sustain or enhance the current level of operations, increase earnings associated with existing or new business and to expand operations. The primary projects in this latter category include the completion of the Terminal, construction or rebuild of retail units, completion of the Mustang/Conoco rebranding and reimaging project, retail site acquisitions, upgrades to existing retail units, capacity enhancement projects at the refineries, and facility and equipment upgrades at the refineries, transportation operations 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 1998, the Company incurred a contingent payment obligation of approximately $2.0 million which will be paid in 1999. This amount has been accrued and allocated to the appropriate assets and will be amortized over their remaining estimated useful lives. The amount of these capital projects that are actually undertaken in 1999 will depend on, among other things, identifying and consummating acceptable acquisitions, general business conditions and results of operations. The Company continues to investigate other strategic acquisitions as well as capital improvements to its existing facilities. The Company is also actively pursuing the possible sale or exchange of non-strategic or underperforming assets. Much of the capital currently planned to be spent by the Company for environmental compliance is integrally related to operations or to operationally required projects. The Company does not specifically identify capital expenditures related to such projects on the basis of whether they are for environmental as opposed to economic purposes. With respect to capital expenditures budgeted primarily to satisfy environmental regulations, the Company estimates that approximately $3.7 million, $0.5 million and $0.7 million was spent in 1998, 1997 and 1996, respectively, and that $2.6 million is expected to be spent in 1999. 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. 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, 1998 and 1997, the Company's long-term debt was 68.9% and 67.4% of total capital, respectively. The Company's net debt (long-term debt less cash and cash equivalents) to total capitalization percentages were 64.0% and 59.1% at December 31, 1998 and 1997, respectively. The Company's capital structure includes the Notes. The Indentures supporting the Notes contain covenants that, among other things, restrict the ability of the Company and its subsidiaries to create liens, incur or guarantee debt, pay dividends, repurchase shares of the Company's common stock, sell certain assets or subsidiary stock, engage in certain mergers, engage in certain transactions with affiliates or alter the Company's current line of business. In addition, subject to certain conditions, the Company is obligated to offer to purchase a portion of the Notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase, with the net cash proceeds of certain sales or other dispositions of assets. Upon a change of control, the Company would be required to offer to purchase all of the Notes at 101% of the principal amount thereof, plus accrued interest, if any, to the date of purchase. At December 31, 1998, the terms of the Indenture supporting the 9 3/4% Notes restricted the amount of money the Company could borrow. This amount is the greater of $40.0 million or the amount determined under a borrowing base calculation tied to eligible accounts receivable and inventories as defined in the Indenture. At December 31, 1998, this amount was approximately $73.5 million. In addition, the Company is not able to make any restricted payments as defined in the Indenture as long as the terms of the Indenture are not met. This includes the payment of dividends and the repurchase of shares of the Company's common stock. Repayment of the Notes is jointly and severally guaranteed on an unconditional basis by the Company's direct and indirect wholly-owned subsidiaries, subject to a limitation designed to ensure that such guarantees do not constitute a fraudulent conveyance. Except as otherwise allowed in the Indentures pursuant to which the Notes were issued, there are no restrictions on the ability of such subsidiaries to transfer funds to the Company in the form of cash dividends, loans or advances. General provisions of applicable state law, however, may limit the ability of any subsidiary to pay dividends or make distributions to the Company in certain circumstances. Separate financial statements of the Company's subsidiaries are not included herein because the aggregate assets, liabilities, earnings, and equity of the subsidiaries are substantially equivalent to the assets, liabilities, earnings, and equity of the Company on a consolidated basis; the subsidiaries are jointly and severally liable for the repayment of the Notes; and the separate financial statements and other disclosures concerning the subsidiaries are not deemed material to investors. On December 23, 1998, the Company entered into a $65.0 million secured Credit Agreement (the "Credit Agreement") due December 23, 2001, with Bank of America National Trust and Savings Association, Union Bank of California, N.A. and Bank One, Arizona, N.A. This Credit Agreement, a revolving loan agreement, is primarily a working capital and letter of credit facility and is secured by eligible accounts receivable and inventories as defined in the Credit Agreement. In addition, the Company is able to borrow up to $9.0 million to exercise its purchase rights in connection with the Thriftway Assets that are currently subject to capital lease obligations, and up to $10.0 million for other acquisitions as defined in the Credit Agreement. The availability of funds under this facility is the lesser of (i) $65.0 million, or (ii) the amount determined under a borrowing base calculation tied to the eligible accounts receivable and inventories. At December 31, 1998, the availability of funds under the Credit Agreement was approximately $49.0 million. There were $24.0 million of direct borrowings outstanding under this facility at December 31, 1998, and there were approximately $12.8 million of irrevocable letters of credit outstanding, primarily to secure purchases of raw materials. At March 1, 1999, no direct borrowings were outstanding and approximately $12.8 million of irrevocable letters of credit were outstanding. The interest rate applicable to the Credit Agreement is tied to various short-term indices. At December 31, 1998, this rate was approximately 6.5% per annum. The Company is required to pay a quarterly commitment fee ranging from 0.325% to 0.500% per annum of the unused amount of the facility. The exact rate depends on meeting certain conditions in the Credit Agreement. The Credit Agreement contains certain covenants and restrictions which require the Company to, among other things, maintain a minimum consolidated net worth, a minimum interest coverage ratio and a maximum capitalization ratio. It also places limits on investments, dispositions of assets, prepayments of senior subordinated debt, guarantees, liens and restricted payments. At December 31, 1998, the Company was in compliance with the Credit Agreement covenants and was not aware of any noncompliance with the other terms of the Credit Agreement. The Credit Agreement is guaranteed by all of the Company's direct and indirect wholly-owned subsidiaries. In connection with the acquisition of the Thriftway Assets in May 1997, the Company recorded approximately $22.9 million of capital lease obligations with an interest rate of 11.3%. During the year ended December 31, 1998, the Company purchased fifty-four of the sixty-four service station/convenience stores subject to these capital lease obligations for approximately $14.7 million, thereby reducing long-term debt. As a result, interest expense will be reduced by approximately $1.7 million per year or $138,000 per month. The Company's Board of Directors has authorized the repurchase of 2.5 million shares of the Company's common stock. Purchases may be made from time to time as conditions permit. Shares may be repurchased through privately-negotiated transactions, block share purchases and open market transactions. During the year ended December 31, 1998, the Company repurchased 154,500 shares at a cost of approximately $1.9 million or $12.30 per share. In October 1998, upon determination that the Company was unable to make restricted payments as defined in the Indenture supporting the 9 3/4% Notes, which is applicable to the repurchase of shares of the Company's common stock, the Company suspended further purchases under the program. From the inception of the stock repurchase program, the Company has repurchased approximately 1.4 million shares for approximately $14.5 million, resulting in a weighted average cost of $10.41 per share. Repurchased shares are available for a number of corporate purposes. The number of shares actually repurchased will be dependent upon market conditions and existing debt covenants, and there is no guarantee as to the exact number of shares to be repurchased by the Company. The Company may discontinue the program at any time without notice. The Company has currently suspended the acquisition of shares of its common stock under this program due to the restriction noted above. For the year ended December 31, 1998, the Company's Board of Directors declared cash dividends on common stock totaling $0.15 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. As long as the Company is unable to make restricted payments, as noted above, it will not be able to declare dividends. OTHER - ----- The Company is exposed to various market risks, including changes in certain commodity prices and interest rates. To manage the volatility relating to these natural business exposures, the Company periodically uses commodity futures and options contracts to reduce price volatility, to fix margins in its refining and marketing operations and to protect against price declines associated with its crude oil and finished products inventories. The potential loss from a hypothetical 10% adverse change in commodity prices on open commodity futures and options at December 31, 1998 would not materially affect the Company's consolidated financial condition and results of operations. Additionally, the Company has a $65,000,000 Credit Agreement that is floating-rate debt tied to various short-term indices. As a result, the Company's annual interest costs associated with this debt will fluctuate. At December 31, 1998, the amount of borrowings under this Credit Agreement were $24,000,000. The potential loss from a hypothetical 10% adverse change in the floating interest rate would not have a material affect on the Company's consolidated financial condition and 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 other companies engaged in similar industries, the Company faces significant exposure from actual or potential claims and lawsuits involving environmental matters. These matters include soil and water contamination, air pollution and personal injuries or property damage allegedly caused by substances manufactured, handled, used, released or disposed of by the Company. Future expenditures related to health and environmental matters cannot be reasonably quantified in many circumstances for various reasons, including the speculative nature of remediation and cleanup cost estimates and methods, imprecise and conflicting data regarding the hazardous nature of various types of substances, the number of other potentially responsible parties involved, various defenses which may be available to the Company and changing environmental laws and interpretations of environmental laws. Rules and regulations implementing federal, state and local laws relating to health and the environment will continue to affect the operations of the Company. The Company cannot predict what health or environmental legislation or regulations will be enacted or become effective in the future or how existing or future laws or regulations will be administered or enforced with respect to products or activities of the Company. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of the regulatory agencies, could have an adverse effect on the financial position and the results of operations of the Company and could require substantial expenditures by the Company for the installation and operation of refinery equipment, pollution control systems and other equipment not currently possessed by the Company. The Company, and several other entities, have received a notice of intent to file suit from the New Mexico Office of the Natural Resources Trustee (the "ONRT") for the recovery of $260.0 million in alleged damages to natural resources, including alleged damages to ground water, surface water and soil. The notice relates to the South Valley Superfund site in Albuquerque, New Mexico. The site allegedly includes contamination that originated from a GE Aircraft Engines/U.S. Air Force facility, as well as contamination that allegedly originated from a petroleum products terminal that was acquired by the Company in 1995 (the "Albuquerque Terminal"). Potentially responsible party liability is joint and several, such that a responsible party may be liable for all natural resources damages at a site even though it was responsible for only a small part of such damages. At the time of purchase by the Company, Texaco Refining and Marketing Inc. ("Texaco") agreed to defend, indemnity, reimburse and hold the Company harmless from and against all claims and damages arising from, or caused by, pre-closing contamination. Texaco has acknowledged its obligation under this agreement, subject to any evidence that the ONRT intends to assess damages for any releases resulting from the Company's operations. The Company believes that any natural resources damages associated with the South Valley Superfund site relate to releases that predate the Company's acquisition of the Albuquerque Terminal and, accordingly, does not believe that it needs to record a liability in connection with this matter. 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 owner of the Landfill, BLM developed a proposed plan of action in 1997, which it projected would 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, 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 BLM. The figure was also based on the consultant's evaluation of such factors as available clean-up technology, BLM's involvement at the site and the number of other entities that may have had involvement at the site, but did not include an analysis of all of the Company's potential legal defenses and arguments, including possible setoff rights. Potentially responsible party liability is joint and several, such that a responsible party may be liable for all of the clean-up costs at a site even though the party was responsible for only a small part of such costs. Although it is possible that the Company may ultimately incur liability for clean-up costs associated with the Landfill, a reasonable estimate of the amount of this liability, if any, cannot be made at this time because, among other reasons, the final site remedy has not been selected, a number of entities had involvement at the site, allocation of responsibility among potentially responsible parties has not yet been made, and potentially-applicable factual and legal issues have not been resolved. Based on current information, the Company does not believe that it needs to record a liability in relation to BLM's proposed plan. The Company is undertaking an investigation into potential lead contamination at a 5.5 acre site that the Company owns in Bloomfield, New Mexico. The investigation arises out of the removal of a 55,000 barrel crude oil storage tank by a contractor. Although it is possible that the Company may ultimately incur liability for lead clean-up costs, a reasonable estimate of the amount of the Company's liability, if any, cannot be made at this time because all potentially-applicable factual and legal issues have not been resolved, including whether there is lead at the site in amounts exceeding applicable remediation levels and whether remediation costs, if any, can be recovered from third parties. The Company has an environmental liability accrual of approximately $2.7 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 $1.9 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 Sheets. 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 Company operations 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 in connection with crude oil removed from properties located within this area. The Company has invoked its appeal rights with the Tribe's Tax Commission in connection with this assessment and intends to oppose the assessment. In November 1998, the Company received a notice of proposed assessment from the Navajo Tribe for an additional $2.1 million involving severance tax issues similar to those raised in connection with the $1.8 million assessment. The Company has responded to the notice of proposed assessment and intends to oppose any final assessment issued by the Navajo Tribe in connection with the area of disputed jurisdiction. Although it is probable that the Company will incur liability in connection with tax notifications and assessments from the Navajo Tribe relating to the area of disputed jurisdiction, it is not possible to reasonably estimate the amount of any obligation for such taxes at this time because the Navajo Tribe's authority to impose taxes throughout this area has not been legally established and all potentially-applicable factual issues have not been resolved. The Company has accrued a liability for assessments that it has received from the Navajo Tribe for substantially less than the amount of the assessments. It is possible that the Company's assessments will have to be litigated by the Company before final resolution. In addition, the Company may receive further tax assessments. The Company may potentially be able to request reimbursement from third party oil lease interest owners in connection with any severance tax amounts ultimately paid by the Company that relate to purchases from them. On April 14, 1998, the Board of Directors of the Company approved an Agreement and Plan of Merger (the "Merger Agreement") whereby Holly Corporation ("Holly") would be merged with and into Giant (the "Merger"). The Merger was subject to various conditions stated in the Merger Agreement. On September 1, 1998, Giant and Holly mutually agreed to terminate the proposed Merger after considering various factors, including the inability of the companies to reach a satisfactory resolution of concerns expressed by the Federal Trade Commission relative to the possible impact of the Merger on portions of the market served by the companies and uncertainty caused by a lawsuit filed against Holly by Longhorn Partners Pipeline, L.P. The Company believes that because of recent low crude oil prices there has been a reduction in field maintenance work and drilling activity in the Four Corners area, which has resulted in a decline in local crude oil production. Based upon history and discussions with local producers, the Company believes that production will increase when crude oil prices recover. In the past, the Company was able to supplement local crude oil supplies and process up to 1,500 bbls per day of Alaska North Slope crude oil ("ANS") through its gathering systems interconnection with the ARCO and Texas-New Mexico common carrier pipeline systems. The Company understands that the ARCO Pipeline mainline, which was used to transport ANS to the Four Corners area, has been sold and is in the process of being converted to a natural gas pipeline. The Company did not purchase any ANS in 1998 and does not expect the loss of this supply source to have a material impact on the Company. Based on projections of local supply availability from the field, which takes into account current low crude oil prices, the Company believes that its refining feedstock needs could exceed the supply of crude oil and other feedstocks that will be available from local sources until crude oil prices recover. The Company believes that any shortfall in local supply can be supplied from other sources and transported to the Four Corners area by pipeline or other transportation means, which could result in higher acquisition costs. There is no assurance that current or projected levels of supply will be maintained. Any significant long-term interruption in crude oil supply, due to prices or other factors, or any significant long-term interruption of crude oil transportation systems, would have an adverse effect on the Company's operations. The Company continues to evaluate supplemental crude oil supply alternatives for its refineries on both a short-term and long-term basis. The Company is aware of a number of actions, proposals or industry discussions regarding product pipeline projects that could impact portions of its marketing areas. One of these projects is the sale and possible conversion and extension of the existing Texas-New Mexico crude oil pipeline to transport refined products from West Texas to New Mexico and ultimately to Salt Lake City, Utah. Separately, an existing natural gas liquids ("NGL") pipeline is in the process of being converted to a refined products pipeline that will be capable of delivering finished product from Southeastern New Mexico to the Albuquerque and Four Corners areas. This conversion is reportedly scheduled for completion in 1999. 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 area 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 areas, as well as allowing additional competitors improved access to these areas. The Company does not presently manufacture gasolines that satisfy Arizona cleaner burning gasoline ("CBG") specifications. The specifications are currently applicable to gasolines sold or used in Maricopa County and a portion of Yavapai County, and are expected to become effective in Pinal County by 2001. The Company operates approximately 20 service stations in these areas, and also conducts wholesale marketing operations there. The Company currently does not intend to make the changes necessary to produce CBG because the capital costs associated with manufacturing large quantities of such gasolines would be significant in amounts not yet determined by the Company. The Company has the ability to purchase or exchange for these gasolines to supply its operations in the CBG areas, including Pinal County. It is possible that additional legislation or regulations affecting motor fuel specifications may be adopted that would impact geographic areas in which the Company markets its products. In 1997, the Company outlined a program for Year 2000 ("Y2K") compliance. The Y2K issue is the result of certain computer systems using a two-digit format rather than four digits to define the applicable year. Such computer systems will be unable to properly interpret dates beyond the year 1999, which could lead to system failure or miscalculations causing disruptions of operations. The Company has identified three major areas determined to be critical for successful Y2K compliance: (1) financial and information system applications, (2) manufacturing and process applications, including embedded chips, and (3) business relationships. The Company has hired an outside consultant to act as its Year 2000 project manager. This consultant is directing the Company's efforts in identifying and resolving Y2K issues pursuant to a five-phase program for Year 2000 compliance. The five phases are as follows: (1) Awareness Phase. This phase included the development of a Project Management Plan ("PMP") to make the Company aware of the Y2K problem, identify potential Y2K issues in all areas of the Company and develop a plan of action to resolve these issues. This phase was completed in July 1998. (2) Assessment Phase. Completed in October 1998, this phase included generating a complete inventory of all software, hardware, processing equipment and embedded chips throughout the entire organization and identifying those items that were Y2K compliant and those that were not. (3) Renovation (Remedy) Phase. In this phase, strategies have been and will be developed for each item inventoried during the assessment phase to determine whether remedial action is required and, if so, whether the item should be eliminated, replaced, or updated. This phase will also include the determination of priorities and scheduling, including contingency plans for all critical items. Although originally scheduled for completion by February 1999, the Company now believes completion of this phase will be in March 1999. (4) Validation (Testing) Phase. In this phase, a test plan is developed and implemented to validate the remedies selected in the previous phase. Although originally scheduled for completion by March 1999, the Company now believes that this phase will be completed in April 1999. (5) Implementation Phase. This phase involves the use of the Y2K compliant inventory, development and implementation of additional plans to avoid Y2K problems and the development and finalizing of contingency plans. Although originally scheduled for completion by April 1999, the Company now believes completion of this phase will be in June 1999. At the present time, approximately 1,500 items have been inventoried consisting of software, hardware, processing equipment and embedded chips. Of these inventoried items, 74% are Y2K compliant, 20% are not compliant and fall into the renovation phase, and 6% are of unknown status or are still being evaluated. The Company believes that none of the items with unknown status and none of those items that are still being evaluated, are critical to the operations of the Company's business. All software, hardware, processing equipment and embedded chips are being prioritized based on critical business functions and the most critical will be scheduled for validation testing and implementation first. In the financial and information system area, the Company's core financial systems are not Y2K compliant, and the Company has begun a program of remediation and replacement utilizing an outside consultant as well as internal staff. The Company had previously indicated that it would be replacing its core financial systems at a cost of approximately $2.5 million. The Company has, however, reevaluated that strategy and determined that renovating the current system provides the least amount of risk in achieving compliance by April 1999. In addition to its core financial systems, certain subsidiary financial systems and other information systems will require replacement or renovation. The Company had previously identified the potential for approximately 4,000 man-hours of work to bring these financial and information systems into compliance at a cost of approximately $0.8 million. During the assessment phase, it was determined that the remediation of the Company's financial and information systems could be accomplished for significantly less than was originally estimated due to the development of a program methodology that simplified the modification of computer software code. Utilizing both internal staff and outside consultants, the remediation and replacement program for the core financial systems is well under way and is on target to meet the April 1999 deadline. To date, 50% of the targeted core financial and other related applications have been renovated, 10% are being replaced and 40% are in the process of being renovated. The Company believes that all critical issues have been identified in the financial and information system area, and that resources are available to bring these systems into compliance by the scheduled completion date. In the manufacturing and process area, the Company has completed an inventory of the software and hardware at all locations (including embedded chips, such as process controllers and chromatographs) and remediation is currently in process. In this area, 85% percent of the processes are compliant, 10% are being renovated and 5% have been scheduled for renovation. The Company believes that all critical issues have been identified in the manufacturing and process area and that resources are available to bring these systems into compliance. Although originally scheduled for completion by April 1999, the Company now believes completion of this phase will be in June 1999. In the business relationship area, the Company continues to correspond with its business partners in order to identify and resolve Y2K issues that may have an impact on operations. The Company has sent compliance questionnaires to over 1,400 business partners, 230 of which have been determined to be critical. The Company continues to follow up with those who have not responded. The critical business partners identified by the Company include, among others, utilities, pipeline companies, terminals, crude oil and other raw material suppliers, certain key customers, financial institutions, insurance companies and employee benefit plan administrators. To date, the Company has received 395 responses to its compliance questionnaires representing approximately 30% of all questionnaires sent. The Company has received responses from 25% of those business partners identified as being critical. The Company has not identified any significant problems relating to the responses it has received and analyzed to date. Remediation of the Y2K items identified by the Company is being accomplished using both internal and external manpower. The Company estimates that the total cost of the Y2K project will be between $600,000 and $800,000. Through December 31, 1998, the Company had expended approximately $300,000. The Company expects to fund its Y2K expenditures from operating cash flows and short-term borrowings if necessary. The total cost associated with required modifications to become Year 2000 compliant is not expected to be significant to the Company's financial position or results of operations. Contingency plans are in the process of being prepared for all of the Company's critical business processes in order to minimize any disruptions in these operations, allowing the Company to continue to function on January 1, 2000 and beyond. These plans are being developed to mitigate both internal risks as well as potential risks in the chain of the Company's suppliers and customers. The Company believes that the contingency planning process will be an ongoing one which will require modifications as the Company obtains additional information from its remediation and testing phases and about the status of third party Y2K readiness. Contingency plans are in various stages of completion. The Company will continue developing these plans over the next three months for all of its business units as it completes the renovation, validation and implementation phases of its Y2K compliance project. The Company continues to assess its most reasonably likely worst case Y2K scenario. It is the Company's belief that the greatest potential risk from the Y2K issue could be the inability of principal suppliers to be Y2K ready. This could result in delays in product deliveries from such suppliers and disruption of the distribution channel, including oil pipelines, transportation vendors and the Company's own distribution centers. Another significant potential risk is the general failure of systems and necessary infrastructure such as electricity supply. Contingency plans will be developed to address these scenarios. The Company believes that completed and planned modifications and replacements of its internal systems and equipment will allow it to be Y2K compliant in a timely manner. Due to the widespread nature of potential Y2K issues, however, there can be no assurance that all of the Company's Y2K issues will be identified and resolved in a timely manner, or that contingency plans will mitigate the effects of any noncompliance. In addition, there can be no assurance that third parties upon which the Company relies will be Y2K compliant in a timely manner or that the third parties' contingency plans will mitigate the effects of any noncompliance. Any significant long-term disruptions to the Company's business caused by noncompliance could have a material adverse effect on the Company's financial position and results of operations. "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 anticipated improvement of the Company's refining margins in 1999; the effects of programs to reduce operating expenses and increase purchasing power on the Company's operating results; the continued impact of the Conoco marketing alliance; the impact of the Company's new Mustang branding strategy and its new jobber/open dealer program; the impact of the mandated use of gasolines satisfying governmentally mandated specifications on the Company's operations; the availability of indemnification from third parties; the expansion of the Company's refining and retail operations through acquisition and construction; the completion of capital projects identified in the 1999 capital budget; the adequacy of the Company's environmental and tax reserves; the Company's ability to recover tax payments from third parties; the adequacy and cost of raw material supplies; the potential effects of various pipeline projects as they relate to the Company's market area and future profitability; the estimated cost of and ability of the Company or third parties on which it relies to become Y2K compliant; risks associated with certain covenants relating to its 9 3/4% Notes and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The information required by this item is incorporated herein by reference to the section entitled "Other" in the Company's Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders Giant Industries, Inc. Scottsdale, Arizona We have audited the accompanying consolidated balance sheets of Giant Industries, Inc. and subsidiaries (the "Company") as of December 31, 1998 and 1997, and the related consolidated statements of earnings (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Phoenix, Arizona March 4, 1999
GIANT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, --------------------- 1998 1997 --------- --------- (In thousands, except share and per share data) ASSETS Current assets: Cash and cash equivalents.......................................... $ 55,697 $ 82,592 Receivables: Trade, less allowance for doubtful accounts of $460 and $464.... 39,050 47,548 Income tax refunds.............................................. 417 248 Other........................................................... 10,728 9,274 --------- --------- 50,195 57,070 --------- --------- Inventories........................................................ 51,349 57,598 Prepaid expenses and other......................................... 7,860 7,016 Deferred income taxes.............................................. 6,625 2,800 --------- --------- Total current assets............................................ 171,726 207,076 --------- --------- Property, plant and equipment........................................ 439,940 402,600 Less accumulated depreciation and amortization..................... (138,008) (120,773) --------- --------- 301,932 281,827 --------- --------- Goodwill, less accumulated amortization of $2,140 and $1,341......... 22,902 18,363 Other assets......................................................... 29,225 28,105 --------- --------- $ 525,785 $ 535,371 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt.................................. $ 1,200 $ 562 Accounts payable................................................... 42,903 55,546 Accrued expenses................................................... 36,519 39,243 --------- --------- Total current liabilities....................................... 80,622 95,351 --------- --------- Long-term debt, net of current portion............................... 282,484 275,557 Deferred income taxes................................................ 26,793 25,887 Other liabilities and deferred income................................ 8,184 5,109 Commitments and contingencies (Notes 17 and 18) 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 shares issued...................... 122 122 Additional paid-in capital......................................... 72,699 72,699 Retained earnings.................................................. 69,391 73,256 --------- --------- 142,212 146,077 Less common stock in treasury - at cost, 1,393,600 and 1,239,100 shares................................... (14,510) (12,610) --------- --------- 127,702 133,467 --------- --------- $ 525,785 $ 535,371 ========= ========= The accompanying notes are an integral part of these consolidated financial statements.
GIANT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) Year Ended December 31, ----------------------------------------- 1998 1997 1996 ----------- ----------- ----------- (In thousands, except per share data) Net revenues....................................... $ 642,504 $ 657,278 $ 499,184 Cost of products sold.............................. 465,605 487,748 361,864 ----------- ----------- ----------- Gross margin....................................... 176,899 169,530 137,320 Operating expenses................................. 102,538 85,177 64,315 Depreciation and amortization...................... 29,166 23,991 17,673 Selling, general and administrative expenses....... 25,288 19,256 15,602 ----------- ----------- ----------- Operating income................................... 19,907 41,106 39,730 Interest expense................................... (25,464) (18,139) (12,318) Interest and investment income..................... 1,831 2,133 771 ----------- ----------- ----------- Earnings (loss) from continuing operations before income taxes.............................. (3,726) 25,100 28,183 Provision (benefit) for income taxes............... (1,509) 9,806 11,132 ----------- ----------- ----------- Earnings (loss) from continuing operations......... (2,217) 15,294 17,051 Discontinued operations: Loss on disposal of oil and gas operations (net of taxes)...................... (13) ----------- ----------- ----------- Net earnings (loss)................................ $ (2,217) $ 15,294 $ 17,038 =========== =========== =========== Earnings (loss) per common share - basic: Continuing operations............................ $ (0.20) $ 1.38 $ 1.52 Discontinued operations.......................... ----------- ----------- ----------- Net earnings (loss).............................. $ (0.20) $ 1.38 $ 1.52 =========== =========== =========== Earnings (loss) per common share - assuming dilution: Continuing operations............................ $ (0.20) $ 1.37 $ 1.50 Discontinued operations.......................... ----------- ----------- ----------- Net earnings (loss).............................. $ (0.20) $ 1.37 $ 1.50 =========== =========== =========== The accompanying notes are an integral part of these consolidated financial statements.
GIANT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Unearned compen- Common stock sation Total ---------------- Additional related to Treasury stock stock- Shares Par paid-in Retained restricted ------------------- holders' issued value capital earnings stock Shares Cost equity ---------- ----- ---------- -------- ---------- --------- --------- -------- (In thousands, except number of shares) Balances, January 1, 1996....... 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 - $0.20 per share............. (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 - $0.20 per share............. (2,208) (2,208) Net earnings.................... 15,294 15,294 ---------- ---- ------- ------- ------ --------- -------- -------- Balances, December 31, 1997..... 12,232,367 122 72,699 73,256 1,239,100 (12,610) 133,467 Purchase of treasury stock...... 154,500 (1,900) (1,900) Dividends declared - $0.15 per share............. (1,648) (1,648) Net loss........................ (2,217) (2,217) ---------- ---- ------- ------- ------ --------- -------- -------- Balances, December 31, 1998..... 12,232,367 $122 $72,699 $69,391 $ 1,393,600 $(14,510) $127,702 ========== ==== ======= ======= ====== ========= ======== ======== 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, -------------------------------- 1998 1997 1996 -------- -------- -------- (In thousands) Cash flows from operating activities: Net earnings (loss)........................................... $ (2,217) $ 15,294 $ 17,038 Adjustments to reconcile net earnings (loss) to net cash provided by continuing operating activities: Loss from discontinued operations.......................... 13 Depreciation and amortization.............................. 29,166 23,991 17,673 Deferred income taxes...................................... (2,920) 5,681 6,514 Restricted stock award compensation........................ 163 Other...................................................... 445 (1,756) 543 Changes in operating assets and liabilities: Decrease (increase) in receivables....................... 7,028 (7,876) (6,718) Decrease (increase) in inventories....................... 5,811 (13,494) 4,355 (Increase) decrease in prepaid expenses and other........ (867) (156) 647 (Decrease) increase in accounts payable.................. (12,596) 2,784 1,644 Increase in accrued expenses............................. 3,042 6,824 883 -------- -------- -------- Net cash provided by continuing operating activities............ 26,892 31,292 42,755 -------- -------- -------- Cash flows from investing activities: Acquisition of businesses, net of cash received............... (38,205) (47,168) Purchases of property, plant and equipment and other assets... (60,320) (35,752) (27,468) Refinery acquisition contingent payment....................... (7,243) (6,910) Proceeds from sale-leaseback transaction...................... 50,124 Proceeds from sale of property, plant and equipment and other assets.................................. 3,816 4,606 4,587 Investment in note receivable................................. (5,000) Proceeds from sale of discontinued operations................. 24,106 Net cash used by discontinued operations...................... (3,831) -------- -------- -------- Net cash used by investing activities........................... (56,828) (85,224) (2,606) -------- -------- -------- Cash flows from financing activities: Proceeds of long-term debt.................................... 46,000 283,100 10,000 Payments of long-term debt.................................... (38,435) (151,924) (42,218) Purchase of treasury stock.................................... (1,900) (1,825) (2,784) Deferred financing costs...................................... (425) (3,319) Payment of dividends.......................................... (2,199) (2,218) (2,284) Proceeds from exercise of stock options....................... 82 216 -------- -------- -------- Net cash provided (used) by financing activities................ 3,041 123,896 (37,070) -------- -------- -------- Net (decrease) increase in cash and cash equivalents............ (26,895) 69,964 3,079 Cash and cash equivalents: Beginning of year............................................. 82,592 12,628 9,549 -------- -------- -------- End of year................................................... $ 55,697 $ 82,592 $ 12,628 ======== ======== ========
Significant Noncash Investing and Financing Activities. During 1998, approximately $2,039,000 was incurred as a contingent payment related to the 1995 acquisition of the Bloomfield refinery. 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. 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'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. The Company has two operating refineries in New Mexico. The Ciniza refinery, with a crude oil throughput capacity of 20,800 barrels per day ("bpd") and a total capacity including natural gas liquids of 26,000 bpd, is located near Gallup, New Mexico. In October 1995, the Company acquired the Bloomfield refinery, with a crude oil throughput capacity of 18,000 bpd and a total capacity including natural gas liquids of 18,600 bpd, located in Bloomfield, New Mexico. At December 31, 1998, the Company owned and/or operated 166 retail service station/convenience stores and a travel center. These operations sell gasoline, diesel fuel and merchandise to the general public. In addition, through Phoenix Fuel, the largest independent petroleum products distributor in the state of Arizona, the Company distributes gasoline, diesel fuel and various lubricants to industrial and commercial accounts. (See Notes 2 and 3 for further discussion of operations and recent acquisitions and dispositions.) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Giant and all of its subsidiaries. All significant intercompany accounts and transactions have been eliminated. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. NET REVENUES Revenues are recognized from sales when product ownership is transferred to the customer. Excise and other similar taxes are excluded from net revenues. STATEMENTS OF CASH FLOWS All highly liquid instruments with an original maturity of three months or less are considered to be cash equivalents. 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. 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 lubricants, 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 2,500,000 shares of the Company's common stock. These purchases may be made from time to time as conditions permit. Shares may be repurchased through privately-negotiated transactions, block share purchases and open market transactions. Through the end of 1998, the Company had repurchased 1,393,600 shares at a cost of approximately $14,510,000. These shares are being treated as treasury shares. At December 31, 1998, the Company was unable to repurchase additional shares of common stock under this program due to restrictions under the Indenture supporting its 9 3/4% senior subordinated notes. ENVIRONMENTAL EXPENDITURES Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable and the costs can be reasonably estimated. Environmental liabilities are not discounted to their present value and are recorded without consideration of potential recoveries from third parties. Subsequent adjustments to estimates, which may be significant, may be made as more refined information becomes available or as circumstances change. (See Note 18.) INCOME TAXES The provision for income taxes is based on earnings reported in the financial statements. Deferred income taxes are provided to reflect temporary differences between the basis of assets and liabilities for financial reporting purposes and income tax purposes, as well as the effects of tax credits. EARNINGS (LOSS) PER COMMON SHARE Earnings (loss) per share are calculated in accordance with the Financial Accounting Standards Board ("FASB") SFAS No. 128, "Earnings Per Share". Basic earnings (loss) per common share is computed on the weighted average number of shares of common stock outstanding during each period. Earnings (loss) 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, unless such calculation is antidilutive. (See Note 5.) NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which will be effective for Giant's financial statements as of January 1, 2000. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that entities record all derivatives as either assets or liabilities, measured at fair value, with any change in fair value recognized in earnings or in other comprehensive income, depending on the use of the derivative and whether it qualifies for hedge accounting. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency- denominated forecasted transaction. Under this Statement, an entity that elects to apply hedge accounting is required to establish at the inception of the hedge the method it will use for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. Those methods must be consistent with the entity's approach to managing risk. The Company has not completed evaluating the effects this Statement will have on its financial reporting and disclosures. In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information", which is effective for fiscal 1998. This Statement establishes standards for the way that public enterprises report information about operating segments in annual and interim financial statements. It also establishes standards for disclosures about products and services, geographic areas and major customers. The Company has implemented this Statement and the required disclosures are made in Note 2. In June 1997, the FASB also issued SFAS No. 130, "Reporting Comprehensive Income", which became effective in fiscal 1998. 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. The Company has adopted this statement, but has no items of other comprehensive income for the periods presented in these financial statements. RECLASSIFICATIONS Certain reclassifications have been made to the 1997 and 1996 financial statements and notes to conform to the statement classifications used in 1998. NOTE 2--COMPANY OPERATIONS: In 1997, the FASB issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information", which the Company implemented effective December 31, 1998. This Statement establishes new standards for defining the Company's segments and disclosing information about them. It requires that the segments be based on management's internal organizational decision-making structure. The Company is organized into three operating segments based on manufacturing and marketing criteria. These segments are the Refining Group, the Retail Group and Phoenix Fuel. A description of each segment and principal products and operations are as follows: -- Refining Group: The Refining Group consists of the Company's two refineries, its fleet of crude oil and finished product truck transports, its crude oil pipeline gathering operations and its finished product terminaling operations. The Company's two refineries manufacture various grades of gasoline, diesel fuel, jet fuel and other products from crude oil, other feedstocks and blending components. These products are sold through company-operated retail facilities, independent wholesalers and retailers, industrial/commercial accounts and sales and exchanges with major oil companies. Crude oil, other feedstocks and blending components are purchased from third party suppliers. -- Retail Group: The Retail Group consists of service station/convenience stores and one travel center. These operations sell various grades of gasoline, diesel fuel, general merchandise and food products to the general public through retail locations. The petroleum fuels sold by the Retail Group are supplied by the Refining Group, which either manufactures these refined products or acquires them through exchange arrangements, third party purchases, or from Phoenix Fuel. General merchandise and food products are obtained from third party suppliers. -- Phoenix Fuel: Phoenix Fuel is an industrial/commercial petroleum fuels and lubricants distribution operation, which includes a number of bulk distribution plants, an unattended fleet fueling ("cardlock") operation and a fleet of finished product truck transports. The petroleum fuels and lubricants sold are primarily obtained from third party suppliers and to a lesser extent from the Refining Group. Operations that are not included in any of the three segments are included in the category "Other" and consist primarily of corporate office operations, including selling, general and administrative expenses of $24,412,000, $17,863,000 and $16,125,000 for 1998, 1997 and 1996, respectively. Operating income for each segment consists of net revenues less cost of products sold, operating expenses, depreciation and amortization and the segment's selling, general and administrative expenses. The sales between segments are made at market prices. Cost of products sold reflect current costs adjusted for LIFO and lower of cost or market inventory adjustments. The total assets of each segment consist primarily of net property, plant and equipment, inventories, accounts receivable and other assets directly associated with the segment's operations. Included in the total assets of the corporate office operations are a majority of the Company's cash and cash equivalents, various accounts receivable, net property, plant and equipment and other long-term assets. Disclosures regarding the Company's reportable segments under SFAS No. 131 with reconciliations to consolidated totals are presented on the following page.
SEGMENT DISCLOSURES: As of and for the Year Ended December 31, 1998 (In thousands) ----------------------------------------------------------------- Refining Retail Phoenix Reconciling Group Group Fuel Other Items Consolidated -------- -------- -------- ------- ----------- ------------ Customer net revenues............... $181,033 $271,775 $189,168 $ 528 $642,504 Intersegment net revenues........... 131,599 1,876 7,343 $(140,818) -------- -------- -------- -------- --------- -------- Total net revenues.................. $312,632 $273,651 $196,511 $ 528 $(140,818) $642,504 -------- -------- -------- -------- --------- -------- Operating income.................... $ 24,994 $ 14,017 $ 4,780 $(23,884) $ 19,907 Interest expense.................... (25,464) Interest income..................... 1,831 -------- Loss from continuing operations before income taxes..... $ (3,726) -------- Depreciation and amortization....... $ 14,305 $ 9,298 $ 1,976 $ 3,587 $ 29,166 Total assets........................ $241,898 $123,086 $ 64,315 $ 96,486 $525,785 Capital expenditures................ $ 40,763 $ 16,325 $ 2,180 $ 934 $ 60,202
As of and for The Year Ended December 31, 1997 (In thousands) ----------------------------------------------------------------- Refining Retail Phoenix Reconciling Group Group Fuel Other Items Consolidated -------- -------- -------- ------- ----------- ------------ Customer net revenues............... $309,940 $214,864 $132,047 $ 427 $657,278 Intersegment net revenues........... 118,748 1,994 4,496 $(125,238) -------- -------- -------- -------- --------- -------- Total net revenues.................. $428,688 $216,858 $136,543 $ 427 $(125,238) $657,278 -------- -------- -------- -------- --------- -------- Operating income.................... $ 47,873 $ 7,155 $ 3,514 $(17,436) $ 41,106 Interest expense.................... (18,139) Interest income..................... 2,133 -------- Earnings from continuing operations before income taxes..... $ 25,100 -------- Depreciation and amortization....... $ 13,740 $ 6,494 $ 935 $ 2,822 $ 23,991 Total assets........................ $229,663 $128,200 $ 65,227 $112,281 $535,371 Capital expenditures................ $ 19,366 $ 11,790 $ 1,696 $ 2,343 $ 35,195
As of and for The Year Ended December 31, 1996 (In thousands) ----------------------------------------------------------------- Refining Retail Phoenix Reconciling Group Group Fuel Other Items Consolidated -------- -------- -------- ------- ----------- ------------ Customer net revenues............... $339,479 $159,332 $ 373 $499,184 Intersegment net revenues........... 97,933 1,456 $ (99,389) -------- -------- -------- -------- --------- -------- Total net revenues.................. $437,412 $160,788 $ 373 $ (99,389) $499,184 -------- -------- -------- -------- --------- -------- Operating income.................... $ 51,835 $ 3,647 $(15,752) $ 39,730 Interest expense.................... (12,318) Interest income..................... 771 -------- Earnings from continuing operations before income taxes..... $ 28,183 -------- Depreciation and amortization....... $ 11,690 $ 4,215 $ 1,768 $ 17,673 Capital expenditures................ $ 12,354 $ 14,018 $ 704 $ 27,076 The Company had no customers whose revenues exceeded 10% of consolidated net revenues.
NOTE 3--ACQUISITIONS AND DISPOSITIONS: In February 1998, the Company purchased seven service station/convenience stores, two cardlock commercial fleet fueling facilities, a gasoline and diesel storage bulk plant and related transportation equipment from DeGuelle Oil Company and DeGuelle Enterprises (the "DeGuelle Assets") for $9,750,000. All of the facilities are located in southwestern Colorado and are supplied by the Company's refineries. For the fiscal year ended December 31, 1997, prior to the purchase by the Company, these operations had sales of approximately 10,000,000 gallons of gasoline and diesel fuel in addition to 35,000 gallons of lubricants. In April 1998, the Board of Directors of the Company approved an Agreement and Plan of Merger (the "Merger Agreement") whereby Holly Corporation ("Holly") would be merged with and into Giant (the "Merger"). The Merger was subject to various conditions stated in the Merger Agreement. On September 1, 1998, Giant and Holly mutually agreed to terminate the proposed Merger after considering various factors, including the inability of the companies to reach a satisfactory resolution of concerns expressed by the Federal Trade Commission relative to the possible impact of the Merger on portions of the market served by the companies and uncertainty caused by a lawsuit filed against Holly by Longhorn Partners Pipeline, L.P. For the year ended December 31, 1998, the Company wrote off approximately $1,400,000 of costs incurred in connection with the proposed Merger. These costs were primarily for fees paid to investment bankers, attorneys, accountants and regulatory agencies, and printing and distribution costs related to documents delivered to shareholders. In July 1998, the Company completed the acquisition of thirty-two service station/convenience stores, equipment, fuel truck/transports, and undeveloped real estate from Kaibab Industries, Inc. (the "Kaibab Assets") for approximately $28,400,000. The retail units, located throughout Arizona, include fifteen in the greater Phoenix area and eleven in the Tucson market, with the balance located primarily in southern and eastern Arizona. These units had sales of approximately 70,000,000 gallons of refined petroleum products for the fiscal year ended September 30, 1997. In May 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"). The assets were acquired from Thriftway Marketing Corp. and Clayton Investment Company and from entities related to such sellers (collectively, "Thriftway"). Thirty-two of the Thriftway service station/convenience stores, as well as the seven retail locations for future development, the transportation and maintenance assets, the options to acquire service station/convenience stores and other related assets were purchased for approximately $19,100,000 in cash and for an office building and a truck maintenance shop with net book values totaling approximately $1,300,000. The remaining sixty-four service station/convenience stores and related assets were leased for a period of ten years with options to purchase them during the ten year period for approximately $22,904,000. The lease obligations were accounted for as capital leases. During 1998, the Company purchased fifty-four of these retail service station/convenience stores for approximately $14,669,000. The remaining 10 stores continue to be leased under the original terms, and the Company intends to purchase them pursuant to the options to purchase during the remaining lease period for approximately $8,235,000. The service station/convenience stores acquired from Thriftway are retail outlets that sell various grades of gasoline, diesel fuel and merchandise to the general public and are located in New Mexico, Arizona, Colorado and Utah, in or adjacent to the Company's primary market area. The Company also entered into a consignment agreement with Thriftway to supply finished product to sixteen service station/convenience stores operated by Thriftway which are located on the Navajo, Ute and Zuni Indian Reservations and 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. 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. Sixteen of these units and two of the additional retail locations were sold in early 1998 for approximately $1,700,000. In June 1997, the Company purchased all of the issued and outstanding common stock of Phoenix Fuel from J. W. Wilhoit, as Trustee of the Wilhoit Trust Agreement dated December 26, 1974 and other related entities for approximately $30,000,000 in cash. Phoenix Fuel is an independent industrial/commercial petroleum products distributor with wholesale and cardlock fuel sales. Products sold include gasoline, diesel fuel, burner fuel, jet fuel, aviation fuel and kerosene. In addition, Phoenix Fuel distributes oil and lubricants such as motor oil, hydraulic oil, gear oil, cutting oil and grease. At December 31, 1998, Phoenix Fuel had eight bulk petroleum distribution plants, twenty-one cardlock fueling operations, a lubricant storage and distribution facility and operated a fleet of thirty-four finished product truck transports. These assets and related operations are located throughout the state of Arizona. All of the acquisitions have been accounted for using the purchase method. Accordingly, the Company's purchase price has been allocated to acquired assets and assumed liabilities based on estimated fair values. Results of operations of the acquired businesses from their respective dates of acquisition have been included in the Company's Consolidated Statements of Earnings (Loss) for the years ended December 31, 1998 and 1997. The Company recorded goodwill of approximately $17,000,000 for the acquisition of Phoenix Fuel, $4,600,000 for the acquisition of the Kaibab Assets and $1,700,000 for the acquisition of the Thriftway Assets. The Company is amortizing goodwill related to the Phoenix Fuel acquisition over 30 years and goodwill related to the Kaibab and Thriftway Assets over 15 years. The Thriftway and Phoenix Fuel acquisitions were funded under the Company's unsecured credit agreement, as amended, with a group of banks. This facility was replaced in 1998 with a secured credit agreement. The amounts borrowed were subsequently repaid with the issuance of $150,000,000 of 9% senior subordinated notes (the "9% Notes") in August 1997. The proceeds of the 9% Notes were also used for the DeGuelle and Kaibab acquisitions and the purchase of the assets related to the Thriftway capital lease obligations. The following unaudited pro forma information for the years ended December 31, 1998 and 1997 combine the historical financial information for the Company, the Kaibab Assets, the DeGuelle Assets, the Thriftway Assets and Phoenix Fuel assuming these 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 10, assuming such transaction had occurred at the beginning of the periods. The unaudited pro forma information includes the results of operations of the Company, the Kaibab Assets, the DeGuelle Assets, the Thriftway Assets and Phoenix Fuel, along with adjustments which give effect to events that are directly attributable to the transactions and which are expected to have a continuing impact.
Pro Forma (Unaudited, In thousands, except per share data) ------------------------ 1998 1997 ---------- ---------- Net revenues....................................................... $668,506 $904,229 Earnings (loss) from continuing operations before income taxes..... $ (2,163) $ 26,759 Net earnings (loss)................................................ $ (1,279) $ 16,298 Net earnings (loss) per common share - basic....................... $ (0.12) $ 1.47 Net earnings (loss) per common share - assuming dilution........... $ (0.12) $ 1.46
This unaudited pro forma financial information does not purport to represent the results of operations that actually would have resulted had the purchases occurred on the date specified, nor should it be taken as indicative of the future results of operations. In December 1998, the Company and Franchise Finance Corporation of America ("FFCA") completed a sale-leaseback transaction. Under the terms of the Sale and Lease Agreement (the "Agreement"), FFCA purchased eighty-three service station/convenience stores from the Company for approximately $51,800,000, including six of the seven DeGuelle Asset units and twenty-six of the Kaibab Asset units, with the remainder having been acquired as part of the acquisition of the Thriftway Assets. The Company in turn leased the eighty-three service station/convenience stores back from FFCA under an operating lease arrangement with an initial term of fifteen years and three separate options to continue the lease for successive periods of five years. Initial annual rental payments under the lease agreement are approximately $5,100,000 and will be adjusted upward by six percent on the second anniversary of the Agreement and every second anniversary thereafter, on a compounded basis, during the initial lease term and any extension thereof. The Company has a right of first refusal to acquire the leased assets upon an offer to purchase the assets by a third party. Net proceeds to the Company, after expenses, were approximately $50,100,000. The Company recorded a gain of approximately $4,000,000 on the sale of the assets. This gain has been deferred and will be amortized over the initial lease period of fifteen years. The deferred gain is included in "Other Liabilities and Deferred Income" in the Company's Consolidated Balance Sheet at December 31, 1998. In accordance with the Indentures supporting the Company's 9% Notes and $100,000,000 of 9 3/4% senior subordinated notes (the "9 3/4% Notes", and collectively with the 9% Notes, the "Notes"), the Company must either use the net proceeds from the FFCA transaction to make a permanent reduction in senior indebtedness (as defined in the respective Indentures), or make an investment in capital assets used in the Company's principal business (as defined in the respective Indentures). The Company has 360 days in which to use the net proceeds for such a purpose under the terms of the Indenture supporting the 9% Notes, and has 270 days under the terms of the Indenture supporting the 9 3/4% Notes. In each case, upon completion of the specified period, if all of the net proceeds have not been used for such a purpose, the Company may be obligated, under certain circumstances, to repurchase the respective Notes with the unused portion. The Company anticipates that it will use the net proceeds from the FFCA transaction to invest in capital assets or to reduce senior indebtedness before the applicable periods expire. In December 1997, the Company completed the sale of its ethanol processing plant in Portales, New Mexico for $4,000,000 in cash. The Company incurred a pretax loss of approximately $1,200,000 on the disposition. 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. In October 1995, the Company completed the purchase of the Bloomfield refinery along with related pipeline and transportation assets for $55,000,000 from Gary-Williams Energy Co. and its wholly-owned subsidiary, Bloomfield Refining Company ("BRC"). The purchase agreement provides for potential contingent payments to be made to BRC over approximately six years from the acquisition date, 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, 1998, 1997 and 1996, the Company had accrued $2,039,000, $7,243,000, and $6,910,000, respectively, under this arrangement relating to 1998, 1997 and 1996 operations. In addition, the Company accrued $2,250,000 in 1996 relating to certain environmental obligations assumed in the purchase, which amount was also considered to be additional purchase price. NOTE 4--DISCONTINUED OPERATIONS: In August 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 would generate future coal seam gas tax credits under Section 29 of the Internal Revenue Code. As the reserves related to these properties are produced by the buyer, the tax credits generated are realized by the Company and can be used to offset taxable income. NOTE 5--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 earnings (loss) from continuing operations as required by SFAS No. 128:
Year Ended December 31, ---------------------------------------------------------------------------------------------------- 1998 1997 1996 -------------------------------- -------------------------------- -------------------------------- Per Per Per Loss Shares Share Earnings Shares Share Earnings Shares Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------- ------ ----------- ------------- ------ ----------- ------------- ------ Earnings (loss) per common share - basic Earnings (loss) from continuing operations $(2,217,000) 10,950,991 $(0.20) $15,294,000 11,050,853 $1.38 $17,051,000 11,220,380 $1.52 Effect of dilutive stock options * 124,041 115,964 ----------- ---------- ------ ----------- ---------- ----- ---------- ---------- ----- Earnings (loss) per common share - assuming dilution Earnings (loss) from continuing operations $(2,217,000) 10,950,991 $(0.20) $15,294,000 11,174,894 $1.37 $17,051,000 11,336,344 $1.50 =========== ========== ====== =========== ========== ===== ========== ========== =====
*The additional shares would be antidilutive due to the net loss. There were no transactions subsequent to December 31, 1998, that if the transactions had occurred before December 31, 1998, would materially change the number of common shares or potential common shares outstanding as of December 31, 1998. NOTE 6 NOTE RECEIVABLE: During the year ended December 31, 1998, the Company loaned $5,000,000 to its Chairman and Chief Executive Officer. The Company's initial loan in the amount of $4,000,000 was subsequently increased by $1,000,000. The loan is evidenced by an unsecured promissory note bearing interest at prime plus 2% on $4,000,000 from September 17, 1998 through December 22, 1998, and prime plus 3% on $5,000,000 thereafter. An initial interest payment was paid on February 28, 1999 for interest due through December 31, 1998. Subsequent interest is due and payable semi-annually on each June 30 and December 31 of each year until February 28, 2001, at which time all outstanding principal and interest is fully due and payable. This loan is included in "Other Assets" in the Company's Consolidated Balance Sheet at December 31, 1998. NOTE 7--INVENTORIES: Inventories consist of the following:
December 31, ------------------- 1998 1997 ------- ------- (In thousands) First-in, first-out ("FIFO") method: Crude oil.............................. $ 8,419 $12,736 Refined products....................... 17,956 25,562 Refinery and shop supplies............. 9,648 7,530 Merchandise............................ 4,568 4,640 Retail method: Merchandise............................ 7,460 5,840 ------- ------- Subtotal............................ 48,051 56,308 Adjustment for last-in, first-out ("LIFO") method.............. 14,758 4,220 Allowance for lower of cost or market.... (11,460) (2,930) ------- ------- Total............................... $51,349 $57,598 ======= =======
The portion of inventories valued on a LIFO basis totaled $30,423,000 and $37,714,000 at December 31, 1998 and 1997, 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, 1998, 1997 and 1996, net earnings and basic earnings per share for the years ended December 31, 1998, 1997 and 1996 would have been (lower) higher by $(777,000) and $(0.07), $(3,705,000) and $(0.34), and $2,883,000 and $0.26, respectively. NOTE 8--PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment, at cost, consist of the following:
December 31, --------------------- 1998 1997 --------- --------- (In thousands) Land and improvements......................... $ 28,321 $ 29,354 Buildings and improvements.................... 92,701 96,817 Machinery and equipment....................... 246,615 203,726 Pipelines..................................... 10,088 9,789 Furniture and fixtures........................ 23,108 28,658 Vehicles...................................... 10,160 10,620 Construction in progress...................... 28,947 23,636 --------- --------- Subtotal.................................. 439,940 402,600 Accumulated depreciation and amortization..... (138,008) (120,773) --------- --------- Total..................................... $ 301,932 $ 281,827 ========= =========
NOTE 9--ACCRUED EXPENSES: Accrued expenses are comprised of the following:
December 31, ----------------- 1998 1997 ------- ------- (In thousands) Excise taxes......................................... $12,264 $ 9,926 Bloomfield refinery acquisition contingent payment... 2,039 7,243 Payroll and related costs............................ 6,082 5,240 Bonus, profit sharing and retirement plans........... 2,725 2,880 Interest............................................. 6,364 6,223 Other................................................ 7,045 7,731 ------- ------- Total $36,519 $39,243 ======= =======
NOTE 10--LONG-TERM DEBT: Long-term debt consists of the following:
December 31, --------------------- 1998 1997 -------- -------- (In thousands) 9% senior subordinated notes, due 2007, interest payable semi-annually........................ $150,000 $150,000 9 3/4% senior subordinated notes, due 2003, interest payable semi-annually.................. 100,000 100,000 Secured credit agreement, due 2001, floating interest rate, interest payable quarterly............. 24,000 Capital lease obligations, 11.3%, due through 2007, interest payable monthly........................ 8,235 22,904 Notes payable to others, collateralized by real estate, 9 3/4%, due 1999, interest payable monthly.............................. 950 1,193 Other................................................... 499 2,022 -------- -------- Subtotal............................................ 283,684 276,119 Less current portion.................................... (1,200) (562) -------- -------- Total............................................... $282,484 $275,557 ======== ========
During August 1997, the Company issued the 9% Notes. 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. The remaining proceeds of approximately $73,200,000 were used for the purchase of service station/convenience stores subject to capital lease obligations, for the acquisition of the Kaibab and DeGuelle Assets, and 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 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. Separate financial statements of the Company's subsidiaries are not included herein because the aggregate assets, liabilities, earnings and equity of the subsidiaries are substantially equivalent to the assets, liabilities, earnings and equity of the Company on a consolidated basis; the subsidiaries are jointly and severally liable for repayment of the Notes; and the separate financial statements and other disclosures concerning the subsidiaries are not deemed material to investors. The Indentures supporting the Notes contain restrictive covenants that, among other things, restrict the ability of the Company and its subsidiaries to create liens, to incur or guarantee debt, to pay dividends, to repurchase shares of the Company's common stock, to sell certain assets or subsidiary stock, to engage in certain mergers, to engage in certain transactions with affiliates or to alter the Company's current line of business. At December 31, 1998, the Company was in compliance with the covenants relating to the 9% Notes, but was not in compliance with the covenants relating to the 9 3/4% Notes. At December 31, 1998, the terms of the Indenture supporting the 9 3/4% Notes restricted the amount of money the Company could borrow. This amount is the greater of $40,000,000 or the amount determined under a borrowing base calculation tied to eligible accounts receivable and inventories as defined in the Indenture. At December 31, 1998, this amount was approximately $73,500,000. In addition, the Company is not able to make any restricted payments as defined in the Indenture as long as the terms of the Indenture are not met. This includes the payment of dividends and the repurchase of shares of the Company's common stock. In addition, subject to certain conditions, the Company is obligated to offer to purchase a portion of the Notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase, with the net cash proceeds of certain sales or other dispositions of assets. Upon a change of control, the Company would be required to offer to purchase all of the Notes at 101% of the principal amount thereof, plus accrued interest, if any, to the date of purchase. At December 31, 1998, retained earnings available for dividends under the most restrictive terms of the Indentures was approximately $8,626,000. On December 23, 1998, the Company entered into a $65,000,000 secured Credit Agreement (the "Credit Agreement") due December 23, 2001, with Bank of America National Trust and Savings Association, Union Bank of California, N.A. and Bank One, Arizona, N.A. This Credit Agreement, a revolving loan agreement, is primarily a working capital and letter of credit facility and is secured by eligible accounts receivable and inventories as defined in the Credit Agreement. In addition, the Company is able to borrow up to $9,000,000 to exercise its purchase rights in connection with the Thriftway Assets that are currently subject to capital lease obligations, and up to $10,000,000 for other acquisitions as defined in the Credit Agreement. The availability of funds under this facility is the lesser of (i) $65,000,000, or (ii) the amount determined under a borrowing base calculation tied to the eligible accounts receivable and inventories. At December 31, 1998, the availability of funds under the Credit Agreement was approximately $49,000,000. There were $24,000,000 of direct borrowings outstanding under this facility at December 31, 1998, and there were approximately $12,800,000 of irrevocable letters of credit outstanding, primarily to secure purchases of raw materials. At March 1, 1999, no direct borrowings were outstanding and approximately $12,800,000 of irrevocable letters of credit were outstanding. The interest rate applicable to the Credit Agreement is tied to various short-term indices. At December 31, 1998, this rate was approximately 6.5% per annum. The Company is required to pay a quarterly commitment fee ranging from 0.325% to 0.500% per annum of the unused amount of the facility. The exact rate depends on meeting certain conditions in the Credit Agreement. The Credit Agreement contains certain covenants and restrictions which require the Company to, among other things, maintain a minimum consolidated net worth, a minimum interest coverage ratio, and a maximum capitalization ratio. It also places limits on investments, dispositions of assets, prepayments of senior subordinated debt, guarantees, liens and restricted payments. At December 31, 1998, the Company was in compliance with the Credit Agreement covenants and was not aware of any noncompliance with the other terms of the Credit Agreement. The Credit Agreement is guaranteed by all of the Company's direct and indirect wholly-owned subsidiaries. In 1997, as part of the acquisition of the Thriftway Assets, the Company leased sixty-four service stations/convenience stores for a period of ten years with options to purchase the assets during the ten year period for approximately $22,904,000. During 1998, the Company purchased fifty-four of these retail service station/convenience stores for approximately $14,669,000. The remaining ten stores continue to be leased under the original terms and the Company intends to purchase them pursuant to options to purchase during the remaining lease period for approximately $8,235,000. The remaining lease obligations of $8,235,000 are being accounted for as capital leases and require annual lease payments of approximately $931,000, all of which are recorded as interest expense. Assets associated with these lease obligations of approximately $7,576,000 are included in property, plant and equipment. Accumulated depreciation as of December 31, 1998 of $1,056,000 is related to these assets. Assets of $659,000, primarily liquor licenses, are included in other assets. Aggregate annual maturities of long-term debt as of December 31, 1998 are: 1999 - $1,200,000; 2000 - $24,116,000; 2001 - $63,000; 2002 - $25,000; 2003 - $100,028,000; and all years thereafter - $158,252,000. NOTE 11--FINANCIAL INSTRUMENTS AND HEDGING ACTIVITY: The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" and SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments." The estimated fair value amounts have been determined by the Company using available market information and valuation methodologies described below. Considerable judgment is required, however, in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein may not be indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. The carrying amounts and estimated fair values of the Company's financial instruments are as follows:
December 31, ------------------------------------------ 1998 1997 -------------------- -------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value -------- ---------- -------- ---------- (In thousands) Balance Sheet--Financial Instruments: Fixed rate long-term debt... $251,449 $231,778 $253,180 $256,536
The carrying values of cash and cash equivalents, receivables, accounts payable and accrued expenses approximate fair values due to the short-term maturities of these instruments. Variable rate long-term debt instruments are estimated to approximate fair values as rates are tied to short-term indices. The Company also has a long-term note receivable with a related party which, due to its recent issuance, has a carrying value that approximates fair value. FIXED RATE LONG-TERM DEBT The fair value of fixed rate long-term debt was determined using quoted market prices, where applicable, or estimated by discounting future cash flows using rates estimated to be currently available for debt of similar terms and remaining maturities. HEDGING ACTIVITIES From time to time, the Company enters into futures and options contracts to reduce price volatility, to fix margins in its refining and marketing operations and to protect against price declines for inventory volumes. These contracts permit settlement by delivery of commodities and, therefore, are not financial instruments as defined by SFAS No. 105. The Company uses these contracts in its hedging activities. At December 31, 1998, the Company's hedging activities included open futures contracts maturing in 1999 covering 78,000 barrels of heating oil. In addition, the Company had outstanding options covering 700,000 barrels of crude oil. These options expired with a realized premium of $177,000 in January 1999. At December 31, 1997, the Company's hedging activities included open futures contracts maturing in 1998 covering 42,000 barrels of crude oil and 36,000 barrels of heating oil. The futures and options contracts generally qualify as hedges and any gains or losses resulting from market changes are substantially offset by losses or gains on the Company's hedging contracts. Gains and losses on hedging contracts are deferred and reported as a component of the related transaction. Gains and losses from market changes on contracts not qualifying for hedge accounting are recognized in operations. Net deferred losses for the Company's petroleum hedging activities were approximately $159,000 and $199,000 at December 31, 1998 and 1997, respectively. The Company is exposed to loss in the event of nonperformance by the other parties to these contracts. The Company does not anticipate, however, nonperformance by the counterparties. NOTE 12--INCOME TAXES: The provision (benefit) for income taxes is comprised of the following:
Year Ended December 31, ------------------------------- 1998 1997 1996 ------- ------- ------- (In thousands) Current: Federal................. $ 1,406 $ 3,367 $ 3,712 State................... 5 758 906 Deferred: Federal................. (2,787) 4,689 5,471 State................... (133) 992 1,043 ------- ------- ------- $(1,509) $ 9,806 $11,132 ======= ======= =======
Income taxes paid in 1998, 1997 and 1996 were $1,468,000, $2,785,000 and $8,909,000, respectively. A reconciliation of the difference between the provision (benefit) for income taxes and income taxes at the statutory U.S. federal income tax rate is as follows:
Year Ended December 31, ------------------------------- 1998 1997 1996 ------- ------- ------- (In thousands) Income taxes at the statutory U.S. federal income tax rate..... $(1,304) $ 8,785 $ 9,864 Increase (decrease) in taxes resulting from: State taxes, net............... (135) 1,191 1,346 General business credits, net.. (182) (100) Other, net..................... 112 (70) (78) ------- ------- ------- $(1,509) $ 9,806 $11,132 ======= ======= =======
Deferred income taxes are provided to reflect temporary differences in the basis of net assets for income tax and financial reporting purposes, as well as available tax credit carryforwards. The tax effected temporary differences and credit carryforwards which comprise deferred taxes are as follows:
December 31, 1998 December 31, 1997 ------------------------------ ------------------------------- Assets Liabilities Total Assets Liabilities Total ------- ----------- -------- ------- ------------ -------- (In thousands) (In thousands) Nondeductible accruals for uncollectible receivables..... $ 111 $ 111 $ 128 $ 128 Insurance accruals.............. 915 915 555 555 Insurance settlements........... 273 273 189 189 Other reserves.................. 611 611 546 546 Inventory costs capitalized for income tax purposes....... 246 246 198 198 Nondeductible accrual for lower of cost or market adjustment to inventory....... 4,469 4,469 1,184 1,184 ------- -------- -------- ------- -------- -------- Total current............... 6,625 6,625 2,800 2,800 ------- -------- -------- ------- -------- -------- Other nondeductible accruals.... 382 $ (388) (6) 428 $ (281) 147 Accelerated plant costs......... (944) (944) (1,348) (1,348) Operating lease................. (783) (783) (863) (863) Accelerated depreciation........ (33,806) (33,806) (30,465) (30,465) Other........................... (1,601) (1,601) 14 (1,658) (1,644) Tax credit carryforwards........ 10,347 10,347 8,286 8,286 ------- -------- -------- ------- -------- -------- Total noncurrent............ 10,729 (37,522) (26,793) 8,728 (34,615) (25,887) ------- -------- -------- ------- -------- -------- Total....................... $17,354 $(37,522) $(20,168) $11,528 $(34,615) $(23,087) ======= ======== ======== ======= ======== ========
At December 31, 1998, the Company had a minimum tax credit carryforward of approximately $6,992,000 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, 1998, the Company also had approximately $56,000 in state net operating loss carryforwards available. At December 31, 1998, the Company had approximately $3,299,000 of general business credits available to offset future regular taxes payable. Pursuant to Federal income tax law, these carryover credits must be used before any minimum tax credit carryforward can be used. Of the total general business credits available, $432,000 will expire in 2008, $1,344,000 will expire in 2009, $1,154,000 will expire in 2010, $98,000 will expire in 2011, $89,000 will expire in 2012 and $182,000 will expire in 2013. NOTE 13--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, 1998 and 1997, the ESOP's assets included 1,149,739 and 1,222,150 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 Company's Board of Directors. The Company made contributions of $0, $536,000, and $450,000 to the ESOP for 1998, 1997 and 1996, 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. In the first quarter of 1999, the Company made contributions totaling $3,000,000 to the ESOP for the fiscal year ending December 31, 1999. These contributions were made to, among other things, provide an incentive for employees to focus on achieving the Company's strategic goals for 1999. Allocation of this amount to participants' accounts will be made as of December 31, 1999. NOTE 14--401(k) PLAN: The Company has a 401(k) retirement plan for its employees. During 1998, eligible employees could make contributions to the plan, on a pretax basis, equal to a maximum of 12% of their annual compensation. The Company will match the employee's contributions at a rate of 50% up to a maximum of 6% of the employee's annual compensation. For the years ended December 31, 1998, 1997, and 1996, the Company expensed $1,300,000, $930,000, and $800,000, respectively, for matching contributions under this plan. For 1999, the maximum contribution that eligible employees can make to the plan was increased to 15% of their annual compensation. The Company's matching contribution remained unchanged. NOTE 15--STOCK INCENTIVE PLANS: At a Special Meeting of Stockholders held on June 26, 1998, the stockholders of the Company approved the Giant Industries, Inc. 1998 Stock Incentive Plan (the "1998 Plan"). Under the 1998 Plan, shares of the Company's common stock are authorized to be issued to deserving employees in the form of options, appreciation rights, restricted shares, performance shares or performance units, all as defined in the 1998 Plan. Appreciation rights, performance shares and performance units may be settled in cash, common shares of the Company or any combination thereof. The total number of shares available for grant under the 1998 Plan during 1998 was 440,000 shares. Thereafter, commencing January 1, 1999 and continuing through the term of the plan, 2% of the total number of common shares outstanding as of the first day of each calendar year are available for grant, subject to a 400,000 share annual limitation on the number of common shares available for the grant of options that are intended to qualify as "incentive stock options" under Section 422 of the Internal Revenue Code. Common shares available for grant in any particular calendar year which are not, in fact, granted in such year cannot be added to the common shares available for grant in any subsequent calendar year. Through December 31, 1998, no grants had been made under the 1998 Plan. The 1998 Plan provides that all grants are subject to restrictions, conditions and terms more specifically described in the 1998 Plan, including, but not limited to, the exercise price for stock options and appreciation rights and time vesting requirements for all awards. In general, the 1998 Plan provides that grants of stock options and appreciation rights must expire no more than 10 years from the date of grant. In addition, all grants under the 1998 Plan are subject to forfeiture under certain circumstances, and all unvested awards may vest immediately under various circumstances defined in the 1998 Plan. Under the Company's 1989 Stock Incentive Plan (the "1989 Plan"), 500,000 shares of the Company's common stock were authorized to be issued to deserving employees in the form of options and/or restricted stock. At December 31, 1998, there were no shares available for future grants under the 1989 Plan. All of the options or restricted stock grants under the 1989 plan are subject to forfeiture under certain circumstances. The options and restricted stock generally vest 14% to 33% annually beginning one year after the date of grant. All options were granted at or above fair market value at the date of grant and expire on the tenth anniversary of the grant date. All unvested awards under the 1989 Plan may vest immediately under various circumstances defined in the 1989 Plan. The following summarizes stock option transactions under the 1989 Plan:
WEIGHTED AVERAGE EXERCISE Options outstanding at SHARES PRICE - ---------------------- -------- -------- January 1, 1996 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 Granted.............................. 177,401 9.34 Forfeited............................ (2,000) 5.25 ------- December 31, 1998...................... 431,408 $8.80 ======= Options exercisable at December 31: 1998................................. 254,007 $8.43 1997................................. 256,007 8.40 1996................................. 256,573 8.44
The following summarizes information about stock options outstanding under the 1989 Plan at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------- --------------------- WEIGHTED WEIGHTED AVERAGE WEIGHTED AVERAGE REMAINING AVERAGE EXERCISE NUMBER CONTRACTUAL NUMBER EXERCISE PRICE OUTSTANDING LIFE EXERCISABLE PRICE -------- ----------- ----------- ----------- -------- $ 8.96 108,857 0.5 Years 108,857 $ 8.96 10.50 5,000 1.6 Years 5,000 10.50 10.63 26,000 2.2 Years 26,000 10.63 5.25 27,400 3.3 Years 27,400 5.25 7.75 76,750 4.3 Years 76,750 7.75 9.81 10,000 5.2 Years 10,000 9.81 9.34 177,401 9.6 Years ------- ------- $ 8.80 431,408 5.3 Years 254,007 $ 8.43 ======= =======
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock Based Compensation." The Company has determined that it will not change to the fair value method prescribed in the Statement and will continue to use Accounting Principles Board Opinion No. 25 for measurement and recognition of employee stock based compensation. The Company has adopted the disclosure-only provisions of SFAS No. 123. If the Company had elected to recognize compensation costs based on the fair value at the date of grant for awards granted in 1998, consistent with the provisions of SFAS No. 123, the Company's net loss and loss per share for the year ended December 31, 1998, would have increased by less than $33,000 and $0.005 per share. The pro forma effects of applying SFAS No. 123 in this disclosure are not indicative of future amounts. The estimated weighted average fair values of options granted during 1998 were $5.40 per share, and were estimated using the Black-Scholes option-pricing model. The risk-free interest rate applied for 1998 was 6%. The following assumptions were used in the model: (i) expected dividend yield of 1.2%, (ii) expected volatility rate of 38%, and (iii) expected lives ranging from 4 years to 10 years. NOTE 16 PHANTOM STOCK PLAN: On December 11, 1997, the Board of Directors of the Company adopted the Giant Industries, Inc. 1998 Phantom Stock Plan (the "Phantom Stock Plan") to become effective on January 30, 1998. Under the Phantom Stock Plan, a total of 250,000 Phantom Stock units were authorized for issuance to deserving employees. Each Phantom Stock unit is equivalent to one share of the Company's common stock. Upon exercise of each Phantom Stock unit, the recipient is entitled to receive an amount equal in value to the sum of: (i) 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 (ii) all dividends attributable to one share of stock during the period from grant until exercise, which sum is multiplied by the number of shares in respect to which the Phantom Stock unit is being exercised. The amount received may be paid in cash, common stock of the Company, or any combination thereof. In 1998, a total of 100,000 Phantom Stock units were granted to two employees of the Company. A grant of 25,000 units to each individual was made at an exercise price of $12.00 per unit and a separate grant of 25,000 units to each individual was made at $18.50 per unit. At December 31, 1998, the ending stock price was lower than the exercise price for all outstanding grants. At December 31, 1998, 30,000 Phantom Stock units had vested and were exercisable. The remaining units vest in varying amounts, and at various times, through December 31, 2001. All grants of Phantom Stock units expire on the tenth anniversary of the date of grant and are subject to forfeiture under certain circumstances. All unvested awards under the Phantom Stock Plan may vest immediately under various circumstances defined in the Phantom Stock Plan. NOTE 17--INTEREST, OPERATING LEASES AND RENT EXPENSE: Interest paid and capitalized for 1998 was $25,358,000 and $373,000, for 1997 was $13,075,000 and $333,000 and for 1996 was $12,804,000 and $43,000, respectively. As discussed in Note 3, on December 31, 1998, the Company and FFCA completed a sale-leaseback transaction. Under the terms of the Agreement, FFCA purchased eighty-three service station/convenience stores from the Company for approximately $51,800,000. The Company in turn leased the eighty-three service station/convenience stores back from FFCA under an operating lease arrangement with an initial term of fifteen years and three separate options to continue the lease for successive periods of five years. Initial annual rental payments under the lease agreement are approximately $5,100,000 and will be adjusted upward by six percent on the second anniversary of the Agreement and every second anniversary thereafter, on a compounded basis, during the initial lease term and any extension thereof. The Company has a right of first refusal to acquire the leased assets upon an offer to purchase the assets by a third party. 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, 1998 as follows:
Land, building, machinery and equipment leases ------------------------- (In thousands) 1999................................. $ 8,810 2000................................. 8,415 2001................................. 7,787 2002................................. 6,950 2003................................. 6,444 2004-2013............................ 67,931 -------- Total minimum payments required.... $106,337 ========
Total rent expense was $5,624,000, $3,354,000 and $1,930,000 for 1998, 1997 and 1996, respectively. NOTE 18--COMMITMENTS AND CONTINGENCIES: Various legal actions, claims, assessments and other contingencies arising in the normal course of the Company's business, including those matters described below, are pending against the Company and certain of its subsidiaries. Certain of these matters involve or may involve significant claims for compensatory, punitive or other damages. These matters are subject to many uncertainties, and it is possible that some of these matters could be ultimately decided, resolved or settled adversely. The Company has recorded accruals for losses related to those matters that it considers to be probable and that can be reasonably estimated. Although the ultimate amount of liability at December 31, 1998, which may result from these matters is not ascertainable, the Company believes that any amounts exceeding the Company's recorded accruals should not materially affect the Company's financial condition. It is possible that the ultimate resolution of these matters could result in a material adverse effect on the Company's results of operations for a particular reporting period. Federal, state and local laws and regulations relating to health and the environment affect nearly all of the operations of the Company. As is the case with all companies engaged in similar industries, the Company faces significant exposure from actual or potential claims and lawsuits involving environmental matters. These matters include soil and water contamination, air pollution and personal injuries or property damage allegedly caused by substances manufactured, handled, used, released or disposed of by the Company. Future expenditures related to health and environmental matters cannot be reasonably quantified in many circumstances for various reasons, including the speculative nature of remediation and clean-up cost estimates and methods, imprecise and conflicting data regarding the hazardous nature of various types of substances, the number of other potentially responsible parties involved, various defenses which may be available to the Company and changing environmental laws and interpretations of environmental laws. The Company, and several other entities, have received a notice of intent to file suit from the New Mexico Office of the Natural Resources Trustee (the "ONRT") for the recovery of $260,000,000 in alleged damages to natural resources, including alleged damages to ground water, surface water and soil. The notice relates to the South Valley Superfund site in Albuquerque, New Mexico. The site allegedly includes contamination that originated from a GE Aircraft Engines/U.S. Air Force facility, as well as contamination that allegedly originated from a petroleum products terminal that was acquired by the Company in 1995 (the "Albuquerque Terminal"). Potentially responsible party liability is joint and several, such that a responsible party may be liable for all natural resources damages at a site even though it was responsible for only a small part of such damages. At the time of purchase by the Company, Texaco Refining and Marketing Inc. ("Texaco") agreed to defend, indemnify, reimburse and hold the Company harmless from and against all claims and damages arising from, or caused by, pre-closing contamination. Texaco has acknowledged its obligation under this agreement, subject to any evidence that the ONRT intends to assess damages for any releases resulting from the Company's operations. The Company believes that any natural resources damages associated with the South Valley Superfund site relate to releases that predate the Company's acquisition of the Albuquerque Terminal and, accordingly, does not believe that it needs to record a liability in connection with this matter. 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 owner of the Landfill, BLM developed a proposed plan of action in 1997, which it projected would cost approximately $3,900,000 to implement. This cost projection is based on certain assumptions which may or may not prove to be correct and is contingent on confirmation that the remedial actions, once implemented, are adequately addressing Landfill contamination. For example, if assumptions regarding groundwater mobility and contamination levels are incorrect, BLM is proposing to take additional remedial actions with an estimated cost of approximately $1,800,000. In 1989, a consultant to the Company estimated, based on various assumptions, that the Company's share of potential liability could be approximately $1,200,000. This figure was based upon estimated Landfill remediation costs significantly higher than those being proposed by BLM. The figure was also based on the consultant's evaluation of such factors as available clean-up technology, BLM's involvement at the site and the number of other entities that may have had involvement at the site, but did not include an analysis of all of the Company's potential legal defenses and arguments, including possible setoff rights. Potentially responsible party liability is joint and several, such that a responsible party may be liable for all of the clean-up costs at a site even though the party was responsible for only a small part of such costs. Although it is possible that the Company may ultimately incur liability for clean-up costs associated with the Landfill, a reasonable estimate of the amount of this liability, if any, cannot be made at this time because, among other reasons, the final site remedy has not been selected, a number of entities had involvement at the site, allocation of responsibility among potentially responsible parties has not yet been made, and potentially-applicable factual and legal issues have not been resolved. Based on current information, the Company does not believe that it needs to record a liability in relation to BLM's proposed plan. The Company is undertaking an investigation into potential lead contamination at a 5.5 acre site that the Company owns in Bloomfield, New Mexico. The investigation arises out of the removal of a 55,000 barrel crude oil storage tank by a contractor. Although it is possible that the Company may ultimately incur liability for lead clean-up costs, a reasonable estimate of the amount of the Company's liability, if any, cannot be made at this time because all potentially-applicable factual and legal issues have not been resolved, including whether there is lead at the site in amounts exceeding applicable remediation levels and whether remediation costs, if any, can be recovered from third parties. The Company has an environmental liability accrual of approximately $2,700,000. Approximately $800,000 relates to ongoing environmental projects, including the remediation of a hydrocarbon plume that appears to extend no more than 1,800 feet south of the inactive Farmington refinery and hydrocarbon contamination on and adjacent to 5.5 acres the Company owns in Bloomfield, New Mexico. The remaining $1,900,000 relates to an originally estimated liability of approximately $2,300,000, recorded in the second quarter of 1996, for certain environmental obligations assumed in the acquisition of the Bloomfield refinery. That amount was recorded as an adjustment to the purchase price and allocated to the assets acquired. The environmental accrual is recorded in the current and long-term sections of the Company's Consolidated Balance Sheets. 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 Company operations 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 in connection with crude oil removed from properties located within this area. The Company has invoked its appeal rights with the Tribe's Tax Commission in connection with this assessment and intends to oppose the assessment. In November 1998, the Company received a notice of proposed assessment from the Navajo Tribe for an additional $2,100,000 involving severance tax issues similar to those raised in connection with the $1,800,000 assessment. The Company has responded to the notice of proposed assessment and intends to oppose any final assessment issued by the Navajo Tribe in connection with the area of disputed jurisdiction. Although it is probable that the Company will incur liability in connection with tax notifications and assessments from the Navajo Tribe relating to the area of disputed jurisdiction, it is not possible to reasonably estimate the amount of any obligation for such taxes at this time because the Navajo Tribe's authority to impose taxes throughout this area has not been legally established and all potentially-applicable factual issues have not been resolved. The Company has accrued a liability for assessments that it has received from the Navajo Tribe for substantially less than the amount of the assessments. It is possible that the Company's assessments will have to be litigated by the Company before final resolution. In addition, the Company may receive further tax assessments. The Company may potentially be able to request reimbursement from third party oil lease interest owners in connection with any severance tax amounts ultimately paid by the Company that relate to purchases from them. NOTE 19--QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
Year Ended December 31, 1998 ------------------------------------------- Quarter ------------------------------------------- First(1) Second(1) Third(1) Fourth(1) -------- --------- -------- ---------- (In thousands, except per share data) Continuing Operations: Net revenues................................................ $145,716 $157,014 $167,461 $172,313 Cost of products sold....................................... 105,752 112,748 119,139 127,966 -------- -------- -------- -------- Gross margin................................................ 39,964 44,266 48,322 44,347 -------- -------- -------- -------- Operating expenses.......................................... 24,893 24,261 26,424 26,960 Depreciation and amortization............................... 6,789 6,774 7,664 7,939 Selling, general and administrative expenses................ 5,815 6,237 7,485(2) 5,751(2) Net earnings (loss)......................................... (1,682) 759 421 (1,715) Net earnings (loss) per common share - basic................ $ (0.15) $ 0.07 $ 0.04 $ (0.16) Net earnings (loss) per common share - assuming dilution.... $ (0.15) $ 0.07 $ 0.04 $ (0.16) Dividends declared per common share......................... $ 0.05 $ 0.05 $ 0.05
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 Dividends declared per common share......................... $ 0.05 $ 0.05 $ 0.05 $ 0.05
(1) The results of operations of the Acquisitions are included from the date of purchase. (See Note 3.) (2) Selling, general and administrative expenses include costs associated with the terminated merger with Holly Corporation of approximately $1,053,000 and $302,000 in the third and fourth quarters of 1998, respectively. 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 6, 1999 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 29, 1999. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information concerning the Company's directors required by this Item is incorporated by reference to the information contained in the Proxy Statement under the caption "Election of Directors". The information concerning the Company's executive officers required by this Item is incorporated by reference to the section in Part I hereof entitled "Executive Officers of the Registrant", following Item 4. The information concerning compliance with Section 16(a) of the Exchange Act required by this Item is incorporated by reference to the information contained in the Proxy Statement under the caption "Section 16(a) Beneficial Ownership Reporting Compliance". ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to the information contained in the Proxy Statement under the captions "Election of Directors", "Executive Compensation", "Compensation Committee Report on Executive Compensation" and "Compensation Committee Interlocks and Insider Participation". ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to the information contained in the Proxy Statement under the captions "Election of Directors", "Security Ownership of Management" and "Shares Owned by Certain Shareholders". ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference to the information contained in the Proxy Statement under the captions "Compensation Committee Interlocks and Insider Participation", "Certain Transactions" and "Indebtedness of Management". PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) The following financial statements are included in Item 8: (i) Independent Auditors' Report (ii) Consolidated Balance Sheets - December 31, 1998 and 1997 (iii) Consolidated Statements of Earnings (Loss) - Years ended December 31, 1998, 1997 and 1996 (iv) Consolidated Statements of Stockholders' Equity - Years ended December 31, 1998, 1997 and 1996 (v) Consolidated Statements of Cash Flows - Years ended December 31, 1998, 1997 and 1996 (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, 1998, 1997 and 1996 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 - ------- ----------- 10.6 Giant Industries, Inc., 1998 Phantom Stock Plan. Incorporated by reference to Exhibit 10.31 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-10398. 10.7 Giant Industries, Inc. 1998 Stock Incentive Plan. Incorporated by reference to Appendix H to the Joint Proxy Statement/Prospectus included in the Company's Registration Statement on Form S-4 under the Securities Act of 1933 as filed May 4, 1998, File No. 333-51785. 10.8 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. 10.9 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. 10.10 Amended 1988 Restricted Stock Plan of Registrant. Incorporated by reference to Exhibit 10.3 to Form S-1. 10.11 1989 Stock Option Plan of the Company. Incorporated by reference to Exhibit 10.4 to Form S-1. 10.16 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. 10.17 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. 10.18 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. 10.19 Second Amendment to the Giant Industries, Inc. and Affiliated Companies 401(k) Plan, dated December 31, 1997. Incorporated by reference to Exhibit 10.30 to the Company's Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-10398. 10.20 Third Amendment to the Giant Industries, Inc. and Affiliated Companies 401(k) Plan effective July 1, 1998, dated December 10, 1998. 10.21 Fourth Amendment to the Giant Industries, Inc. and Affiliated Companies 401(k) Plan effective January 1, 1999, dated December 10, 1998. 10.45 Employment Agreement, dated as of December 11, 1997, between James E. Acridge and the Company. Incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-10398. 10.46 Employment Agreement, dated as of December 11, 1997, between Fredric L. Holliger and the Company. Incorporated By reference to Exhibit 10.24 to the Company's Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-10398. 10.47 Employment Agreement, dated as of December 11, 1997, between Morgan Gust and the Company. Incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-10398. _________________________________ Form S-1--Refers to the Form S-1 Registration Statement under the Securities Act of 1933 as filed October 16, 1989, File No. 33-31584. (b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the fourth quarter of the fiscal year ended December 31, 1998. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. GIANT INDUSTRIES, INC. By: /s/ James E. Acridge ------------------------------ James E. Acridge Chairman of the Board, President and Chief Executive Officer March 30, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ James E. Acridge - --------------------------------------- James E. Acridge, Chairman of the Board, President, Chief Executive Officer and Director March 30, 1999 /s/ Fredric L. Holliger - --------------------------------------- Fredric L. Holliger, Executive Vice President, Chief Operating Officer and Director. March 30, 1999 /s/ Mark B. Cox - --------------------------------------- Mark B. Cox, Vice President, Treasurer, Financial Officer and Assistant Secretary March 30, 1999 /s/ Gary R. Dalke - --------------------------------------- Gary R. Dalke, Vice President, Controller, Accounting Officer and Assistant Secretary March 30, 1999 /s/ Anthony J. Bernitsky - --------------------------------------- Anthony J. Bernitsky, Director March 30, 1999 /s/ F. Michael Geddes - --------------------------------------- F. Michael Geddes, Director March 30, 1999 /s/ Harry S. Howard, Jr. - --------------------------------------- Harry S. Howard, Jr., Director March 30, 1999 /s/ Richard T. Kalen, Jr. - --------------------------------------- Richard T. Kalen, Jr., Director March 30, 1999 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, 1998 and 1997, and for each of the three years in the period ended December 31, 1998, and have issued our report thereon dated March 4, 1999; 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 4, 1999 S-1 SCHEDULE II GIANT INDUSTRIES, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts Three years ended December 31, 1998 (In thousands)
Charged Balance at (credited) Balance beginning to costs at end of period and expenses Deduction(b) of period ---------- ------------ --------- --------- Year ended December 31, 1998: Allowance for doubtful accounts.... $464 $227 $(231) $460 ==== ==== ===== ==== Year ended December 31, 1997: Allowance for doubtful accounts.... $254 $281 $ (71) $464 ==== ==== ===== ==== Year ended December 31, 1996: Allowance for doubtful accounts.... $424 $(30)(a) $(140) $254 ==== ==== ===== ==== (a) Includes an adjustment of $100,000 in 1996 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
GIANT INDUSTRIES, INC. ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 1998 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 Definitive Agreement, dated April 18, 1997, by and between Giant Four Corners, Inc., as "Buyer", and Thriftway Marketing Corp. and Clayton Investment Company, collectively, as "Seller". Incorporated by reference to Exhibit 2.1 to the Company's Report on Form 8-K for the period May 28, 1997, File No. 1-10398. 2.2 Stock Purchase Agreement, dated April 30, 1997, by and among Phoenix Fuel Co., Inc., (the "Company", J. W. Wilhoit, as Trustee of the Wilhoit Trust Agreement Dated 12/26/74, Katherine C. Lahowetz, as Trustee of the Theresa Ann Wilhoit Grantor Retained Annuity Trust Dated 4/4/97, Katherine C. Lahowetz, and Katherine C. Lahowetz, as Custodian for the Benefit of Emily Lahowetz, a minor (collectively, the "Shareholders") and Giant Industries Arizona, Inc., (the "Purchaser"). Incorporated by reference to Exhibit 2.1 to the Company's Report on Form 8-K for the period June 3, 1997, File No. 1-10398. 3.1 Restated Certificate of Incorporation of Giant Industries, Inc., a Delaware corporation. Incorporated by reference to Exhibit 3.1 to Amendment No. 3. 3.2 Bylaws of Giant Industries, Inc., a Delaware corporation. 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 Annual 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 Annual 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 Annual 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 Annual 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. Incorporated by reference to Exhibit 3.17 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 1997, File No. 1-10398. 3.18 Amended Bylaws of Phoenix Fuel Co., Inc. Incorporated by reference to Exhibit 3.18 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 1997, File No. 1-10398. 3.19** Articles of Incorporation of DeGuelle Oil Company. 3.20** Bylaws of DeGuelle Oil Company. 4.1 Indenture, dated as of November 29, 1993 among the Company, as Issuer, the Subsidiary Guarantors, as guarantors, and NBD Bank, National Association, as Trustee, relating to $100,000,000 of 9 3/4% Senior Subordinated Notes due 2003. Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated November 29, 1993, File No. 1-10398. 4.2 Indenture, dated as of August 26, 1997, among the Company, as Issuer, the Subsidiary Guarantors, as guarantors, and The Bank of New York, as Trustee, relating to $150,000,000 of 9% Senior Subordinated Notes due 2007. Incorporated by reference to Exhibit 4.8 to the Company's Registration Statement on Form S-4 under the Securities Act of 1933 as filed October 9, 1997, File No. 333-37561. 10.1** Credit Agreement, dated December 23, 1998, among Giant Industries, Inc., the Financial Institutions parties hereto and Bank of America National Trust and Savings Association, as Administrative Agent and as Letter of Credit Issuing Bank. 10.2 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. 10.3 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. 10.4 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. 10.5 Third Amendment, dated as of August 25, 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., Ciniza Production Company and Phoenix Fuel Co., Inc., as Guarantors, and Bank of America National Trust and Savings Association, as Agent, Bank of America National Trust and Savings Association (successor to Bank of America Illinois, as Issuing Bank and as a Bank, The 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 10.1 to the Company's Report on Form 10-Q for the quarter ended March 31, 1998, File No. 1-10398. 10.6 Giant Industries, Inc., 1998 Phantom Stock Plan. Incorporated By reference to Exhibit 10.31 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-10398. 10.7 Giant Industries, Inc. 1998 Stock Incentive Plan. Incorporated by reference to Appendix H to the Joint Proxy Statement/Prospectus included in the Company's Registration Statement on Form S-4 under the Securities Act of 1933 as filed May 4, 1998, File No. 333-51785. 10.8 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. 10.9 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. 10.10 Amended 1988 Restricted Stock Plan of the Company. Incorporated by reference to Exhibit 10.3 Form S-1. 10.11 1989 Stock Option Plan of the Company. Incorporated by reference to Exhibit 10.4 to Form S-1. 10.12 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. 10.13 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. 10.14 Tenth Amendment of the Employee Stock Ownership Plan and Trust Agreement of Giant Industries, Inc. and Affiliated Companies dated December 15, 1997. Incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-10398. 10.15** Eleventh Amendment of the Employee Stock Ownership Plan and Trust Agreement of Giant Industries, Inc. and Affiliated Companies dated March 24, 1998. 10.16 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. 10.17 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. 10.18 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. 10.19 Second Amendment to the Giant Industries, Inc. and Affiliated Companies 401(k) Plan, dated December 31, 1997. Incorporated by reference to Exhibit 10.30 to the Company's Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-10398. 10.20** Third Amendment to the Giant Industries, Inc. and Affiliated Companies 401(k) Plan effective July 1, 1998, dated December 10, 1998. 10.21** Fourth Amendment to the Giant Industries, Inc. and Affiliated Companies 401(k) Plan effective January 1, 1999, dated December 10, 1998. 10.22 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. 10.23 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. 10.24** Real Estate Purchase Agreement dated October 5, 1997 between Pinnacle Sonoran Desert Properties, L.L.C. ("Seller") and Giant Industries Arizona, Inc. ("Purchaser"). 10.25** Amendment to Real Estate Purchase Agreement dated October 5, 1997 between Pinnacle Sonoran Desert Properties, L.L.C. ("Seller") and Giant Industries Arizona, Inc. ("Purchaser") dated October 16, 1997. 10.26** Second Amendment to Real Estate Purchase Agreement dated October 5, 1997 between Pinnacle Sonoran Desert Properties, L.L.C. ("Seller") and Giant Industries Arizona, Inc. ("Purchaser") dated April 21, 1998. 10.27 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. 10.28 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. 10.29** Retail Lease dated July 1, 1998, between Pinnacle Citadel LLC ("Landlord") and Giant Industries Arizona, Inc. ("Tenant"). 10.30** Retail Lease dated July 1, 1998, between Pinnacle Citadel LLC ("Landlord") and Giant Industries Arizona, Inc. ("Tenant"). 10.31** Retail Sublease dated July 1, 1998 between Giant Industries Arizona, Inc. ("Lessor") and Pinnacle Inn at the Citadel LLC ("Tenant"). 10.32** Sale and Lease Agreement dated December 31, 1998, by and among FFCA Capital Holding Corporation ("Buyer") and Giant Industries Arizona, Inc. and Giant Four Corners, Inc. (individually called "Seller" and collectively called "Sellers"). 10.33 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. 10.34** Agreement dated September 17, 1998 between James E. Acridge ("Borrower") and Giant Industries, Inc. ("Lender"). 10.35** Promissory Note for $4,000,000 dated September 17, 1998, from James E. Acridge to Giant Industries, Inc. 10.36** Modification Agreement to Promissory Note for $4,000,000, dated September 17, 1998, from James E. Acridge to Giant Industries, Inc., dated December 23, 1998. 10.37** Amended and Restated Promissory Note for $5,000,000 dated December 23, 1998, from James E. Acridge to Giant Industries, Inc. 10.38 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. 10.39 Promissory Note for $825,000, dated December 20, 1988, from JEA to Metlife. Incorporated by reference to Exhibit 10.39 to Form S-1. 10.40 Promissory Note for $750,000, dated December 28, 1987, from JEA to Metlife. Incorporated by reference to Exhibit 10.40 to Form S-1. 10.41 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. 10.42* 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 Annual Report on Form 10-K for fiscal year ended December 31, 1994, File No. 1-10398. 10.43 Registration Rights Agreement, dated as of August 21, 1997, among the Company, the Initial Purchasers and the Subsidiary Guarantors. Incorporated by reference to Exhibit 10.31 to the Company's Registration Statement on Form S-4 under the Securities Act of 1933 as filed October 9, 1997, File No. 333-37561. 10.44 Purchase Agreement, dated August 21, 1997, among the Company, the Initial Purchasers and the Subsidiary Guarantors. Incorporated by reference to Exhibit 10.32 to the Company's Registration Statement on Form S-4 under the Securities Act of 1933 as filed October 9, 1997, File No. 333-37561. 10.45 Employment Agreement, dated as of December 11, 1997, between James E. Acridge and the Company. Incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-10398. 10.46 Employment Agreement, dated as of December 11, 1997, between Fredric L. Holliger and the Company. Incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-10398. 10.47 Employment Agreement, dated as of December 11, 1997, between Morgan Gust and the Company. Incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-10398. 10.48 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. 10.49 Consulting Agreement, dated March 12, 1992, between the Company and Geddes and Company. Incorporated by reference to Exhibit 10.1 to the Company's Report on Form 10-Q for the quarter ended June 30, 1992, File No. 1-10398. 18.1 Letter regarding change in accounting principles. Incorporated by reference to Exhibit 18.1 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, 1998. 99.1 ** Information required by Rule 15d-21 under the Securities Act of 1934 for the year ended December 31, 1998 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-3.19 2 EXHIBIT 3.19 ARTICLES OF INCORPORATION OF DEGUELLE OIL COMPANY I, the undersigned natural person of the age of twenty-one years or more, acting as incorporator of a corporation under the Colorado Corporation Code, adopt the following Articles of Incorporation for such corporation: FIRST: The name of the corporation is DEGUELLE OIL COMPANY. SECOND: The period of duration is perpetual. THIRD: The purpose or purposes for which this corporation is organized are: To own, operate and manage a gasoline and oil distributorship including, but not by way of limitation, the ownership and management of all property and equipment incidental thereto, as well as any other lawful purpose authorized by law. FOURTH: The aggregate number of shares which the corporation shall have authority to issue is 50,000 shares having no par value. There shall be only one class of stock, said class to be common. FIFTH: Cumulative voting of shares is not authorized. SIXTH: There are no provisions limiting or denying to shareholders the preemptive right to acquire additional or treasury shares of the corporation. SEVENTH: The address of the registered office of the corporation is 26223 Highway 160 South, Durango, Colorado 81301, and the name of the initial registered agent at such address is Bob L. DeGuelle. EIGHTH: The number of directors constituting the initial Board of Directors of the corporation is four and the names and addresses of the persons to serve as directors until the first annual meeting of shareholders or until their successors be elected and qualify are as follows: Bob L. DeGuelle 3519 Bennett Street Durango, CO 81301 Ann R. DeGuelle 3519 Bennett Street Durango, CO 81301 Robert A. DeGuelle 3519 Bennett Street Durango, CO 81301 Ronald B. DeGuelle Golden West Trailer Park 7520 County Road 203 Durango, CO 81301 The name and address of the incorporator is: David P. Smith 813 Main Avenue, Suite 308 Durango, CO 81301 NINTH: The Board of Directors shall have the power to make such prudential by-laws as they may deem necessary and the Board of Directors shall have the power to amend said by-laws from time to time as they deem appropriate. DATED THIS 30th day of April, 1979. /s/ David P. Smith ----------------------- David P. Smith STATE OF COLORADO ) )ss. COUNTY OF LA PLATA ) I, Wanda England, a notary public, hereby certify that on the 30th day of April, 1979, personally appeared before me David P. Smith, who, being first duly sworn, declared that he was the person who signed the foregoing document as incorporator and that the statements therein contained are true. IN WITNESS WHEREOF, I have hereunto set my hand seal this 30th day of April, 1979. My commission expires: 8-24-80. /s/ Wanda England ----------------------- Notary Public EX-3.20 3 EXHIBIT 3.20 BY-LAWS OF DEGUELLE OIL COMPANY ARTICLE I. OFFICES The principal office of the corporation in the State of Colorado shall be located in the City of Durango, County of La Plata. The corporation may have such other offices, either within or without the State of Colorado, as the Board of Directors may designate or as the business of the corporation may require from time to time. ARTICLE II. SHAREHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders shall be held on the 1st day in the month of September in each year, beginning with the year 1979, at the hour of 4 o'clock p.m., for the purpose of electing Directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday in the State of Colorado, such meeting shall be held on the next succeeding business day. If the election of Directors shall not be held on the day designated herein for any annual meeting of the shareholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the shareholders as soon thereafter as conveniently may be. SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders for any purpose or purposes, unless otherwise prescribed by statute, may be called by the President at the request of the holders of not less than fifty percent of all the outstanding shares of the corporation entitled to vote at the meeting. SECTION 3. PLACE OF MEETING. The Board of Directors may designate any place, either within or without the State of Colorado unless otherwise prescribed by statute, as the place of meeting for any annual meeting or for any special meeting called by the Board of Directors. A waiver of notice signed by all shareholders entitled to vote at a meeting may designate any place, either within or without the State of Colorado, unless otherwise prescribed by statute, as the place for the holding of such meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal office of the corporation in the State of Colorado. SECTION 4. NOTICE OF MEETING. Written notice stating the place, day and hour of the meeting and, in case of special meeting, the purpose or purposes for which the meeting is called, shall unless otherwise prescribed by statute, be delivered not less than ten days nor more than thirty days before the date of the meeting, either personally or by mail, by or at the direction of the President, or the Secretary, or the persons calling the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid. SECTION 5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, 30 days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least 30 days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than 30 days and, in case of a meeting of shareholders, not less than 30 days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof. SECTION 6. VOTING LISTS. The officer or agent having charge of the stock transfer books for shares of the corporation shall make a complete list of the shareholders entitled to vote at each meeting of shareholders or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each. Such list shall be produced and kept open at the time and place of the meeting and subject to the inspection of any shareholder during the whole time of the meeting for the purposes thereof. SECTION 7. QUORUM. A majority of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. SECTION 8. PROXIES. At all meetings of shareholders, a shareholder may vote in person or by proxy executed in writing by shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the secretary of the corporation before or at the time of the meeting. No proxy shall be valid after one month from the date of its execution, unless otherwise provided in the proxy. SECTION 9. VOTING OF SHARES. Subject to the provisions of Section 12 of this Article II, each outstanding share entitled to vote shall be entitled to one vote upon each matter submitted to a vote at a meeting of shareholders. In accordance with the Articles of Incorporation previously filed for this corporation, cumulative voting of shares shall not be authorized. SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the By-Laws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Shares of its own stock belonging to the corporation shall not be voted, directly or indirectly, at any meeting, and shall not be counted in determining the total number of outstanding shares at any given time. SECTION 11. INFORMAL ACTION BY SHAREHOLDERS. Unless otherwise provided by law, any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the stockholders entitled to vote with respect to the subject matter thereof. ARTICLE III. BOARD OF DIRECTORS SECTION 1. GENERAL POWERS. The business and affairs of the corporation shall be managed by its Board of Directors. SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the corporation shall be four. Each director shall hold office until the next annual meeting of shareholders and until his successor shall have been elected and qualified. SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of Directors shall be held without other notice than this By-Law immediately after, and at the same place as, the annual meeting of shareholders. The Board of Directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution. SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the request of the President or any two directors. The person or persons authorized to call special meetings of the Board of Directors may fix the place for holding any special meeting of the Board of Directors called by them. SECTION 5. NOTICE. Notice of any special meeting shall be given at least ten days previously thereto by written notice delivered personally or mailed to each director at his business address, or by telegram. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Any director may waive notice of any meeting. The attendance of a director at a meeting shall constitute a waiver of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. SECTION 6. QUORUM. A majority of the number of directors fixed by Section 2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. SECTION 7. MANNER OF ACTING. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. SECTION 8. ACTION WITHOUT A MEETING. Any action that may be taken by the Board of Directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so to be taken, shall be signed before such action by all of the Directors. SECTION 9. VACANCIES. Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors, unless otherwise provided by law. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Any directorship to be filled by reason of an increase in the number of directors may be filled by election by the Board of Directors for a term of office continuing only until the next election of Directors by the shareholders. SECTION 10. COMPENSATION. By resolution of the Board of Directors, each Director may be paid his expenses, if any, of attendance at each meeting of the Board of Directors, and may be paid a stated salary as Director or a fixed sum for attendance at each meeting of the Board of Directors or both. No such payment shall preclude any Director from serving the corporation in any other capacity and receiving compensation therefor. SECTION 11. PRESUMPTION OF ASSENT. A director of the corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favor of such action. ARTICLE IV. OFFICERS SECTION 1. NUMBER. The officers of the corporation shall be a President, a Vice-President, a Secretary and a Treasurer, each of whom shall be elected by the Board of Directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors. SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation to be elected by the Board of Directors shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. SECTION 3. REMOVAL. Any officer or agent may be removed by the Board of Directors whenever in its judgment, the best interests of the corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. SECTION 4. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term. SECTION 5. PRESIDENT. The President shall be the principal executive officer of the corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the corporation. He shall, when present, preside at all meetings of the shareholders and of the Board of Directors. He may sign, with the Secretary or any other proper officer of the corporation thereunto authorized by the Board of Directors, certificates for shares of the corporation, any deeds, mortgages, bonds, contracts, or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these By-Laws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. SECTION 6. VICE-PRESIDENT. In the absence of the President or in the event of his death, inability or refusal to act, the Vice- President shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice-President shall perform such other duties as from time to time may be assigned to him by the President or by the Board of Directors. SECTION 7. SECRETARY. The Secretary shall: (a) keep the minutes of the proceedings of the shareholders and of the Board of Directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these By-Laws or as required by law; (c) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents the execution of which on behalf of the corporation under its seal is duly authorized; (d) keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder; (e) sign with the President certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (f) have general charge of the stock transfer books of the corporation; and (g) in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the President or by the Board of Directors. SECTION 8. TREASURER. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of Article V of these By-Laws; and (c) in general, perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the President or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. SECTION 9. SALARIES. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a Director of the corporation. ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS SECTION 1. CONTRACTS. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. SECTION 4. DEPOSITS. All funds of the corporation not otherwise employed shall be deposited form time to time to the credit of the corporation in such banks, trust companies or other depositories as the Board of Directors may elect. ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of the corporation shall be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the President and by the Secretary or by such other officers authorized by law and by the Board of Directors so to do, and sealed with the corporate seal. All certificates for shares shall be consecutively numbered and otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the corporation as the Board of Directors prescribe. SECTION 2. TRANSFER OF SHARES. Transfer of shares of the corporation shall be made only on the stock transfer books of the corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. SECTION 3. ENCUMBRANCE OF STOCK. No shareholder shall encumber any of his stock in the company without first obtaining written consent to do so from all other shareholders. Any encumbered stock shall have attached thereto a notice that in the event of foreclosure and transfer of said stock, the new stockholder shall be required to offer the stock for sale to the corporation and to the remaining stockholders under the same terms and conditions and at the same price as set forth in Section 4 hereof. SECTION 4. RESTRICTIONS ON SALE OF STOCK. In the event that any shareholder desires to sell or transfer his shares for a valuable consideration, such shareholder must first offer said stock for sale to the corporation and the offer shall be in writing and delivered to the Board of Directors. Within 20 days after receipt of the written offer, the Board of Directors shall call a meeting of the shareholders, at which meeting the stock shall be offered for sale to the company for the purpose of retirement of the shares or to place the same in treasury stock. The corporation may exercise its option to purchase as of the day of the meeting. Any stock which is offered for sale to the company and not purchased in accordance with the offer shall then be offered on a proportionate ownership basis to the remaining stockholders who desire to purchase said stock upon the same terms and conditions as set forth in the offer made to the company. In the event that the stock is not purchased by the company or by the shareholders, then the shareholder offering the stock for sale shall be free to sell the same to any third person for the same or a greater price but not for a lesser price than the price at which the stock was offered to the corporation and the shareholders. ARTICLE VII. FISCAL YEAR The fiscal year of the corporation shall begin and end on such days as the Board of Directors shall fix by resolution. ARTICLE VIII. DIVIDENDS The Board of Directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and its Articles of Incorporation. ARTICLE IX. CORPORATE SEAL The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation and the state of incorporation and the words, "Corporate Seal". ARTICLE X. WAIVER OF NOTICE Unless otherwise provided by law, whenever any notice is required to be given to any shareholder or director of the corporation under the provisions of these By-Laws or under the provisions of the Small Business Corporation Act, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE XI. AMENDMENTS These By-Laws may be altered, amended or repealed and new By- Laws may be adopted by the Board of Directors at any regular or special meeting of the Board of Directors. EX-10.1 4 EXHIBIT 10.1 CREDIT AGREEMENT Dated as of December 23, 1998 among GIANT INDUSTRIES, INC., THE FINANCIAL INSTITUTIONS PARTIES HERETO and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent and as Letter of Credit Issuing Bank - - - - - - - - - - - - Arranged by NATIONSBANC MONTGOMERY SECURITIES LLC TABLE OF CONTENTS Page ARTICLE I DEFINITIONS 1.01 Certain Defined Terms 1.02 Other Interpretive Provisions 1.03 Accounting Principles ARTICLE II THE CREDITS 2.01 Amounts and Terms of Commitments 2.02 Loan Accounts 2.03 Procedure for Borrowing 2.04 Conversion and Continuation Elections 2.05 Termination or Reduction of Commitments (a) Voluntary Termination or Reduction (b) Additional Provisions 2.06 Optional Prepayments 2.07 Borrowing Base Determinations, Mandatory Prepayments of Loans 2.08 Repayment (a) Principal (b) Interest 2.09 Fees (a) Arrangement, Agency Fees (b) Commitment Fees 2.10 Computation of Fees and Interest 2.11 Payments by the Company 2.12 Payments by the Banks to the Administrative Agent 2.13 Sharing of Payments, Etc. 2.14 Security and Guaranty ARTICLE III THE LETTERS OF CREDIT 3.01 The Letter of Credit Facility 3.02 Issuance, Amendment and Renewal of Letters of Credit 3.03 Existing Bank of America Letters of Credit, Risk Participations, Drawings and Reimbursements 3.04 Repayment of Participations 3.05 Role of the Issuing Bank 3.06 Obligations Absolute 3.07 Cash Collateral Pledge 3.08 Letter of Credit Fees 3.09 Cash Collateralization 3.10 Uniform Customs and Practice ARTICLE IV TAXES, YIELD PROTECTION AND ILLEGALITY 4.01 Taxes 4.02 Illegality 4.03 Increased Costs and Reduction of Return 4.04 Funding Losses 4.05 Inability to Determine Rates 4.06 Certificates of Banks 4.07 Substitution of Banks 4.08 Survival ARTICLE V CONDITIONS PRECEDENT 5.01 Conditions of Initial Credit Extensions (a) Credit Agreement and Notes, Guaranty, Perfection Certificate and Initial Borrowing Base Report and Compliance Certificate (b) Certificate Regarding Existing Indebtedness (c) Resolutions; Incumbency Organization Documents (d) Certificate (Organization, Qualification and Good Standing) (e) Legal Opinions (f) Payment of Fees (g) Certificate (Representations and Warranties, Etc.) (h) Termination of the 1995 Giant Credit Facility (i) Collateral Documents (j) Other Documents 5.02 Conditions to All Credit Extensions (a) Notice, Application (b) Continuation of Representations and Warranties (c) No Existing Default (d) No Material Adverse Effect [(e) No Future Advance Notice ARTICLE VI REPRESENTATIONS AND WARRANTIES 6.01 Corporate Existence and Power 6.02 Corporate Authorization; No Contravention 6.03 Governmental Authorization 6.04 Binding Effect 6.05 Litigation 6.06 No Default 6.07 ERISA Compliance 6.08 Use of Proceeds; Margin Regulations 6.09 Title to Properties 6.10 Taxes 6.11 Financial Condition 6.12 Environmental Matters 6.13 Regulated Entities 6.14 No Burdensome Restrictions 6.15 Copyrights, Patents, Trademarks and Licenses, etc. 6.16 Subsidiaries 6.17 Insurance 6.18 Full Disclosure 6.19 Solvency 6.20 Year 2000 6.21 Labor Relations 6.22 Collateral Documents ARTICLE VII AFFIRMATIVE COVENANTS 7.01 Financial Statements 7.02 Certificates; Other Information 7.03 Notices 7.04 Preservation of Corporate Existence, Etc. 7.05 Maintenance of Property 7.06 Insurance 7.07 Payment of Obligations 7.08 Compliance with Laws 7.09 Compliance with ERISA 7.10 Inspection of Property and Books and Records 7.11 Environmental Laws 7.12 New Subsidiary Guarantors; New Subsidiary Security Agreements 7.13 Use of Proceeds 7.14 Subordinated Indebtedness 7.15 Year 2000 7.16 Further Assurances ARTICLE VIII NEGATIVE COVENANTS 8.01 Limitation on Liens 8.02 Disposition of Assets 8.03 Consolidations and Mergers 8.04 Loans and Investments 8.05 Limitation on Subsidiary Indebtedness 8.06 Transactions with Affiliates 8.07 Use of Proceeds 8.08 Contingent Obligations 8.09 Restricted Payments 8.10 Subsidiary Dividends 8.11 Subordinated Notes 8.12 Minimum Consolidated Net Worth 8.13 Minimum Interest Coverage Ratio 8.14 Maximum Capitalization Ratio 8.15 ERISA 8.16 Change in Business 8.17 Accounting Changes ARTICLE IX EVENTS OF DEFAULT 9.01 Event of Default (a) Non-Payment (b) Representation or Warranty (c) Specific Defaults (d) Other Defaults (e) Cross-Default (f) Insolvency; Voluntary Proceedings (g) Involuntary Proceedings (h) ERISA (i) Monetary Judgments (j) Change of Control (k) Loss of Permit (l) Adverse Change (m) Guaranty Default (n) Invalidity of Subordination Provisions (o) Prepayment of Subordinated Notes (p) Collateral 9.02 Remedies 9.03 Rights Not Exclusive ARTICLE X THE AGENT 10.01 Appointment and Authorization 10.02 Delegation of Duties 10.03 Liability of Administrative Agent 10.04 Reliance by Administrative Agent 10.05 Notice of Default 10.06 Credit Decision 10.07 Indemnification 10.08 Administrative Agent in Individual Capacity 10.09 Successor Administrative Agent 10.10 Withholding Tax 10.11 Collateral Matters ARTICLE XI MISCELLANEOUS 11.01 Amendments and Waivers 11.02 Notices 11.03 No Waiver; Cumulative Remedies 11.04 Costs and Expenses 11.05 Indemnity 11.06 Payments Set Aside 11.07 Successors and Assigns 11.08 Assignments, Participations, etc. 11.09 Confidentiality 11.10 Set-off 11.11 Interest 11.12 Indemnity and Subrogation 11.13 Automatic Debits of Fees 11.14 Notification of Addresses, Lending Offices, Etc. 11.15 Counterparts 11.16 Severability 11.17 No Third Parties Benefitted 11.18 GOVERNING LAW 11.19 WAIVER OF JURY TRIAL 11.20 Entire Agreement SCHEDULES Schedule 1.01A Acquisition EBITDA Schedule 1.01B Preferred Eligible Account Obligors Schedule 2.01 Commitments Schedule 2.02 Applicable Margins and Risk Participation and Commitment Fees Schedule 3.03 Existing Bank of America Letters of Credit Schedule 6.11 Undisclosed Liabilities Schedule 6.16 Subsidiaries and Minority Interests Schedule 8.01 Permitted Liens Schedule 8.04 Permitted Loans and Investments Schedule 8.05 Certain Permitted Indebtedness Schedule 8.08 Certain Contingent Obligations Schedule 11.02 Lending Offices; Addresses for Notices EXHIBITS Exhibit A Form of Notice of Borrowing Exhibit B Form of Notice of Conversion/Continuation Exhibit C Form of Compliance Certificate Exhibit D-1 Form of Legal Opinion of Company's Counsel Exhibit D-2 Form of Legal Opinion of Company's Special Counsel Exhibit E Form of Assignment and Acceptance Exhibit F Form of Note Exhibit G Form of Guaranty Agreement Exhibit H Form of Borrowing Base Report Exhibit I Form of Security Agreement CREDIT AGREEMENT This CREDIT AGREEMENT is entered into as of December 23, 1998, among GIANT INDUSTRIES, INC., a Delaware corporation (the "Company"), the several financial institutions from time to time parties to this Agreement (collectively, the "Banks"; individually, a "Bank"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as administrative agent for the Banks and as Letter of Credit Issuing Bank. WHEREAS, the Company has requested, and the Banks have agreed to make available to the Company, a Sixty- Five Million Dollar ($65,000,000.00) working capital and letter of credit facility upon the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.01 CERTAIN DEFINED TERMS. The following terms have the following meanings: "ACQUISITION" means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business or division of a Person, (b) the acquisition of in excess of 50% of the capital stock of a corporation (or similar entity), which stock has ordinary voting power for the election of the members of the acquiree's board of directors or persons exercising similar functions (other than stock having such power only by reason of the happening of a contingency), or the acquisition of in excess of 50% of the partnership interests or equity of any Person not a corporation which acquisition gives the acquirer the power to direct or cause the direction of the management and policies of the acquiree, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is a Subsidiary) provided that the Company or a Subsidiary of the Company is the surviving entity. "ADMINISTRATIVE AGENT" means Bank of America National Trust and Savings Association in its capacity as agent for the Banks hereunder, and any successor agent arising under SECTION 10.09. "ADMINISTRATIVE AGENT'S PAYMENT OFFICE" means the address for payments set forth on SCHEDULE 11.02 hereto in relation to the Administrative Agent, or such other address as the Administrative Agent may from time to time specify. "AFFILIATE" means, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, by contract, or otherwise. "AGENT-RELATED PERSONS" means Bank of America and any successor Administrative Agent arising under SECTION 10.09 and any successor Letter of Credit Issuing Bank hereunder, together with their respective Affiliates (including, in the case of Bank of America, the Arranger) and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "AGREEMENT" means this Credit Agreement. "ALBUQUERQUE TERMINAL" means the terminal owned by Giant Mid-Continent, Inc., and operated by Giant Industries Arizona, Inc., located in or near Albuquerque, New Mexico. "APPLICABLE MARGIN" means with respect to Base Rate Loans and Offshore Rate Loans, respectively, the specified percent per annum therefor set forth in SCHEDULE 2.02 corresponding to the applicable pricing level determined in accordance therewith. "ARIZONA" means Giant Industries Arizona, Inc., an Arizona corporation. "ARRANGER" means NationsBanc Montgomery Securities, LLC. "ASSIGNEE" has the meaning specified in SUBSECTION 11.08(a). "ATTORNEY COSTS" means and includes all reasonable fees and disbursements of any law firm or other external counsel, the allocated cost of internal legal services and all disbursements of internal counsel. "BANK" has the meaning specified in the introductory clause hereto. References to the "Banks" shall include Bank of America, including in its capacity as Issuing Bank; for purposes of clarification only, to the extent that Bank of America may have any rights or obligations in addition to those of the Banks due to its status as Issuing Bank, its status as such will be specifically referenced. "BANK OF AMERICA" means Bank of America National Trust and Savings Association, a national banking association. "BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. S.S. 101, et seq.). "BASE RATE" means, for any day, the higher of: (a) 0.50% per annum above the latest Federal Funds Rate; and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America in San Francisco, California, as its "reference rate." (The "reference rate" is a rate set by Bank of America based upon various factors including Bank of America's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate.) Any change in the reference rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change. "BASE RATE LOAN" means a Revolving Loan, or an L/C Advance, that bears interest based on the Base Rate. "BLOOMFIELD REFINERY" means the refinery owned by San Juan Refining Company, and operated by Giant Industries Arizona, Inc., located in or near Farmington, New Mexico. "BNY INDENTURE" means that certain Indenture dated August 26, 1997, between the Company, as Issuer, The Bank of New York, as Trustee, and others evidenced by the BNY Subordinated Notes. "BNY SUBORDINATED NOTES" means the $150,000,000 9% Senior Subordinated Notes due 2007 issued by the Company under the BNY Indenture. "BORROWING" means a borrowing hereunder consisting of Revolving Loans of the same Interest Rate Type made to the Company on the same day by the Banks under Article II, and, other than in the case of Base Rate Loans, having the same Interest Period. "BORROWING BASE" means the amount calculated monthly pursuant to SECTION 2.07(a) based upon information contained in the Borrowing Base Report. "Borrowing Base Report" means that report delivered monthly by the Company to the Administrative Agent in form of Exhibit "H" hereto. "BORROWING DATE" means any date on which a Borrowing occurs under Article II. "BUSINESS DAY" means any day other than a Saturday, Sunday or other day on which commercial banks in Scottsdale, Arizona or San Francisco, California are authorized or required by law to close and, if the applicable Business Day relates to any Offshore Rate Loan, means such a day on which dealings are carried on in the applicable offshore dollar interbank market. "CAPITAL ADEQUACY REGULATION" means any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank. "CAPITAL EXPENDITURES" shall mean, for any period, expenditures (including, without limitation, the aggregate amount of Capital Lease Obligations incurred during such period) made by the Company or any of its Consolidated Subsidiaries to acquire or construct fixed assets, plant and equipment (including renewals, improvements and replacements) during such period computed in accordance with GAAP. "CAPITAL LEASE" means a capital lease as determined in accordance with GAAP. "CAPITAL LEASE OBLIGATIONS" shall mean, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP (including Statement of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board), and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP (including such Statement No. 13). "Capitalization Ratio" means, at any time, the ratio of Consolidated Funded Indebtedness to Consolidated Total Capitalization. "CASH COLLATERALIZE" means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the Administrative Agent, the Issuing Bank and the Banks, as collateral for the L/C Obligations, cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Administrative Agent and the Issuing Bank (which documents are hereby consented to by the Banks). Derivatives of such term shall have corresponding meanings. "CASH EQUIVALENTS" means: (a) securities issued or fully guaranteed or insured by the United States Government or any agency thereof and backed by the full faith and credit of the United States having maturities of not more than twelve (12) months from the date of acquisition; (b) certificates of deposit, time deposits, Eurodollar time deposits, or bankers' acceptances having in each case a tenor of not more than twelve (12) months from the date of acquisition issued by any U.S. commercial bank or any branch or agency of a non-U.S. commercial bank licensed to conduct business in the U.S. having combined capital and surplus of not less than Five Hundred Million Dollars ($500,000,000) whose long term securities are rated at least A (or then equivalent grade) by S&P and A2 (or then equivalent grade) by Moody's at the time of acquisition; (c) commercial paper of an issuer rated at least A-1 by S&P or P-1 by Moody's at the time of acquisition, and in either case having a tenor of not more than twelve (12) months; (d) debt securities which are registered under the Securities Act of 1933, as amended (the "Securities Act") (and not "restricted securities" in the Company's hands as defined in Rule 144 under the Securities Act), or adjustable rate preferred stock traded on a national securities exchange and issued by a corporation duly incorporated under the laws of a state of the United States, or issued by any state, county or municipality located in the United States of America, provided, however, that such debt securities are rated A2 by Moody's and A or better by S&P at the time of acquisition, and such debt securities have a maturity not in excess of twelve (12) months from the date of creation thereof; (e) repurchase agreements with a term of not more than seven days for underlying securities of the types described in clauses (a) and (b) above; and (f) money market mutual or similar funds having assets in excess of $100,000,000. "CHANGE OF CONTROL" means (a) a purchase or acquisition, directly or indirectly, by any "person" or "group" within the meaning of SECTION 13(d)(3) and 14(d)(2) of the Securities and Exchange Act of 1934 (a "Group"), of "beneficial ownership" (as such term is defined in Rule 13d-3 under the Exchange Act) of securities of the Company which, together with any securities owned beneficially by any "affiliates" or "associates" of such Group (as such terms are defined in Rule 12b-2 under the Exchange Act), shall represent more than fifty percent (50%) of the combined voting power of the Company's securities which are entitled to vote generally in the election of directors and which are outstanding on the date immediately prior to the date of such purchase or acquisition; or (b) a sale of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any Person or Group; or (c) the liquidation or dissolution of the Company; or (d) the first day on which a majority of the Board of Directors of the Company are not Continuing Directors (as herein defined). As herein defined, "Continuing Directors" means any member of the Board of Directors of the Company who (x) is a member of such Board of Directors as of the date of this Agreement or (y) was nominated for election or elected to such Board of Directors with the affirmative vote of two-thirds of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election. "CINIZA" means Ciniza Production Company, a New Mexico corporation. "CINIZA REFINERY" means the refinery owned and operated by Giant Industries Arizona, Inc. located in or near Gallup, New Mexico. "CLOSING DATE" means the date on which all conditions precedent set forth in SECTION 5.01 and 5.02 are satisfied or waived by all Banks (or, in the case of Subsection 5.01(f), waived by the Person entitled to receive such payment). "CODE" means the Internal Revenue Code of 1986, and regulations promulgated thereunder. "COLLATERAL" means all property and interests in property and proceeds thereof now owned or hereafter acquired by the Company or any Guarantor and their respective Subsidiaries in or upon which a Lien now or hereafter exists in favor of the Banks, or the Administrative Agent on behalf of the Banks, whether under this Agreement or under any other documents executed by any such Person and delivered to the Administrative Agent or the Banks. "COLLATERAL DOCUMENTS" means, collectively, (i) the Security Agreement, and all other security agreements, mortgages, deeds of trust, patent and trademark assignments, lease assignments, guarantees and other similar agreements between the Company or any Subsidiary or any Guarantor and the Banks or the Administrative Agent for the benefit of the Banks now or hereafter delivered to the Banks or the Administrative Agent pursuant to or in connection with the transactions contemplated hereby, and all financing statements (or comparable documents now or hereafter filed in accordance with the Uniform Commercial Code or comparable law) against the Company or any Subsidiary or any Guarantor as debtor in favor of the Banks or the Administrative Agent for the benefit of the Banks as secured party, and (ii) any amendments, supplements, modifications, renewals, replacements, consolidations, substitutions and extensions of any of the foregoing. "COMMITMENT" as to each Bank has the meaning specified in SECTION 2.01. "COMMITMENT FEE" has the meaning set forth in Subsection 2.09(b). "COMMODITY SWAP" means any commodity swap, commodity option or commodity forward contract (including any option to enter into any of the foregoing). "COMPLIANCE CERTIFICATE" means a certificate substantially in the form of Exhibit "C". "CONSOLIDATED EBITDA" means, for the relevant period, the sum of: (a) the Consolidated Net Income for such period, (b) Consolidated Interest Expense, (c) all taxes measured by income to the extent included in the determination of such Consolidated Net Income, (d) all amounts treated as expenses for depreciation and the amortization of intangibles of any kind for such period to the extent included in the determination of such Consolidated Net Income for the relevant period, and (e) any interest income to the extent not included in the determination of such Consolidated Net Income for the relevant period. For purposes hereof, "Consolidated EBITDA" shall include, for any calculation period that includes any of the specified fiscal quarters, the applicable amounts set forth in Schedule 1.01A (representing EBIDTA attributed to the assets acquired in the DeGuelle and Kaibab acquisitions for the specified fiscal quarters). "CONSOLIDATED FUNDED INDEBTEDNESS" means, for the Company and its Consolidated Subsidiaries, at any time, without duplication, the sum of: (a) liability for borrowed money or for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business on ordinary terms), (b) obligations under Capital Leases and other "off- balance sheet" leases (including Synthetic Leases), excluding operating leases (other than Synthetic Leases) incurred in the ordinary course of business, capitalized as though they all were capital leases, (c) obligations to redeem or purchase any stock or other equity security of the Company or a Subsidiary, and (d) any guaranty obligations in respect of any of the foregoing. "CONSOLIDATED INTEREST EXPENSE" means for the relevant period, for the Company and its Consolidated Subsidiaries, without duplication, the sum of: (a) all interest in respect of Indebtedness and all imputed interest with respect to Capital Leases accrued or capitalized during such period (whether or not actually paid during such period and including fees payable in respect of letters of credit and bankers' acceptances), (b) the net amount payable (or minus the net amount receivable) under all Swap Contracts (other than Commodity Swaps) during such period (whether or not actually paid or received during such period), and (c) all dividends paid, declared or otherwise accrued in respect of preferred stock. "CONSOLIDATED NET INCOME" means, for any period, the net income (or net loss) of the Company and its Consolidated Subsidiaries for such period determined in accordance with GAAP. "CONSOLIDATED NET WORTH" means, at any date, an amount equal to the consolidated stockholders' equity of the Company and its Consolidated Subsidiaries determined in accordance with GAAP determined as of such date. "CONSOLIDATED SUBSIDIARIES" means, at any date, any Subsidiary the accounts of which, in accordance with GAAP, would be consolidated with those of the Company in its consolidated financial statements if such statements were prepared as of such date. "CONSOLIDATED TANGIBLE NET WORTH" means Consolidated Net Worth, minus the net book value of all assets of the Company and its Consolidated Subsidiaries (after deducting any reserves applicable thereto) which would be shown as intangible assets on a consolidated balance sheet of the Company and its Consolidated Subsidiaries prepared as of such time in accordance with GAAP. "CONSOLIDATED TOTAL CAPITALIZATION" means, at any time, the sum of (a) Consolidated Funded Indebtedness and (b) Consolidated Net Worth for such period. "CONTINGENT OBLIGATION" means, as to any Person without duplication, any direct or indirect liability of that Person with or without recourse, (a) with respect to any Indebtedness, lease, dividend, letter of credit or other similar obligation (the "primary obligations") of another Person (the "primary obligor"), including any obligation of that Person (i) to purchase, repurchase or otherwise acquire such primary obligations or any security therefor, (ii) to advance or provide funds for the payment or discharge of any such primary obligation, or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (iv) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof (each, a "Guaranty Obligation"); (b) with respect to any Surety Instrument (other than any Letter of Credit) issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings or payments; (c) to purchase any materials, supplies or other property from, or to obtain the services of, another Person if the relevant contract or other related document or obligation requires that payment for such materials, supplies or other property, or for such services, shall be made regardless of whether delivery of such materials, supplies or other property is ever made or tendered, or such services are ever performed or tendered, or (d) in respect of any Swap Contract. The amount of any Contingent Obligation shall, in the case of Guaranty Obligations, be deemed equal to the maximum stated or determinable amount of the primary obligation in respect of which such Guaranty Obligation is made or, if not stated or if indeterminable, the maximum reasonably anticipated liability in respect thereof, and in the case of other Contingent Obligations, shall be equal to the maximum reasonably anticipated liability in respect thereof. "CONTRACTUAL OBLIGATION" means, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its property is bound. "CONVERSION/CONTINUATION DATE" means any date on which, under SECTION 2.04, the Company (a) converts Loans of one Interest Rate Type to another Interest Rate Type, or (b) continues as Loans of the same Interest Rate Type, but with a new Interest Period, Loans having Interest Periods expiring on such date. "CREDIT EXTENSION" means and includes (a) the making of any Revolving Loans hereunder, and (b) the Issuance of any Letters of Credit hereunder (including the Existing Bank of America Letters of Credit). "DEFAULT" means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default. "DEFAULT RATE" has the meaning set forth in Subsection 2.08(c)(iii). "DOLLARS", "DOLLARS" and "$" each mean lawful money of the United States. "EFFECTIVE AMOUNT" means (i) with respect to any Revolving Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any Borrowings and prepayments or repayments of Revolving Loans occurring on such date under such facility; and (ii) with respect to any outstanding L/C Obligations on any date, the amount of such L/C Obligations on such date after giving effect to any Issuances of Letters of Credit occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements of drawings under any Letters of Credit or any reductions in the maximum amount available for drawing under Letters of Credit taking effect on such date. "ELIGIBLE ACCOUNT OBLIGOR" shall mean, on any date, any Person obligated to pay a Receivable (i) that is not the Company, a Subsidiary or Affiliate of the Company; (ii) that has not filed for, and is not currently the object of, a proceeding relating to its bankruptcy, insolvency, reorganization, winding-up or composition or reorganization of debts; (iii) that is in good standing with the Company and its Subsidiaries and satisfies all applicable credit standards of the Company and its Subsidiaries; and (iv) for which not more than 50% of the aggregate value of the Receivables of such Account Obligor have not been paid by the date 30 days after the respective due dates therefor. "ELIGIBLE ACCOUNTS RECEIVABLE" shall mean, on any date, all Receivables denominated in Dollars payable by Eligible Account Obligors except: (i) billed Receivables that have not been paid by the date 30 days after the respective due dates therefor; (ii) any Receivable subject to any asserted defense, dispute, claim, offset or counterclaim, provided that, if any such defense, dispute, claim, offset or counterclaim is asserted with respect to such Receivable in an amount equal to a sum certain, then such Receivable shall be an Eligible Account Receivable to the extent the face amount thereof exceeds such sum certain; (iii) all such Receivables subject to any repurchase or return arrangement; (iv) Receivables of each Eligible Account Obligor to the extent that the Receivables of such Eligible Account Obligor exceed 10% of all Receivables; (v) all Receivables that are payable by their terms more than 30 days from the respective invoice dates therefor, (vi) any Receivable in which the Banks do not have a valid and perfected first priority security interest (vii) any Receivable of a Subsidiary with respect to which any event described in Subsection 9.01(f) or (g) shall have occurred and be continuing, (viii) Accounts with respect to which the account debtor is not a Person resident in the United States; (x) Accounts with respect to which goods have been placed on consignment, guaranteed sale or other terms by reason of which the payment by the account debtor may be conditional; (xi) accounts not denominated in United States dollars; (xii) Accounts with respect to which an invoice has not been sent prior to the date of any Borrowing Base Report in which such Account is included for purposes of calculation of the Borrowing Base; and (xiii) Accounts that are otherwise identified as unsatisfactory to the Administrative Agent or the Majority Banks using reasonable business judgment. "ELIGIBLE ASSIGNEE" means (i) a commercial bank, insurance company or other institution organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; (ii) a commercial bank, insurance company or other institution organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that such bank, insurance company or other institution is acting through a branch or agency located in the United States; and (iii) a Person with a combined capital and surplus of at least $100,000,000 that is primarily engaged in the business of commercial lending and that is (A) a Subsidiary of a Bank, (B) a Subsidiary of a Person of which a Bank is a Subsidiary, or (C) a Person of which a Bank is a Subsidiary. "ELIGIBLE REFINERY HYDROCARBON INVENTORY" means, at any date, the aggregate value therefor on a FIFO basis calculated in accordance with GAAP of all readily marketable, saleable and useful Feedstocks, Intermediate Products and Refined Products (excluding (a) any and all Feedstocks, Intermediate Products and Refined Products in which the Banks do not have a valid and perfected first priority security interest, subject only to Permitted Liens, (b) any and all Feedstocks, Intermediate Products and Refined Products located on leased premises (other than Refined Product at leased service stations and travel centers operated by the Company or one of its Subsidiaries), or held by a bailee or otherwise subject to any third party interest, with respect to which any landlord's waiver or other third party agreement requested by Secured Party or the Majority Banks shall not have been furnished, and (c) Feedstocks, Intermediate Products and Refined Products of any Subsidiary with respect to which any event described in Subsection 9.01 (f) or (g) shall have occurred and be continuing), owned by the Company and its Subsidiaries (other than "inactive" Subsidiaries) in field production tanks, storage tanks and lines (including line fills but excluding basic sediment and water and slop oil), stored at the Bloomfield Refinery, the Ciniza Refinery, the Company's or its Subsidiaries' bulk plants, service stations and travel centers (excluding cardlocks), the Albuquerque Terminal, the Flagstaff Terminal and other Refined Products terminals owned or leased by the Company or its Subsidiaries, or at such other locations as may be approved from time to time by the Majority Banks, provided, however, that such Feedstocks, Intermediate Products and Refined Products are not obsolete, unsalable, damaged or otherwise unfit for sale or further processing in the ordinary course of business or otherwise unsatisfactory to the Administrative Agent or the Majority Banks using reasonable business judgment. "ENVIRONMENTAL CLAIMS" means all material claims by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release or injury to the environment. "ENVIRONMENTAL LAWS" means all material federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all material administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, and safety. "ERISA" means the Employee Retirement Income Security Act of 1974, and regulations promulgated thereunder. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) under common control with the Company within the meaning of SECTION 414(b) or (c) of the Code (and SECTIONs 414(m) and (o) of the Code for purposes of provisions relating to SECTION 412 of the Code). "ERISA EVENT" means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate from a Pension Plan subject to SECTION 4063 of ERISA during a plan year in which it was a substantial employer (as defined in SECTION 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under SECTION 4062(e) of ERISA; (c) a complete or partial withdrawal by the Company or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate (other than pursuant to SECTION 4041(b) of ERISA), the treatment of a Plan amendment as a termination under SECTION 4041(c) or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which might reasonably be expected to constitute grounds under SECTION 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any material liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under SECTION 4007 of ERISA, upon the Company or any ERISA Affiliate. "EURODOLLAR RESERVE PERCENTAGE" has the meaning specified in the definition of "Offshore Rate". "EVENT OF DEFAULT" means any of the events or circumstances specified in SECTION 9.01. "EXCHANGE ACT" means the Securities and Exchange Act of 1934, and regulations promulgated thereunder. "EXECUTION DATE" means the date specified on the cover page hereof. "EXISTING BANK OF AMERICA LETTERS OF CREDIT" means the letters of credit described in Schedule 3.03. "EXPLORATION" means Giant Exploration & Production Company, a Texas corporation. "FDIC" means the Federal Deposit Insurance Corporation, and any Governmental Authority succeeding to any of its principal functions. "FEDERAL FUNDS RATE" means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, "H.15(519)") on the preceding Business Day opposite the caption "Federal Funds (Effective)"; or, if for any relevant day such rate is not so published on any such preceding Business Day, the rate for such day will be the arithmetic mean as determined by the Administrative Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York, New York time) on that day by each of three leading brokers of Federal funds transactions in New York, New York selected by the Administrative Agent. "FEE LETTER" has the meaning specified in Subsection 2.09(a). "FEEDSTOCKS" means all crude oil, natural gas liquids, other hydrocarbons valued at the lower of cost or market crude oil prices and ethanol valued at the lower of cost or market, in so far as such Feedstocks are used or useful as fuel or in the manufacture, processing, refining, or blending of Intermediate Products and Refined Products at the Bloomfield or Ciniza Refineries. "FLAGSTAFF TERMINAL" means the terminal currently under construction in or near Flagstaff, Arizona, to be owned and operated by Giant Industries Arizona, Inc. "FRB" means the Board of Governors of the Federal Reserve System, and any Governmental Authority succeeding to any of its principal functions. "FRONTING FEE" has the meaning set forth in SECTION 3.08(b). "GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination. "GOVERNMENTAL AUTHORITY" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "GUARANTOR" means as of the date of Closing each of (a) Giant Industries Arizona, Inc., an Arizona corporation, Giant Exploration & Production Company, a Texas corporation, Giant Four Corners, Inc., an Arizona corporation, Ciniza Production Company, a New Mexico corporation, San Juan Refining Company, a New Mexico corporation, DeGuelle Oil Company, a Colorado corporation, Giant Mid-Continent, Inc., an Arizona corporation, Giant Stop-N-Go of New Mexico, Inc., a New Mexico corporation, and Phoenix Fuel Co., Inc., an Arizona corporation, and (b) any other Subsidiary of the Company which is required to execute a Guaranty under SECTION 7.12. "GUARANTY" means collectively each of the Guarantees substantially in the form of Exhibit "G" hereto executed by each of the Guarantors in favor of the Administrative Agent and the Banks, as they may be amended, supplemented or otherwise modified from time to time. "GUARANTY OBLIGATION" has the meaning specified in the definition of "Contingent Obligation." "HAZARDOUS MATERIALS" means all those substances that are regulated by, or which may form the basis of liability under, any Environmental Law, including any substance identified under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material, or toxic substance, or petroleum or petroleum derived substance or waste. "HIGHEST LAWFUL RATE" means, as of a particular date, the maximum nonusurious interest rate that may under applicable federal and state law then be contracted for, charged or received by the Banks in connection with the Advances. "HONOR DATE" has the meaning specified in Subsection 3.03(c). "INDEBTEDNESS" of any Person means, without duplication, (a) all indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business on ordinary terms); (c) all non-contingent reimbursement or payment obligations with respect to Surety Instruments; (d) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (e) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to property acquired by the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property); (f) all obligations with respect to Capital Leases and other "off-balance sheet" leases (including Synthetic Leases), excluding operating leases (other than Synthetic Leases) incurred in the ordinary course of business; (g) all net obligations with respect to Swap Contracts (other than Commodity Swaps); (h) all indebtedness referred to in clauses (a) through (g) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; and (i) all Guaranty Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (a) through (g) above. "INDEMNIFIED LIABILITIES" has the meaning specified in SECTION 11.05. "INDEMNIFIED PERSON" has the meaning specified in SECTION 11.05. "INDENTURES" means the BNY Indenture and the NBD Indenture. "INDEPENDENT AUDITOR" has the meaning specified in Subsection 7.01(a). "INSOLVENCY PROCEEDING" means (a) any case, action or proceeding relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code. "INTEREST PAYMENT DATE" means, as to any Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan and, as to any Base Rate Loan, the last Business Day of each calendar quarter and each date such Loan is converted into another Interest Rate Type of Loan, provided, however, that if any Interest Period for an Offshore Rate Loan exceeds three months, the date that falls three months after the beginning of such Interest Period, and the date that falls three months after each Interest Payment Date thereafter for such Interest Period, is also an Interest Payment Date. "INTEREST PERIOD" means, as to any Offshore Rate Loan, the period commencing on the Borrowing Date of such Loan or on the Conversion/Continuation Date on which the Loan is converted into or continued as an Offshore Rate Loan, and ending on the date one, two, three or six months thereafter as selected by the Company in its Notice of Borrowing or Notice of Conversion/Continuation; provided that: (i) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless, in the case of an Offshore Rate Loan, the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (ii) any Interest Period pertaining to an Offshore Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (iii) no Interest Period for any Revolving Loan shall extend beyond the Termination Date. "INTEREST RATE TYPE" means either the Base Rate of interest or the Offshore Rate of interest charged against any Loan or Loans hereunder. "INTERMEDIATE PRODUCTS" means all Feedstocks that have been partially processed or refined as isomerate, cat feed, gasoline components or naphtha and valued at the lower of cost or market crude oil prices. "IRS" means the Internal Revenue Service, and any Governmental Authority succeeding to any of its principal functions under the Code. "ISSUANCE DATE" has the meaning specified in Subsection 3.01(a). "ISSUE" means, with respect to any Letter of Credit, to incorporate the Existing Bank of America Letters of Credit into this Agreement, or to issue or to extend the expiry of, or to renew or increase the amount of, such Letter of Credit; and the terms "Issued," "Issuing" and "Issuance" have corresponding meanings. "ISSUING BANK" means Bank of America in its capacity as issuer of one or more Letters of Credit hereunder, together with any successor replacement letter of credit issuer pursuant to SECTION 10.09, and with respect to the Existing Bank of America Letters of Credit which have been issued by Bank of America, "Issuing Bank" means Bank of America. "L/C ADVANCE" means each Bank's participation in any L/C Borrowing in accordance with its Pro Rata Share. "L/C APPLICATION" and "L/C AMENDMENT APPLICATION" means an application form for Issuance of, or for amendment of, Letters of Credit as shall at any time be in use at the Issuing Bank. "L/C BORROWING" means an extension of credit resulting from a drawing under any Letter of Credit which shall not have been reimbursed on the date when made in accordance with Subsection 3.03(b) nor converted into a Borrowing of Revolving Loans under Subsection 3.03(c). "L/C COMMITMENT" means the commitment of the Issuing Bank to Issue, and the commitment of the Banks severally to participate in, Letters of Credit (including the Existing Bank of America Letters of Credit) from time to time Issued or outstanding under Article III, in an aggregate amount not to exceed on any date the lesser of (a) the amount of $50,000,000 and (b) the combined Commitments, as the same may be reduced as a result of a reduction in the Commitments pursuant to SECTION 2.06; provided that the L/C Commitment is a part of the combined Commitments, rather than a separate, independent commitment. "L/C OBLIGATIONS" means at any time the sum of (a) the aggregate undrawn amount of all Letters of Credit then outstanding, plus (b) the amount of all unreimbursed drawings under all Letters of Credit, including all outstanding L/C Borrowings. "L/C-RELATED DOCUMENTS" means the Letters of Credit, the L/C Applications, the L/C Amendment Applications and any other document relating to any Letter of Credit, including any of the Issuing Bank's standard form documents for letter of credit issuances. "LENDING OFFICE" means, as to any Bank, the office or offices of such Bank specified as its "Lending Office" or "Domestic Lending Office" or "Offshore Lending Office", as the case may be, on Schedule 11.02, or such other office or offices as such Bank may from time to time notify the Company and the Administrative Agent. "LETTERS OF CREDIT" means the Existing Bank of America Letters of Credit and any standby letters of credit Issued by the Issuing Bank pursuant to Article III. "LEVERAGE RATIO" means, as of any date, the ratio of Consolidated Funded Indebtedness, as of the last day of the fiscal quarter most recently then ended, to Consolidated EBITDA, for the four fiscal quarters most recently then ended. "LIEN" means any security interest, mortgage, deed of trust, pledge, hypothecation, assignment, charge or deposit arrangement, encumbrance, lien (statutory or other) or preferential arrangement of any kind or nature whatsoever in respect of any property (including those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a Capital Lease, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor, under the Uniform Commercial Code or any comparable law) and any contingent or other agreement to provide any of the foregoing, but not including the interest of a lessor under an Operating Lease. "LOAN" means an extension of credit by a Bank to the Company under Article II or Article III in the form of a Revolving Loan or L/C Advance. "LOAN DOCUMENTS" means this Agreement, the Notes, the Guaranties, the Collateral Documents, the Fee Letter, the L/C-Related Documents, and all other documents contemplated hereby and executed in favor of the Administrative Agent or any Bank. "MAJORITY BANKS" means at any time Banks then holding at least 66-2/3% of the then aggregate unpaid principal amount of the Loans, or, if no such principal amount is then outstanding, Banks then having at least 66-2/3% of the Commitments. "MARGIN STOCK" means "margin stock" as such term is defined in Regulation T, U or X of the FRB. "MATERIAL ADVERSE EFFECT" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities, capitalization or financial condition of the Company and its Subsidiaries taken as a whole; (b) a material impairment of the ability of the Company or any Significant Subsidiary to perform under any Loan Document and to avoid any Event of Default; or (c) a material adverse effect upon (i) the legality, validity, binding effect or enforceability against the Company or any Significant Subsidiary of any Loan Document or (ii) the perfection or priority of any Lien granted under any of the Collateral Documents. "MATERIAL LEASE" means any lease of real or personal property (other than Capital Leases) as to which the sum of the rental and other obligations required to be paid during the relevant period exceeds $2,500,000. "MATERIAL RENTS" means, with respect to any period, the sum of the rental and other obligations required to be paid during such period by the Company or any Subsidiary as lessee under all Material Leases. "MATERIAL SUBSIDIARY" means, at any time, a Subsidiary with total assets with a book value of $2,000,000 or more. "MOODY'S" means Moody's Investor Service, Inc. "MULTIEMPLOYER PLAN" means a "multiemployer plan", within the meaning of SECTION 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate makes, is making, or is obligated to make contributions or, during the preceding three calendar years, has made, or been obligated to make, contributions. "NBD INDENTURE" means that certain Indenture dated November 29, 1993, between the Company, as Issuer, NBD Bank, National Association (now "NBD Bank"), as Trustee, and others evidenced by the NBD Subordinated Notes. "NBD SUBORDINATED NOTES" means the $100,000,000 9-3/4% Senior Subordinated Notes due 2003 issued by the Company under the NBD Indenture. "NOTE" means a promissory note executed by the Company in favor of a Bank pursuant to SECTION 2.02 (b) or SECTION 11.08(c), in substantially the form of Exhibit F. "NOTICE OF BORROWING" means a notice in substantially the form of Exhibit "A". "NOTICE OF CONVERSION/CONTINUATION" means a notice in substantially the form of Exhibit "B". "OBLIGATIONS" means all advances, debts, liabilities, obligations, covenants and duties arising under any Loan Document owing by the Company to any Bank, the Administrative Agent, or any Indemnified Person, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising. "OFFSHORE RATE" means, for any Interest Period, with respect to Offshore Rate Loans comprising part of the same Borrowing, the rate of interest per annum (rounded upward to the next 1/16th of 1%) determined by the Administrative Agent as follows: Offshore Rate = LIBOR ------------------------------------ 1.00 - Eurodollar Reserve Percentage Where, "EURODOLLAR RESERVE PERCENTAGE" means for any day for any Interest Period the maximum reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day (whether or not applicable to any Bank) under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"); and "LIBOR" means, for each day during any Interest Period, with respect to Offshore Rate Loans, the rate of interest per annum determined by the Administrative Agent to be the London interbank offered rate per annum at which deposits in Dollars appear on the Telerate Page 3750 (or any successor page) as of 11:00 a.m. (London time), two (2) Business Days prior to (and for value on) the commencement of such Interest Period in an amount approximately equal to the amount of the Offshore Rate Loans of the Banks during such Interest Period and for a period of time comparable to such Interest Period, or in the event such offered rate is not available from the Telerate Page, then "LIBOR" shall be equal to the rate per annum determined by the Administrative Agent to be the average (rounded upwards to the next higher 1/100 of 1%) of the respective rates per annum shown on Reuter's Monitor Money Rates Service "LIBO" page at which deposits in dollars are offered in the London Interbank Eurocurrency Market at or about 11:00 a.m. (London time) two (2) Business Days prior to (and for value on) the commencement of an Interest Period in an amount approximately equal to the amount of the Offshore Rate Loans of the Banks during such Interest Period and for a period of time comparable to such Interest Period, and in the event neither such Telerate nor such Reuter's rate is available from such Telerate Page or such Reuter's Service, then "LIBOR" shall be equal to the rate of interest per annum determined by the Administrative Agent to be the arithmetic mean (rounded upward to the next 1/16th of 1%) of the rates of interest per annum at which dollar deposits for such Interest Period and in an amount approximately equal to the amount of the Offshore Rate Loans of the Banks during such Interest Period would be offered by the Administrative Agent's applicable Lending Office to major banks in the London eurodollar market at or about 11:00 a.m. (London time) two (2) Business Days prior to the commencement of such Interest Period. The Offshore Rate shall be adjusted automatically as to all Offshore Rate Loans then outstanding as of the effective date of any change in the Eurodollar Reserve Percentage. "OFFSHORE RATE LOAN" means a Loan that bears interest based on the Offshore Rate. "OPERATING LEASE" means an operating lease determined in accordance with GAAP. "ORGANIZATION DOCUMENTS" means, for any corporation, the certificate or articles of incorporation, the bylaws, any certificate of determination or instrument relating to the rights of preferred shareholders of such corporation, any shareholder rights agreement, and all applicable resolutions of the board of directors (or any committee thereof) of such corporation. "OTHER TAXES" means any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, this Agreement or any other Loan Documents, excluding, in the case of each Bank and the Administrative Agent, such taxes (including income taxes or franchise taxes) as are imposed on or measured by each Bank's net income by (i) any jurisdiction (or any political subdivision thereof) under the laws of which such Bank or the Administrative Agent, as the case may be, is organized or maintains a Lending Office or (ii) any jurisdiction (or political subdivision thereof) in which such Bank or the Administrative Agent, as the case may be, is "doing business" (unless it would not be deemed to be "doing business" in such jurisdiction absent the transactions contemplated hereby). "PARTICIPANT" has the meaning specified in Subsection 11.08(d). "PBGC" means the Pension Benefit Guaranty Corporation, or any Governmental Authority succeeding to any of its principal functions under ERISA. "PENSION PLAN" means a pension plan (as defined in SECTION 3(2) of ERISA) subject to Title IV of ERISA, other than a Multiemployer Plan, which the Company or any of its Subsidiaries sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a multiple employer plan (as described in SECTION 4064(a) of ERISA) has made contributions at any time during the immediately preceding five (5) plan years. "PERMITTED LIENS" has the meaning set forth in SECTION 8.01. "PERSON" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or Governmental Authority. "PHOENIX" means Phoenix Fuel Co., Inc., an Arizona corporation. "PLAN" means an employee benefit plan (as defined in SECTION 3(3) of ERISA) which is subject to ERISA, other than a Multiemployer Plan, and which the Company or any Subsidiary of the Company sponsors or maintains or to which the Company or any Subsidiary of the Company makes, is making, or is obligated to make contributions and includes any Pension Plan. "PREFERRED ELIGIBLE ACCOUNT OBLIGOR" means Eligible Accounts Receivables that are either (i) fully supported by a standby letter of credit issued by a commercial bank organized under the laws of the United States having an "A2/A" rating or better by Moody's and S&P respectively or (ii) the account debtor is a major international oil or other company rated "A2/A" or better by Moody's and S&P, respectively, or a Wholly Owned Subsidiary of such company whose obligations are guaranteed by such company as identified by the Company on Schedule 1.01B hereof as may be amended from time to time with the approval of the Majority Banks. "PRINCIPAL BUSINESS" means (i) the business of the exploration for, and development, acquisition, production, processing, marketing, refining, storage and transportation of, hydrocarbons, (ii) any related energy and natural resource business, (iii) any business currently engaged in by the Company or its Subsidiaries, (iv) convenience stores, retail service stations, truck stops and other public accommodations in connection therewith and (v) any activity or business that is a reasonable extension, development or expansion of any of the foregoing. "PRO RATA SHARE" means, as to any Bank at any time, the percentage equivalent (expressed as a decimal, rounded to the ninth decimal place) at such time of such Bank's Commitment divided by the combined Commitments of all Banks. "PURCHASE AGREEMENT" means the Purchase and Sale Agreement dated as of August 8, 1995 among Bloomfield Refining Company and Gary Williams Energy Corporation, as Sellers, and Giant Industries Arizona, Inc., as Buyer, as same may be amended, provided that if amended in any material respect, the written consent of the Majority Banks shall be required. "RECEIVABLES" shall mean, as to the Company or any of its Subsidiaries (other than "inactive" Subsidiaries), all accounts receivable, whether billed or unbilled, arising out of the sale of inventory in the ordinary course of business. "REFINED PRODUCTS" means all gasoline, diesel, aviation fuel, fuel oil, propane, ethanol, transmix and other products processed, refined or blended from Feedstocks and Intermediate Products valued at the lower of cost or market prices. "REGULATION U" and "REGULATION X" means Regulation U and Regulation X, respectively, of the Board of Governors of the Federal Reserve System from time to time in effect and shall include any successor or other regulations or official interpretations of said Board of Governors relating to the subject matter addressed therein. "REPORTABLE EVENT" means, any of the events set forth in SECTION 4043(b) of ERISA or the regulations thereunder, other than any such event for which the 30- day notice requirement under ERISA has been waived in regulations issued by the PBGC. "REQUIREMENT OF LAW" means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject, including without limitation Environmental Laws. "RESPONSIBLE OFFICER" means the chief financial officer or the treasurer of the Company. "REVOLVING LOAN" has the meaning specified in SECTION 2.01. "RISK PARTICIPATION FEE" has the meaning set forth in Subsection 3.08(a). "S&P" means Standard & Poor's Ratings Group, a Division of McGraw-Hill, Inc., a New York corporation. "SAN JUAN" means San Juan Refining Company, a New Mexico corporation. "SEC" means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions. "SECURITY AGREEMENT" means collectively each of the Security Agreements substantially in the form of Exhibit I hereto executed by the Company and each of its Subsidiaries in favor of the Administrative Agent and the Banks, as they may be amended, supplemented or otherwise modified from time to time. "SIGNIFICANT SUBSIDIARY" means (a) Arizona, (b) San Juan, (c) Phoenix, or (d) any other Subsidiary of the Company having total assets at or immediately prior to the time in question with a book value of $10,000,000 or more. "SOLVENT" means, as to any Person at any time, that (a) the fair value of all of the property of such Person is greater than the amount of such Person's liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of SECTION 101(32) of the Bankruptcy Code; (b) the present fair saleable value of all of the property of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature; and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital. "SPECIFIED SWAP CONTRACTS" means all Swap Contracts made or entered into at any time, or in effect at any time, whether directly or indirectly, and whether as a result of assignment or transfer or otherwise, between the Company or any Subsidiary of the Company and any Swap Provider, which Swap Contract is or was intended by the Company to have been entered into, in part or entirely, for purposes of mitigating interest rate or currency exchange risk relating to any liabilities owed or credit facilities in effect and not for the purposes of financing, speculation or taking a "market view" (which intent shall conclusively be deemed to exist if the Company so represents to the Swap Provider in writing) and as to which the final scheduled payment by the Company or its Subsidiary is not later than the Termination Date. "SUBORDINATED NOTES" means (i) the NBD Subordinated Notes issued under the NBD Indenture, (ii) the BNY Subordinated Notes issued under the BNY Indenture and (iii) such other notes as may be issued from time to time by the Company after the Execution Date which have been subordinated on terms and conditions satisfactory to the Administrative Agent and the Majority Banks, in their sole discretion, to all other Indebtedness of the Company to the Administrative Agent and the Banks, whether now existing or hereafter incurred. Notes shall not be considered "Subordinated Notes" unless and until the Administrative Agent shall have received copies of the documentation evidencing or relating to such notes evidencing the terms and conditions of subordination required by the Administrative Agent and the Majority Banks. "SUBSIDIARY" of a Person means any corporation, association, partnership, limited liability company, joint venture or other business entity of which more than 50% of the voting stock, membership interests or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Company. "SUPPLEMENTAL GUARANTY" means an agreement, in substantially the form attached to the Guaranty, pursuant to which the Person executing the same elects to become a Guarantor for purposes of the Credit Agreement and agrees to perform all of the obligations of a Guarantor under, and to be bound in all respects by the terms of, the Guaranty, as if said Person were a signatory party thereto. "SURETY INSTRUMENTS" means all letters of credit (including standby), banker's acceptances, bank guaranties, shipside bonds, surety bonds and similar instruments. "SWAP CONTRACT" means any agreement (including any master agreement and any agreement, whether or not in writing, relating to any single transaction) that is an interest rate swap agreement, basis swap, forward rate agreement, commodity swap, commodity option, commodity forward contracts, equity or equity index swap or option, bond option, interest rate option, forward foreign exchange agreement, rate cap, collar or floor agreement, currency swap agreement, cross-currency rate swap agreement, swap option, currency option or any other, similar agreement (including any option to enter into any of the foregoing). "SWAP PROVIDER" means any Bank or any Affiliate of any Bank that is at the time of determination party to a Swap Contract with the Company or any Subsidiary of the Company. "SYNTHETIC LEASE" means a financing arrangement that is treated as a lease for financial accounting purposes and as a loan for tax purposes. For the purposes hereof, the FFCA Lease (as defined in Schedule 8.05) shall be deemed and treated herein as a "Synthetic Lease," notwithstanding its nature or treatment for financial accounting, tax or other purposes. "TAXES" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges, and all liabilities with respect thereto, excluding, in the case of each Bank and the Administrative Agent, such taxes (including income taxes or franchise taxes) as are imposed on or measured by each Bank's net income by (i) any jurisdiction (or any political subdivision thereof) under the laws of which such Bank or the Administrative Agent, as the case may be, is organized or maintains a Lending Office or (ii) any jurisdiction (or political subdivision thereof) in which such Bank or the Administrative Agent, as the case may be, is "doing business" (unless it would not be deemed to be "doing business" in such jurisdiction absent the transactions contemplated hereby). "TERMINATION DATE" means the earlier of (a) December 23, 2001 or (b) the date on which the Commitments terminate in accordance with the provisions of this Agreement. "UNFUNDED PENSION LIABILITY" means the excess of a Plan's benefit liabilities under SECTION 4001(a)(16) of ERISA, over the current value of that Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to SECTION 412 of the Code for the applicable plan year. "UNITED STATES" and "U.S." each means the United States of America. "WHOLLY-OWNED SUBSIDIARY" means any corporation in which (other than directors' qualifying shares required by law) 100% of the capital stock of each class having ordinary voting power at the time as of which any determination is being made, is owned, beneficially and of record, by the Company, or by one or more of the other Wholly-Owned Subsidiaries, or both. "YEAR 2000 PROBLEM" means the inability of computers, as well as embedded microchips in non- computing devices, to perform properly date-sensitive functions after December 31, 1999. 1.02 OTHER INTERPRETIVE PROVISIONS. The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. Unless otherwise specified or the context clearly requires otherwise, the words "hereof", "herein", "hereunder" and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and subsection, SECTION, Schedule and Exhibit references are to this Agreement. The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. The term "including" is not limiting and means "including without limitation." In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including"; the words "to" and "until" each mean "to but excluding", and the word "through" means "to and including." Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting the statute or regulation. The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. This Agreement and other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. This Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to the Administrative Agent, the Company and the other parties, and are the products of all parties. Accordingly, they shall not be construed against the Banks or the Administrative Agent merely because of the Administrative Agent's or Banks' involvement in their preparation. 1.03 ACCOUNTING PRINCIPLES. (a) Unless the context otherwise clearly requires, all accounting terms not expressly defined herein shall be construed, and all financial computations required under this Agreement shall be made, in accordance with GAAP, consistently applied. References to "consolidated", when it precedes any accounting term, means such term as it would apply to the Company and its Subsidiaries on a consolidated basis, determined in accordance with GAAP. (b) References herein to "fiscal year" and "fiscal quarter" refer to such fiscal periods of the Company. ARTICLE II THE CREDITS 2.01 AMOUNTS AND TERMS OF COMMITMENTS. Each Bank severally agrees, on the terms and conditions set forth herein, to make Loans to the Company (each such loan, a "Revolving Loan") from time to time on any Business Day during the period from the Closing Date to the Termination Date, in an aggregate amount not to exceed at any time outstanding the lesser of the following: (i) the amount set forth on Schedule 2.01 (such amount, as the same may be reduced under SECTION 2.05 or as a result of one or more assignments under SECTION 11.08, the Bank's "Commitment") and (ii) the Bank's Pro Rata Share of the current Borrowing Base; provided, however, that, after giving effect to any Borrowing of Revolving Loans, the Effective Amount of all outstanding Revolving Loans, together with the Effective Amount of all L/C Obligations, shall not at any time exceed the combined Commitments of all of the Banks. Within the limits of each Bank's Commitment, and subject to the other terms and conditions of this Agreement, the Company may borrow under this SECTION 2.01, prepay under SECTION 2.06 and reborrow under this SECTION 2.01. 2.02 LOAN ACCOUNTS. (a) The Loans made by each Bank shall be evidenced by one or more loan accounts or records maintained by such Bank in the ordinary course of business. The loan accounts or records maintained by the Administrative Agent and each Bank shall be conclusive absent manifest error of the amount of the Loans made by the Banks to the Company and the interest and payments thereon. Any failure so to record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Company hereunder to pay any amount owing with respect to the Loans. (b) Upon the request of any Bank made through the Administrative Agent, the Loans made by such Bank may be evidenced by one or more Notes, instead of or in addition to loan accounts. Each such Bank shall endorse on the schedules annexed to its Note(s) the date, amount and maturity of each Loan made by it and the amount of each payment of principal made by the Company with respect thereto. Each such Bank is irrevocably authorized by the Company to endorse its Note(s) and each Bank's record shall be conclusive absent manifest error; provided, however, that the failure of a Bank to make, or an error in making, a notation thereon with respect to any Loan shall not limit or otherwise affect the obligations of the Company hereunder or under any such Note to such Bank. 2.03 PROCEDURE FOR BORROWING. (a) Each Borrowing of Revolving Loans shall be made upon the Company's irrevocable written notice delivered to the Administrative Agent in the form of a Notice of Borrowing (which notice must be received by the Administrative Agent prior to 9:00 a.m. (San Francisco, California time) (i) three Business Days prior to the requested Borrowing Date, in the case of Offshore Rate Loans; and (ii) one Business Day prior to the requested Borrowing Date, in the case of Base Rate Loans, specifying: (A) the amount of the Borrowing, which shall be in an aggregate minimum amount of $2,000,000 or any multiple of $1,000,000 in excess thereof; (B) the requested Borrowing Date, which shall be a Business Day; (C) the Interest Rate Type of Loans comprising the Borrowing; and (D) the duration of the Interest Period applicable to such Loans included in such notice. If the Notice of Borrowing fails to specify the duration of the Interest Period for any Borrowing comprised of Offshore Rate Loans, such Interest Period shall be three months. (b) The Administrative Agent will promptly notify each Bank of its receipt of any Notice of Borrowing and of the amount of such Bank's Pro Rata Share of that Borrowing. (c) Each Bank will make the amount of its Pro Rata Share of each Borrowing available to the Administrative Agent for the account of the Company at the Administrative Agent's Payment Office by 11:00 a.m. (San Francisco, California time) on the Borrowing Date requested by the Company in funds immediately available to the Administrative Agent. The proceeds of all such Loans will then be made available to the Company by the Administrative Agent by wire transfer in accordance with written instructions provided to the Administrative Agent by the Company of like funds as received by the Administrative Agent. (d) After giving effect to any Borrowing, there may not be more than seven (7) different Interest Periods in effect. 2.04 CONVERSION AND CONTINUATION ELECTIONS. (a) The Company may, upon irrevocable written notice to the Administrative Agent in accordance with Subsection 2.04(b): (i) elect, as of any Business Day, in the case of Base Rate Loans, or as of the last day of the applicable Interest Period, in the case of Offshore Rate Loans, to convert any such Loans (or any part thereof in an amount not less than $2,000,000, or that is in an integral multiple of $1,000,000 in excess thereof) into Loans of any other Interest Rate Type; or (ii) elect as of the last day of the applicable Interest Period, to continue any Revolving Loans having Interest Periods expiring on such day (or any part thereof in an amount not less than $2,000,000, or that is in an integral multiple of $1,000,000 in excess thereof); provided, that if at any time the aggregate amount of Offshore Rate Loans in respect of any Borrowing is reduced, by payment, prepayment, or conversion of part thereof to be less than $2,000,000, such Offshore Rate Loans shall automatically convert into Base Rate Loans, and on and after such date the right of the Company to continue such Loans as, and convert such Loans into, Offshore Rate Loans shall terminate. (b) The Company shall deliver a Notice of Conversion/Continuation to be received by the Administrative Agent not later than 9:00 a.m. (San Francisco, California time) at least (i) three Business Days in advance of the Conversion/Continuation Date, if the Loans are to be converted into or continued as Offshore Rate Loans; and (ii) one Business Day in advance of the Conversion/Continuation Date, if the Loans are to be converted into Base Rate Loans, specifying: (A) the proposed Conversion/Continuation Date; (B) the aggregate amount of Loans to be converted or continued; (C) the Interest Rate Type of Loans resulting from the proposed conversion or continuation; and (D) other than in the case of conversions into Base Rate Loans, the duration of the requested Interest Period. (c) If upon the expiration of any Interest Period applicable to Offshore Rate Loans, the Company has failed to select timely a new Interest Period to be applicable to Offshore Rate Loans, or if any Default or Event of Default then exists, the Company shall be deemed to have elected to convert such Offshore Rate Loans into Base Rate Loans effective as of the expiration date of such Interest Period. (d) The Administrative Agent will promptly notify each Bank of its receipt of a Notice of Conversion/Continuation, or, if no timely notice is provided by the Company, the Administrative Agent will promptly notify each Bank of the details of any automatic conversion. All conversions and continuations shall be made ratably according to the respective outstanding principal amounts of the Loans with respect to which the notice was given held by each Bank. (e) Unless the Majority Banks otherwise agree, during the existence of a Default or Event of Default, the Company may not elect to have a Loan converted into or continued as an Offshore Rate Loan. (f) After giving effect to any conversion or continuation of Loans, there may not be more than seven (7) different Interest Periods in effect. 2.05 TERMINATION OR REDUCTION OF COMMITMENTS. (a) Voluntary Termination or Reduction. The Company may, upon not less than five Business Days' prior notice to the Administrative Agent, terminate the Commitments, or permanently reduce the Commitments (and, correspondingly, as applicable, the L/C Commitment) by an aggregate minimum amount of $2,000,000.00 or any multiple of $1,000,000.00 in excess thereof; unless, after giving effect thereto and to any prepayments of Loans made on the effective date thereof, (i) the Effective Amount of all Revolving Loans and L/C Obligations together would exceed the amount of the combined Commitments then in effect, or (ii) the Effective Amount of all L/C Obligations then outstanding would exceed the amount of the L/C Commitment then in effect. Once reduced in accordance with this subsection, the Commitments may not be increased. (b) ADDITIONAL PROVISIONS. Each reduction in aggregate Commitments pursuant to paragraph (a) above shall be applied to each Bank according to its Pro Rata Share. All accrued Commitment Fees on the amount of the Commitments so terminated or reduced, Letter of Credit Fees, and Fronting Fees to, but not including, the effective date of any reduction or termination of Commitments, shall be paid by the Company on the effective date of such reduction or termination. 2.06 OPTIONAL PREPAYMENTS. Subject to SECTION 4.04, the Company may, at any time or from time to time, upon irrevocable notice to the Administrative Agent, not less than three (3) Business Days, for Offshore Rate Loans and one (1) Business Day for Base Rate Loans, ratably as to each Bank, prepay Loans in whole or in part, in minimum amounts of $2,000,000 or any multiple of $1,000,000 in excess thereof. Such notice of prepayment shall specify the date and amount of such prepayment and the Interest Rate Type(s) of Loans to be prepaid. The Administrative Agent will promptly notify each Bank of its receipt of any such notice, and of such Bank's Pro Rata Share of such prepayment. If such notice is given by the Company, the Company shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to each such date on the amount prepaid and any amounts required pursuant to SECTION 4.04. 2.07 BORROWING BASE DETERMINATIONS, MANDATORY PREPAYMENTS OF LOANS. (a) The Borrowing Base shall be determined monthly on the last day of each month until the Termination Date and shall be equal to the sum of (i) eighty percent (80%) of Eligible Refinery Hydrocarbon Inventory (except for Eligible Refinery Hydrocarbon Inventory at the Company's and its Subsidiaries' service stations and travel centers), plus (ii) fifty percent (50%) of Eligible Refinery Hydrocarbon Inventory at the Company's and its Subsidiaries' service stations and travel centers, plus (iii) ninety percent (90%) of Eligible Accounts Receivable from Preferred Account Obligors plus (iv) eighty-five percent (85%) of Eligible Accounts Receivable from Eligible Account Obligors other than Preferred Eligible Account Obligors. (b) If on any date the Effective Amount of all Revolving Loans and the Effective Amount of all L/C Obligations together exceed the Borrowing Base, the Company shall, without notice or demand, prepay the outstanding principal amount of the Revolving Loans by an amount equal to the applicable excess ("Mandatory Prepayment"). Subject to SECTION 4.04, if on any date after giving effect to any Mandatory Prepayment made on such date pursuant to the preceding sentence the Effective Amount of all L/C Obligations together exceed the Borrowing Base, the Company shall immediately Cash Collateralize on such date the outstanding Letters of Credit in an amount equal to the amount by which the Effective Amount of the L/C Obligations exceeds the Borrowing Base. 2.08 REPAYMENT. (a) PRINCIPAL. The Company shall repay to the Banks the aggregate principal amount of Loans outstanding on the Termination Date. (b) INTEREST. (i) Subject to clause (iii) of this subsection 2.08(b), each Revolving Loan shall bear interest on the outstanding principal amount thereof from the applicable Borrowing Date at a rate per annum equal to the lesser of (a) the Offshore Rate or the Base Rate, as the case may be, as selected by the Company or otherwise applicable to such Revolving Loan in accordance with the terms and provisions hereof (subject to the Company's right to convert to other Interest Rate Types of Loans under SECTION 2.04), plus the Applicable Margin, or (b) the Highest Lawful Rate. (ii) Interest on each Revolving Loan shall be paid in arrears on each Interest Payment Date. Interest shall also be paid on the date of any prepayment of Loans under SECTION 2.06 or 2.07 for the portion of the Loans so prepaid and upon payment (including prepayment) in full thereof and, during the existence of any Event of Default, interest shall be paid on demand of the Administrative Agent at the request or with the consent of the Majority Banks. (iii) Notwithstanding clause (i) of this subsection 2.08(b), while any Event of Default exists or after acceleration, the Company shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on the principal amount of all outstanding Loans, at a rate per annum equal to the lesser of (x) the Highest Lawful Rate and (y) the per annum rate equal to the rate set forth in clause (i) of this subsection 2.08(b) plus two percent (2%) per annum. 2.09 FEES. In addition to certain fees described in SECTION 3.08: (a) ARRANGEMENT, AGENCY FEES. The Company shall pay an arrangement fee to the Arranger for the Arranger's own account, and shall pay an agency fee to the Administrative Agent for the Administrative Agent's own account, as required by the letter agreement ("Fee Letter") between the Company and the Arranger and Administrative Agent dated October 27, 1998. (b) COMMITMENT FEES. The Company shall pay to the Administrative Agent for the account of each Bank a commitment fee (the "Commitment Fee") on the average daily unused portion of such Bank's Commitment, computed on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon the daily utilization for that quarter as calculated by the Administrative Agent, equal to the percent per annum set forth in Schedule 2.02 corresponding to the applicable pricing level determined in accordance therewith. For purposes of calculating utilization under this subsection, the Commitments shall be deemed used to the extent of the Effective Amount of Revolving Loans then outstanding, plus the Effective Amount of L/C Obligations then outstanding. Such Commitment Fee shall accrue from the Execution Date to the Termination Date and shall be due and payable quarterly in arrears on the last Business Day of each quarter commencing on December 31, 1998 through the Termination Date, with the final payment to be made on the Termination Date; provided that, in connection with any reduction or termination of Commitments under SECTION 2.05, the accrued Commitment Fee calculated for the period ending on such date shall also be paid on the date of such reduction or termination, with the following quarterly payment being calculated on the basis of the period from such reduction or termination date to such quarterly payment date. The Commitment Fee provided in this subsection shall accrue at all times after the above-mentioned commencement date, including at any time during which one or more conditions in Article V are not met. 2.10 COMPUTATION OF FEES AND INTEREST. (a) All computations of interest for Base Rate Loans when the Base Rate is determined by Bank of America's "reference rate" shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more interest being paid than if computed on the basis of a 365-day year). Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof. (b) Each determination of an interest rate by the Administrative Agent shall be conclusive and binding on the Company and the Banks in the absence of manifest error. 2.11 PAYMENTS BY THE COMPANY. (a) All payments to be made by the Company shall be made without set-off, recoupment or counterclaim. Except as otherwise expressly provided herein, all payments by the Company shall be made to the Administrative Agent for the account of the Banks at the Administrative Agent's Payment Office, and shall be made in dollars and in immediately available funds, no later than 11:00 a.m. (San Francisco, California time) on the date specified herein. The Administrative Agent will promptly distribute to each Bank its Pro Rata Share (or other applicable share as expressly provided herein) of such payment in like funds as received. Any payment received by the Administrative Agent later than 11:00 a.m. (San Francisco, California time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue. (b) Subject to the provisions set forth in the definition of "Interest Period" herein, whenever any payment is due on a day other than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. (c) Unless the Administrative Agent receives notice from the Company prior to the date on which any payment is due to the Banks that the Company will not make such payment in full as and when required, the Administrative Agent may assume that the Company has made such payment in full to the Administrative Agent on such date in immediately available funds and the Administrative Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent the Company has not made such payment in full to the Administrative Agent, each Bank shall repay to the Administrative Agent on demand such amount distributed to such Bank, together with interest thereon at the Federal Funds Rate for each day from the date such amount is distributed to such Bank until the date repaid. 2.12 PAYMENTS BY THE BANKS TO THE ADMINISTRATIVE AGENT. (a) Unless the Administrative Agent receives notice from a Bank on or prior to the Execution Date or, with respect to any Borrowing after the Execution Date, at least one Business Day prior to the date of such Borrowing, that such Bank will not make available as and when required hereunder to the Administrative Agent for the account of the Company the amount of that Bank's Pro Rata Share of the Borrowing, the Administrative Agent may assume that each Bank has made such amount available to the Administrative Agent in immediately available funds on the Borrowing Date and the Administrative Agent may (but shall not be so required), in reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent any Bank shall not have made its full amount available to the Administrative Agent in immediately available funds and the Administrative Agent in such circumstances has made available to the Company such amount, that Bank shall on the Business Day following such Borrowing Date make such amount available to the Administrative Agent, together with interest at the Federal Funds Rate for each day during such period. A notice of the Administrative Agent submitted to any Bank with respect to amounts owing under this subsection (a) shall be conclusive, absent manifest error. If such amount is so made available, such payment to the Administrative Agent shall constitute such Bank's Loan on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to the Administrative Agent on the Business Day following the Borrowing Date, the Administrative Agent will notify the Company of such failure to fund and, upon demand by the Administrative Agent, the Company shall pay such amount to the Administrative Agent for the Administrative Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such Borrowing. (b) The failure of any Bank to make any Loan on any Borrowing Date shall not relieve any other Bank of any obligation hereunder to make a Loan on such Borrowing Date, but no Bank shall be responsible for the failure of any other Bank to make the Loan to be made by such other Bank on any Borrowing Date. 2.13 SHARING OF PAYMENTS, ETC. If, other than as expressly provided elsewhere herein, any Bank shall obtain on account of the Loans made by it any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its Pro Rata Share, such Bank shall immediately (a) notify the Administrative Agent of such fact, and (b) purchase from the other Banks such participations in the Loans made by them as shall be necessary to cause such purchasing Bank to share the excess payment pro rata with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from the purchasing Bank, such purchase shall to that extent be rescinded and each other Bank shall repay to the purchasing Bank the purchase price paid therefor, together with an amount equal to such paying Bank's ratable share (according to the proportion of (i) the amount of such paying Bank's required repayment to (ii) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Company agrees that any Bank so purchasing a participation from another Bank may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to SECTION 11.10) with respect to such participation as fully as if such Bank were the direct creditor of the Company in the amount of such participation. The Administrative Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased under this SECTION and will in each case notify the Banks following any such purchases or repayments. 2.14 SECURITY AND GUARANTY. (a) All obligations of the Company and the Guarantors under this Agreement, the Notes, the Guaranty and all other Loan Documents shall be secured, pro rata with the Specified Swap Contracts, in accordance with the Collateral Documents. The Company agrees that, at any time upon the request of the Administrative Agent (acting pursuant to the instructions of the Majority Banks), it shall, and shall cause each of its Subsidiaries to, enter into a cash collateral agreement in form and substance satisfactory to the Administrative Agent and the Majority Banks, pursuant to which all proceeds of accounts and other collateral shall be deposited directly, and, at the election of the Majority Banks, all account debtors shall be directed to make payments directly, to the Administrative Agent, the proceeds deposited to such account, following receipt of good funds, to be credited to the Company's general operating account with the Administrative Agent in the absence of any Default or Event of Default. (b) All obligations of the Company under this Agreement, each of the Notes and all other Loan Documents shall be unconditionally guaranteed by the Guarantors pursuant to the Guaranty. ARTICLE III THE LETTERS OF CREDIT 3.01 THE LETTER OF CREDIT FACILITY. (a) On the terms and conditions set forth herein (i) the Issuing Bank agrees, (A) from time to time on any Business Day during the period from the Execution Date to the Termination Date to issue Letters of Credit for the account of the Company, and to amend or renew Letters of Credit previously issued by it, in accordance with Subsections 3.02(c) and 3.02(e), and (B) to honor drafts under the Letters of Credit; and (ii) the Banks severally agree to participate in Letters of Credit Issued for the account of the Company; provided, that the Issuing Bank shall not be obligated to Issue, and no Bank shall be obligated to participate in, any Letter of Credit if, as of the date of Issuance of such Letter of Credit (the "Issuance Date"), after giving effect to such Issuance, (1) the Effective Amount of all L/C Obligations plus the Effective Amount of all Revolving Loans would exceed the lesser of (x) the combined Commitments and (y) the Borrowing Base, or (2) the Effective Amount of the L/C Obligations would exceed the L/C Commitment. Within the foregoing limits, and subject to the other terms and conditions hereof, the Company's ability to obtain Letters of Credit shall be fully revolving, and, accordingly, the Company may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit which have expired or which have been drawn upon and reimbursed. (b) The Issuing Bank is under no obligation to Issue any Letter of Credit if: (i) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Issuing Bank from Issuing such Letter of Credit, or any Requirement of Law applicable to the Issuing Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Issuing Bank shall prohibit, or request that the Issuing Bank refrain from, the Issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Issuing Bank with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the Issuing Bank is not otherwise compensated hereunder) not in effect on the Execution Date, or shall impose upon the Issuing Bank any unreimbursed loss, cost or expense which was not applicable on the Execution Date and which the Issuing Bank in good faith deems material to it; (ii) the Issuing Bank has received written notice from any Bank, the Administrative Agent or the Company, on or prior to the Business Day prior to the requested date of Issuance of such Letter of Credit, that one or more of the applicable conditions contained in Article V is not then satisfied; (iii) the expiry date of any requested Letter of Credit is (A) more than 360 days after the date of Issuance, unless the Issuing Bank and the Majority Banks have approved such expiry date in writing, or (B) after the Termination Date, unless all of the Banks have approved such expiry date in writing; (iv) the expiry date of any requested Letter of Credit is prior to the maturity date of any financial obligation to be supported by the requested Letter of Credit; (v) any requested Letter of Credit does not provide for drafts, or is not otherwise in form and substance acceptable to the Issuing Bank, or the Issuance of a Letter of Credit shall violate any applicable policies of the Issuing Bank; (vi) any Letter of Credit is for the purpose of supporting the issuance of any letter of credit by any other Person; or (vii) if such Letter of Credit is issued to support workmen's compensation liabilities and the face amount is more than $1,000,000. 3.02 ISSUANCE, AMENDMENT AND RENEWAL OF LETTERS OF CREDIT. (a) Each Letter of Credit shall be issued two (2) Business Days after receipt by the Issuing Bank (if received by the Issuing Bank no later than 10:00 a.m. Chicago time) of an irrevocable written request from the Company (with a copy sent by the Company to the Administrative Agent) or such shorter time as the Issuing Bank may agree in a particular instance in its sole discretion. Each such request for issuance of a Letter of Credit shall be by facsimile, confirmed immediately in an original writing, in the form of an L/C Application, and shall specify in form and detail satisfactory to the Issuing Bank such matters as the Issuing Bank may require. (b) At least two Business Days prior to the Issuance of any Letter of Credit, the Issuing Bank will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of the L/C Application or L/C Amendment Application from the Company and, if the Administrative Agent has not received such copy, the Issuing Bank will provide the Administrative Agent with a copy thereof. Unless the Issuing Bank has received notice on or before the Business Day immediately preceding the date the Issuing Bank is to issue a requested Letter of Credit from the Administrative Agent (A) directing the Issuing Bank not to issue such Letter of Credit because such issuance is not then permitted under Subsection 3.01(b); or (B) that one or more conditions specified in Article V are not then satisfied; then, subject to the terms and conditions hereof, the Issuing Bank shall, on the requested date, issue a Letter of Credit for the account of the Company in accordance with the Issuing Bank's usual and customary business practices. (c) From time to time while a Letter of Credit is outstanding and prior to the Termination Date, the Issuing Bank will, upon the written request of the Company received by the Issuing Bank (with a copy sent by the Company to the Administrative Agent) at or before 10:00 a.m. Chicago Time at least two (2) Business Days (or such shorter time as the Issuing Bank may agree in a particular instance in its sole discretion), amend any Letter of Credit issued by it. Each such request for amendment of a Letter of Credit shall be made by facsimile, confirmed immediately in an original writing, and made in such form as the Issuing Bank may require. The Issuing Bank shall be under no obligation to amend any Letter of Credit if: (A) the Issuing Bank would have no obligation at such time to issue such Letter of Credit in its amended form under the terms of this Agreement; or (B) the beneficiary of any such Letter of Credit does not accept the proposed amendment to the Letter of Credit. (d) Upon receipt of notice from the Issuing Bank, the Administrative Agent will promptly notify the Banks of the Issuance of a Letter of Credit and any amendment thereto. (e) If any outstanding Letter of Credit shall provide that it shall be automatically renewed unless the beneficiary thereof receives notice from the Issuing Bank that such Letter of Credit shall not be renewed, the Issuing Bank shall be permitted to allow such Letter of Credit to renew, and the Company and the Banks hereby authorize such renewal. The Issuing Bank shall not be obligated to allow such Letter of Credit to renew if the Issuing Bank would have no obligation at such time to issue or amend such Letter of Credit under the terms of this Agreement. (f) The Issuing Bank may, at its election (or as required by the Administrative Agent at the direction of the Majority Banks), deliver any notices of termination or other communications to any Letter of Credit beneficiary, and take any other action as necessary or appropriate, at any time and from time to time, in order to cause the expiry date of such Letter of Credit to be a date not later than the Termination Date. (g) This Agreement shall control in the event of any conflict with any L/C-Related Document (other than any Letter of Credit). (h) The Issuing Bank will also deliver to the Administrative Agent, concurrently or promptly following its delivery of a Letter of Credit, or amendment to or renewal of a Letter of Credit, to an advising bank or a beneficiary, a true and complete copy of each such Letter of Credit or amendment to or renewal of a Letter of Credit. 3.03 EXISTING BANK OF AMERICA LETTERS OF CREDIT, RISK PARTICIPATIONS, DRAWINGS AND REIMBURSEMENTS. (a) On and after the Execution Date, the Existing Bank of America Letters of Credit shall be deemed for all purposes, including for purposes of the fees to be collected pursuant to Subsections 3.08(a) and 3.08(c), and reimbursement of costs and expenses to the extent provided herein, Letters of Credit outstanding under this Agreement and entitled to the benefits of this Agreement and the other Loan Documents, and shall be governed by the applications and agreements pertaining thereto and by this Agreement. Each Bank shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Bank on the Execution Date a participation in each such Letter of Credit and each drawing thereunder in an amount equal to the product of (i) such Bank's Pro Rata Share times (ii) the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively. For purposes of SECTION 2.01 and Subsection 2.09(b), the Existing Bank of America Letters of Credit shall be deemed to utilize pro rata the Commitment of each Bank. (b) Immediately upon the Issuance of each Letter of Credit, each Bank shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Bank a participation in such Letter of Credit and each drawing thereunder in an amount equal to the product of (i) the Pro Rata Share of such Bank, times (ii) the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively. For purposes of SECTION 2.01, each Issuance of a Letter of Credit shall be deemed to utilize the Commitment of each Bank by an amount equal to the amount of such participation. (c) In the event of any request for a drawing under a Letter of Credit by the beneficiary thereof, the Issuing Bank will promptly notify the Company. The Company shall reimburse the Issuing Bank prior to 10:00 a.m. (San Francisco, California time), on each date that any amount is paid by the Issuing Bank under any Letter of Credit (each such date, an "Honor Date"), in an amount equal to the amount so paid by the Issuing Bank. In the event the Company fails to reimburse the Issuing Bank for the full amount of any drawing under any Letter of Credit by 10:00 a.m. (San Francisco, California time) on the Honor Date, the Issuing Bank will promptly notify the Administrative Agent and the Administrative Agent will promptly notify each Bank thereof, and the Company shall be deemed to have requested that Base Rate Loans be made by the Banks to be disbursed on the Honor Date under such Letter of Credit, subject to the amount of the unutilized portion of the Commitments and subject to the conditions set forth in Article V. Any notice given by the Issuing Bank or the Administrative Agent pursuant to this Subsection 3.03(c) may be oral if immediately confirmed in writing (including by facsimile); provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice. (d) Each Bank shall upon any notice pursuant to Subsection 3.03(c) make available to the Administrative Agent for the account of the relevant Issuing Bank an amount in Dollars and in immediately available funds equal to its Pro Rata Share of the amount of the drawing, whereupon the participating Banks shall (subject to Subsection 3.03(e)) each be deemed to have made a Revolving Loan consisting of a Base Rate Loan to the Company in that amount. If any Bank so notified fails to make available to the Administrative Agent for the account of the Issuing Bank the amount of such Bank's Pro Rata Share of the amount of the drawing by no later than 12:00 noon (San Francisco, California time) on the Honor Date, then interest shall accrue on such Bank's obligation to make such payment, from the Honor Date to the date such Bank makes such payment, at a rate per annum equal to the Federal Funds Rate in effect from time to time during such period. The Administrative Agent will promptly give notice to each Bank of the occurrence of the Honor Date, but failure of the Administrative Agent to give any such notice on the Honor Date or in sufficient time to enable any Bank to effect such payment on such date shall not relieve such Bank from its obligations under this SECTION 3.03. (e) With respect to any unreimbursed drawing that is not converted into Revolving Loans consisting of Base Rate Loans to the Company in whole or in part, because of the Company's failure to satisfy the conditions set forth in Article V or for any other reason, the Company shall be deemed to have incurred from the Issuing Bank an L/C Borrowing in the amount of such drawing, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at a rate per annum equal to the Base Rate plus 2% per annum, and each Bank's payment to the Issuing Bank pursuant to Subsection 3.03(d) shall be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an L/C Advance from such Bank in satisfaction of its participation obligation under this SECTION 3.03. (f) Each Bank's obligation in accordance with this Agreement to make the Revolving Loans or L/C Advances, as contemplated by this SECTION 3.03, as a result of a drawing under a Letter of Credit, shall be absolute and unconditional and without recourse to the Issuing Bank and shall not be affected by any circumstance, including (i) any set-off, counterclaim, recoupment, defense or other right which such Bank may have against the Issuing Bank, the Company or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default, an Event of Default or a Material Adverse Effect; or (iii) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; provided, however, that each Bank's obligation to make Revolving Loans under this SECTION 3.03 is subject to the conditions set forth in Article V. 3.04 REPAYMENT OF PARTICIPATIONS. (a) When the Administrative Agent receives (and only if the Administrative Agent receives), for the account of the Issuing Bank, immediately available funds from the Company (i) in reimbursement of any payment made by the Issuing Bank under the Letter of Credit with respect to which any Bank has paid the Administrative Agent for the account of the Issuing Bank for such Bank's participation in the Letter of Credit pursuant to SECTION 3.03 or (ii) in payment of interest thereon, the Administrative Agent will pay to each Bank, in the same funds as those received by the Administrative Agent for the account of the Issuing Bank, the amount of such Bank's Pro Rata Share of such funds, and the Issuing Bank shall receive the amount of the Pro Rata Share of such funds of any Bank that did not so pay the Administrative Agent for the account of the Issuing Bank. (b) If the Administrative Agent or the Issuing Bank is required at any time to return to the Company, or to a trustee, receiver, liquidator, custodian, or any official in any Insolvency Proceeding, any portion of the payments made by the Company to the Administrative Agent for the account of the Issuing Bank pursuant to Subsection 3.04(a) in reimbursement of a payment made under the Letter of Credit or interest or fee thereon, each Bank shall, on demand of the Administrative Agent, forthwith return to the Administrative Agent or the Issuing Bank the amount of its Pro Rata Share of any amounts so returned by the Administrative Agent or the Issuing Bank plus interest thereon from the date such demand is made to the date such amounts are returned by such Bank to the Administrative Agent or the Issuing Bank, at a rate per annum equal to the Federal Funds Rate in effect from time to time. 3.05 ROLE OF THE ISSUING BANK. (a) Each Bank and the Company agree that, in paying any drawing under a Letter of Credit, the Issuing Bank shall not have any responsibility to obtain any document (other than any sight draft, certificates and other documents, if any, expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. (b) No Agent-Related Person nor any of the respective correspondents, participants or assignees of the Issuing Bank shall be liable to any Bank for: (i) any action taken or omitted in connection herewith at the request or with the approval of the Banks (including the Majority Banks, as applicable); (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any L/C- Related Document. (c) The Company hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided, however, that this assumption is not intended to, and shall not, preclude the Company's pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. No Agent-Related Person, nor any of the respective correspondents, participants or assignees of the Issuing Bank, shall be liable or responsible for any of the matters described in clauses (i) through (vii) of SECTION 3.06; provided, however, anything in such clauses to the contrary notwithstanding, that the Company may have a claim against the Issuing Bank, and the Issuing Bank may be liable to the Company, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Company which the Company proves were caused by the Issuing Bank's willful misconduct or gross negligence in failing to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft, certificate(s) and other documents, if any, strictly complying with the terms and conditions of such Letter of Credit. In furtherance and not in limitation of the foregoing: (i) the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary; and (ii) the Issuing Bank shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason. 3.06 OBLIGATIONS ABSOLUTE. The obligations of the Company under this Agreement and any L/C-Related Document to reimburse the Issuing Bank for a drawing under a Letter of Credit, and to repay any L/C Borrowing and any drawing under a Letter of Credit converted into Revolving Loans, shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement and each such other L/C-Related Document under all circumstances, including the following: (i) any lack of validity or enforceability of this Agreement or any L/C- Related Document; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of the Company in respect of any Letter of Credit or any other amendment or waiver of or any consent to departure from all or any of the L/C- Related Documents; (iii) the existence of any claim, set-off, defense or other right that the Company may have at any time against any beneficiary or any transferee of any Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the Issuing Bank or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by the L/C-Related Documents or any unrelated transaction; (iv) any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit; (v) any payment by the Issuing Bank under any Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of any Letter of Credit; or any payment made by the Issuing Bank under any Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor- in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of any Letter of Credit, including any arising in connection with any Insolvency Proceeding; (vi) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guarantee, for all or any of the obligations of the Company in respect of any Letter of Credit; or (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Company or a guarantor. 3.07 CASH COLLATERAL PLEDGE. Upon (i) the request of the Administrative Agent, (A) if the Issuing Bank has honored any full or partial drawing request on any Letter of Credit and such drawing has resulted in an L/C Borrowing hereunder, or (B) if, as of the Termination Date, any Letters of Credit may for any reason remain outstanding and partially or wholly undrawn, or (ii) the occurrence of the circumstances described in Subsection 2.07(b) requiring the Company to Cash Collateralize Letters of Credit, then, the Company shall immediately Cash Collateralize the L/C Obligations in an amount equal to the L/C Obligations. 3.08 LETTER OF CREDIT FEES. (a) The Company shall pay to the Administrative Agent for the account of each of the Banks a letter of credit fee (the "Risk Participation Fee") with respect to the Letters of Credit equal to (i) the percent per annum therefor specified in Schedule 2.02 corresponding to the applicable pricing level determined in accordance therewith multiplied by (ii) the average daily maximum amount available to be drawn on the outstanding Letters of Credit, computed on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon Letters of Credit outstanding for that quarter as calculated by the Administrative Agent. Such Risk Participation Fee shall be due and payable quarterly in arrears on the last Business Day of each calendar quarter during which Letters of Credit are outstanding, commencing on the first such quarterly date to occur after the Execution Date, through the Termination Date (or such later date upon which the outstanding Letters of Credit shall expire), with the final payment to be made on the Termination Date (or such later expiration date). (b) The Company shall pay to the Administrative Agent for the account of the Issuing Bank a letter of credit fronting fee (the "Fronting Fee") for each Letter of Credit Issued by the Issuing Bank equal to .125% per annum of the average daily maximum amount available to be drawn on the outstanding Letters of Credit, computed on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon Letters of Credit outstanding for that quarter. (c) The Company shall pay to the Issuing Bank from time to time on demand the normal issuance, presentation, amendment and other processing fees, and other standard costs and charges, of the Issuing Bank relating to letters of credit as from time to time in effect. 3.09 CASH COLLATERALIZATION. (a) If any Event of Default shall occur and be continuing, the Company agrees that it shall on the Business Day it receives notice from the Administrative Agent, acting upon instructions of the Majority Banks, deposit in an account (the "Cash Collateral Account") held by the Administrative Agent, for the benefit of the Banks, an amount in cash equal to the Letter of Credit Obligations as of such date. Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the Obligations. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Cash collateral shall be held in a blocked, non-interest bearing account held by the Administrative Agent or any Affiliate of the Administrative Agent upon such terms and in such type of account as customary at that depository institution. The Company shall pay any fees charged by such depository institution which fees are of the type customarily charged by such institution with respect to such accounts. Moneys in such account shall (i) be applied by the Administrative Agent to the payment of Letter of Credit Borrowings and interest thereon, (ii) be held for the satisfaction of the reimbursement obligations of the Company in respect of Letters of Credit, and (iii) if the maturity of the Loans has been accelerated, with the consent of the Majority Banks, be applied to satisfy the Obligations (pro rata with any obligations to the Swap Providers under Specified Swap Contracts then due and payable, in accordance with the Security Agreement). (b) As security for the payment of all Obligations, the Company hereby grants, conveys, assigns, pledges, sets over and transfers to the Administrative Agent, and creates in the Administrative Agent's favor a Lien on, and security interest, in all money, instruments and securities at any time held in or acquired in connection with the Cash Collateral Account, together with all proceeds thereof. At any time and from time to time, upon the Administrative Agent's request, the Company promptly shall execute and deliver any and all such further instruments and documents as may be necessary, appropriate or desirable in the Administrative Agent's judgment to obtain the full benefits (including perfection and priority) of the security interest created or intended to be created by this Subsection 3.09(b) and of the rights and powers herein granted. 3.10 UNIFORM CUSTOMS AND PRACTICE. The Uniform Customs and Practice for Documentary Credits as published by the International Chamber of Commerce ("UCP") most recently at the time of issuance of any Letter of Credit shall (unless otherwise expressly provided in the Letters of Credit) apply to the Letters of Credit. ARTICLE IV TAXES, YIELD PROTECTION AND ILLEGALITY 4.01 TAXES. (a) Any and all payments by the Company to each Bank or the Administrative Agent under this Agreement and any other Loan Document shall be made free and clear of, and without deduction or withholding for any Taxes. In addition, the Company shall pay all Other Taxes. (b) The Company agrees to indemnify and hold harmless each Bank and the Administrative Agent for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this SECTION) paid by the Bank or the Administrative Agent and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Bank or the Administrative Agent makes written demand therefor. (c) If the Company shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to any Bank or the Administrative Agent, then: (i) the sum payable shall be increased as necessary so that after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this SECTION) such Bank or the Administrative Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions or withholdings been made; (ii) the Company shall make such deductions and withholdings; (iii) the Company shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and (iv) the Company shall also pay to each Bank or the Administrative Agent for the account of such Bank, at the time interest is paid, all additional amounts which the respective Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes or Other Taxes had not been imposed. (d) Within 30 days after the date of any payment by the Company of Taxes or Other Taxes, the Company shall furnish the Administrative Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Administrative Agent. (e) If the Company is required to pay additional amounts to any Bank or the Administrative Agent pursuant to subsection (c) of this SECTION, then upon written request of the Company such Bank shall use reasonable efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its Lending Office so as to eliminate any such additional payment by the Company which may thereafter accrue, if such change in the judgment of such Bank is not otherwise disadvantageous to such Bank. 4.02 ILLEGALITY. (a) If any Bank determines that the introduction of any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for any Bank or its applicable Lending Office to make Offshore Rate Loans, then, on notice thereof by the Bank to the Company through the Administrative Agent, any obligation of that Bank to make Offshore Rate Loans shall be suspended until the Bank notifies the Administrative Agent and the Company that the circumstances giving rise to such determination no longer exist. (b) If a Bank determines that it is unlawful to maintain any Offshore Rate Loan, the Company shall, upon its receipt of notice of such fact and demand from such Bank (with a copy to the Administrative Agent), prepay in full such Offshore Rate Loans of that Bank then outstanding, together with interest accrued thereon and amounts required under SECTION 4.04, either on the last day of the Interest Period thereof, if the Bank may lawfully continue to maintain such Offshore Rate Loans to such day, or immediately, if the Bank may not lawfully continue to maintain such Offshore Rate Loan. If the Company is required to so prepay any Offshore Rate Loan, then concurrently with such prepayment, the Company shall borrow from the affected Bank, in the amount of such repayment, a Base Rate Loan. (c) If the obligation of any Bank to make or maintain Offshore Rate Loans has been so terminated or suspended, all Loans which would otherwise be made by the Bank as Offshore Rate Loans shall be instead Base Rate Loans. (d) Before giving any notice to the Administrative Agent under this SECTION, the affected Bank shall designate a different Lending Office with respect to its Offshore Rate Loans if such designation will avoid the need for giving such notice or making such demand and will not, in the judgment of the Bank, be illegal or otherwise disadvantageous to the Bank. 4.03 INCREASED COSTS AND REDUCTION OF RETURN. (a) If any Bank determines that, due to either (i) the introduction of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the Offshore Rate) in or in the interpretation of any law or regulation or (ii) the compliance by that Bank with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Bank of agreeing to make or making, funding or maintaining any Offshore Rate Loans or participating in Letters of Credit, or, in the case of the Issuing Bank, any increase in the cost to the Issuing Bank of agreeing to issue, issuing or maintaining any Letter of Credit or of agreeing to make or making, funding or maintaining any unpaid drawing under any Letter of Credit, then the Company shall be liable for, and shall from time to time, upon demand (with a copy of such demand to be sent to the Administrative Agent), pay to the Administrative Agent for the account of such Bank, additional amounts as are sufficient to compensate such Bank for such increased costs. (b) If any Bank shall have determined that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by the Bank (or its Lending Office) or any corporation controlling the Bank with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank and (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy and such Bank's desired return on capital) determines that the amount of such capital is increased as a consequence of its Commitments, loans, credits or obligations under this Agreement, then, upon demand of such Bank to the Company through the Administrative Agent, the Company shall pay to the Bank, from time to time as specified by the Bank, additional amounts sufficient to compensate the Bank for such increase. 4.04 FUNDING LOSSES. The Company shall reimburse each Bank and hold each Bank harmless from any loss or expense which the Bank may sustain or incur as a consequence of: (a) the failure of the Company to make on a timely basis any payment of principal of any Offshore Rate Loan; (b) the failure of the Company to borrow, continue or convert a Loan after the Company has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/ Continuation (including by reason of the failure to satisfy any condition precedent thereto); (c) the failure of the Company to make any prepayment in accordance with any notice delivered under SECTION 2.06; (d) the prepayment (including pursuant to SECTION 2.07 or 2.08) or other payment (including after acceleration thereof) of an Offshore Rate Loan on a day that is not the last day of the relevant Interest Period; or (e) the automatic conversion under SECTION 2.04 of any Offshore Rate Loan to a Base Rate Loan on a day that is not the last day of the relevant Interest Period; including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its Offshore Rate Loans or from fees payable to terminate the deposits from which such funds were obtained. For purposes of calculating amounts payable by the Company to the Banks under this SECTION and under Subsection 4.03(a), each Offshore Rate Loan made by a Bank (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the LIBOR used in determining the Offshore Rate for such Offshore Rate Loan by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Offshore Rate Loan is in fact so funded. 4.05 INABILITY TO DETERMINE RATES. If the Administrative Agent determines that for any reason adequate and reasonable means do not exist for determining the Offshore Rate for any requested Interest Period with respect to a proposed Offshore Rate Loan, or that the Offshore Rate applicable pursuant to Subsection 2.08(b)(i) for any requested Interest Period with respect to a proposed Offshore Rate Loan does not adequately and fairly reflect the cost to the Banks of funding such Loan, the Administrative Agent will promptly so notify the Company and each Bank. Thereafter, the obligation of the Banks to make or maintain Offshore Rate Loans hereunder shall be suspended until the Administrative Agent upon the instruction of the Majority Banks revokes such notice in writing. Upon receipt of such notice, the Company may revoke any Notice of Borrowing or Notice of Conversion/Continuation then submitted by it. If the Company does not revoke such Notice, the Banks shall make, convert or continue the Loans, as proposed by the Company, in the amount specified in the applicable notice submitted by the Company, but such Loans shall be made, converted or continued as Base Rate Loans instead of Offshore Rate Loans. 4.06 CERTIFICATES OF BANKS. Any Bank claiming reimbursement or compensation under this Article IV shall deliver to the Company (with a copy to the Administrative Agent) a certificate setting forth in reasonable detail the amount payable to the Bank hereunder and such certificate shall be conclusive and binding on the Company in the absence of manifest error. 4.07 SUBSTITUTION OF BANKS. Upon the receipt by the Company from any Bank (an "Affected Bank") of a notice of illegality under SECTION 4.02 or a claim for compensation under SECTION 4.03, or the Company being or becoming liable with respect to payments hereunder to any Bank (also an "Affected Bank") for any Taxes pursuant to SECTION 4.01 assessed at a rate in excess of the rate of any such Taxes for which it is liable with respect to payments to any other Bank hereunder, the Company may: (i) request the Affected Bank to use its best efforts to obtain a replacement bank or financial institution satisfactory to the Administrative Agent (a "Replacement Bank") to acquire and assume all or a ratable part of all of such Affected Bank's Loans and Commitment, and, if such Affected Bank or any Affiliate thereof is a Swap Provider, all specified Swap Contracts of such Affected Bank and its Affiliates; (ii) request one more of the other Banks to acquire and assume all or part of such Affected Bank's Loans and Commitment, and, if such Affected Bank or any Affiliate thereof is a Swap Provider, all specified Swap Contracts of such Affected Bank and its Affiliates, but none of the Banks shall have any obligation to do so; or (iii) designate a Replacement Bank satisfactory to the Administrative Agent. Any such designation of a Replacement Bank under clause (i) or (iii) shall be subject to the prior written consent of the Administrative Agent which consent shall not be unreasonably withheld. 4.08 SURVIVAL. The agreements and obligations of the Company in this Article IV shall survive the payment of all other Obligations. ARTICLE V CONDITIONS PRECEDENT 5.01 CONDITIONS OF INITIAL CREDIT EXTENSIONS. The obligation of each Bank to make its initial Credit Extension and the obligation of the Issuing Bank to issue the first Letter of Credit, hereunder is subject to the condition that the Administrative Agent shall have received on or before the Closing Date all of the following, in form and substance satisfactory to the Administrative Agent and each Bank, and in sufficient copies for each Bank: (a) CREDIT AGREEMENT, NOTES, GUARANTY, PERFECTION CERTIFICATE AND INITIAL BORROWING BASE REPORT AND COMPLIANCE CERTIFICATE. This Agreement, the Notes, and the Guaranty executed by each party thereto, a certificate in such form and detail as the Administrative Agent may require as to matters relating to the Collateral and perfection of security interests therein, an initial Borrowing Base Report for the month ended November 30, 1998 and an initial Compliance Certificate for the quarter ended September 30, 1998; (b) CERTIFICATE REGARDING EXISTING INDEBTEDNESS. A certificate signed by a Responsible Officer of the Company, certifying as to the Indentures, including in each case all schedules, exhibits and other attachments thereto, as then in effect, and as to the Company's compliance with SECTION 8.11 in respect thereof; (c) RESOLUTIONS; INCUMBENCY ORGANIZATION DOCUMENTS. (i) Resolutions of the board of directors of the Company and each Guarantor authorizing the transactions contemplated hereby, certified as of the Closing Date by the Secretary or an Assistant Secretary of such Person; (ii) Certificates of the Secretary or Assistant Secretary of the Company and each Guarantor certifying the names and true signatures of the officers or such Person authorized to execute, deliver and perform, as applicable, this Agreement, the Notes, the Guaranties and all other Loan Documents to be delivered by it hereunder; and (iii) Articles or certificates of incorporation and the bylaws of the Company and each Guarantor as in effect on the Closing Date, certified by the Secretary or Assistant Secretary of the such Person as of the Closing Date; (d) CERTIFICATE (ORGANIZATION, QUALIFICATION AND GOOD STANDING). A certificate signed by a Responsible Officer, dated as of the Execution Date, identifying those states in which the ownership, lease or operation of property or the conduct of its business requires the Company and each of the Guarantors, respectively, to be qualified or licensed to do business as a foreign corporation, and attaching thereto, with respect to the Company and each of the Guarantors, respectively, certificates of the Secretary of State (and/or similar applicable Governmental Authority) of its state of incorporation or organization and each such state where it is so required to be qualified or licensed to do business as a foreign corporation, certifying as of a recent date each such Person's existence or qualification, as applicable, and good standing in each such jurisdictions; (e) LEGAL OPINIONS. Copies of (i) a favorable opinion of Kim Bullerdick, Counsel to the Company, addressed to the Administrative Agent and the Banks, substantially in the form of Exhibit "D-1"; and (ii) a favorable opinion of Fennemore Craig, P.C., special counsel to the Company, addressed to the Administrative Agent and the Banks, substantially in the form of Exhibit D-2; (f) PAYMENT OF FEES. Evidence of payment by the Company of all accrued and unpaid fees, costs and expenses owed pursuant to this Agreement and the Fee Letter to the extent then due and payable on the Closing Date, together with Attorney Costs of the Administrative Agent to the extent invoiced prior to or on the Closing Date, plus such additional amounts of Attorney Costs as shall constitute the Administrative Agent's estimate of Attorney Costs incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude final settling of accounts between the Company and the Administrative Agent); including any such costs, fees and expenses arising under or referenced in SECTIONs 2.09 and 11.04; (g) CERTIFICATE (REPRESENTATIONS AND WARRANTIES, ETC.). A certificate signed by a Responsible Officer, dated as of the Closing Date, stating that (i) the representations and warranties contained in Article VI are true and correct on and as of such date, as though made on and as of such date; (ii) no Default or Event of Default exists or would result from the Credit Extension being made on the Closing Date; (iii) no litigation is pending or threatened against the Company or any Subsidiary in which there is a reasonable probability of an adverse decision which would result in a Material Adverse Effect; and (iv) there has occurred since September 30, 1998, no event or circumstance that has resulted or would reasonably be expected to result in a Material Adverse Effect; (h) TERMINATION OF THE 1995 GIANT CREDIT FACILITY. Evidence of the termination of the Credit Agreement dated as of October 4, 1995 among the Company, as borrower, Giant Industries Arizona, Inc., Ciniza Production Company, San Juan Refining Company, Giant Exploration & Production Company and Giant Four Corners, Inc., as guarantors, Bank of America, as administrative agent, Bank of America Illinois, as a bank and as letter of credit issuing bank and the other financial institutions parties thereto, as amended; (i) COLLATERAL DOCUMENTS. The Collateral Documents, executed by the Company, in appropriate form for recording, where necessary, together with: (i) acknowledgment copies of all UCC-l financing statements filed, registered or recorded to perfect the security interests of the Administrative Agent for the benefit of the Banks, or other evidence satisfactory to the Administrative Agent that there has been filed, registered or recorded all financing statements and other filings, registrations and recordings necessary and advisable to perfect the Liens of the Administrative Agent for the benefit of the Banks in accordance with applicable law; (ii) written advice relating to such Lien and judgment searches as the Administrative Agent shall have requested, and such termination statements or other documents as may be necessary to confirm that the Collateral is subject to no other Liens in favor of any Persons; (iii) funds sufficient to pay any filing or recording tax or fee in connection with any and all UCC-1 financing statements; (iv) evidence that the Administrative Agent has been named as loss payee under all policies of casualty insurance pertaining to the Collateral; (v) such consents, estoppels, subordination agreements and other documents and instruments executed by landlords and other Persons party to material contracts relating to any Collateral as to which the Administrative Agent shall be granted a Lien for the benefit of the Banks, as requested by the Administrative Agent or any Bank; and (vi) evidence that all other actions necessary or, in the opinion of the Administrative Agent or the Banks, desirable to perfect and protect the first priority Lien created by the Collateral Documents, and to enhance the Administrative Agent's ability to preserve and protect its interests in and access to the Collateral, have been taken; and (j) OTHER DOCUMENTS. Such other approvals, opinions, documents or materials as the Administrative Agent or any Bank may request. 5.02 CONDITIONS TO ALL CREDIT EXTENSIONS. The obligation of each Bank to make any Revolving Loan to be made by it (including its initial Revolving Loan) or to continue or convert any Revolving Loan under SECTION 2.04 and the obligation of the Issuing Bank to Issue any Letter of Credit (including the initial Letter of Credit) is subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date, Conversion/Continuation Date or Issuance Date: (a) NOTICE, APPLICATION. The Administrative Agent shall have received a timely Notice of Borrowing or a timely Notice of Conversion/Continuation, as applicable, or, in the case of any Issuance of any Letter of Credit, the Issuing Bank and the Administrative Agent shall have received an L/C Application or L/C Amendment Application, as required under SECTION 3.02; (b) CONTINUATION OF REPRESENTATIONS AND WARRANTIES. The representations and warranties in Article VI shall be true and correct on and as of such Borrowing Date, Issuance Date or Conversion/Continuation Date with the same effect as if made on and as of such Borrowing Date, Issuance Date or Conversion/Continuation Date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date); (c) NO EXISTING DEFAULT. No Default or Event of Default shall exist or shall result from such Borrowing or continuation or conversion; (d) NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have occurred that has resulted or would reasonably be expected to result in a Material Adverse Effect; and (e) NO FUTURE ADVANCE NOTICE. Neither the Administrative Agent nor any Bank shall have received any notice that any Collateral Document will no longer secure on a first priority basis future advances or future Loans to be made or extended under this Agreement. Each Notice of Borrowing, Notice of Conversion/Continuation and L/C Application or L/C Amendment Application submitted by the Company hereunder shall constitute a representation and warranty by the Company hereunder, as of the date of each such notice and as of each Borrowing Date, Conversion/Continuation Date, or Issuance Date, as applicable, that the conditions in SECTION 5.02 are satisfied. ARTICLE VI REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Administrative Agent and each Bank that: 6.01 CORPORATE EXISTENCE AND POWER. The Company and each of its Material Subsidiaries: (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) has the power and authority and all material governmental licenses, authorizations, consents and approvals to own its assets, carry on its business and to execute, deliver, and perform its obligations under the Loan Documents; (c) is duly qualified as a foreign corporation and is licensed and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification or license; and (d) is in compliance in all material respects with all Requirements of Law; except, in each case referred to in clause (b), (c) and (d), to the extent that the failure to do so would not reasonably be expected to have a Material Adverse Effect. 6.02 CORPORATE AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and performance by the Company and its Subsidiaries of this Agreement and each other Loan Document to which such Person is a party, have been duly authorized by all necessary corporate action, and do not and will not: (a) contravene the terms of any of that Person's Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, any document evidencing any material Contractual Obligation to which such Person is a party or any order, injunction, writ or decree of any Governmental Authority to which such Person or its property is subject; or (c) violate any Requirement of Law. 6.03 GOVERNMENTAL AUTHORIZATION. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Company or any of its Subsidiaries of this Agreement or any other Loan Document to which it is a party. 6.04 BINDING EFFECT. This Agreement and each other Loan Document to which the Company or any of its Subsidiaries is a party constitute the legal, valid and binding obligations of the Company and any of its Subsidiaries to the extent it is a party thereto, enforceable against such Person in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. 6.05 LITIGATION. There are no actions, suits, proceedings, claims or disputes pending, or to the best knowledge of the Company, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, against the Company, or its Subsidiaries or any of their respective properties which: (a) purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby or thereby; or (b) if determined adversely to the Company or its Subsidiaries, would reasonably be expected to have a Material Adverse Effect. No injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the Acquisition, execution, delivery or performance of this Agreement or any other Loan Document, or directing that the transactions provided for herein or therein not be consummated as herein or therein provided. 6.06 NO DEFAULT. No Default or Event of Default exists or would be reasonably expected to result from the incurring of any Obligations by the Company or from the grant or perfection of the Liens of the Administrative Agent and the Banks on the Collateral. Neither the Company nor any Material Subsidiary is in default under or with respect to any Contractual Obligation in any respect which, individually or together with all such defaults, would reasonably be expected to have a Material Adverse Effect, or that would, if such default had occurred after the Closing Date, create an Event of Default under Subsection 9.01(e). 6.07 ERISA COMPLIANCE. (a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law. Each Plan which is intended to qualify under SECTION 401(a) of the Code has received a favorable determination letter from the IRS and to the best knowledge of the Company, nothing has occurred which would cause the loss of such qualification. The Company and each ERISA Affiliate has made all required contributions to any Plan subject to SECTION 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to SECTION 412 of the Code has been made with respect to any Plan. (b) There are no pending or, to the best knowledge of Company, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or would reasonably be expected to result in a Material Adverse Effect. (c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under SECTION 4007 of ERISA); (iv) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under SECTION 4219 of ERISA, would result in such liability) under SECTION 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the Company nor any ERISA Affiliate has engaged in a transaction that could be subject to SECTION 4069 or 4212(c) or ERISA. 6.08 USE OF PROCEEDS; MARGIN REGULATIONS. The proceeds of the Loans shall be used solely for the purposes set forth in and permitted by SECTION 7.13 and SECTION 8.07. Neither the Company nor any Subsidiary is generally engaged in the business of purchasing or selling Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock. Margin Stock does not constitute more than 25% of the value of the consolidated assets of the Company and its Subsidiaries, and the Company does not have any present intention that Margin Stock will constitute more than 25% of the value of such assets. 6.09 TITLE TO PROPERTIES. The Company and each Subsidiary have good record and marketable title in fee simple to, or valid leasehold interests in, or other sufficient title to all real property necessary or used in the ordinary conduct of their respective businesses, except for such defects in title as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The property of the Company and its Subsidiaries is subject to no Liens, other than Permitted Liens. 6.10 TAXES. The Company and its Subsidiaries have filed all Federal tax returns and reports required to be filed, and have paid all Federal taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP. The Company and its Subsidiaries have filed all material state and other material non-Federal tax returns and reports required to be filed, and have paid all material state and other material non-Federal taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP, except where failure to do so would not reasonably be expected to have a Material Adverse Effect. To the Company's knowledge, there is no proposed tax assessment against the Company or any Subsidiary that would, if made, reasonably be expected to have a Material Adverse Effect. 6.11 FINANCIAL CONDITION. The unaudited consolidated financial statements of the Company and its Subsidiaries dated September 30, 1998, and the related consolidated statements of income or operations, shareholders' equity and cash flows for the fiscal quarter ended on that date: (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present in all material respects the financial condition of the Company and its Subsidiaries as of the date thereof and results of operations for the period covered thereby (subject to ordinary, good faith year-end adjustments); and (iii) show all material Indebtedness and other liabilities, direct or contingent, of the Company and its consolidated Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Contingent Obligations. Since September 30, 1998, there has been no Material Adverse Effect. 6.12 ENVIRONMENTAL MATTERS. The Company conducts in the ordinary course of business a review of the effect of existing Environmental Laws and existing Environmental Claims on its business, operations and properties, and as a result thereof the Company has reasonably concluded that such Environmental Laws and Environmental Claims would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 6.13 REGULATED ENTITIES. None of the Company, any Person controlling the Company, or any Subsidiary, is an "Investment Company" within the meaning of the Investment Company Act of 1940. The Company is not subject to any provision of the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or any state public utilities code, or of any other Federal or state statute or regulation, limiting its ability to incur Indebtedness. 6.14 No Burdensome Restrictions. Neither the Company nor any Subsidiary is a party to or bound by any Contractual Obligation, or subject to any restriction in any Organization Document, or any Requirement of Law, which would reasonably be expected to have a Material Adverse Effect. 6.15 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC. The Company or its Subsidiaries own or are licensed or otherwise have the right to use all of the material patents, trademarks, service marks, trade names, copyrights, contractual franchises, authorizations and other rights that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person. To the best knowledge of the Company, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Company or any Subsidiary infringes upon any rights held by any other Person. No claim or litigation regarding any of the foregoing is pending or threatened, and no patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is pending or, to the knowledge of the Company, proposed, which, in either case, would reasonably be expected to have a Material Adverse Effect. 6.16 SUBSIDIARIES. As of the Execution Date, the Company has no Subsidiaries other than those specifically disclosed in part (a) of Schedule 6.16 hereto and has no material equity investments in any other corporation or entity other than those specifically disclosed in part (b) of Schedule 6.16. 6.17 INSURANCE. The properties of the Company and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Company, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Company or such Subsidiary operates. 6.18 FULL DISCLOSURE. None of the representations or warranties made by the Company or any Subsidiary in the Loan Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained in any exhibit, report, written statement or certificate furnished by or on behalf of the Company or any Subsidiary in connection with the Loan Documents (including the offering and disclosure materials delivered by or on behalf of the Company to the Banks prior to the Execution Date), taken as whole, contains any untrue statement of a material fact known to the Company or omits any material fact known to the Company required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered. 6.19 SOLVENCY. The Company and its Subsidiaries, taken as a whole, and the Company, individually, and each of the Guarantors, individually, is Solvent. 6.20 YEAR 2000. The Company reasonably believes that the Year 2000 Problem, including costs of remediation, will not result in a Material Adverse Effect. The Company is developing feasible contingency plans adequately to ensure uninterrupted and unimpaired business operation in the event of failure of its own or a third party's systems or equipment due to the Year 2000 Problem. 6.21 LABOR RELATIONS. There is (i) no significant unfair labor practice complaint pending against the Company or any of its Subsidiaries or, to the knowledge of the Company, threatened against any of them, and no significant grievance or significant arbitration proceeding arising out of or under any collective bargaining agreement is so pending against the Company or any of its Subsidiaries or, to the knowledge of the Company, threatened against any of them, (ii) no significant strike, labor dispute, slowdown or stoppage pending against the Company or any of its Subsidiaries or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries and (iii) to the knowledge of the Company, no union representation question existing with respect to the employees of the Company or any of its Subsidiaries and, to the knowledge of the Company, no union organizing activities are taking place, except (with respect to any matter specified in clause (i), (ii) or (iii) above, either individually or in the aggregate) such as could not reasonably be expected to have a Material Adverse Effect. 6.22 COLLATERAL DOCUMENTS. (a) The provisions of each of the Collateral Documents are effective to create in favor of the Administrative Agent for the benefit of the Banks, a legal, valid and enforceable first priority security interest in all right, title and interest of the Company and its Subsidiaries in the collateral described therein; and financing statements have been filed in the offices in all of the jurisdictions listed in the schedule to the Security Agreement. (b) All representations and warranties of the Company and any of its Subsidiaries party thereto contained in the Collateral Documents are true and correct in all material respects. ARTICLE VII AFFIRMATIVE COVENANTS So long as any Bank shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, unless the Majority Banks waive compliance in writing: 7.01 FINANCIAL STATEMENTS. The Company shall maintain for itself and each Subsidiary, a system of accounting established and administered in accordance with GAAP and deliver to the Administrative Agent, with sufficient copies for each Bank: (a) As soon as available, but not later than 90 days after the end of each fiscal year a copy of the annual audited consolidated financial statement of the Company as at the end of such year and the related consolidated statements of income or operations, shareholders' equity and cash flows for such year, setting forth in each case in comparative form the figures for the previous fiscal year, and such financial statements shall be accompanied by the opinion of a nationally recognized independent public accounting firm (the "Independent Auditor"), which opinion shall state that such consolidated financial statements present fairly in all material respects the financial position and results of operations of the Company and its Consolidated Subsidiaries for the periods indicated in conformity with GAAP applied on a basis consistent with prior years. Such opinion shall not be qualified or limited because of a restricted or limited examination by the Independent Auditor of any material portion of the Company's or any Subsidiary's records; and (b) As soon as available, but not later than 45 days after the close of each of the first three quarterly periods each fiscal year, a copy of the unaudited consolidated balance sheet of the Company as of the end of such quarter and the related consolidated statements of income, shareholders' equity and cash flows for the period commencing on the first day and ending on the last day of such quarter, and certified by a Responsible Officer as fairly presenting, in accordance with GAAP (subject to ordinary, good faith year-end audit adjustments), the financial position and the results of operations of the Company and its Consolidated Subsidiaries. 7.02 CERTIFICATES; OTHER INFORMATION. The Company shall furnish to the Administrative Agent, with sufficient copies for each Bank: (a) As soon as available, but not later than 24 days after the close of each month until the Termination Date, a Borrowing Base Report in the form of Exhibit "H" hereto, certified by a Responsible Officer as fairly presenting the Eligible Refinery Hydrocarbon Inventory and Eligible Accounts Receivable as of the last day of the immediately preceding month; (b) concurrently with the delivery of the financial statements referred to in subsections 7.01(a) and (b), a Compliance Certificate executed by a Responsible Officer; (c) promptly, copies of all financial statements and reports that the Company sends to its shareholders, and, promptly after the filing thereof, copies of all financial statements and regular, periodical or special reports (including Forms 10K, 10Q and 8K) that the Company or any Subsidiary may make to, or file with, the SEC; (d) promptly, copies of all annual earnout payment reports delivered by San Juan Refining Company or Giant Industries Arizona, Inc. to the Sellers and any written objections thereto furnished by Sellers to San Juan Refining Company or Giant Industries Arizona, Inc. under the Purchase Agreement; and (e) promptly, such additional information regarding the business, financial or corporate affairs of the Company or any Subsidiary as the Administrative Agent, at the request of any Bank, may from time to time reasonably request. 7.03 NOTICES. The Company shall promptly notify the Administrative Agent: (a) of the occurrence of any Default or Event of Default, and of the occurrence or existence of any event or circumstance that would reasonably be expected to become a Default or Event of Default; (b) of any matter that has resulted or may reasonably be expected to result in a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual Obligation of the Company or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between the Company or any Subsidiary and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting the Company or any Subsidiary; including pursuant to any applicable Environmental Laws; (c) of the occurrence of any of the following events affecting the Company or any ERISA Affiliate (but in no event more than 10 days after such event), and deliver to the Administrative Agent and each Bank a copy of any notice with respect to such event that is filed with a Governmental Authority and any notice delivered by a Governmental Authority to the Company or any ERISA Affiliate with respect to such event: (i) an ERISA Event; (ii) a material increase in the Unfunded Pension Liability of any Pension Plan; (iii) the adoption of, or the commencement of contributions to, any Plan subject to SECTION 412 of the Code by the Company or any ERISA Affiliate; or (iv) the adoption of any amendment to a Plan subject to SECTION 412 of the Code, if such amendment results in a material increase in contributions or Unfunded Pension Liability; (d) of any material change in accounting policies or financial reporting practices by the Company or any of its consolidated Subsidiaries; (e) of the entry by the Company or any of its Subsidiaries into any Specified Swap Contract, specifying the identity of the Swap Provider, the notional amount, the nature of the Specified Swap Contract and such other information as the Administrative Agent reasonably may request; (f) of the occurrence of any default, event of default, termination event or other event under any Specified Swap Contract that after the giving of notice, passage of time or both, would permit either counterparty to such Specified Swap Contract to terminate early any or all trades relating to such contract, and the liability, if any, of the Company or Subsidiary, as applicable, in the event thereof; (g) upon the request from time to time of the Administrative Agent, the Swap Termination Values, together with a description of the method by which such values were determined, relating to any then outstanding Swap Contracts to which the Company or any of its Subsidiaries is party; and (h) of the formation or acquisition of any Material Subsidiary. Each notice under this SECTION shall be accompanied by a written statement by a Responsible Officer setting forth details of the occurrence referred to therein, and stating what action the Company or any affected Subsidiary proposes to take with respect thereto and at what time. Each notice under subsection 7.03(a) shall describe with particularity any and all clauses or provisions of this Agreement or other Loan Document that have been (or foreseeably will be) breached or violated. 7.04 PRESERVATION OF CORPORATE EXISTENCE, ETC. The Company shall, and shall cause each of its Material Subsidiaries to: (a) preserve and maintain in full force and effect its corporate existence and good standing under the laws of its state or jurisdiction of incorporation except where the failure to do so would not reasonably be expected to have a Material Adverse Effect; (b) preserve and maintain in full force and effect all governmental rights, privileges, qualifications, permits, licenses and franchises necessary or desirable in the normal conduct of its business except where the failure to do so would not reasonably be expected to have a Material Adverse Effect; (c) use reasonable efforts, in the ordinary course of business, to preserve its business organization and goodwill except where the failure to do so would not reasonably be expected to have a Material Adverse Effect; and (d) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect. 7.05 MAINTENANCE OF PROPERTY. The Company shall, and shall cause each of its Material Subsidiaries to, maintain and preserve all its property which is used or useful in its business in good working order and condition, ordinary wear and tear excepted and to use the standard of care typical in the industry in the operation and maintenance of its facilities except where the failure to do so would not reasonably be expected to have a Material Adverse Effect. 7.06 INSURANCE. In addition to any other insurance requirements set forth in the Security Documents, the Company shall, and shall cause each of its Subsidiaries to, maintain, with financially sound and reputable independent insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons except where the failure to do so would not reasonably be expected to have a Material Adverse Effect. 7.07 PAYMENT OF OBLIGATIONS. The Company shall, and shall cause each of its Material Subsidiaries to, pay and discharge as the same shall become due and payable, all their respective obligations and liabilities, including: (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Company, such Guarantor or such Subsidiary; (b) all lawful claims which, if unpaid, would by law become a Lien upon its property; and (c) all Indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness; except where the failure to do so would not reasonably be expected to have a Material Adverse Effect. 7.08 COMPLIANCE WITH LAWS. The Company shall, and shall cause each of its Subsidiaries to, comply in all material respects with all Requirements of Law of any Governmental Authority having jurisdiction over it or its business (including the Federal Fair Labor Standards Act), except (x) such as may be contested in good faith or as to which a bona fide dispute may exist or (y) where the failure to do so would not reasonably be expected to have a Material Adverse Effect. 7.09 COMPLIANCE WITH ERISA. The Company shall, and shall cause each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law; (b) cause each Plan which is qualified under SECTION 401(a) of the Code to maintain such qualification; and (c) make all required contributions to any Plan subject to SECTION 412 of the Code. 7.10 INSPECTION OF PROPERTY AND BOOKS AND RECORDS. The Company shall, and shall cause each of its Subsidiaries to, maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Company and such Guarantor. The Company and each Guarantor shall, and shall cause each of their Subsidiaries to, permit, representatives and independent contractors of the Administrative Agent or any Bank to visit and inspect any of their respective properties, to examine their respective corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss their respective affairs, finances and accounts with their respective directors, officers, and independent public accountants, all at the expense of the Company and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Company; provided, however, when an Event of Default exists the Administrative Agent or any Bank may do any of the foregoing at the expense of the Company at any time during normal business hours and without advance notice. 7.11 ENVIRONMENTAL LAWS. The Company shall, and shall cause each of its Subsidiaries to, conduct its operations and keep and maintain its property in compliance with all Environmental Laws except where the failure to do so would not reasonably be expected to have a Material Adverse Effect. 7.12 NEW SUBSIDIARY GUARANTORS; NEW SUBSIDIARY SECURITY AGREEMENTS. (a) If, at any time after the date of this Agreement, there exists any Subsidiary organized under the laws of any state in the United States of America that (a) total assets with a book value of $2,000,000 or more or (b) executes a guaranty agreement with respect to the Indentures or any other indebtedness for borrowed money, then the Company shall cause each such Subsidiary to do the following: (i) execute and deliver to the Administrative Agent a Supplemental Guaranty and (ii) furnish the Administrative Agent with a written opinion of counsel for each such Subsidiary Guarantor in substantially the form set forth in Exhibit "D"; in each case with such revisions as may be reasonably requested by the Administrative Agent or the Banks. (b) The Company also shall cause each Person that becomes a Subsidiary after the date of this Agreement (including any "inactive" Subsidiary that resumes active business at any time after the date of this Agreement) to (i) execute and deliver to the Administrative Agent a Security Agreement in substantially the form of Exhibit I in favor of the Administrative Agent, the Banks and the other Swap Providers, together with such financing statements and other documents and instruments related thereto as the Administrative Agent or the Majority Banks may require; (ii) take all other actions necessary or, in the opinion of the Administrative Agent or the Majority Banks, desirable to perfect and protect the first priority Lien created by the Collateral Documents, and to enhance the Administrative Agent's ability to preserve and protect its interests in and access to the Collateral; and (iii) furnish the Administrative Agent with a written opinion of counsel for each such Person in substantially the form set forth in Exhibit D; in each case with such revisions as may be reasonably requested by the Administrative Agent or the Banks. 7.13 USE OF PROCEEDS. The Company shall use the proceeds of the Revolving Loans (a) to refinance existing indebtedness under that certain Credit Agreement dated October 4, 1995, by and among the Company, the Administrative Agent and the financial institutions parties thereto, (b) to make capital contributions and loans to the Guarantors for working capital expenditures, (c) for the issuance of standby letters of credit pursuant to Article III hereof in the ordinary course of business and (d) for Acquisitions otherwise permitted in accordance with the terms hereof; provided that the aggregate amount of proceeds used to finance Acquisitions during the term hereof (excluding amounts, not in excess of $9,000,000, used to finance the acquisition of assets by the Company or by Giant Four Corners, Inc. from Thriftway Marketing Corp. and Clayton Investment Company and their affiliates and related companies pursuant to the terms of the Definitive Agreement dated April 18, 1997 by and between Giant Four Corners, Inc., Thriftway Marketing Corp. and Clayton Investment Company, and the associated purchase and sale agreements as provided therein) shall not exceed $10,000,000. 7.14 SUBORDINATED INDEBTEDNESS. The Company shall maintain at least $150,000,000 in Subordinated Notes outstanding at all times throughout the term hereof. 7.15 YEAR 2000. The Company has completed or accomplished, or will complete or accomplish, the following: 1. By September 30, 1998, prepare a detailed project plan and budget for ensuring that the Year 2000 problem is successfully addressed in all material respects as it pertains to the Company's own business, properties or operations; 2. By December 31, 1998, prepare a comprehensive, detailed inventory and assessment of the risk posed by the Year 2000 problem as it may affect the Company's own business, properties or operations; and containing contingency plans to mitigate the effects of any third party's unexpected failure to address the Year 2000 problem; 3. By April 30, 1999, renovate all material systems and equipment affected by the Year 2000 problem to cause them to perform correctly date-sensitive functions for relevant date data from before and after December 31, 1999 ("Year 2000 Compliance") or replace them with technology not so affected, and commence testing; 4. By January 1, 1999, make detailed inquiry of material suppliers, vendors and customers of the Company, to ascertain whether such persons are aware of the need to address the Year 2000 problem and whether they are taking appropriate steps to do so; and 5. By April 30, 1999, complete testing and installation of all material systems and equipment to ensure timely Year 2000 Compliance. 7.16 FURTHER ASSURANCES. Promptly upon request by the Administrative Agent or the Majority Banks, the Company shall (and shall cause any of its Subsidiaries to) do, execute, acknowledge, deliver, record, re- record, file, re-file, register and re-register, any and all such further acts, deeds, conveyances, security agreements, mortgages, assignments, estoppel certificates, financing statements and continuations thereof, termination statements, notices of assignment, transfers, certificates, assurances and other instruments the Administrative Agent or such Banks, as the case may be, may reasonably require from time to time in order (i) to carry out more effectively the purposes of this Agreement or any other Loan Document, (ii) to subject to the Liens created by any of the Collateral Documents any of the properties, rights or interests covered by any of the Collateral Documents, (iii) to perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and the Liens intended to be created thereby, and (iv) to better assure, convey, grant, assign, transfer, preserve, protect and confirm to the Administrative Agent and Banks the rights granted or now or hereafter intended to be granted to the Banks under any Loan Document or under any other document executed in connection therewith. ARTICLE VIII NEGATIVE COVENANTS So long as any Bank shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, unless the Majority Banks waive compliance in writing: 8.01 Limitation on Liens. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, make, create, incur, assume or suffer to exist any Lien upon or with respect to any part of its property, whether now owned or hereafter acquired, other than the following ("Permitted Liens"): (a) any Lien (other than a Lien on the Collateral) existing on property of the Company or any Subsidiary on the Execution Date and set forth in Schedule 8.01 securing Indebtedness outstanding on such date; (b) any Lien created under any Loan Document; (c) Liens for taxes, fees, assessments or other governmental charges which are not delinquent or remain payable without penalty, or to the extent that non-payment thereof is permitted by SECTION 7.07; (d) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other similar non-consensual statutory Liens (including statutory liens in favor of mineral interest owners, securing only amounts due for the purchase price, state royalty and taxes in respect of product severed from a production unit in New Mexico in which such interest owner owns an interest) arising in the ordinary course of business which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto; (e) Liens (other than any Lien imposed by ERISA and other than Liens on the Collateral) consisting of pledges or deposits required in the ordinary course of business in connection with workers' compensation, unemployment insurance and other social security legislation; (f) Liens (other than Liens on the Collateral) on the property of the Company, any Guarantor or any Subsidiary of any such Person securing (i) the non-delinquent performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, (ii) contingent obligations on surety and appeal bonds not exceeding $3,000,000 in the aggregate, and (iii) other non-delinquent obligations of a like nature; in each case, incurred in the ordinary course of business; (g) easements, rights-of-way, restrictions, defects or other exceptions to title and other similar encumbrances with respect to real property incurred in the ordinary course of business which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the businesses of the Company and its Subsidiaries; (h) Liens (other than Liens on the Collateral) arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; provided that (i) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company, (ii) the Company (or applicable Subsidiary) maintains (subject to such right of set off) dominion and control over such account(s), and (iii) such deposit account is not intended by the Company, any Guarantor or any Subsidiary to provide cash collateral to the depository institution; (i) Liens (other than Liens on the Collateral) on any property acquired or held by the Company or its Subsidiaries in the ordinary course of business, securing Indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring such property after the date hereof; provided that (i) any such Lien has attached prior to acquisition of such property or attaches to such property concurrently with or within 20 days after the acquisition thereof, (ii) such Lien attaches solely to the property so acquired in such transaction, (iii) the principal amount of the debt secured thereby does not exceed 100% of the cost of such property, and (iv) the principal amount of the Indebtedness secured by any and all such purchase money security interests, together with all other Indebtedness securing Liens permitted under Subsection 8.01(j) below, shall not exceed $5,000,000 in the aggregate at any time outstanding; and (j) Any Liens (other than Liens on the Collateral) not otherwise described in Subsection 8.01(a) through (h) above, provided that the Indebtedness and other obligations secured by such Liens, together with all other Indebtedness securing Liens permitted under Subsection 8.01(i), shall not at any time exceed $5,000,000 in the aggregate at any time outstanding. 8.02 DISPOSITION OF ASSETS. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, sell, assign, lease, convey, transfer or otherwise dispose of (whether in one or a series of transactions) (collectively, "Dispositions") any property (including accounts and notes receivable, with or without recourse) or enter into any agreement to do any of the foregoing, except: (a) Dispositions of inventory, or used, worn-out or surplus equipment, all in the ordinary course of business; (b) The sale of equipment to the extent that such equipment is exchanged for credit against the purchase price of similar replacement equipment, or the proceeds of such sale are reasonably promptly applied to the purchase price of such replacement equipment; (c) Dispositions of assets by the Company or any Subsidiary to the Company or any Subsidiary; (d) Dispositions permitted pursuant to SECTION 8.03; (e) Dispositions of assets under an arrangement in the ordinary course of business whereby the Company or any Subsidiary would then or thereafter lease as lessee such assets under a Synthetic Lease; provided that (i) at the time of such Disposition, no Event of Default shall exist or shall result from such Disposition, (ii) the aggregate book value of all such assets disposed of pursuant to this Subsection 8.02(e) does not exceed $52,500,000 and (iii) the net proceeds of such Disposition are used by the Company to repay Loans then outstanding; and (f) Dispositions of assets not otherwise permitted hereunder which are made for fair market value, provided, that (i) at the time of any such Disposition, no Event of Default shall exist or shall result from such Disposition, (ii) with respect to Dispositions of such assets by the Company and its Subsidiaries in any fiscal year, the aggregate book value of such assets shall not exceed in any fiscal year the aggregate amount of $5,000,000. 8.03 CONSOLIDATIONS AND MERGERS. The Company shall not, and shall not permit any of its Material Subsidiaries to, merge, consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except: (a) The Company may merge with any Person not otherwise permitted under Subsection 8.03(b) below, provided that there is no Change in Control as a result of the merger and the surviving Person continues to meet all financial covenants herein for the Company and agrees to be bound by the terms of the Agreement and assumes in writing all Obligations; (b) any Subsidiary may merge with the Company, provided that the Company shall be the continuing or surviving corporation, or with any one or more Subsidiaries, provided that if any transaction shall be between a Subsidiary that is not a Wholly-Owned Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be the continuing or surviving corporation; and (c) any Subsidiary may sell all or substantially all of its assets (upon voluntary liquidation or otherwise), to the Company or a Wholly-Owned Subsidiary. 8.04 LOANS AND INVESTMENTS. The Company shall not purchase or acquire, or permit any of its Subsidiaries to purchase or acquire, or make any commitment therefor, any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or make or commit to make any Acquisitions, or make or commit to make any advance, loan, extension of credit or capital contribution to or any other investment in, any Person including any Affiliate of the Company, except for: (a) investments in Cash Equivalents; (b) extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business; (c) extensions of credit by the Company to any of its Wholly-Owned Subsidiaries or by any of its Wholly-Owned Subsidiaries to the Company or another of its Wholly-Owned Subsidiaries, and investments by the Company or any Guarantor or any of its or their Subsidiaries in any of the Company's Wholly-Owned Subsidiaries; (d) investments incurred in order to consummate Acquisitions, provided that (i) such Acquisitions are undertaken in accordance with all applicable Requirements of Law; (ii) the prior, effective written consent or approval to such Acquisition of the board of directors or equivalent governing body of the acquiree is obtained; and (iii) no Default or Event of Default shall have occurred either prior to or subsequent to such Acquisition; (e) extensions of credit described in Schedule 8.04 attached hereto, through and including the maturity date thereof, but not any renewals or extensions thereof except as otherwise may be specified in Schedule 8.04; and (f) investments by the Company and its Subsidiaries not otherwise permitted in Subsections 8.04(a) through (e), which do not exceed $1,000,000 in the aggregate at any time outstanding. 8.05 LIMITATION ON SUBSIDIARY INDEBTEDNESS. Neither the Guarantors nor any other Subsidiary of the Company shall create, incur, assume, suffer to exist, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except: (a) Indebtedness incurred pursuant to this Agreement; (b) Indebtedness consisting of Contingent Obligations permitted pursuant to SECTION 8.08; and (c) Indebtedness described on Schedule 8.05. 8.06 TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not permit any of its Subsidiaries to, enter into any transaction with or make any payment or transfer to any Affiliate of the Company, except in the ordinary course of business and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would obtain in a comparable arm's-length transaction with a Person not an Affiliate of the Company or such Subsidiary. 8.07 USE OF PROCEEDS. (a) The Company shall not, and shall not suffer or permit any Subsidiary to, use any portion of the Loan proceeds or any Letter of Credit, directly or indirectly, (i) to purchase or carry Margin Stock, (ii) to repay or otherwise refinance indebtedness of the Company or others incurred to purchase or carry Margin Stock, (iii) to extend credit for the purpose of purchasing or carrying any Margin Stock, or (iv) to acquire any security in any transaction that is subject to SECTION 13 or 14 of the Exchange Act. (b) The Company shall not, and shall not suffer or permit any Subsidiary to, directly or indirectly, use any portion of the Loan proceeds or any Letter of Credit (i) knowingly to purchase Ineligible Securities from the Arranger during any period in which the Arranger makes a market in such Ineligible Securities, (ii) knowingly to purchase during the underwriting or placement period Ineligible Securities being underwritten or privately placed by the Arranger, or (iii) to make payments of principal or interest on Ineligible Securities underwritten or privately placed by the Arranger and issued by or for the benefit of the Company or any Affiliate of the Company. The Arranger is a registered broker-dealer and permitted to underwrite and deal in certain Ineligible Securities; and "Ineligible Securities" means securities which may not be underwritten or dealt in by member banks of the Federal Reserve System under SECTION 16 of the Banking Act of 1933 (12 U.S.C. S.S. 24, Seventh), as amended. 8.08 CONTINGENT OBLIGATIONS. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Contingent Obligations except: (a) endorsements for collection or deposit in the ordinary course of business; (b) Swap Contracts entered into in the ordinary course of business; (c) guarantees by the Company or any Subsidiary guaranteeing obligations (other than obligations for money borrowed) of any Consolidated Subsidiary in the ordinary course of business and guarantees by any Guarantor guaranteeing obligations of the Company provided that such obligations are permitted under this Agreement; (d) Contingent Obligations of the Company and its Subsidiaries existing as of the Execution Date and listed in Schedule 8.08; (e) obligations under the Earnout (as defined in the Purchase Agreement) and the Company's obligations pursuant to the Guarantee and Agreement executed by the Company pursuant to the Purchase Agreement; (f) obligations under bid bonds, performance bonds and fidelity bonds issued for the account of the Company or its Subsidiaries, obligations to indemnify or make whole any surety and similar agreements incurred in the ordinary course of business; (g) this Agreement and the Guaranties; and (h) the guaranties described in Schedule 8.05. 8.09 RESTRICTED PAYMENTS. The Company shall not, and shall not permit any of its Subsidiaries to, purchase, redeem or otherwise acquire for value any shares of its capital stock or any warrants, rights or options to acquire such shares, now or hereafter outstanding (collectively "Restricted Payments"); provided that immediately prior to and after giving effect to any of the following described payments, there exists no Default or Event of Default, the Company and any Subsidiary may: (a) any Subsidiary may declare and make Restricted Payments to the Company or any Wholly-Owned Subsidiary; (b) purchase, redeem or otherwise acquire shares of its common stock or warrants or options to acquire any such shares with the proceeds received from the substantially concurrent issue of new shares of its common stock; and (c) the Company may purchase, redeem or otherwise acquire shares of its common stock to the extent permitted by the terms of the NBD Subordinated Indenture, provided, however, that the Company may not purchase, redeem or otherwise acquire more than 1,000,000 shares in the aggregate in addition to shares acquired prior to the Execution Date. 8.10 SUBSIDIARY DIVIDENDS. The Company will not, and it will not permit any of its Subsidiaries to, be a party to or enter into any agreement, instrument or other document which prohibits or restricts in any way, or to otherwise, directly or indirectly, create or cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary of the Company to (i) pay dividends or make any other distributions in respect of its capital stock or any other equity interest or participation in any Subsidiary or pay or repay any Indebtedness owed to the Company or any Subsidiary, (ii) make loans or advances to the Company or (iii) transfer any of its properties or assets to the Company or any Subsidiary (subject to the rights of any holder of a Lien on any such properties or assets which Lien is a Permitted Lien). 8.11 SUBORDINATED NOTES. The Company shall not, and shall not permit any Subsidiary to: (i) amend, modify or change, or consent or agree to any amendment, modification or change to, any of the terms of the Indentures, the Subordinated Notes or the guarantees executed in connection therewith, other than (A) any such amendment or modification which would extend the maturity or reduce the amount of any payment of principal thereof or which would reduce the rate or extend the date of payment of interest thereon, (B) amendments pursuant to SECTION 9.01(1) and (2) of the NBD Indenture and (C) such other amendments and modifications acceptable to the Majority Banks; or (ii) make any payments to the holders of the Subordinated Notes or to any trustee acting under the Indentures which is prohibited by the Indentures or (iii) make any prepayment or redeem in whole or in part the Subordinated Notes. 8.12 MINIMUM CONSOLIDATED TANGIBLE NET WORTH. From and after the Execution Date, the Company will maintain at all times Consolidated Tangible Net Worth in an amount not less than the sum of (i) $96,000,000, plus (ii) 50% of Consolidated Net Income computed on a cumulative basis for the period beginning October 1, 1998 and ending on the date of determination (provided that no negative adjustment will be made in the event that Consolidated Net Income is a deficit figure for such period), plus (iii) 75% of the aggregate amount of the net assets (cash or otherwise) received by the Company from the issuance of any class of capital stock after September 30, 1998. 8.13 MINIMUM INTEREST COVERAGE RATIO. The Company shall not permit (as of the end of any fiscal quarter) the ratio of (i) Consolidated EBITDA (plus Material Rents) for the four consecutive fiscal quarters most recently then ended to (ii) Consolidated Interest Expense (plus Material Rents) for the four consecutive fiscal quarters most recently then ended (x) to be less than 2.00 to 1.00, for any period of four consecutive fiscal quarters ending after the Execution Date and on or before December 31, 1999, or (y) to be less than 2.25 to 1.00, for any period of four consecutive fiscal quarters ending after December 31, 1999. 8.14 MAXIMUM CAPITALIZATION RATIO. From and after the Execution Date, the Company shall not permit the Capitalization Ratio (i) to be greater than 72.5%, at any time prior to December 31, 1999, or (ii) to be greater than 70.0%, at any time on or after December 31, 1999. 8.15 ERISA. The Company shall not, and shall not suffer or permit any of its ERISA Affiliates to: (a) engage in a prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably expected to result in liability of the Company in an aggregate amount which could have a Material Adverse Effect; or (b) engage in a transaction that could be subject to SECTION 4069 or 4212(c) of ERISA. 8.16 CHANGE IN BUSINESS. The Company shall not, and shall not permit any Subsidiary to, engage in any business or activity other than the Principal Business. 8.17 ACCOUNTING CHANGES. The Company shall not, and shall not suffer or permit any Subsidiary to, make any significant change in accounting treatment or reporting practices, except as required by GAAP, or change the fiscal year of the Company or of any Subsidiary. ARTICLE IX EVENTS OF DEFAULT 9.01 EVENT OF DEFAULT. Any of the following shall constitute an "Event of Default": (a) NON-PAYMENT. The Company fails to pay, (i) when and as required to be paid herein, any amount of principal of any Loan, or (ii) within two (2) Business Days after the same becomes due, any L/C Obligation or any interest, fee or other amount payable hereunder or under any other Loan Document; or (b) REPRESENTATION OR WARRANTY. Any representation or warranty by the Company or any Subsidiary made or deemed made herein, in any other Loan Document, or which is contained in any certificate, document or financial or other statement by the Company, any Subsidiary, or any Responsible Officer, furnished at any time under this Agreement, or in or under any other Loan Document, is incorrect in any material respect on or as of the date made or deemed made; or (c) SPECIFIC DEFAULTS. The Company (i) fails to perform or observe any term, covenant or agreement contained in Article VIII, and (A) such default shall continue unremedied for a period of 15 days after the occurrence thereof or (B) the Company shall fail to deliver to the Administrative Agent and the Banks satisfactory certification and evidence of the remedy thereof within 15 days after the occurrence thereof, or (ii) fails to perform or observe any term, covenant or agreement contained in SECTION 7.03(a); or (d) OTHER DEFAULTS. The Company or any Subsidiary fails to perform or observe any other term or covenant contained in this Agreement or any other Loan Document, and such default shall continue unremedied for a period of 30 days after the earlier of (i) the date upon which a Responsible Officer knew or reasonably should have known of such default or (ii) the date upon which written notice thereof is given to the Company by the Administrative Agent or any Bank; or (e) CROSS-DEFAULT. The Company or any Subsidiary (i) fails to make any payment in respect of any Indebtedness, Contingent Obligation or Commodity Swap having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $3,000,000, or any Specified Swap Contract (whatever the amount), when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) and such failure continues after the applicable grace or notice period, if any, specified in the relevant document on the date of such failure; or (ii) fails to perform or observe any other condition or covenant, or any other event shall occur or condition exist, under any agreement or instrument relating to any such Indebtedness, Contingent Obligation or Commodity Swap having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $3,000,000, or any Specified Swap Contract (whatever the amount), if the effect of such failure, event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause such Indebtedness, Specified Swap Contract or Commodity Swap to be declared to be due and payable prior to its stated maturity, or such Contingent Obligation, Specified Swap Contract or Commodity Swap to become payable or cash collateral in respect thereof to be demanded; or (iii) any Indebtedness, Contingent Obligation or Commodity Swap of the Company or any Subsidiary in excess of $3,000,000, or any Specified Swap Contract (whatever the amount), shall be declared due and payable prior to its stated maturity or cash collateral is demanded in respect of such Contingent Obligations, Specified Swap Contracts or Commodity Swaps; or (f) INSOLVENCY; VOLUNTARY PROCEEDINGS. The Company or any Subsidiary (i) generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) commences any Insolvency Proceeding with respect to itself; or (iii) takes any action to effectuate or authorize any of the foregoing; or (g) INVOLUNTARY PROCEEDINGS. (i) Any involuntary Insolvency Proceeding is commenced or filed against the Company or any Material Subsidiary, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against all or a substantial part of the Company's or any Material Subsidiary's properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; (ii) the Company or any Material Subsidiary admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) the Company or any Material Subsidiary acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its property or business; or (h) ERISA. (i) An ERISA Event shall occur with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Company or a Subsidiary under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $3,000,000 and such amount is not paid when due; or (ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans is in an aggregate amount which would reasonably be expected to cause a Material Adverse Effect; or (i) MONETARY JUDGMENTS. One or more final judgments, final orders, decrees or arbitration awards is entered against the Company or any Subsidiary involving in the aggregate a liability (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) as to any single or related series of transactions, incidents or conditions, of $3,000,000 or more, and the same shall remain unsatisfied, unvacated and unstayed pending appeal for a period of 30 days after the entry thereof; or (j) CHANGE OF CONTROL. There occurs any Change of Control; or (k) LOSS OF PERMIT. Any Governmental Authority revokes or fails to renew any material license, permit or franchise of the Company or any Material Subsidiary, or the Company or any Material Subsidiary for any reason loses any material license, permit or franchise, or the Company or any Material Subsidiary suffers the imposition of any restraining order, escrow, suspension or impound of funds in connection with any proceeding (judicial or administrative) with respect to any material license, permit or franchise; or (l) ADVERSE CHANGE. There occurs a Material Adverse Effect; or (m) GUARANTY DEFAULT. A Guaranty is for any reason partially (including with respect to future advances) or wholly revoked or invalidated, or otherwise ceases to be in full force and effect, or such Guarantor or any other Person contests in any manner the validity or enforceability thereof or denies that it has any further liability or obligation thereunder; or any event described at subsections (f) or (g) of this SECTION occurs with respect to such Guarantor; or (n) INVALIDITY OF SUBORDINATION PROVISIONS. The subordination provisions of the Indenture or Subordinated Notes or any agreement or instrument governing any of the Subordinated Notes is for any reason revoked or invalidated, the Trustee under either of the Indentures, any successor trustee thereto or any other Person contests in any material respect the validity or enforceability thereof, or the Indebtedness hereunder does not have the priority contemplated by this Agreement or the Indenture or such subordination provisions; or (o) PREPAYMENT OF SUBORDINATED NOTES. If the Company or any Subsidiary is required for any reason to prepay, redeem or purchase in whole or in part any of the Subordinated Notes during the term of this Agreement; or (p) COLLATERAL. (i) any provision of any Collateral Document shall for any reason cease to be valid and binding on or enforceable against the Company or any Subsidiary party thereto or the Company or any Subsidiary shall so state in writing or bring an action to limit its obligations or liabilities thereunder; or (ii) any Collateral Document shall for any reason (other than pursuant to the terms thereof) cease to create a valid security interest in the Collateral purported to be covered thereby or such security interest shall for any reason cease to be a perfected and first priority security interest. 9.02 REMEDIES. If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the Majority Banks, (a) declare the commitment of each Bank to make Loans and any obligation of the Issuing Bank to Issue Letters of Credit to be terminated, whereupon such Commitments shall be terminated; (b) declare an amount equal to the maximum aggregate amount that is or at any time thereafter may become available for drawing under any outstanding Letters of Credit (whether or not any beneficiary shall have presented, or shall be entitled at such time to present, the drafts or other documents required to draw under such Letters of Credit) to be immediately due and payable, and declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest, notice of intention to accelerate, notice of acceleration or any other notice of any kind, all of which are hereby expressly waived by the Company; (c) require cash collateral as set forth in SECTION 3.09; and (d) exercise on behalf of itself and the Banks all rights and remedies available to it and the Banks under the Loan Documents or applicable law; provided, however, that upon the occurrence of any event specified in subsection (f) or (g) of SECTION 9.01 (in the case of clause (i) of subsection (g) upon the expiration of the 60-day period mentioned therein), the obligation of each Bank to make Loans and any obligation of the Issuing Bank to Issue Letters of Credit shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable and (y) cash collateral as set forth in SECTION 3.09 shall automatically be due and payable, in each case without further act of the Administrative Agent, the Issuing Bank or any Bank and without presentment, demand, protest, notice of intention to accelerate, notice of acceleration or any other notice of any kind, all of which are hereby expressly waived by the Company. 9.03 RIGHTS NOT EXCLUSIVE. The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. ARTICLE X THE ADMINISTRATIVE AGENT 10.01 APPOINTMENT AND AUTHORIZATION. (a) Each Bank hereby irrevocably (subject to SECTION 10.09) appoints, designates and authorizes the Administrative Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Administrative Agent have or be deemed to have any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. Without limiting the generality of the foregoing sentence, the use of the term "agent" in this Agreement or any other Loan Document with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. (b) The Issuing Bank shall act on behalf of the Banks with respect to any Letters of Credit Issued by it and the documents associated therewith until such time and except for so long as the Administrative Agent may agree at the request of the Majority Banks to act for such Issuing Bank with respect thereto; provided, however, that the Issuing Bank shall have all of the benefits and immunities (i) provided to the Administrative Agent in this Article X with respect to any acts taken or omissions suffered by the Issuing Bank in connection with Letters of Credit Issued by it or proposed to be Issued by it and the application and agreements for letters of credit pertaining to the Letters of Credit as fully as if the term "Administrative Agent", as used in this Article X, included the Issuing Bank with respect to such acts or omissions, and (ii) as additionally provided in this Agreement with respect to the Issuing Bank. 10.02 DELEGATION OF DUTIES. The Administrative Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. 10.03 LIABILITY OF ADMINISTRATIVE AGENT. None of the Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Banks for any recital, statement, representation or warranty made by the Company or any Subsidiary or Affiliate of the Company, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document, or for the value of or title to any Collateral, or the validity, effectiveness (other than such Agent-Related Person's own due execution and delivery), genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Company or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Company or any of the Company's Subsidiaries or Affiliates. 10.04 RELIANCE BY ADMINISTRATIVE AGENT. (a) The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Company), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Banks as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Majority Banks and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks. (b) For purposes of determining compliance with the conditions specified in SECTION 5.01, each Bank that has made available to the Administrative Agent its Pro Rata Share of the initial Credit Extension or subsequent Credit Extension, as the case may be, shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by the Administrative Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Bank as a condition precedent to such initial Credit Extension or subsequent Credit Extension, as applicable. 10.05 NOTICE OF DEFAULT. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Administrative Agent for the account of the Banks, unless the Administrative Agent shall have received written notice from a Bank or the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". The Administrative Agent will notify the Banks of its receipt of any such notice. Subject to Subsection 10.04(a), the Administrative Agent shall take such action with respect to such Default or Event of Default as may be requested by the Majority Banks in accordance with Article IX; provided, however, that unless and until the Administrative Agent has received any such request, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable or in the best interest of the Banks. 10.06 CREDIT DECISION. Each Bank acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by any Agent-Related Person hereafter taken, including any review of the affairs of the Company and its Subsidiaries, shall be deemed to constitute any representation or warranty by any Agent- Related Person to any Bank. Each Bank represents to the Administrative Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Company and its Subsidiaries, the value of and title to any Collateral and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Company hereunder. Each Bank also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly herein required to be furnished to the Banks by the Administrative Agent, the Administrative Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Company which may come into the possession of any of the Agent-Related Persons. 10.07 INDEMNIFICATION. Whether or not the transactions contemplated hereby are consummated, the Banks shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of the Company and without limiting the obligation of the Company to do so), pro rata, from and against any and all Indemnified Liabilities INCLUDING SUCH INDEMNIFIED LIABILITIES AS MAY ARISE OR BE CAUSED BY THE NEGLIGENCE, SOLE, JOINT, CONCURRENT, COMPARATIVE OR OTHERWISE OF SUCH AGENT-RELATED PERSONS; provided, however, that no Bank shall be liable for the payment to the Agent-Related Persons of any portion of such Indemnified Liabilities to the extent the same arise from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Bank shall reimburse the Administrative Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Administrative Agent is not reimbursed for such expenses by or on behalf of the Company. The undertaking in this SECTION shall survive the payment of all Obligations hereunder and the resignation or replacement of the Administrative Agent. 10.08 ADMINISTRATIVE AGENT IN INDIVIDUAL CAPACITY. Bank of America and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Company and its Subsidiaries and Affiliates as though Bank of America were not the Administrative Agent or the Issuing Bank hereunder and without notice to or consent of the Banks. The Banks acknowledge that, pursuant to such activities, Bank of America or its Affiliates may receive information regarding the Company or its Affiliates (including information that may be subject to confidentiality obligations in favor of the Company or such Subsidiary) and acknowledge that the Agent-Related Persons shall be under no obligation to provide such information to them. With respect to its Loans, Bank of America shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though it were not the Administrative Agent. 10.09 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may, and at the request of the Majority Banks shall, resign as Administrative Agent upon 30 days' notice to the Banks. If the Administrative Agent resigns under this Agreement, the Majority Banks shall appoint from among the Banks a successor agent for the Banks. If no successor agent is appointed prior to the effective date of the resignation of the Administrative Agent, the Administrative Agent may appoint, after consulting with the Banks, a successor agent from among the Banks. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Administrative Agent and the term "Administrative Agent" shall mean such successor agent and the retiring Administrative Agent's appointment, powers and duties as Administrative Agent shall be terminated. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article X and SECTIONs 11.04 and 11.05 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. If no successor agent has accepted appointment as Administrative Agent by the date which is 30 days following a retiring Administrative Agent's notice of resignation, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective and the Banks shall perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Majority Banks appoint a successor agent as provided for above. Notwithstanding the foregoing, however, for so long as Bank of America is the Issuing Bank, then Bank of America may not be removed as the Administrative Agent at the request of the Majority Banks unless Bank of America shall also simultaneously be replaced as "Issuing Bank" hereunder pursuant to documentation in form and substance reasonably satisfactory to Bank of America. 10.10 WITHHOLDING TAX. (a) If any Bank is a "foreign corporation, partnership or trust" within the meaning of the Code and such Bank claims exemption from, or a reduction of, U.S. withholding tax under SECTIONs 1441 or 1442 of the Code, such Bank agrees with and in favor of the Administrative Agent, to deliver to the Administrative Agent: (i) if such Bank claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, two properly completed and executed copies of IRS Forms 1001 and W-8 before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Bank claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Bank, two properly completed and executed copies of IRS Form 4224 before the payment of any interest is due in the first taxable year of such Bank and in each succeeding taxable year of such Bank during which interest may be paid under this Agreement, and IRS Form W-9; and (iii) such other form or forms as may be required under the Code or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Such Bank agrees to promptly notify the Administrative Agent of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Bank claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form 1001 and such Bank sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Company to such Bank, such Bank agrees to notify the Administrative Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of the Company to such Bank. To the extent of such percentage amount, the Administrative Agent will treat such Bank's IRS Form 1001 as no longer valid. (c) If any Bank claiming exemption from United States withholding tax by filing IRS Form 4224 with the Administrative Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Company to such Bank, such Bank agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by SECTIONs 1441 and 1442 of the Code. (d) If any Bank is entitled to a reduction in the applicable withholding tax, the Administrative Agent may withhold from any interest payment to such Bank an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this SECTION are not delivered to the Administrative Agent, then the Administrative Agent may withhold from any interest payment to such Bank not providing such forms or other documentation an amount equivalent to the applicable withholding tax imposed by SECTIONs 1441 and 1442 of the Code, without reduction. (e) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Bank (because the appropriate form was not delivered or was not properly executed, or because such Bank failed to notify the Administrative Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Bank shall indemnify the Administrative Agent fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Administrative Agent under this SECTION, together with all costs and expenses (including Attorney Costs). The obligation of the Banks under this subsection shall survive the payment of all Obligations and the resignation or replacement of the Administrative Agent. 10.11 COLLATERAL MATTERS. (a) The Administrative Agent is authorized on behalf of all the Banks, without the necessity of any notice to or further consent from the Banks, from time to time to take any action with respect to any Collateral or the Collateral Documents which may be necessary to perfect and maintain perfected the security interest in and Liens upon the Collateral granted pursuant to the Collateral Documents. (b) The Banks irrevocably authorize the Administrative Agent, at its option and in its discretion, to release any Lien granted to or held by the Administrative Agent upon any Collateral (i) upon termination of the Commitments and payment in full of all Loans and all other Obligations known to the Administrative Agent and payable under this Agreement or any other Loan Document; (ii) constituting property sold or to be sold or disposed of as part of or in connection with any disposition permitted hereunder; (iii) constituting property in which the Company or any Subsidiary owned no interest at the time the Lien was granted or at any time thereafter; (iv) constituting property leased to the Company or any Subsidiary under a lease which has expired or been terminated in a transaction permitted under this Agreement or is about to expire and which has not been, and is not intended by the Company or such Subsidiary to be, renewed or extended; (v) consisting of an instrument evidencing Indebtedness or other debt instrument, if the indebtedness evidenced thereby has been paid in full; or (vi) if approved, authorized or ratified in writing by the Majority Banks or all the Banks, as the case may be, as provided in subsection 11.01(f). Upon request by the Administrative Agent at any time, the Banks will confirm in writing the Administrative Agent's authority to release particular types or items of Collateral pursuant to this subsection 10.11(b), provided that the absence of any such confirmation for whatever reason shall not affect the Administrative Agent's rights under this SECTION 10.11. (c) Each Bank agrees with and in favor of each other (which agreement shall not be for the benefit of the Company or any Subsidiary) that the Company's obligation to such Bank under this Agreement and the other Loan Documents is not and shall not be secured by any real property collateral now or hereafter acquired by such Bank. ARTICLE XI MISCELLANEOUS 11.01 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by the Company or any applicable Subsidiary therefrom, shall be effective unless the same shall be in writing and signed by the Majority Banks (or by the Administrative Agent at the written request of the Majority Banks) and the Company and acknowledged by the Administrative Agent, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all the Banks and the Company and acknowledged by the Administrative Agent, do any of the following: (a) increase or extend the Commitment of any Bank (or reinstate any Commitment terminated pursuant to SECTION 9.02; (b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Banks (or any of them) hereunder or under any other Loan Document; (c) reduce the principal of, or the rate of interest specified herein on any Loan, or (subject to clause (iii) below) any fees or other amounts payable hereunder or under any other Loan Document; (d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans which is required for the Banks or any of them to take any action hereunder; or (e) amend this SECTION, or SECTION 2.13 or any provision herein providing for consent or other action by all Banks; or (f) discharge any Guarantor, or, except as otherwise provided in SECTION 10.11(b), release any portion of the Collateral, except as otherwise may be provided in the Collateral Documents or except where the consent of the Majority Banks only is specifically provided for; and, provided further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the Issuing Bank in addition to the Majority Banks or all the Banks, as the case may be, affect the rights or duties of the Issuing Bank under this Agreement or any L/C-Related Document relating to any Letter of Credit Issued or to be Issued by it, (ii) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Majority Banks or all the Banks, as the case may be, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document, and (iii) the Fee Letters may be amended, or rights or privileges thereunder waived, only in a writing executed by the parties thereto. 11.02 NOTICES. (a) All notices, requests, consents, approvals, waivers and other communications shall be in writing (including, unless the context expressly otherwise provides, by facsimile transmission, provided that any matter transmitted by the Company by facsimile (i) shall be immediately confirmed by a telephone call to the recipient at the number specified on Schedule 11.02, and (ii) shall be followed promptly by delivery of a hard copy original thereof) and mailed, faxed or delivered, to the address or facsimile number specified for notices on Schedule 11.02; or, as directed to the Company or the Administrative Agent, to such other address as shall be designated by such party in a written notice to the other parties, and as directed to any other party, at such other address as shall be designated by such party in a written notice to the Company and the Administrative Agent. (b) All such notices, requests and communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the U.S. mail, or if delivered, upon delivery; except that notices pursuant to Article II, III or X shall not be effective until actually received by the Administrative Agent, and notices pursuant to Article III to the Issuing Bank shall not be effective until actually received by the Issuing Bank at the address specified for the "Issuing Bank" on the applicable signature page hereof. (c) Any agreement of the Administrative Agent and the Banks herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Company. The Administrative Agent and the Banks shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Company to give such notice and the Administrative Agent and the Banks shall not have any liability to the Company or other Person on account of any action taken or not taken by the Administrative Agent or the Banks in reliance upon such telephonic or facsimile notice. The obligation of the Company to repay the Loans and L/C Obligations shall not be affected in any way or to any extent by any failure by the Administrative Agent and the Banks to receive written confirmation of any telephonic or facsimile notice or the receipt by the Administrative Agent and the Banks of a confirmation which is at variance with the terms understood by the Administrative Agent and the Banks to be contained in the telephonic or facsimile notice. 11.03 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Bank, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 11.04 COSTS AND EXPENSES. The Company shall: (a) whether or not the transactions contemplated hereby are consummated, pay or reimburse the Administrative Agent, and the Issuing Bank within five Business Days after demand (subject to subsection 5.01(f)) for all reasonable costs and expenses incurred by the Administrative Agent and the Issuing Bank in connection with the development, preparation, delivery, administration and execution of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any Loan Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including Attorney Costs incurred by the Administrative Agent and the Issuing Bank with respect thereto; and (b) pay or reimburse the Administrative Agent, the Arranger and each Bank within five Business Days after demand (subject to subsection 5.01(f)) for all costs and expenses (including Attorney Costs) incurred by each of them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Agreement or any other Loan Document during the existence of an Event of Default or after acceleration of the Loans (including in connection with any "workout" or restructuring regarding the Loans, and including in any Insolvency Proceeding or appellate proceeding). 11.05 INDEMNITY. (a) Whether or not the transactions contemplated hereby are consummated, the Company shall indemnify, defend and hold the Agent-Related Persons, and each Bank and each of their respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including Attorney Costs) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loans, the termination of the Letters of Credit and the termination, resignation or replacement of the Administrative Agent or replacement of any Bank) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any Insolvency Proceeding or appellate proceeding) related to or arising out of this Agreement or the Loans or Letters of Credit or the use of the proceeds thereof (excluding, however, any action arising solely among the Banks in their capacities as Banks), whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); provided, that the Company shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities to the extent same arise from the gross negligence or willful misconduct of such Indemnified Person. The agreements in this SECTION shall survive payment of all other Obligations. (b) (i) The Company shall indemnify, defend and hold harmless each Indemnified Person, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses or disbursements (including Attorney Costs and the allocated cost of internal environmental audit or review services), which may be incurred by or asserted against such Indemnified Person in connection with or arising out of any pending or threatened investigation, litigation or proceeding, or any action taken by any Person, with respect to any Environmental Claim. No action taken by legal counsel chosen by the Administrative Agent or any Bank in defending against any such investigation, litigation or proceeding or requested remedial, removal or response action shall vitiate or any way impair the Company's obligation and duty hereunder to indemnify and hold harmless the Administrative Agent and each Bank. (ii) In no event shall any site visit, observation, or testing by the Administrative Agent or any Bank (or any contractee of the Administrative Agent or any Bank) be deemed a representation or warranty that Hazardous Materials are or are not present in, on, or under, any site, or that there has been or shall be compliance with any Environmental Law. Neither the Company nor any other Person is entitled to rely on any site visit, observation, or testing by the Administrative Agent or any Bank. Neither the Administrative Agent nor any Bank owes any duty of care to protect the Company or any other Person against, or to inform the Company or any other party of, any Hazardous Materials or any other adverse condition affecting any site or property. Neither the Administrative Agent nor any Bank shall be obligated to disclose to the Company or any other Person any report or findings made as a result of, or in connection with, any site visit, observation, or testing by the Administrative Agent or any Bank. Indemnified Parties hereby reserve the right, and the Company hereby expressly authorizes any Indemnified Party, to make available to any party (including any governmental agency or authority) any and all reports, whether prepared by any Indemnified Party or prepared by the Company and provided to any Indemnified Party (collectively, "Environmental Reports") that any Indemnified Party may have with respect to the property owned or used by the Company or any of its Subsidiaries, to the extent required in accordance with any Requirement of Law or by any Governmental Authority. (c) THE INDEMNIFICATION OBLIGATIONS OF THE COMPANY CONTAINED IN THIS AGREEMENT SHALL APPLY WHETHER OR NOT SUCH INDEMNIFIED LIABILITIES ARISE OUT OF OR AS A RESULT OF ANY INDEMNIFIED PARTIES' NEGLIGENCE IN WHOLE OR IN PART, INCLUDING, WITHOUT LIMITATION, THOSE CLAIMS WHICH RESULT FROM THE SOLE, JOINT, CONCURRENT OR COMPARATIVE NEGLIGENCE OF THE INDEMNIFIED PARTY, OR ANY ONE OR MORE OF THEM. The agreements in this SECTION 11.05 shall survive payment of all other Obligations. 11.06 PAYMENTS SET ASIDE. To the extent that the Company makes a payment to the Administrative Agent or the Banks, or the Administrative Agent or the Banks exercise their right of set-off, and such payment or the proceeds of such set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or such Bank in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any Insolvency Proceeding or otherwise, then (a) to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Bank severally agrees to pay to the Administrative Agent upon demand its pro rata share of any amount so recovered from or repaid by the Administrative Agent. 11.07 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Administrative Agent and each Bank. 11.08 ASSIGNMENTS, PARTICIPATIONS, ETC. (a) Any Bank (including the Issuing Bank) may, with the prior written consent of the Company (at all times other than during the existence of an Event of Default) which consent of the Company shall not be unreasonably withheld and written consent of the Administrative Agent, at any time assign and delegate to one or more Eligible Assignees (provided that no written consent of the Company or the Administrative Agent shall be required in connection with any assignment and delegation by the Bank to an Eligible Assignee that is an Affiliate of such Bank) (each an "Assignee") all, or any ratable part of all, of the Loans, the Commitments, the L/C Obligations and the other rights and obligations of such Bank hereunder, in a minimum amount of $10,000,000; provided, however, that (i) the Company and the Administrative Agent may continue to deal solely and directly with such Bank in connection with the interest so assigned to an Assignee until (A) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Company and the Administrative Agent by such Bank and the Assignee; (B) such Bank and its Assignee shall have delivered to the Company and the Administrative Agent an Assignment and Acceptance in the form of Exhibit "E" ("Assignment and Acceptance") together with any Note or Notes subject to such assignment and (C) the assignor Bank or Assignee has paid to the Administrative Agent a processing fee in the amount of $3,500.00, and (ii) if the assignor Bank or any of its Affiliates is a Swap Provider with respect to any Specified Swap Contract, such Bank shall not assign all of its interest in the Loans and the Commitments to an Assignee unless such Assignee, or an Affiliate of such Assignee, shall also assume all rights and obligations of such assignor Bank or Affiliate with respect to such Specified Swap Contracts, with the consent of the Company. (b) From and after the date that the Administrative Agent notifies the assignor Bank that it has received (and provided its consent with respect to) an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Bank under the Loan Documents, and (ii) the assignor Bank shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents. (c) Within five Business Days after its receipt of notice by the Administrative Agent that it has received an executed Assignment and Acceptance and payment of the processing fee, (and provided that it consents to such assignment in accordance with Subsection 11.08(a)) the Company shall execute and deliver to the Administrative Agent, new Notes evidencing such Assignee's assigned Loans and Commitment and, if the assignor Bank has retained a portion of its Loans and its Commitment, replacement Notes in the principal amount of the Loans retained by the assignor Bank (such Notes to be in exchange for, but not in payment of, the Notes held by such Bank). Immediately upon each Assignee's making its processing fee payment under the Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitments of the assigning Bank pro tanto. (d) Any Bank may at any time sell to one or more commercial banks or other Persons not Affiliates of the Company (a "Participant") participating interests in any Loans, the Commitment of that Bank and the other interests of that Bank (the "originating Bank") hereunder and under the other Loan Documents; provided, however, that (i) the originating Bank's obligations under this Agreement shall remain unchanged, the originating Bank shall remain a Bank for all purposes hereof and the other Loan Documents to which such originating Bank is a party, and the Participant may not become a Bank for purposes hereof or for any other of the Loan Documents, (ii) the originating Bank shall remain solely responsible for the performance of such obligations, (iii) the Company, the Issuing Bank and the Administrative Agent shall continue to deal solely and directly with the originating Bank in connection with the originating Bank's rights and obligations under this Agreement and the other Loan Documents, and (iv) no Bank shall transfer or grant any participating interest under which the Participant has rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment, consent or waiver would require unanimous consent of the Banks as described in the first proviso to SECTION 11.01. In the case of any such participation, the Participant shall not have any rights under this Agreement, or any of the other Loan Documents (the Participant's rights against the granting Bank in respect of such participation being those set forth in the agreement creating or evidencing such participation with such Bank), and all amounts payable by the Company hereunder shall be determined as if such Bank had not sold such participation; except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Bank under this Agreement. (e) Notwithstanding any other provision in this Agreement, any Bank may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement and the Notes held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR S.S. 203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. 11.09 CONFIDENTIALITY. Each Bank agrees to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information identified as "confidential" or "secret" by the Company and provided to it by the Company or any of its Subsidiaries, or by the Administrative Agent on such Company's or Subsidiary's behalf, under or in connection with this Agreement or any other Loan Document, and neither it nor any of its Affiliates shall use any such information other than in connection with or in enforcement of this Agreement and the other Loan Documents or in connection with other business now or hereafter existing or contemplated with the Company or any Subsidiary; except to the extent such information (i) was or becomes generally available to the public other than as a result of disclosure by the Bank, or (ii) was or becomes available on a non-confidential basis from a source other than the Company, provided that such source is not bound by a confidentiality agreement with the Company known to the Bank; provided, however, that any Bank may disclose such information (A) at the request or pursuant to any requirement of any Governmental Authority to which the Bank is subject or in connection with an examination of such Bank by any such authority; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable Requirement of Law; (D) to the extent reasonably required in connection with any litigation or proceeding to which the Administrative Agent, any Bank or their respective Affiliates may be party; (E) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Loan Document; (F) to such Bank's independent auditors and other professional advisors; (G) to any Affiliate of such Bank, or to any Participant or Assignee, actual or potential, provided that such Affiliate, Participant or Assignee agrees to keep such information confidential to the same extent required of the Banks hereunder, and (H) as to any Bank, as expressly permitted under the terms of any other document or agreement regarding confidentiality to which the Company is party or is deemed party with such Bank. 11.10 SET-OFF. In addition to any rights and remedies of the Banks provided by law, if an Event of Default exists or the Loans have been accelerated, each Bank is authorized at any time and from time to time, without prior notice to the Company, any such notice being waived by the Company to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, such Bank to or for the credit or the account of the Company against any and all Obligations owing to such Bank, now or hereafter existing, irrespective of whether or not the Administrative Agent or such Bank shall have made demand under this Agreement or any Loan Document and although such Obligations may be contingent or unmatured. Each Bank agrees promptly to notify the Company and the Administrative Agent after any such set-off and application made by such Bank; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. 11.11 INTEREST. It is the intention of the parties hereto to comply with applicable usury laws; accordingly, notwithstanding any provision to the contrary in this Agreement, the Notes or in any of the other Loan Documents securing the payment hereof or otherwise relating hereto, in no event shall this Agreement, the Notes or such other Loan Documents require the payment or permit the payment, taking, reserving, receiving, collection, or charging of any sums constituting interest under applicable laws, if any, which exceed the maximum amount permitted by such laws. If any such excess interest is called for, contracted for, charged, taken, reserved, or received in connection with the Loans evidenced by the Notes or in any of the Loan Documents securing the payment thereof or otherwise relating thereto, or in any communication by the Administrative Agent or the Banks or any other person to the Company or any other person, or in the event all or part of the principal or interest thereof shall be prepaid or accelerated, so that under any of such circumstances or under any other circumstance whatsoever the amount of interest contracted for, charged, taken, reserved, or received on the amount of principal actually outstanding from time to time under the Notes shall exceed the maximum amount of interest permitted by applicable usury laws, then in any such event it is agreed as follows: (i) the provisions of this paragraph shall govern and control, (ii) neither the Company nor any other person or entity now or hereafter liable for the payment of the Notes shall be obligated to pay the amount of such interest to the extent such interest is in excess of the maximum amount of interest permitted by applicable usury laws, (iii) any such excess which is or has been received notwithstanding this paragraph shall be credited against the then unpaid principal balance of the Notes or, if the Notes have been or would be paid in full, refunded to the Company, and (iv) the provisions of this Agreement, the Notes and the other Loan Documents securing the payment hereof and otherwise relating hereto, and any communication to the Company, shall immediately be deemed reformed and such excess interest reduced, without the necessity of executing any other document, to the maximum lawful rate allowed under applicable laws as now or hereafter construed by courts having jurisdiction hereof or thereof. Without limiting the foregoing, all calculations of the rate of the interest contracted for, charged, taken, reserved, or received in connection with the Notes or this Agreement which are made for the purpose of determining whether such rate exceeds the maximum lawful rate shall be made to the extent permitted by applicable laws by amortizing, prorating, allocating and spreading during the period of the full term of the Loans, including all prior and subsequent renewals and extensions, all interest at any time contracted for, charged, taken, reserved, or received. The terms of this paragraph shall be deemed to be incorporated in every document and communication relating to the Notes, the Loans or any other Loan Document. 11.12 INDEMNITY AND SUBROGATION. In addition to all such rights of indemnity and subrogation as the Guarantors may have under applicable law, the Company agrees that in the event a payment shall be made by any Guarantor under a Guaranty in respect of a Loan to the Company, the Company shall indemnify such Guarantor for the full amount of such payment and such Guarantor shall be subrogated to the rights of the person to whom such payment shall have been made to the extent of such payment subject to the provisions of the Guaranty executed by such Guarantor. Notwithstanding any provision of this Agreement to the contrary, all rights of the Guarantors under this SECTION 11.12 and all other rights of indemnity, contribution or subrogation under applicable law or otherwise shall be fully subordinated to the indefeasible payment in full of the Obligations, and no payments may be made in respect of such rights of indemnity, contribution or subrogation until all the Obligations have been paid in full, all Commitments have expired and all Letters of Credit have expired. No failure on the part of the Company to make the payments required by this SECTION (or any other payments required under applicable law or otherwise) shall in any respect limit the obligations and liabilities of any Guarantor with respect to any Guaranty, and each Guarantor shall remain liable for the full amount of the obligation of such Guarantor under each such Guaranty in accordance therewith. 11.13 AUTOMATIC DEBITS OF FEES. With respect to any commitment fee, arrangement fee, letter of credit fee or other fee, or any other cost or expense (including Attorney Costs) due and payable to the Administrative Agent, the Issuing Bank, Bank of America or the Arranger under the Loan Documents, the Company hereby irrevocably authorizes Bank of America, after giving reasonable prior notice to the Company, to debit any deposit account of the Company with Bank of America in an amount such that the aggregate amount debited from all such deposit accounts does not exceed such fee or other cost or expense. If there are insufficient funds in such deposit accounts to cover the amount of the fee or other cost or expense then due, such debits will be reversed (in whole or in part, in Bank of America's sole discretion) and such amount not debited shall be deemed to be unpaid. No such debit under this SECTION shall be deemed a set-off. 11.14 NOTIFICATION OF ADDRESSES, LENDING OFFICES, ETC. Each Bank shall notify the Administrative Agent in writing of any changes in the address to which notices to the Bank should be directed, of addresses of any Lending Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Administrative Agent shall reasonably request. 11.15 COUNTERPARTS. This Agreement may be executed in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. 11.16 SEVERABILITY. The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. 11.17 NO THIRD PARTIES BENEFITTED. This Agreement is made and entered into for the sole protection and legal benefit of the Company, the Banks, the Administrative Agent and the Agent-Related Persons, and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. 11.18 GOVERNING LAW. (a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA AND APPLICABLE FEDERAL LAW; AND THE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, THE AGENT AND THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY, THE AGENT AND THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY, THE AGENT AND THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, AND CONSENT TO THE SERVICE OF PROCESS IN ANY SUCH LEGAL ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS SET FORTH IN SCHEDULE 11.02, SUCH SERVICE TO BECOME EFFECTIVE TEN DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. 11.19 WAIVER OF JURY TRIAL. THE COMPANY, THE BANKS AND THE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY, THE BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 11.20 ENTIRE AGREEMENT. This Agreement, together with the other Loan Documents, embodies the entire agreement and understanding among the Company, the Banks and the Administrative Agent, and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof. THIS WRITTEN LOAN AGREEMENT, TOGETHER WITH THE OTHER WRITTEN LOAN DOCUMENTS EXECUTED IN CONNECTION HEREWITH, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. [SIGNATURES BEGIN ON THE FOLLOWING PAGE] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. GIANT INDUSTRIES, INC. By: /s/ Mark B. Cox --------------------------------- Name: Mark B. Cox ------------------------------- Title: Treasurer ------------------------------ [THIS IS A SIGNATURE PAGE TO THE GIANT INDUSTRIES, INC. CREDIT AGREEMENT] BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent, as Letter of Credit Issuing Bank and as a Bank By /s/ Claire M. Liu ----------------------------------- Claire M. Liu Managing Director [THIS IS A SIGNATURE PAGE TO THE GIANT INDUSTRIES, INC. CREDIT AGREEMENT] UNION BANK OF CALIFORNIA, N.A. By: /s/ Walter M. Roth ----------------------------------- Name: Walter M. Roth -------------------------------- Title: Vice President ------------------------------- [THIS IS A SIGNATURE PAGE TO THE GIANT INDUSTRIES, INC. CREDIT AGREEMENT] BANK ONE, ARIZONA, INC. By: /s/ Dennis Bourgeois ----------------------------------- Name: Dennis Bourgeois -------------------------------- Title: Senior Vice President ------------------------------- [THIS IS A SIGNATURE PAGE TO THE GIANT INDUSTRIES, INC. CREDIT AGREEMENT]
SCHEDULE 1.01A ACQUISITION EBITDA ATTRIBUTED EBITDA -------------------------- 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER SUBJECT ACQUISITION 1998 1998 1998 1998 - -------------------- ------------ ----------- ------------ ----------- DeGuelle Acquisition 438,088.00 -0- -0- -0- Kaibab Acquisition 1,316,437.50 987,328.12 2,961,984.38 -0-
SCHEDULE 1.01B PREFERRED ELIGIBLE ACCOUNT OBLIGORS Amoco Corporation BP Oil Company Chevron USA Inc. Conoco Inc. Exxon Company USA Koch Industries Inc. Mobil Oil Corporation Shell Oil Company Texaco Trading & Transportation Inc. Texaco USA Inc. SCHEDULE 2.01 COMMITMENTS BANK COMMITMENT PRO RATA SHARE - -------------------------------- ------------ -------------- Bank of America National Trust and Savings Association $25,000,000 38.46153846% Union Bank of California, N.A. $20,000,000 30.76923077% Bank One, Arizona, N.A. $20,000,000 30.76923077% TOTAL: $65,000,000.00 100.00000000% SCHEDULE 2.02 Pricing Chart (Expressed in percent per annum) PRICING LEVEL LEVEL I LEVEL II LEVEL III LEVEL IV - ---------------------- ------- -------- --------- -------- APPLICABLE MARGIN- OFFSHORE RATE LOANS 1.000 1.250 1.500 2.000 APPLICABLE MARGIN- BASE RATE LOANS 0.000 0.000 0.000 0.000 RISK PARTICIPATION FEE 1.000 1.250 1.500 2.000 COMMITMENT FEE 0.325 0.350 0.375 0.500 Level I shall apply if the Company's Leverage Ratio is less than or equal to 2.5:1.0. Level II shall apply if the Company's Leverage Ratio is greater than 2.5:1.0, but less than or equal to 3.5:1.0. Level III shall apply if the Company's Leverage Ratio is greater than 3.5:1.0, but less than or equal to 4.5:1.0. Level IV shall apply if the Company's Leverage Ratio is greater than 4.5:1.0. Each adjustment of the Applicable Margins, the Risk Participation Fee and the Commitment Fee shall be made by the Administrative Agent and shall be effective as of the earlier of (a) the date upon which the Company delivers a Compliance Certificate to the Administrative Agent pursuant to SECTION 7.02(b) reflecting a changed pricing level (accompanied and supported by the financial statements with respect to which such Compliance Certificate is required to be delivered) and (b) the date upon which the Company is required by SECTION 7.02(b) to deliver such Compliance Certificate; provided, however, that, if a Compliance Certificate is not delivered by the date required in SECTION 7.02(b), then, subject to the other provisions of this Agreement, commencing on the date such Compliance Certificate was required until such Compliance Certificate is delivered, the Applicable Margins, the Risk Participation Fee and the Commitment Fee shall be those indicated for Level IV, and from and after the date such Compliance Certificate is thereafter received, the Applicable Margins, the Risk Participation Fee and the Commitment Fee shall be as determined from such Compliance Certificate; provided, further, that, until the Administrative Agent's receipt of the first Compliance Certificate required to be delivered after the Execution Date, the Applicable Margins, the Risk Participation Fee and the Commitment Fee shall be those indicated for Level III. SCHEDULE 3.03 EXISTING BANK OF AMERICA LETTERS OF CREDIT Letters of Credit Issued by Bank of America National Trust and Savings Association L/C No. Outstanding Amount ------- ------------------ 1. 0221969 $ 6,000.00 2. 0221973 40,000.00 3. 0222419 28,000.00 4. 0222564 400,000.00 5. LASB # 225605 85,000.00 6. 7400537 79,582.05 7. 7262813 11,400,000.00 8. 7354858 776,840.00 -------------- Total: $12,815,422.05 ============== SCHEDULE 6.11 UNDISCLOSED LIABILITIES None SCHEDULE 6.16 SUBSIDIARIES AND MINORITY INTERESTS (a) SUBSIDIARIES The following are wholly-owned Subsidiaries of the Company: Giant Exploration & Production Company, a Texas corporation Giant Industries Arizona, Inc., an Arizona corporation The following are wholly-owned Subsidiaries of Giant Industries Arizona, Inc.: Ciniza Production Company, a New Mexico corporation San Juan Refining Company, a New Mexico corporation Giant Four Corners, Inc., an Arizona corporation Phoenix Fuel Company, an Arizona corporation DeGuelle Oil Company, a Colorado corporation Giant Mid-Continent, Inc., an Arizona corporation Giant Stop-N-Go of New Mexico, a New Mexico corporation Ciniza Pipe Line Inc., a New Mexico corporation (Inactive) Giant Refining Company, a New Mexico corporation (Inactive) (b) EQUITY INVESTMENTS None SCHEDULE 8.01 PERMITTED LIENS MetLife Capital Corporation - Two Service Stations MetLife Capital Corporation - Corporate Airplane Miscellaneous Liens, including Capitalized leases on trucks and trailers with an aggregate value not exceeding $1,500,000 - Various SCHEDULE 8.04 PERMITTED LOANS AND INVESTMENTS 1. $5,000,000 Loan by Giant Industries, Inc. to James E. Acridge due February 28, 2001. SCHEDULE 8.05 CERTAIN PERMITTED INDEBTEDNESS 1. Giant Industries, Inc. & Giant Industries Arizona, Inc. Permitted Indebtedness as of September 30, 1998: DESCRIPTION BALANCE Met Life $ 3,708,313.57 Miscellaneous $ 500,000.00 (estimates) -------------- TOTAL $ 4,208,313.57 ============== 2. Phoenix Fuels Co., Inc.: Permitted Indebtedness as of September 30, 1998: DESCRIPTION BALANCE David G. & Judith G. Scott Note $ 133,028.22 Conoco Supplier Note $ 200,000.00 Becker Petroleum Promissory Note $ 6,164.12 Mobil Oil Supplier Note - Oil Depot $ 110,000.06 -------------- $ 449,192.40 ============== 3. Effective upon consummation of the Thriftway Acquisition: Obligations of Giant Four Corners, Inc., under the Master Lease and Option Agreement executed pursuant to, and in the form attached as Exhibit B to, the 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" and the Associated Purchase and Sale Agreements to such Definitive Agreement, not to exceed $30,330,000 in the aggregate, such obligations to be guaranteed by Giant Industries Arizona, Inc. 4. That certain sale and lease agreement and related agreements (the "FFCA Lease") proposed to be entered into by and among FFCA Capital Holding Corporation ("FFCA"), a Delaware corporation, as purchaser/lessor, Giant Industries Arizona, Inc., Giant Four Corners, Inc. and the Company, as sellers, and Giant Industries Arizona, Inc., as lessee, pursuant to which FFCA would purchase from the sellers and lease to the lessee various service stations and convenience markets, with the lease obligations of Giant Industries Arizona, Inc. thereunder to be guaranteed by the Company. SCHEDULE 8.08 CERTAIN CONTINGENT OBLIGATIONS This Schedule hereby incorporates by reference all Contingent Obligations pending, threatened or contemplated against the Company, or any subsidiary, or any of their respective properties, contained in Forms 10-K for the year ended December 31, 1997, Note 16 (Commitments and Contingencies), filed by the Company with the Securities and Exchange Commission. In addition to those items disclosed above, the following is a list of certain Contingent Obligations: Giant Industries, Inc., as Issuer, and all Subsidiaries, as Guarantors, of the $100,000,000 9.75% Senior Subordinated Notes Due 2003, Indenture dated as of November 29, 1993. Giant Industries, Inc., as Issuer and all Subsidiaries, as Guarantors of the $150,000,000 9% Senior Subordinated Notes Due 2007, Indenture dated as of August 26, 1997. SCHEDULE 11.02 OFFSHORE AND DOMESTIC LENDING OFFICES, ADDRESSES FOR NOTICES GIANT INDUSTRIES, INC. Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255-3465 Attention: President Telephone: (602) 585-8888 Facsimile: (602) 585-8893 GUARANTORS [NAME OF GUARANTOR] c/o Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255-3465 Attention: President Telephone: (602) 585-8888 Facsimile: (602) 585-8893 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent Administrative Agent's Payment office: Bank of America-San Francisco F/O: Agency Mgmt. Svcs. 5596 ABA No.: 1210-0035-8 Acct. No.: 12334-14782 Ref: Giant Industries, Inc. Bank of America National Trust and Savings Association Global Agency #5596 1850 Gateway Blvd. - 5th Floor Concord, CA 94520 Attention: John Kubokawa Telephone: (925) 675-8401 Facsimile: (925) 675-8500 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Issuing Bank Address for Notices: 231 South LaSalle Street Chicago, Illinois 60697 Attention: Ida Rubens Telephone: (312) 828-5239 Facsimile: (312) 974-9626 With a copy to: Bank of America Three Allen Center 333 Clay Street, Suite 4550 Attention: Claire Liu Houston, Texas 77002-4103 Telephone: (713) 651-4855 Facsimile: (713) 651-4841 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank Domestic and Eurodollar Lending Office: Bank of America National Trust and Savings Association 231 South LaSalle Street Chicago, Illinois 60697 Attention: Ida Rubens Telephone: (312) 828-5239 Facsimile: (312) 974-9626 Address for Notices (other than Borrowing Notices and Notices of Conversion/ Continuation): Bank of America Three Allen Center 333 Clay Street, Suite 4550 Houston, Texas 77002-4103 Attention: Claire Liu Telephone: (713) 651-4855 Facsimile: (713) 651-4841 UNION BANK OF CALIFORNIA, N.A., as a Bank Domestic and Eurodollar Lending Office: Union Bank of California, N.A. 1980 Saturn St. Monterey Park, CA 91754 Attention: Commercial Loan Operations ABA # 122-000-496 Acct. # 070-196431 Ref.: Giant Industries Address for Notices: Energy Capital Services 445 S. Figueroa Street, 15th Floor Los Angeles, CA 90071 Contact - Credit Walter Roth, Vice President Telephone: (213) 236-5772 Facsimile: (213) 236-4096 Contact - Operations Patricia A. Gonzales Assistant Vice President Telephone: (213) 236-6199 Facsimile: (213) 236-4096 BANK ONE, ARIZONA, N.A., as a Bank Domestic and Eurodollar Lending Office: Bank One, Arizona, NA 201 N. Central, 9th Floor Phoenix, AZ 85004 Attention: Gloria Thomas Telephone: (602) 221-4751 Facsimile: (602) 221-1903 Address for Notices (other than Borrowing Notices and Notices of Conversion/ Continuation): Bank One, Arizona, NA 201 N. Central, 21st Floor Phoenix, AZ 85004 Attention: Stephen Luttrell, VP Telephone: (602) 221-2394 Facsimile: (602) 221-1502 EXHIBIT "A" FORM OF NOTICE OF BORROWING Date:__________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent (the "Administrative Agent") for the Banks (as herein defined) from time to time party to the Credit Agreement, dated as of ____________ ___, 1998 (as the same may be amended, modified or restated from time to time, the "Credit Agreement"), among GIANT INDUSTRIES, INC., a Delaware corporation, the several financial institutions from time to time party thereto (the "Banks"), and the Administrative Agent. Ladies and Gentlemen: The undersigned GIANT INDUSTRIES, INC. (the "Company") hereby refers to the Credit Agreement and hereby gives you notice irrevocably, pursuant to Section 2.03 of the Credit Agreement, of the Borrowing(s) specified below: 1. Aggregate Total Amount: $________________ 2. Revolving Loan advance date: ________________, ___. 3. Requested Interest Rate Type and applicable Dollar amount: Rate Selection (a) Base Rate Loan for $___________________. (b) Offshore Rate Loan with Interest Period of: (i) one month for $______________ (ii) two months for $______________ (iii) three months for $______________ (iv) six months for $______________ The Borrowing(s) herein requested are to be received in immediately available funds on _________, _______________, 199_ in the following account: Bank Name: ________________________________ ABA Number:________________________________ Account Title:_____________________________ Account Number:____________________________ The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the proposed Borrowing(s), before and after giving effect thereto and to the application of the proceeds therefrom: (a) the representations and warranties of the undersigned contained in Article VI of the Credit Agreement are true and correct in all material respects as though made on and as of the date hereof and the date of the proposed Borrowing(s) (except such representations and warranties which expressly refer to an earlier date, which are true and correct in all material respects as of such earlier date); and (b) no Default or Event of Default has occurred and is continuing, or would result from such proposed Borrowing(s); and (c) the Effective Amount of all outstanding Revolving Loans together with the Effective Amount of all L/C Obligations does not exceed the Commitments; (d) The total amount of Revolving Loans used to finance Acquisitions, including any portion of the proposed Borrowing(s) to be used to finance any Acquisition(s), does not exceed $10,000,000; and (e) No event or circumstance has occurred that has resulted or could reasonably be expected to result in a Material Adverse Effect. The Company agrees that if prior to the time of the making of the Loans requested hereby any matter certified to by it will not be true and correct at such time as if then made, it will immediately so notify the Administrative Agent. Capitalized terms used herein without definition have the meanings assigned to them in the Credit Agreement. GIANT INDUSTRIES, INC. By Name: Title: EXHIBIT "B" FORM OF NOTICE OF CONVERSION/CONTINUATION Date:_________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent (the "Administrative Agent") for the Banks (as herein defined) from time to time party to the Credit Agreement, dated as of ____________ ___, 1998 (as the same may be amended, modified or restated from time to time, the "Credit Agreement"), among GIANT INDUSTRIES, INC., a Delaware corporation, the several financial institutions from time to time party thereto (the "Banks"), and the Administrative Agent. Ladies and Gentlemen: The undersigned GIANT INDUSTRIES, INC. (the "Company") hereby refers to the Credit Agreement and hereby gives you notice irrevocably, pursuant to Section 2.04 of the Credit Agreement, of the conversion or continuation of the Loan specified below: A. Loan to be converted or continued: (1) Amount: $_______________ (2) Loan Date: _______________, 199___ (3) Existing Interest Rate Type: Check applicable blank (a) Base Rate _________ (b) Offshore Rate with an Interest Period of: (i) one month _________ (ii) two months _________ (iii) three months _________ (iv) six months _________ (4) Date Loan matures: _________________, 199___ B. Proposed conversion or continuation date: _____________, 199__ (the "Continuation/Conversion Date"). C. Loan described in (A) above is to be converted or continued as follows: (1) Amount: $_______________ (2) Proposed Conversion/Continuation Date: _________, 199___ (3) Requested Interest Rate Type and applicable Dollar amount: (a) Base Rate for $_____________________ (b) Offshore Rate with an Interest Period of: (i) one month _________ (ii) two months _________ (iii) three months _________ (iv) six months _________ The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the Conversion/Continuation Date, before and after giving effect to the Conversion/Continuation Date of the Loans as herein specified: (a) the representations and warranties of the undersigned contained in Article VI of the Credit Agreement are true and correct in all material respects as though made on and as of the date hereof and the Continuation/Conversion Date (except such representations and warranties which expressly refer to an earlier date, which are true and correct in all material respects as of such earlier date); and (b) no Default or Event of Default has occurred and is continuing, or would result from such Conversion/Continuation; and (c) the Effective Amount of all outstanding Revolving Loans together with the Effective Amount of all L/C Obligations does not exceed the Commitments; and (d) No event or circumstance has occurred that has resulted or could reasonably be expected to result in a Material Adverse Effect. The Company agrees that if prior to the time of the conversion or continuation of the Loan requested hereby any matter certified to by it will not be true and correct at such time as if then made, it will immediately so notify the Administrative Agent. Capitalized terms used herein without definition have the meanings assigned to them in the Credit Agreement. GIANT INDUSTRIES, INC. By Name: Title: EXHIBIT "C" FORM OF COMPLIANCE CERTIFICATE The undersigned authorized officer of GIANT INDUSTRIES, INC. (the "Company"), delivers this Certificate pursuant to the Credit Agreement dated as of ________ __, 1998 (as the same may be amended, modified or restated from time to time, the "Credit Agreement"), among the Company, the several financial institutions from time to time party thereto (the "Banks"), and Bank of America National Trust and Savings Association, as Administrative Agent and Letter of Credit Issuing Bank (the "Administrative Agent"). The undersigned hereby certifies to the Administrative Agent and the Banks as follows: 1. A review of the activities of the Company and its Subsidiaries during the period from ___________, 199__ to ____________, 199__ (the "Subject Period") has been made to obtain the information necessary to execute and deliver this Certificate. 2. To the best of the undersigned's knowledge, information and belief, except as described in Attachment 2 attached hereto: (a) as of the date hereof, no Default or Event of Default exists under the Credit Agreement; and (b) as of the date hereof, the Company and its Subsidiaries are in compliance with the financial covenants contained in the Credit Agreement as set forth in Attachment 1 attached hereto. Capitalized terms used herein without definition have the meanings assigned to them in the Credit Agreement. EXECUTED AND DELIVERED as of _________________, ____. GIANT INDUSTRIES, INC. Authorized Officer ATTACHMENT 1 GIANT INDUSTRIES, INC. & SUBSIDIARIES CALCULATION OF FINANCIAL COVENANTS AND RATIOS AS OF ________________, 199_ (THE "DETERMINATION DATE") 1. Minimum Consolidated Tangible Net Worth (Section 8.12 of the Credit Agreement) (a) Consolidated Net Income, computed on a cumulative basis for the period beginning October 1, 1998, and ending on the Determination Date (provided no negative adjustment will be made in the event Consolidated Net Income is a deficit for such period), is: $_______ (b) 50% of the amount in (a) is: $_______ (c) 75% of the net assets received from the issuance of any capital stock by the Company after September 30, 1998 is: $_______ (d) Plus $96,000,000 $_______ (e) Minimum Consolidated Tangible Net Worth (the sum of 1(b) plus 1(c) plus 1(d)) is: $_______ (f) Consolidated Tangible Net Worth: (i) Consolidated Net Worth is: $_______ (ii) Net Book value of intangible assets is: $_______ (iii) Consolidated Tangible Net Worth (Item 2(g)(i) minus Item 2(g)(ii) is: $_______ 2. Minimum Interest Coverage Ratio (Section 8.13 of the Credit Agreement) (a) Consolidated EBITDA for the four fiscal quarters ending on the Determination Date: (i) Consolidated Net Income is: $_______ (ii) Consolidated Interest Expense is: $_______ (iii) Taxes measured by income included in the determination of consolidated Net Income are: $_______ (iv) Depreciation and amortization expenses included in the determination of Consolidated Net Income are: $_______ (v) Interest income not included in the determination of Consolidated Net Income is: $_______ (vi) Attributable Acquisition EBITDA during the four fiscal quarters ending on the Determination Date (pursuant to Schedule 1.01A) is: $_______ (vii) Consolidated EBITBA (the sum of Items 2(a)(i) plus 2(a)(ii) plus 2(a)(iii) plus 2(a)(iv) plus 2(a)(v) plus 2(a)(vi)) is: $_______ (b) Material Rents for the four fiscal quarters ending on the Distribution Date: $_______ (c) Subtotal (the sum of 2(a)(vii) plus 2(b)) is: $_______ (d) Consolidated Interest Expense for the four fiscal quarters ending on the Determination (e) Material Rents for the four fiscal quarters ending on the Determination Date: $_______ (f) Subtotal (the sum of 2(d) plus 2(e)) is: $_______ (g) Interest Coverage Ratio the ratio of 2(c) to 2(f)) is: ____:1.00 Minimum Interest Coverage Ratio required by Section 8.13 of the Credit Agreement is: ____:1.00 3. Maximum Capitalization Ratio (Section 8.14 of the Credit Agreement) (a) Consolidated Funded Indebtedness: (i) Liabilities for borrowed money are: $_______ (ii) Liabilities for deferred purchase price of property or services is: $_______ (iii) Obligations under Capital Leases are: $_______ (iv) Obligations under other "off balance sheet" leases (excluding operating leases other than Synthetic Leases) are: $_______ (v) Obligations to redeem or purchase stock or other equity interests are: $_______ (vi) Guaranty Obligations in respect of the foregoing are: $_______ (vii) Consolidated Funded Indebtedness (the sum of Items 3(a)(i) plus 3(a)(ii) plus 3(a)(iii) plus 3(a)(iv) plus 3(a)(v) plus 3(a)(vi)) is: $_______ (b) Consolidated Total Capitalization: (i) Consolidated Funded Indebtedness (Item 3(a)(vii)) is: $_______ (ii) Consolidated Net Worth is: $_______ (iii) Consolidated Total Capitalization (the sum of 3(b)(i) and 3(b)(ii)) is: $_______ (c) Capitalization Ratio (the ratio of 3(a) (vii) to 3(b)(iii)) is: $_______% Maximum Capitalization Ratio required by Section 8.14 of the Credit Agreement is 72.5% prior to December 31, 1999, and 70.0% thereafter. 4. Leverage Ratio (Schedule 2.02 of the Credit Agreement) (a) Consolidated Funded Indebtedness (Item 3(a)(vii)) is: $_______ (b) Consolidated EBITDA for the four fiscal quarters ending on the Determination Date (Item 2(a)(vii)) is: $_______ (c) Leverage Ratio (the ratio of 4(a) to 4(b)(iii)) is: ____:1.0 (d) Pricing Level corresponding to 4(c) is: Level____ Capitalized terms used herein without definition have the meanings assigned to them in the Credit Agreement. EXECUTED AND DELIVERED as of _________________, _____. GIANT INDUSTRIES, INC. Authorized Officer ATTACHMENT 2 Exceptions to Compliance Certificate EXHIBIT D-1 FORM OF LEGAL OPINION OF COMPANY'S COUNSEL December 23, 1998 Bank of America, National Trust and Savings Association, as Administrative Agent, and the Banks listed on Schedule 1 attached hereto Re: Credit Agreement dated as of December 23, 1998 (the "Credit Agreement"), between Giant Industries, Inc., a Delaware corporation ("the Company") and the Banks listed on Schedule 1 ("Banks") and Bank of America, National Trust and Savings Association, as Administrative Agent for the Banks ("Administrative Agent") Ladies and Gentlemen: I am Director, Legal Department, of the Company and of Giant Industries Arizona, Inc. ("Giant Arizona"), Ciniza Production Company ("Ciniza"), San Juan Refining Company ("San Juan"), Giant Exploration & Production Company ("Giant E&P"), Giant Four Corners, Inc. ("Four Corners"), Giant Mid-Continent, Inc. ("Mid-Continent"), Giant Stop-N-Go of New Mexico, Inc. ("Stop-N-Go"), DeGuelle Oil Company ("DeGuelle"), and Phoenix Fuel Co., Inc. ("Phoenix Fuel") (Giant Arizona, Ciniza, San Juan, Giant E&P, Four Corners, Mid-Continent, Stop-N-Go, Deguelle, and Phoenix Fuel are collectively referred to herein as "Giant Guarantors"). I have acted as counsel to the Company and the Giant Guarantors in connection with certain matters with respect to (a) the Credit Agreement, dated as of December 23, 1998 (the "Credit Agreement"), among the Company, the several financial institutions from time to time part thereto (the "Banks"), and Bank of America National Trust and Savings Association, as Administrative Agent (the "Administrative Agent") for the Banks and as Letter of Credit Issuing Bank, and (b) the Loan Documents listed on Exhibit "A" hereto (together with the Credit Agreement, the "Loan Documents"). This opinion is furnished to you pursuant to Section 5.01(e) of the Credit Agreement and at the instruction of the Company and the Giant Guarantors. All capitalized terms used but not otherwise defined herein have the meanings assigned to them in the Credit Agreement. In this connection, we have examined the following: (i) a copy of the Loan Documents; (ii) certificates of good standing ("Certificates of Good Standing") from the states of Delaware, Arizona and New Mexico as to the Company, and, as to the Giant Guarantors, from the states of their incorporation and from each state in which they are qualified as a foreign corporation and conducts a significant amount of business; (iii) certificates of officers of the Company and the Giant Guarantors; (iv) copies of Articles or Certificates of Incorporation, Bylaws and relevant corporate minutes of the Company and the Giant Guarantors. We have relied upon certificates of certain officers of the Company and the Giant Guarantors and upon the representations and warranties contained in the Credit Agreement and the Guaranty Agreements executed by the Giant Guarantors ("Giant Guarantees") with respect to the accuracy of material factual matters contained therein which were not independently known to us. With respect to questions of due organization, valid existence, and good standing, we have relied exclusively, and our opinion is based solely on, the Certificates of Good Standing. With respect to questions of corporate power, we have relied on the Articles or Certificates of Incorporation, Bylaws and Arizona law and Delaware corporate law only. In rendering the following opinion, we have assumed: a) The genuineness of all signatures other than those of the officers of the Company and the Giant Guarantors; b) The authenticity and completeness of documents submitted as originals, and the conformity to originals of documents submitted as copies; c) The due authorization, execution, acknowledgment where necessary, delivery and performance, and the validity, enforceability, legality, and binding effect of the Credit Agreement and all documents in connection therewith with regard to the parties to those agreements other than the Company and the Giant Guarantors; d) The legal capacity of all natural persons executing the Credit Agreement and the Giant Guarantees; e) That the Credit Agreement and Loan Documents constitute an integrated agreement between the parties to those agreements with respect to the matters contained therein and that the same constitute and evidence all the agreements and understandings between the parties thereto with respect to the matters contained therein and that there are no oral or written statements or agreements that modify, amend or vary, or purport to modify, amend or vary, any of the terms of such documents except for Post-closing Conditions Letter dated the date hereof; Based on the foregoing and subject to the limitations, qualifications and assumptions set forth herein, it is our opinion that: 1. The Company and each of the Giant Guarantors is a corporation duly organized, validly existing and in good standing under the laws of the respective jurisdiction of its incorporation. The Company and each of the Giant Guarantors is duly qualified as a foreign corporation and is licensed to do business and in good standing under the laws of each jurisdiction where ownership, lease or operation of its property or the conduct of its business requires such qualification or license except where the failure to so qualify or be licensed would not have a Material Adverse Effect on the assets, financial condition, or operations of the Company and the Giant Guarantors taken as a whole. 2. The Company and each of the Giant Guarantors have all requisite corporate power and authority (including without limitation all requisite licenses and permits) to execute, deliver and perform its obligations under the Credit Agreement and the other Loan Documents applicable to it, and to own its assets and to carry on its business as currently conducted and as contemplated to be conducted by the Credit Agreement. 3. The execution, delivery, and performance by the Company of the Credit Agreement and the execution, delivery, and performance by the Company and each of the Giant Guarantors of each of the other Loan Documents to which it is a party have been duly authorized by all necessary corporate action, and each of the Credit Agreement and the other Loan Documents has been duly executed and delivered by the Company and each of the Giant Guarantors, as applicable. 4. The execution, delivery and performance by the Company of the Credit Agreement and Loan Documents, and the execution, delivery and performance by the Giant Guarantors of the Giant Guaranty and the Security Agreements do not and will not: (a) breach or constitute a default under (i) their respective charters, articles or certificates of incorporation or bylaws, (ii) any decree, injunction, order, writ, or other action of any Governmental Authority known to us applicable to them or their respective assets, or (iii) the Indentures or any other material Contractual Obligation known to us to which any of them is a party or by which any of their respective properties may be bound, or (b) result in or require the creation of any Lien (other than for the benefit of Banks) upon or with respect to any of their respective assets under any document evidencing any material Contractual Obligation known to us to which such Person is a party. 5. To our knowledge there are no actions, suits, proceedings, claims or disputes pending or threatened, in arbitration or before any Governmental Authority, against the Company or the Giant Guarantors or any of their respective assets or with respect to any Plan which: (i) purport to affect or pertain to the Credit Agreement, or any other Loan Documents, or any of the transactions contemplated thereby; or (ii) if determined adversely to the Company and the Giant Guarantors would reasonably be expected to have a Material Adverse Effect. To our knowledge, there are no outstanding judgments against the Company or the Giant Guarantors, and to our knowledge, no injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of the Credit Agreement or any other Loan Documents or directing that the transactions provided for therein not be consummated as therein provided. 6. Neither the consent of the shareholders of the Company or any of the Giant Guarantors nor the consent of any holder of any Indebtedness of the Company or any of the Giant Guarantors known to us is or will be required as a condition to the validity or enforceability of the Credit Agreement or any of the other Loan Documents, except such as has been obtained. The foregoing opinions are subject to the following comments, qualifications, limitations and assumptions: (a) I am expressing no opinion as to the right, title or interest of the Company and the Giant Guarantors in any of the collateral described in the Credit Agreement. (b) The phrase "known to us" or words of similar import mean actual knowledge as in-house counsel but without any other or further investigation or review. (c) I am qualified to practice law only in the State of Arizona and the District of Columbia and do not purport to be an expert on or express any opinion herein concerning any law other than the laws of the State of Arizona, the General Corporation Law of the State of Delaware and applicable federal law. With respect to such laws, my opinions are as to what the law is or, in circumstances where the status of the law is unclear, what the law might reasonably be expected to be at the date hereof, and I assume no obligation to revise or supplement this opinion due to any change in the law by legislative action, judicial decision or otherwise. I do not render any opinion with respect to any matters other than those expressly set forth above. This opinion is being furnished to you solely for your benefit and the benefit of any other Banks and only with respect to the transaction described above. Accordingly, it may not be relied upon by, filed with or furnished to, quoted in any manner to, or referred to in any financial statement, report or related document, or delivered to, any other person or entity other than in connection with this transaction without, in each instance, our prior written consent. Sincerely, Kim H. Bullerdick Director, Legal Department KHB:jks EXHIBIT A LIST OF DOCUMENTS 1. Promissory Note(s) in the aggregate principal amount of $65,000,000 executed by the Company and made payable to each of the Banks, respectively, in their Pro Rata Share of the Commitments. 2. Guaranty executed by each of the Giant Guarantors in favor of the Banks and the Administrative Agent (the "Giant Guarantees"). 3. Security Agreements executed by the Company and each of its Subsidiaries in favor of the Administrative Agent, as agent for itself and the Banks. SCHEDULE I LIST OF BANKS Bank of America National Trust and Savings Association Agency Management Services #5596 1455 Market Street, 12th Floor San Francisco, California 94103 Bank One Arizona, NA 201 N. Central Avenue, 21st Floor Phoenix, Arizona 85004 Union Bank of California, NA Energy Capital Services 445 South Figueroa Street, 15th Floor Los Angeles, California 90071-1602 EXHIBIT D-2 FORM OF LEGAL OPINION OF COMPANY'S SPECIAL COUNSEL This Exhibit is not filed herewith and will be furnished to the Commission upon request. EXHIBIT "E" FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "Agreement") dated as of _______________, 199__ is made between _______________ (the "Assignor") and _________________________ (the "Assignee"). R E C I T A L S WHEREAS, the Assignor is party to that certain Credit Agreement, dated as of __________ __, 1998 (as the same may be amended, modified or restated from time to time, the "Credit Agreement"), among GIANT INDUSTRIES, INC., a Delaware corporation (the "Company"), the several financial institutions from time to time party thereto (the "Banks"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent (the "Administrative Agent") for the Banks from time to time party to the Credit Agreement and as Letter of Credit Issuing Bank (terms defined in the Credit Agreement are used herein with the same meaning); WHEREAS, as provided in the Credit Agreement, the Banks have committed to extend credit to the Company in an aggregate amount not to exceed SIXTY FIVE MILLION AND NO/100 DOLLARS ($65,000,000.00); and WHEREAS, the Assignor wishes to assign to the Assignee part of the rights and obligations of the Assignor under the Credit Agreement in respect of its Commitment, together with a corresponding portion of each of its outstanding Loans and its Pro Rata Share of the outstanding L/C Obligations, in a total amount equal to Dollars (U.S. $_______________) (the "Assigned Amount") on the terms listed on Annex I hereto and subject to the conditions set forth herein and in the Credit Agreement, and the Assignee wishes to accept assignment of such rights and to assume such obligations from the Assignor on such terms and subject to such conditions; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: 1. Assignment and Assumption. (a) Before giving effect to this Agreement, Assignor's (a) Commitment is $_______________, (b) aggregate principal amount of its outstanding Loans is $_________________, (c) aggregate principal amount of its outstanding L/C Obligations is $_________________ and (d) Pro Rata Share is ______%. With effect on and after the Effective Date (as defined in Section 4 hereof), the Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, the Assigned Amount, which shall be equal to _____ percent (_____%) (the "Assignee's Percentage Share") of all of the Assignor's rights and obligations under the Credit Agreement, including, without limitation, the Assignee's Percentage Share of the Assignor's (i) Commitment, and (ii) outstanding Loans and L/C Obligations. After giving effect to this Agreement on the Effective Date, the Commitment, outstanding Loans and L/C Obligations, and Pro Rata Share of Assignor and Assignee, respectively, are set forth as follows: Outstanding Outstanding L/C Pro Rata Loans Obligations Share Commitment ----------- ----------- -------- ---------- Assignor $__________ $__________ _______% $_________ Assignee $__________ $__________ _______% $_________ The assignment set forth in this Section 1(a) shall be without recourse to, or representation or warranty (except as expressly provided in this Agreement) by, the Assignor. (b) With effect on and after the Effective Date, the Assignee shall be a party to the Credit Agreement, shall become a "Bank" for all purposes as therein defined and contemplated, and shall succeed to all of the rights and be obligated to perform all of the obligations of a Bank under the Credit Agreement with a Commitment in the amount and with the Pro Rata Share set forth above for the Assignee. The Assignee agrees that it is bound by the terms and conditions set forth in the Credit Agreement as if it were an original signatory thereto, and that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Bank. It is the intent of the parties hereto that (i) the Commitment of the Assignor shall, as of the Effective Date, be reduced by the Assignee's Percentage Share and (ii) the Assignor shall relinquish its rights and be released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. 2. Payments. (a) As consideration for the sale, assignment and transfer contemplated in Section 1 hereof, the Assignee shall pay to the Assignor on the Effective Date in immediately available funds an amount equal to Dollars ($_______________), representing the Assignee's Percentage Share of the principal amount of all Loans previously made, and currently owned, by the Assignor under the Credit Agreement and outstanding on the Effective Date. The difference between the Assigned Amount and the amount paid to Assignor under this Section 2(a) represents the amount of outstanding L/C Obligations assumed by Assignee pursuant to the terms hereof as of the Effective Date. (b) The Assignee further agrees to pay to the Administrative Agent a processing or transfer fee in the amount of $3,500.00. (c) To the extent payment to be made by the Assignee pursuant to Section 2(a) hereof is not made when due, the Assignor shall be entitled to recover such amount together with interest thereon at the Federal Funds Rate per annum accruing from the date such amounts were due. 3. Reallocation of Payments. Any interest, commissions, fees and other payments accrued to but excluding the Effective Date with respect to the Assignor's Commitment Percentage of the Loans and L/C Obligations, shall be for the account of the Assignor. Any interest, fees and other payments accrued on and after the Effective Date with respect to the Assigned Amount shall be for the account of the Assignee. Each of the Assignor and the Assignee agree that it will hold in trust for the other party any interest, commissions, fees and other amounts which it may receive to which the other party is entitled pursuant to the preceding sentence and pay to the other party any such amounts which it may receive promptly upon receipt. The Assignor's and the Assignee's obligations to make the payments referred to in this Section 3 are non-assignable. 4. Effective Date; Notices; Notes. (a) The effective date for this Agreement shall be __________________ (the "Effective Date"); provided that the following conditions precedent have been satisfied on or before the Effective Date: (i) this Agreement shall be executed and delivered by the Assignor and the Assignee; (ii) the consent of the Company and the Administrative Agent shall have been duly obtained in the form set forth on Annex II hereof, and shall be in full force and effect as of the Effective Date; (iii) the Assignee shall pay to the Assignor all amounts due to the Assignor under this Agreement; and (iv) the processing or transfer fee referred to in Section 2(b) shall have been paid to the Administrative Agent. (b) Promptly following the execution of this Agreement, the Assignor shall deliver to the Administrative Agent for acceptance by the Administrative Agent, the notices, agreements or other documents as may be required under the Credit Agreement. (c) Promptly following payment by the Assignee of the consideration as provided in Section 2 hereof, the Assignor shall deliver its promissory note(s) to the Administrative Agent and shall request that new notes be issued to the Assignor and the Assignee dated the Effective Date to properly reflect the respective amounts of the Loans and L/C Obligations held by each party. [5. Administrative Agent [INCLUDE ONLY IF ASSIGNOR IS ADMINISTRATIVE AGENT]. (a) The Assignee hereby appoints and authorizes the Assignor to take such action as Administrative Agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Administrative Agent by the Banks pursuant to the terms of the Credit Agreement. (b) The Assignee shall assume no duties or obligations held by the Assignor in its capacity as Administrative Agent under the Credit Agreement.] 6. Representations and Warranties. (a) The Assignor represents and warrants that (i) it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any lien, security interest or other adverse claim; (ii) it is duly organized and existing and it has the full power and authority to take, and has taken, all action necessary to execute and deliver this Agreement and any other documents required or permitted to be executed or delivered by it in connection with this Agreement and to fulfill its obligations hereunder; (iii) no notices to, or consents, authorizations or approvals of, any person are required (other than any already given or obtained) for its due execution, delivery and performance of this Agreement, and apart from any agreements or undertaking or filings required by the Credit Agreement, no further action by, or notice to, or filing with, any person is required of it for such execution, delivery or performance; and (iv) this Agreement has been duly executed and delivered by it and constitutes the legal, valid and binding obligations of the Assignor, enforceable against the Assignor in accordance with the terms hereof, except subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors' rights and to general equitable principles. (b) The Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto. The Assignor makes no representation or warranty in connection with, and assumes no responsibility with respect to, the solvency, financial condition or statements of the Company or any guarantor or the performance or observance by the Company or any guarantor of any of its respective obligations under the Credit Agreement or any other instrument or document furnished in connection therewith. (c) The Assignee represents and warrants that (i) it is duly organized and existing and it has full power and authority to take, and has taken, all action necessary to execute and deliver this Agreement and any other documents required or permitted to be executed or delivered by it in connection with this Agreement, and to fulfill its obligations hereunder; (ii) no notices to, or consents, authorizations or approvals of, any person are required (other than any already given or obtained) for its due execution, delivery and performance of this Agreement; and apart from any agreements or undertaking or filings required by the Credit Agreement, no further action by, or notice to, or filing with, any person is required of it for such execution, delivery or performance; (iii) this Agreement has been duly executed and delivered by it and constitutes the legal, valid and binding obligations of the Assignee, enforceable against the Assignee in accordance with the terms hereof, except subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors' rights and to general equitable principles; (iv) it is eligible under the Credit Agreement to be an assignee in accordance with the terms hereof; and (v) that it has received a copy of the Credit Agreement and the exhibits and schedules thereto, and has received (or waived the requirement that it receive) copies of each of the documents which were required to be delivered under the Credit Agreement as a condition to the making of the Loans thereunder. 7. Further Assurances. The Assignor and the Assignee each hereby agree to execute and deliver such other instruments, and take such other action, as either party may reasonably request in connection with the transactions contemplated by this Agreement, including, without limitation, the delivery of any notices or other documents or instruments to the Company, the Administrative Agent or any guarantor which may be required in connection with the assignment and assumption contemplated hereby. 8. Indemnity. The Assignee agrees to indemnify and hold harmless the Assignor against any and all losses, costs, expenses (including, without limitation, reasonable attorneys' fees and the allocated costs and expenses for in-house counsel) and liabilities incurred by the Assignor in connection with or arising in any manner from the non-performance by the Assignee of any obligation assumed by the Assignee under this Agreement. 9. Miscellaneous. (a) Any amendment or waiver of any provision of this Agreement shall be in writing signed by the parties hereto. No failure or delay by either party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof and any waiver of any breach of the provisions of this Agreement shall be without prejudice to any rights with respect to any other or further breach hereof. (b) All payments made hereunder shall be made without any set-off or counterclaim. (c) All communications among the parties or notices in connection herewith shall be in writing and mailed, hand-delivered or transmitted by facsimile as follows: (i) if to the Assignor or the Assignee, at their respective addresses or facsimile numbers set forth on the signature pages hereof and (ii) if to the Company, the Administrative Agent or any guarantor, at their respective addresses or facsimile numbers set forth in the Credit Agreement or to such other address or facsimile number as shall be designated in a written notice given in accordance with the Credit Agreement. All such communications and notices shall be effective upon receipt. The Assignee specifies as its Domestic and Offshore Lending Office(s) the offices set forth beneath its name on the signature pages hereof. (d) The Assignor and the Assignee shall each pay its own costs and expenses incurred in connection with the negotiation, preparation, execution and performance of this Agreement. (e) The representations and warranties made herein shall survive the consummation of the transactions contemplated hereby. (f) Subject to the terms of the Credit Agreement, this Agreement shall be binding upon and inure to the benefit of the Assignor and the Assignee and their respective successors and assigns; provided, however, that no party shall assign its rights hereunder without the prior written consent of the other party, the Administrative Agent and the Company and any purported assignment, absent such consents, shall be void. The preceding sentence shall not limit or enhance the right of the Assignee to assign or participate all or part of the Assignee's Percentage Share and the Assigned Amount and any outstanding Loans and L/C Obligations attributable thereto in accordance with the Credit Agreement. (g) This Agreement may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. (h) This Agreement shall be governed by and construed in accordance with the law of the State of California (without regard to principles of conflicts of law). The Assignor and the Assignee each irrevocably submits to the non-exclusive jurisdiction of any California State or Federal court sitting in the Northern District of California over any suit, action or proceeding arising out of or relating to this Agreement or the Credit Agreement and irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such California State or Federal court. Each party to this Agreement hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. (i) This Agreement and any agreement, document or instrument attached hereto or referred to herein integrate all the terms and conditions mentioned herein or incidental hereto, and together with the Credit Agreement constitutes the entire agreement and understanding between the parties hereto and supersedes any and all prior agreements and understandings related to the subject matter hereof. In the event of any conflict between the terms, conditions and provisions of this Agreement and the Credit Agreement, the terms, conditions and provisions of the Credit Agreement shall prevail. (j) In the event of any inconsistency between the provisions of this Agreement and Annex I hereto, this Agreement shall control. Headings are for reference only and are to be ignored in interpreting this Agreement. (k) The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. By Name: Title: Address for Notices: Facsimile No.: - ASSIGNOR - By Name: Title: Address for Notices: Facsimile No.: Domestic Lending Office: Offshore Lending Office: - ASSIGNEE - ANNEX I TO ASSIGNMENT AND ASSUMPTION AGREEMENT 1. Company: 2. Date of Credit Agreement: _______________, 1998 3. Assignor: 4. Assignee: 5. Date of Assignment Agreement: 6. Effective Date: 7. Fees paid by Assignee to Assignor: 8. Interest paid by Assignee to Assignor: (i) Base Rate Loan (ii) Offshore Rate Loan 9. Payment Instructions: Assignor: Assignee: 10. Assignee's Notice Instructions: 11. Other Information: ANNEX II TO FORM OF NOTICE OF ASSIGNMENT AND ACCEPTANCE _______________, 199_ To: Bank of America National Trust and Savings Association, as Administrative Agent Agency Management Services #5506 Giant Industries, Inc. Dear Sirs: We refer to the Credit Agreement dated as of ____________ __, 1998 (the "Credit Agreement") among GIANT INDUSTRIES, INC., a Delaware corporation (the "Company"), the several financial institutions from time to time party thereto (the "Banks"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent (the "Administrative Agent") for the Banks from time to time party to the Credit Agreement and as Letter of Credit Issuing Bank. Terms defined in the Credit Agreement are used herein as therein defined. 1. We hereby give you notice of, and request the consent of the Company and the Administrative Agent to, the assignment by (the "Assignor") to (the "Assignee") of _____% of the right, title and interest of the Assignor in and to the Credit Agreement (including without limitation the right, title and interest of the Assignor in and to the Commitment of the Assignor and all outstanding Loans made by and L/C Obligations of the Assignor). [If the Assignor or any of its Affiliates is a Swap Provider with respect to any Specified Swap Contract and the Assignor is assigning all of its interest in the Loans and the Commitment, add the following: The Assignee, or its Affiliate designated in a separate written notice to the Administrative Agent, has, with the consent of the Company, assumed all rights and obligations of the Assignor and all of its Affiliates with respect to all Specified Swap Contracts with respect to which the Assignor or any of its Affiliates is a Swap Provider.] Before giving effect to such assignment the Assignor's (a) Commitment is $_______________, (b) Commitment Percentage is _____%, (c) aggregate principal amount of its outstanding Loans is $_______________, and (d) the aggregate principal amount of its outstanding L/C Obligations is $_______________. After giving effect to such assignment, the Assignor's and Assignee's respective Loans, L/C Obligations, Commitment and Commitment Percentage are as follows: Outstanding Outstanding L/C Pro Rata Loans Obligations Share Commitment ----------- ----------- -------- ---------- Assignor $__________ $__________ _______% $_________ Assignee $__________ $__________ _______% $_________ 2. The Assignee agrees that upon receiving the consent of the Company and the Administrative Agent to such assignment and from and after the effective date of the Assignment, the Assignee will be bound by the terms of the Credit Agreement, with respect to the interest in the Credit Agreement assigned to it as specified above, as fully and to the same extent as if the Assignee were the Bank originally holding such interest in the Credit Agreement. 3. The following administrative details apply to the Assignee: (A) Offshore Lending Office: Assignee: Address: Attention: Telephone: ( ) Facsimile: ( ) (B) Domestic Lending Office: Assignee: Address: Attention: Telephone: ( ) Facsimile: ( ) (C) Notice Address: Assignee: Address: Attention: Telephone: ( ) Facsimile: ( ) (D) Payment Instructions: Account No.: At: Reference: Attention: 4. Without limiting the generality of Paragraph 2 hereinabove, the tax forms to be delivered by the Assignee pursuant to Section 4.01 of the Credit Agreement, if any, will be promptly provided in compliance therewith. IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Assignment and Acceptance to be executed by their respective duly authorized officials, officers or agents as of the date first above mentioned. Very truly yours, [Name of Assignor] By Name: Title: [Name of Assignee] By Name: Title: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent, hereby grants its consent to the foregoing assignment: By Name: Title: GIANT INDUSTRIES, INC. hereby grants its consent to the foregoing assignment: By Name: Title: EXHIBIT "F" FORM OF NOTE [NAME OF BANK] $____________ ___________ __, 1998 FOR VALUE RECEIVED, the undersigned, GIANT INDUSTRIES, INC., a Delaware corporation (the "Borrower"), promises to pay to the order of _________________________ (the "Bank"), for the account of its Lending Office, the principal amount of ____________ MILLION AND NO/100 DOLLARS ($____________) or the aggregate unpaid principal amount of all Revolving Loans made by the Bank to the Borrower pursuant to Section 2.01 of the Credit Agreement hereinafter referred to, whichever is less, in immediately available funds at BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, AGENCY MANAGEMENT SERVICES, #5596, 1850 Gateway Boulevard, 5th Floor, Concord, California 94520, at the times and in the amounts as set forth in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal balance of the Revolving Loans, from time to time outstanding, at the rates and on the dates set forth in the Credit Agreement. The aggregate unpaid principal amount of all Revolving Loans shall be due and payable on the Termination Date. This note is one of the notes issued pursuant to and entitled to the benefits of that certain Credit Agreement, dated as of ____________ ____, 1998 (as the same may be amended, modified or restated from time to time, the "Credit Agreement"), among Borrower, the several financial institutions from time to time party thereto (the "Banks"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION as Administrative Agent for the Banks and as Letter of Credit Issuing Bank. All capitalized terms used but not defined herein shall have the meaning assigned to them in the Credit Agreement. Reference is made to the Credit Agreement for, inter alia, provisions for the prepayment hereof, the acceleration of the maturity hereof, and to the effect that no provision of the Credit Agreement or this Note shall require the payment or permit the charging or collection of interest in an amount in excess of the highest non-usurious amount permitted by applicable law. It is contemplated that by reason of prepayments hereon prior to the Termination Date, there may be times when no indebtedness is owing hereunder prior to such date, but notwithstanding such occurrence this note shall be in full force and effect as to the Revolving Loans made pursuant to the Credit Agreement subsequent to each such occurrence. All Revolving Loans made by the Bank pursuant to the Credit Agreement and all payments of the principal thereof shall be endorsed by the holder of this Note on the schedule annexed hereto (including any additional pages such holder may add to such schedule), which endorsement shall constitute prima facie evidence of the accuracy of the information so endorsed; provided, however, that the failure of the holder of this Note to insert any date or amount or other information on such schedule shall not in any manner affect the obligation of the Borrower to repay any Revolving Loans in accordance with the terms of the Credit Agreement. The Borrower and any and all sureties, guarantors and endorsers of this Note and all other parties now or hereafter liable hereon, severally waive, except as otherwise provided in the Credit Agreement, grace, demand, presentment for payment, protest, notice of any kind (including, but not limited to, notice of dishonor, notice of protest, notice of intention to accelerate and notice of acceleration) and diligence in collecting and bringing suit against any party hereto, and agree (i) to all extensions and partial payments, with or without notice, before or after maturity, (ii) to any substitution, exchange or release of any security now or hereafter given for this Note, (iii) to the release of any party primarily or secondarily liable hereon, and (iv) that it will not be necessary for the Bank, in order to enforce payment of this Note, to first institute or exhaust the Bank's remedies against the Borrower or any other party liable therefor or against any security for this Note. This Note may not be changed, modified or terminated orally, but only by an agreement in writing signed by the party charged. If any term or provision of this Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions herein shall in no way be affected thereby. IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS NOTE, THE BORROWER WAIVES THE RIGHT TO A TRIAL BY JURY AND THE DEFENSES OF FORUM NON CONVENIENS AND IMPROPER VENUE. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF THE BORROWER AND INURE TO THE BENEFIT OF THE BANK AND ITS SUCCESSORS AND ASSIGNS (INCLUDING PARTICIPANTS) IN ACCORDANCE WITH THE TERMS OF THE CREDIT AGREEMENT. IN WITNESS WHEREOF, the Borrower has executed and delivered this Note on the date first above written. GIANT INDUSTRIES, INC. By Name: Title: GRID SCHEDULE Attached to and made part of the Note, dated ____________ __, 1998, issued pursuant to that certain Credit Agreement, dated as of ____________ __, 1998, among GIANT INDUSTRIES, INC., a Delaware corporation, the several financial institutions from time to time party thereto (the "Banks"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION as Administrative Agent for the Banks from time to time party to the Credit Agreement and as Letter of Credit Issuing Bank. Date Principal of Amount Type of Interest Interest Maturity Loan of Loan Loan (1) Rate Period Date CONTINUATION Amount of Unpaid Principal Principal Name of Paid or Balance Person Prepaid or (Balance Making Converted continued) Notation EXHIBIT "G" FORM OF GUARANTY AGREEMENT THIS GUARANTY AGREEMENT (this "Guaranty") by each of the Persons now or hereafter signatories hereto (each a "Guarantor," and, collectively, the "Guarantors"), is in favor of each of the Banks (herein defined) from time to time parties to the Credit Agreement (herein defined) and in favor of Bank of America National Trust and Savings Association (together with its successors and assigns, herein called the "Administrative Agent"), as Letter of Credit Issuing Bank and as the Administrative Agent for and on behalf of the financial institutions (the "Banks") now or hereafter party to that certain Credit Agreement (as the same may be amended, modified or restated from time to time and at any time, the "Credit Agreement"), dated as of _________, 1998, among Giant Industries, Inc., a Delaware corporation (the "Company"), the Banks and the Administrative Agent. All capitalized terms used but not defined herein shall have the meaning assigned to them in the Credit Agreement. W I T N E S S E T H: WHEREAS, pursuant to the terms of the Credit Agreement, the Banks have agreed to make certain Loans to the Company; WHEREAS, the obligation of the Banks to make the Loans is conditioned upon, among other things, the execution and delivery by the Guarantors of this Guaranty; WHEREAS, each Guarantor is a Subsidiary of the Company, is engaged in business related to the business of the Company, and will derive substantial direct and indirect economic benefit from the Loans; NOW, THEREFORE, (i) in consideration of the premises and to induce the Banks to enter into the Credit Agreement and to make and/or to continue the Loans, (ii) at the special insistence and request of the Administrative Agent and the Banks, and (iii) for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Guarantor, for the benefit of the Administrative Agent and the Banks, hereby agrees as follows: Section 1. Defined Terms. Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as therein defined. Section 2. Guaranty. (a) Each Guarantor hereby, jointly and severally with the Other Guarantors (as defined in Section 17 of this Guaranty), unconditionally and irrevocably guarantees the prompt performance and payment in full in Dollars by the Company when due (whether at stated maturity, by acceleration or otherwise) of the Obligations of the Company, and further agrees to pay all costs, fees and expenses (including, without limitation, counsel fees, and the allocated cost of in-house counsel) incurred by the Administrative Agent or any Bank in enforcing any rights under this Guaranty; subject, however, to the limitations set forth in Section 2(b) hereof. (b) Each Guarantor and by their acceptance hereof each of the Administrative Agent and each Bank hereby confirms that it is the intention of all such parties that the guarantee by such Guarantor pursuant to this Guaranty not constitute a fraudulent transfer or conveyance for purposes of any federal, state or foreign law. To effectuate the foregoing intention, the Administrative Agent, the Banks and each Guarantor hereby irrevocably agree that the obligations of each Guarantor under the Guaranty shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any Other Guarantor (as defined in Section 17 of this Guaranty) in respect of the obligations of such Other Guarantor under its Guaranty or pursuant to Section_17 hereof, result in the obligations of such Guarantor under this Guaranty not constituting a fraudulent conveyance or fraudulent transfer under federal, state or foreign law; provided, however, that (i) the obligations of each Guarantor shall be presumed to be the full amount of the Obligations and (ii) if any Guarantor claims that such Guarantor's liability hereunder is less than the entire amount of the Obligations, such Guarantor shall have the burden of proving, by clear and convincing evidence, that such Guarantor's liability hereunder should be so limited since the information concerning, and the circumstances of, the financial condition of such Guarantor is more readily available to and is under the control of such Guarantor. Consistent with the intention of the Guarantors and the Banks that the Obligations are and shall be "Senior Indebtedness" (as such term is defined in the Indentures), it is the intention of the parties hereto that, in determining the amount of "all other contingent and fixed liabilities" of each Guarantor, for purposes of the preceding sentence, the liabilities of such Guarantor in respect of its guaranty of the indebtedness evidenced by the Subordinated Notes shall first be determined by reducing such liabilities to the maximum extent necessary and/or possible, in accordance with the terms of such guaranty, to avoid and/or minimize any corresponding reduction in the liabilities of such Guarantor hereunder. Section 3. Guaranty Absolute. (a) The obligations of each Guarantor hereunder are those of a primary obligor, and not merely a surety, and are independent of the Obligations and the obligations of each Other Guarantor (as defined in Section 17 of this Guaranty). A separate action or actions may be brought against the Guarantors, or any of them, whether or not an action is brought against the Company, any other guarantor (including the Other Guarantors) or any other obligor in respect of the Obligations or whether the Company, any other guarantor (including Other Guarantors) or any other obligor in respect of the Obligations is joined in any such action or actions. (b) The Guarantors guarantee that the Obligations will be paid and performed strictly in accordance with the terms of the Credit Agreement and the other Loan Documents regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Administrative Agent or the Banks with respect thereto. Each Guarantor agrees that its guarantee constitutes a guarantee of payment when due and not of collection. The liability of the Guarantors under this Guaranty shall be absolute and unconditional irrespective of: (i) any lack of genuineness, validity, legality or enforceability of the Credit Agreement, any other Loan Document or any other document, agreement or instrument relating thereto or any assignment or transfer of any thereof; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations (including, without limitation, the possible extension of the Termination Date and increase of the amount of the Commitments all on the terms and conditions set forth in the Credit Agreement), or any waiver, indulgence, compromise, renewal, extension, amendment, modification of, or addition, consent, supplement to, or consent to departure from, or any other action or inaction under or in respect of, the Credit Agreement or any other Loan Document or any document, instrument or agreement relating to the Obligations or any other instrument or agreement referred to therein or any assignment or transfer of any thereof; (iii) any release or partial release of any other guarantor (including Other Guarantors (as defined in Section 17 of this Guaranty)) or other obligor in respect of the Obligations; (iv) any exchange, release or non-perfection of any collateral for all or any of the Obligations, or any release, or amendment or waiver of, or consent to departure from, any guaranty or security, for all or any of the Obligations; (v) any furnishing of any additional security for any of the Obligations; (vi) the liquidation, bankruptcy, insolvency or reorganization of the Company, any other guarantor (including Other Guarantors (as defined in Section 17 of this Guaranty)) or other obligor in respect of the Obligations or any action taken with respect to this Guaranty by any trustee or receiver, or by any court, in any such proceeding; (vii) any modification or termination of any intercreditor or subordination agreement pursuant to which the claims of other creditors of the Company or of a Guarantor are subordinated to those of the Banks; or (viii) any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Company or a Guarantor. (c) This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time payment or performance of the Obligations, or any part thereof, is, upon the insolvency, bankruptcy or reorganization of the Company or a Guarantor or otherwise pursuant to applicable law, rescinded or reduced in amount or must otherwise be restored or returned by the Administrative Agent or any Bank, all as though such payment or performance had not been made. (d) If an event permitting the acceleration of any of the Obligations shall at any time have occurred and be continuing and such acceleration shall at such time be prevented by reason of the pendency against the Company of a case or proceeding under any bankruptcy or insolvency law, the Guarantors agree that, for purposes of this Guaranty and their obligations hereunder, the Obligations shall be deemed to have been accelerated and the Guarantors shall forthwith pay such Obligations (including, without limitation, interest which but for the filing of a petition in bankruptcy with respect to the Company, would accrue on such Obligations), and the other obligations hereunder, without any further notice or demand. Section 4. Waivers. To the extent permitted by applicable law, the Guarantors hereby waive promptness, diligence, notice of intention to accelerate, notice of acceleration, notice of acceptance and any and all other notices with respect to any of the Obligations and this Guaranty and any requirement that the Administrative Agent or any Bank protect, secure, perfect or insure any security interest in or any Lien on any property subject thereto or exhaust any right or take any action against the Company, any other guarantor (including Other Guarantors (as defined in Section 17 of this Guaranty)) or any other Person or any collateral or security or to any balance of any deposit accounts or credit on the books of any Bank in favor of the Company or the Guarantors. Guarantors expressly waive each and every right to which they may be entitled by virtue of the suretyship law of the State of California. Section 5. Subrogation. (a) No Guarantor will exercise any rights of subrogation, reimbursement and contribution, contractual, statutory or otherwise, which it may acquire by way of subrogation under this Guaranty, by any payment hereunder or otherwise, until all of the Obligations of the Company have been paid, all Commitments have terminated and all Letters of Credit have expired. (b) If, in the exercise of any of its rights and remedies, the Administrative Agent or any Bank shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against the Company or any other Person, whether because of any applicable laws pertaining to "election of remedies" or the like, the Guarantors hereby consent to such action by the Administrative Agent or such Bank and waive any claim based upon such action, even if such action by the Administrative Agent or such Bank shall result in a full or partial loss of any rights of subrogation which the Guarantors, or any of them, might otherwise have had but for such action by the Administrative Agent or such Bank. Any election of remedies which results in the denial or impairment of the right of the Administrative Agent or such Bank to seek a deficiency judgment against the Company shall not impair a Guarantor's obligation to pay the amount of the Obligations provided herein as to such Guarantor. In the event the Administrative Agent or any Bank shall bid at any foreclosure or trustee's sale or at any private sale permitted by law or under the Loan Documents, the Administrative Agent or such Bank may bid all or less than the amount of the Obligations and the amount of such bid need not be paid by the Administrative Agent or such Bank but shall be credited against the Obligations. The amount of the successful bid at any such sale, whether the Administrative Agent or such Bank or any other party is the successful bidder, shall be conclusively deemed to be the fair market value of the collateral and the difference between such bid amount and the remaining balance of the Obligations shall be conclusively deemed to be the amount of the Obligations guaranteed under this Guaranty, notwithstanding that any present or future law or court decision or ruling may have the effect of reducing the amount of any deficiency claim to which the Administrative Agent or any Bank might otherwise be entitled but for such bidding at any such sale. Section 6. Representations and Warranties. (a) General. Each Guarantor represents and warrants to the Administrative Agent and the Banks as of the date hereof that all of the representations and warranties contained in Article VI of the Credit Agreement are true and correct with respect to the Guarantor to the extent such representations and warranties refer to such Guarantor, and such representations and warranties are hereby incorporated by reference. (b) Full Disclosure. Each Guarantor represents and warrants that none of the representations or warranties made by the Guarantor or any of its Subsidiaries in the Loan Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained in any exhibit, report, written statement or certificate furnished by or on behalf of the Guarantor or any of its Subsidiaries in connection with the Loan Documents (including the offering and disclosure materials delivered by or on behalf of the Guarantor to the Banks prior to the Execution Date), taken as a whole, contains any untrue statement of a material fact known to the Guarantor or omits any material fact known to the Guarantor required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered. (c) Benefit to Guarantor. Each Guarantor represents and warrants that the Guarantor has determined that its liability and obligation under this Guaranty will substantially benefit it directly, and its board of directors has made that determination. The Company, the Guarantors and the other Subsidiaries of the Company are mutually dependent on each other in the conduct of their respective businesses and do business together as an integrated business enterprise. The maintenance and improvement of the Company's financial condition is vital to sustaining the Guarantors' businesses and the transactions contemplated in the Credit Agreement produce distinct and identifiable financial and economic direct and indirect benefits to the Guarantors. The representations and warranties set forth in this Section 6 shall survive the execution and delivery of this Guaranty. Section 7. Further Assurances. (a) As long as any of the Obligations remain outstanding and the Commitments have not expired, the Guarantors shall, unless the Majority Banks waive compliance in writing, comply with all the covenants related to the Guarantors, or any of them, contained in the Credit Agreement. (b) The Guarantors agree that at any time and from time to time, at the expense of the Guarantors, the Guarantors will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Administrative Agent may reasonably request, to enable the Administrative Agent to protect and to exercise and enforce its rights and remedies hereunder. Section 8. Application of Payments. Any payment received by the Administrative Agent from the Guarantors (or from any Bank pursuant to Section 13 below), shall be applied by the Administrative Agent as follows: First, to the payment of costs and expenses of collection and all expenses (including, without limitation, any legal fees and disbursements and the allocated cost of in-house counsel), liabilities and advances made or incurred by the Administrative Agent in connection therewith; Next, to the Banks pro rata, based on the then outstanding amount of the Obligations owed to each in payment in full of the Obligations; and Finally, after payment in full of all Obligations and the termination of the Commitments, the payment to the Guarantors, or their respective successors and assigns, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. Section 9. Decisions Relating to Exercise of Remedies. Notwithstanding anything in this Guaranty to the contrary, the Administrative Agent may exercise, and at the request of the Majority Banks shall exercise or refrain from exercising, all rights and remedies provided for herein and provided by law. Section 10. No Waiver. No failure on the part of the Administrative Agent or any Bank to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Section 11. Amendments, Etc. No amendment or waiver of any provision of this Guaranty, nor consent to any departure by any Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed, in the case of amendments, by the Guarantor(s) affected thereby and by the Administrative Agent, and, in the case of consents or waivers, by the Administrative Agent, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which made or given. Nothing in this Section 11 shall require the Administrative Agent to obtain the consent of any Guarantor prior to taking any action described in Section 3(b) hereof. Section 12. Notices. All notices, requests and other communications provided for hereunder shall be in writing and given to Administrative Agent as provided in Section 11.02 of the Credit Agreement. All communications and notices hereunder to the Guarantors shall be given to the Guarantors at their respective addresses set forth on the signature pages hereof or at such other address as shall be designated by Guarantors in a written notice to the Administrative Agent. Section 13. Right to Set-off. (a) Upon the occurrence and during the continuance of any Event of Default under the Credit Agreement, the Guarantors authorize each Bank at any time and from time to time, to the fullest extent permitted by law, to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank to or for the credit or the account of the Guarantors against any and all of the Obligations, without prior notice to Guarantors or demand under this Guaranty, all of which are hereby waived, and although such Obligations may be contingent and unmatured. Each Bank which sets-off pursuant to this Section 13(a) shall give prompt notice to the Guarantor affected thereby following the occurrence thereof; provided that the failure to give such notice shall not affect the validity of the set-off. (b) Any payment obtained pursuant to Section 13(a) above (or in any other manner directly from the Guarantors, or any of them) by any Bank shall be remitted to the Administrative Agent and distributed among the Banks in accordance with the provisions of Section 8 above. Section 14. Continuing Guaranty. This Guaranty is a continuing guaranty and shall (a) remain in full force and effect until payment in full (after the termination of the Commitments) of the Obligations and all other amounts payable under this Guaranty; (b) be binding upon the Guarantors, their respective successors and assigns; and (c) inure to the benefit of the Administrative Agent, the Banks and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), any Bank may assign or otherwise transfer its rights and obligations under the Credit Agreement to any other Person or entity, and such other Person or entity shall thereupon become vested with all the benefits in respect thereof granted to the Bank herein or otherwise, all as provided in, and to the extent set forth in, Sections 11.07 and 11.08 of the Credit Agreement. Section 15. Subordination of the Credit Parties' Obligations to the Guarantors. Each of the Guarantors hereby expressly covenants and agrees for the benefit of the Administrative Agent and the Banks that all obligations and liabilities of the Company, the Other Guarantors (as defined in Section 17 of this Guaranty) and each of their respective Subsidiaries to the Guarantors of whatsoever description (including, without limitation, all intercompany receivables of the Guarantors from the Company, Other Guarantors and Subsidiaries) shall be subordinated and junior in right of payment to the Obligations. Following the occurrence of an Event of Default, any indebtedness of the Company, Other Guarantors and their Subsidiaries to the Guarantors shall, if the Administrative Agent shall so request, be collected and received by the Guarantors as trustees for the Administrative Agent and the Banks and paid over to the Administrative Agent and the Banks on account of the Obligations but without reducing or affecting in any manner the liability of the Guarantors under this Guaranty. Section 16. Financial Reporting. Each Guarantor shall furnish to the Administrative Agent all such financial statements and other information relating to the financial condition, properties and affairs of the Guarantor as any Bank, acting through the Administrative Agent, may from time to time reasonably request. Section 17. Other Guarantors. Each Guarantor acknowledges that this Guaranty is a master Guaranty pursuant to which other Subsidiaries of the Company (collectively, the "Other Guarantors") now or hereafter may guarantee the payment and performance of the Obligations, jointly and severally. In order to provide for just and equitable contribution among the Guarantors, the Guarantors agree, inter se, that in the event any payment or distribution is made by any Guarantor (a "Funding Guarantor") under this Guaranty, such Funding Guarantor shall be entitled to a contribution from each Other Guarantor in a pro rata amount based on the Adjusted Net Assets (hereinafter defined) of each Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by the Funding Guarantor in discharging the Obligations of the Company or any Other Guarantor's obligations with respect to this Guaranty. For the purposes of this Section 17, the "Adjusted Net Assets" of a Guarantor at any date shall mean the lesser of (i) the amount by which the fair value of the property of such Guarantor exceeds the total amount of liabilities of such Guarantor, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date, calculated in accordance with Section 2(b) hereof), but excluding liabilities under the Guaranty of such Guarantor at such date, and (ii) the amount by which the present fair saleable value of the assets of such Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date, calculated in accordance with Section 2(b) hereof, and after giving effect to any collection from any Subsidiary of such Guarantor in respect of the obligations of such Subsidiary under this Guaranty), excluding debt in respect of this Guaranty, as they become absolute and matured. In the event the Guarantor makes any such payment to a Funding Guarantor, the Guarantor shall be subrogated to the rights of such Funding Guarantor to the extent of such payment. Notwithstanding any provision of this Guaranty to the contrary, all rights of any Funding Guarantors under this Section and all other rights of indemnity, contribution or subrogation under applicable law or otherwise shall be fully subordinated to the indefeasible payment in full, in cash, of the Obligations, and no payment may be made in respect of such rights of indemnity, contribution or subrogation until all of the Obligations have been paid in full, in cash, all Commitments have terminated and all Letters of Credit have expired. No failure on the part of any one or more of the Guarantors to make the payments required by this Section (or any other payments required under applicable law or otherwise) shall in any respect limit the obligations and liabilities of the Other Guarantors with respect to this Guaranty, its being agreed that each Guarantor shall remain liable, jointly and severally with the Other Guarantors, for up to the full amount of the Obligations, except as the amount thereof may be limited as to a Guarantor by operation of Section 2(b) hereof. This Section 17 is intended only to confirm the relative rights of the Guarantors among themselves, and nothing set forth in this sentence is intended to or shall impair the obligations of the Guarantors, jointly and severally, to pay to the Administrative Agent and the Banks, or any one or more of them, as the case may be, the Obligations as and when the same shall become due and payable in accordance with the terms of this Guaranty. Section 18. Severability. If for any reason any provision or provisions hereof are determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or affect those portions of this Guaranty which are valid. Section 19. Taxes. (a) Any and all payments by the Guarantors to each Bank or the Administrative Agent under this Guaranty and any other Loan Document shall be made free and clear of, and without deduction or withholding for, any Taxes. In addition, the Guarantors shall pay all Other Taxes. (b) The Guarantors, jointly and severally agree to indemnify and hold harmless each Bank and the Administrative Agent for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section) paid by the Bank or the Administrative Agent and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Bank or the Administrative Agent makes written demand therefor. (c) If any Guarantor shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to any Bank or the Administrative Agent, then: (i) the sum payable shall be increased as necessary so that after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section) such Bank or the Administrative Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions or withholdings been made; (ii) the Guarantor shall make such deductions and withholdings; (iii) the Guarantor shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and (iv) the Guarantor shall also pay to each Bank or the Administrative Agent for the account of such Bank, at the time interest is paid, all additional reasonable amounts which the respective Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes or Other Taxes had not been imposed. (d) Within 30 days after the date of any payment by any Guarantor of Taxes or Other Taxes, the Guarantor shall furnish the Administrative Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Administrative Agent. SECTION 20. Addition of Guarantors. Any Person who is not a Guarantor on the date hereof may become a Guarantor by executing and delivering to the Administrative Agent a Supplemental Guaranty substantially in the form attached hereto, which Supplemental Guaranty thereafter shall constitute a signature page and part hereof for all purposes. SECTION 21. GOVERNING LAW AND JURISDICTION. (a) THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS); PROVIDED THAT THE ADMINISTRATIVE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS GUARANTY, EACH GUARANTOR CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH GUARANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS SPECIFIED IN SECTION 12 HEREOF, SUCH SERVICE TO BECOME EFFECTIVE TEN DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE GUARANTORS IN ANY OTHER JURISDICTION. EACH GUARANTOR WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW. (c) EACH GUARANTOR IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS GUARANTY OR ANY DOCUMENT RELATED HERETO. SECTION 22. WAIVER OF JURY TRIAL. EACH GUARANTOR WAIVES ITS RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS GUARANTY, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. EACH GUARANTOR AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, EACH GUARANTOR FURTHER AGREES THAT ITS RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS GUARANTY OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY AND THE OTHER LOAN DOCUMENTS. SECTION 23. ENTIRE AGREEMENT. THIS WRITTEN GUARANTY (INCLUDING ANY SUPPLEMENTAL GUARANTY OR OTHER AGREEMENT BY WHICH A PERSON BECOMES A GUARANTOR) AND THE INSTRUMENTS AND DOCUMENTS EXECUTED IN CONNECTION HEREWITH, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the Guarantors have caused this Guaranty to be duly executed and delivered by their respective officers thereunto duly authorized as of the date(s) specified below. Date: GIANT INDUSTRIES ARIZONA, INC. By Name: Title: Address: c/o Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255-3465 Attention: President GIANT EXPLORATION & PRODUCTION COMPANY By Name: Title: Address: c/o Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255-3465 Attention: President GIANT FOUR CORNERS, INC. By Name: Title: Address: c/o Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255-3465 Attention: President CINIZA PRODUCTION COMPANY By Name: Title: Address: c/o Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255-3465 Attention: President SAN JUAN REFINING COMPANY By Name: Title: Address: c/o Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255-3465 Attention: President PHOENIX FUEL CO., INC. By Name: Title: Address: c/o Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255-3465 Attention: President DEGUELLE OIL COMPANY By Name: Title: Address: c/o Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255-3465 Attention: President GIANT MID-CONTINENT, INC. By Name: Title: Address: c/o Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255-3465 Attention: President GIANT STOP-N-GO OF NEW MEXICO, INC. By Name: Title: Address: c/o Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255-3465 Attention: President [FORM OF] SUPPLEMENTAL GUARANTY This SUPPLEMENTAL GUARANTY (this "Supplemental Guaranty") is executed and delivered as of , 199__, by , a corporation ("New Guarantor") in favor of Bank of America National Trust and Savings Association, as Administrative Agent and as Letter of Credit Issuing Bank, and the financial institutions from time to time parties to that certain Credit Agreement (as previously and/or hereafter amended, modified, supplemented or restated from time to time and at any time, the "Credit Agreement"), entered into as of , 1998, by and among Giant Industries, Inc., the financial institutions from time to time parties thereto (the "Banks") and Bank of America National Trust and Savings Association, as Administrative Agent for the Banks and as Letter of Credit Issuing Bank. Capitalized terms used but not otherwise defined herein have the meanings assigned to them in the Credit Agreement. WHEREAS, pursuant to the terms of the Credit Agreement, the Banks agreed to make certain Loans to the Company; and WHEREAS, pursuant to the terms of the Credit Agreement, the Guarantors executed and delivered the Guaranty Agreement (as previously and/or hereafter amended, modified, supplemented or restated from time to time and at any time, the "Guaranty") in the form attached to the Credit Agreement as Exhibit G; and WHEREAS, pursuant to Section 7.12 of the Credit Agreement, the Company agreed that if, at any time after the date of the Credit Agreement, there exists any Subsidiary incorporated under the laws of any state in the United States of America with total assets with a book value of $5,000,000 or more, then the Company shall, among other things, cause such Subsidiary to execute and deliver to the Administrative Agent a Supplemental Guaranty in the form attached to the Guaranty; and WHEREAS, New Guarantor has become a Subsidiary of the Company (within the meaning of the Credit Agreement) incorporated under the laws of the state of with total assets with a book value equal to or exceeding $5,000,000; and NOW, THEREFORE, (i) in consideration of the foregoing premises and to induce the Banks to continue to extend credit to the Company in accordance with the Credit Agreement, (ii) at the special insistence of the Company, the Administrative Agent and the Banks, and (iii) for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, New Guarantor, for the benefit of the Administrative Agent and the Banks, hereby agrees as follows: 1. New Guarantor hereby elects to become a Guarantor for purposes of the Credit Agreement, effective from the date hereof, and agrees to perform all of the obligations of a Guarantor under, and to be bound in all respects by the terms of, the Guaranty (including without limitation all waivers, releases, indemnifications and submissions set forth therein), all of which terms are incorporated herein by reference, as if New Guarantor were a signatory party thereto, and, accordingly, New Guarantor hereby, jointly and severally with the Other Guarantors (as defined in Section 17 of the Guaranty), unconditionally and irrevocably guarantees the prompt performance and payment in full in Dollars by the Company when due (whether at stated maturity, by acceleration or otherwise) of the Obligations of the Company, and further agrees to pay all costs, fees and expenses (including, without limitation, counsel fees, and the allocated cost of in-house counsel) incurred by the Administrative Agent or any Bank in enforcing any rights under the Guaranty, in all respects upon the terms set forth in the Guaranty. 2. Henceforth, all references to the "Guarantors," or each individual "Guarantor," in the Guaranty shall be deemed to include New Guarantor, in addition to the other Guarantors, as if New Guarantor were a signatory party thereto. 3. New Guarantor hereby represents and confirms that the representations and warranties set forth in the Guaranty and the representations and warranties set forth in the Credit Agreement with respect to each and/or all of the Guarantors and/or the Subsidiaries of the Company are true and correct in all material respects with respect to New Guarantor on and as of the date hereof (and after giving effect hereto), as if set forth herein in their entirety. 4. The address to which notices to New Guarantor under the Guaranty should be directed is as follows: 5. This Supplemental Guaranty shall be governed by and construed in accordance with the laws of the State of California. Acceptance and notice of acceptance hereof are hereby waived in all respects. 6. THIS Supplemental Guaranty AND THE GUARANTY INCORPORATED HEREIN BY REFERENCE REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, this Supplemental Guaranty is hereby executed and delivered as of the date first above written. [NAME OF NEW GUARANTOR] By Name: Title: EXHIBIT "H" FORM OF BORROWING BASE REPORT DELIVERED PURSUANT TO SECTION 7.02(a) OF THE CREDIT AGREEMENT BORROWING BASE REPORT Calendar Month Ended _________________, ____ The undersigned authorized officer of GIANT INDUSTRIES, INC., a Delaware corporation (the "Company"), delivers this Certificate pursuant to Section 7.02(a) of the Credit Agreement dated as of ________________, 1998 (the "Credit Agreement"), among the Company, the several financial institutions from time to time party thereto (the "Banks"), and Bank of America National Trust and Savings Association (the "Administrative Agent"), as administrative agent for the Banks and as Letter of Credit Issuing Bank. Capitalized terms used herein without definition have the meanings assigned to them in the Credit Agreement. The undersigned hereby certifies to the Administrative Agent and the Banks as follows: 1. The undersigned hereby certifies that, to the best of his knowledge (a) Annex 1 hereto is a true and accurate calculation of the Borrowing Base as at the end of the calendar month ended ________________, _____, determined in accordance with the requirements of the Credit Agreement, and (b) Annex 2 hereto is a correct description of the aging of all Eligible Account Receivables as at the end of the calendar month ended _________________, ____. 2. All Eligible Refinery Hydrocarbon Inventory covered by this Certificate has been produced in compliance with all applicable laws, including, without limitation, the minimum wage and overtime requirement of the Fair Labor Standards Act of 1938, as amended. EXECUTED AND DELIVERED as of ______________, _____. GIANT INDUSTRIES, INC. By Authorized Officer ANNEX 1 GIANT INDUSTRIES, INC. BORROWING BASE CERTIFICATE Calendar Month Ended ____________, _____ Borrowing Base Calculation: A. Eligible Accounts Receivable Borrowing Base Amount [Item 4.D. from Annex 1a attached hereto] $______________ B. Eligible Refinery Hydrocarbon Inventory Borrowing Base Amount [Total indicated in Annex 1b attached hereto] $______________ C. Borrowing Base (Sum of A & B) $______________ Lesser of Borrowing Base or $65,000,000 $______________ Less Outstanding at Month End: Effective Amount of Revolving Loans Outstanding $______________ Effective Amount of L/C Obligations Outstanding $______________ Total Outstanding ($______________) NET AVAILABILITY AT MONTH END: $______________ ANNEX 1(a) GIANT INDUSTRIES, INC. DETAIL OF ELIGIBLE ACCOUNTS RECEIVABLE, FIFO BASIS ________________, _____ A B Preferred Account Other Account Obligors Obligors 1. Service Stations: A. Trade ________ ________ B. Other ________ ________ C. Giant Travel Center ________ ________ 1. Trade ________ ________ 2. Other ________ ________ D. Total ______ ______ 2. Refinery: A. Trade ________ ________ B. Raw material supply ________ ________ C. Product supply ________ ________ D. Total ______ ______ 3. Phoenix Fuel: ______ ______ 4. Eligible Accounts Receivable A. Total Accounts Receivable (Item 1.D. plus Item 2.D. plus Item 3) $_____ $_____ B. Advance Rate x .90 x .8 C. Sub Total per Obligor Type (AxB) $_____ $_____ D. Total Eligible Accounts Receivables Borrowing Base Amount (Sum of Columns A and B) $_____ ANNEX 1(b) GIANT INDUSTRIES, INC. INVENTORY DETAIL ___________, _____ Blmfld Ciniza Albq Other Total Bbls Bbls Term. Bbls Bbls $/Bbl $ Feed Stock Crude Oil Field Tanks/Terminals Pipeline Linefill Tex new Mex Pipeline Exchange and Other Common Carriers On site (Less BS&W) (Less Slop) NGL's Natural Gasoline Isobutane Normal Butane Other MTBE Ethanol Sub Total Intermediate Products Isomerate Cat Feed Gasoline Components Naptha Sub Total Refined Products Leaded Regular Unleaded Regular Unleaded Premium Propane JP-8 Jet-A Diesel Residual Fuel Oil Other Lube Inventories-Phoenix Fuel Finished Product-Phoenix Fuel Service Stations-Gasoline Four Corners Travel Center Sub Total Inventory Total Eligible Refinery Hydrocarbon Inventory Borrowing Base Amount Calculation Product Line: Gross Inven. Amount Advance Rate Advance Amt. Feedstock 80.00% Intermediate Products 80.00% Refined Products 80.00% (excluding S.S. and T.C.) Service Stations and 50.00% Travel Center Total EXHIBIT "I" FORM OF SECURITY AGREEMENT This Security Agreement is entered into this _____ day of _______________, ____, by ______________________________, a __________ corporation ("Debtor"), whose address is ______________________________, __________, __________, in favor of BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national savings association (together with any successor Administrative Agent under the Credit Agreement, "Secured Party"), as administrative agent for itself, the financial institutions (the "Banks") from time to time parties to that certain Credit Agreement (the "Credit Agreement"), dated as of December 23, 1998, among GIANT INDUSTRIES, INC. (the "Company"), the Banks and Secured Party, and the other "Swap Providers" from time to time parties to any "Specified Swap Contracts" (as each such term is defined in the Credit Agreement). Capitalized terms used but not defined herein have the meanings assigned to them in the Credit Agreement. FOR VALUE RECEIVED, the receipt and sufficiency of which are hereby acknowledged, and as a condition precedent to the extension of credit by the Agent and the Banks under the Credit Agreement, Debtor agrees as follows: A. OBLIGATIONS SECURED. The security interest and pledges and assignments as applicable granted hereby are to secure punctual payment and performance of the following (all of which are herein separately and collectively referred to as the "Obligations"): (i) the Notes executed by the Company and payable to the order of the Banks, respectively, and any and all extensions, renewals, modifications and rearrangements thereof; (ii) all obligations of the Company to Secured Party now or hereafter existing under the Credit Agreement and other Loan Documents, whether for principal (including reimbursement for amounts drawn under Letters of Credit), interest, fees, expenses, taxes, yield protection, indemnification or otherwise, and all extensions, renewals, modifications and rearrangements thereof; (iii) all obligations of the Company now or hereafter existing under the Specified Swap Contracts, and all extensions, renewals, modifications and rearrangements thereof; and (iv) any and all other indebtedness, liabilities and obligations whatsoever of Debtor under this Security Agreement and the other Loan Documents, whether direct or indirect, absolute or contingent, primary or secondary, due or to become due and whether now existing or hereafter arising and howsoever evidenced or acquired, whether joint or several, or joint and several. B. DESCRIPTION OF COLLATERAL. Debtor hereby grants to Secured Party, for its benefit and the ratable benefit of the Banks and other Swap Providers, if any, a security interest in (and hereby pledges and assigns as applicable), and agrees that Secured Party, for its benefit and the ratable benefit of the Banks and other Swap Providers, if any, shall continue to have a security interest in (and a pledge and assignment as applicable of), all of Debtor's right, title and interest in and to the following property (the "Collateral"), whether now owned or hereafter acquired, to wit: (i) all (A) crude oil, natural gas and natural gas liquids, other hydrocarbons and ethanol (together, "Feedstocks"), (B) Feedstocks that have been partially processed or refined as isomerate, cat feed, gasoline components or naptha (together, "Intermediate Products") and (C) gasoline, diesel, aviation fuel, fuel oil, propane, ethanol, transmix and other products processed, refined or blended from Feedstocks and Intermediate Products (together "Refined Products"), in each case wherever located, now or hereafter existing, and all accessions to any of the foregoing, products of any of the foregoing and documents relating to any of the foregoing (any and all such inventory, accessions, products and documents herein called the "Inventory"); (ii) all accounts, contract rights, chattel paper, instruments, general intangibles and other obligations of any kind (including all rights to receive crude oil or petroleum products, to receive payments of money or to receive other value pursuant to contracts, agreements or other arrangements with other Persons, for the trading, lending, borrowing or exchanging of crude oil or petroleum products in the ordinary course of business), now or hereafter existing, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services, and all rights now or hereafter relating to any such accounts, contract rights, chattel paper, instruments, general intangibles or obligations (any and all such accounts, contract rights, chattel paper, instruments, general intangibles, obligations and rights herein called the "Accounts," and any and all such leases, security agreements and other contracts herein called the "Related Contracts"); and (iii) all proceeds of any and all of the foregoing Collateral (including proceeds that constitute property of any type described in Subsections B(i) or B(ii) above) and, to the extent not otherwise included, all (a) payments under insurance (whether or not Secured Party is the loss payee thereof), or under any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral and (b) cash. C. CONTRACTS AND AGREEMENTS. Anything herein to the contrary notwithstanding, (1) Debtor shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Security Agreement had not been executed, (2) the exercise by Secured Party of any of its rights hereunder shall not release Debtor from any of its duties or obligations under the contracts and agreements included in the Collateral and (3) neither Secured Party nor any Bank or other Swap Provider shall have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Security Agreement, nor shall Secured Party or any Bank or other Swap Provider be obligated to perform any of the obligations or duties of Debtor thereunder or take any action to collect or enforce any claim for payment assigned hereunder. D. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR. Debtor represents and warrants as follows: 1. Ownership; No Encumbrances. Except for the security interest (and pledges and assignments as applicable) granted hereby, the Debtor is, and as to any property acquired after the date hereof which is included within the Collateral, Debtor will be, the legal and beneficial owner of all such Collateral free and clear of any and all Liens of any and every nature whatsoever (subject only to Permitted Liens), and Debtor possesses evidence of such ownership. Debtor has exclusive possession and control of the Inventory, except to the extent that such Inventory is in transit or held at terminals owned by third parties and commingled with inventory owned by Persons other than Debtor. None of the Inventory consists of minerals or the like (including oil and gas) in which Debtor had any interest before extraction, and none of the Accounts consist of accounts resulting from the sale of any such minerals or the like or the sale of minerals or the like at the wellhead or minehead. 2. No Third Party Financing Statements. There is no financing statement or similar filing now on file in any public office covering any part of the Collateral, except the financing statements filed or to be filed in favor of Secured Party. 3. Accuracy of Information. All information furnished to Secured Party concerning Debtor, the Collateral and the Obligations, or otherwise for the purpose of obtaining or maintaining credit, is or will be at the time the same is furnished, accurate and complete in all material respects. 4. Authority. Debtor has full right, power and authority to execute and perform this Agreement and to create the security interest (and pledges and assignment as applicable) created by this Agreement. The making and performance by Debtor of this Agreement will not violate any articles of incorporation, bylaws or similar document respecting Debtor, any provision of law, any order of court or governmental agency, or any indenture or other agreement to which Debtor is a party, or by which Debtor or any of Debtor's property is bound, or be in conflict with, result in a breach of or constitute (with due notice and/or lapse of time) a default under any such indenture or other agreement, or result in the creation or imposition of any Lien of any and every nature whatsoever upon the Collateral, except as contemplated by this Agreement. 5. Addresses. The address of Debtor designated at the beginning of this Agreement is Debtor's place of business, if Debtor has only one place of business, or Debtor's chief executive office, if Debtor has more than one place of business, and is the office where Debtor keeps its records concerning the Accounts. All originals of any chattel paper and any promissory notes or instruments evidencing any of the Accounts have been delivered to Secured Party (endorsed, in the case of promissory notes or instruments, payable to the order of Secured Party). All of the Inventory is located at the places specified in Schedule 1 attached hereto. 6. Security Interest. This Security Agreement creates a valid first-priority security interest in the Collateral, subject only to Permitted Liens, securing payment of the Obligations, and all filings and other actions necessary or desirable to perfect and protect such security interest have been duly taken. E. GENERAL COVENANTS. Debtor covenants and agrees as follows: 1. Assessments. Debtor shall promptly pay when due all taxes, assessments, license fees, registration fees, and governmental charges levied or assessed against Debtor or with respect to the Collateral or any part thereof. 2. No Encumbrances. Debtor agrees not to suffer or permit any charge, Lien, security interest, adverse claim or encumbrance of any and every nature whatsoever against the Collateral or any part thereof (subject only to Permitted Liens). 3. No Transfer. Except as otherwise provided in this Security Agreement with respect to sales of inventory in the ordinary course of business, Debtor shall not, without the prior written consent of the Majority Banks, sell, assign, transfer, lease, charter, encumber, hypothecate or dispose of the Collateral, or any part thereof, or interest therein, or offer to do any of the foregoing. 4. Notices and Reports. Debtor shall promptly notify Secured Party in writing of any change in the name, identity or structure of Debtor, any charge, Lien, security interest, claim or encumbrance asserted against the Collateral, any litigation against Debtor or the Collateral, any theft, loss, injury or similar incident involving the Collateral, and any other material matter adversely affecting Debtor or the Collateral. Debtor shall furnish such other reports, information and data regarding Debtor's operations, the Collateral and such other matters as Secured Party or any Bank may request from time to time. 5. Landlord's Waivers and Other Third Party Agreements. Debtor shall use good faith efforts to furnish to Secured Party, if requested at any time and from time to time, a landlord's waiver or other third party agreement, as applicable, with respect to any Collateral covered by this Security Agreement that is or may be located upon leased premises, held by a bailee or otherwise subject to any third party interest (actual or contingent), such landlord's waivers and other third party agreements to be in such form and upon such terms as are acceptable to Secured Party and the Majority Banks. 6. Further Assurances. Debtor agrees to execute or procure, as applicable, and deliver such financing statement or statements, or amendments thereof or supplements thereto, or other documents, agreements and assurances, and take all further action, as Secured Party may from time to time require in order to perfect and protect any security interest granted or purported to be granted hereby, to establish or affirm the priority of the security interest granted or purported to be granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, Debtor shall (a) mark conspicuously each document included in the Inventory, each chattel paper included in the Accounts, each Related Contract, and, at the request of Secured Party or the Majority Banks, each of its records pertaining to the Collateral with a legend, in form and substance satisfactory to Secured Party and the Majority Banks, indicating that such document, chattel paper, Related Contract or Collateral is subject to the security interest granted hereby, and (b) if any of the Accounts is evidenced by a promissory note or other instrument or chattel paper, deliver and pledge to Secured Party hereunder such note, instrument or chattel paper, duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Secured Party. 7. Protection of Collateral. Secured Party, at its option, whether before or after default, but without any obligation whatsoever to do so, may, and Debtor hereby irrevocably appoints Secured Party as Debtor's attorney-in-fact, with full authority in the place and stead of Debtor and in the name of Debtor or otherwise, from time to time in Secured Party's discretion, to, take any action and execute any instrument that Secured Party may deem necessary or advisable to accomplish the purposes of this Security Agreement, including the following: (a) discharge taxes, claims, charges, Liens, security interests, assessments or other encumbrances of any and every nature whatsoever at any time levied, placed upon or asserted against the Collateral, (b) place and pay for insurance on the Collateral, including insurance that only protects Secured Party's interest, (c) pay for the repair, improvement, testing, maintenance and preservation of the Collateral, (d) file one or more financing or continuation statements, and amendments and supplements thereto, relative to all or any part of the Collateral without the signature of Debtor where permitted by law, and pay any filing, recording, registration, licensing or certification fees or other fees and charges related to the Collateral, or (e) take any other action to preserve and protect the Collateral and Secured Party's rights and remedies under this Agreement as Secured Party may deem necessary or appropriate. Debtor agrees that Secured Party shall have no duty or obligation whatsoever to take any of the foregoing action. Debtor agrees to promptly reimburse Secured Party upon demand for any payment made or any expense incurred by the Secured Party pursuant to this authorization. These payments and expenditures, together with interest thereon from date incurred until paid by Debtor at the maximum contract rate allowed under applicable laws, which Debtor agrees to pay, shall constitute additional Obligations and shall be secured by and entitled to the benefits of this Security Agreement. 8. Inspection. Debtor shall at all reasonable times allow Secured Party and each of the Banks by or through any of its officers, agents, attorneys or accountants, to examine the Collateral, wherever located, and to examine and make extracts from Debtor's books and records. 9. Insurance. Debtor shall have and maintain insurance at all time with respect to all tangible Collateral insuring against risks of fire (including so-called extended coverage), theft and other risks as Secured Party and the Majority Banks may require and shall maintain liability insurance naming the Debtor, the Administrative Agent and the Banks as insured parties, in each case containing such terms, in such form and amounts and written by such companies as may be satisfactory to Secured Party and the Majority Banks, all of such insurance to (a) contain loss payable clauses in favor of Secured Party as its interests may appear, (b) contain the agreement by the insurer that any loss thereunder shall, subject to the terms of this Security Agreement, be payable to Secured Party notwithstanding any action, inaction or breach of representation or warranty by Debtor and (c) provide that there shall be no recourse against Secured Party or the Banks for payment of premiums or other amounts with respect thereto. All policies of insurance shall provide for at least thirty (30) days' prior written cancellation notice to Secured Party and at the request of Secured Party shall be delivered to and held by it. Debtor shall, as often as Secured Party or any Bank reasonably may request, deliver to Secured Party and the Banks a certificate of a reputable insurance broker with respect to such insurance and permit Secured Party and any Bank to discuss the terms and conditions of such insurance with such broker and the insurer. Secured Party is hereby authorized to act as attorney for Debtor in adjusting and settling insurance claims that relate to the Collateral and endorsing any drafts or instruments. Secured Party shall be authorized to apply the proceeds from any insurance to the Obligations secured hereby whether or not such Obligations are then due and payable. Debtor specifically authorizes Secured Party to disclose information from the policies of insurance to prospective insurers regarding the Collateral. F. ADDITIONAL PROVISIONS REGARDING ACCOUNTS. The following provisions shall apply to all Accounts included within the Collateral: 1. Definitions. The term "account," as used in this Agreement, shall have the same meaning as set forth in the Uniform Commercial Code of California in effect as of the date of execution hereof, and as set forth in any amendment to the Uniform Commercial Code of California to become effective after the date of execution hereof, and also shall include all present and future notes, instruments, documents, general intangibles, drafts, acceptances and chattel paper of Debtor, and the proceeds thereof. 2. Additional Warranties. As of the time any Account is included in any Borrowing Base Report under the Credit Agreement, Debtor shall be deemed further to have warranted as to each and all of such Accounts as follows: (a) each Account and all papers and documents relating thereto are genuine and in all respects what they purport to be; (b) each Account is valid and subsisting and arises out of a bona fide sale of goods sold and delivered to, or out of and for services theretofore actually rendered by Debtor to, the account debtor named in the account; (c) the amount of the Account represented as owing is the correct amount actually and unconditionally owing and is not subject to any setoffs, credits, defenses, deductions or countercharges; and (d) Debtor is the owner thereof free and clear of any charges, Liens, security interests, adverse claims and encumbrances of any and every nature whatsoever (subject only to Permitted Liens). 3. Collection of Accounts. Except as otherwise provided herein, Debtor shall continue to collect all amounts due or to become due to Debtor under the Accounts, and, in connection with such collections, Debtor may take (and, at Secured party's direction, shall take) such action as Debtor or Secured Party may deem necessary or advisable to enforce collection of the Accounts. Upon the occurrence and during the continuance of any Default or Event of Default (and, in any event, after receipt by Debtor of notice from Secured Party in accordance with the Credit Agreement) (a) all amounts and proceeds (including instruments) received by Debtor in respect of the Accounts shall be received in trust for the benefit of Secured Party hereunder, shall be segregated from other funds of Debtor and shall be forthwith paid over to Secured Party in the same form as so received (with any necessary endorsement), and, if any Event of Default has occurred and is continuing, applied as provided by Section H.4. hereof, and (b) Debtor shall not adjust, settle or compromise the amount or payment of any Account, release wholly or partly any account debtor or obligor thereunder or allow any credit or discount thereon. Secured Party shall have the right in its own name or in the name of Debtor, upon the occurrence and during the continuance of any Default or Event of Default (and, in any event, after receipt by Debtor of notice from Secured Party in accordance with the Credit Agreement), to notify any and all account debtors to make payments of the Accounts directly to Secured Party, to demand, collect, receive, receipt for, sue for, compound and give acquittal for, any and all amounts due or to become due on the Accounts and to endorse the name of the Debtor on all commercial paper given in payment or part payment hereof, and in Secured Party's discretion to file any claim or take any other action or proceeding that Secured Party may deem necessary or appropriate to protect and preserve and realize upon the Accounts and related Collateral. Secured Party shall have no duty or obligation whatsoever to collect any Account, or to take any other action to preserve or protect the Collateral; however, should Secured Party elect to collect any Account or take possession of any Collateral, Debtor releases Secured Party from any claim or claims for loss or damage arising from any act or omission in connection therewith. 4. Addresses. Debtor shall keep its place of business, or, if it has more than one place of business, its chief executive office, and the office where it keeps its records concerning the Accounts, at the location therefor specified in Subsection D.5., or, upon 30 days' prior written notice to Secured Party, at other locations in jurisdictions where all actions required by Section E have been taken with respect to Accounts; provided, however, that in no event shall Debtor's records concerning Accounts be located outside of the United States. G. ADDITIONAL PROVISIONS REGARDING INVENTORY. The following provisions shall apply to all inventory included within the Collateral: 1. Location of Inventory. Debtor shall keep the Inventory (other than Inventory sold in the ordinary course of business) at the places therefor specified in Subsection D.5., or, upon 30 days' prior written notice to Secured Party, at other places in jurisdictions where all actions required by Section E have been taken with respect to the Inventory; provided, however, that in no event shall the Inventory be located outside the United States. 2. Use of Inventory. Unless and until the privilege of Debtor to use inventory in the ordinary course of Debtor's business is revoked by Secured Party upon the occurrence and during the continuance of any Default or Event of Default, Debtor may use the inventory in any manner not inconsistent with this Security Agreement, may sell that part of the Collateral consisting of Inventory provided that all such sales are in the ordinary course of business, and may use and consume any raw materials or supplies that are necessary in order to carry on Debtor's business. A sale in the ordinary course of business does not include a transfer in partial or total satisfaction of a debt. 3. Accounts as Proceeds. All accounts that are proceeds of the Inventory included within the Collateral shall be subject to all of the terms and provisions hereof pertaining to Accounts. 4. Protection of Inventory. Debtor shall take all action necessary to protect and preserve the Inventory. H. REMEDIES. Upon the occurrence of an Event of Default, Secured Party, at its option, shall be entitled to exercise any one or more of the following remedies (all of which are cumulative): 1. Declare Obligations Due. Secured Party, acting on behalf of the Banks in accordance with the Credit Agreement, may declare the Obligations or any part thereof immediately due and payable, without demand, notice of intention to accelerate, notice of acceleration, notice of nonpayment, presentment, protest, notice of dishonor, or any other notice whatsoever, all of which are hereby waived by Debtor and any maker, endorser, guarantor, surety or other party liable in any capacity for any of the Obligations. 2. Remedies. Secured Party shall have all of the rights and remedies provided for in this Security Agreement and in any other agreements executed by Debtor, the rights and remedies in the Uniform Commercial Code of California, and any and all other rights and remedies at law and equity, all of which shall be deemed cumulative. Without limiting the foregoing, Debtor agrees that Secured Party shall have the right to (a) require Debtor to assemble the Collateral and make it available to Secured Party at a place designated by Secured Party that is reasonably convenient to both parties, which Debtor agrees to do; (b) take possession of the Collateral, with or without process of law, and, in this connection, enter any premises where the Collateral is located to remove same, to render it unusable, or to dispose of same on such premises; (c) sell, lease or otherwise dispose of the Collateral, by public or private proceedings, for cash or credit, without assumption of credit risk; and/or (d) collect and receipt for, compound, compromise, and settle, and give releases, discharges and acquittances with respect to, any and all amounts owned by any person or entity with respect to the Collateral. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Secured Party will send Debtor reasonable notice of the time and place of any public sale or of the time after which any private sale or other disposition will be made. Any requirement of reasonable notice to Debtor shall be met if such notice is mailed, postage prepaid, to Debtor at the address of Debtor designated at the beginning of this Agreement, at least ten (10) days before the day of any public sale or at least ten (10) days before the time after which any private sale or other disposition will be made. Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given, and Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor and such sale may, without further notice, be made at the time and place to which it is so adjourned. 3. Expenses. Debtor shall be liable for and agrees to pay the reasonable expenses incurred by Secured Party in enforcing its rights and remedies, in retaking, holding, testing, repairing, improving, selling, leasing or disposing of the Collateral, or like expenses, including, without limitation, attorneys' fees and legal expenses incurred by Secured Party. These expenses, together with interest thereon from the date incurred until paid by Debtor at the maximum contract rate allowed under applicable laws, which Debtor agrees to pay, shall constitute additional Obligations and shall be secured by and entitled to the benefits of this Agreement. 4. Proceeds; Surplus; Deficiencies. Proceeds received by Secured Party from disposition of the Collateral shall be applied (after payment of Secured Party's expenses) in whole or in part by Secured Party for the ratable benefit of the Banks and other Swap Providers, if any, against all or any portion of the Obligations in such order (but, in any event, pro rata among the Banks and other Swap Providers, if any, as hereinafter provided) or manner as Secured Party may elect. Proceeds distributed to the Banks and other Swap Providers, if any, pursuant hereto shall be distributed pro rata in such proportion as the total Obligations to each such Person bears to the total Obligations to all such Persons; provided, however, that, for the purposes of the foregoing, (a) the Obligations to each such Person in respect of the Specified Swap Contracts and all other Obligations described in items (iii) and (iv) of Part A of this Security Agreement shall be deemed to include only such amounts as are then due and payable in respect thereof and (b) no amounts shall be deemed then due and payable to any Bank or other Swap Provider, if any, for purposes hereof, with respect to any Specified Swap Contract or any individual right to indemnity, or to reimbursement or compensation pursuant to Article IV, except to the extent that Secured Party shall have actually received prior written notice thereof at its address specified in Section 11.01 of the Credit Agreement. Debtor shall be entitled to any surplus if one results after payment in full of all of the Obligations. 5. Remedies Cumulative. The rights and remedies of Secured Party are cumulative and the exercise of any one or more of the rights or remedies shall not be deemed an election of rights or remedies or a waiver of any other right or remedy. Secured Party may remedy any default and may waive any default without waiving the default remedied or without waiving any other prior or subsequent default. 6. Non-Bank Swap Providers. Each Swap Provider, if any, not a Bank, by its acceptance of any of the benefits of this Security Agreement, shall be deemed to have (a) designated Secured Party to hold the Collateral in accordance with the terms hereof and otherwise to act as specified herein; (b) irrevocably authorized Secured Party to take such action under the provisions of this Security Agreement and to exercise such powers and to perform such duties hereunder as are specifically delegated to or required of Secured party by the terms hereof and such other powers as are reasonably incidental thereto, and to exercise all remedies available to Secured Party, including without limitation, the right to foreclose or otherwise realize upon the Collateral and to initiate, prosecute and defend any and all legal proceedings, by or through its agents and employees; (c) agreed that Secured Party shall have no duties or responsibilities except those expressly set forth or described herein and that neither Secured Party nor any other Agent-Related Person shall be liable for any action taken or omitted by it as such hereunder or in connection herewith; (d) agreed that the duties of Secured Party shall be mechanical and administrative in nature, that Secured Party shall not have, by reason of this Security Agreement a fiduciary relationship in respect of such Person and that nothing in this Security Agreement, express or implied, is intended to or shall be so construed as to impose upon Secured Party any obligations in respect of this Security Agreement, the Collateral or the Obligations secured thereby except as expressly set forth herein; (e) agreed that Secured Party shall not be responsible to any such Person for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectability, priority or sufficiency of this Security Agreement or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Security Agreement, or the financial condition of the Company or the Debtor or any of their respective Subsidiaries, or the existence or possible existence of any Default or Event of Default under, or noncompliance with, this Security Agreement or any other agreement referenced herein; (f) waived any and all rights to require or demand that Secured Party take any actions or refrain from taking any actions with respect to the Collateral at any time, including without limitation actions to foreclose upon any Collateral or actions with respect to the release or substitution of any Collateral at any time, to have agreed that decisions regarding the exercise of all rights and the taking or refraining from taking of any actions by Secured Party at any time with respect to the Collateral or any of the Obligations referenced herein, including without limitation actions to foreclose upon any Collateral or actions with respect to the release or substitution of any Collateral at any time, shall be between Secured Party and the Banks in accordance with the terms of this Security Agreements and their separate agreements and that all such decisions shall be conclusive and binding on such Persons, and to have waived any and all claims against Secured Party and/or any Bank in respect of any such decision, exercise, action or inaction; (g) agreed that Secured Party may resign from the performance of all its functions and duties hereunder at any time by giving 20 Business Days' prior written notice to the Company and the Banks at the addresses specified in Section 11.01 of the Credit Agreement, following which the holders of any and all then remaining Obligations shall perform all of the duties of Secured Party under this Security Agreement until such time, if any, as such Persons have appointed a successor administrative agent to act as secured party on their behalf. I. OTHER AGREEMENTS. 1. Savings Clause. Notwithstanding any provision to the contrary herein, or in any of the documents evidencing the Obligations or otherwise relating thereto, no such provision shall require the payment or permit the collection of interest in excess of the maximum permitted by applicable usury laws. If any such excessive interest is so provided for, then in such event (i) the provisions of this paragraph shall govern and control, (ii) neither Debtor nor its successors or assigns or any other party liable for the payment thereof, shall be obligated to pay the amount of such interest to the extent that is in excess of the maximum amount permitted by law, (iii) any such excess interest that may have been collected shall be, at the option of the holder of the instrument evidencing the Obligations, either applied as a credit against the then unpaid principal amount thereof or refunded to the maker thereof, and (iv) the effective rate of interest shall be automatically reduced to the maximum lawful rate under applicable usury laws as now or hereafter construed by the courts having jurisdiction. 2. Indemnity and Expenses. Debtor agrees to indemnify Secured Party and each of the Banks, and to hold Secured Party and each of the Banks harmless, from and against any and all claims, losses and liabilities arising out of or resulting from this Security Agreement (including enforcement of this Security Agreement), except claims, losses or liabilities resulting from such Person's gross negligence or willful misconduct. Debtor will upon demand pay to Secured Party the amount of any and all reasonable expenses, including reasonable fees and disbursements of counsel and of any experts and agents, that Secured Party or the Banks may incur in connection with (a) the administration of this Security Agreement, (b) the custody, preservation, use, operation or sale of, the collection from, or any other realization upon any of, the Collateral, (c) the exercise or enforcement of any of the rights of Secured Party or the Banks hereunder or (d) the failure by Debtor to perform or observe any of the provisions hereof. 3. Severability. Any provision hereof found to be invalid by courts having jurisdiction shall be invalid only with respect to such provision (and then only to the extent necessary to avoid such invalidity). The offending provision shall be modified to the maximum extent possible to confer upon Secured Party the benefits intended thereby. Such provision as modified and the remaining provisions hereof shall be construed and enforced to the same effect as if such offending provision (or portion thereof) had not been contained herein, to the maximum extent possible. 4. Use of Copies. Any carbon, photographic or other reproduction of this Security Agreement or of any financing statement signed by Debtor is sufficient as a financing statement for all purposes, including without limitation, filing in any state as may be permitted by the provisions of the Uniform Commercial Code of such state. 5. Relationship to Other Agreements. This Security Agreement and the security interests (and pledges and assignments as applicable) herein granted are in addition to (and not in substitution, novation or discharge of) any and all prior or contemporaneous security agreements, security interests, pledges, assignments, liens, rights, titles or other interests in favor of Secured Party or assigned to Secured Party by others in connection with the Obligations. All rights and remedies of Secured Party in all such agreements are cumulative, but in the event of actual conflict in terms and conditions, the terms and conditions of the latest security agreement shall govern and control. 6. Notices. Any notice or demand given by Secured Party to Debtor in connection with this Agreement, the Collateral or the Obligations shall be deemed given and effective upon deposit in the United States mail, postage prepaid, addressed to Debtor at the address of Debtor designated at the beginning of this Security Agreement. Actual notice to Debtor shall always be effective no matter how given or received. All notices and other communications to Secured Party hereunder shall be in writing and shall be mailed, telecopied or delivered to Secured Party, as the case may be, at the address therefor specified in Section 11.02 of the Credit Agreement and shall be deemed given and effective at the time specified in said Section 11.02. 7. Headings and Gender. Paragraph headings in this Security Agreement are for convenience only and shall be given no meaning or significance in interpreting this Agreement. All words used herein shall be construed to be of such gender or number as the circumstances require. 8. Amendments, Waivers, etc. No amendment or waiver of any provisions of this Security Agreement or consent to any departure by Debtor herefrom shall in any event be effective unless the same is in writing and signed by Secured Party, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. The waiver (whether express or implied) by Secured Party of any breach of any term or condition of this Security Agreement, or the consent (whether express or implied) by any Bank thereto, shall not prejudice any remedy of Secured Party or any Bank in respect of any continuing or other breach of the terms and conditions hereof and shall not be construed as a bar to any right or remedy that Secured Party or any Bank would otherwise have on any future occasion under this Security Agreement. No failure to exercise or delay in exercising, on the part of Secured Party or any Bank, any right, power or privilege under this Security Agreement shall operate as a waiver thereof or the exercise of any other right, power or privilege. 9. Continuing Agreement. The security interest (and pledges and assignments as applicable) hereby granted and all of the terms and provisions in this Agreement shall be deemed a continuing agreement. They shall continue in full force and effect and remain effective between the parties until the repayment in full of all Obligations and the termination or expiration of the Commitments and all Letters of Credit. 10. Binding Effect. The provisions of this Security Agreement shall be binding upon the successors and assigns of Debtor and the rights, powers and remedies of Secured Party hereunder shall inure to the benefit of the successors and assigns of Secured Party. Without limiting the generality of the foregoing, any Bank may assign or otherwise transfer any or all of its rights and obligations under the Loan Documents to any other Person, and such other Person shall thereupon become vested with all of the benefits in respect thereof granted to such Bank herein or otherwise, subject, however, to the provisions of Article X (concerning the Administrative Agent) and Section 11.08 of the Credit Agreement. 11. GOVERNING LAW AND JURISDICTION. (a) THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS) AND APPLICABLE FEDERAL LAW, EXCEPT TO THE EXTENT THAT THE PERFECTION OR EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTERESTS HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF CALIFORNIA. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS SECURITY AGREEMENT, DEBTOR CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, DEBTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS SPECIFIED IN SECTION I.6. HEREOF, SUCH SERVICE TO BECOME EFFECTIVE TEN DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF SECURED PARTY OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE GUARANTORS IN ANY OTHER JURISDICTION. DEBTOR WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW. (c) DEBTOR IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS SECURITY AGREEMENT OR ANY DOCUMENT RELATED HERETO. SECTION 11. WAIVER OF JURY TRIAL. DEBTOR WAIVES ITS RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS SECURITY AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. DEBTOR AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, DEBTOR FURTHER AGREES THAT ITS RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS SECURITY AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS SECURITY AGREEMENT AND THE OTHER LOAN DOCUMENTS. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] EXECUTED this _____ day of ________________, ____. By Name: Title: - DEBTOR - Schedule 1 Locations of Inventory [To be provided by Debtor] EX-10.15 5 EXHIBIT 10.15 ELEVENTH 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. Pages 1.11 - 1.23 of Article I of the existing Plan is removed and replaced by the attached Pages 1.11 - 1.23 of Article I which is incorporated herein by this reference. The terms used in this Eleventh Amendment which are defined in the Plan shall have the same meaning given to such terms in the Plan. Except as modified by this Eleventh 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 24 day of March, 1998, to be effective as of July 1, 1999, unless otherwise specified on the relevant replacement page. FOR THE EMPLOYER: ADMINISTRATIVE COMMITTEE: /s/ Kim H. Bullerdick GIANT INDUSTRIES, INC. -------------------------------- A Delaware Corporation Kim H. Bullerdick By /s/ Monte N. Swetnam /s/ Gary R. Dalke -------------------------- -------------------------------- Monte N. Swetnam Gary R. Dalke By /s/ Charley F. Yonker -------------------------- -------------------------------- Charles F. Yonker TRUSTEE: WELLS FARGO BANK, N.A. By: ------------------------------ Its: Vice President --------------------------- 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, (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, and (viii) effective as of July 1, 1999, all service by an employee of Kaibab Industries, Inc. ("Kaibab") for services with Kaibab or an affiliate or predecessor employer of Kaibab to the extent service was credited to such employee on the day he became an Employee of the Employer, and only if such employee was employed by Kaibab immediately before becoming an Employee of the Employer and became an Employee of the Employer on or after May 21, 1998, and on or before December 31, 1998, in connection with the sale of certain assets of Kaibab 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) -1.11- (Replacement Page, Eleventh Amendment) 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 rights equal to or in excess of that class of common stock having the greatest voting power and that class of 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. -1.12- (Replacement Page, Eleventh Amendment) 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 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. -1.13- (Replacement Page, Eleventh Amendment) 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; -1.14- (Replacement Page, Eleventh Amendment) (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 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 -1.15- (Replacement Page, Eleventh Amendment) 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 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 -1.16- (Replacement Page, Eleventh Amendment) 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. -1.17- (Replacement Page, Eleventh Amendment) 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). 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 -1.18- (Replacement Page, Eleventh Amendment) 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. -1.19- (Replacement Page, Eleventh Amendment) 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. 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 improvements 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 -1.20- (Replacement Page, Eleventh Amendment) 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). 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 -1.21- (Replacement Page, Eleventh Amendment) 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 (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 -1.22- (Replacement Page, Eleventh Amendment) 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. -1.23- (Replacement Page, Eleventh Amendment) EX-10.20 6 EXHIBIT 10.20 THIRD 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 3, 4 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 3, 4 and 13, and the Attachment to Adoption Agreement for Giant Industries, Inc. & Affiliated Companies 401(k) Plan. This amendment is effective July 1, 1998, except as otherwise stated in the replacement pages of the attachment. GIANT INDUSTRIES, INC. & AFFILIATED COMPANIES 12-10-98 By: /s/ CHARLES F. YONKER -------- ---------------------------- Name: Charles F. Yonker Title: Director Human Resources Accepted by: FIDELITY MANAGEMENT TRUST COMPANY, as Trustee -------- By:---------------------------- Name: Title: (b) THE TERM "EMPLOYER" INCLUDES THE FOLLOWING RELATED EMPLOYER(S) (as defined in Section 2.01(a)(26)): See attached sheet. 1.03 COVERAGE (a) ALL EMPLOYEES WHO MEET THE CONDITIONS SPECIFIED BELOW WILL BE ELIGIBLE TO PARTICIPATE IN THE PLAN. (1) SERVICE REQUIREMENT (check one): (A) [ ] no service requirement. (B) [ ] three consecutive months of service (no minimum number Hours of Service can be required). (C) [ ] six consecutive months of service (no minimum number Hours of Service can be required). (D) [X] one Year of Service (1,000 Hours of Service is required during the Eligibility Computation Period.) (2) AGE REQUIREMENT (check one): (A) [X] no age requirement. (B) [ ] must have attached age ___ (not to exceed 21). (Replacement Page, Third Amendment) 3 (3) THE CLASS OF EMPLOYEES ELIGIBLE TO PARTICIPATE IN THE PLAN (check one): (A) [ ] includes all Employees of the Employer. (B) [X] includes all Employees of the Employer except for (check the appropriate box(es)): (i) [X] Employees covered by a collective bargaining agreement. (ii) [ ] Highly Compensated Employees as defined in Code Section 414(g). (iii) [X] Leased Employees as defined in Section 2.01(a)(18). (iv) [ ] Nonresident aliens who do not receive any earned income from the Employer which constitutes United States source income. (v) [ ] Other Note: No exclusion in this section may create a discriminatory class of employees. An Employer's plan must still pass the Internal Revenue Code coverage and participation requirements if one or more of the above groups of Employees have been excluded from the Plan. (b) THE ENTRY DATE(S) SHALL BE (check one): (1) [ ] the first day of each Plan Year (not if Section 1.03 (a)(1)(D) is elected). (2) [X] the first day of each Plan Year and the date six months later. (July 1) See attachment. (3) [ ] the first day of each Plan Year and the first day of the fourth, seventh, and tenth months. (4) [ ] the first day of each month. (Replacement Page, Third Amendment) 4 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. (e) 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. (Replacement Page, Third Amendment) 13 ATTACHMENT TO ADOPTION AGREEMENT FOR GIANT INDUSTRIES, INC. AFFILIATED COMPANIES 401(K) PLAN Section 1.03(b). The Entry Date(s) shall include the first day of each month between June 25, 1998 and December 31, 1998, but only for an employee who was employed by Kaibab and was eligible to contribute to the Kaibab Industries, Inc. 401(k) Employee Savings Plan for Employees Not Covered under a Collective Bargaining Agreement ("the Kaibab 401(k) Plan") immediately before becoming an Employee of the Employer and who became an Employee of the Employer on or after May 21, 1998 and on or before December 31, 1998, in connection with the sale of certain assets of Kaibab to the Employer. 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, -1- (Replacement Page, Third Amendment) 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. (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. (e) Effective as of July 1, 1998, Kaibab Industries, Inc. ("Kaibab") and any affiliate or predecessor employer of Kaibab, but only to the extent Service was granted under the Kaibab 401(k) Plan and only for an employee who was employed by Kaibab immediately before becoming an Employee of the Employer and became an Employee of the Employer on or after May 21, 1998 and on or before December 31, 1998, in connection with the sale of certain assets to Kaibab to the Employer. -2- (Replacement Page, Third Amendment) AMENDMENT TO BASIC PLAN DOCUMENT (a) 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". (b) The second sentence of Section 4.10(a)(1) is amended by adding the following at the conclusion thereof: "; provided, that in the case of a direct rollover of an eligible rollover distribution from the Kaibab 401(k) Plan and the Kaibab Industries, Inc. Employee Stock Ownership Plan (the 'Kaibab plans'), the transfer may include a participant note for a plan Loan from one of the Kaibab plans." (c) By way of clarification and emphasis, Section 4.10(a)(2) is amended by inserting the phrase "any or all" between the words "accept" and "rollover" in both places they occur. -3- (Replacement Page, Third Amendment) EX-10.21 7 EXHIBIT 10.21 FOURTH 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 7, and 9 of the existing Plan are hereby removed and replaced by the attached replacement pages 7, and 9. This amendment is effective January 1, 1999, except as otherwise stated in the replacement ages of the attachment. GIANT INDUSTRIES, INC. & AFFILIATED COMPANIES 12-10-98 By: /s/ Charles F. Yonker Jr. -------- ---------------------------- Date Name: Charles F. Yonker Jr. Title: Director of Human Resources Accepted by: FIDELITY MANAGEMENT TRUST COMPANY, as Trustee -------- By:---------------------------- Date Name: Title: (3) ELIGIBILITY REQUIREMENT(S) A Participant shall be entitled to Employer Contributions for a Plan Year under this Subsection (a) if the Participant satisfies the following requirement(s) (Check the appropriate box(es) - Options (B) and (C) may not be elected together): (A) [ ] is employed by the Employer on the last day of the Plan Year. (B) [ ] earns at least 500 Hours of Service during the Plan Year. (C) [ ] earns at least 1,000 Hours of Service during the Plan Year. (D) [ ] no requirements. Note: If option (A), (B) or (C) above is selected then Employer Contributions can only be funded by the Employer after Plan Year end. (b) [X] DEFERRAL CONTRIBUTIONS (1) REGULAR CONTRIBUTIONS The Employer shall make a Deferral Contribution in accordance with Section 4.01 on behalf of each Participant who has an executed salary reduction agreement in effect with the Employer for the payroll period in question, not to exceed 15*% (no more than 15%) of Compensation for that period. *Effective 01/01/999 (A) A Participant may increase or decrease, on a prospective basis, his salary reduction agree- ment percentage (check one): (i) [ ] As of the beginning of each payroll period. (ii) [ ] As of the first day of each month. (iii) [X] As of the next Entry Date. (iv) [ ] (Specify, but be at least once per Plan Year) ____________________________________________ ____________________________________________ (B) A participant may revoke, on a prospective basis, a salary reduction agreement at any time upon proper notice to the Administrator but in such case may not file a new salary reduction agreement until (check one): (i) [ ] The first day of the next Plan Year. (ii) [X] Any subsequent Plan Entry Date. (iii) [ ] (Specify, but be at least once per Plan Year) ____________________________________________ ____________________________________________ (Replacement Page, Fourth Amendment) 7 (c) [X] MATCHING CONTRIBUTIONS (only if Section 1.05(b) is checked) (1) THE EMPLOYER SHALL MAKE A MATCHING CONTRIBUTION ON BEHALF OF EACH PARTICIPANT IN AN AMOUNT EQUAL TO THE FOLLOWING PERCENTAGE OF A PARTICIPANT'S DEFERRAL CONTRIBUTIONS DURING THE PLAN YEAR (check one): (A) [ ] 50% (B) [ ] 100% (C) [ ] ___% (D) [ ] (Tiered Match) ___% of the first ___% of the Participant's Compensation contributed to the Plan, ___% of the next ___% of the Participant's Compensation contributed to the Plan, ___% of the next ___% of the Participant's Compensation contributed to the Plan. Note: The percentages specified above for Matching Contributions may not increase as the percentage of Compensation contributed increases. (E) [X] The percentage declared for the year, if any, by a Board of Directors' resolution. (2) [ ] THE EMPLOYER MAY AT PLAN YEAR END MAKE AN ADDITIONAL MATCHING CONTRIBUTION EQUAL TO A PERCENTAGE DECLARED BY THE EMPLOYER, THROUGH A BOARD OF DIRECTORS' RESOLUTION, OF THE DEFERRAL CONTRIBUTIONS MADE BY EACH PARTICIPANT DURING THE PLAN YEAR (only if an option is checked under Section 1.05(c)(1)). (3) [X] MATCHING CONTRIBUTION LIMITS (check the appropriate box(es)): (A) [X] Deferral Contributions in excess of 12% of the Participant's Compensation for the period in question shall not be considered for Matching Contributions. Note: If the Employer elects a percentage limit in (A) above and requests the Trustee to account separately for matched and unmatched Deferral Contributions, the Matching Contributions allocated to each Participant must be computed, and the percentage limit applied, based upon each payroll period. (B) [ ] Matching Contributions for each Participant for each Plan Year shall be limited to $_________. (Replacement Page, Fourth Amendment) 9 EX-10.24 8 EXHIBIT 10.24 REAL ESTATE PURCHASE AGREEMENT THIS AGREEMENT is made this 5th day of October, 1997, between Pinnacle Sonoran Desert Properties, L.L.C. ("Seller") and Giant Industries Arizona, Inc. ("Purchaser"). In consideration of the following mutual promises, Seller and Purchaser agree as follows: 1. SALE AND PURCHASE. Upon the following terms and conditions, Seller shall sell and Purchaser shall purchase a portion of that certain parcel of real estate known as Assessors Parcel #211-40-006E and a portion of #211-40-006L, together with all improvements thereon and appurtenances thereto, including all fixtures and equipment attached thereto, located on the Northwest corner of Tatum and Dynamite Boulevards, Phoenix, Arizona (the "Property"). (See Exhibit A). 2. PURCHASE PRICE AND TERMS OF PAYMENT. The "Purchase Price" for the Property shall be approximately Twelve and 20/100 Dollars ($12.20) per square foot for approximately Seventy-five Thousand Square Feet (75,000 S.F.). Actual site perimeter dimensions shall be as mutually agreed and indicated on a final survey plat. The Purchase Price shall be payable by Purchaser to Seller as follows: a) EARNEST MONEY DEPOSIT. Within ten (10) days from execution of this Agreement the sum of Ten Thousand and No/100 Dollars ($10,000.00) shall be deposited by Purchaser in escrow with a mutually agreed to escrow agent as a refundable earnest money deposit. The earnest money deposit shall be applied toward the Purchase Price if Purchaser proceeds to buy the Property. b) INSPECTION PERIOD DEPOSITS. Seller hereby grants Purchaser an inspection period as described in Paragraph 4(a) of this Agreement. c) BALANCE AT CLOSING. The balance of the Purchase Price shall be paid by Purchaser at Closing as later defined, in cash, certified funds or by cashier's check. 3. TITLE EXAMINATION, MARKETABLE TITLE AND TITLE INSURANCE. a) TITLE EXAMINATION. Within ten (10) days after the execution of this Agreement, Seller shall furnish Purchaser with a title commitment issued by a title insurance company licensed to insure title to real estate in the county where the Property is located. The title commitment shall constitute a promise by the title insurance company to insure that title to the Property in Purchaser's name in the amount of the Purchase Price. Purchaser shall have five (5) days after the delivery of the title commitment to Purchaser to review it and to present Seller with written notice of any objections to the status of title as shown by the commitment. Any objections which have not been presented to Seller by the end of such period shall be deemed to have been waived. If written objections to the title commitment are timely made, then Seller, at Seller's expense, shall take such steps as are necessary to satisfy such objections. If Purchaser's objections have not been satisfied prior to Closing, then Purchaser shall have the right to elect not to close on the transaction and not to purchase the Property. b) MARKETABLE TITLE. At Closing, Seller shall execute a general warranty deed, conveying good and merchantable title to the Property to Purchaser free and clear of all liens and encumbrances and subject only to those matters reflected on the title commitment and not objected to by Purchaser pursuant to this paragraph. c) TITLE INSURANCE. Immediately following Closing, Seller, at Seller's expense, shall cause the title insurance company to issue an owner's title insurance policy in favor of Purchaser for the Property in the amount of the Purchase Price. The title insurance policy shall set forth exceptions for only those matters reflected on the title commitment and not objected to by Purchaser pursuant to this paragraph and the standard preprinted exceptions contained in the title insurance company's standard form of title insurance, except that the standard survey and materialmen's liens exceptions (standard exceptions 1 through 4) shall be deleted at Seller's expense. The expense of obtaining any and all surveys, affidavits and other matters required by the title insurance company to delete such standard exceptions shall be borne by Seller. 4. CONTINGENCIES. a) INSPECTION PERIOD. Purchaser shall have ten (10) days after the execution of this Agreement in which to inspect the Property and determine if, in Purchaser's opinion, the property is suitable for development of a retail food and fuel facility. If no written objections to the Property have been presented to Seller by the end of such period, then Purchaser shall be deemed to have accepted the Property and to have waived all objections to it. If written objections are timely made, Seller, at Seller's expense, shall take such steps as are reasonably necessary to correct the conditions complained of. If Purchaser's objections have not been satisfied prior to Closing, then Purchaser shall have the right to elect not to close on the transaction and not to purchase the Property. b) SURVEY EXAMINATION. Within five (5) days after the execution of this Agreement, Seller and Purchaser shall agree upon site boundary dimensions and within an additional five (5) days Seller shall furnish Purchaser with a current boundary and improvement survey of the Property including a legal description prepared by a duly licensed Arizona land surveyor. Purchaser shall have two (2)) days after the delivery of the survey to Purchaser to review it and to present Seller with written notice of any objections to matters shown by the survey. Any objections which have not been presented to Seller by the end of such period shall be deemed to have been waived. If written objections to the survey are timely made, then Seller, at Seller's expense, shall take such steps as are necessary to satisfy the objections. If Purchaser's objections have not been satisfied prior to Closing, then Purchaser shall have the right to elect not to close on the transaction and not to purchase the Property. c) ZONING. Purchaser assumes that current zoning for the land parcel will allow the construction of a food and fuel facility , including liquor sales. If any State, County, City or code restrictions prevent the operation of Purchaser's standard food and fuel facility, Purchaser shall have the right to cancel this agreement with no obligation to proceed with Closing. d) ENVIRONMENTAL EXAMINATION. Within five (5) days of the execution of this Agreement, Seller shall furnish Purchaser, at Seller's expense, a Phase 1 Environmental Site Assessment for the Property. Purchaser shall have five (5) days from the date of receipt of the Phase 1 Evaluation within which to review the Phase 1 Evaluation. If Purchaser determines that there is reason to believe that any hazardous waste, hazardous substance, pollutants or other contaminants (collectively referred to as "Contaminants") have been released on the Property or from or onto any other property, then, within two (2) days, Purchaser shall notify Seller in writing of any objections which Purchaser may have to environmental matters disclosed by the Phase 1 Evaluation. Failure to give such written notice to Seller shall constitute a waiver of any objection by Purchaser to any environmental matter. Within two (2) days after receiving written notice from Purchaser of an objection, Seller may either: (i) terminate this Agreement by written notice to Purchaser, and Escrow Agent, in which event the earnest money deposit and all interest accrued thereon, if any, shall be reimbursed to Purchaser and upon such reimbursement this Agreement shall terminate and shall be of no further effect except for those provisions concerning rights and duties after a failure to close without fault of either party; (ii) commence all curative actions; or (iii) give written notice of refusal to take curative action. If Seller gives written notice of refusal to take curative action, or if Seller commences curative action but fails to cure any objection prior to the Closing, then Purchaser, at Purchaser's option, may elect to: (i) waive the objection and proceed to Closing, in which event all environmental matters shall be deemed approved and accepted by Purchaser and Seller shall have no further obligation to undertake curative action; or (ii) terminate this Agreement by written notice to Seller and Escrow Agent, in which event the earnest money deposit and all interest accrued thereon shall be reimbursed to Purchaser and upon such reimbursement this Agreement shall terminate and shall be of no further effect except for those provisions concerning rights and duties after a failure to close without fault of either party. e) Purchase is subject to adequate traffic access to and from the site. f) Purchase is subject to the Seller providing all necessary utilities to the site ready for hook-up, and Seller providing properly compacted site rough graded to within 4" of Purchaser's expected finished grade. g) Purchase is subject to acquisition of all required approvals from state, county, city and neighborhood authorities as well as Purchaser's Board of Directors to allow the development of a fuel and food facility. h) Purchase is subject to a mutual agreement by the Seller and Purchaser in regards to a sign easement at the Northwest corner of Tatum and Dynamite Boulevards. In addition to Seller's other indemnification obligations set forth in this Agreement, Seller shall indemnify Purchaser and hold Purchaser harmless from and against all liabilities, obligations, losses, damages, penalties, claims, environmental response and cleanup costs, finds, actions, suits, costs, taxes, charges, expenses and disbursements, including legal fees and expenses incident thereto, imposed on, incurred by, or reserved against Purchaser in any way relating to or arising out of the existence or presence of any Contaminant on, under, into or from the Property at any time prior to Closing, including any claims or damages in any related to or arising out of the removal, treatment, storage, disposition, mitigation, cleanup or remedying of the Contaminants of the Property and any claims or damages arising from Seller's use of the Property in violation of any applicable environmental law, rule, regulations or ordinance. 5. CLOSING. Closing of the transaction shall occur within five (5) days after the final date of the Inspection Period. Closing will occur in the offices of the title company issuing the title commitment. The title company shall act, and is hereby designated by the parties to act, as escrow agent for the Closing. At Closing, the following actions shall occur, each action being considered a condition precedent to the others and all being considered as taking place simultaneously: a) Seller shall execute, acknowledge and deliver to Escrow Agent a general warranty deed, conveying the Property to Purchaser as required under Paragraph 3(b). b) Purchaser shall deliver to Escrow Agent cash, certified funds or a cashier's check for the balance of the Purchase Price, after making such adjustments as are shown on the closing statements prepared by the Escrow Agent. c) The Escrow Agent shall prepare and deliver closing statements showing all prorations and other charges and credits to each party, such statements to be approved by the respective parties. 6. POST CLOSING. As soon as is practicable after Closing, the Escrow Agent shall make such searches of the public records as may be necessary to enable it to issue the title insurance policy required to be provided pursuant to Paragraph 3(c), whereupon, if such searches are satisfactory, then the transaction shall be deemed to have closed and the Escrow agent shall (i) file the deed for record, (ii) deliver the recorded deed and title insurance policy to Purchaser, and (iii) deliver the note to Seller, and (iv) shall disburse the funds as shown on the closing statements. If such searches are not satisfactory, then the transaction shall be deemed not to have closed, and the Escrow Agent shall hold the unrecorded documents and funds thereafter as agent for the parties. The documents and funds shall be delivered pursuant to an agreement of the parties or an order of court specifying the disposition thereof. 7. CLOSING COSTS. Seller shall pay the fees for recording any instrument necessary to establish the marketability of Seller's title to the Property and for recording the deed. Purchaser shall pay for all other recording fees. Seller and Purchaser shall each pay one-half (1/2) of any fee charged by the title insurance company for closing the transaction. 8. PRORATION. Ad valorem taxes and all sewer, garbage, water and other assessments applicable to the Property shall be prorated as of the date of Closing, and, unless the actual amounts for the year in which Closing occurs are known, shall be based upon the latest known rates applied to the latest known assessed valuation of the Property. Seller shall provide Purchaser and Escrow Agent with the latest rates and assessed valuations of the Property provided to Seller by the appropriate governmental authorities. The prorations so determined shall be final and not subject to recomputation after Closing. 9. RISK OF LOSS, POSSESSION AND DELIVERY. Possession of the Property shall be transferred to Purchaser at Closing, and the risk of loss shall shift to Purchaser at that time. Seller shall deliver the Property to Purchaser graded as previously described with all necessary utilities available for hook-up. Seller shall be obligated to carry liability and extended coverage insurance on the Property prior to Closing. 10. DEFAULT AND REMEDIES. If Seller defaults in the performance of this Agreement, the Purchaser shall have the right to specific performance, or to rescind this Agreement and recover or retain the earnest money deposit, as the case may be, and any other remedy provided by law. If Purchaser defaults in the performance of this Agreement, Seller's sole remedy shall be the retention of the earnest money deposit. 11. REAL ESTATE COMMISSIONS. Seller and Purchaser hereby covenant that all real estate commission as a result of this transaction will be paid by Seller. In the event of a breach of this covenant, the party breaching this covenant shall indemnify and hold the other party harmless from any claims of entitlement to such a fee or commission. This covenant shall survive Closing or the cancellation of this Agreement. 12. NOTICES. All notices or any other communications required or permitted hereunder shall be in writing, and shall be deemed to have been duly given when personally delivered or duly deposited in the United States certified mail, return receipt requested, properly stamped and addressed, to the parties at their addresses listed below: Seller: Pinnacle Sonoran Desert Properties, L.L.C. Attention: Harv Acridge 23733 North Scottsdale Road Scottsdale, Arizona 85255 Purchaser: Giant Industries Arizona, Inc. Attention: John Hosmar, Director, Retail Development 23733 North Scottsdale Road Scottsdale, Arizona 85255 1. MISCELLANEOUS. a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between Seller and Purchaser respecting the sale and purchase of the Property, and will supersede and replace any and all prior and contemporaneous written and oral agreements, promises, representations, or conditions with respect thereto. b) APPLICABLE LAW. This Agreement shall be construed and enforced in accordance with the laws of the State of Arizona. c) BINDING EFFECT. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their heirs, successors, assigns and personal representatives. d) MODIFICATION. This Agreement may be modified only by a writing duly executed by the parties. e) ASSIGNMENTS. This Agreement may not be assigned or delegated by either party without the consent of the other party. Any purported assignment without such consent shall be void and shall entitle the other party to the remedies allowed herein for a default in the performance of this Agreement. f) FURTHER DOCUMENTATION. The parties shall, in good faith, execute such additional documents as may be necessary or appropriate to fully carry out the intent and purpose of this Agreement. g) TAX DOCUMENTATION. Following Closing, Seller shall file a complete Form 1099-B, Proceeds from Real Estate, Broker, and Barter Exchange Transactions, with the appropriate office of the Internal Revenue Service, and shall deliver a copy to Purchaser. This obligation shall survive Closing. h) FACSIMILE AGREEMENT. Signed facsimiles of this Agreement shall be binding. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. SELLER - PINNACLE SONORAN DESERT PROPERTIES, L.L.C. By: /s/ Harvey Acridge 10-5-97 -------------------------- ------- Date PURCHASER - GIANT INDUSTRIES ARIZONA, INC. By: /s/ John C. Hosmar 10-1-97 -------------------------- ------- John C. Hosmar, Director, Date Retail Development EXHIBIT A September 25, 1997 Legal description for Tatum Ranch - Parcel 46 Gas Station Site A portion of the Southeast quarter of Section 30, Township 5 North, Range 4 East of the Gila and Salt River Base and Meridian, Maricopa County, Arizona. EX-10.25 9 EXHIBIT 10.25 AMENDMENT TO REAL ESTATE PURCHASE AGREEMENT Subject Property: A portion of that certain parcel of real estate known as Assessors Parcel #211-40-006E and a portion of ####-##-####; located on the Northwest corner of Tatum & Dynamite Boulevards, Phoenix, Arizona. This amendment hereby declares that the "Purchase Price" for the Property shall be Eight Hundred Ninety Thousand and 00/100 Dollars ($890,000.00). The undersigned hereby agree to said amendment and acknowledge that this amendment is to be made part of the original Real Estate Purchase Agreement dated the 5th day of October, 1997 between Pinnacle Sonoran Desert Properties, L.L.C. ("Seller") and Giant Industries Arizona, Inc. ("Purchaser"). SELLER - PINNACLE SONORAN DESERT PROPERTIES, L.L.C. By: /s/ Harvey Acridge 10-16-97 ------------------------- -------- Date PURCHASER - GIANT INDUSTRIES ARIZONA, INC. By: /s/ John C. Hosmar 10-16-97 ------------------------- -------- John C. Hosmar, Director, Date Retail Development EX-10.26 10 EXHIBIT 10.26 SECOND AMENDMENT TO REAL ESTATE PURCHASE AGREEMENT This Second Amendment to the Real Estate Purchase Agreement, dated the 21st day of April, 1998 shall serve as an Addendum to the Original Real Estate Purchase Agreement dated the 5th day of October, 1997, as modified by the first Amendment to Real Estate Purchase Agreement dated the 16th day of October, 1997, between Pinnacle Sonoran Desert Properties, L.L.C. ("Seller") and Giant Industries Arizona, Inc. ("Purchaser"), covering the following described property: A portion of that certain parcel of real estate known as Assessors Parcel #211-40-006E and a portion of ####-##-####; located on the Northwest corner of Tatum & Dynamite Boulevards, Phoenix, Arizona. The Seller and Purchase hereby agree to the following: 1. Right of First Refusal - See Exhibit B 2. Landscape and Signage Easement - See Exhibit C 3. Cross access easement/agreement - See Exhibit C 4. Closing date extension date to April 30, 1998. The undersigned hereby agree to the above amendments and acknowledge that this amendment is to be made part of the original Real Estate Purchase Agreement as noted above. SELLER - PINNACLE SONORAN DESERT PROPERTIES, L.L.C. By: /s/ Harvey Acridge 4-20-98 -------------------- ------- Date PURCHASER - GIANT INDUSTRIES ARIZONA, INC. By: /s/ John C. Hosmar 4-21-98 -------------------- ------- John C. Hosmar, Director, Date Retail Development EXHIBIT B RIGHT OF REPURCHASE THIS RIGHT OF REPURCHASE ("Agreement") is entered into as of the _____ day of April, 1998, by and between Giant Industries Arizona, Inc., an Arizona corporation ("Giant"), and Pinnacle Sonoran Desert Properties, L.L.C., an Arizona limited liability company ("Pinnacle"). RECITALS A. Concurrently with the recordation of this Agreement, Giant acquired certain real property from Pinnacle, located in Maricopa County, Arizona and more particularly described on Exhibit "A" attached hereto and incorporated herein by this reference ("Property"), which is adjacent to real property owned by Pinnacle. B. As a condition to Pinnacle's willingness to convey the Property to Giant, Pinnacle desires a right to repurchase the Property under certain circumstances, and Giant is willing to grant the right to repurchase upon and subject to the terms and conditions set forth in this Agreement. AGREEMENT NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows: 1. Grant of Right to Repurchase. During the Repurchase Period (as hereinafter defined), Giant hereby grants to Pinnacle a right to repurchase the Property ("Right to Repurchase") upon the terms and subject to the conditions of this Agreement, if any of the following events occur: (i) Giant enters into a binding agreement to sell the Property to an unrelated third party purchaser; (ii) Giant enters into a binding agreement to sell all or substantially all of the assets of Giant (including the Property) and James E. Acridge and/or his heirs and legatees (collectively, "Acridge") will not own, directly or indirectly, more than fifteen percent (15%) of the beneficial interest of the successor owner of the Property; (iii) the merger or consolidation of Giant with and into another entity where Giant is not the surviving entity and James E. Acridge will not be employed as an executive officer (or similar capacity) of the new entity; or (iii) Acridge's beneficial ownership interest in Giant is less than fifteen percent (15%) and James E. Acridge will not be employed as an executive officer of Giant. Upon execution of this Agreement, Giant and Pinnacle shall execute and record a Memorandum of the Right to Repurchase substantially in the form attached hereto as Exhibit "B" and incorporated herein by this reference. 2. Repurchase Notice. If at any time during the Repurchase Period, any of the events in Section 1 occur, Giant shall immediately provide written notice to Pinnacle of the occurrence of such event, together with a statement describing the general terms and conditions of such event ("Repurchase Notice"). 3. Term of Right to Repurchase. If not earlier terminated, the Right of Repurchase shall terminate on May 1, 2028 ("Outside Date"). The period from the date of execution of this Agreement until the Outside Date is referred to herein as the "Repurchase Period". 4. Exercise of Right to Repurchase. Pinnacle shall have 15 days from the date of a Repurchase Notice to deliver written notice to Giant electing to purchase the Property ("Election Notice") along with an earnest money deposit of $10,000.00. If Pinnacle does not deliver the Election Notice and the earnest money deposit within the 15 day period, the Right to Repurchase shall immediately terminate in accordance with Section 5. If Pinnacle delivers the Election Notice and the earnest money deposit within the 15 day period, Giant shall sell the Property to Pinnacle on the following terms and conditions: 4.1 Purchase Price. The purchase price for the Property shall be at the then real estate appraised value by a mutually agreed upon appraisal and shall be paid by Pinnacle at closing by cash, certified check, wire transfer or other readily available funds. In addition, Pinnacle shall assume any indebtedness encumbering the Property. 4.2 Assumption of Obligations. Pinnacle shall assume and agree to be bound by any and all obligations of Giant applicable to the Property, including, without limitation, tenant leases, service contracts and construction contracts. 4.3 Closing. The closing of the repurchase shall occur on or before 90 days after the date of the Election Notice. 4.4 Conveyance. At the closing, Giant shall convey the Property to Pinnacle by Special Warranty Deed , subject to all matters of record as of the date of closing 4.5 Costs. Pinnacle shall pay all escrow and closing costs. Real property taxes relating to the Property for the current tax year shall be prorated between Giant and Pinnacle as of the closing date, based on the latest available estimates of the amount of such taxes. 4.6 No Other Assets. The Right to Repurchase shall include only the Property, the buildings constructed on the Property, and any fixtures attached to buildings on the Property. The Right to Repurchase shall not apply to, and Giant shall have no obligation to sell or otherwise transfer to Pinnacle, any other property or assets of Giant including, but not limited to, any personal property located on or used in connection with the Property or any agreements or permits relating to the Property. 5. Termination of Right to Repurchase. The Right to Repurchase shall terminate and be of no further force and effect upon the earliest of the following to occur: (i) failure by Pinnacle to deliver an Election Notice and the earnest money deposit within the 15 day period specified above; (ii) delivery of an Election Notice and the earnest money deposit within the 15 day period specified in Section 3 above, but, thereafter, a failure by Pinnacle to close the purchase of the Property as provided above; (iii) expiration of the Repurchase Period; (iv) an attempt by Pinnacle to improperly assign this Agreement. Upon termination of the Right to Repurchase, Giant and Pinnacle shall execute and record a Termination of Right to Repurchase, substantially in the form of Exhibit "C" attached hereto and incorporated herein by this reference. 6. Subordinate. Pinnacle's Right to Repurchase is subordinate to any acquisition or construction financing obtained by Giant in connection with the Property and any easements, dedications, covenants, conditions, restrictions or other encumbrances subsequently recorded in the real estate records of the county where the Property is located. This subordination provision is intended to be self- executing and effective without further agreement or documentation from Pinnacle; provided, however, Pinnacle shall execute any document reasonably requested by Giant or any lender of Giant or encumbrancer of the Property to confirm or establish this subordination. 7. Assignment. Pinnacle may not assign its interest in this Agreement, without the prior written consent of Giant, which may be granted or withheld in Giant's sole and absolute discretion. 8. Notices. All notices, requests and other communications hereunder shall be in writing and shall be given by personal delivery; overnight courier; or deposit in the United States mail, first class, registered or certified, return receipt requested, postage prepaid, correctly addressed to the intended recipient as follows: If to Giant: Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255 Attention: Carlos A. Guerra, Esq. With a copy to: Fennemore Craig 3003 North Central Avenue, Suite 2600 Phoenix, AZ 85012-2913 Attention: Jay S. Kramer, Esq. If to Pinnacle: Pinnacle Sonoran Properties 23733 N. Scottsdale Road Scottsdale, Arizona 85255 Attention: Harv Acridge All notices shall be deemed given upon the earliest of (i) if hand- delivered, upon actual receipt against signed acknowledgment of receipt or affidavit of delivery; (ii) if mailed as provided above, on the fourth (4th) day after the day of mailing; (iii) if sent by overnight courier, on the next business day after the date of deposit with the courier. Any party may change its address for the receipt of notices at any time by giving written notice thereof to the other parties in accordance with the terms of this Section. 9. Entire Agreement. This Agreement contains the complete understanding and agreement of the parties hereto with respect to all matters referred to herein, and all prior representations, negotiations and understandings are superseded by this Agreement. Neither party shall be liable or bound to the other in any manner by any agreement, warranty, representation or guarantee, except as specifically set forth herein or in any instrument executed pursuant hereto. 10. Attorneys' Fees. In the event either party shall employ legal counsel or bring an action at law or other proceedings against the other party to enforce any of the terms, covenants or conditions hereof, the non-prevailing party shall pay the prevailing party's reasonable attorneys' fees and court costs, as determined by the judge or arbitrator sitting without a jury. 11. Severability. If any paragraph, section, sentence, clause or phrase of this Agreement is or becomes illegal, null or void for any reason or is held by any court of competent jurisdiction to be illegal, null or void, the remaining paragraphs, sections, sentences, clauses or phrases of this Agreement shall continue in full force and effect and shall not be affected thereby. 12. Time of Essence. Time is of the essence of this Agreement and each and every provision hereof. 13. Binding Effect. This Agreement and all of the terms and provisions hereof shall inure to the benefit of and be binding upon the heirs, administrators, personal representatives, successors and permitted assigns of the parties hereto. 14. Time for Performance. If the date provided herein within which any requirement must be met falls on a Saturday or Sunday or on any legal holiday, then the date for compliance shall be extended to the next day when none of the above is applicable. 15. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Arizona, without reference to its conflicts of law principles. 16. Non-Waiver. No delay or failure by either party to exercise any right under this Agreement and no partial or single exercise of that right shall constitute a waiver of that or any other right, unless otherwise expressly provided herein. 17. Headings. Headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions. 18. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, with the same force and effect as if all signatures were appended to one instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth above. "GIANT" GIANT INDUSTRIES OF ARIZONA, INC., an Arizona corporation By: /s/ John C. Hosmar -------------------------------- Name: John C. Hosmar Title: Director of Retail Development "PINNACLE" PINNACLE SONORAN DESERT PROPERTIES, L.L.C., an Arizona limited liability company By: /s/ Harvey Acridge --------------------------------- Name: Harvey Acridge Title: General Manager EXHIBIT "A" Description of Giant Property Legal Description for Tatum Ranch - Parcel 46 Gas Station Site That part of the Southeast Quarter of Section 30, Township 5 North, Range 4 East, of the Gila and Salt River Meridian, Maricopa County, Arizona. EXHIBIT "B" Memorandum of Option EXHIBIT "C" Termination of Right to Repurchase EXHIBIT C WHEN RECORDED, RETURN TO: Jay S. Kramer Fennemore Craig 3003 North Central Avenue Suite 2600 Phoenix, Arizona 85012-2913. EASEMENT AGREEMENT THIS EASEMENT AGREEMENT ("Agreement") is made as of the 20 day of March, 1998, by and between Giant Industries Arizona, Inc., an Arizona corporation ("Giant"), and Pinnacle Sonoran Desert Properties, L.L.C., an Arizona limited liability company ("Pinnacle"). RECITALS A. Pinnacle owns certain real property located in Maricopa County, Arizona and more particularly described on Exhibit "A" attached hereto and incorporated herein by this reference ("Pinnacle Property"). Concurrently with the recordation of this Agreement, Giant acquired certain real property from Pinnacle, located in Maricopa County, Arizona and more particularly described on Exhibit "B" attached hereto and incorporated herein by this reference ("Giant Property"). The Pinnacle Property and the Giant Property are adjacent. B. For the benefit of the Giant Property, Giant desires an easement for ingress, egress and access on, over and across the portions of the Pinnacle Property depicted on Exhibit "C" attached hereto and incorporated herein by this reference ("Giant Easement Area"). Pinnacle is willing to grant the desired easement on, over, and across the Giant Easement Area, subject to the terms and conditions of this Agreement. C. Pinnacle desires the following easements: (i) an easement for ingress, egress and access on, over and across portions of the Giant Property depicted on Exhibit "D" attached hereto and incorporated herein by this reference ("Pinnacle Access Easement Area"); (ii) a landscaping easement on, over and under portions of the Giant Property depicted on Exhibit "E" attached hereto and incorporated herein by this reference ("Pinnacle Landscape Easement Area"); and (iii) a signage easement on and over the portion of the Giant Property depicted on Exhibit "F" attached hereto and incorporated herein by this reference ("Pinnacle Signage Easement Area"), all subject to the terms and conditions of this Agreement. The Pinnacle Access Easement Area, the Pinnacle Landscape Easement Area, and the Pinnacle Signage Easement Area are sometimes collectively referred to in this Agreement as the "Pinnacle Easement Areas". Giant is willing to grant the desired easements on, over and across the Pinnacle Easement Areas, subject to the terms and conditions of this Agreement. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Giant and Pinnacle, intending to be legally bound, hereby agree as follows: 1. Giant Access Easement. Subject to the terms and conditions of this Agreement, Pinnacle hereby grants, bargains, and conveys to Giant, for the benefit of the Giant Property, a perpetual, non-exclusive easement permitting Giant, its employees, agents, contractors, guests and invitees pedestrian and vehicular ingress, egress, and access on, over, and across the Giant Easement Area ("Giant Easement"). Pinnacle shall maintain the Giant Easement Area in accordance with Section 5. 2. Pinnacle Access Easement. Subject to the terms and conditions of this Agreement, Giant hereby grants, bargains, and conveys to Pinnacle, for the benefit of the Pinnacle Property, a perpetual, non-exclusive easement permitting Pinnacle, its employees, agents, contractors, guests and invitees pedestrian and vehicular ingress, egress and access on, over and across the Pinnacle Access Easement Area ("Pinnacle Access Easement"). Giant, at its sole cost and expense, shall maintain the Pinnacle Access Easement Area in accordance with Section 5. 3. Landscape Easement. Subject to the terms and conditions of this Agreement, Giant hereby grants, bargains, and conveys to Pinnacle, a perpetual, non-exclusive easement permitting Pinnacle, its employees, contractors, and agents, to plant, install, maintain, or replace landscaping on, over, across, and under the Pinnacle Landscape Easement Area ("Pinnacle Landscape Easement"). Pinnacle, at its sole cost and expense, shall maintain the Pinnacle Landscape Easement Area in accordance with Section 5. 4. Signage Easement. Subject to the terms and conditions of this Agreement, Giant hereby grants, bargains, and conveys to Pinnacle, a perpetual, non-exclusive easement permitting Pinnacle, its employees, contractors, and agents, to maintain, replace, repair, reconstruct or reconfigure a monument size and design subject to Giant's approval that will not be unreasonably withheld, sign identifying the project (and not individual tenants or property owners), on the Pinnacle Signage Easement Area ("Pinnacle Signage Easement"). Pinnacle may not erect or maintain any sign advertising the sale of portions of the Pinnacle Property or any other sign of a temporary nature on the Pinnacle Signage Area. Pinnacle, at its sole cost and expense, shall maintain the Pinnacle Signage Easement Area in accordance with Section 5. 5. Condition of Easements. 5.1 Standard of Maintenance. The Giant Easement Area and the Pinnacle Easement Areas shall be maintained in a clean and attractive manner, free of litter and debris, in substantial conformance with other first class commercial developments in Maricopa County, Arizona. Maintenance of the Giant Easement Area and the Pinnacle Access Easement Area shall include keeping paved or otherwise artificially surfaced areas in good repair, striped as necessary, and reasonably free of potholes. Maintenance of the Pinnacle Landscape Easement Area shall include installing, planting, weeding, pruning, fertilizing, replacing shrubs and other landscaping as necessary, and repairing automatic sprinkler systems as necessary. Maintenance of the Pinnacle Signage Easement Area shall include installing, cleaning, maintaining, repairing and replacing signage located within the Pinnacle Signage Easement Area. 5.2 Pinnacle's Right to Maintain. If Giant fails to maintain the Pinnacle Access Easement Area in accordance with Section 5.1, Pinnacle may provide Giant with written notice of this failure. If, after 10 days written notice from Pinnacle to Giant, Giant fails to maintain or repair any portion of the Pinnacle Access Easement Area and/or fails to diligently prosecute such work to completion, Pinnacle shall have the right, but not the obligation, to maintain and repair the Pinnacle Access Easement Area. Pinnacle may then submit a statement for, and reasonable documentation of, such expenses to Giant, requesting reimbursement for any expenses incurred in performing the maintenance or repair. Giant hereby authorizes Pinnacle and its agents, employees and contractors to enter upon the Pinnacle Access Easement Area to maintain and to make repairs pursuant to this Subsection 5.2. 5.3 Giant's Right to Maintain. If Pinnacle fails to maintain the Giant Easement Area, the Pinnacle Landscape Easement Area or the Pinnacle Signage Easement Area in accordance with Section 5.1, Giant may provide Pinnacle with written notice of this failure. If, after 10 days written notice from Giant to Pinnacle, Pinnacle fails to maintain or repair any portion of these areas and/or fails to diligently prosecute such work to completion, Giant shall have the right, but not the obligation, to make the necessary maintenance or repair. Giant may then submit a statement for, and reasonable documentation of, such expenses to Pinnacle, requesting reimbursement for any expenses incurred in performing the maintenance or repair. Pinnacle hereby authorize and enter upon the Pinnacle Property to maintain and to make repairs pursuant to this Subsection 5.3. 5.4 No Obstruction. Pinnacle covenants that it shall not cause or permit the Giant Easement Area to be obstructed so as to interfere with Giant's use. Giant covenants that it shall not cause or permit the Pinnacle Access Easement Area to be obstructed so as to interfere with Pinnacle's use. Without limiting the foregoing, Pinnacle and Giant agree that no fence, wall, or other barrier that would prevent, impair or obstruct passage of pedestrian or vehicular traffic shall be erected on the Giant Easement Area or the Pinnacle Access Easement Area. 6. Covenants Running with the Land. The Giant Easement and the Pinnacle Access Easement shall be easements, restrictions, and covenants running with the land and shall inure to the benefit of, and be binding upon, the parties hereto and their respective heirs, successors and assigns. The Pinnacle Landscape Easement and the Pinnacle Signage Easement are personal to Pinnacle and shall not be covenants running with the land, but may be assigned as follows: (i) to a non-profit owners' association formed to manage and operate the project, without the consent of Giant; or (ii) to another entity or person. 7. Indemnification and Insurance. 7.1 Indemnification. Each party to this Agreement shall indemnify, defend and hold the other party harmless, for, from, and against any and all claims, demands, causes of action, losses, damages, liabilities, obligations, costs, and expenses (including, but not limited to, reasonable attorneys' fees, mechanics' and materialmen's liens, and disbursements), arising out of any personal injury or property damage alleged to have been caused by the other party or the other party's agents, licensees, invitees, contractors or employees and in any way related to this Agreement. The indemnity obligations set forth in this Subsection 7.1 shall survive the termination of the right to use the Giant Easement Area and/or the Pinnacle Easement Areas pursuant to this Agreement. 7.2 Insurance. Each party to this Agreement shall maintain a policy of commercial general liability insurance, with a contractual liability endorsement, covering the indemnification obligations set forth in this Agreement, in an amount prudent for owners of similar properties in Maricopa County, Arizona, but in no event less than $1,000,000, and naming the other party as an additional insured. A policy complying with these requirements shall remain in effect throughout the term of this Agreement. Any such insurance policy shall require the insurer to provide both parties to this Agreement with at least 30 days prior written notice of any cancellation of the insurance policy. Certificates of insurance shall be provided by each party upon request by the other party. 8. Entire Agreement. This Agreement contains the complete understanding and agreement of the parties hereto with respect to all matters referred to herein, and all prior representations, negotiations and understandings are superseded by this Agreement. Neither party shall be liable or bound to the other in any manner by any agreement, warranty, representation or guarantee, except as specifically set forth herein or in any instrument executed pursuant hereto. 9. Severability. If any paragraph, section, sentence, clause or phrase of this Agreement is or becomes illegal, null or void for any reason or is held by any court of competent jurisdiction to be illegal, null or void, the remaining paragraphs, sections, sentences, clauses or phrases of this Agreement shall continue in full force and effect and shall not be affected thereby. 10. Notices. All notices, requests and other communications hereunder shall be in writing and shall be given by personal delivery; overnight courier; or deposit in the United States mail, first class, registered or certified, return receipt requested, postage prepaid, correctly addressed to the intended recipient as follows: If to Giant: Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255 Attention: Carlos A. Guerra, Esq. With a copy to: Fennemore Craig 3003 North Central Avenue, Suite 2600 Phoenix, AZ 85012-2913 Attention: Jay S. Kramer, Esq. If to Pinnacle: Harvey Acridge 23733 North Scottsdale Road Scottsdale, Arizona 85255 All notices shall be deemed given upon the earliest of (i) if hand- delivered, upon actual receipt against signed acknowledgment of receipt or affidavit of delivery; (ii) if mailed as provided above, on the fourth (4th) day after the day of mailing; (iii) if sent by overnight courier, on the next business day after the date of deposit with the courier. Any party may change its address for the receipt of notices at any time by giving written notice thereof to the other parties in accordance with the terms of this Section. 11. Non-Waiver. No delay or failure by either party to exercise any right under this Agreement and no partial or single exercise of that right shall constitute a waiver of that or any other right, unless otherwise expressly provided herein. 12. Interpretation. This Agreement shall be construed as a whole and in accordance with its fair meaning, without regard to any presumption or rule of construction causing this Agreement or any part of it to be construed against the party causing the Agreement to be written. 13. Headings. Headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions. 14. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Arizona, without reference to its conflicts of law principles. 15. Attorneys' Fees. In the event either party shall employ legal counsel or bring an action at law or other proceedings against the other party to enforce any of the terms, covenants or conditions hereof, the non-prevailing party shall pay the prevailing party's reasonable attorneys' fees and court costs, as determined by the judge or arbitrator sitting without a jury. 16. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, with the same force and effect as if all signatures were appended to one instrument. "GIANT" GIANT INDUSTRIES OF ARIZONA, INC., an Arizona corporation By: /s/ John C. Hosmar ----------------------------- Name: John C. Hosmar Title: Director Retail Development "PINNACLE" PINNACLE SONORAN DESERT PROPERTIES, L.L.C., an Arizona limited liability company By: /s/ Harvey Acridge Name: Title: General Manager STATE OF ARIZONA ) ) ss County of Maricopa ) The foregoing instrument was acknowledged before me this 20 day of March 1998, by John C. Hosmar, the Director of R.E./Facilities Development of Giant Industries Arizona, Inc., an Arizona corporation, on behalf of the corporation. /s/ Penelope M. Lewis ---------------------------- Notary Public My Commission Expires: 10/26/2001 STATE OF ARIZONA ) )ss County of Maricopa ) The foregoing instrument was acknowledged before me this 20 day of March, 1998, by Harvey Acridge, the General Manager of Sonoran Desert Properties, L.L.C., an Arizona corporation, on behalf of the corporation. /s/ Pamela J. Wisness ---------------------------- Notary Public My Commission Expires: July 20, 2001 EXHIBIT "A" Description of Pinnacle Property That part of the Southeast quarter of Section 30, Township 5 North, Range 4 East of the Gila and Salt River Base and Meridian, Maricopa County, Arizona. EXHIBIT "B" Description of Giant Property Legal Description for Tatum Ranch - Parcel 46 Gas Station Site That prat of the Southeast Quarter of Section 30, Township 5 North, Range 4 East, of the Gila and Salt River Meridian, Maricopa county, Arizona. EXHIBIT "C" Depiction of Giant Easement Area EXHIBIT "D" Depiction of Pinnacle Access Easement Area EXHIBIT "E" Depiction of Pinnacle Landscape Easement Area Legal Description for Tatum Ranch - Parcel 46 Landscape and Signage Easement That part of the Southeast Quarter of Section 30, Township 5 North, Range 4 East, of the Gila and Salt River Meridian, Maricopa County, Arizona. EXHIBIT "F" Depiction of Pinnacle Signage Easement Area EX-10.29 11 EXHIBIT 10.29 RETAIL LEASE THIS RETAIL LEASE (the Lease ) is made this 1st day of July, 1998 by and between PINNACLE CITADEL LLC., an Arizona limited liability company ("Landlord"), and GIANT INDUSTRIES ARIZONA, INC., an Arizona corporation ("Tenant"). Landlord hereby leases to Tenant and Tenant leases from Landlord for the term and upon the conditions and agreements set forth in this Lease a portion of the real property described on Exhibit A attached hereto, consisting of approximately 5,590 square feet of space consisting of the entire 2nd floor space along with the 1st floor front office, 1st floor closet, stair landing and stairwell together with any or all additional space used in connection with Tenant's business (the "Premises") in The Citadel (the "Center") along with six (6) covered parking spaces numbered 1 through 6, each located in the area cross- hatched on Exhibit B. The address of the premises is 8700 East Pinnacle Peak Road, Scottsdale, Arizona 85255. 1. Term and Possession (a) The term (the Term ) of this Lease shall commence on the earlier of (i) the date possession is tendered by written notice to Tenant or (ii) the date on which the Tenant shall first use or occupy any part of the premises or (iii) the date a temporary certificate of occupancy for the Premises is issued by the City of Scottsdale (the "Commencement Date") and shall expire on July 31, 2003. The Tenant's obligation to pay Rent (defined in Articles 2(d) below) shall begin on the Commencement Date (the Rent Start Date"). The anticipated Commencement Date is July 1, 1998. Upon request of either party after the term has commenced, Landlord and Tenant shall jointly execute a memorandum confirming the Commencement Date. (b) Upon the expiration or earlier termination of this Lease or upon the termination of Tenant's right of possession, whether by lapse of time or otherwise, Tenant shall at once surrender possession of the Premises to Landlord and remove all of Tenant's property as provided in Article 10. (c) Tenant shall have no right to hold over after the expiration of this Lease without Landlord's prior written consent. If, with Landlord's prior written consent, Tenant holds over after the expiration of this Lease, Tenant shall become a tenant from month to month only, upon all of the terms of this Lease except that Article 1(a) shall not apply and the amount of the Minimum Annual Rent (defined at Article 2(a) below) shall be increased to an amount equal to 125% of the Minimum Annual Rent in effect immediately prior to the expiration. (d) Provided Tenant has not been and/or Landlord has not deemed Tenant in default under this Lease, Tenant shall have the option, exercisable by written notice given to the Landlord at least 180 days prior to the expiration of the then current Term, to extend this Lease by one (1) successive period of five (5) years. All the terms and conditions of this Lease, including, without limitation, Article 2(b), shall remain in full force and effect during the extended Term. As used herein, the word Term shall hereafter mean the Term as it may have been extended pursuant to this Article 1(d).(e) 2. Rent (a) Minimum Rent. Tenant shall pay to Landlord during the Term at the office of Landlord, 23733 North Scottsdale Road, Scottsdale, AZ 85255, or at such other place as Landlord may designate, without notice, demand, deduction or set-off, Minimum Annual Rent in the amount of $111,800.00 per annum, subject to adjustment as provided in Article 2(b), in equal monthly installments in advance on the first day of each calendar month with applicable transaction privilege or other similar sales tax. In addition, Tenant shall pay the amount of $40.00 per month for each of the six (6) reserved covered parking spaces. In the event the Rent Start Date does not occur on the first day of a calendar month, Tenant shall pay Rent on the Rent Start Date for the fractional month on a pro rata 30-day month basis. (b) Adjustments. The Minimum Annual Rent shall be adjusted upwards as of each one (1) year anniversary of the Commencement Date (the Adjustment Date ) as follows: (i) Landlord shall ascertain the Consumer Price Index for All Urban Consumers - U.S. Cities Average - All Items (the "CPI") published by the United States Department of Labor, Bureau of Labor Statistics (1982-84 = 100) for the third full calendar month prior to the Commencement Date for the first year adjustment and the third full calendar month prior to the previous Adjustment Date for all following adjustments (the "Base Index") and for the third full calendar month prior to the Adjustment Date (the "Comparison Index"). (ii) The Minimum Annual Rent commencing as of each Adjustment Date shall be equal to the Minimum Annual Rent in effect immediately preceding each Adjustment Date (the "Effective Minimum Annual Rent") times a fraction, the numerator of which is the Comparison Index associated with that Adjustment Date and the denominator of which is the Base Index, as illustrated in the following formula for the first (1st) Adjustment Date: Adjusted Minimum = Effective Minimum x Comparison Index Annual Rent Annual Rent Base Index (iii) Notwithstanding the foregoing, in no event shall the Minimum Annual Rent be adjusted downwards. When the Minimum Annual Rent payable as of each Adjustment Date is determined, Landlord shall promptly give Tenant written notice of such adjusted Minimum Annual Rent and the manner in which it was computed. The Minimum Annual Rent as so adjusted from time to time shall be the "Minimum Annual Rent" for all purposes under this Lease. (iv) If at any time the CPI is no longer published or its manner of calculation is materially changed, Landlord may substitute a substitute index, reconciled to the month three (3) months prior to the Commencement Date, as reasonably reflects changes in the purchasing power of the dollar. (c) Nature of Payments. All sums required to be paid by Tenant under this Lease, whether or not so designated, including, without limitation, Minimum Annual Rent and Tenant s Pro Rata Share of Operating Costs are Rent and shall be paid without notice, demand, deduction, or set-off. (d) Late Charges and Interest. Any amount due from Tenant to Landlord which is not paid when due shall bear interest at three percent in excess of the prime rate as established from time to time by the Bank of America Arizona (or, if such bank ceases to exist, such other comparable financial institution as reasonably determined by Landlord) from the due date until paid, but the payment of such interest shall not excuse or cure any default by Tenant under this Lease. In addition, if any Rent or other payment is not paid within five days of its due date, then Tenant shall also pay to Landlord a late charge equal to ten percent of the amount of such payment. 3. Use (a) Tenant shall continuously and uninterruptedly operate, use and occupy the Premises as an office and for no other purpose whatsoever. (b) Tenant, its agents, employees and/or contractors shall, at Tenant s sole cost and expense, comply with the following: (i) Tenant shall not use or permit upon the Premises anything that would invalidate any policies of insurance now or hereafter carried on the Premises or that will increase the rate of insurance on the Premises or the Center; (ii) Tenant shall pay all additional insurance premiums which may be caused by the use which Tenant shall make of the Premises; (iii) Tenant shall not in any manner deface or injure the Premises or overload any floor of the Premises; (iv) Tenant shall not conduct or permit any auction sale to be held on or about the Premises, whether such auction be voluntary or involuntary, or any sidewalk sale without the prior written consent of Landlord; (v) Tenant shall not do anything or permit anything to be done upon the Premises in any way tending to create a nuisance, or tending to disturb any other lessee in the Center or tending to injure the reputation of the Center, including, without limitation, the playing of music audible outside the Premises and the affixing or maintaining upon the glass panes or supports of the show windows or on or within 24" of any window, doors or exterior walls of the Premises, any signs, advertising placards, names, insignia, trademarks, descriptive material or any other like item(s) without having first received the written approval of Landlord as to the size, type, color, location, copy, nature and display qualities of any such item. All signs shall comply with City of Scottsdale sign ordinances and The Citadel sign criteria. (vi) Tenant shall not display merchandise, advertise or solicit business on the sidewalks and other Common Areas (defined at Article 6(a) below) or place any handbills, bumper stickers or other advertising devices on any vehicle parked in the Common Areas of any other parking area of the Center; (vii) Tenant shall not use the Premises for lodging or sleeping purposes; (viii) Tenant shall not commit or suffer to be committed any waste upon the Premises; (ix) Tenant shall not violate any recorded restriction or covenant affecting the Center, nor use the Premises for any purpose which would be in violation of any exclusive rights or use granted to other tenants in the Center. Landlord shall not grant exclusive rights which would prohibit Tenant from exclusively using the Premises for the purposes stated in Article 4(a) above except for incidental uses ancillary to the main use of the other user. (c) Tenant shall provide and maintain sanitary receptacles within the Premises in which to place any refuse or trash. Tenant shall cause such refuse or trash to be removed from the Premises to receptacles designated by Landlord as often as required to maintain a sanitary condition, but in no event less often than daily. No grease or rubbish or hazardous waste shall be disposed of through any plumbing system. Tenant shall sweep as needed and keep free of refuse all sidewalks immediately adjacent to the Premises if so directed by Landlord. Tenant shall not allow the Premises to be infested with insects or vermin. (d) Tenant shall use its best efforts to complete all deliveries, loading, unloading and services to the Premises before 10:00 a.m. each day. Tenant shall attempt to prevent any delivery trucks or other vehicles servicing the Premises from parking or standing in front of, or at the rear of, the Premises from 10:00 a.m. to 9:00 p.m. of each day. Landlord reserves the right to further regulate the activities of Tenant in regard to deliveries to and servicing of the Premises, and Tenant agrees to abide by such further non-discriminatory regulations of Landlord. (e) Tenant, at Tenant's sole cost and expense, shall comply with all present and future federal, state and local laws, ordinances, orders, rules and regulations (collectively, "Laws"), and shall procure all permits, certificates, licenses and other authorizations required by applicable Law relating to Tenant's business or Tenant's use or occupancy of the Premises or Tenant's activities on the Premises. Tenant shall make all reports and filings required by applicable Laws. (f) Tenant's Warranty as to Hazardous or Toxic Materials. Tenant shall not cause or permit any Hazardous Substances to be brought upon, kept or used in or about the Premises by Tenant, its agents, employees, contractors or invitees, except such incidental quantities of commonly used office supplies (such as copier fluid and typewriter correction fluids) and ordinary cleaning solvents, provided that all of the foregoing are only in such quantities as are normal for the permitted use of the Premises, are used in the manner for which they are designed and are at all times used, kept, and stored and disposed of in a manner that strictly complies with all laws regulating any such Hazardous Substances. Any Hazardous Substances placed in or on the Premises by Tenant, its agents, employees, contractors or invitee shall remain the property of Tenant, notwithstanding anything in the Lease to the contrary. Tenant shall not install any underground storage tank on the Premises, as such term is defined in 42 U.S.C. Section 66991 and the regulations promulgated thereto, as amended from time to time and including all pipes and conduiting relating thereto. If Tenant breaches the covenants and obligations set forth herein, or if the presence of Hazardous Substances on, in or about the Premises caused by Tenant, its agents, employees, contractors or invitees, results in contamination of the Premises, then Tenant shall indemnify, defend and hold Landlord, its officers, employees, partners, agents and representatives, free and harmless from and against any and all claims, judgments, penalties, fines, costs, liabilities and damages, (including, without limitation, sums paid in settlement of claims, attorneys' fees and expenses (through all levels of proceedings), consultants or experts fees) and all costs incurred in enforcing this indemnity which arise during or after the Term as a result of the presence of such Hazardous Substances or any contamination, damage or injury therefrom. This indemnification by Tenant includes, without limitation, any and all costs incurred in connection with any investigation of site conditions or any clean up, remedial, removal or restoration work required by any federal, state or local governmental agency or political subdivision because of the presence of such Hazardous Substances caused by Tenant, its agents, employees, or contractors in, on or about the Premises. Tenant shall promptly take all actions, at its sole cost and expense, as are necessary to return the Premises to the condition existing prior to the introduction of any such Hazardous Substances, provided that Landlord's approval of such actions is first obtained. Furthermore, Tenant shall immediately notify Landlord of any inquiry, test, investigation or enforcement proceeding by or against Tenant or the Premises concerning the presence of any Hazardous Substances. Tenant acknowledges that Landlord, at Landlord's election, shall have the right to negotiate, defend, approve and appeal any action taken or order issued by any governmental authority with regard to any Hazardous Substances condition which Tenant is obligated hereunder to remediate. The provisions of this Article 4(f) shall survive the expiration or sooner termination of the Term or of Tenant's right to possession, whether by lapse of time or otherwise. The term "Hazardous Substance" includes, without limitation, any material or substance which is (i) defined or listed as a "hazardous waste", "extremely hazardous waste", "restrictive hazardous waste" or "hazardous substance" or considered a waste, condition of pollution or nuisance under any Environmental Law (as defined below); (ii) petroleum or a petroleum product or fraction thereof; (iii) asbestos; and/or (iv) substances known to cause cancer and/or reproductive toxicity. The term "Environmental Law" shall mean any federal, state or local law, statute, ordinance, rule, regulation, order, consent, decree, judgment or common-law doctrine, interpretation thereof, and provisions and conditions of permits, licenses, plans, approvals and other operating authorizations whether currently in force or hereafter enacted relating to health, industrial hygiene or the environmental conditions on, under or about the Premises or the Center, including, without limitation, (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Sections 9601 et seq.; (ii) the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Sections 6901 et seq.; (iii) the Federal Water Pollution Control Act, 33 U.S.C. Sections 1317 et seq., as such laws are amended and the regulations and administrative codes applicable thereto. It is the intent of the parties hereto to construe the terms "Hazardous Substance" and "Environmental Law" in their broadest sense. (g) Tenant shall keep its sign, exterior lighting and display windows lit during those hours that Landlord in its sole discretion may reasonably require. (h) Tenant shall not use the Premises for any purpose other than as set forth in Article 4(a) and shall notify Landlord in writing of, and obtain Landlord s prior written consent to, any intended change in the nature of its activities or business conducted on the Premises and permitted by Article 4(a). 4. Taxes (a) Tenant shall pay, prior to delinquency, all taxes assessed against or levied upon Tenant's fixtures, furnishings, equipment and other personal property (the Personalty ) located in or upon the Premises. Tenant shall cause the Personalty to be assessed and billed separately from the real property of which the Premises form a part. In the event any or all of Tenant's Personalty shall be assessed and taxed with the real property of which the Premises or the Center are a part, Tenant shall pay to Landlord Tenant's share of such taxes within ten days after delivery to Tenant by Landlord of a statement in writing setting forth the amount of such taxes applicable to Tenant's Personalty. (b) Tenant shall, simultaneously with the payment of any sums required to be paid under this Lease as Rent, additional rent or otherwise, pay or reimburse Landlord for any sales, use, rental, transaction privilege or other excise tax imposed or levied on, or measured by, the amount paid. 5. Common Areas (a) All parking areas, access roads, driveways, pedestrian sidewalks and ramps, landscaped areas, drainage facilities, exterior lighting, signs, courtyards and other areas and improvements provided by Landlord for the general use in common of tenants, their officers, agents, employees, customers and other invites (collectively, the "Common Areas") shall at all times be subject to the exclusive control and management of Landlord, and Landlord shall have the right from time to time to modify, enlarge or eliminate the same and to establish, modify and enforce reasonable rules and regulations with respect thereto. Tenant's right to use the Premises includes the non-exclusive right to use the areas designated from time to time by Landlord as the Common Areas. (b) Landlord shall at all times have the right to designate a particular parking area to be used by employees of Tenant and other occupants of the Center and any such designation may be changed by Landlord from time to time. Tenant and its employees shall park their cars only in those portions of the Common Areas, if any, designated for that purpose by Landlord. Tenant shall furnish Landlord from time to time with an accurate current list of its and all its employees' automobile license plate numbers within 15 days after taking possession of the Premises and thereafter within 15 days after any change in the accuracy of the list. If Tenant or its employees fail to park their cars in designated parking areas, Landlord may charge Tenant $25.00 per day per car for each such violation and shall have the right to have any such car towed away. 6. Operating Costs, Real Property Taxes and Utilities (a) Tenant shall pay as of the Rent Start Date to Landlord Tenant's pro rata share of all of the Center's operating costs consisting of the total cost and expense incurred in managing, operating, maintaining replacing and repairing the Center and its Common Areas including, without limitation, real property taxes and general and special assessments, wages, salaries and employee benefits of persons performing services in connection with the Center, utilities, parking lot sweeping, sealing, patching, re-striping and resurfacing; repairs, maintenance, and renewal of equipment and improvements, including roofs, public liability and property damage insurance, fire and extended coverage insurance, plate glass insurance and rent interruption insurance, supplies, materials, tools, parts, and equipment, equipment rental charges; bookkeeping, accounting, legal and other professional charges and expenses, fees for permits and licenses, administrative expenses, taxes, service and maintenance contracts, signage, advertising, marketing and landscaping, cleaning, window washing, lighting, painting, fire protection and fire hydrant charges, steam, water and sewer charges, gas electricity and telephone utility charges, supplying music to the Common Areas, depreciation of the cost of equipment used in operating and maintaining the Common Areas, or rent paid for leasing such equipment, Landlord s office rent or the fair market rental value of office space in the Center used by Landlord to manage, operate and maintain the Common Areas, security, etc., except that Tenant shall not pay any portion of any costs related solely to the operation and/or maintenance of the chiller tower which does not serve the Premises (collectively, the Operating Costs ). Tenant's Pro Rata Share of the Operating Costs shall be the proportion that the area of the Premises bears to the total rentable area of all rentable space in the Center owned by the Landlord. (b) On the first day of each month (or such other regular cycle as Landlord may determine)Tenant shall pay a monthly advance charge on account of Tenant's Pro Rata Share of the Operating Costs. The amount of the monthly charge shall be established by Landlord and may be adjusted from time to time by Landlord to reflect the actual cost. Within 120 days after the end of each fiscal year as established for the Center by Landlord, Landlord shall provide to Tenant a reasonably detailed summary of the actual Operating Costs showing Tenant's actual share and the amount by which Tenant has overpaid or underpaid. Any overpayment shall be credited to Tenant's account. Any deficiency shall be payable within ten days after receipt of the statement. In the alternative, Landlord may, at its option during all or part of the Term, bill Tenant for its pro rata share of Operating Costs in arrears based on actual costs as they are incurred, in which case Tenant shall pay the invoice within ten days after receipt. However, Landlord s failure to provide such reasonably detailed summary of the actual Operating Costs showing Tenant's actual share and the amount by which Tenant has overpaid or underpaid by the date provided above shall in no way excuse Tenant from its obligation to pay its pro rata share of Operating Costs or constitute a waiver of Landlord s right to bill and collect such pro rata share of Operating Costs from Tenant in accordance with this Article 7(b). (c) The operating costs for the fiscal year in which this Lease commences or terminates shall be apportioned so that Tenant shall not be responsible for costs that relate to periods prior to or subsequent to the term of this Lease except any period of holding over. (d) Tenant acknowledges that the utilities serving the Premises are metered along with the utilities for the entire building of which Premises are a part of. Tenant shall be solely responsible to pay their proportionate share of said utilities (water & electrical) metered to said building within ten (10) days of receipt of billing from Landlord. Tenant s failure to timely pay its utility bills shall be deemed a material breach of this Lease and an event of default. Notwithstanding any other provision of this Lease, upon delivery of a written notice by Landlord to Tenant of such even of default for failure to pay such utility charges and Tenant s failure to cure said default within 3 days of the delivery of such notice, Landlord may terminate this Lease. 7. Construction, Delivery, and Condition (a) If delivery of possession of the Premises to Tenant is delayed beyond the anticipated Commencement Date because of a delay in the completion of construction of the Premises by Landlord or because of a failure of an existing tenant to surrender possession of the Premises to Landlord, then this Lease shall remain in full force and effect, Landlord shall not be liable to Tenant for any damage occasioned by delay, and the Commencement Date shall be changed to the date actual delivery of possession to Tenant is tendered. Notwithstanding the foregoing, if tender of possession is delayed more than 120 days after the anticipated Commencement Date as set forth in Article 1(a), Tenant, by written notice to Landlord, may terminate this Lease prior to taking possession, and upon such termination any Security Deposit shall be refunded and both Landlord and Tenant shall be released of all further obligation hereunder. (b) Tenant accepts the Premises AS IS, acknowledges that Landlord has made no representations or warranties with respect thereto and is relying solely upon Tenant s own independent factual, physical and legal investigation, tests and studies. No Improvements shall be constructed until approved plans and specifications have been attached to this Lease or otherwise accepted by both Landlord and Tenant. Landlord will have final approval of all Improvements. (c) All Work shall be performed by licensed, bondable Contractors (defined below) approved in writing by Landlord, whose approval shall not be unreasonably withheld. The term Contractor as used herein includes subcontractors or other persons hired or retained by Tenant to construct improvements in the Premises. No Work shall be commenced until Landlord shall first have received from Tenant or its contractor a labor and materials payment bond issued by a responsible surety in form reasonably satisfactory to Landlord insuring that no mechanic's lien may be asserted against the Premises or the Center in connection with the Work. Landlord may post signs of non-responsibility around the Premises. (d) Tenant shall have no right to enter the Premises and/or to perform the Work prior to the Commencement Date, without Landlord's written consent. If Landlord does so consent, Tenant shall comply with directions of the Landlord and shall not interfere with any of Landlord's construction activities. Any work performed by Tenant, or any fixtures, furnishings, equipment and other personal property moved onto the Premises, shall be at Tenant's own risk. Neither Landlord nor Landlord's agents or contractors shall be responsible to Tenant for damage or destruction of Tenant's work or property excepting damage or destruction occasioned by Landlord's own gross negligence. Tenant agrees to indemnify Landlord and hold Landlord harmless from and against claims made with respect to injuries to persons or damage or destruction of property of other persons moved onto the Premises prior to the Commencement Date. (e) Landlord has no obligation to design or construct improvements or to make alterations in the Premises. (f) Upon the expiration or earlier termination of this Lease or upon the termination of Tenant's right of possession, whether by lapse of time or otherwise, Tenant shall, upon demand by the Landlord, at Landlord's option, at the Tenant's sole expense, forthwith remove any alterations, additions or improvements made by Tenant, designated by Landlord to be removed, and Tenant shall, forthwith at its sole cost and expense, repair any damage to the Premises caused by such removal and restore the Premises to a condition reasonably comparable to their condition at the commencement of the Lease. If not so demanded by the Landlord, then any alterations, additions or improvements to the Premises, including signs, but not including movable furniture and trade fixtures, shall at the expiration or earlier termination of this Lease or upon the termination of Tenant's right of possession, whether by lapse of time or otherwise, become a part of the realty and belong to Landlord. 8. Repair and Maintenance (a) Tenant shall, at Tenant s sole cost and expense, as of the Commencement Date maintain the Premises and the improvements thereon (including without limitation all heating, air conditioning, ventilation, electrical and plumbing systems serving the Premises, all signs, locks, doors and door frames), in good condition and repair. All exterior and interior glass in the Premises shall be maintained by Tenant and any glass broken shall be promptly replaced by Tenant at its expense with glass of the same kind, size and quality. If Tenant does not do so, Landlord may, but need not, make any such repairs and replacements, and Tenant shall pay Landlord the cost upon demand. Tenant hereby waives all right, if any, to make repairs at the expense of Landlord. (b) Subject to the provisions of Article 7, Landlord shall repair and maintain the Common Areas, the roof and exterior of the Premises and all utility lines below grade or in the Common Areas. Landlord shall not be responsible to make any repairs or perform any maintenance unless written notice of the need for such repairs or maintenance is given by Tenant and Landlord determines, in good faith, that such need does exist. Except in the case of a fire or casualty as provided in Article 13 or in the event of a business interruption caused solely by Landlord s gross negligence which exceeds 14 days, there shall be no abatement of Rent and no liability of Landlord by reason of any entry to the Premises, interruption of services or facilities, temporary closure of Common Areas, or interference with Tenant's business arising from the making of any repairs or maintenance. 9. Alterations and Personal Property Tenant shall not make or suffer to be made any alterations, additions or improvements to the Premises, including signs, without the prior written consent of Landlord of which consent shall not be unreasonably withheld, but which shall not be required to be given until Landlord has actually received a copy of Tenant s building permit and plans (interior and exterior). Landlord may condition its consent upon provision of a payment bond, in amount and form reasonably satisfactory to Landlord, covering the work to be done by Tenant's contractor. Tenant shall not install any antenna, satellite dish or other fixture or equipment on the roof or in the Common Areas. In the event Landlord consents to the making of any alterations, additions or improvements to the Premises by Tenant, they shall be made by Tenant at Tenant's sole cost and expense and any contractor or person selected by Tenant to perform the work must first be approved in writing by Landlord. Tenant shall not permit any mechanic's or materialmen's lien to stand against the Premises for any labor or materials provided to the Premises by any contractor or other person hired or retained by Tenant. Tenant shall cause any such lien to be discharged (by bonding or otherwise) within ten days after demand by Landlord, and if it is not discharged within ten days, Landlord may, in addition to all other remedies for an event of default, pay or otherwise discharge the lien and immediately recover all amounts so expended from Tenant as Rent. Upon the expiration or earlier termination of this Lease or upon the termination of Tenant's right of possession, whether by lapse of time or otherwise, Tenant shall, upon demand by Landlord, at Landlord's option, at Tenant's sole cost and expense, forthwith remove any alterations, additions or improvements made by Tenant, designated by Landlord to be removed, and Tenant shall, forthwith at its sole cost and expense, repair any damage to the Premises caused by such removal and restore the Premises to a condition reasonably comparable to their condition at the commencement of the Lease. If not so demanded by Landlord, then any alterations, additions or improvements to the Premises, including signs, but not including movable furniture and trade fixtures, shall, upon the expiration or earlier termination of this Lease or upon the termination of Tenant's right of possession, whether by lapse of time or otherwise, become a part of the realty and belong to Landlord. 10. Certain Rights Reserved by Landlord Landlord shall have the right: (i) To change the Center's name or street address; (ii) To enter the Premises either personally or by designated representative at all reasonable times during normal business hours or other hours with prior notification for the purpose of examining or inspecting the same, showing the same to prospective purchasers or lessees, or performing any repairs, construction or alteration in relation to the Center or which is Landlord's responsibility under this Lease. Landlord shall be permitted to do any of the above without any rebate of Rent and without any liability to Tenant for any loss of occupation or quiet enjoyment of the Premises thereby occasioned. Tenant shall provide Landlord with a key to the Premises for purposes of emergency entry by Landlord or its agents. Use of this key is to be restricted to emergency situations or as permitted by Tenant hereunder. (iii) To grant to anyone the exclusive right to conduct any business or render any service in or to the Center, provided such exclusive right shall not operate to exclude Tenant from the use expressly permitted under Article 4. None of the rights specified above shall be construed or otherwise considered as a waiver of any rights Landlord may have under this Lease, at law or in equity or otherwise. 11. Damage to Property; Injury to Persons; Insurance; Indemnity (a) Tenant shall defend, indemnify and hold Landlord harmless, regardless of fault or negligence which is imputed to Landlord as the owner of Center, from any and all claims costs, liability, damage or expense, including reasonable attorneys' fees, for any death, damage or injury to persons or property occurring on the Premises and resulting in whole or in part from (i) any misrepresentation, breach of warranty or nonfulfillment of any agreement on the part of Tenant contained in this Lease, (ii) any act, omission or condition for which Tenant is solely responsible under the Lease, (iii) any work of construction, improvement or demolition controlled by or subject to the control of Tenant, (iv) the negligence of Tenant, its agents, employees or contractors, (v) Tenant's use or occupancy of the Premises, (vi) the conduct of its business, (vii) from any activity, work, or thing done, permitted or suffered by Tenant in or about the Premises, or (viii) from the condition of the Premises. Tenant shall further defend, indemnify and hold Landlord harmless from any and all claims arising in whole or in part from any breach or default in the performance of this Lease by Tenant, and/or arising in whole or in part from any act of Tenant, or of its agents or employees, and from all costs, attorneys' fees, expenses and liabilities incurred directly or indirectly as a result of any such act and/or claim. Tenant, as a material part of the consideration to Landlord, hereby assumes all risk of damage to property or injury to persons, in, upon, or about the Premises from any cause, and Tenant hereby waives all claims in respect thereto against Landlord. Landlord shall in no event be liable for loss of or damage to any property by vandalism, theft or otherwise, or for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak from any part of any building or from the pipes, appliances or plumbing works therein, or from the roof, street or subsurface, or from any other place resulting from dampness, or from the elements or any other cause whatsoever. Landlord shall not be liable for interference with the natural light. Tenant shall give immediate notice to Landlord of any fire, accident or defect discovered with the Premises or the building of which the Premises are a part. Tenant acknowledges that it can protect itself against some or all of the foregoing risks by procuring appropriate insurance. Tenant's indemnification obligations shall survive the expiration or earlier termination of this Lease or upon the termination of Tenant's right of possession, whether by lapse of time or otherwise. (b) Tenant shall, at Tenant s sole cost and expense, as of the Commencement Date maintain fire and extended coverage insurance throughout the term of this Lease in an amount equal to one hundred percent of the replacement value of Tenant's fixtures, furnishings, equipment and other personal property located on the Premises, together with such other insurance as may be required by Landlord's lender or by any government agency. All proceeds of Tenant's policy of fire and extended coverage insurance shall be payable to Tenant, and all proceeds of policies of insurance procured by Landlord shall be payable to Landlord. Tenant hereby waives any right of recovery from Landlord and Landlord hereby waives any right of recovery from Tenant for any loss or damage (including consequential loss) resulting from any of the perils insured against in the insurance policies required to be maintained hereunder. During the Term, Tenant shall, at Tenant's sole cost and expense, maintain general public liability insurance against claims for personal injury, death or property damage occurring in, upon or about the Premises. The limitation of liability of such insurance shall be not less than Two Million Dollars in respect to injury or death of one person and to the limit of not less than Two Million Dollars in respect to any one accident and to the limit of not less than Five Hundred Thousand Dollars in respect to property damage. All of Tenant's policies of liability insurance shall be obtained by Tenant in an "occurrence" form and shall name Landlord as an additional insured or loss payee, as appropriate. All policies of insurance or copies thereof required to be carried by Tenant under this Article 12 shall be delivered to Landlord prior to the Commencement Date and thereafter at least thirty days prior to the expiration of the then current policies. Each policy shall contain an endorsement prohibiting cancellation or non-renewal without at least 30 days prior notice to Landlord. 12. Fire and Casualty If the Premises are wholly or partially destroyed or damaged by fire or other casualty, Landlord shall restore the Premises with reasonable diligence; provided, however, that Landlord shall have no obligation to restore improvements not originally provided by Landlord or to replace any of Tenant's fixtures, furnishings, equipment or personal property; and provided further that Landlord need not commence repairs until insurance proceeds are available and are released in a sufficient amount for such purpose by any lender holding a lien on all or part of the Center. Proceeds of insurance payable with respect to a fire or other casualty shall be received and held by Landlord. Notwithstanding the foregoing, in the event the Premises are destroyed or damaged by any fire or casualty to the extent of not less than twenty-five percent of the replacement cost thereof, or if the fire or casualty occurs within the last three years of the Term, then Landlord shall have the option to terminate this Lease by giving notice to Tenant within sixty days after the occurrence of such damage or destruction, in which case Landlord shall retain all insurance proceeds with respect to the Premises as its own property and shall not be required to spend any more on the restoration than the amount of proceeds actually received by Landlord. If Landlord does not terminate this Lease as provided above, this Lease shall continue in full force and effect, but Minimum Annual Rent shall equitably abate until the restoration is substantially complete. However, in the event it is determined that Tenant's ability to continuously operate and conduct business on the Premises is not hindered, then Minimum Annual Rent shall abate in proportion to the Premises under restoration. The provisions of this Lease shall govern when this Lease shall be terminable as a result of a fire or casualty, and no other rule or statute on the subject shall apply. 13. Condemnation In the event the entire Premises shall be appropriated or taken under the power of eminent domain, this Lease shall terminate and expire as of the date of such taking. In the event more than twenty-five percent of the Premises is taken under the power of eminent domain, or if by reason of any appropriation or taking, regardless of the amount so taken, the remainder of the Premises is not one undivided parcel of property, either Landlord or Tenant shall have the right to terminate this Lease as of the date Tenant is required to vacate a portion of the Premises upon giving notice in writing of such election within thirty days after receipt by Tenant from Landlord of written notice that the Premises have been so appropriated or taken. If neither Landlord nor Tenant elects to so terminate this Lease, or in the event less than twenty-five percent of the Premises shall be appropriated under the power of eminent domain by any public or quasi-public authority, and the remainder thereof is an undivided parcel of property, then Landlord shall restore the Premises to the extent practicable to their condition prior to the taking, provided that no such restoration need commence until the condemnation proceeds are available and released in a sufficient amount for such purpose by any lender holding a lien on all or part of the Center and further provided that Landlord shall not be required to spend more than the condemnation proceeds actually received by Landlord, and thereafter the Minimum Annual Rent shall be reduced on an equitable basis, taking into account the relative value of the portion taken as compared to the portion remaining. All awards or compensation for any taking of any part of the Premises, whether payable to Landlord or Tenant, shall be the sole property of Landlord. Notwithstanding anything to the contrary contained herein, Tenant shall be entitled to receive any portion of an award of compensation relating to damage to or loss of trade fixtures or other personal property belonging to Tenant, and Landlord shall be under no obligation to restore or replace Tenant's furnishings, fixtures, equipment and personal property. For the purposes of this Article 14, a voluntary sale or conveyance in lieu of condemnation shall be deemed an appropriation or a taking under the power of eminent domain. 14. Assignment and Subletting; Sale by Landlord (a) Tenant shall not, either voluntarily or by operation of law, assign, hypothecate or transfer this Lease, or sublet the Premises or any part thereof, or permit the Premises or any part thereof to be occupied by anyone other than Tenant or Tenant's employees (individually, a Transfer ), without the Landlord's prior written consent ("Transfer Notice") which shall not be unreasonably withheld. Landlord shall be under no obligation to give or withhold consent until after all information reasonably required by Landlord with respect to the identity, background, experience and financial worth of the proposed assignee, transferee, or subtenant (the Transferee ) has been provided. No hypothecation, assignment, sublease or other transfer to which Landlord has consented shall be effective for any purpose until such time as fully executed documents of such transaction have been provided to Landlord, and, in the case of an assignment, the assignee has attorned directly to Landlord, and in the case of a sublease, the sublessee has acknowledged that the sublease is subject to all of the terms and conditions of this Lease. Any assignment, mortgage, transfer or subletting of this Lease which is not in compliance with the provisions of this Article 15 shall be voidable by Landlord and shall, at the option of Landlord, terminate this Lease. Any differing of use or extension of use by Tenant or any Transferee will, at the option of Landlord terminate this Lease. The consent by Landlord to an assignment or subletting shall not relieve Tenant from obtaining the express written consent of Landlord to any further assignment or subletting or release Tenant from any liability or obligation hereunder, whether or not then accrued. Except as provided in this Article, this Lease shall be binding upon and inure to the benefit of the successors and assigns of the parties. (b) In the event of a sale or conveyance by Landlord of the Premises, Landlord shall be relieved of all future liability upon any of the covenants or conditions, express or implied, in favor of Tenant, and Tenant shall look solely to Landlord's successor in interest. This Lease shall not be affected by any sale, and Tenant shall attorn to the successor in interest. If any Security Deposit has been made by Tenant, the successor in interest shall be obligated to return it in accordance with the terms hereof and Landlord shall be discharged from any further liability in reference thereto. (c) If any rent of other monetary payment due under the terms of this Lease is made by check wherein the payor is other than the Tenant herein, acceptance thereof shall in no way constitute acceptance by Landlord of any assignment or subletting. Any assignment or subletting must comply with the conditions of this Article 15. 15. Estoppel Certificate (a) Tenant shall at any time and from time to time upon not less than ten days' prior written notice from Landlord execute, acknowledge and deliver to Landlord a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the dates to which the rental and other charges are paid in advance, if any; (ii) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if they are claimed; and (iii) certifying such other matters relating to this Lease as Landlord may reasonably request. Any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the real property of which the Premises are a part. (b) Tenant's failure to deliver a statement within the time prescribed by Landlord in its request for same shall be conclusive upon Tenant (i) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (ii) that there are no uncured defaults in Landlord's performance, and (iii) that not more than one month's rental has been paid in advance. 16. Landlord's Remedies (a) The following shall constitute events of default: (i) Tenant's failure to pay any amount due under Article 2, Article 5(b) or Article 7 of this Lease within 5 days of when due, or Tenants failure to pay any other amount due under this Lease within 5 days after notice from Landlord. (ii) Tenant's failure to execute, acknowledge and return an estoppel certificate under Article 16 or a subordination agreement under Article 19, within ten days after request. (iii) Tenant's failure to perform any other obligation under this Lease within fifteen days after notice of nonperformance; provided, however, that if the breach is of such a nature that it can be cured but it cannot be cured within fifteen days, Tenant shall be deemed to have cured if cure is commenced promptly and diligently pursued to completion with completion accomplished within 30 days of the original notice of nonperformance; and provided further, that in the event of a breach involving an imminent threat to health or safety, Landlord may in its notice of breach reduce the period for cure to such shorter period as may be reasonable under the circumstances. (iv) Tenant vacates, abandons, or otherwise ceases to operate the Premises on a continuing basis except temporary absence, excused by Landlord in its sole discretion, by reason of fire, casualty, or other cause wholly beyond Tenant's control. (v) Any goods, chattels or equipment of Tenant are taken in execution or in attachment or if a writ of execution is issued against Tenant or if Tenant or any guarantor becomes insolvent or files a petition under the Bankruptcy Act or becomes bankrupt or takes the benefit of any statute that may be in force for bankrupt or insolvent debtors or becomes involved in voluntary or involuntary winding-up proceedings or if a receiver shall be appointed for the business, property, affairs or revenues of Tenant or any guarantor (provided, however, that in the case of involuntary proceedings, Tenant shall have 60 days to cause them to be dismissed), or if Tenant makes a bulk sale of its goods or moves or commences, attempts or threatens to move its goods, chattels and equipment out of the Premises other than in the normal course of its business. (b) Upon the occurrence of an event of default, Landlord, at any time thereafter without further notice or demand, may, in addition to all of its rights and remedies at law and/or at equity, exercise any one or more of the following remedies concurrently or in succession, all of which shall be cumulative: (i) Terminate Tenant's right to possession of the Premises by legal process or otherwise, with or without terminating this Lease, and retake exclusive possession of the Premises. (ii) From time to time relet all or portions of the Premises, using reasonable efforts to mitigate Landlord's damages. In connection with any reletting, Landlord may relet for a period extending beyond the term of this Lease and may make alterations or improvements to the Premises without releasing Tenant of any liability. Upon a reletting of all or substantially all of the Premises, Landlord shall be entitled to recover all of its then prospective damages for the balance of the Lease term measured by the difference between amounts payable under this Lease and the anticipated net proceeds of reletting during the remaining Term. In no event shall Tenant be entitled to receive any amount representing the excess of avails of reletting over amounts payable hereunder. (iii) From time to time recover accrued and unpaid rent and damages arising from Tenant's breach of the Lease, regardless of whether the Lease has been terminated, together with applicable late charges and interest. (iv) Enforce the statutory landlord's lien on Tenant's property. (v) Recover all reasonable attorneys' fees incurred by Landlord in connection with enforcing this Lease, recovering possession and collecting amounts owned. (vi) Perform the obligation on Tenant's behalf and recover from Tenant, upon demand, the entire amount expended by Landlord plus 20% for special handling, supervision, and overhead. (vii) Terminate this Lease by giving written notice of such intention to terminate. In the event that Landlord elects to terminate this Lease, then Landlord may recover from Tenant: (a) All unpaid Rent owed by Tenant as of the date of termination; plus (b) All Rent which would have been payable by Tenant under this Lease but for its termination until the time of award; plus (c) All Rent under the Lease for the balance of the Term after the time of award; plus (d) All other damages incurred by Landlord as a result of Tenant s default. default. Although defined elsewhere, the parties acknowledge that the term Rent shall be deemed to be and mean the Annual Minimum Rent and all other sums required to be paid by Tenant pursuant to the terms of this Lease. (viii) Pursue other remedies available at law or in equity. (c) Upon a termination of Tenant's right to possession, whether or not this Lease is terminated, subtenancies and other rights of persons claiming under or through Tenant: (i) shall be terminated or (ii) Tenant's interest shall be assigned to Landlord. Landlord may separately elect termination or assignment with respect to each such subtenancy or other matter. 17. Notices All notices to be given by one party to the other under this Lease shall be in writing, mailed or hand-delivered to each at the address to the individual, set forth at the end of this Lease or at a changed address if notice of the change is given to the other party in writing. In the case of notice to Tenant after Tenant takes possession of the Premises, notice shall be sufficient if mailed or delivered to the address of the Premises. Mailed notices shall be sent by United States certified or registered mail, postage prepaid. Such notices shall be deemed to have been given upon posting in the United States mail. Actual notice shall be no substitute for written notice under any provision of this Lease. 18. Subordination Landlord expressly reserves the right at any time to place ground leases, liens and encumbrances on and against the Premises and the Center (collectively, the Title Matters ), superior in lien and effect to this Lease and the estate created hereby. Tenant acknowledges that there may currently exist any such Title Matters which are superior in lien and effect to this Lease and the estate created hereby. This provision shall be self-operative, but Tenant shall nevertheless execute upon request subordination agreements presented by Landlord to confirm the superiority of the Title Matters. 19. Authority to Execute Any individual executing this Lease on behalf of or as a representative for a corporation or other person, firm, partnership or entity represents and warrants that such individual is duly authorized to execute and deliver this Lease on behalf of said corporation, person, firm, partnership or other entity and that this Lease is binding upon said entity in accordance with its terms. If Tenant is a corporation, Tenant shall deliver to Landlord within fifteen days after the execution hereof a certified copy of a resolution of the Board of Directors of said corporation authorizing or ratifying the execution and delivery of this Lease by the individuals executing and delivering same on behalf of Tenant. 20. Brokers Landlord and Tenant each covenant that they have not dealt with any real estate broker or finder with respect to this Lease and each party shall hold the other party harmless from all damages, claims, liabilities or expenses, including reasonable and actual attorneys' fees (through all levels of proceedings), resulting from any claims that may be asserted against the other party by any real estate broker or finder with whom the indemnifying party either has or is purported to have dealt. 21. Arbitration All controversies, disputes or claims arising between Landlord and Tenant in connection with, arising from, or with respect to this Lease or any agreement related to this Lease between the parties shall be submitted for binding arbitration in accordance with rules of the American Arbitration Association or any successor thereof. Arbitration shall be conducted solely on an individual, not a class-wise basis, unless all parties so agree. Venue of such arbitration shall be set in Maricopa County, Arizona. Each party shall select one arbitrator (who shall not be counsel for the party) and the two so designated shall select a third arbitrator. If either party shall fail to designate an arbitrator within ten (10) days after arbitration is requested, or if the two arbitrators shall fail to select a third arbitrator within twenty (20) days after arbitration is requested, then such arbitrator shall be selected by the American Arbitration Association or any successor thereto upon application of either party. Judgment upon any award of the majority of arbitrators shall be binding, final and non-appealable and shall be entered in a court of competent jurisdiction. The award of the arbitrators may grant any relief which might be granted by a court of general jurisdiction including, without limitation, an award of damages and/or injunctive relief, and the costs of the arbitration, including the reasonable fees of the arbitrators and reasonable attorney s fees. All issues relating to the arbitrability or the enforcement of the agreement to arbitrate contained herein shall be governed by the Federal Arbitration Act (9 U.S.C. 1 et. seq.) and the Federal Common Law of Arbitration. 22. Americans with Disabilities Act Landlord and Tenant hereby acknowledge that the Americans with Disabilities Act (the ADA ) may affect Tenant s use and occupancy of the Premises and requires Tenant to modify or alter the design, layout or other physical elements of the interior of the Premises or provide auxiliary services in connection with its business operations. Tenant shall comply in all respects with the requirement of the ADA as it affects Tenant s use and occupancy of the Premises throughout the Term, and Tenant acknowledges that, notwithstanding any modifications to the Common Areas which may be made by Landlord in order to conform such areas with the requirements of the ADA, Landlord makes no representation or warranties regarding the compliance of the Premises of the Center with the ADA, nor shall Landlord have any obligations or liabilities to Tenant to construct any modifications or alterations to the interior of the Premises in order to comply with the ADA. 23. General Provisions (a) This Lease and the obligations of Tenant hereunder shall not be affected or impaired because Landlord is unable to fulfill any of its obligations hereunder or is delayed in doing so if such inability or delay is caused by reason of any strike, lockout, civil commotion, war-like operations, invasion, rebellion, hostilities, military or usurped power, sabotage, governmental regulations or controls, inability to obtain any material, service or financing, Act of God or other cause beyond the control of the Landlord. (b) Landlord shall have the right to, from time to time, make rules and regulations for the Center and its operations. Tenant and its officers, agents, and employees, agree to comply with the rules and regulations established by Landlord and with such modifications and additions as Landlord may hereafter make for the Center. Any violation of the rules and regulations shall constitute a material breach of this Lease. (c) The article captions contained in this Lease are for convenience only and shall not be considered in the construction or interpretation of any provision. The masculine, feminine or neuter gender and the singular or plural number shall be deemed to include the others whenever the context so requires or indicates. (d) This Lease contains all of the agreements of the parties hereto with respect to any matter covered or mentioned in this Lease, and no prior agreement or understanding pertaining to any matter shall be effective for any purpose. No provision of this Lease may be amended or added to except by an agreement in writing signed by the parties hereto or their respective successors in interest. (e) Submission of this instrument for examination shall not bind Landlord in any manner, and no lease or obligations of Landlord shall arise until this instrument is signed and delivered by authorized officers of Landlord and Tenant. (f) No rights to light or air over any property, whether belonging to Landlord or any other persons, are granted to Tenant by this Lease. (g) No waiver by Landlord of any provisions of this Lease or any breach by Tenant hereunder shall be deemed to be a waiver of any other provision hereof, or of any subsequent breach by Tenant of the same or any other provision. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval shall not be deemed to render unnecessary the obtaining of Landlord's consent to or approval of any subsequent act of Tenant, whether or not similar to the act so consented to or approved. No act or thing done by Landlord or Landlord's agent during the term of this Lease shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept a surrender shall be valid unless in writing and signed by Landlord. No employee of Landlord or of Landlord's agents shall have any power to accept the keys to the Premises prior to the termination of this Lease, and the delivery of the keys to any employee shall not operate as a termination of the Lease or a surrender of the Premises. (h) Time is of the essence of this Lease. (i) All exhibits attached hereto are incorporated herein by this reference. (j) The parties hereto agree that all the provisions hereof are to be construed as covenants and agreements as though the words importing such covenants and agreements were used in each separate paragraph hereof. This Lease is the result of negotiations between Landlord and Tenant, who each had the opportunity to obtain legal advice regarding the same. This Lease shall not be construed for or against Landlord or Tenant on the basis of which party physically served as scrivener of this Lease. (k) Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third person to create the relationship of principal and agent, partnership, joint venture, or any other association between Landlord and Tenant other than the landlord-tenant relationship described herein. (l) In the event either party shall commence or be required to defend any action or proceeding against any other party by reason of any breach or claimed breach of any provision of this Lease, to commence or defend any action or proceeding in any way connected with this Lease or to seek a judicial declaration of rights under this Lease, the party prevailing in such action or proceeding shall be entitled to recover from or to be reimbursed by the other party for the prevailing party's reasonable attorneys' fees and costs through all levels of proceedings. (m) If any provision of this Lease or the application thereof to any person or circumstance shall be deemed invalid or unenforceable, the remainder of this Lease and its application to other persons or circumstances shall not be affected by such partial invalidity but shall be enforced to the fullest extent permitted by law as though such invalid or unenforceable provision was never a part hereof. (n) This Lease shall be construed in accordance with the laws of the State of Arizona without regard to its principles of choice of law, and the parties agree that jurisdiction for all actions hereunder shall lie therein. (o) This Lease shall be governed by the laws of the State of Arizona. LANDLORD: ADDRESS: Pinnacle Citadel, L.L.C. 23733 North Scottsdale Road an Arizona limited liability company Scottsdale, Arizona 85255 By: Prime Pinnacle Peak Properties, Inc., an Arizona corporation, Its Managing Member By: ____________________________ James E. Acridge, President TENANT: ADDRESS: Giant Industries Arizona, Inc. 23733 North Scottsdale Road an Arizona corporation Scottsdale, AZ 85255 By: _________________________ Its: _________________________ EX-10.30 12 EXHIBIT 10.30 RETAIL LEASE THIS RETAIL LEASE (the "Lease") is made this 1st day of July, 1998 by and between PINNACLE CITADEL LLC., an Arizona limited liability company ("Landlord"), and GIANT INDUSTRIES ARIZONA, INC., an Arizona limited liability company ("Tenant"). Landlord hereby leases to Tenant and Tenant leases from Landlord for the term and upon the conditions and agreements set forth in this Lease a portion of the real property described on Exhibit A attached hereto known as the Inn at the Citadel, consisting of approximately 8,176 square feet of space consisting of eleven suites on the second floor and an office/lobby suite on the first floor together with any or all additional space used in connection with Tenant's business (the "Premises") in The Citadel (the "Center") along with two (2) covered parking spaces numbered 9 and 10 each located in the area cross-hatched on Exhibit B. The address of the premises is 8700 East Pinnacle Peak Road, Scottsdale, Arizona 85255. 1. Term and Possession (a) The term (the Term ) of this Lease shall commence on the earlier of (i) the date possession is tendered by written notice to Tenant or (ii) the date on which the Tenant shall first use or occupy any part of the premises or (iii) the date a temporary certificate of occupancy for the Premises is issued by the City of Scottsdale (the "Commencement Date") and shall expire on June 30, 2003. The Tenant's obligation to pay Rent (defined in Articles 2(d) below) shall begin on the Commencement Date (the Rent Start Date"). The anticipated Commencement Date is July 1, 1998. Upon request of either party after the term has commenced, Landlord and Tenant shall jointly execute a memorandum confirming the Commencement Date. (b) Upon the expiration or earlier termination of this Lease or upon the termination of Tenant's right of possession, whether by lapse of time or otherwise, Tenant shall at once surrender possession of the Premises to Landlord and remove all of Tenant's property as provided in Article 10. (c) Tenant shall have no right to hold over after the expiration of this Lease without Landlord's prior written consent. If, with Landlord's prior written consent, Tenant holds over after the expiration of this Lease, Tenant shall become a tenant from month to month only, upon all of the terms of this Lease except that Article 1(a) shall not apply and the amount of the Minimum Annual Rent (defined at Article 2(a) below) shall be increased to an amount equal to 125% of the Minimum Annual Rent in effect immediately prior to the expiration. (d) Provided Tenant has not been and/or Landlord has not deemed Tenant in default under this Lease, Tenant shall have the option, exercisable by written notice given to the Landlord at least 180 days prior to the expiration of the then current Term, to extend this Lease by one (1) successive period of five (5) years. All the terms and conditions of this Lease, including, without limitation, Article 2(b), shall remain in full force and effect during the extended Term. As used herein, the word Term shall hereafter mean the Term as it may have been extended pursuant to this Article 1(d). 2. Rent (a) Minimum Rent. Tenant shall pay to Landlord during the Term at the office of Landlord, 23733 North Scottsdale Road, Scottsdale, AZ 85255, or at such other place as Landlord may designate, without notice, demand, deduction or set-off, Minimum Annual Rent in the amount of $163,520.00 per annum, subject to adjustment as provided in Article 2(b), in equal monthly installments in advance on the first day of each calendar month with applicable transaction privilege or other similar sales tax. In addition, Tenant shall pay the amount of $40.00 per month for each of the two (2) reserved covered parking spaces. In the event the Rent Start Date does not occur on the first day of a calendar month, Tenant shall pay Rent on the Rent Start Date for the fractional month on a pro rata 30-day month basis. (b) Adjustments. The Minimum Annual Rent shall be adjusted upwards as of each one (1) year anniversary of the Commencement Date (the Adjustment Date ) as follows: (i) Landlord shall ascertain the Consumer Price Index for All Urban Consumers - U.S. Cities Average - All Items (the "CPI") published by the United States Department of Labor, Bureau of Labor Statistics (1982-84 = 100) for the third full calendar month prior to the Commencement Date for the first year adjustment and the third full calendar month prior to the previous Adjustment Date for all following adjustments (the "Base Index") and for the third full calendar month prior to the Adjustment Date (the "Comparison Index"). (ii) The Minimum Annual Rent commencing as of each Adjustment Date shall be equal to the Minimum Annual Rent in effect immediately preceding each Adjustment Date (the "Effective Minimum Annual Rent") times a fraction, the numerator of which is the Comparison Index associated with that Adjustment Date and the denominator of which is the Base Index, as illustrated in the following formula for the first (1st) Adjustment Date: Adjusted Minimum = Effective Minimum x Comparison Index Annual Rent Annual Rent Base Index (iii) Notwithstanding the foregoing, in no event shall the Minimum Annual Rent be adjusted downwards. When the Minimum Annual Rent payable as of each Adjustment Date is determined, Landlord shall promptly give Tenant written notice of such adjusted Minimum Annual Rent and the manner in which it was computed. The Minimum Annual Rent as so adjusted from time to time shall be the "Minimum Annual Rent" for all purposes under this Lease. (iv) If at any time the CPI is no longer published or its manner of calculation is materially changed, Landlord may substitute a substitute index, reconciled to the month three (3) months prior to the Commencement Date, as reasonably reflects changes in the purchasing power of the dollar. (c) Nature of Payments. All sums required to be paid by Tenant under this Lease, whether or not so designated, including, without limitation, Minimum Annual Rent and Tenant s Pro Rata Share of Operating Costs are Rent and shall be paid without notice, demand, deduction, or set-off. (d) Late Charges and Interest. Any amount due from Tenant to Landlord which is not paid when due shall bear interest at three percent in excess of the prime rate as established from time to time by the Bank of America Arizona (or, if such bank ceases to exist, such other comparable financial institution as reasonably determined by Landlord) from the due date until paid, but the payment of such interest shall not excuse or cure any default by Tenant under this Lease. In addition, if any Rent or other payment is not paid within five days of its due date, then Tenant shall also pay to Landlord a late charge equal to ten percent of the amount of such payment. 3. Use (a) Tenant shall continuously and uninterruptedly operate, use and occupy the Premises as office suites or as an inn along with a 1st floor office/lobby for the inn and for no other purpose whatsoever and shall be open for business those hours that conform with the hours of opening which are customary for businesses of like character in the City of Scottsdale. (b) Tenant, its agents, employees and/or contractors shall, at Tenant s sole cost and expense, comply with the following: (i) Tenant shall not use or permit upon the Premises anything that would invalidate any policies of insurance now or hereafter carried on the Premises or that will increase the rate of insurance on the Premises or the Center; (ii) Tenant shall pay all additional insurance premiums which may be caused by the use which Tenant shall make of the Premises; (iii) Tenant shall not in any manner deface or injure the Premises or overload any floor of the Premises; (iv) Tenant shall not conduct or permit any auction sale to be held on or about the Premises, whether such auction be voluntary or involuntary, or any sidewalk sale without the prior written consent of Landlord; (v) Tenant shall not do anything or permit anything to be done upon the Premises in any way tending to create a nuisance, or tending to disturb any other lessee in the Center or tending to injure the reputation of the Center, including, without limitation, the playing of music audible outside the Premises and the affixing or maintaining upon the glass panes or supports of the show windows or on or within 24" of any window, doors or exterior walls of the Premises, any signs, advertising placards, names, insignia, trademarks, descriptive material or any other like item(s) without having first received the written approval of Landlord as to the size, type, color, location, copy, nature and display qualities of any such item. All signs shall comply with City of Scottsdale sign ordinances and The Citadel sign criteria. (vi) Tenant shall not display merchandise, advertise or solicit business on the sidewalks and other Common Areas (defined at Article 6(a) below) or place any handbills, bumper stickers or other advertising devices on any vehicle parked in the Common Areas of any other parking area of the Center; (vii) Tenant shall not use the Premises designated as the office/lobby for lodging or sleeping purposes; (viii) Tenant shall not commit or suffer to be committed any waste upon the Premises; (ix) Tenant shall not violate any recorded restriction or covenant affecting the Center, nor use the Premises for any purpose which would be in violation of any exclusive rights or use granted to other tenants in the Center. Landlord shall not grant exclusive rights which would prohibit Tenant from exclusively using the Premises for the purposes stated in Article 4(a) above except for incidental uses ancillary to the main use of the other user. (x) Tenant shall, at its sole cost and expense, maintain the elevator located in the Center that services the Inn at the Citadel in first class condition. (c) Tenant shall provide and maintain sanitary receptacles within the Premises in which to place any refuse or trash. Tenant shall cause such refuse or trash to be removed from the Premises to receptacles designated by Landlord as often as required to maintain a sanitary condition, but in no event less often than daily. No grease or rubbish or hazardous waste shall be disposed of through any plumbing system. Tenant shall sweep as needed and keep free of refuse all sidewalks immediately adjacent to the Premises if so directed by Landlord. Tenant shall not allow the Premises to be infested with insects or vermin. (d) Tenant shall use its best efforts to complete all deliveries, loading, unloading and services to the Premises before 10:00 a.m. each day. Tenant shall attempt to prevent any delivery trucks or other vehicles servicing the Premises from parking or standing in front of, or at the rear of, the Premises from 10:00 a.m. to 9:00 p.m. of each day. Landlord reserves the right to further regulate the activities of Tenant in regard to deliveries to and servicing of the Premises, and Tenant agrees to abide by such further non-discriminatory regulations of Landlord. (e) Tenant shall, at Tenant's sole cost and expense, comply with all present and future federal, state and local laws, ordinances, orders, rules and regulations (collectively, "Laws"), and shall procure all permits, certificates, licenses and other authorizations required by applicable Law relating to Tenant's business or Tenant's use or occupancy of the Premises or Tenant's activities on the Premises. Tenant shall make all reports and filings required by applicable Laws. (f) Tenant's Warranty as to Hazardous or Toxic Materials. Tenant shall not cause or permit any Hazardous Substances to be brought upon, kept or used in or about the Premises by Tenant, its agents, employees, contractors or invitees, except such incidental quantities of commonly used office supplies (such as copier fluid and typewriter correction fluids) and ordinary cleaning solvents, provided that all of the foregoing are only in such quantities as are normal for the permitted use of the Premises, are used in the manner for which they are designed and are at all times used, kept, and stored and disposed of in a manner that strictly complies with all laws regulating any such Hazardous Substances. Any Hazardous Substances placed in or on the Premises by Tenant, its agents, employees, contractors or invitee shall remain the property of Tenant, notwithstanding anything in the Lease to the contrary. Tenant shall not install any underground storage tank on the Premises, as such term is defined in 42 U.S.C. Section 66991 and the regulations promulgated thereto, as amended from time to time and including all pipes and conduiting relating thereto. If Tenant breaches the covenants and obligations set forth herein, or if the presence of Hazardous Substances on, in or about the Premises caused by Tenant, its agents, employees, contractors or invitees, results in contamination of the Premises, then Tenant shall indemnify, defend and hold Landlord, its officers, employees, partners, agents and representatives, free and harmless from and against any and all claims, judgments, penalties, fines, costs, liabilities and damages, (including, without limitation, sums paid in settlement of claims, attorneys' fees and expenses (through all levels of proceedings), consultants or experts fees) and all costs incurred in enforcing this indemnity which arise during or after the Term as a result of the presence of such Hazardous Substances or any contamination, damage or injury therefrom. This indemnification by Tenant includes, without limitation, any and all costs incurred in connection with any investigation of site conditions or any clean up, remedial, removal or restoration work required by any federal, state or local governmental agency or political subdivision because of the presence of such Hazardous Substances caused by Tenant, its agents, employees, or contractors in, on or about the Premises. Tenant shall promptly take all actions, at its sole cost and expense, as are necessary to return the Premises to the condition existing prior to the introduction of any such Hazardous Substances, provided that Landlord's approval of such actions is first obtained. Furthermore, Tenant shall immediately notify Landlord of any inquiry, test, investigation or enforcement proceeding by or against Tenant or the Premises concerning the presence of any Hazardous Substances. Tenant acknowledges that Landlord, at Landlord's election, shall have the right to negotiate, defend, approve and appeal any action taken or order issued by any governmental authority with regard to any Hazardous Substances condition which Tenant is obligated hereunder to remediate. The provisions of this Article 4(f) shall survive the expiration or sooner termination of the Term or of Tenant's right to possession, whether by lapse of time or otherwise. The term "Hazardous Substance" includes, without limitation, any material or substance which is (i) defined or listed as a "hazardous waste", "extremely hazardous waste", "restrictive hazardous waste" or "hazardous substance" or considered a waste, condition of pollution or nuisance under any Environmental Law (as defined below); (ii) petroleum or a petroleum product or fraction thereof; (iii) asbestos; and/or (iv) substances known to cause cancer and/or reproductive toxicity. The term "Environmental Law" shall mean any federal, state or local law, statute, ordinance, rule, regulation, order, consent, decree, judgment or common-law doctrine, interpretation thereof, and provisions and conditions of permits, licenses, plans, approvals and other operating authorizations whether currently in force or hereafter enacted relating to health, industrial hygiene or the environmental conditions on, under or about the Premises or the Center, including, without limitation, (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Sections 9601 et seq.; (ii) the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Sections 6901 et seq.; (iii) the Federal Water Pollution Control Act, 33 U.S.C. Sections 1317 et seq., as such laws are amended and the regulations and administrative codes applicable thereto. It is the intent of the parties hereto to construe the terms "Hazardous Substance" and "Environmental Law" in their broadest sense. (g) Tenant shall keep its sign, exterior lighting and display windows lit during those hours that Landlord in its sole discretion may reasonably require. (h) Tenant shall not use the Premises for any purpose other than as set forth in Article 4(a) and shall notify Landlord in writing of, and obtain Landlord s prior written consent to, any intended change in the nature of its activities or business conducted on the Premises and permitted by Article 4(a). 4. Taxes (a) Tenant shall pay, prior to delinquency, all taxes assessed against or levied upon Tenant's fixtures, furnishings, equipment and other personal property (the Personalty ) located in or upon the Premises. Tenant shall cause the Personalty to be assessed and billed separately from the real property of which the Premises form a part. In the event any or all of Tenant's Personalty shall be assessed and taxed with the real property of which the Premises or the Center are a part, Tenant shall pay to Landlord Tenant's share of such taxes within ten days after delivery to Tenant by Landlord of a statement in writing setting forth the amount of such taxes applicable to Tenant's Personalty. (b) Tenant shall, simultaneously with the payment of any sums required to be paid under this Lease as Rent, additional rent or otherwise, pay or reimburse Landlord for any sales, use, rental, transaction privilege or other excise tax imposed or levied on, or measured by, the amount paid. (c) Concurrently with each payment of Minimum Annual Rent hereunder, Tenant shall deliver to Landlord a copy of the Preliminary Sales Tax Report filed (or required to be filed) by Tenant with the Arizona Department of Revenue for the immediately preceding calendar month, with respect to the business conducted in the Premises. 5. Common Areas (a) All parking areas, access roads, driveways, pedestrian sidewalks and ramps, landscaped areas, drainage facilities, exterior lighting, signs, courtyards and other areas and improvements provided by Landlord for the general use in common of tenants, their officers, agents, employees, customers and other invites (collectively, the "Common Areas") shall at all times be subject to the exclusive control and management of Landlord, and Landlord shall have the right from time to time to modify, enlarge or eliminate the same and to establish, modify and enforce reasonable rules and regulations with respect thereto. Tenant's right to use the Premises includes the non-exclusive right to use the areas designated from time to time by Landlord as the Common Areas. (b) Landlord shall at all times have the right to designate a particular parking area to be used by employees of Tenant and other occupants of the Center and any such designation may be changed by Landlord from time to time. Tenant and its employees shall park their cars only in those portions of the Common Areas, if any, designated for that purpose by Landlord. Tenant shall furnish Landlord from time to time with an accurate current list of its and all its employees' automobile license plate numbers within 15 days after taking possession of the Premises and thereafter within 15 days after any change in the accuracy of the list. If Tenant or its employees fail to park their cars in designated parking areas, Landlord may charge Tenant $25.00 per day per car for each such violation and shall have the right to have any such car towed away. 6. Operating Costs, Real Property Taxes and Utilities (a) Tenant shall pay as of the Rent Start Date to Landlord Tenant's pro rata share of all of the Center's operating costs consisting of the total cost and expense incurred in managing, operating, maintaining replacing and repairing the Center and its Common Areas including, without limitation, real property taxes and general and special assessments, wages, salaries and employee benefits of persons performing services in connection with the Center, utilities, parking lot sweeping, sealing, patching, re- striping and resurfacing; repairs, maintenance, and renewal of equipment and improvements, including roofs, public liability and property damage insurance, fire and extended coverage insurance, plate glass insurance and rent interruption insurance, supplies, materials, tools, parts, and equipment, equipment rental charges; bookkeeping, accounting, legal and other professional charges and expenses, fees for permits and licenses, administrative expenses, taxes, service and maintenance contracts, signage, advertising, marketing and landscaping, cleaning, window washing, lighting, painting, fire protection and fire hydrant charges, steam, water and sewer charges, gas electricity and telephone utility charges, supplying music to the Common Areas, depreciation of the cost of equipment used in operating and maintaining the Common Areas, or rent paid for leasing such equipment, Landlord s office rent or the fair market rental value of office space in the Center used by Landlord to manage, operate and maintain the Common Areas, security, etc., (collectively, the Operating Costs ). Tenant's Pro Rata Share of the Operating Costs shall be the proportion that the area of the Premises bears to the total rentable area of all rentable space in the Center owned by the Landlord. (b) On the first day of each month (or such other regular cycle as Landlord may determine)Tenant shall pay a monthly advance charge on account of Tenant's Pro Rata Share of the Operating Costs. The amount of the monthly charge shall be established by Landlord and may be adjusted from time to time by Landlord to reflect the actual cost. Within 120 days after the end of each fiscal year as established for the Center by Landlord, Landlord shall provide to Tenant a reasonably detailed summary of the actual Operating Costs showing Tenant's actual share and the amount by which Tenant has overpaid or underpaid. Any overpayment shall be credited to Tenant's account. Any deficiency shall be payable within ten days after receipt of the statement. In the alternative, Landlord may, at its option during all or part of the Term, bill Tenant for its pro rata share of Operating Costs in arrears based on actual costs as they are incurred, in which case Tenant shall pay the invoice within ten days after receipt. However, Landlord s failure to provide such reasonably detailed summary of the actual Operating Costs showing Tenant's actual share and the amount by which Tenant has overpaid or underpaid by the date provided above shall in no way excuse Tenant from its obligation to pay its pro rata share of Operating Costs or constitute a waiver of Landlord s right to bill and collect such pro rata share of Operating Costs from Tenant in accordance with this Article 7(b). (c) The operating costs for the fiscal year in which this Lease commences or terminates shall be apportioned so that Tenant shall not be responsible for costs that relate to periods prior to or subsequent to the term of this Lease except any period of holding over. (d) Tenant shall be solely responsible for payment for and pay before delinquency all utilities provided to the Premises as of the Commencement Date, which shall be separately metered at Tenant's expense. Tenant s failure to timely pay its utility bills shall be deemed a material breach of this Lease and an event of default. Notwithstanding any other provision of this Lease, upon delivery of a written notice by Landlord to Tenant of such even of default for failure to pay such utility charges and Tenant s failure to cure said default within 3 days of the delivery of such notice, Landlord may terminate this Lease. 7. Construction, Delivery, and Condition (a) If delivery of possession of the Premises to Tenant is delayed beyond the anticipated Commencement Date because of a delay in the completion of construction of the Premises by Landlord or because of a failure of an existing tenant to surrender possession of the Premises to Landlord, then this Lease shall remain in full force and effect, Landlord shall not be liable to Tenant for any damage occasioned by delay, and the Commencement Date shall be changed to the date actual delivery of possession to Tenant is tendered. Notwithstanding the foregoing, if tender of possession is delayed more than 120 days after the anticipated Commencement Date as set forth in Article 1(a), Tenant, by written notice to Landlord, may terminate this Lease prior to taking possession, and upon such termination any Security Deposit shall be refunded and both Landlord and Tenant shall be released of all further obligation hereunder. (b) Tenant accepts the Premises AS IS, acknowledges that Landlord has made no representations or warranties with respect thereto and is relying solely upon Tenant s own independent factual, physical and legal investigation, tests and studies. No Improvements shall be constructed until approved plans and specifications have been attached to this Lease or otherwise accepted by both Landlord and Tenant. Landlord will have final approval of all Improvements. (c) All Work shall be performed by licensed, bondable Contractors (defined below) approved in writing by Landlord, whose approval shall not be unreasonably withheld. The term Contractor as used herein includes subcontractors or other persons hired or retained by Tenant to construct improvements in the Premises. No Work shall be commenced until Landlord shall first have received from Tenant or its contractor a labor and materials payment bond issued by a responsible surety in form reasonably satisfactory to Landlord insuring that no mechanic's lien may be asserted against the Premises or the Center in connection with the Work. Landlord may post signs of non-responsibility around the Premises. (d) Tenant shall have no right to enter the Premises and/or to perform the Work prior to the Commencement Date, without Landlord's written consent. If Landlord does so consent, Tenant shall comply with directions of the Landlord and shall not interfere with any of Landlord's construction activities. Any work performed by Tenant, or any fixtures, furnishings, equipment and other personal property moved onto the Premises, shall be at Tenant's own risk. Neither Landlord nor Landlord's agents or contractors shall be responsible to Tenant for damage or destruction of Tenant's work or property excepting damage or destruction occasioned by Landlord's own gross negligence. Tenant agrees to indemnify Landlord and hold Landlord harmless from and against claims made with respect to injuries to persons or damage or destruction of property of other persons moved onto the Premises prior to the Commencement Date. (e) Landlord has no obligation to design or construct improvements or to make alterations in the Premises. (f) Upon the expiration or earlier termination of this Lease or upon the termination of Tenant's right of possession, whether by lapse of time or otherwise, Tenant shall, upon demand by the Landlord, at Landlord's option, at the Tenant's sole expense, forthwith remove any alterations, additions or improvements made by Tenant, designated by Landlord to be removed, and Tenant shall, forthwith at its sole cost and expense, repair any damage to the Premises caused by such removal and restore the Premises to a condition reasonably comparable to their condition at the commencement of the Lease. If not so demanded by the Landlord, then any alterations, additions or improvements to the Premises, including signs, but not including movable furniture and trade fixtures, shall at the expiration or earlier termination of this Lease or upon the termination of Tenant's right of possession, whether by lapse of time or otherwise, become a part of the realty and belong to Landlord. 8. Repair and Maintenance (a) Tenant shall, at Tenant s sole cost and expense, as of the Commencement Date maintain the Premises and the improvements thereon (including without limitation all heating, air conditioning, ventilation, electrical and plumbing systems serving the Premises, all signs, locks, doors and door frames), in good condition and repair. All exterior and interior glass in the Premises shall be maintained by Tenant and any glass broken shall be promptly replaced by Tenant at its expense with glass of the same kind, size and quality. If Tenant does not do so, Landlord may, but need not, make any such repairs and replacements, and Tenant shall pay Landlord the cost upon demand. Tenant hereby waives all right, if any, to make repairs at the expense of Landlord. (b) Subject to the provisions of Article 7, Landlord shall repair and maintain the Common Areas, the roof and exterior of the Premises and all utility lines below grade or in the Common Areas. Landlord shall not be responsible to make any repairs or perform any maintenance unless written notice of the need for such repairs or maintenance is given by Tenant and Landlord determines, in good faith, that such need does exist. Except in the case of a fire or casualty as provided in Article 13 or in the event of a business interruption caused solely by Landlord s gross negligence which exceeds 14 days, there shall be no abatement of Rent and no liability of Landlord by reason of any entry to the Premises, interruption of services or facilities, temporary closure of Common Areas, or interference with Tenant's business arising from the making of any repairs or maintenance. 9. Alterations and Personal Property Tenant shall not make or suffer to be made any alterations, additions or improvements to the Premises, including signs, without the prior written consent of Landlord of which consent shall not be unreasonably withheld, but which shall not be required to be given until Landlord has actually received a copy of Tenant s building permit and plans (interior and exterior). Landlord may condition its consent upon provision of a payment bond, in amount and form reasonably satisfactory to Landlord, covering the work to be done by Tenant's contractor. Tenant shall not install any antenna, satellite dish or other fixture or equipment on the roof or in the Common Areas. In the event Landlord consents to the making of any alterations, additions or improvements to the Premises by Tenant, they shall be made by Tenant at Tenant's sole cost and expense and any contractor or person selected by Tenant to perform the work must first be approved in writing by Landlord. Tenant shall not permit any mechanic's or materialmen's lien to stand against the Premises for any labor or materials provided to the Premises by any contractor or other person hired or retained by Tenant. Tenant shall cause any such lien to be discharged (by bonding or otherwise) within ten days after demand by Landlord, and if it is not discharged within ten days, Landlord may, in addition to all other remedies for an event of default, pay or otherwise discharge the lien and immediately recover all amounts so expended from Tenant as Rent. Upon the expiration or earlier termination of this Lease or upon the termination of Tenant's right of possession, whether by lapse of time or otherwise, Tenant shall, upon demand by Landlord, at Landlord's option, at Tenant's sole cost and expense, forthwith remove any alterations, additions or improvements made by Tenant, designated by Landlord to be removed, and Tenant shall, forthwith at its sole cost and expense, repair any damage to the Premises caused by such removal and restore the Premises to a condition reasonably comparable to their condition at the commencement of the Lease. If not so demanded by Landlord, then any alterations, additions or improvements to the Premises, including signs, but not including movable furniture and trade fixtures, shall, upon the expiration or earlier termination of this Lease or upon the termination of Tenant's right of possession, whether by lapse of time or otherwise, become a part of the realty and belong to Landlord. 10. Certain Rights Reserved by Landlord Landlord shall have the right: (i) To change the Center's name or street address; (ii) To enter the Premises either personally or by designated representative at all reasonable times during normal business hours or other hours with prior notification for the purpose of examining or inspecting the same, showing the same to prospective purchasers or lessees, or performing any repairs, construction or alteration in relation to the Center or which is Landlord's responsibility under this Lease. Landlord shall be permitted to do any of the above without any rebate of Rent and without any liability to Tenant for any loss of occupation or quiet enjoyment of the Premises thereby occasioned. Tenant shall provide Landlord with a key to the Premises for purposes of emergency entry by Landlord or its agents. Use of this key is to be restricted to emergency situations or as permitted by Tenant hereunder. (iii) To grant to anyone the exclusive right to conduct any business or render any service in or to the Center, provided such exclusive right shall not operate to exclude Tenant from the use expressly permitted under Article 4. None of the rights specified above shall be construed or otherwise considered as a waiver of any rights Landlord may have under this Lease, at law or in equity or otherwise. 11. Damage to Property; Injury to Persons; Insurance; Indemnity (a) Tenant shall defend, indemnify and hold Landlord harmless, regardless of fault or negligence which is imputed to Landlord as the owner of Center, from any and all claims costs, liability, damage or expense, including reasonable attorneys' fees, for any death, damage or injury to persons or property occurring on the Premises and resulting in whole or in part from (i) any misrepresentation, breach of warranty or nonfulfillment of any agreement on the part of Tenant contained in this Lease, (ii) any act, omission or condition for which Tenant is solely responsible under the Lease, (iii) any work of construction, improvement or demolition controlled by or subject to the control of Tenant, (iv) the negligence of Tenant, its agents, employees or contractors, (v) Tenant's use or occupancy of the Premises, (vi) the conduct of its business, (vii) from any activity, work, or thing done, permitted or suffered by Tenant in or about the Premises, or (viii) from the condition of the Premises. Tenant shall further defend, indemnify and hold Landlord harmless from any and all claims arising in whole or in part from any breach or default in the performance of this Lease by Tenant, and/or arising in whole or in part from any act of Tenant, or of its agents or employees, and from all costs, attorneys' fees, expenses and liabilities incurred directly or indirectly as a result of any such act and/or claim. Tenant, as a material part of the consideration to Landlord, hereby assumes all risk of damage to property or injury to persons, in, upon, or about the Premises from any cause, and Tenant hereby waives all claims in respect thereto against Landlord. Landlord shall in no event be liable for loss of or damage to any property by vandalism, theft or otherwise, or for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak from any part of any building or from the pipes, appliances or plumbing works therein, or from the roof, street or subsurface, or from any other place resulting from dampness, or from the elements or any other cause whatsoever. Landlord shall not be liable for interference with the natural light. Tenant shall give immediate notice to Landlord of any fire, accident or defect discovered with the Premises or the building of which the Premises are a part. Tenant acknowledges that it can protect itself against some or all of the foregoing risks by procuring appropriate insurance. Tenant's indemnification obligations shall survive the expiration or earlier termination of this Lease or upon the termination of Tenant's right of possession, whether by lapse of time or otherwise. (b) Tenant shall, at Tenant s sole cost and expense, as of the Commencement Date maintain fire and extended coverage insurance throughout the term of this Lease in an amount equal to one hundred percent of the replacement value of Tenant's fixtures, furnishings, equipment and other personal property located on the Premises, together with such other insurance as may be required by Landlord's lender or by any government agency. All proceeds of Tenant's policy of fire and extended coverage insurance shall be payable to Tenant, and all proceeds of policies of insurance procured by Landlord shall be payable to Landlord. Tenant hereby waives any right of recovery from Landlord and Landlord hereby waives any right of recovery from Tenant for any loss or damage (including consequential loss) resulting from any of the perils insured against in the insurance policies required to be maintained hereunder. During the Term, Tenant shall, at Tenant's sole cost and expense, maintain general public liability insurance against claims for personal injury, death or property damage occurring in, upon or about the Premises. The limitation of liability of such insurance shall be not less than Two Million Dollars in respect to injury or death of one person and to the limit of not less than Two Million Dollars in respect to any one accident and to the limit of not less than Five Hundred Thousand Dollars in respect to property damage. All of Tenant's policies of liability insurance shall be obtained by Tenant in an "occurrence" form and shall name Landlord as an additional insured or loss payee, as appropriate. All policies of insurance or copies thereof required to be carried by Tenant under this Article 12 shall be delivered to Landlord prior to the Commencement Date and thereafter at least thirty days prior to the expiration of the then current policies. Each policy shall contain an endorsement prohibiting cancellation or non-renewal without at least 30 days prior notice to Landlord. 12. Fire and Casualty If the Premises are wholly or partially destroyed or damaged by fire or other casualty, Landlord shall restore the Premises with reasonable diligence; provided, however, that Landlord shall have no obligation to restore improvements not originally provided by Landlord or to replace any of Tenant's fixtures, furnishings, equipment or personal property; and provided further that Landlord need not commence repairs until insurance proceeds are available and are released in a sufficient amount for such purpose by any lender holding a lien on all or part of the Center. Proceeds of insurance payable with respect to a fire or other casualty shall be received and held by Landlord. Notwithstanding the foregoing, in the event the Premises are destroyed or damaged by any fire or casualty to the extent of not less than twenty-five percent of the replacement cost thereof, or if the fire or casualty occurs within the last three years of the Term, then Landlord shall have the option to terminate this Lease by giving notice to Tenant within sixty days after the occurrence of such damage or destruction, in which case Landlord shall retain all insurance proceeds with respect to the Premises as its own property and shall not be required to spend any more on the restoration than the amount of proceeds actually received by Landlord. If Landlord does not terminate this Lease as provided above, this Lease shall continue in full force and effect, but Minimum Annual Rent shall equitably abate until the restoration is substantially complete. However, in the event it is determined that Tenant's ability to continuously operate and conduct business on the Premises is not hindered, then Minimum Annual Rent shall abate in proportion to the Premises under restoration. The provisions of this Lease shall govern when this Lease shall be terminable as a result of a fire or casualty, and no other rule or statute on the subject shall apply. 13. Condemnation In the event the entire Premises shall be appropriated or taken under the power of eminent domain, this Lease shall terminate and expire as of the date of such taking. In the event more than twenty-five percent of the Premises is taken under the power of eminent domain, or if by reason of any appropriation or taking, regardless of the amount so taken, the remainder of the Premises is not one undivided parcel of property, either Landlord or Tenant shall have the right to terminate this Lease as of the date Tenant is required to vacate a portion of the Premises upon giving notice in writing of such election within thirty days after receipt by Tenant from Landlord of written notice that the Premises have been so appropriated or taken. If neither Landlord nor Tenant elects to so terminate this Lease, or in the event less than twenty-five percent of the Premises shall be appropriated under the power of eminent domain by any public or quasi-public authority, and the remainder thereof is an undivided parcel of property, then Landlord shall restore the Premises to the extent practicable to their condition prior to the taking, provided that no such restoration need commence until the condemnation proceeds are available and released in a sufficient amount for such purpose by any lender holding a lien on all or part of the Center and further provided that Landlord shall not be required to spend more than the condemnation proceeds actually received by Landlord, and thereafter the Minimum Annual Rent shall be reduced on an equitable basis, taking into account the relative value of the portion taken as compared to the portion remaining. All awards or compensation for any taking of any part of the Premises, whether payable to Landlord or Tenant, shall be the sole property of Landlord. Notwithstanding anything to the contrary contained herein, Tenant shall be entitled to receive any portion of an award of compensation relating to damage to or loss of trade fixtures or other personal property belonging to Tenant, and Landlord shall be under no obligation to restore or replace Tenant's furnishings, fixtures, equipment and personal property. For the purposes of this Article 14, a voluntary sale or conveyance in lieu of condemnation shall be deemed an appropriation or a taking under the power of eminent domain. 14. Assignment and Subletting; Sale by Landlord (a) Tenant shall not, either voluntarily or by operation of law, assign, hypothecate or transfer this Lease, or sublet the Premises or any part thereof, or permit the Premises or any part thereof to be occupied by anyone other than Tenant or Tenant's employees (individually, a Transfer ), without the Landlord's prior written consent ("Transfer Notice") which shall not be unreasonably withheld. However, Tenant may, without Landlord's prior approval, sublet the Premises to Pinnacle Inn at The Citadel, LLC. Landlord shall be under no obligation to give or withhold consent until after all information reasonably required by Landlord with respect to the identity, background, experience and financial worth of the proposed assignee, transferee, or subtenant (the Transferee ) has been provided. No hypothecation, assignment, sublease or other transfer to which Landlord has consented shall be effective for any purpose until such time as fully executed documents of such transaction have been provided to Landlord, and, in the case of an assignment, the assignee has attorned directly to Landlord, and in the case of a sublease, the sublessee has acknowledged that the sublease is subject to all of the terms and conditions of this Lease. Any assignment, mortgage, transfer or subletting of this Lease which is not in compliance with the provisions of this Article 15 shall be voidable by Landlord and shall, at the option of Landlord, terminate this Lease. Any differing of use or extension of use by Tenant or any Transferee will, at the option of Landlord terminate this Lease. The consent by Landlord to an assignment or subletting shall not relieve Tenant from obtaining the express written consent of Landlord to any further assignment or subletting or release Tenant from any liability or obligation hereunder, whether or not then accrued. Except as provided in this Article, this Lease shall be binding upon and inure to the benefit of the successors and assigns of the parties. (b) In the event of a sale or conveyance by Landlord of the Premises, Landlord shall be relieved of all future liability upon any of the covenants or conditions, express or implied, in favor of Tenant, and Tenant shall look solely to Landlord's successor in interest. This Lease shall not be affected by any sale, and Tenant shall attorn to the successor in interest. If any Security Deposit has been made by Tenant, the successor in interest shall be obligated to return it in accordance with the terms hereof and Landlord shall be discharged from any further liability in reference thereto. (c) If any rent of other monetary payment due under the terms of this Lease is made by check wherein the payor is other than the Tenant herein, acceptance thereof shall in no way constitute acceptance by Landlord of any assignment or subletting. Any assignment or subletting must comply with the conditions of this Article 15. 15. Estoppel Certificate (a) Tenant shall at any time and from time to time upon not less than ten days' prior written notice from Landlord execute, acknowledge and deliver to Landlord a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the dates to which the rental and other charges are paid in advance, if any; (ii) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if they are claimed; and (iii) certifying such other matters relating to this Lease as Landlord may reasonably request. Any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the real property of which the Premises are a part. (b) Tenant's failure to deliver a statement within the time prescribed by Landlord in its request for same shall be conclusive upon Tenant (i) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (ii) that there are no uncured defaults in Landlord's performance, and (iii) that not more than one month's rental has been paid in advance. 16. Landlord's Remedies (a) The following shall constitute events of default: (i) Tenant's failure to pay any amount due under Article 2, Article 5(b) or Article 7 of this Lease within 5 days of when due, or Tenants failure to pay any other amount due under this Lease within 5 days after notice from Landlord. (ii) Tenant's failure to execute, acknowledge and return an estoppel certificate under Article 16 or a subordination agreement under Article 19, within ten days after request. (iii) Tenant's failure to perform any other obligation under this Lease within fifteen days after notice of nonperformance; provided, however, that if the breach is of such a nature that it can be cured but it cannot be cured within fifteen days, Tenant shall be deemed to have cured if cure is commenced promptly and diligently pursued to completion with completion accomplished within 30 days of the original notice of nonperformance; and provided further, that in the event of a breach involving an imminent threat to health or safety, Landlord may in its notice of breach reduce the period for cure to such shorter period as may be reasonable under the circumstances. (iv) Tenant vacates, abandons, or otherwise ceases to operate the Premises on a continuing basis except temporary absence, excused by Landlord in its sole discretion, by reason of fire, casualty, or other cause wholly beyond Tenant's control. (v) Any goods, chattels or equipment of Tenant are taken in execution or in attachment or if a writ of execution is issued against Tenant or if Tenant or any guarantor becomes insolvent or files a petition under the Bankruptcy Act or becomes bankrupt or takes the benefit of any statute that may be in force for bankrupt or insolvent debtors or becomes involved in voluntary or involuntary winding-up proceedings or if a receiver shall be appointed for the business, property, affairs or revenues of Tenant or any guarantor (provided, however, that in the case of involuntary proceedings, Tenant shall have 60 days to cause them to be dismissed), or if Tenant makes a bulk sale of its goods or moves or commences, attempts or threatens to move its goods, chattels and equipment out of the Premises other than in the normal course of its business. (b) Upon the occurrence of an event of default, Landlord, at any time thereafter without further notice or demand, may, in addition to all of its rights and remedies at law and/or at equity, exercise any one or more of the following remedies concurrently or in succession, all of which shall be cumulative: (i) Terminate Tenant's right to possession of the Premises by legal process or otherwise, with or without terminating this Lease, and retake exclusive possession of the Premises. (ii) From time to time relet all or portions of the Premises, using reasonable efforts to mitigate Landlord's damages. In connection with any reletting, Landlord may relet for a period extending beyond the term of this Lease and may make alterations or improvements to the Premises without releasing Tenant of any liability. Upon a reletting of all or substantially all of the Premises, Landlord shall be entitled to recover all of its then prospective damages for the balance of the Lease term measured by the difference between amounts payable under this Lease and the anticipated net proceeds of reletting during the remaining Term. In no event shall Tenant be entitled to receive any amount representing the excess of avails of reletting over amounts payable hereunder. (iii) From time to time recover accrued and unpaid rent and damages arising from Tenant's breach of the Lease, regardless of whether the Lease has been terminated, together with applicable late charges and interest. (iv) Enforce the statutory landlord's lien on Tenant's property. (v) Recover all reasonable attorneys' fees incurred by Landlord in connection with enforcing this Lease, recovering possession and collecting amounts owned. (vi) Perform the obligation on Tenant's behalf and recover from Tenant, upon demand, the entire amount expended by Landlord plus 20% for special handling, supervision, and overhead. (vii) Terminate this Lease by giving written notice of such intention to terminate. In the event that Landlord elects to terminate this Lease, then Landlord may recover from Tenant: (a) All unpaid Rent owed by Tenant as of the date of termination; plus (b) All Rent which would have been payable by Tenant under this Lease but for its termination until the time of award; plus (c) All Rent under the Lease for the balance of the Term after the time of award; plus (d) All other damages incurred by Landlord as a result of Tenant s default. default. Although defined elsewhere, the parties acknowledge that the term Rent shall be deemed to be and mean the Annual Minimum Rent and all other sums required to be paid by Tenant pursuant to the terms of this Lease. (viii) Pursue other remedies available at law or in equity. (c) Upon a termination of Tenant's right to possession, whether or not this Lease is terminated, subtenancies and other rights of persons claiming under or through Tenant: (i) shall be terminated or (ii) Tenant's interest shall be assigned to Landlord. Landlord may separately elect termination or assignment with respect to each such subtenancy or other matter. 17. Notices All notices to be given by one party to the other under this Lease shall be in writing, mailed or hand-delivered to each at the address to the individual, set forth at the end of this Lease or at a changed address if notice of the change is given to the other party in writing. In the case of notice to Tenant after Tenant takes possession of the Premises, notice shall be sufficient if mailed or delivered to the address of the Premises. Mailed notices shall be sent by United States certified or registered mail, postage prepaid. Such notices shall be deemed to have been given upon posting in the United States mail. Actual notice shall be no substitute for written notice under any provision of this Lease. 18. Subordination Landlord expressly reserves the right at any time to place ground leases, liens and encumbrances on and against the Premises and the Center (collectively, the Title Matters ), superior in lien and effect to this Lease and the estate created hereby. Tenant acknowledges that there may currently exist any such Title Matters which are superior in lien and effect to this Lease and the estate created hereby. This provision shall be self-operative, but Tenant shall nevertheless execute upon request subordination agreements presented by Landlord to confirm the superiority of the Title Matters. 19. Authority to Execute Any individual executing this Lease on behalf of or as a representative for a corporation or other person, firm, partnership or entity represents and warrants that such individual is duly authorized to execute and deliver this Lease on behalf of said corporation, person, firm, partnership or other entity and that this Lease is binding upon said entity in accordance with its terms. If Tenant is a corporation, Tenant shall deliver to Landlord within fifteen days after the execution hereof a certified copy of a resolution of the Board of Directors of said corporation authorizing or ratifying the execution and delivery of this Lease by the individuals executing and delivering same on behalf of Tenant. 20. Brokers Landlord and Tenant each covenant that they have not dealt with any real estate broker or finder with respect to this Lease and each party shall hold the other party harmless from all damages, claims, liabilities or expenses, including reasonable and actual attorneys' fees (through all levels of proceedings), resulting from any claims that may be asserted against the other party by any real estate broker or finder with whom the indemnifying party either has or is purported to have dealt. 21. Arbitration All controversies, disputes or claims arising between Landlord and Tenant in connection with, arising from, or with respect to this Lease or any agreement related to this Lease between the parties shall be submitted for binding arbitration in accordance with rules of the American Arbitration Association or any successor thereof. Arbitration shall be conducted solely on an individual, not a class-wise basis, unless all parties so agree. Venue of such arbitration shall be set in Maricopa County, Arizona. Each party shall select one arbitrator (who shall not be counsel for the party) and the two so designated shall select a third arbitrator. If either party shall fail to designate an arbitrator within ten (10) days after arbitration is requested, or if the two arbitrators shall fail to select a third arbitrator within twenty (20) days after arbitration is requested, then such arbitrator shall be selected by the American Arbitration Association or any successor thereto upon application of either party. Judgment upon any award of the majority of arbitrators shall be binding, final and non-appealable and shall be entered in a court of competent jurisdiction. The award of the arbitrators may grant any relief which might be granted by a court of general jurisdiction including, without limitation, an award of damages and/or injunctive relief, and the costs of the arbitration, including the reasonable fees of the arbitrators and reasonable attorney s fees. All issues relating to the arbitrability or the enforcement of the agreement to arbitrate contained herein shall be governed by the Federal Arbitration Act (9 U.S.C. 1 et. seq.) and the Federal Common Law of Arbitration. 22. Americans with Disabilities Act Landlord and Tenant hereby acknowledge that the Americans with Disabilities Act (the ADA ) may affect Tenant s use and occupancy of the Premises and requires Tenant to modify or alter the design, layout or other physical elements of the interior of the Premises or provide auxiliary services in connection with its business operations. Tenant shall comply in all respects with the requirement of the ADA as it affects Tenant s use and occupancy of the Premises throughout the Term, and Tenant acknowledges that, notwithstanding any modifications to the Common Areas which may be made by Landlord in order to conform such areas with the requirements of the ADA, Landlord makes no representation or warranties regarding the compliance of the Premises of the Center with the ADA, nor shall Landlord have any obligations or liabilities to Tenant to construct any modifications or alterations to the interior of the Premises in order to comply with the ADA. 23. General Provisions (a) This Lease and the obligations of Tenant hereunder shall not be affected or impaired because Landlord is unable to fulfill any of its obligations hereunder or is delayed in doing so if such inability or delay is caused by reason of any strike, lockout, civil commotion, war-like operations, invasion, rebellion, hostilities, military or usurped power, sabotage, governmental regulations or controls, inability to obtain any material, service or financing, Act of God or other cause beyond the control of the Landlord. (b) Landlord shall have the right to, from time to time, make rules and regulations for the Center and its operations. Tenant and its officers, agents, and employees, agree to comply with the rules and regulations established by Landlord and with such modifications and additions as Landlord may hereafter make for the Center. Any violation of the rules and regulations shall constitute a material breach of this Lease. (c) The article captions contained in this Lease are for convenience only and shall not be considered in the construction or interpretation of any provision. The masculine, feminine or neuter gender and the singular or plural number shall be deemed to include the others whenever the context so requires or indicates. (d) This Lease contains all of the agreements of the parties hereto with respect to any matter covered or mentioned in this Lease, and no prior agreement or understanding pertaining to any matter shall be effective for any purpose. No provision of this Lease may be amended or added to except by an agreement in writing signed by the parties hereto or their respective successors in interest. (e) Submission of this instrument for examination shall not bind Landlord in any manner, and no lease or obligations of Landlord shall arise until this instrument is signed and delivered by authorized officers of Landlord and Tenant. (f) No rights to light or air over any property, whether belonging to Landlord or any other persons, are granted to Tenant by this Lease. (g) No waiver by Landlord of any provisions of this Lease or any breach by Tenant hereunder shall be deemed to be a waiver of any other provision hereof, or of any subsequent breach by Tenant of the same or any other provision. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval shall not be deemed to render unnecessary the obtaining of Landlord's consent to or approval of any subsequent act of Tenant, whether or not similar to the act so consented to or approved. No act or thing done by Landlord or Landlord's agent during the term of this Lease shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept a surrender shall be valid unless in writing and signed by Landlord. No employee of Landlord or of Landlord's agents shall have any power to accept the keys to the Premises prior to the termination of this Lease, and the delivery of the keys to any employee shall not operate as a termination of the Lease or a surrender of the Premises. (h) Time is of the essence of this Lease. (i) All exhibits attached hereto are incorporated herein by this reference. (j) The parties hereto agree that all the provisions hereof are to be construed as covenants and agreements as though the words importing such covenants and agreements were used in each separate paragraph hereof. This Lease is the result of negotiations between Landlord and Tenant, who each had the opportunity to obtain legal advice regarding the same. This Lease shall not be construed for or against Landlord or Tenant on the basis of which party physically served as scrivener of this Lease. (k) Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third person to create the relationship of principal and agent, partnership, joint venture, or any other association between Landlord and Tenant other than the landlord-tenant relationship described herein. (l) In the event either party shall commence or be required to defend any action or proceeding against any other party by reason of any breach or claimed breach of any provision of this Lease, to commence or defend any action or proceeding in any way connected with this Lease or to seek a judicial declaration of rights under this Lease, the party prevailing in such action or proceeding shall be entitled to recover from or to be reimbursed by the other party for the prevailing party's reasonable attorneys' fees and costs through all levels of proceedings. (m) If any provision of this Lease or the application thereof to any person or circumstance shall be deemed invalid or unenforceable, the remainder of this Lease and its application to other persons or circumstances shall not be affected by such partial invalidity but shall be enforced to the fullest extent permitted by law as though such invalid or unenforceable provision was never a part hereof. (n) This Lease shall be construed in accordance with the laws of the State of Arizona without regard to its principles of choice of law, and the parties agree that jurisdiction for all actions hereunder shall lie therein. (o) This Lease shall be governed by the laws of the State of Arizona. LANDLORD: ADDRESS: Pinnacle Citadel, L.L.C., an 23733 N. Scottsdale Road Arizona limited liability company Scottsdale, Arizona 85255 By: Prime Pinnacle Peak Properties, Inc., an Arizona corporation, Its Managing Member By: /s/ Harvey Acridge ------------------------------- Harvey Acridge, General Manager TENANT: ADDRESS: Giant Industries Arizona, Inc. 23733 N. Scottsdale Road an Arizona corporation Scottsdale, AZ 85255 By: /s/ James E. Acridge ---------------------------------- James E. Acridge Its: CEO ---------------------------------- EX-10.31 13 EXHIBIT 10.31 RETAIL SUBLEASE THIS RETAIL SUBLEASE (the "Lease") is made this 1st day of July, 1998 by and between GIANT INDUSTRIES ARIZONA, INC., an Arizona corporation ("Lessor"), and PINNACLE INN AT THE CITADEL LLC, an Arizona corporation ("Tenant"). Lessor is the lessee of 8,176 square feet of space in The Citadel located at 8700 East Pinnacle Peak Road, Scottsdale, Arizona, pursuant to a Lease of even date between Lessor, as tenant, and Pinnacle Citadel LLC, as landlord (the "Senior Lease"). Lessor desires to sublease to Tenant, and Tenant desires to rent and sublease from Lessor, the 8,176 square feet of space, subject to the terms and conditions of this Lease. Notwithstanding the foregoing, Lessor may, with 120 days written notification to Tenant, terminate Lease and Tenant will vacate Premises at which time Lessor would occupy Premises as office suites. Lessor hereby leases to Tenant and Tenant leases from Lessor for the term and upon the conditions and agreements set forth in this Lease a portion of the real property described on Exhibit A attached hereto known as the Inn at the Citadel, consisting of approximately 8,176 square feet of space consisting of eleven suites on the second floor and an office/lobby suite on the first floor together with any or all additional space used in connection with Tenant's business (the "Premises") in The Citadel (the "Center") along with two (2) covered parking spaces numbered 9 and 10 each located in the area cross-hatched on Exhibit B. The address of the premises is 8700 East Pinnacle Peak Road, Scottsdale, Arizona 85255. 1. Term and Possession (a) The term (the Term ) of this Lease shall commence on the earlier of (i) the date possession is tendered by written notice to Tenant or (ii) the date on which the Tenant shall first use or occupy any part of the premises or (iii) the date a temporary certificate of occupancy for the Premises is issued by the City of Scottsdale (the "Commencement Date") and shall expire on June 30, 2003. The Tenant's obligation to pay Rent (defined in Articles 2(d) below) shall begin on the Commencement Date (the Rent Start Date"). The anticipated Commencement Date is July 1, 1998. Upon request of either party after the term has commenced, Lessor and Tenant shall jointly execute a memorandum confirming the Commencement Date. (b) Upon the expiration or earlier termination of this Lease or upon the termination of Tenant's right of possession, whether by lapse of time or otherwise, Tenant shall at once surrender possession of the Premises to Lessor and remove all of Tenant's property as provided in Article 10. (c) Tenant shall have no right to hold over after the expiration of this Lease without Lessor's prior written consent. If, with Lessor's prior written consent, Tenant holds over after the expiration of this Lease, Tenant shall become a tenant from month to month only, upon all of the terms of this Lease except that Article 1(a) shall not apply and the amount of the Minimum Annual Rent (defined at Article 2(a) below) shall be increased to an amount equal to 125% of the Minimum Annual Rent in effect immediately prior to the expiration. (d) Provided Tenant has not been and/or Lessor has not deemed Tenant in default under this Lease, Tenant shall have the option, exercisable by written notice given to the Lessor at least 180 days prior to the expiration of the then current Term, to extend this Lease by one (1) successive period of five (5) years. All the terms and conditions of this Lease, including, without limitation, Article 2(b), shall remain in full force and effect during the extended Term. As used herein, the word Term shall hereafter mean the Term as it may have been extended pursuant to this Article 1(d). 2. Rent (a) Minimum Rent. Tenant shall pay to Lessor during the Term at the office of Lessor, 23733 North Scottsdale Road, Scottsdale, AZ 85255, or at such other place as Lessor may designate, without notice, demand, deduction or set-off, Minimum Annual Rent in the amount of $163,520.00 per annum, subject to adjustment as provided in Article 2(b), in equal monthly installments in advance on the first day of each calendar month with applicable transaction privilege or other similar sales tax. In addition, Tenant shall pay the amount of $40.00 per month for each of the two (2) reserved covered parking spaces. In the event the Rent Start Date does not occur on the first day of a calendar month, Tenant shall pay Rent on the Rent Start Date for the fractional month on a pro rata 30-day month basis. (b) Adjustments. The Minimum Annual Rent shall be adjusted upwards as of each one (1) year anniversary of the Commencement Date (the Adjustment Date ) as follows: (i) Lessor shall ascertain the Consumer Price Index for All Urban Consumers - U.S. Cities Average - All Items (the "CPI") published by the United States Department of Labor, Bureau of Labor Statistics (1982-84 = 100) for the third full calendar month prior to the Commencement Date for the first year adjustment and the third full calendar month prior to the previous Adjustment Date for all following adjustments (the "Base Index") and for the third full calendar month prior to the Adjustment Date (the "Comparison Index"). (ii) The Minimum Annual Rent commencing as of each Adjustment Date shall be equal to the Minimum Annual Rent in effect immediately preceding each Adjustment Date (the "Effective Minimum Annual Rent") times a fraction, the numerator of which is the Comparison Index associated with that Adjustment Date and the denominator of which is the Base Index, as illustrated in the following formula for the first (1st) Adjustment Date: Adjusted Minimum = Effective Minimum x Comparison Index Annual Rent Annual Rent Base Index (iii) Notwithstanding the foregoing, in no event shall the Minimum Annual Rent be adjusted downwards. When the Minimum Annual Rent payable as of each Adjustment Date is determined, Lessor shall promptly give Tenant written notice of such adjusted Minimum Annual Rent and the manner in which it was computed. The Minimum Annual Rent as so adjusted from time to time shall be the "Minimum Annual Rent" for all purposes under this Lease. (iv) If at any time the CPI is no longer published or its manner of calculation is materially changed, Lessor may substitute a substitute index, reconciled to the month three (3) months prior to the Commencement Date, as reasonably reflects changes in the purchasing power of the dollar. (c) Nature of Payments. All sums required to be paid by Tenant under this Lease, whether or not so designated, including, without limitation, Minimum Annual Rent and Tenant s Pro Rata Share of Operating Costs are Rent and shall be paid without notice, demand, deduction, or set-off. (d) Late Charges and Interest. Any amount due from Tenant to Lessor which is not paid when due shall bear interest at three percent in excess of the prime rate as established from time to time by the Bank of America Arizona (or, if such bank ceases to exist, such other comparable financial institution as reasonably determined by Lessor) from the due date until paid, but the payment of such interest shall not excuse or cure any default by Tenant under this Lease. In addition, if any Rent or other payment is not paid within five days of its due date, then Tenant shall also pay to Lessor a late charge equal to ten percent of the amount of such payment. 3. Use (a) Tenant shall continuously and uninterruptedly operate, use and occupy the Premises as an inn along with a 1st floor office/lobby for the inn and for no other purpose whatsoever and shall be open for business those hours that conform with the hours of opening which are customary for businesses of like character in the City of Scottsdale. (b) Tenant, its agents, employees and/or contractors shall, at Tenant s sole cost and expense, comply with the following: (i) Tenant shall not use or permit upon the Premises anything that would invalidate any policies of insurance now or hereafter carried on the Premises or that will increase the rate of insurance on the Premises or the Center; (ii) Tenant shall pay all additional insurance premiums which may be caused by the use which Tenant shall make of the Premises; (iii) Tenant shall not in any manner deface or injure the Premises or overload any floor of the Premises; (iv) Tenant shall not conduct or permit any auction sale to be held on or about the Premises, whether such auction be voluntary or involuntary, or any sidewalk sale without the prior written consent of Lessor; (v) Tenant shall not do anything or permit anything to be done upon the Premises in any way tending to create a nuisance, or tending to disturb any other lessee in the Center or tending to injure the reputation of the Center, including, without limitation, the playing of music audible outside the Premises and the affixing or maintaining upon the glass panes or supports of the show windows or on or within 24" of any window, doors or exterior walls of the Premises, any signs, advertising placards, names, insignia, trademarks, descriptive material or any other like item(s) without having first received the written approval of Lessor as to the size, type, color, location, copy, nature and display qualities of any such item. All signs shall comply with City of Scottsdale sign ordinances and The Citadel sign criteria. (vi) Tenant shall not display merchandise, advertise or solicit business on the sidewalks and other Common Areas (defined at Article 6(a) below) or place any handbills, bumper stickers or other advertising devices on any vehicle parked in the Common Areas of any other parking area of the Center; (vii) Tenant shall not use the Premises designated as the office/lobby for lodging or sleeping purposes; (viii) Tenant shall not commit or suffer to be committed any waste upon the Premises; (ix) Tenant shall not violate any recorded restriction or covenant affecting the Center, nor use the Premises for any purpose which would be in violation of any exclusive rights or use granted to other tenants in the Center. Lessor shall not grant exclusive rights which would prohibit Tenant from exclusively using the Premises for the purposes stated in Article 4(a) above except for incidental uses ancillary to the main use of the other user. (x) Tenant shall, at its sole cost and expense, maintain the elevator located in the Center that services the Inn at the Citadel in first class condition. (c) Tenant shall provide and maintain sanitary receptacles within the Premises in which to place any refuse or trash. Tenant shall cause such refuse or trash to be removed from the Premises to receptacles designated by Lessor as often as required to maintain a sanitary condition, but in no event less often than daily. No grease or rubbish or hazardous waste shall be disposed of through any plumbing system. Tenant shall sweep as needed and keep free of refuse all sidewalks immediately adjacent to the Premises if so directed by Lessor. Tenant shall not allow the Premises to be infested with insects or vermin. (d) Tenant shall use its best efforts to complete all deliveries, loading, unloading and services to the Premises before 10:00 a.m. each day. Tenant shall attempt to prevent any delivery trucks or other vehicles servicing the Premises from parking or standing in front of, or at the rear of, the Premises from 10:00 a.m. to 9:00 p.m. of each day. Lessor reserves the right to further regulate the activities of Tenant in regard to deliveries to and servicing of the Premises, and Tenant agrees to abide by such further non-discriminatory regulations of Lessor. (e) Tenant shall, at Tenant's sole cost and expense, comply with all present and future federal, state and local laws, ordinances, orders, rules and regulations (collectively, "Laws"), and shall procure all permits, certificates, licenses and other authorizations required by applicable Law relating to Tenant's business or Tenant's use or occupancy of the Premises or Tenant's activities on the Premises. Tenant shall make all reports and filings required by applicable Laws. (f) Tenant's Warranty as to Hazardous or Toxic Materials. Tenant shall not cause or permit any Hazardous Substances to be brought upon, kept or used in or about the Premises by Tenant, its agents, employees, contractors or invitees, except such incidental quantities of commonly used office supplies (such as copier fluid and typewriter correction fluids) and ordinary cleaning solvents, provided that all of the foregoing are only in such quantities as are normal for the permitted use of the Premises, are used in the manner for which they are designed and are at all times used, kept, and stored and disposed of in a manner that strictly complies with all laws regulating any such Hazardous Substances. Any Hazardous Substances placed in or on the Premises by Tenant, its agents, employees, contractors or invitee shall remain the property of Tenant, notwithstanding anything in the Lease to the contrary. Tenant shall not install any underground storage tank on the Premises, as such term is defined in 42 U.S.C. Section 66991 and the regulations promulgated thereto, as amended from time to time and including all pipes and conduiting relating thereto. If Tenant breaches the covenants and obligations set forth herein, or if the presence of Hazardous Substances on, in or about the Premises caused by Tenant, its agents, employees, contractors or invitees, results in contamination of the Premises, then Tenant shall indemnify, defend and hold Lessor, its officers, employees, partners, agents and representatives, free and harmless from and against any and all claims, judgments, penalties, fines, costs, liabilities and damages, (including, without limitation, sums paid in settlement of claims, attorneys' fees and expenses (through all levels of proceedings), consultants or experts fees) and all costs incurred in enforcing this indemnity which arise during or after the Term as a result of the presence of such Hazardous Substances or any contamination, damage or injury therefrom. This indemnification by Tenant includes, without limitation, any and all costs incurred in connection with any investigation of site conditions or any clean up, remedial, removal or restoration work required by any federal, state or local governmental agency or political subdivision because of the presence of such Hazardous Substances caused by Tenant, its agents, employees, or contractors in, on or about the Premises. Tenant shall promptly take all actions, at its sole cost and expense, as are necessary to return the Premises to the condition existing prior to the introduction of any such Hazardous Substances, provided that Lessor's approval of such actions is first obtained. Furthermore, Tenant shall immediately notify Lessor of any inquiry, test, investigation or enforcement proceeding by or against Tenant or the Premises concerning the presence of any Hazardous Substances. Tenant acknowledges that Lessor, at Lessor's election, shall have the right to negotiate, defend, approve and appeal any action taken or order issued by any governmental authority with regard to any Hazardous Substances condition which Tenant is obligated hereunder to remediate. The provisions of this Article 4(f) shall survive the expiration or sooner termination of the Term or of Tenant's right to possession, whether by lapse of time or otherwise. The term "Hazardous Substance" includes, without limitation, any material or substance which is (i) defined or listed as a "hazardous waste", "extremely hazardous waste", "restrictive hazardous waste" or "hazardous substance" or considered a waste, condition of pollution or nuisance under any Environmental Law (as defined below); (ii) petroleum or a petroleum product or fraction thereof; (iii) asbestos; and/or (iv) substances known to cause cancer and/or reproductive toxicity. The term "Environmental Law" shall mean any federal, state or local law, statute, ordinance, rule, regulation, order, consent, decree, judgment or common-law doctrine, interpretation thereof, and provisions and conditions of permits, licenses, plans, approvals and other operating authorizations whether currently in force or hereafter enacted relating to health, industrial hygiene or the environmental conditions on, under or about the Premises or the Center, including, without limitation, (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Sections 9601 et seq.; (ii) the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Sections 6901 et seq.; (iii) the Federal Water Pollution Control Act, 33 U.S.C. Sections 1317 et seq., as such laws are amended and the regulations and administrative codes applicable thereto. It is the intent of the parties hereto to construe the terms "Hazardous Substance" and "Environmental Law" in their broadest sense. (g) Tenant shall keep its sign, exterior lighting and display windows lit during those hours that Lessor in its sole discretion may reasonably require. (h) Tenant shall not use the Premises for any purpose other than as set forth in Article 4(a) and shall notify Lessor in writing of, and obtain Lessor s prior written consent to, any intended change in the nature of its activities or business conducted on the Premises and permitted by Article 4(a). 4. Taxes (a) Tenant shall pay, prior to delinquency, all taxes assessed against or levied upon Tenant's fixtures, furnishings, equipment and other personal property (the Personalty ) located in or upon the Premises. Tenant shall cause the Personalty to be assessed and billed separately from the real property of which the Premises form a part. In the event any or all of Tenant's Personalty shall be assessed and taxed with the real property of which the Premises or the Center are a part, Tenant shall pay to Lessor Tenant's share of such taxes within ten days after delivery to Tenant by Lessor of a statement in writing setting forth the amount of such taxes applicable to Tenant's Personalty. (b) Tenant shall, simultaneously with the payment of any sums required to be paid under this Lease as Rent, additional rent or otherwise, pay or reimburse Lessor for any sales, use, rental, transaction privilege or other excise tax imposed or levied on, or measured by, the amount paid. (c) Concurrently with each payment of Minimum Annual Rent hereunder, Tenant shall deliver to Lessor a copy of the Preliminary Sales Tax Report filed (or required to be filed) by Tenant with the Arizona Department of Revenue for the immediately preceding calendar month, with respect to the business conducted in the Premises. 5. Common Areas (a) All parking areas, access roads, driveways, pedestrian sidewalks and ramps, landscaped areas, drainage facilities, exterior lighting, signs, courtyards and other areas and improvements provided by Lessor for the general use in common of tenants, their officers, agents, employees, customers and other invites (collectively, the "Common Areas") shall at all times be subject to the exclusive control and management of Lessor, and Lessor shall have the right from time to time to modify, enlarge or eliminate the same and to establish, modify and enforce reasonable rules and regulations with respect thereto. Tenant's right to use the Premises includes the non-exclusive right to use the areas designated from time to time by Lessor as the Common Areas. (b) Lessor shall at all times have the right to designate a particular parking area to be used by employees of Tenant and other occupants of the Center and any such designation may be changed by Lessor from time to time. Tenant and its employees shall park their cars only in those portions of the Common Areas, if any, designated for that purpose by Lessor. Tenant shall furnish Lessor from time to time with an accurate current list of its and all its employees' automobile license plate numbers within 15 days after taking possession of the Premises and thereafter within 15 days after any change in the accuracy of the list. If Tenant or its employees fail to park their cars in designated parking areas, Lessor may charge Tenant $25.00 per day per car for each such violation and shall have the right to have any such car towed away. 6. Operating Costs, Real Property Taxes and Utilities (a) Tenant shall pay as of the Rent Start Date to Lessor Tenant's pro rata share of all of the Center's operating costs consisting of the total cost and expense incurred in managing, operating, maintaining replacing and repairing the Center and its Common Areas including, without limitation, real property taxes and general and special assessments, wages, salaries and employee benefits of persons performing services in connection with the Center, utilities, parking lot sweeping, sealing, patching, re- striping and resurfacing; repairs, maintenance, and renewal of equipment and improvements, including roofs, public liability and property damage insurance, fire and extended coverage insurance, plate glass insurance and rent interruption insurance, supplies, materials, tools, parts, and equipment, equipment rental charges; bookkeeping, accounting, legal and other professional charges and expenses, fees for permits and licenses, administrative expenses, taxes, service and maintenance contracts, signage, advertising, marketing and landscaping, cleaning, window washing, lighting, painting, fire protection and fire hydrant charges, steam, water and sewer charges, gas electricity and telephone utility charges, supplying music to the Common Areas, depreciation of the cost of equipment used in operating and maintaining the Common Areas, or rent paid for leasing such equipment, Lessor s office rent or the fair market rental value of office space in the Center used by Lessor to manage, operate and maintain the Common Areas, security, etc., (collectively, the Operating Costs ). Tenant's Pro Rata Share of the Operating Costs shall be the proportion that the area of the Premises bears to the total rentable area of all rentable space in the Center owned by the Lessor. (b) On the first day of each month (or such other regular cycle as Lessor may determine) Tenant shall pay a monthly advance charge on account of Tenant's Pro Rata Share of the Operating Costs. The amount of the monthly charge shall be established by Lessor and may be adjusted from time to time by Lessor to reflect the actual cost. Within 120 days after the end of each fiscal year as established for the Center by Lessor, Lessor shall provide to Tenant a reasonably detailed summary of the actual Operating Costs showing Tenant's actual share and the amount by which Tenant has overpaid or underpaid. Any overpayment shall be credited to Tenant's account. Any deficiency shall be payable within ten days after receipt of the statement. In the alternative, Lessor may, at its option during all or part of the Term, bill Tenant for its pro rata share of Operating Costs in arrears based on actual costs as they are incurred, in which case Tenant shall pay the invoice within ten days after receipt. However, Lessor s failure to provide such reasonably detailed summary of the actual Operating Costs showing Tenant's actual share and the amount by which Tenant has overpaid or underpaid by the date provided above shall in no way excuse Tenant from its obligation to pay its pro rata share of Operating Costs or constitute a waiver of Lessor s right to bill and collect such pro rata share of Operating Costs from Tenant in accordance with this Article 7(b). (c) The operating costs for the fiscal year in which this Lease commences or terminates shall be apportioned so that Tenant shall not be responsible for costs that relate to periods prior to or subsequent to the term of this Lease except any period of holding over. (d) Tenant shall be solely responsible for payment for and pay before delinquency all utilities provided to the Premises as of the Commencement Date, which shall be separately metered at Tenant's expense. Tenant s failure to timely pay its utility bills shall be deemed a material breach of this Lease and an event of default. Notwithstanding any other provision of this Lease, upon delivery of a written notice by Lessor to Tenant of such even of default for failure to pay such utility charges and Tenant s failure to cure said default within 3 days of the delivery of such notice, Lessor may terminate this Lease. 7. Construction, Delivery, and Condition (a) If delivery of possession of the Premises to Tenant is delayed beyond the anticipated Commencement Date because of a delay in the completion of construction of the Premises by Lessor or because of a failure of an existing tenant to surrender possession of the Premises to Lessor, then this Lease shall remain in full force and effect, Lessor shall not be liable to Tenant for any damage occasioned by delay, and the Commencement Date shall be changed to the date actual delivery of possession to Tenant is tendered. Notwithstanding the foregoing, if tender of possession is delayed more than 120 days after the anticipated Commencement Date as set forth in Article 1(a), Tenant, by written notice to Lessor, may terminate this Lease prior to taking possession, and upon such termination any Security Deposit shall be refunded and both Lessor and Tenant shall be released of all further obligation hereunder. (b) Tenant accepts the Premises AS IS, acknowledges that Lessor has made no representations or warranties with respect thereto and is relying solely upon Tenant s own independent factual, physical and legal investigation, tests and studies. No Improvements shall be constructed until approved plans and specifications have been attached to this Lease or otherwise accepted by both Lessor and Tenant. Lessor will have final approval of all Improvements. (c) All Work shall be performed by licensed, bondable Contractors (defined below) approved in writing by Lessor, whose approval shall not be unreasonably withheld. The term Contractor as used herein includes subcontractors or other persons hired or retained by Tenant to construct improvements in the Premises. No Work shall be commenced until Lessor shall first have received from Tenant or its contractor a labor and materials payment bond issued by a responsible surety in form reasonably satisfactory to Lessor insuring that no mechanic's lien may be asserted against the Premises or the Center in connection with the Work. Lessor may post signs of non- responsibility around the Premises. (d) Tenant shall have no right to enter the Premises and/or to perform the Work prior to the Commencement Date, without Lessor's written consent. If Lessor does so consent, Tenant shall comply with directions of the Lessor and shall not interfere with any of Lessor's construction activities. Any work performed by Tenant, or any fixtures, furnishings, equipment and other personal property moved onto the Premises, shall be at Tenant's own risk. Neither Lessor nor Lessor's agents or contractors shall be responsible to Tenant for damage or destruction of Tenant's work or property excepting damage or destruction occasioned by Lessor's own gross negligence. Tenant agrees to indemnify Lessor and hold Lessor harmless from and against claims made with respect to injuries to persons or damage or destruction of property of other persons moved onto the Premises prior to the Commencement Date. (e) Lessor has no obligation to design or construct improvements or to make alterations in the Premises. (f) Upon the expiration or earlier termination of this Lease or upon the termination of Tenant's right of possession, whether by lapse of time or otherwise, Tenant shall, upon demand by the Lessor, at Lessor's option, at the Tenant's sole expense, forthwith remove any alterations, additions or improvements made by Tenant, designated by Lessor to be removed, and Tenant shall, forthwith at its sole cost and expense, repair any damage to the Premises caused by such removal and restore the Premises to a condition reasonably comparable to their condition at the commencement of the Lease. If not so demanded by the Lessor, then any alterations, additions or improvements to the Premises, including signs, but not including movable furniture and trade fixtures, shall at the expiration or earlier termination of this Lease or upon the termination of Tenant's right of possession, whether by lapse of time or otherwise, become a part of the realty and belong to Lessor. 8. Repair and Maintenance (a) Tenant shall, at Tenant s sole cost and expense, as of the Commencement Date maintain the Premises and the improvements thereon (including without limitation all heating, air conditioning, ventilation, electrical and plumbing systems serving the Premises, all signs, locks, doors and door frames), in good condition and repair. All exterior and interior glass in the Premises shall be maintained by Tenant and any glass broken shall be promptly replaced by Tenant at its expense with glass of the same kind, size and quality. If Tenant does not do so, Lessor may, but need not, make any such repairs and replacements, and Tenant shall pay Lessor the cost upon demand. Tenant hereby waives all right, if any, to make repairs at the expense of Lessor. (b) Subject to the provisions of Article 7, Lessor shall repair and maintain the Common Areas, the roof and exterior of the Premises and all utility lines below grade or in the Common Areas. Lessor shall not be responsible to make any repairs or perform any maintenance unless written notice of the need for such repairs or maintenance is given by Tenant and Lessor determines, in good faith, that such need does exist. Except in the case of a fire or casualty as provided in Article 13 or in the event of a business interruption caused solely by Lessor s gross negligence which exceeds 14 days, there shall be no abatement of Rent and no liability of Lessor by reason of any entry to the Premises, interruption of services or facilities, temporary closure of Common Areas, or interference with Tenant's business arising from the making of any repairs or maintenance. 9. Alterations and Personal Property Tenant shall not make or suffer to be made any alterations, additions or improvements to the Premises, including signs, without the prior written consent of Lessor of which consent shall not be unreasonably withheld, but which shall not be required to be given until Lessor has actually received a copy of Tenant s building permit and plans (interior and exterior). Lessor may condition its consent upon provision of a payment bond, in amount and form reasonably satisfactory to Lessor, covering the work to be done by Tenant's contractor. Tenant shall not install any antenna, satellite dish or other fixture or equipment on the roof or in the Common Areas. In the event Lessor consents to the making of any alterations, additions or improvements to the Premises by Tenant, they shall be made by Tenant at Tenant's sole cost and expense and any contractor or person selected by Tenant to perform the work must first be approved in writing by Lessor. Tenant shall not permit any mechanic's or materialmen's lien to stand against the Premises for any labor or materials provided to the Premises by any contractor or other person hired or retained by Tenant. Tenant shall cause any such lien to be discharged (by bonding or otherwise) within ten days after demand by Lessor, and if it is not discharged within ten days, Lessor may, in addition to all other remedies for an event of default, pay or otherwise discharge the lien and immediately recover all amounts so expended from Tenant as Rent. Upon the expiration or earlier termination of this Lease or upon the termination of Tenant's right of possession, whether by lapse of time or otherwise, Tenant shall, upon demand by Lessor, at Lessor's option, at Tenant's sole cost and expense, forthwith remove any alterations, additions or improvements made by Tenant, designated by Lessor to be removed, and Tenant shall, forthwith at its sole cost and expense, repair any damage to the Premises caused by such removal and restore the Premises to a condition reasonably comparable to their condition at the commencement of the Lease. If not so demanded by Lessor, then any alterations, additions or improvements to the Premises, including signs, but not including movable furniture and trade fixtures, shall, upon the expiration or earlier termination of this Lease or upon the termination of Tenant's right of possession, whether by lapse of time or otherwise, become a part of the realty and belong to Lessor. 10. Certain Rights Reserved by Lessor Lessor shall have the right to enter the Premises either personally or by designated representative at all reasonable times during normal business hours or other hours with prior notification for the purpose of examining or inspecting the same, showing the same to prospective purchasers or lessees, or performing any repairs, construction or alteration in relation to the Center or which is Lessor's responsibility under this Lease. Lessor shall be permitted to do any of the above without any rebate of Rent and without any liability to Tenant for any loss of occupation or quiet enjoyment of the Premises thereby occasioned. Tenant shall provide Lessor with a key to the Premises for purposes of emergency entry by Lessor or its agents. Use of this key is to be restricted to emergency situations or as permitted by Tenant hereunder. None of the rights specified above shall be construed or otherwise considered as a waiver of any rights Lessor may have under this Lease, at law or in equity or otherwise. 11. Damage to Property; Injury to Persons; Insurance; Indemnity (a) Tenant shall defend, indemnify and hold Lessor harmless, regardless of fault or negligence which is imputed to Lessor from any and all claims costs, liability, damage or expense, including reasonable attorneys' fees, for any death, damage or injury to persons or property occurring on the Premises and resulting in whole or in part from (i) any misrepresentation, breach of warranty or nonfulfillment of any agreement on the part of Tenant contained in this Lease, (ii) any act, omission or condition for which Tenant is solely responsible under the Lease, (iii) any work of construction, improvement or demolition controlled by or subject to the control of Tenant, (iv) the negligence of Tenant, its agents, employees or contractors, (v) Tenant's use or occupancy of the Premises, (vi) the conduct of its business, (vii) from any activity, work, or thing done, permitted or suffered by Tenant in or about the Premises, or (viii) from the condition of the Premises. Tenant shall further defend, indemnify and hold Lessor harmless from any and all claims arising in whole or in part from any breach or default in the performance of this Lease by Tenant, and/or arising in whole or in part from any act of Tenant, or of its agents or employees, and from all costs, attorneys' fees, expenses and liabilities incurred directly or indirectly as a result of any such act and/or claim. Tenant, as a material part of the consideration to Lessor, hereby assumes all risk of damage to property or injury to persons, in, upon, or about the Premises from any cause, and Tenant hereby waives all claims in respect thereto against Lessor. Lessor shall in no event be liable for loss of or damage to any property by vandalism, theft or otherwise, or for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak from any part of any building or from the pipes, appliances or plumbing works therein, or from the roof, street or subsurface, or from any other place resulting from dampness, or from the elements or any other cause whatsoever. Lessor shall not be liable for interference with the natural light. Tenant shall give immediate notice to Lessor of any fire, accident or defect discovered with the Premises or the building of which the Premises are a part. Tenant acknowledges that it can protect itself against some or all of the foregoing risks by procuring appropriate insurance. Tenant's indemnification obligations shall survive the expiration or earlier termination of this Lease or upon the termination of Tenant's right of possession, whether by lapse of time or otherwise. (b) Tenant shall, at Tenant s sole cost and expense, as of the Commencement Date maintain fire and extended coverage insurance throughout the term of this Lease in an amount equal to one hundred percent of the replacement value of Tenant's fixtures, furnishings, equipment and other personal property located on the Premises, together with such other insurance as may be required by Lessor's lender or by any government agency. All proceeds of Tenant's policy of fire and extended coverage insurance shall be payable to Tenant, and all proceeds of policies of insurance procured by Lessor shall be payable to Lessor. Tenant hereby waives any right of recovery from Lessor and Lessor hereby waives any right of recovery from Tenant for any loss or damage (including consequential loss) resulting from any of the perils insured against in the insurance policies required to be maintained hereunder. During the Term, Tenant shall, at Tenant's sole cost and expense, maintain general public liability insurance against claims for personal injury, death or property damage occurring in, upon or about the Premises. The limitation of liability of such insurance shall be not less than Two Million Dollars in respect to injury or death of one person and to the limit of not less than Two Million Dollars in respect to any one accident and to the limit of not less than Five Hundred Thousand Dollars in respect to property damage. All of Tenant's policies of liability insurance shall be obtained by Tenant in an "occurrence" form and shall name Lessor as an additional insured or loss payee, as appropriate. All policies of insurance or copies thereof required to be carried by Tenant under this Article 12 shall be delivered to Lessor prior to the Commencement Date and thereafter at least thirty days prior to the expiration of the then current policies. Each policy shall contain an endorsement prohibiting cancellation or non- renewal without at least 30 days prior notice to Lessor. 12. Fire and Casualty If the Premises are wholly or partially destroyed or damaged by fire or other casualty, Lessor shall restore the Premises with reasonable diligence; provided, however, that Lessor shall have no obligation to restore improvements not originally provided by Lessor or to replace any of Tenant's fixtures, furnishings, equipment or personal property; and provided further that Lessor need not commence repairs until insurance proceeds are available and are released in a sufficient amount for such purpose by any lender holding a lien on all or part of the Center. Proceeds of insurance payable with respect to a fire or other casualty shall be received and held by Lessor. Notwithstanding the foregoing, in the event the Premises are destroyed or damaged by any fire or casualty to the extent of not less than twenty-five percent of the replacement cost thereof, or if the fire or casualty occurs within the last three years of the Term, then Lessor shall have the option to terminate this Lease by giving notice to Tenant within sixty days after the occurrence of such damage or destruction, in which case Lessor shall retain all insurance proceeds with respect to the Premises as its own property and shall not be required to spend any more on the restoration than the amount of proceeds actually received by Lessor. If Lessor does not terminate this Lease as provided above, this Lease shall continue in full force and effect, but Minimum Annual Rent shall equitably abate until the restoration is substantially complete. However, in the event it is determined that Tenant's ability to continuously operate and conduct business on the Premises is not hindered, then Minimum Annual Rent shall abate in proportion to the Premises under restoration. The provisions of this Lease shall govern when this Lease shall be terminable as a result of a fire or casualty, and no other rule or statute on the subject shall apply. 13. Condemnation In the event the entire Premises shall be appropriated or taken under the power of eminent domain, this Lease shall terminate and expire as of the date of such taking. In the event more than twenty-five percent of the Premises is taken under the power of eminent domain, or if by reason of any appropriation or taking, regardless of the amount so taken, the remainder of the Premises is not one undivided parcel of property, either Lessor or Tenant shall have the right to terminate this Lease as of the date Tenant is required to vacate a portion of the Premises upon giving notice in writing of such election within thirty days after receipt by Tenant from Lessor of written notice that the Premises have been so appropriated or taken. If neither Lessor nor Tenant elects to so terminate this Lease, or in the event less than twenty-five percent of the Premises shall be appropriated under the power of eminent domain by any public or quasi-public authority, and the remainder thereof is an undivided parcel of property, then Lessor shall restore the Premises to the extent practicable to their condition prior to the taking, provided that no such restoration need commence until the condemnation proceeds are available and released in a sufficient amount for such purpose by any lender holding a lien on all or part of the Center and further provided that Lessor shall not be required to spend more than the condemnation proceeds actually received by Lessor, and thereafter the Minimum Annual Rent shall be reduced on an equitable basis, taking into account the relative value of the portion taken as compared to the portion remaining. All awards or compensation for any taking of any part of the Premises, whether payable to Lessor or Tenant, shall be the sole property of Lessor. Notwithstanding anything to the contrary contained herein, Tenant shall be entitled to receive any portion of an award of compensation relating to damage to or loss of trade fixtures or other personal property belonging to Tenant, and Lessor shall be under no obligation to restore or replace Tenant's furnishings, fixtures, equipment and personal property. For the purposes of this Article 14, a voluntary sale or conveyance in lieu of condemnation shall be deemed an appropriation or a taking under the power of eminent domain. 14. Assignment and Subletting (a) Tenant shall not, either voluntarily or by operation of law, assign, hypothecate or transfer this Lease, or sublet the Premises or any part thereof, or permit the Premises or any part thereof to be occupied by anyone other than Tenant or Tenant's employees (individually, a Transfer ), without the Lessor's prior written consent ("Transfer Notice"). Lessor shall be under no obligation to give or withhold consent until after all information reasonably required by Lessor with respect to the identity, background, experience and financial worth of the proposed assignee, transferee, or subtenant (the Transferee ) has been provided. No hypothecation, assignment, sublease or other transfer to which Lessor has consented shall be effective for any purpose until such time as fully executed documents of such transaction have been provided to Lessor, and, in the case of an assignment, the assignee has attorned directly to Lessor, and in the case of a sublease, the sublessee has acknowledged that the sublease is subject to all of the terms and conditions of this Lease. Any assignment, mortgage, transfer or subletting of this Lease which is not in compliance with the provisions of this Article 15 shall be voidable by Lessor and shall, at the option of Lessor, terminate this Lease. Any differing of use or extension of use by Tenant or any Transferee will, at the option of Lessor terminate this Lease. The consent by Lessor to an assignment or subletting shall not relieve Tenant from obtaining the express written consent of Lessor to any further assignment or subletting or release Tenant from any liability or obligation hereunder, whether or not then accrued. Except as provided in this Article, this Lease shall be binding upon and inure to the benefit of the successors and assigns of the parties. (c) If any rent of other monetary payment due under the terms of this Lease is made by check wherein the payor is other than the Tenant herein, acceptance thereof shall in no way constitute acceptance by Lessor of any assignment or subletting. Any assignment or subletting must comply with the conditions of this Article 14. 15. Estoppel Certificate (a) Tenant shall at any time and from time to time upon not less than ten days' prior written notice from Lessor execute, acknowledge and deliver to Lessor a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the dates to which the rental and other charges are paid in advance, if any; (ii) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Lessor hereunder, or specifying such defaults if they are claimed; and (iii) certifying such other matters relating to this Lease as Lessor may reasonably request. Any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the real property of which the Premises are a part. (b) Tenant's failure to deliver a statement within the time prescribed by Lessor in its request for same shall be conclusive upon Tenant (i) that this Lease is in full force and effect, without modification except as may be represented by Lessor, (ii) that there are no uncured defaults in Lessor's performance, and (iii) that not more than one month's rental has been paid in advance. 16. Lessor's Remedies (a) The following shall constitute events of default: (i) Tenant's failure to pay any amount due under Article 2, Article 5(b) or Article 7 of this Lease within 5 days of when due, or Tenants failure to pay any other amount due under this Lease within 5 days after notice from Lessor. (ii) Tenant's failure to execute, acknowledge and return an estoppel certificate under Article 16 or a subordination agreement under Article 19, within ten days after request. (iii) Tenant's failure to perform any other obligation under this Lease within fifteen days after notice of nonperformance; provided, however, that if the breach is of such a nature that it can be cured but it cannot be cured within fifteen days, Tenant shall be deemed to have cured if cure is commenced promptly and diligently pursued to completion with completion accomplished within 30 days of the original notice of nonperformance; and provided further, that in the event of a breach involving an imminent threat to health or safety, Lessor may in its notice of breach reduce the period for cure to such shorter period as may be reasonable under the circumstances. (iv) Tenant vacates, abandons, or otherwise ceases to operate the Premises on a continuing basis except temporary absence, excused by Lessor in its sole discretion, by reason of fire, casualty, or other cause wholly beyond Tenant's control. (v) Any goods, chattels or equipment of Tenant are taken in execution or in attachment or if a writ of execution is issued against Tenant or if Tenant or any guarantor becomes insolvent or files a petition under the Bankruptcy Act or becomes bankrupt or takes the benefit of any statute that may be in force for bankrupt or insolvent debtors or becomes involved in voluntary or involuntary winding-up proceedings or if a receiver shall be appointed for the business, property, affairs or revenues of Tenant or any guarantor (provided, however, that in the case of involuntary proceedings, Tenant shall have 60 days to cause them to be dismissed), or if Tenant makes a bulk sale of its goods or moves or commences, attempts or threatens to move its goods, chattels and equipment out of the Premises other than in the normal course of its business. (b) Upon the occurrence of an event of default, Lessor, at any time thereafter without further notice or demand, may, in addition to all of its rights and remedies at law and/or at equity, exercise any one or more of the following remedies concurrently or in succession, all of which shall be cumulative: (i) Terminate Tenant's right to possession of the Premises by legal process or otherwise, with or without terminating this Lease, and retake exclusive possession of the Premises. (ii) From time to time relet all or portions of the Premises, using reasonable efforts to mitigate Lessor's damages. In connection with any reletting, Lessor may relet for a period extending beyond the term of this Lease and may make alterations or improvements to the Premises without releasing Tenant of any liability. Upon a reletting of all or substantially all of the Premises, Lessor shall be entitled to recover all of its then prospective damages for the balance of the Lease term measured by the difference between amounts payable under this Lease and the anticipated net proceeds of reletting during the remaining Term. In no event shall Tenant be entitled to receive any amount representing the excess of avails of reletting over amounts payable hereunder. (iii) From time to time recover accrued and unpaid rent and damages arising from Tenant's breach of the Lease, regardless of whether the Lease has been terminated, together with applicable late charges and interest. (iv) Enforce the statutory Lessor's lien on Tenant's property. (v) Recover all reasonable attorneys' fees incurred by Lessor in connection with enforcing this Lease, recovering possession and collecting amounts owned. (vi) Perform the obligation on Tenant's behalf and recover from Tenant, upon demand, the entire amount expended by Lessor plus 20% for special handling, supervision, and overhead. (vii) Terminate this Lease by giving written notice of such intention to terminate. In the event that Lessor elects to terminate this Lease, then Lessor may recover from Tenant: (a) All unpaid Rent owed by Tenant as of the date of termination; plus (b) All Rent which would have been payable by Tenant under this Lease but for its termination until the time of award; plus (c) All Rent under the Lease for the balance of the Term after the time of award; plus (d) All other damages incurred by Lessor as a result of Tenant's default. Although defined elsewhere, the parties acknowledge that the term Rent shall be deemed to be and mean the Annual Minimum Rent and all other sums required to be paid by Tenant pursuant to the terms of this Lease. (viii) Pursue other remedies available at law or in equity. (c) Upon a termination of Tenant's right to possession, whether or not this Lease is terminated, subtenancies and other rights of persons claiming under or through Tenant: (i) shall be terminated or (ii) Tenant's interest shall be assigned to Lessor. Lessor may separately elect termination or assignment with respect to each such subtenancy or other matter. 17. Notices All notices to be given by one party to the other under this Lease shall be in writing, mailed or hand-delivered to each at the address to the individual, set forth at the end of this Lease or at a changed address if notice of the change is given to the other party in writing. In the case of notice to Tenant after Tenant takes possession of the Premises, notice shall be sufficient if mailed or delivered to the address of the Premises. Mailed notices shall be sent by United States certified or registered mail, postage prepaid. Such notices shall be deemed to have been given upon posting in the United States mail. Actual notice shall be no substitute for written notice under any provision of this Lease. 18. Subordination Lessor expressly reserves the right at any time to place ground leases, liens and encumbrances on and against the Premises and the Center (collectively, the Title Matters ), superior in lien and effect to this Lease and the estate created hereby. Tenant acknowledges that there may currently exist any such Title Matters which are superior in lien and effect to this Lease and the estate created hereby. This provision shall be self-operative, but Tenant shall nevertheless execute upon request subordination agreements presented by Lessor to confirm the superiority of the Title Matters. 19. Authority to Execute Any individual executing this Lease on behalf of or as a representative for a corporation or other person, firm, partnership or entity represents and warrants that such individual is duly authorized to execute and deliver this Lease on behalf of said corporation, person, firm, partnership or other entity and that this Lease is binding upon said entity in accordance with its terms. If Tenant is a corporation, Tenant shall deliver to Lessor within fifteen days after the execution hereof a certified copy of a resolution of the Board of Directors of said corporation authorizing or ratifying the execution and delivery of this Lease by the individuals executing and delivering same on behalf of Tenant. 20. Brokers Lessor and Tenant each covenant that they have not dealt with any real estate broker or finder with respect to this Lease and each party shall hold the other party harmless from all damages, claims, liabilities or expenses, including reasonable and actual attorneys' fees (through all levels of proceedings), resulting from any claims that may be asserted against the other party by any real estate broker or finder with whom the indemnifying party either has or is purported to have dealt. 21. Arbitration All controversies, disputes or claims arising between Lessor and Tenant in connection with, arising from, or with respect to this Lease or any agreement related to this Lease between the parties shall be submitted for binding arbitration in accordance with rules of the American Arbitration Association or any successor thereof. Arbitration shall be conducted solely on an individual, not a class-wise basis, unless all parties so agree. Venue of such arbitration shall be set in Maricopa County, Arizona. Each party shall select one arbitrator (who shall not be counsel for the party) and the two so designated shall select a third arbitrator. If either party shall fail to designate an arbitrator within ten (10) days after arbitration is requested, or if the two arbitrators shall fail to select a third arbitrator within twenty (20) days after arbitration is requested, then such arbitrator shall be selected by the American Arbitration Association or any successor thereto upon application of either party. Judgment upon any award of the majority of arbitrators shall be binding, final and non-appealable and shall be entered in a court of competent jurisdiction. The award of the arbitrators may grant any relief which might be granted by a court of general jurisdiction including, without limitation, an award of damages and/or injunctive relief, and the costs of the arbitration, including the reasonable fees of the arbitrators and reasonable attorney s fees. All issues relating to the arbitrability or the enforcement of the agreement to arbitrate contained herein shall be governed by the Federal Arbitration Act (9 U.S.C. 1 et. seq.) and the Federal Common Law of Arbitration. 22. Americans with Disabilities Act Lessor and Tenant hereby acknowledge that the Americans with Disabilities Act (the ADA ) may affect Tenant s use and occupancy of the Premises and requires Tenant to modify or alter the design, layout or other physical elements of the interior of the Premises or provide auxiliary services in connection with its business operations. Tenant shall comply in all respects with the requirement of the ADA as it affects Tenant s use and occupancy of the Premises throughout the Term, and Tenant acknowledges that, notwithstanding any modifications to the Common Areas which may be made by Lessor in order to conform such areas with the requirements of the ADA, Lessor makes no representation or warranties regarding the compliance of the Premises of the Center with the ADA, nor shall Lessor have any obligations or liabilities to Tenant to construct any modifications or alterations to the interior of the Premises in order to comply with the ADA. 23. General Provisions (a) This Lease and the obligations of Tenant hereunder shall not be affected or impaired because Lessor is unable to fulfill any of its obligations hereunder or is delayed in doing so if such inability or delay is caused by reason of any strike, lockout, civil commotion, war-like operations, invasion, rebellion, hostilities, military or usurped power, sabotage, governmental regulations or controls, inability to obtain any material, service or financing, Act of God or other cause beyond the control of the Lessor. (b) Any violation of the rules and regulations shall constitute a material breach of this Lease. (c) The article captions contained in this Lease are for convenience only and shall not be considered in the construction or interpretation of any provision. The masculine, feminine or neuter gender and the singular or plural number shall be deemed to include the others whenever the context so requires or indicates. (d) This Lease contains all of the agreements of the parties hereto with respect to any matter covered or mentioned in this Lease, and no prior agreement or understanding pertaining to any matter shall be effective for any purpose. No provision of this Lease may be amended or added to except by an agreement in writing signed by the parties hereto or their respective successors in interest. (e) Submission of this instrument for examination shall not bind Lessor in any manner, and no lease or obligations of Lessor shall arise until this instrument is signed and delivered by authorized officers of Lessor and Tenant. (f) No rights to light or air over any property, whether belonging to Lessor or any other persons, are granted to Tenant by this Lease. (g) No waiver by Lessor of any provisions of this Lease or any breach by Tenant hereunder shall be deemed to be a waiver of any other provision hereof, or of any subsequent breach by Tenant of the same or any other provision. Lessor's consent to or approval of any act by Tenant requiring Lessor's consent or approval shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act of Tenant, whether or not similar to the act so consented to or approved. No act or thing done by Lessor or Lessor's agent during the term of this Lease shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept a surrender shall be valid unless in writing and signed by Lessor. No employee of Lessor or of Lessor's agents shall have any power to accept the keys to the Premises prior to the termination of this Lease, and the delivery of the keys to any employee shall not operate as a termination of the Lease or a surrender of the Premises. (h) Time is of the essence of this Lease. (i) All exhibits attached hereto are incorporated herein by this reference. (j) The parties hereto agree that all the provisions hereof are to be construed as covenants and agreements as though the words importing such covenants and agreements were used in each separate paragraph hereof. This Lease is the result of negotiations between Lessor and Tenant, who each had the opportunity to obtain legal advice regarding the same. This Lease shall not be construed for or against Lessor or Tenant on the basis of which party physically served as scrivener of this Lease. (k) Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third person to create the relationship of principal and agent, partnership, joint venture, or any other association between Lessor and Tenant other than the Lessor-Tenant relationship described herein. (l) In the event either party shall commence or be required to defend any action or proceeding against any other party by reason of any breach or claimed breach of any provision of this Lease, to commence or defend any action or proceeding in any way connected with this Lease or to seek a judicial declaration of rights under this Lease, the party prevailing in such action or proceeding shall be entitled to recover from or to be reimbursed by the other party for the prevailing party's reasonable attorneys' fees and costs through all levels of proceedings. (m) If any provision of this Lease or the application thereof to any person or circumstance shall be deemed invalid or unenforceable, the remainder of this Lease and its application to other persons or circumstances shall not be affected by such partial invalidity but shall be enforced to the fullest extent permitted by law as though such invalid or unenforceable provision was never a part hereof. (n) This Lease shall be construed in accordance with the laws of the State of Arizona without regard to its principles of choice of law, and the parties agree that jurisdiction for all actions hereunder shall lie therein. (o) The parties expressly agree that all of the provisions hereof, including all rights and privileges of Tenant hereunder, are subject to the provisions of the Senior Lease as the rights and privileges of the landlord thereunder. (p) This Lease shall be governed by the laws of the State of Arizona. LESSOR: ADDRESS: Giant Industries Arizona, Inc. 23733 N. Scottsdale Road an Arizona corporation Scottsdale, AZ 85255 By: /s/ James E. Acridge -------------------------------- James E. Acridge Its: CEO -------------------------------- TENANT: ADDRESS: Pinnacle Inn at the Citadel, LLC 23733 N. Scottsdale Road an Arizona limited liability company Scottsdale, Arizona 85255 By: /s/ Harvey Acridge -------------------------------- Harvey Acridge, General Manager EX-10.32 14 EXHIBIT 10.32 SALE AND LEASE AGREEMENT THIS SALE AND LEASE AGREEMENT (this "Agreement") is made as of December 31, 1998, by and among FFCA CAPITAL HOLDING CORPORATION, a Delaware corporation ("Buyer"), whose address is 17207 North Perimeter Drive, Scottsdale, Arizona 85255, and GIANT INDUSTRIES ARIZONA, INC., an Arizona corporation, and GIANT FOUR CORNERS, INC., an Arizona corporation (individually called "Seller" and collectively called "Sellers"), whose collective address is 23733 North Scottsdale Road, Scottsdale, Arizona 85255. PRELIMINARY STATEMENT: Unless otherwise expressly provided herein, all defined terms used in this Agreement shall have the meanings set forth in Section 1. Sellers own the Sites as set forth on Schedule 1 attached hereto. Sellers operate on the Sites either a gasoline station or a combination convenience store and gasoline station under the Giant, Mustang, Conoco, Conoco Express, Thriftway, Plateau, Gasman or Gasamat brands or other oil brand, and operate on some of the Sites a Franchisor Restaurant in accordance with the terms of a franchise, license and/or area development agreement between such Seller and the Franchisor associated with such Franchisor Restaurant. Sellers, as lessor, lease a portion of the building and improvements located at the Subleased Sites to the Sublessees, as lessee, pursuant to the Subleases for the purpose of operating a business involving the retail sales of food items (including a Franchisor Restaurant) or non-food items. Buyer desires to purchase the Sites and lease the Sites to Lessee pursuant to the Leases. Sellers and Sublessees will convert the Subleases to subleases in order that the Subleases will be junior, subordinate and subject to the Leases between Buyer, as lessor, and Lessee. Guarantor will guaranty all of the duties and obligations of Sellers under this Agreement and all of the duties and obligations of Lessee under the Leases pursuant to the Guaranties. Each Seller is an Affiliate of the other Seller and each Seller is an Affiliate of Guarantor. AGREEMENT: In consideration of the mutual covenants and provisions of this Agreement, the parties agree as follows: 1. DEFINITIONS. The following terms shall have the following meanings for all purposes of this Agreement: "Affiliate" means any Person which directly or indirectly controls, is under common control with, or is controlled by any other Person. For purposes of this definition, "controls", "under common control with" and "controlled by" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person or entity, whether through ownership of voting securities or otherwise. "Buyer Entities" means, collectively, Buyer, Franchise Finance and any Affiliate of Buyer or Franchise Finance. "Closing" shall have the meaning set forth in Section 5. "Closing Date" means the date specified as the closing date in Section 5. "Code" means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et seq., as amended. "Commitment" means that certain Commitment Letter dated December 15, 1998, between Buyer and Guarantor with respect to the transaction described in this Agreement, and any amendments or supplements thereto. "Counsel" means legal counsel to Sellers, Guarantor and Lessee, licensed in the state(s) in which (i) each Site is located, (ii) each Seller, Guarantor and Lessee is incorporated or formed, and (iii) each Seller, Guarantor and Lessee maintains its principal place of business, as selected by Sellers, Guarantor and Lessee, and approved by Buyer. "De Minimis Amounts" shall mean, with respect to any given level of Hazardous Materials or Regulated Substances, that level or quantity of Hazardous Materials or Regulated Substances in any form or combination of forms which does not constitute a violation of any Environmental Laws and is customarily employed in, or associated with, similar businesses located in the state in which each Site is located. "Environmental Condition" means any condition with respect to soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata, ambient air and any environmental medium comprising or surrounding each Site, whether or not yet discovered, which could or does result in any damage, loss, cost, expense, claim, demand, order or liability to or against Sellers, Guarantor, Lessee or Buyer by any third party (including, without limitation, any government entity), including, without limitation, any condition resulting from the operation of Sellers' business and/or the operation of the business of any other property owner or operator in the vicinity of each Site and/or any activity or operation formerly conducted by any person or entity on or off each Site. "Environmental Insurer" means such environmental insurance company as Buyer may select in its sole discretion. "Environmental Laws" means any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law, relating to protection of human health or the environment, relating to Hazardous Materials, Regulated Substances or USTs, relating to liability for or costs of Remediation or prevention of Releases or relating to liability for or costs of other actual or threatened danger to human health or the environment. "Environmental Laws" includes, but is not limited to, the following statutes, as amended, any successor thereto, and any regulations promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like addressing similar issues: the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous Materials Transportation Act; the Resource Conservation and Recovery Act (including but not limited to Subtitle I relating to USTs); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the National Environmental Policy Act; and the River and Harbors Appropriation Act. "Environmental Laws" also includes, but is not limited to, any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law: conditioning transfer of property upon a negative declaration or other approval of a Governmental Authority with respect to Hazardous Materials, Regulated Substances or USTs; requiring notification or disclosure of Releases or other environmental condition of each Site to any Governmental Authority or other person or entity, whether or not in connection with transfer of title to or interest in property; imposing conditions or requirements relating to Hazardous Materials, Regulated Substances or USTs in connection with permits or other authorization for lawful activity; relating to nuisance, trespass or other causes of action related to Hazardous Materials, Regulated Substances or USTs; and relating to wrongful death, personal injury, or property or other damage in connection with any physical condition or use of each Site by reason of the presence of Hazardous Materials, Regulated Substances or USTs in, on, under or above each Site. "Environmental Policy" or "Environmental Policies" means, as the context requires, that certain environmental insurance policy or those environmental insurance policies issued by Environmental Insurer to Buyer with respect to each Site and/or the Sites, which Environmental Policies shall be in form and substance satisfactory to Buyer in its sole discretion. "Event of Default" has the meaning set forth in Section 12. "Facility" means either a gasoline station or a combination convenience store and gasoline station operated under the Giant, Mustang, Conoco, Conoco Express, Thriftway, Plateau, Gasman or Gasamat brands or a nationally recognized oil brand or another brand approved by Buyer. Upon prior written notice to Buyer, a portion of any Site and Facility thereon may be operated by Lessee as a Franchisor Restaurant and/or subleased to a Sublessee pursuant to a Sublease for the purpose of operating a business involving the retail sales of food items (including a Franchisor Restaurant) or non-food items, provided that no portion of any Site or Facility thereon shall be operated by any Sublessee as a gasoline station or combination convenience store and gasoline station without the prior written consent of Buyer. "Fee" means an underwriting, valuation and processing fee equal to One Percent (1%) of the Purchase Price. Guarantor paid Buyer one-half of the Fee at the time of Guarantor's execution of the Commitment. At the Closing, Sellers or Guarantor shall pay Buyer the remaining balance of the Fee. "Franchise Finance" means Franchise Finance Corporation of America, a Delaware corporation, and its successors. "Franchisor" means the owner and holder of all of the rights and privileges relative to the franchise rights associated with a Franchisor Restaurant, including, without limitation, all trade secrets, tradenames and trademarks relative thereto. "Franchisor Restaurant" means a regionally- or nationally recognized franchise restaurant. "Franchisor Restaurant Assignment Agreement" shall have the meaning set forth in Section 2 hereof. "Governmental Authority" means any governmental authority, agency, department, commission, bureau, board, instrumentality, court or quasi-governmental authority of the United States, the states where the Sites are located or any political subdivision thereof. "Guarantor" means Giant Industries, Inc., a Delaware corporation, and its successor. "Guaranty" or "Guaranties" means, as the context requires, one or more of an unconditional guaranty of payment and performance dated as of the Closing in form and substance acceptable to Buyer to be executed by Guarantor for the benefit of Buyer, as such may be amended from time to time. A Guaranty will be executed for each Site. "Hazardous Materials" means (a) any toxic substance or hazardous waste, substance, solid waste or related material, or any pollutant or contaminant; (b) radon gas, asbestos in any form which is or could become friable, urea formaldehyde foam insulation, transformers or other equipment which contains dielectric fluid containing levels of polychlorinated biphenyls in excess of federal, state or local safety guidelines, whichever are more stringent, or any petroleum product; (c) any substance, gas, material or chemical which is or may be defined as or included in the definition of "hazardous substances," "toxic substances," "hazardous materials," hazardous wastes" or words of similar import under any Environmental Laws; and (d) any other chemical, material, gas or substance the exposure to or release of which is or may be prohibited, limited or regulated by any governmental or quasi-governmental entity or authority that asserts or may assert jurisdiction over each Site or the operations or activity at each Site, or any chemical, material, gas or substance that does or may pose a hazard to the health and/or safety of the occupants of each Site or the owners and/or occupants of property adjacent to or surrounding each Site. "Lease" or "Leases" means, as the context requires, the lease in form and substance attached to this Agreement as Exhibit C and made a part hereof, executed and delivered by Buyer, as lessor, and Lessee with respect to each Site, as such may be amended from time to time. A Lease shall be executed for each Site. "Lessee" means Giant Industries Arizona, Inc., an Arizona corporation. "Memorandum of Lease" or "Memorandum of Leases" means, as the context requires, the memorandum of lease in form and substance acceptable to Buyer executed and delivered by Buyer, as lessor, and Lessee with respect to each Site. A Memorandum of Lease shall be executed for each Site. "Non-Foreign Seller Certificate" or "Non-Foreign Seller Certificates" means, as the context requires, one or more certificates delivered by Sellers prior to or on the Closing Date in form and substance acceptable to Buyer. "Other Agreements" means, collectively, all agreements, leases and instruments between, among or by (1) any of the Seller Entities, and, or for the benefit of, (2) any of the Buyer Entities, including, without limitation, promissory notes, guaranties and leases, but excluding this Agreement. "Permitted Exceptions" means those exceptions to title relative to each Site that are approved in writing by Buyer pursuant to Section 11. "Person" means any individual, corporation, partnership, limited liability company, trust, unincorporated organization, Governmental Authority or any other form of entity. "Purchase Price" means the amount specified in Section 3. "Questionnaire" or "Questionnaires" means, as the context requires, the environmental questionnaires completed by Sellers with respect to the Sites and submitted to Environmental Insurer in connection with the issuance of the Environmental Policies. A Questionnaire will be completed for each Site by the Seller who owns such Site. "Regulated Substances" means "petroleum" and "petroleum- based substances" or any similar terms described or defined in any Environmental Laws and any applicable federal, state, county or local laws applicable to or regulating USTs. "Release" means any release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Materials, Regulated Substances or USTs. "Remediation" means any response, remedial, removal, or corrective action, any activity to cleanup, detoxify, decontaminate, contain or otherwise remediate any Hazardous Material or Regulated Substance, any actions to prevent, cure or mitigate any Release, any action to comply with any Environmental Laws or with any permits issued pursuant thereto, any inspection, investigation, study, monitoring, assessment, audit, sampling and testing, laboratory or other analysis, or any evaluation relating to any Hazardous Materials or Regulated Substances. "Seller Entities" means, collectively, Sellers, Lessee and Guarantor and any Affiliate of any Seller, Lessee or Guarantor. "Site" or "Sites" means, as the context requires, one or more of the parcels of real estate, the addresses of which are listed on Exhibit A attached hereto, together with all rights, privileges and appurtenances associated therewith and all buildings, fixtures and other improvements now or hereafter located thereon (whether or not affixed to such real estate). "Soft Costs" means certain fees, costs and expenses relating to the acquisition of each Site including, without limitation, the cost of title insurance, the reasonable attorneys' fees of Sellers, the cost of surveys, stamp taxes, transfer taxes, and escrow and recording fees, which shall be approved as to category and amount by Buyer in its sole discretion. "Sublessee" or "Sublessees" means, as the context requires, the lessee or lessees under the Subleases. "Sublease" or "Subleases" means, as the context requires, a lease or leases, if any, between Lessee, as sublessor, and Sublessee or Sublessees relative to the subleasing of the Subleased Sites for the purposes specifically permitted under the Lease, which Subleases shall be subject, junior and subordinate at all times and for all purposes to the terms and provisions of the Leases. "Subleased Site" or "Subleased Sites" means, as the context requires, a portion of one or more of the sites listed on Schedule 2 attached hereto, if any, and made a part hereof that may be subleased to a Sublessee pursuant to a Sublease for the purpose of operating a business involving the retail sales of food items (including a Franchisor Restaurant) or non-food items, provided that no portion of any Subleased Site shall be operated by a Sublessee as a gasoline station or combination convenience store and gasoline station without the prior written consent of Buyer. No Subleased Site shall constitute any significant portion of the corresponding Site. "Subordination Agreement" or "Subordination Agreements" means, as the context requires, the subordination agreement in form and substance acceptable to Buyer executed and delivered by Lessee, each Seller who owns a Subleased Site and the Sublessee that corresponds to such Subleased Site, if any, pursuant to which such Seller will assign all of Seller's right, title and interest (as lessor) in and to the Sublease that corresponds to such Subleased Site to Lessee, and pursuant to which each Sublease will be declared to be a sublease, which Sublease will become junior, subordinate and subject to the Lease between Buyer, as lessor, and Lessee for each such Subleased Site. To the extent applicable, a Subordination Agreement shall be executed for each Subleased Site. "Threatened Release" means a substantial likelihood of a Release which requires action to prevent or mitigate damage to the soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata, ambient air or any other environmental medium comprising or surrounding each Site which may result from such Release. "Title Company" means the title insurance company described in Section 6. "USTs" means any one or combination of tanks and associated piping systems used in connection with the storage, dispensing and general use of Regulated Substances. 2. TRANSACTION. On the terms and subject to the conditions set forth herein, Sellers shall sell, and Buyer shall purchase the Sites pursuant to the Deeds (as that term is defined in Section 11). Buyer shall lease each Site to Lessee pursuant to a Lease. Buyer, as lessor, and Lessee shall execute and deliver and cause each Memorandum of Lease to be filed or recorded in the appropriate real property records where each corresponding Site is located. In the event Lessee shall sublease a Subleased Site to a Sublessee pursuant to a Sublease, each Seller that owns such Subleased Site and Lessee and the corresponding Sublessee, if any, will execute and deliver to Buyer a Subordination Agreement. Giant Four Corners, Inc., an Arizona corporation ("Giant Four Corners"), will assign to Giant Industries Arizona, Inc., an Arizona corporation, all of the right, title and interest of Giant Four Corners in and to any franchise, license and/or area development agreement between Giant Four Corners and the Franchisor associated with any Franchisor Restaurant being operated at any Site by Giant Four Corners pursuant to an assignment and assumption agreement ("Franchisor Restaurant Assignment Agreement") acceptable to Buyer and such Franchisor. Guarantor will execute and deliver to Buyer the Guaranties. The sale and purchase of the Sites pursuant to this Agreement and the lease of each Site to Lessee pursuant to a Lease are not severable and shall be considered a single integrated transaction. 3. PURCHASE PRICE. The purchase price for all Sites (the "Purchase Price") shall be $51,762,986.00, inclusive of all Soft Costs and the Fee. The Purchase Price shall be allocated among the Sites as shown on Exhibit B attached hereto. The Purchase Price shall be paid at the Closing in cash or its equivalent subject to any prorations and adjustments required by this Agreement. 4. UNDERWRITING AND PROCESSING FEE. The portion of the Fee paid to Buyer at the time of Seller's execution of the Commitment is fully earned and is not refundable. The balance of the Fee shall be paid at the Closing and shall be deemed fully earned upon Buyer's receipt and will be nonrefundable at that time. The Fee constitutes Buyer's underwriting and processing fee. In the event the transaction set forth in this Agreement fails to close due to a breach or default by Seller under this Agreement, Buyer shall retain the portion of the Fee paid to Buyer at the time of Seller's execution of the Commitment (without affecting or limiting Buyer's remedies set forth in this Agreement). 5. CLOSING DATE. The purchase and sale of the Sites shall be closed (the "Closing") within 30 days following the satisfaction of all of the terms and conditions contained herein, but in no event shall the date of the Closing be extended beyond December 31, 1998 (the "Closing Date"), and any such extension shall not be effective unless approved by Buyer in its sole discretion. 6. CLOSING. Prior to the execution of this Agreement by the parties hereto, Sellers and Buyer ordered a title insurance commitment from Lawyers Title Insurance Corporation, at its national division offices located at 3636 North Central Avenue, Suite 350, Phoenix, Arizona 85012, or an alternative title company approved by Buyer for each Site ("Title Company"). Prior to the Closing Date, the parties hereto shall deposit with Title Company all documents and moneys necessary to comply with their obligations under this Agreement. Title Company shall not cause the transaction to close unless and until it has received written instructions from Buyer to do so. All costs of the transaction contemplated by this Agreement (regardless of whether the transaction is consummated) shall be borne by Sellers, including, without limitation, Buyer's in- house site review and inspection costs and expenses, the cost of the environmental report(s) or Environmental Policy for each Site to be delivered pursuant to Section 11, the reasonable fees and expenses of Buyer's attorneys, the cost of title insurance for each Site, the attorneys' fees of Sellers, the cost of the survey for each Site, stamp taxes, transfer fees and escrow and recording fees. All real and personal property and other applicable taxes and assessments and other charges relating to each Site which are due and payable on or prior to the Closing Date shall be paid by Sellers at or prior to the Closing; and all other taxes and assessments shall be paid by Sellers or Lessee in its capacity as lessee under each Lease in accordance with the terms of each Lease. The Closing documents shall be dated as of the Closing Date. Sellers and Buyer hereby employ Title Company to act as escrow agent in connection with this transaction. Sellers and Buyer will deliver to Title Company all documents, pay to Title Company all sums and do or cause to be done all other things necessary or required by this Agreement, in the reasonable judgment of Title Company, to enable Title Company to comply herewith and to enable any title insurance policy provided for herein to be issued. Title Company is authorized to pay, from any funds held by it for Buyer's or Sellers' respective credit all amounts necessary to procure the delivery of such documents and to pay, on behalf of Buyer and Sellers, all charges and obligations payable by them, respectively. Sellers will pay all charges payable by them to Title Company. Title Company is authorized, in the event any conflicting demand is made upon it concerning these instructions or the escrow, at its election, to hold any documents and/or funds deposited hereunder until an action shall be brought in a court of competent jurisdiction to determine the rights of Sellers and Buyer or to interplead such documents and/or funds in an action brought in any such court. Deposit by Title Company of such documents and funds, after deducting therefrom its charges and its expenses and attorneys' fees incurred in connection with any such court action, shall relieve Title Company of all further liability and responsibility for such documents and funds. Title Company's receipt of this Agreement and opening of an escrow pursuant to this Agreement shall be deemed to constitute conclusive evidence of Title Company's agreement to be bound by the terms and conditions of this Agreement pertaining to Title Company. Disbursement of any funds shall be made by wire transfer, as directed by Buyer. Title Company shall be under no obligation to disburse any funds represented by check or draft, and no check or draft shall be payment to Title Company in compliance with any of the requirements hereof, until it is advised by the bank in which such check or draft is deposited that such check or draft has been honored. Title Company is authorized to act upon any statement furnished by the holder or payee, or a collection agent for the holder or payee, of any lien on or charge or assessment in connection with each Site, concerning the amount of such charge or assessment or the amount secured by such lien without liability or responsibility for the accuracy of such statement. The employment of Title Company as escrow agent shall not affect any rights of subrogation under the terms of any title insurance policy issued pursuant to the provisions thereof. 7. REPRESENTATIONS AND WARRANTIES OF BUYER. The representations and warranties of Buyer contained in this Section are being made to induce Sellers to enter into this Agreement and consummate the transactions contemplated herein, and Sellers have relied, and will continue to rely, upon such representations and warranties. Buyer represents and warrants to Sellers as follows: A. Organization of Buyer. Buyer has been duly formed, is validly existing and has taken all necessary action to authorize the execution, delivery and performance by Buyer of this Agreement. B. Authority of Buyer. The person who has executed this Agreement on behalf of Buyer is duly authorized so to do. C. Enforceability. Upon execution by Buyer, this Agreement shall constitute the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. All representations and warranties of Buyer made in this Agreement shall be and will remain true and complete as of the Closing Date as if made and restated in full as of such date. 8. REPRESENTATIONS AND WARRANTIES OF SELLERS. The representations and warranties of Sellers contained in this Section are being made to induce Buyer to enter into this Agreement and consummate the transactions contemplated herein, and Buyer has relied, and will continue to rely, upon such representations and warranties. For purposes of this Section 8, each Seller shall be deemed to have made the following representations and warranties with respect to itself and Guarantor and Lessee and with respect to all of the Sites that each respective Seller owns. Each Seller, as applicable, represents and warrants to Buyer as follows: A. Information and Financial Statements. Sellers have delivered to Buyer financial statements (either audited financial statements or, if Sellers do not have audited financial statements, certified financial statements) and certain other information concerning themselves and Guarantor and Lessee, which financial statements and other information are true, correct and complete in all material respects; and no material adverse change has occurred with respect to any such financial statements and other information provided to Buyer since the date such financial statements and other information were prepared or delivered to Buyer. Sellers understand that Buyer is relying upon such financial statements and information and Sellers represent that such reliance is reasonable. All such financial statements were prepared in accordance with generally accepted accounting principles consistently applied and accurately reflect, as of the date of this Agreement and the Closing Date, the financial condition of each individual or entity to which they pertain. B. Organization and Authority of Sellers. (i) Each Seller is duly organized or formed, validly existing and in good standing under the laws of each respective Seller's state of incorporation or formation, and each is qualified as a foreign corporation, partnership or limited liability company, as the case may be, to do business in any jurisdiction where any Site owned by such Seller is located and in any other jurisdiction where such qualification is required. Guarantor is duly incorporated, validly existing and in good standing under the laws of its state of incorporation, and is qualified as a foreign corporation to do business in any jurisdiction where such qualification is required. Lessee is duly incorporated, validly existing and in good standing under the laws of its state of incorporation, and is qualified as a foreign corporation to do business in any jurisdiction where such qualification is required. (ii) All necessary corporate, partnership or limited liability company action, as the case may be, has been taken by each Seller and by Guarantor and by Lessee to authorize the execution, delivery and performance of this Agreement and of the other documents, instruments and agreements provided for herein to which each Seller, Guarantor and Lessee is a party. (iii) The persons who have executed or will execute this Agreement and the other documents, instruments and agreements provided for herein on behalf of each Seller are duly authorized so to do. The persons who have executed or will execute the documents, instruments and agreements to which Guarantor is a party on behalf of Guarantor are duly authorized so to do. The persons who have executed or will execute the documents, instruments and agreements to which Lessee is a party on behalf of Lessee are duly authorized so to do. C. Enforceability of Documents. Upon execution by Sellers, this Agreement and the other documents, instruments and agreements provided for herein to which each Seller is a party shall constitute the legal, valid and binding obligations of Sellers, enforceable against Sellers in accordance with their respective terms. Upon execution by Guarantor of the documents, agreements and instruments to which Guarantor is a party, such documents, instruments and agreements shall constitute the legal, valid and binding obligations of Guarantor, enforceable against Guarantor in accordance with their respective terms. Upon execution by Lessee of the documents, agreements and instruments to which Lessee is a party, such documents, instruments and agreements shall constitute the legal, valid and binding obligations of Lessee, enforceable against Lessee in accordance with their respective terms. D. Litigation. There are no suits, actions, proceedings or investigations pending or, to the knowledge of Sellers, threatened against or involving any Seller or any of the Sites or Guarantor or Lessee before any court, arbitrator, or administrative or governmental body which might reasonably result in any material adverse change in the contemplated business, condition, worth or operations of any Seller or any of the Sites or of Guarantor or Lessee. E. Absence of Breaches or Defaults. None of the Sellers is in breach or default, and the authorization, execution, delivery and performance of this Agreement and the other documents, instruments and agreements provided for herein to which each Seller is a party will not result in any breach or default, under any other document, instrument or agreement to which any Seller is a party or by which any Seller or any of the Sites is subject or bound. The authorization, execution, delivery and performance of this Agreement and the documents, instruments and agreements provided for herein by Sellers will not violate any applicable law, statute, regulation, rule, ordinance, code, rule or order. Neither Guarantor nor Lessee is in breach or default, and the authorization, execution, delivery and performance by Guarantor and/or Lessee of the documents, instruments and agreements to which Guarantor and/or Lessee is/are a party will not result in any breach or default, under any other document, instrument or agreement to which Guarantor or Lessee is a party or by which Guarantor or Lessee is subject or bound. The authorization, execution, delivery and performance of the documents, instruments and agreements to which Guarantor and/or Lessee is/are a party will not violate any applicable law, statute, regulation, rule, ordinance, code, rule or order. F. Utilities. At the Closing Date, each Site will be served by ample public utilities to permit full utilization of each Site for their intended purposes and all utility connection fees and use charges will have been paid in full. G. Intended Use and Zoning; Compliance With Laws. Lessee intends to use each Site solely for the operation of either a gasoline station or combination convenience store and gasoline station operated under the Giant, Mustang, Conoco, Conoco Express, Thriftway, Plateau, Gasman or Gasamat brands or a nationally recognized oil brand or another brand approved by Buyer. Lessee may use some or all of the Sites for the operation of a Franchisor Restaurant in accordance with the terms of a franchise, license and/or area development agreement between Lessee and the Franchisor associated with such Franchisor Restaurant. Lessee may also sublease to a Sublessee pursuant to a Sublease a portion of the improvements located at each Subleased Site for the purpose of operating a business involving the retail sales of food items (including a Franchisor Restaurant) or non-food items, provided that no portion of any Subleased Site may be operated by any Sublessee as a gasoline station or combination convenience store and gasoline station without the prior written consent of Buyer, which consent shall not be unreasonably withheld. Lessee also intends to use (or cause to be used) the Sites for ingress, egress and parking related to the purposes set forth in this Section, and for no other purposes. Such intended uses will not violate any zoning or other governmental requirement applicable to each Site. Each Site complies fully with all applicable statutes, regulations, rules, ordinances, codes, licenses, permits, orders and approvals of any governmental agencies, departments, commissions, bureaus, boards or instrumentalities of the United States, each state in which each such Site is located and all political subdivisions thereof, including, without limitation, all health, building, fire, safety and other codes, ordinances and requirements, all applicable standards of the National Board of Fire Underwriters and the Americans With Disabilities Act of 1990, and there are no legal non-conforming uses, buildings or structures on or at any of the Sites. H. Area Development; Wetlands. No condemnation or eminent domain proceedings affecting any Site have been commenced or, to the best of Sellers' knowledge, are contemplated. To the best of Sellers' knowledge, the area where each Site is located has not been declared blighted by any Governmental Authority. Each Site and/or the real property bordering each Site is not designated by any applicable federal, state and/or local Governmental Authority as wetlands. I. Licenses and Permits; Access. Prior to the Closing Date, Lessee shall have obtained (or caused to be obtained) all required licenses and permits, both governmental and private, to use and operate each Site in the intended manner. There are adequate rights of access to public roads and ways available to each Site to permit full utilization of each Site for its intended purpose and all such public roads and ways have been completed and dedicated to public use. J. Condition of Sites. As of the Closing Date, each Site, including all equipment and other personal property located thereon will be of good workmanship and materials, fully equipped and operational, in good condition and repair, free from structural defects, clean, orderly and sanitary, safe, well lit, landscaped, decorated, attractive and well maintained. K. Environmental. Each Seller is fully familiar with the present use of each Site owned by such Seller, and, after due inquiry, each Seller has become generally familiar with the prior uses of each Site owned by such Seller. To each Seller's knowledge, no Hazardous Materials or Regulated Substances have been used, handled, manufactured, generated, produced, stored, treated, processed, transferred or disposed of at or on any Site, except in De Minimis Amounts and in compliance with all applicable laws, and no Release or Threatened Release has occurred at or on any Site. To each Seller's knowledge, no USTs are located on, at or under any Site, except in full compliance with all applicable laws, including, without limitation, all Environmental Laws. To each Seller's knowledge, the activities, operations and business undertaken on, at or about each Site, including, but not limited to, any past or ongoing alterations or improvements at each Site, are and have been at all times, in compliance with all applicable laws, including, without limitation, all Environmental Laws. To each Seller's knowledge, no further action is required to remedy any Environmental Condition or violation of, or to be in full compliance with, any Environmental Laws, and no lien has been imposed on any Site in any federal, state or local governmental or quasi-governmental entity in connection with any Environmental Condition, the violation or threatened violation of any Environmental Laws or the presence of any Hazardous Materials, Regulated Substances or USTs on or off any such Site. There is no pending or, to each Seller's knowledge, threatened litigation or proceeding before any court, administrative agency or governmental body in which any person or entity alleges the violation or threatened violation of any Environmental Laws or the presence, Release, Threatened Release or placement on or at any Site of any Hazardous Materials, Regulated Substances or USTs, or of any facts which would give rise to any such action, nor has any Seller (a) received any notice (and no Seller has any actual or constructive knowledge) that any Governmental Authority or quasi-governmental authority or any employee or agent thereof has determined, threatens to determine or requires an investigation to determine that there has been a violation of any Environmental Laws at, on or in connection with any Site or that there exists a presence, Release, Threatened Release or placement of any Hazardous Materials, Regulated Substances or USTs on or at any Site, or the use, handling, manufacturing, generation, production, storage, treatment, processing, transportation or disposal of any Hazardous Materials, Regulated Substances or USTs at or on any Site; (b) received any notice under the citizen suit provision of any Environmental Law in connection with any Site or any facilities, operations or activities conducted thereon, or any business conducted in connection therewith; or (c) received any request for inspection, request for information, notice, demand, administrative inquiry or any formal or informal complaint or claim with respect to or in connection with the violation or threatened violation of any Environmental Laws or existence of Hazardous Materials, Regulated Substances or USTs relating to any Site or any facilities, operations or activities conducted thereon or any business conducted in connection therewith. The information and disclosures in each Questionnaire are true, correct and complete in all material respects, Buyer and Environmental Insurer may rely on such information and disclosures, and the person or persons executing each Questionnaire were duly authorized to do so. L. Title to Sites. Title to each of the Sites is vested in each respective Seller as shown on Schedule 1. On the Closing Date, each Seller will convey to Buyer title to each Site owned by such Seller, free and clear of all liens, encumbrances, charges and security interests of any nature whatsoever, except the Permitted Exceptions. M. No Other Agreements and Options. Neither Sellers, nor Guarantor, nor Lessee nor any Site is subject to any commitment, obligation, or agreement, including, but not limited to, any right of first refusal, option to purchase or lease granted to a third party, which could or would prevent any Seller from completing or impair any Seller's ability to complete the sale of any Site under this Agreement or which would bind Buyer subsequent to consummation of the transaction contemplated in this Agreement. N. No Mechanics' Liens. There are no outstanding accounts payable, mechanics' liens, or rights to claim a mechanics' lien in favor of any materialman, laborer, or any other person or entity in connection with labor or materials furnished to or performed on any portion of any Site; no work has been performed or is in progress nor have materials been supplied to any Site or agreements entered into for work to be performed or materials to be supplied to any Site prior to the date hereof, which will not have been fully paid for on or before the Closing Date or which might provide the basis for the filing of such liens against any Site or any portion thereof; Sellers shall be responsible for any and all claims for mechanics' liens and accounts payable that have arisen or may subsequently arise due to agreements entered into for and/or any work performed on, or materials supplied to any Site prior to the Closing Date; and Sellers shall and does hereby agree to defend, indemnify and forever hold Buyer and Buyer's designees harmless from and against any and all such mechanics' lien claims, accounts payable or other commitments relating to the Sites. O. No Reliance. Sellers acknowledge that Buyer did not prepare or assist in the preparation of any of the projected financial figures used by Sellers in analyzing the economic viability and feasibility of the transaction contemplated by this Agreement, and that Sellers have not relied on any report or statement by Buyer in entering into this Agreement. Furthermore, Sellers acknowledge that they have not relied upon, nor may they hereafter rely upon, the analysis undertaken by Buyer in determining the Purchase Price, and such analysis will not be made available to Sellers. P. Affiliates. Each Seller is an Affiliate of the other Seller, and each Seller is an Affiliate of Guarantor. Q. No Leases, Subleases or Use or Occupancy Agreements. Other than the Leases to be entered into by and between Buyer, as lessor, and Lessee, as of the Closing, there are no leases, subleases or other agreements relative to the use or occupancy of any of the Sites, or any portion of any of the Sites. All representations and warranties of Sellers made in this Agreement shall be and will remain true and complete as of the Closing Date as if made and restated in full as of such date and shall survive the Closing. Sellers acknowledge and agree that Environmental Insurer may rely on the environmental representations and warranties set forth in this Agreement, that Environmental Insurer is an intended third-party beneficiary of such representations and warranties and that Environmental Insurer shall have all rights and remedies available at law or in equity as a result of a breach of such representations and warranties, including, to the extent applicable, the right of subrogation. 9. COVENANT AND AGREEMENT OF SELLERS. From the date of the Commitment through the Closing Date, Sellers shall, at all reasonable times, (i) provide Buyer and Buyer's officers, employees, agents, advisors, attorneys, accountants, architects, and engineers with access to each Site, all drawings, plans, and specifications for each Site in possession of any Seller, all engineering reports relating to each Site in the possession of any Seller, the files and correspondence relating to each Site, and the financial books and records, including lists of delinquencies, relating to the ownership, operation, and maintenance of each Site, and (ii) allow such persons to make such inspections, tests, copies, and verifications as Buyer considers necessary. 10. TRANSACTION CHARACTERIZATION. It is the intent of the parties that the conveyance of the Sites to Buyer be absolute conveyances in effect as well as form, and the instruments of conveyance to be delivered at Closing are not intended to serve or operate as mortgages, equitable mortgages, deeds of trust, security agreements, trust conveyances or financing or trust arrangements of any kind, nor as preferences or fraudulent conveyances against any creditors of Seller. After the execution and delivery of the special warranty deed described in Section 11 for each Site, Sellers will have no legal or equitable interest or any other claim or interest in any of the Sites. Furthermore, the parties intend for the Leases to be true leases and not transactions creating financing leases, capital leases, equitable mortgages, mortgages, deeds of trust, security interests or other financing arrangements, and the economic realities of the Leases are those of true leases. Notwithstanding the existence of the Leases, neither party shall contest the validity, enforceability or characterization of the sale and purchase of the Sites by Buyer pursuant to this Agreement as absolute conveyances, and both parties shall support the intent expressed herein that the purchase of the Sites by Buyer pursuant to this Agreement provides for absolute conveyances and does not create any joint venture, partnership, equitable mortgage, trust, financing device or arrangement, security interest or the like, if, and to the extent that, any challenge occurs. 11. CONDITIONS OF CLOSING. The obligation of Buyer to consummate the transaction contemplated by this Agreement is subject to the fulfillment or waiver of each of the following conditions: A. Title. Each Seller shall convey the Site or Sites owned by such Seller to Buyer by a special warranty deed (collectively, the "Deeds"), free of all liens, encumbrances, restrictions, encroachments and easements, except as otherwise specifically provided herein or agreed to in writing by Buyer ("Permitted Exceptions"). B. Condition of Sites; Approval by Buyer. Buyer shall have inspected and approved each Site, and each Site shall be in good condition and repair, of good workmanship and materials, fully equipped and operational, clean, orderly, sanitary, safe, well-lit, landscaped, decorated, attractive and with a suitable layout, physical plant, traffic pattern and location all as determined by Buyer in its sole discretion. C. Evidence of Title. Buyer shall have received a preliminary title report and irrevocable commitment to insure title by means of an ALTA extended coverage owner's policy of title insurance (or its equivalent, in the event such form is not issued in the jurisdiction where each Site are located) issued by Title Company showing good and marketable title in the corresponding Seller that owns such Site, committing to insure Buyer's fee simple ownership in each Site, subject only to Permitted Exceptions relating to such Site and containing such endorsements as Buyer may require. D. Survey. Buyer shall have received a current ALTA survey of each Site, the form and substance of which shall be satisfactory to Buyer in its reasonable discretion. Seller shall have provided Buyer with either (i) evidence satisfactory to Buyer that the location of such Site is not within the 100-year flood plain or identified as a special flood hazard area as defined by the Federal Insurance Administration, or (ii) evidence of flood insurance coverage acceptable to Buyer if such Site has been identified as a special flood hazard area. E. Environmental. Buyer shall have received (at Buyer's sole election) either (i) a Phase I environmental report with respect to each Site (and a Phase II environmental report, if necessary, as determined by Buyer in its sole discretion), the form, substance and conclusions of which shall be satisfactory to Buyer in its sole discretion, or (ii) an Environmental Policy with respect to each Site. F. Compliance With Representations, Warranties and Covenants. All obligations of Sellers under this Agreement shall have been fully performed and complied with, and no event shall have occurred or condition shall exist which would, upon the Closing Date, or, upon the giving of notice and/or passage of time, constitute a breach or default hereunder or under any Lease or any other agreement between or among Buyer and Seller or Guarantor or Lessee pertaining to the subject matter hereof, and no event shall have occurred or condition shall exist or information shall have been disclosed by Sellers or discovered by Buyer which has had or would have a material adverse effect on any Site, Sellers' or Buyer's willingness to consummate the transaction contemplated by this Agreement, as determined by Buyer in its sole and absolute discretion. G. Proof of Insurance. Seller shall have caused Lessee to deliver to Buyer copies of insurance policies, showing that all insurance required by each Lease providing coverage and limits satisfactory to Buyer are in full force and effect. H. Zoning. If requested by Buyer, Sellers shall have provided Buyer with evidence satisfactory to Buyer to confirm that each Site is properly zoned for its use as contemplated by this Agreement and that such use or uses constitutes or constitute legal, conforming uses and that the buildings, structures and improvements located at each Site constitute legal, conforming buildings, structures and improvements under applicable zoning requirements. I. Opinions of Counsel. Sellers shall have caused Counsel to prepare and deliver for each Site one or more opinion letters in form and substance acceptable to Buyer. J. Subordination Agreements. To the extent Lessee shall, as of the Closing Date, sublease a Subleased Site to a Sublessee pursuant to a Sublease, Sellers shall have executed and delivered and shall have caused Lessee and Sublessees, if any, to execute and deliver to Buyer and Title Company for recordation a Subordination Agreement for each Subleased Site. Sellers shall have executed and delivered and shall have caused Lessee and any third party using or occupying any portion of any of the Sites (other than Sublessees) to execute and deliver to Buyer a Subordination Agreement (in form and substance acceptable to Buyer) for each Site used or occupied by such third party. Sellers shall notify Buyer in writing prior to the Closing of any third party (other than a Sublessee) using or occupying any of the Sites or any portion of any of the Sites, and Buyer shall have approved of such third party and such third- party's use and occupancy of the Site. K. Approval by Buyer of Subleases. To the extent Lessee, as of the Closing Date, shall sublease a Subleased Site to a Sublessee pursuant to a Sublease, Buyer shall have approved the Sublease that corresponds to each Subleased Site (and each Sublease shall have been amended in a manner reasonably requested by Buyer) and the Sublessee corresponding thereto. Buyer shall have approved any agreement, lease or sublease pursuant to which any third party (other than a Sublessee) uses or occupies any of the Sites or any portion of any of the Sites. Buyer shall have approved any third party (other than a Sublessee) who uses or occupies any of the Sites or any portion of any of the Sites and such third-party's use and occupancy of the Site. L. Approvals, Consents and Waivers. As of the Closing, Sellers and Lessee shall have obtained (and delivered to Buyer a copy and a reasonable description of) all consents, approvals, waivers and authorizations required to be obtained in connection with the consummation of the transaction contemplated by this Agreement. M. Franchise Agreement. The franchise, license and/or area development agreements between Lessee and the Franchisor associated with such Franchisor Restaurant with respect to each Site that is operated by Lessee as a Franchisor Restaurant is valid, binding and in full force and effect. N. Agreement with Conoco Inc. Buyer shall have received and approved the supply or license agreement between Lessee and Conoco Inc., a Delaware corporation, governing Lessee's business of offering for retail sales petroleum and other products under the brand name Conoco. O. Franchisor Restaurant Assignment Agreement. Sellers shall have executed and delivered to Buyer a Franchisor Restaurant Assignment Agreement for each Site operated by Giant Four Corners as a Franchisor Restaurant, pursuant to which Giant Four Corners will assign to Giant Industries Arizona, Inc., an Arizona corporation, all of the right, title and interest of Giant Four Corners in and to any franchise, license and/or area development agreement between Giant Four Corners and the Franchisor associated with any Franchisor Restaurant being operated at such Site by Giant Four Corners. P. Closing Documents. On or prior to the Closing Date, Buyer and Sellers, as may be appropriate, shall execute and deliver or cause to be executed and delivered to Title Company or Buyer, as may be appropriate, all documents required to be delivered by this Agreement, and such other documents, payments, instruments and certificates, as Buyer may require in form acceptable to Buyer, including, without limitation, the following: (i) Special Warranty Deed for each Site; (ii) Lease for each Site; (iii) Memorandum of Lease for each Site; (iv) Proof of Insurance for each Site; (v) Opinion(s) of Counsel; (vi) Non-Foreign Seller Certificates; (vii) UCC-1 Financing Statements; (viii) Subordination Agreement for each Subleased Site, as applicable; (ix) Guaranty for each Site; (x) Subordination Agreement, if applicable, relative to each Site used or occupied by any third party (other than a Sublessee); (xi) Franchisor Restaurant Assignment Agreements, as applicable; (xii) Supply or license agreement between Lessee and Conoco Inc. Upon fulfillment or waiver of all of the above conditions, Buyer shall deposit funds necessary to close this transaction with the Title Company and this transaction shall close in accordance with the terms and conditions of this Agreement. 12. DEFAULT AND REMEDIES. A. Each of the following shall be deemed an event of default by Seller (an "Event of Default"): (i) If any representation or warranty of any Seller is false in any material respect when made or becomes false in any material respect prior to the Closing Date; (ii) If any Seller fails to keep or perform any of the terms or provisions of this Agreement or if any condition precedent is not satisfied by Sellers at or prior to the Closing Date or if Guarantor fails to keep or perform any of the terms or provisions of any Guaranty or if Lessee fails to keep or perform any of the terms or provisions of any Lease; (iii) If any Seller, Guarantor or Lessee is or becomes insolvent within the meaning of the Code, files or notifies Buyer that it intends to file a petition under the Code, initiates a proceeding under any similar law or statute relating to bankruptcy, insolvency, reorganization, winding up or adjustment of debts (collectively, an "Action"), becomes the subject of either a petition under the Code or an Action, or is not generally paying its debts as the same become due; (iv) If any event occurs or condition exists which does or would upon the Closing Date constitute a breach or default under any Lease or any other agreement between any Seller or Lessee or Guarantor and Buyer pertaining to the subject matter hereof; or (v) If there is an event of default or breach under any of the Other Agreements. B. In the event of any Event of Default, Buyer shall be entitled to exercise, at its option, concurrently, successively or in any combination, all remedies available at law or in equity, including without limitation any one or more of the following: (i) To terminate this Agreement by giving written notice to Sellers in which none of the parties hereto shall have any further obligation or liability, except such liabilities as Sellers may have for such breach or default; (ii) To proceed with the Closing relative to all of the Sites or any number of the Sites as determined by Buyer and direct Title Company to apply such portion of the Purchase Price as Buyer may deem necessary to cure any such breach or default; (iii) To bring an action for damages against any Seller or all Sellers, which, in the event Buyer proceeds to close on any Site, may include an amount equal to the difference between the value of each Site as conveyed to Buyer and the value each Site would have had if all representations and warranties of Sellers were true and Sellers had complied with all of its obligations; (iv) To bring an action to require any Seller or all Sellers specifically to perform its or their respective obligations hereunder; and/or (v) To recover from Sellers all expenses, including attorneys' fees, paid or incurred by Buyer as a result of such breach or default. 13. ASSIGNMENTS. A. Buyer may assign in whole or in part its rights under this Agreement. In the event of any unconditional assignment of Buyer's entire right and interest hereunder, Buyer shall automatically be relieved, from and after the date of such assignment, of liability for the performance of any obligation of Buyer contained herein. B. Sellers shall not, without the prior written consent of Buyer, which consent may be withheld in Buyer's sole discretion, sell, assign, transfer (other than the Subleases), mortgage, convey, encumber or grant any easements or other rights or interests of any kind in any Site, any of Seller's rights under this Agreement or any interest in any Seller, whether voluntarily, involuntarily or by operation of law or otherwise, including, without limitation, by merger, consolidation, dissolution or otherwise. 14. INDEMNITY. Each Seller, jointly and severally, agrees to indemnify, protect, hold harmless and defend Buyer and its directors, officers, shareholders, employees, successors, assigns, agents, lenders, contractors, subcontractors, experts, licensees, affiliates, lessees, mortgagees, trustees and invitees, as applicable (collectively, the "Indemnified Parties"), from and against any and all losses, costs, claims, liabilities, damages and expenses, including, without limitation, Buyer's reasonable attorneys' fees and consequential damages, arising as the result of an Environmental Condition and/or a breach of any of the representations, warranties, covenants, agreements or obligations of any Seller set forth in this Agreement. Without limiting the generality of the foregoing, such indemnity shall include, without limitation, any damages incurred with respect to any engineering, governmental inspection and attorneys' fees and expenses that the Indemnified Parties may incur by reason of any Environmental Condition and/or any representation or warranty set forth in Section 8.K being false, or by reason of any investigation or claim of any governmental agency in connection therewith. 15. MISCELLANEOUS PROVISIONS. A. Notices. All notices, consents, approvals or other instruments required or permitted to be given by either party pursuant to this Agreement shall be in writing and given by (i) hand delivery, (ii) facsimile, (iii) express overnight delivery service or (iv) certified or registered mail, return receipt requested, and shall be deemed to have been delivered upon (a) receipt, if hand delivered, (b) transmission, if delivered by facsimile, (c) the next business day, if delivered by express overnight delivery service, or (d) the third business day following the day of deposit of such notice with the United States Postal Service, if sent by certified or registered mail, return receipt requested. Notices shall be provided to the parties and addresses (or facsimile numbers, as applicable) specified below: If to Sellers: c/o Giant Industries, Inc. Attention: Mr. Mark Cox 23733 North Scottsdale Road Scottsdale, Arizona 85255 Telephone: (602) 585-8888 Telecopy: (602) 585-8893 With a copy to: Giant Industries, Inc. Legal Department Attention: Carlos Guerra, Esq. 23733 North Scottsdale Road Scottsdale, Arizona 85255 Telephone: (602) 585-8851 Telecopy: (602) 585-8985 If to Buyer: Dennis L. Ruben, Esq. Executive Vice President and General Counsel FFCA Capital Holding Corporation 17207 North Perimeter Drive Scottsdale, AZ 85255 Telephone: (602) 585-4500 Telecopy: (602) 585-2226 B. Risk of Loss. Seller shall assume the risk of loss, damage or destruction of any Site or all Sites prior to the Closing Date. C. Condemnation. In the event of a taking of all or any part of any Site on or before the Closing, Buyer at its sole option shall have the right to either (i) receive the proceeds of any condemnation award and, proceed to close this transaction relative to such Site and the remaining Sites, or (ii) terminate this Agreement relative to the Site that is the subject of such taking and close this transaction relative to the remaining Sites, or (iii) terminate this Agreement relative to all Sites. D. Real Estate Commission. Buyer and Sellers represent and warrant to each other that they have dealt with no real estate broker, agent, finder or other intermediary in connection with the transactions contemplated by this Agreement. Buyer and Sellers shall indemnify and hold each other harmless from and against any costs, claims or expenses, including attorneys' fees, arising out of the breach of their respective representations and warranties contained within this Section. E. Waiver and Amendment. No provisions of this Agreement shall be deemed waived or amended except by a written instrument unambiguously setting forth the matter waived or amended and signed by the party against which enforcement of such waiver or amendment is sought. Waiver of any matter shall not be deemed a waiver of the same or any other matter on any future occasion. F. Captions. Captions are used throughout this Agreement for convenience of reference only and shall not be considered in any manner in the construction or interpretation hereof. G. Buyer's Liability. Notwithstanding anything to the contrary provided in this Agreement, it is specifically understood and agreed, such agreement being a primary consideration for the execution of this Agreement by Buyer, that (i) there shall be absolutely no personal liability on the part of any shareholder, director, officer or employee of Buyer, with respect to any of the terms, covenants and conditions of this Agreement, (ii) Sellers waive all claims, demands and causes of action against Buyer's officers, directors, employees and agents in the event of any breach by Buyer of any of the terms, covenants and conditions of this Agreement to be performed by Buyer and (iii) Sellers shall look solely to the assets of Buyer for the satisfaction of each and every remedy of Sellers in the event of any breach by Buyer of any of the terms, covenants and conditions of this Agreement to be performed by Buyer, such exculpation of liability to be absolute and without any exception whatsoever. H. Severability. The provisions of this Agreement shall be deemed severable. If any part of this Agreement shall be held unenforceable, the remainder shall remain in full force and effect, and such unenforceable provision shall be reformed by such court so as to give maximum legal effect to the intention of the parties as expressed therein. I. Construction Generally. This is an agreement between parties who are experienced in sophisticated and complex matters similar to the transaction contemplated by this Agreement and is entered into by the parties in reliance upon the economic and legal bargains contained herein and shall be interpreted and construed in a fair and impartial manner without regard to such factors as the party which prepared the instrument, the relative bargaining powers of the parties or the domicile of any party. Sellers and Buyer were each represented by legal counsel competent in advising them of their obligations and liabilities hereunder. J. Other Documents. Each of the parties agrees to sign such other and further documents as may be appropriate to carry out the intentions expressed in this Agreement. K. Attorneys' Fees. In the event of any judicial or other adversarial proceeding between the parties concerning this Agreement, the prevailing party shall be entitled to recover all of its attorneys' fees and other costs in addition to any other relief to which it may be entitled. References in this Agreement to Buyer's attorneys' fees and/or costs shall mean both the fees and costs of independent counsel retained by Buyer with respect to this transaction and the fees and costs of Buyer's in-house counsel incurred in connection with this transaction. L. Entire Agreement. This Agreement, together with any other certificates, instruments or agreements to be delivered hereunder, constitute the entire agreement between the parties with respect to the subject matter hereof, and there are no other representations, warranties or agreements, written or oral, between Sellers and Buyer with respect to the subject matter of this Agreement. Notwithstanding anything in this Agreement to the contrary, upon the execution and delivery of this Agreement by Sellers and Buyer the Commitment shall be deemed null and void and of no further force and effect and the terms and conditions of this Agreement shall control notwithstanding that such terms are inconsistent with or vary from those set forth in the Commitment. M. Recording. At the election of Buyer, this Agreement may be recorded in the appropriate governmental office or offices so as to impart constructive notice of the terms and provisions hereof. N. Forum Selection; Jurisdiction; Venue; Choice of Law. Sellers acknowledge that this Agreement was substantially negotiated in the State of Arizona, the Agreement was signed by Buyer and Sellers in the State of Arizona and delivered by Sellers in the State of Arizona, all payments under the Leases will be delivered in the State of Arizona and there are substantial contacts between the parties and the transactions contemplated herein and the State of Arizona. For purposes of any action or proceeding arising out of this Agreement, the parties hereto hereby expressly submit to the jurisdiction of all federal and state courts located in the State of Arizona and Sellers consents that they may be served with any process or paper by registered mail or by personal service within or without the State of Arizona in accordance with applicable law. Furthermore, Sellers waive and agree not to assert in any such action, suit or proceeding that it is not personally subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum or that venue of the action, suit or proceeding is improper. It is the intent of the parties hereto that all provisions of this Agreement shall be governed by and construed under the laws of the State of Arizona. To the extent that a court of competent jurisdiction finds Arizona law inapplicable with respect to any provisions hereof, then, as to those provisions only, the law of the state in which each Site is located shall be deemed to apply to such Site. Nothing contained in this Section shall limit or restrict the right of Buyer to commence any proceeding in the federal or the state courts located in the state in which each Site is located to the extent Buyer deems such proceeding necessary or advisable to exercise remedies available under the Agreement. O. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original. P. Binding Effect. This Agreement shall be binding upon and inure to the benefit of Sellers and Buyer and their respective successors and permitted assigns, including, without limitation, any United States trustee, any debtor-in-possession or any trustee appointed from a private panel. Q. Survival. Except for the conditions of Closing set forth in Section 11, which shall be satisfied or waived as of the Closing Date, all representations, warranties, agreements, obligations and indemnities of Sellers and Buyer set forth in this Agreement shall survive the Closing. R. Waiver of Jury Trial and Punitive, Consequential, Special and Indirect Damages. BUYER AND SELLERS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, SELLERS AND BUYER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT EITHER MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM THE OTHER WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY SELLERS OR BUYER AGAINST THE OTHER OR ITS RESPECTIVE SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY SELLERS AND BUYER OF ANY RIGHT EITHER MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. IN WITNESS WHEREOF, Sellers and Buyer have entered into this Agreement as of the date first above written. BUYER: FFCA CAPITAL HOLDING CORPORATION, a Delaware corporation By /s/ Stephen Y. Schwanz -------------------------------------- Name: Stephen Y. Schwanz Its: Vice President SELLERS: GIANT INDUSTRIES ARIZONA, INC., an Arizona corporation By /s/ Mark B. Cox -------------------------------------- Printed Name: Mark B. Cox Its: Vice President GIANT FOUR CORNERS, INC., an Arizona corporation By /s/ Mark B. Cox -------------------------------------- Printed Name: Mark B. Cox Its: Vice President STATE OF ARIZONA ] ] SS. COUNTY OF MARICOPA ] The foregoing instrument was acknowledged before me on December 30, 1998, by Stephen Y. Schwanz, Vice President, of FFCA Capital Holding Corporation, a Delaware corporation, on behalf of the corporation. /s/ Paula T. Cross -------------------------- Notary Public My Commission Expires: Nov. 29, 2000 STATE OF ARIZONA ] ] SS. COUNTY OF MARICOPA ] The foregoing instrument was acknowledged before me on December 30, 1998, by Mark Baker Cox, the Vice President of GIANT INDUSTRIES ARIZONA, INC., an Arizona corporation, on behalf of the corporation. /s/ Paula T. Cross -------------------------- Notary Public My Commission Expires: Nov. 29, 2000 STATE OF ARIZONA ] ] SS. COUNTY OF MARICOPA ] The foregoing instrument was acknowledged before me on December 30, 1998, by Mark Baker Cox, the Vice President of GIANT FOUR CORNERS, INC., an Arizona corporation, on behalf of the corporation. /s/ Paula T. Cross -------------------------- Notary Public My Commission Expires: Nov. 29, 2000 Giant AZ = Giant Industries Arizona, Inc. Giant 4 = Giant Four Corners, Inc.
SCHEDULE 1 (List of Sellers and list of Sites owned by each Seller) Unit No. FFCA File No. Street Address City State Seller's Name -------- ------------- ----------------------- -------------- ----- ------------- 6901 8000-8344 825 Monroe Buckeye AZ Giant AZ 6906 8000-8345 945 N. Arizona Ave. Chandler AZ Giant AZ 6916 8000-8378 1951 E. Baseline Gilbert AZ Giant AZ 6907 8000-8348 1405 E. Ash Globe AZ Giant AZ 7193 8000-8349 410 Hopi Dr. Holbrook AZ Giant AZ 7222 8000-8350 1653 White Mtn. Blvd. Lakeside AZ Giant AZ 6915 8000-8351 6807 E. Baseline Rd. Mesa AZ Giant AZ 6917 8000-8352 3559 E. University Mesa AZ Giant AZ 6918 8000-8353 2743 S. Alma School Rd. Mesa AZ Giant AZ 6928 8000-7354 6608 E. Main St. Mesa AZ Giant AZ 6903 8000-8355 2120 Hwy 60/70 Miami AZ Giant AZ 6910 8000-8356 7450 W. Thomas Rd. Phoenix AZ Giant AZ 6913 8000-8357 5049 W. Buckeye Phoenix AZ Giant AZ 6932 8000-8358 4305 E. Ray Rd. Phoenix AZ Giant AZ 6908 8000-8359 300 Hwy 70 Safford AZ Giant AZ 7203 8000-8360 Hwy 191 Sanders AZ Giant 4 6904 8000-8361 7630 E. McDowell Rd. Scottsdale AZ Giant AZ 6909 8000-8362 3301 N. Hayden Rd. Scottsdale AZ Giant AZ 7223 8000-8363 1981 E. Deuce of Clubs Show Low AZ Giant 4 7123 8000-8364 379 S. Main Snowflake AZ Giant 4 7219 8000-8365 138 W. Main, Hwy 60 Springerville AZ Giant 4 7224 8000-8367 310 N. Main Taylor AZ Giant 4 6914 8000-8368 7550 S. Rural Rd. Tempe AZ Giant AZ 6902 8000-8369 2946 W. Hwy 70 Thatcher AZ Giant AZ 6921 8000-8370 7366 N. Oracle Rd. Tucson AZ Giant AZ 6922 8000-8371 2100 W. Ruthrauff Rd. Tucson AZ Giant AZ 6923 8000-8372 1530 W. St. Mary's Rd. Tucson AZ Giant AZ 6924 8000-8373 761 W. Ajo Tucson AZ Giant AZ 6925 8000-8374 1202 W. Ajo Tucson AZ Giant AZ 6926 8000-8375 6500 S. 12th Ave. Tucson AZ Giant AZ 6929 8000-8376 9491 E. 22nd St. Tucson AZ Giant AZ 6930 8000-8377 2750 S. Kolb Rd. Tucson AZ Giant AZ 6931 8000-8378 3780 W. Magee Rd. Tucson AZ Giant AZ 7320/ 8000-8379 Hwy 264 Tse Bontio NM 7321 Window Rock AZ Giant 4 7405 8000-8380 2201 Main St. Alamosa CO Giant 4 6063 8000-8381 650 Buck Highway Bayfield CO Giant AZ 7212 8000-8382 1525 Greenwood Canon City CO Giant 4 6064 8000-8384 2320 E. Main Cortez CO Giant AZ 7260 8000-8386 921 E. Main Cortez CO Giant 4 7676 8000-8391 805 Grand Del Norte CO Giant 4 7229 8000-8392 501 Railroad Ave. Dolores CO Giant 4 6059 8000-8393 26223 US Highway 160 Durango CO Giant AZ 6060 8000-8394 1991 Main Avenue Durango CO Giant AZ 6061 8000-8395 901 Camino Del Rio Durango CO Giant AZ 7111 8000-8396 20329 Hwy 160 West Durango CO Giant AZ 7677 8000-8397 605 First St. Monte Vista CO Giant 4 6062 8000-8398 635 San Juan Pagosa Springs CO Giant AZ 7675 8000-8399 30483 US Hwy 160 South Fork CO Giant 4 7237 8000-8400 1519 E. Main St. Trinidad CO Giant 4 7442 8000-8401 3501 Isleta Blvd., SW Albuquerque NM Giant 4 7446 8000-8403 937 Isleta SW Albuquerque NM Giant 4 7553 8000-8404 2504 Broadway SE Albuquerque NM Giant 4 7118 8000-8405 2790 US Hwy 550 Aztec NM Giant 4 7197 8000-8406 321 Main Ave. Aztec NM Giant 4 7283 8000-8408 1224 S. Main St. Belen NM Giant 4 7168 8000-8409 118 Hwy 44 West Bernalillo NM Giant 4 7293 8000-8410 401 Hwy 44 N. Bernalillo NM Giant 4 7210 8000-8411 204 S. Bloomfield Blvd. Bloomfield NM Giant 4 7214 8000-8412 602 W. Broadway Bloomfield NM Giant 4 7239 8000-8413 Star Rte 4, Box 3000 Bloomfield NM Giant 4 7215 8000-8415 Box 42 HCR 79 Cuba NM Giant 4 7244 8000-8416 11260 NM Hwy 44, Nagezzi Cuba NM Giant 4 7247 8000-8417 HCR 79 Box 10 Cuba NM Giant 4 7183 8000-8418 902 N. Riverside Dr. Espanola NM Giant 4 7555 8000-8420 286 S. Riverside Espanola NM Giant 4 7278 8000-8421 5th & Joseph Estancia NM Giant 4 7127 8000-8422 2603 E. 20th St. Farmington NM Giant 4 7211 8000-8423 2700 W. Main Farmington NM Giant 4 7217 8000-8424 8180 E. Main Farmington NM Giant 4 7218 8000-8425 5702 Hwy 64 Farmington NM Giant 4 7240 8000-8426 3001 Bloomfield Hwy Farmington NM Giant 4 7556 8000-8427 1500 San Juan Blvd. Farmington NM Giant 4 7204 8000-8428 HCR 4, Box 20 Gallup NM Giant 4 7408 8000-8429 3340 E. Hwy 66 Gallup NM Giant 4 7409 8000-8430 3302 W. Hwy 66 Gallup NM Giant 4 7557 8000-8431 800 E. Coal Gallup NM Giant 4 7198 8000-8432 4357 US Hwy 64 Kirtland NM Giant 4 7295 8000-8433 610 W. Hwy 66 Milan NM Giant 4 7297 8000-8434 5180 Hwy 68 Rancho de Taos NM Giant 4 7554 8000-8435 832 Sierra Vista Santa Fe NM Giant 4 7448 8000-8436 113268 S. Santa Fe Rd. Taos NM Giant 4 7257 8000-8437 Hwy 371 Thoreau NM Giant 4 7310 8000-8439 3890 US Hwy 64, Fruitland, NM Waterflow NM Giant 4
SCHEDULE 2 (List of Sublessees and list of Subleased Sites leased by each Sublessee) SELLERS REPRESENT AND WARRANT TO BUYER THAT, AS OF THE DATE OF THIS AGREEMENT, THERE ARE NO SUBLEASES, THERE ARE NO SUBLESSEES, AND THERE ARE NO SUBLEASED SITES.
EXHIBIT A (List of Sites) Unit No. FFCA File No. Street Address City State Zip Code -------- ------------- ----------------------- -------------- ----- -------- 6901 8000-8344 825 Monroe Buckeye AZ 85326 6906 8000-8345 945 N. Arizona Ave. Chandler AZ 85224 6916 8000-8347 1951 E. Baseline Gilbert AZ 86234 6907 8000-8348 1405 E. Ash Globe AZ 85501 7193 8000-8349 410 Hopi Dr. Holbrook AZ 86025 7222 8000-8350 1653 White Mtn. Blvd. Lakeside AZ 85929 6915 8000-8351 6807 E. Baseline Rd. Mesa AZ 85208 6917 8000-8352 3559 E. University Mesa AZ 85203 6918 8000-8353 2743 S. Alma School Rd. Mesa AZ 85210 6928 8000-7354 6608 E. Main St. Mesa AZ 85205 6903 8000-8355 2120 Hwy 60/70 Miami AZ 85539 6910 8000-8356 7450 W. Thomas Rd. Phoenix AZ 85033 6913 8000-8357 5049 W. Buckeye Phoenix AZ 85043 6932 8000-8358 4305 E. Ray Rd. Phoenix AZ 85044 6908 8000-8359 300 Hwy 70 Safford AZ 85546 7203 8000-8360 Hwy 191 Sanders AZ 86512 6904 8000-8361 7630 E. McDowell Rd. Scottsdale AZ 85257 6909 8000-8362 3301 N. Hayden Rd. Scottsdale AZ 85251 7223 8000-8363 1981 E. Deuce of Clubs Show Low AZ 85901 7123 8000-8364 379 S. Main Snowflake AZ 85937 7219 8000-8365 138 W. Main, Hwy 60 Springerville AZ 85938 7224 8000-8367 310 N. Main Taylor AZ 85939 6914 8000-8368 7550 S. Rural Rd. Tempe AZ 85283 6902 8000-8369 2946 W. Hwy 70 Thatcher AZ 85552 6921 8000-8370 7366 N. Oracle Rd. Tucson AZ 85704 6922 8000-8371 2100 W. Ruthrauff Rd. Tucson AZ 85705 6923 8000-8372 1530 W. St. Mary's Rd. Tucson AZ 85745 6924 8000-8373 761 W. Ajo Tucson AZ 85713 6925 8000-8374 1202 W. Ajo Tucson AZ 85713 6926 8000-8375 6500 S. 12th Ave. Tucson AZ 85706 6929 8000-8376 9491 E. 22nd St. Tucson AZ 85710 6930 8000-8377 2750 S. Kolb Rd. Tucson AZ 85730 6931 8000-8378 3780 W. Magee Rd. Tucson AZ 85741 7320/ Hwy 264 Tse Bontio NM 87301 7321 8000-8379 Window Rock AZ 86515 7405 8000-8380 2201 Main St. Alamosa CO 81101 6063 8000-8381 650 Buck Highway Bayfield CO 81122 7212 8000-8382 1525 Greenwood Canon City CO 81212 6064 8000-8384 2320 E. Main Cortez CO 81321 7260 8000-8386 921 E. Main Cortez CO 81321 7676 8000-8391 805 Grand Del Norte CO 81132 7229 8000-8392 501 Railroad Ave. Dolores CO 81323 6059 8000-8393 26223 US Highway 160 Durango CO 81301 6060 8000-8394 1991 Main Avenue Durango CO 81301 6061 8000-8395 901 Camino Del Rio Durango CO 81301 7111 8000-8396 20329 Hwy 160 West Durango CO 81301 7677 8000-8397 605 First St. Monte Vista CO 81144 6062 8000-8398 635 San Juan Pagosa Springs CO 81147 7675 8000-8399 30483 US Hwy 160 South Fork CO 81154 7237 8000-8400 1519 E. Main St. Trinidad CO 81082 7442 8000-8401 3501 Isleta Blvd., SW Albuquerque NM 87105 7446 8000-8403 937 Isleta SW Albuquerque NM 87105 7553 8000-8404 2504 Broadway SE Albuquerque NM 87501 7118 8000-8405 2790 US Hwy 550 Aztec NM 87410 7197 8000-8506 321 Main Ave. Aztec NM 87410 7283 8000-8408 1224 S. Main St. Belen NM 87002 7168 8000-8409 118 Hwy 44 West Bernalillo NM 87004 7293 8000-8410 401 Hwy 44 N. Bernalillo NM 87004 7210 8000-8411 204 S. Bloomfield Blvd. Bloomfield NM 87413 7214 8000-8412 602 W. Broadway Bloomfield NM 87413 7239 8000-8413 Star Rte 4, Box 3000 Bloomfield NM 87413 7215 8000-8415 Box 42 HCR 79 Cuba NM 87013 7244 8000-8416 11260 NM Hwy 44, Nagezzi Cuba NM 87013 7247 8000-8417 HCR 79 Box 10 Cuba NM 87013 7183 8000-8418 902 N. Riverside Dr. Espanola NM 87532 7555 8000-8420 286 S. Riverside Espanola NM 87532 7278 8000-8421 5th & Joseph Estancia NM 87016 7127 8000-8422 2603 E. 20th St. Farmington NM 87401 7211 8000-8423 2700 W. Main Farmington NM 87401 7217 8000-8424 8180 E. Main Farmington NM 87401 7218 8000-8425 5702 Hwy 64 Farmington NM 87401 7240 8000-8426 3001 Bloomfield Hwy Farmington NM 87401 7556 8000-8427 1500 San Juan Blvd. Farmington NM 87401 7204 8000-8428 HCR 4, Box 20 Gallup NM 87301 7408 8000-8429 3340 E. Hwy 66 Gallup NM 87301 7409 8000-8430 3302 W. Hwy 66 Gallup NM 87301 7557 8000-8431 800 E. Coal Gallup NM 87301 7198 8000-8432 4357 US Hwy 64 Kirtland NM 87417 7295 8000-8433 610 W. Hwy 66 Milan NM 87021 7297 8000-8434 5180 Hwy 68 Rancho de Taos NM 87557 7554 8000-8435 832 Sierra Vista Santa Fe NM 87501 7448 8000-8436 113268 S. Santa Fe Rd. Taos NM 87571 7257 8000-8437 Hwy 371 Thoreau NM 87323 7310 8000-8439 3890 US Hwy 64 Waterflow NM 87421 Fruitland, NM
EXHIBIT B (Allocation of Purchase Price Among the Sites) FFCA File No./Unit No. Purchase Price Address ---------------------- -------------- ---------------------- 8000-8344/6901 $570,000 825 Monroe 8000-8345/6906 $1,090,000 945 N. Arizona Ave. 8000-8347/6916 $435,000 1951 E. Baseline 8000-8348/6907 $426,000 1405 E. Ash 8000-8349/7193 $440,000 410 Hopi Dr. 8000-8350/7222 $532,000 1653 White Mtn. Blvd. 8000-8351/6915 $1,300,000 6807 E. Baseline Rd. 8000-8352/6917 $551,000 3559 E. University 8000-8353/6918 $1,250,000 2743 S. Alma School Rd. 8000-7354/6928 $186,000 6608 E. Main St. 8000-8355/6903 $495,000 2120 Hwy 60/70 8000-8356/6910 $544,000 7450 W. Thomas Rd. 8000-8357/6913 $1,025,000 5049 W. Buckeye 8000-8358/6932 $1,000,000 4305 E. Ray Rd. 8000-8359/6908 $400,000 300 Hwy 70 8000-8360/7203 $1,300,000 Hwy 191 8000-8361/6904 $360,000 7630 E. McDowell Rd. 8000-8362/6909 $526,000 3301 N. Hayden Rd. 8000-8363/7223 $490,000 1981 E. Deuce of Clubs 8000-8364/7123 $590,000 379 S. Main 8000-8365/7219 $475,000 138 W. Main, Hwy 60 8000-8367/7224 $626,000 310 N. Main 8000-8368/6914 $1,000,000 7550 S. Rural Rd. 8000-8369/6902 $150,000 2946 W. Hwy 70 8000-8370/6921 $770,000 7366 N. Oracle Rd. 8000-8371/6922 $560,000 2100 W. Ruthrauff Rd. 8000-8372/6923 $710,000 1530 W. St. Mary's Rd. 8000-8373/6924 $745,000 761 W. Ajo 8000-8374/6925 $900,000 1202 W. Ajo 8000-8375/6926 $1,000,000 6500 S. 12th Ave. 8000-8376/6929 $880,000 9491 E. 22nd St. 8000-8377/6930 $926,000 2750 S. Kolb Rd. 8000-8378/6931 $885,000 3780 W. Magee Rd. 8000-8379/7320/7321 $1,150,000 Hwy 264, Tse Bontio, NM 87301 8000-8380/7405 $600,000 2201 Main St. 8000-8381/6063 $1,041,000 650 Buck Highway 8000-8382/7212 $264,000 1525 Greenwood 8000-8384/6064 $1,300,000 2320 E. Main 8000-8386/7260 $733,000 921 E. Main 8000-8391/7676 $704,000 805 Grand 8000-8392/7229 $150,000 501 Railroad Ave. 8000-8393/6059 $940,000 26223 US Highway 160 8000-8394/6060 $1,050,000 1991 Main Avenue 8000-8395/6061 $1,000,000 901 Camino Del Rio 8000-8396/7111 $440,000 20329 Hwy 160 West 8000-8397/7677 $450,000 605 First St. 8000-8398/6062 $725,000 635 San Juan 8000-8399/7675 $285,000 30483 US Hwy 160 8000-8400/7237 $255,000 1519 E. Main St. 8000-8401/7442 $219,000 3501 Isleta Blvd., SW 8000-8403/7446 $100,000 937 Isleta SW 8000-8404/7553 $450,000 2504 Broadway SE 8000-8405/7118 $600,000 2790 US Hwy 550 8000-8506/7197 $544,000 321 Main Ave. 8000-8408/7283 $455,000 1224 S. Main St. 8000-8409/7168 $290,000 118 Hwy 44 West 8000-8410/7293 $274,000 401 Hwy 44 N. 8000-8411/7210 $1,300,000 204 S. Bloomfield Blvd. 8000-8412/7214 $580,000 602 W. Broadway 8000-8413/7239 $605,000 Star Rte 4, Box 3000 8000-8415/7215 $360,000 Box 42 HCR 79 8000-8416/7244 $475,000 11260 NM Hwy 44, Nagezzi 8000-8417/7247 $400,000 HCR 79 Box 10 8000-8418/7183 $480,000 902 N. Riverside Dr. 8000-8420/7555 $472,000 286 S. Riverside 8000-8421/7278 $503,000 5th & Joseph 8000-8422/7127 $765,000 2603 E. 20th St. 8000-8423/7211 $468,000 2700 W. Main 8000-8424/7217 $830,000 8180 E. Main 8000-8425/7218 $726,000 5702 Hwy 64 8000-8426/7240 $505,000 3001 Bloomfield Hwy 8000-8427/7556 $400,000 1500 San Juan Blvd. 8000-8428/7204 $1,000,000 HCR 4, Box 20 8000-8429/7408 $401,986 3340 E. Hwy 66 8000-8430/7409 $302,000 3302 W. Hwy 66 8000-8431/7557 $151,000 800 E. Coal 8000-8432/7198 $356,000 4357 US Hwy 64 8000-8433/7295 $267,000 610 W. Hwy 66 8000-8434/7297 $800,000 5180 Hwy 68 8000-8435/7554 $414,000 832 Sierra Vista 8000-8436/7448 $341,000 113268 S. Santa Fe Rd. 8000-8437/7257 $705,000 Hwy 371 8000-8439/7310 $1,000,000 3890 US Hwy 64, Fruitland, NM /TABLE EXHIBIT C (Form of Lease) (Attached) LEASE THIS LEASE (this "Lease") is made as of December , 1998 (the "Effective Date"), by and between FFCA CAPITAL HOLDING CORPORATION, a Delaware corporation ("Lessor"), whose address is 17207 North Perimeter Drive, Scottsdale, Arizona 85255, and GIANT INDUSTRIES ARIZONA, INC., an Arizona corporation ("Lessee"), whose address is 23733 North Scottsdale Road, Scottsdale, Arizona 85255. W I T N E S S E T H : THAT, in consideration of the mutual covenants and agreements herein contained, Lessor and Lessee hereby covenant and agree as follows: 1. Certain Defined Terms. The following terms shall have the following meanings for all purposes of this Lease: "Adjustment Date" shall mean the second anniversary of the Effective Date, and every second anniversary thereafter during the Lease Term (including the extension period or periods if Lessee exercises one or more of its options pursuant to Section 28). "Affiliate" means any Person which directly or indirectly controls, is under common control with, or is controlled by any other Person. For purposes of this definition, "controls", "under common control with" and "controlled by" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person or entity, whether through ownership of voting securities or otherwise. "Base Annual Rental" means, as of the Effective Date, an amount equal to $___________, as such Base Annual Rental shall be adjusted from time to time as contemplated by Section 4. "Base Monthly Rental" means an amount equal to 1/12 of the applicable Base Annual Rental. "Code" means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et seq., as amended. "De Minimis Amounts" shall mean, with respect to any given level of Hazardous Materials or Regulated Substances, that level or quantity of Hazardous Materials or Regulated Substances in any form or combination of forms which does not constitute a violation of any Environmental Laws and is customarily employed in, or associated with, similar businesses located in the state in which the Premises are located. "Environmental Insurer" means such environmental insurance company as Lessor may select in its sole discretion. "Environmental Laws" means any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law, relating to protection of human health or the environment, relating to Hazardous Materials, Regulated Substances or USTs, relating to liability for or costs of Remediation or prevention of Releases or Threatened Releases or relating to liability for or costs of other actual or threatened danger to human health or the environment. "Environmental Laws" includes, but is not limited to, the following statutes, as amended, any successor thereto, and any regulations promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like addressing similar issues: the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous Materials Transportation Act; the Resource Conservation and Recovery Act (including but not limited to Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the National Environmental Policy Act; and the River and Harbors Appropriation Act. "Environmental Laws" also includes, but is not limited to, any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law: conditioning transfer of property upon a negative declaration or other approval of a Governmental Authority of the environmental condition of the property; requiring notification or disclosure of Releases or Threatened Releases or other environmental condition of the Premises to any Governmental Authority or other person or entity, whether or not in connection with transfer of title to or interest in property; imposing conditions or requirements in connection with permits or other authorization for lawful activity; relating to nuisance, trespass or other causes of action related to the Premises; and relating to wrongful death, personal injury, or property or other damage in connection with any physical condition or use of the Premises. "Environmental Policy" means the environmental insurance policy issued by Environmental Insurer to Lessor with respect to the Premises in connection with the transaction contemplated by the Sale and Lease Agreement. "Facility" means either a gasoline station or a combination convenience store and gasoline station operated under the Giant, Mustang, Conoco, Conoco Express, Thriftway, Plateau, Gasman or Gasamat brands or a nationally recognized oil brand or another brand approved by Lessor. Upon prior written notice to Lessor, a portion of the Facility may be operated by Lessee as a Franchisor Restaurant and/or subleased to Sublessee pursuant to the Sublease for the purpose of operating a business involving the retail sales of food items (including a Franchisor Restaurant) or non- food items, provided that no portion of the Premises or Facility shall be operated by Sublessee as a gasoline station or combination convenience store and gasoline station without the prior written consent of Lessor. "Franchise Finance" means Franchise Finance Corporation of America, a Delaware corporation, and its successors. "Franchisor" means the owner and holder of all of the rights and privileges relative to the franchise rights associated with a Franchisor Restaurant, including, without limitation, all trade secrets, tradenames and trademarks relative thereto. "Franchisor Restaurant" means a regionally- or nationally recognized franchise restaurant. "Governmental Authority" means any governmental authority, agency, department, commission, bureau, board, instrumentality, court or quasi-governmental authority of the United States, the states where the Premises is located or any political subdivision thereof. "Guarantor" means Giant Industries, Inc., a Delaware corporation, and its successor. "Guaranty" means that certain unconditional guaranty of payment and performance dated as of the date of this Lease executed by Guarantor. "Hazardous Materials" means (i) any toxic substance or hazardous waste, substance, solid waste or related material, or any pollutant or contaminant; (ii) radon gas, asbestos in any form which is or could become friable, urea formaldehyde foam insulation, transformers or other equipment which contains dielectric fluid containing levels of polychlorinated biphenyls in excess of federal, state or local safety guidelines, whichever are more stringent, or any petroleum product; (iii) any substance, gas, material or chemical which is or may be defined as or included in the definition of "hazardous substances," "toxic substances," "hazardous materials," hazardous wastes" or words of similar import under any Environmental Laws; and (iv) any other chemical, material, gas or substance the exposure to or release of which is or may be prohibited, limited or regulated by any Governmental Authority or quasi-governmental entity or authority that asserts or may assert jurisdiction over the Premises or the operations or activity at the Premises, or any chemical, material, gas or substance that does or may pose a hazard to the health and/or safety of the occupants of the Premises or the owners and/or occupants of property adjacent to or surrounding the Premises. "Indemnified Parties" means Lessor and the directors, officers, shareholders, partners, members, employees, agents, servants, representatives, contractors, subcontractors, affiliates, subsidiaries, participants, successors and assigns of Lessor, including, but not limited to, any successors by merger, consolidation or acquisition of all or a substantial portion of Lessor's assets and business. "Lease Term" shall have the meaning described in Section 3. "Lease Year" means the 12-month period commencing on January 1 and ending on December 31, and each successive calendar year thereafter. "Lessee Entities" means, collectively, Lessee and Guarantor and any Affiliate of Lessee or Guarantor. "Lessor Entities" means, individually or collectively, Lessor, Franchise Finance and any Affiliate of Lessor or Franchise Finance. "Losses" means any and all claims, suits, liabilities (including, without limitation, strict liabilities), actions, proceedings, obligations, debts, damages, losses, costs, expenses, diminutions in value, fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in settlement and damages of whatever kind or nature (including, without limitation, attorneys' fees and other costs of defense). "Minimum Purchase Price" means $______________. "Other Agreements" means, collectively, all agreements (including, without limitation, any equipment loan agreement) and instruments between, among or by (1) any of the Lessee Entities, and, or for the benefit of, (2) any of the Lessor Entities, including, without limitation, promissory notes, guaranties and leases, but excluding this Lease. "Person" means any individual, corporation, partnership, limited liability company, trust, unincorporated organization, Governmental Authority or any other form of entity. "Premises" means the parcel or parcels of real estate legally described in Exhibit A attached hereto, all rights, privileges and appurtenances associated therewith, and all buildings, fixtures and other improvements now or hereafter located thereon (whether or not affixed to such real estate). "Regulated Substances" means "petroleum" and "petroleum-based substances" or any similar terms described or defined in any Environmental Laws and any applicable federal, state, county or local laws applicable to or regulating USTs. "Release" means any release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Materials or Regulated Substances. "Remediation" means any response, remedial, removal, or corrective action, any activity to cleanup, detoxify, decontaminate, contain or otherwise remediate any Hazardous Material or Regulated Substances, any actions to prevent, cure or mitigate any Release, any action to comply with any Environmental Laws or with any permits issued pursuant thereto, any inspection, investigation, study, monitoring, assessment, audit, sampling and testing, laboratory or other analysis, or any evaluation relating to any Hazardous Materials or Regulated Substances. "Sale and Lease Agreement" means the Sale and Lease Agreement dated of even date herewith by and among Lessor, as buyer, and Giant Industries Arizona, Inc., an Arizona corporation, and Giant Four Corners, Inc., an Arizona corporation, as sellers, relative to the sale and purchase of the Premises. "Sublessee" means the lessee under the Sublease. "Sublease" means a lease or sublease agreement between Lessee, as sublessor, and Sublessee relative to the subleasing of the Subleased Premises for the purposes specifically permitted under this Lease, which Sublease shall be subject, junior and subordinate at all times and for all purposes to the terms and provisions of this Lease. "Subleased Premises" means a portion of the Premises that is subleased to Sublessee pursuant to the Sublease for the purpose of operating a business involving the retail sales of food items (including a Franchisor Restaurant) or non-food items, provided that no portion of the Subleased Premises shall be operated by Sublessee as a gasoline station or combination convenience store and gasoline station without the prior written consent of Lessor. The Subleased Premises shall not constitute a significant portion of the Premises. "Threatened Release" means a substantial likelihood of a Release which requires action to prevent or mitigate damage to the soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata, ambient air or any other environmental medium comprising or surrounding the Premises which may result from such Release. "USTs" means any one or combination of tanks and associated piping systems used in connection with the storage, dispensing and general use of Regulated Substances. 2. Demise of Premises. In consideration of the rentals and other sums to be paid by Lessee and of the other terms, covenants and conditions on Lessee's part to be kept and performed, Lessor hereby leases to Lessee, and Lessee hereby takes and hires, the Premises. 3. Lease Term. The Lease Term shall commence as of the Effective Date and shall expire on the day that is fifteen (15) years after the Effective Date, unless terminated sooner as provided in this Lease and as may be extended for up to three (3) successive periods of five (5) years each, as set forth in Section 28 below. The time period during which this Lease shall actually be in effect is referred to herein as the "Lease Term." 4. Rental and Other Payments. A. If the Effective Date is a date other than the first day of the month, Lessee shall pay Lessor on the Effective Date the Base Monthly Rental prorated on the basis of the ratio that the number of days from the Effective Date through the last day in the month containing the Effective Date bears to the number of days in such month. Thereafter, on or before the first day of each succeeding calendar month, Lessee shall pay Lessor in advance the Base Monthly Rental. B. Commencing on the first Adjustment Date and on each Adjustment Date thereafter, the Base Annual Rental shall increase by an amount equal to the product of (i) the Base Annual Rental then in effect, and (ii) Six Percent (6.0%), which increases shall be compounded. The increased Base Annual Rental shall constitute the Base Annual Rental due and payable until the next Adjustment Date. C. For any partial year between the commencement of the Lease Term and the beginning of the next Lease Year and the beginning of the last Lease Year and the end of the Lease Term, calculation of the Base Annual Rental shall be prorated on the basis of the ratio of the number of days in such partial year to 365. D. All sums of money required to be paid by Lessee under this Lease which are not specifically referred to as rent ("Additional Rental") shall be considered rent although not specifically designated as such. Lessor shall have the same remedies for nonpayment of Additional Rental as those provided herein for the nonpayment of Base Annual Rental. 5. Representations and Warranties of Lessor. Lessor represents and warrants to Lessee as follows: A. Organization, Authority and Status of Lessor. (i) Lessor has been duly organized and is validly existing and in good standing under the laws of the State of Delaware. All necessary corporate action has been taken to authorize the execution, delivery and performance by Lessor of this Lease and the other documents, instruments and agreements provided for herein. Lessor is not a "foreign corporation" as such term is defined in the Internal Revenue Code and the regulations promulgated thereunder. Lessor's United States tax identification number is 86-0908599. (ii) The person who has executed this Lease on behalf of Lessor is duly authorized so to do. B. Enforceability. This Lease constitutes the legal, valid and binding obligation of Lessor, enforceable against Lessor in accordance with its terms. 6. Representations and Warranties of Lessee. The representations and warranties of Lessee contained in this Section are being made to induce Lessor to enter into this Lease and Lessor has relied, and will continue to rely, upon such representations and warranties. Lessee represents and warrants to Lessor as follows: A. Organization, Authority and Status of Lessee. (i) Lessee has been duly incorporated, is validly existing and in good standing under the laws of its state of incorporation, and is qualified as a foreign corporation to do business in any jurisdiction where such qualification is required. All necessary corporate action has been taken to authorize the execution, delivery and performance by Lessee of this Lease and of the other documents, instruments and agreements provided for herein. Lessee is not a "foreign corporation", "foreign partnership", "foreign trust" or "foreign estate", as those terms are defined in the Internal Revenue Code and the regulations promulgated thereunder. Lessee's United States tax identification number is correctly set forth on the signature page of this Lease. (ii) The persons who have executed this Lease on behalf of Lessee are duly authorized to do so. B. Enforceability. This Lease constitutes the legal, valid and binding obligation of Lessee, enforceable against Lessee in accordance with its terms. C. Litigation. There are no suits, actions, proceedings or investigations pending, or, to the best of its knowledge, threatened against or involving Lessee before any court, arbitrator, or administrative or governmental body which might reasonably result in any material adverse change in the contemplated business, condition, worth or operations of Lessee or the Premises. D. Absence of Breaches or Defaults. Lessee is not, and the execution, delivery and performance of this Lease and the documents, instruments and agreements provided for herein will not result, in any breach of or default under any other document, instrument or agreement to which Lessee is a party or by which Lessee, the Premises or any of Lessee's property is subject or bound. E. Franchisor Provisions. In the event Lessee shall use a portion of the Premises for the operation of a Franchisor Restaurant, Lessee has (as of the Effective Date) entered into a franchise, license and/or area development agreement with the Franchisor associated with such Franchisor Restaurant for conduct of the business at the Premises. Such franchise, license and/or area development agreement is valid, binding and in full force and effect, permits Lessee to operate a Franchisor Restaurant on a portion of the Premises. F. Licenses and Permits. Lessee has obtained (or caused to be obtained) all required licenses and permits, both governmental and private, to use and operate the Premises in the intended manner, where the failure to so obtain such licenses and permits might reasonably be expected to result in a material adverse effect on Lessee or on the Premises or on the business, operations, assets or condition of the Premises. G. Financial Condition; Information Provided to Lessor. The financial statements, all financial data and all other documents and information heretofore delivered to Lessor by or with respect to Lessee, Guarantor and/or the Premises in connection with this Lease and/or relating to Lessee, Guarantor and/or the Premises are true, correct and complete in all material respects, and there have been no amendments to such financial statements, financial data and other documents and information since the date such financial statements, financial data, documents and other information were prepared or delivered to Lessor, and no material adverse change has occurred to any such financial statements, financial data, documents and other information not disclosed in writing to Lessor. H. True Lease. Lessee intends for this Lease to be a "true lease" and not a financing lease, capital lease, mortgage, equitable mortgage, deed of trust, trust agreement, security agreement or other financing or trust arrangement, and the economic realities of this Lease are those of a true lease. The term of this Lease, including any term extensions provided for in this Lease, is less than the remaining economic life of the Premises. Lessee waives any claim or defense based upon the characterization of this Lease as anything other than a true lease, and Lessee stipulates and agrees not to challenge the validity, enforceability or characterization of the lease of the Premises as a true lease and further stipulates and agrees that nothing contained in this Lease creates or is intended to create a joint venture, partnership, equitable mortgage, trust, financing device or arrangement, security interest or the like. Lessee shall support the intent of the parties that the lease of the Premises pursuant to this Lease is a true lease and does not create a joint venture, partnership, equitable mortgage, trust, financing device or arrangement, security interest or the like, if, and to the extent that, any challenge occurs. I. No Leases. Other than this Lease and, as applicable, the Sublease, there are no leases, subleases or use or occupancy agreements for the use or occupancy of the Premises or any portion thereof. 7. Guaranty. On or before the execution of this Lease, Lessee shall cause Guarantor to execute and deliver to Lessor the Guaranty. 8. Rentals To Be Net to Lessor. The Base Annual Rental payable hereunder shall be net to Lessor, so that this Lease shall yield to Lessor the rentals specified during the Lease Term, and that all costs, expenses and obligations of every kind and nature whatsoever relating to the Premises shall be performed and paid by Lessee. 9. Taxes and Assessments. Lessee shall pay, prior to the earlier of delinquency or the accrual of interest on the unpaid balance, all taxes and assessments of every type or nature assessed against or imposed upon the Premises during the Lease Term which affect in any manner the net return realized by Lessor under this Lease, including without limitation, the following: A. All taxes and assessments upon the Premises or any part thereof or and any personal property, trade fixtures or any improvements located on the Premises (including, without limitation, all sales, use, transaction privilege and excise taxes imposed as a result of the construction of the Improvements), whether belonging to Lessor or Lessee, or any tax or charge levied in lieu of such taxes and assessments (excluding, however, the income taxes of Lessor); B. All taxes, charges, license fees and or similar fees imposed by reason of the use of the Premises by Lessee; and C. All excise, transaction, privilege, license, sales, use and other taxes upon the rental or other payments hereunder, the leasehold estate of either party or the activities of either party pursuant to this Lease. All taxing authorities shall be instructed to send all tax and assessment invoices to Lessor. After recording the information on such invoices, Lessor shall forward such invoices to Lessee for payment. Within 30 days after each tax and assessment payment is required by this Section to be paid, Lessee shall provide Lessor with evidence satisfactory to Lessor that such payment was made in a timely fashion. Lessee may in good faith seek a refund, rebate or abatement of any tax levied in connection with the Premises but only if Lessor has approved of the arrangements for paying such tax prior to it becoming a lien on the Premises. 10. Utilities. Lessee shall contract, in its own name, for and pay when due all charges for the connection and use of water, gas, electricity, telephone, garbage collection, sewer use and other utility services supplied to the Premises during the Lease Term. Under no circumstances shall Lessor be responsible for any interruption of any utility service. 11. Insurance. Throughout the Lease Term, Lessee shall maintain at its sole expense the following types and amounts of insurance (which may be included under a blanket insurance policy if all the other terms hereof are satisfied), in addition to such other insurance as Lessor may reasonably require from time to time: A. "All risks" property insurance against loss, damage or destruction by fire and other casualty, including theft, vandalism and malicious mischief, flood (if the Premises are in a location designated by the Federal Secretary of Housing and Urban Development as a flood hazard area), earthquake (if the Premises are in an area subject to destructive earthquakes within recorded history), boiler explosion (if there is any boiler upon the Premises), plate glass breakage, sprinkler damage (if the Premises have a sprinkler system), all matters covered by a standard extended coverage endorsement and such other risks as Lessor may reasonably require, insuring the Premises and all improvements thereon for not less than 100% of their full insurable replacement cost. B. Comprehensive general liability and property damage insurance, including a products liability clause, covering Lessor, Franchise Finance and Lessee against bodily injury liability, property damage liability and automobile bodily injury and property damage liability, including without limitation any liability arising out of the ownership, maintenance, repair, condition or operation of the Premises or adjoining ways, streets or sidewalks and, if applicable, insurance covering Lessor, Franchise Finance and Lessee against liability arising from the sale of liquor, beer or wine on the Premises. Such insurance policy or policies shall contain a broad form contractual liability endorsement under which the insurer agrees to insure Lessee's obligations under Section 18 hereof to the extent insurable, and a "severability of interest" clause or endorsement which precludes the insurer from denying the claim of either Lessee, Franchise Finance or Lessor because of the negligence or other acts of the other, shall be in amounts of not less than $1,000,000.00 per injury and occurrence with respect to any insured liability, whether for personal injury or property damage, or such higher limits as Lessor may reasonably require from time to time, and shall be of form and substance satisfactory to Lessor. C. State Worker's Compensation insurance in the statutorily mandated limits, employer's liability insurance with limits not less than $500,000 or such greater amount as Lessor may from time to time require and such other insurance as may be necessary to comply with applicable laws. D. Business interruption insurance equal to 100% of the Base Annual Rental then in effect for a period of not less than 12 months. All insurance policies shall: (i) Provide for a waiver of subrogation by the insurer as to claims against Lessor and Franchise Finance, their employees and agents; (ii) Provide that such insurance cannot be unreasonably cancelled, invalidated or suspended on account of the conduct of Lessee, its officers, directors, employees or agents; (iii) Provide that any "no other insurance" clause in the insurance policy shall exclude any policies of insurance maintained by Lessor or Franchise Finance and that the insurance policy shall not be brought into contribution with insurance maintained by Lessor or Franchise Finance; (iv) Contain a standard without contribution mortgage clause endorsement in favor of any lender designated by Lessor and Franchise Finance; (v) Provide that the policy of insurance shall not be terminated, cancelled or substantially modified without at least 30 days' prior written notice to Lessor and Franchise Finance and to any lender covered by any standard mortgage clause endorsement; (vi) Provide that the insurer shall not have the option to restore the Premises if Lessor elects to terminate this Lease in accordance with the terms hereof; and (vii) Be issued by insurance companies licensed to do business in the state in which the Premises is located and which are rated A:VI or better by Best's Insurance Guide or are otherwise approved by Lessor. It is expressly understood and agreed that the foregoing minimum limits of insurance coverage shall not limit the liability of Lessee for its acts or omissions as provided in this Lease. All insurance policies (with the exception of worker's compensation insurance to the extent not available under statutory law) shall designate Lessor and Franchise Finance and any mortgagee of Lessor and Franchise Finance as additional insureds as their interests may appear and shall be payable as set forth in Section 20 hereof. All such policies shall be written as primary policies, with deductibles not to exceed 10% of the amount of coverage. Any other policies, including any policy now or hereafter carried by Lessor or Franchise Finance, shall serve as excess coverage. Lessee shall procure policies for all insurance for periods of not less than one year and shall provide to Lessor and Franchise Finance and any lender designated by Lessor and Franchise Finance certificates of insurance or, upon Lessor's request, duplicate originals of insurance policies evidencing that insurance satisfying the requirements of this Lease is in effect at all times. 12. Tax and Insurance Impound. Upon the occurrence of a default under this Lease by Lessee, Lessor may require Lessee to pay to Lessor sums which will provide an impound account (which shall not be deemed a trust fund) for paying up to the next one year of taxes, assessments and/or insurance premiums. Upon such requirement, Lessor will estimate the amounts needed for such purposes and will notify Lessee to pay the same to Lessor in equal monthly installments, as nearly as practicable, in addition to all other sums due under this Lease. Should additional funds be required at any time, Lessee shall pay the same to Lessor on demand. Lessee shall advise Lessor of all taxes and insurance bills which are due and shall cooperate fully with Lessor in assuring that the same are paid. Lessor may deposit all impounded funds in accounts insured by any Federal or State agency and may commingle such funds with other funds and accounts of Lessor. Interest or other gains from such funds, if any, shall be the sole property of Lessor. In the event of any default by Lessee, Lessor may apply all impounded funds against any sums due from Lessee to Lessor. Lessor shall give to Lessee an annual accounting showing all credits and debits to and from such impounded funds received from Lessee. In the event Lessee is required under this Section 12 to pay impounds to Lessor, and provided no default shall have occurred under this Lease (other than the default hereunder that gave rise to Lessee's duty to pay impounds to Lessor under this Section 12, which default Lessee shall cure in the exercise of reasonably diligent good faith efforts), and subject to Lessor's unconditional right to apply all impounded funds against any sums due from Lessee to Lessor under this Lease and further subject to Lessee's duty (under the terms of Section 12 hereof) to pay such additional funds as may be required at any time by Lessor, Lessee shall not be deemed to be in default under this Lease and Lessee shall not be responsible for payment of fines, penalties or late charges assessed for Lessor's failure to pay taxes, assessments and/or insurance premiums in a timely manner. 13. Payment of Rental and Other Sums. All rental and other sums which Lessee is required to pay hereunder shall be the unconditional obligation of Lessee and shall be payable in full when due without any setoff, abatement, deferment, deduction or counterclaim whatsoever. Upon execution of this Lease, Lessee shall establish arrangements whereby payments of the Base Monthly Rental and impound payments, if any, are transferred by wire or other means directly from Lessee's bank account to such account as Lessor may designate. Any delinquent payment (that is, any payment not made within five calendar days after the date when due) shall, in addition to any other remedy of Lessor, incur a late charge of 10% (which late charge is intended to compensate Lessor for the cost of handling and processing such delinquent payment and should not be considered interest) and bear interest at the rate of 18% per annum, which interest rate shall accrue from the date such payment was due, but in no event shall Lessee be obligated to pay a sum of late charge and interest higher than the maximum legal rate then in effect (the "Default Rate"). 14. Use. A. Lessee shall use the Premises solely for the operation of either a gasoline station or a combination convenience store and gasoline station operated under the Giant, Mustang, Conoco, Conoco Express, Thriftway, Plateau, Gasman or Gasamat brands or a nationally recognized oil brand or another brand approved by Lessor, and Lessee may (upon prior written notice to Lessor) use a portion of the Premises for the operation of a Franchisor Restaurant in accordance with the terms of a franchise, license and/or area development agreement between Lessee and the Franchisor associated with such Franchisor Restaurant, and for no other purpose. Lessee may (upon prior written notice to Lessor) sublease to Sublessee pursuant to the Sublease the Subleased Premises for the purpose of operating a business involving the retail sales of food items (including a Franchisor Restaurant) or non-food items, provided that no portion of the Premises, the Facility or the Subleased Premises shall be operated by Sublessee as a gasoline station or combination convenience store and gasoline station (and further provided that the Subleased Premises shall not constitute a significant portion of the Premises, which determination shall be made by Lessor in Lessor's reasonable judgment) without the prior written consent of Lessor, which consent shall not be unreasonably withheld. Lessee shall occupy the Premises promptly following the Effective Date and, except as set forth below, Lessee shall at all times during the Lease Term diligently operate its business on the Premises. Lessee may cease diligent operation of business for a period not to exceed 90 days and may do so only once within any five-year period during the Lease Term. If Lessee does discontinue operation pursuant to this Section, or, as applicable, if Sublessee discontinues operation at the Subleased Premises, Lessee shall (i) give written notice to Lessor 60 days prior to the day Lessee or, as applicable, Sublessee, ceases operation, (ii) provide adequate protection and maintenance of the Premises (including, as applicable, the Subleased Premises) during any period of vacancy and (iii) pay all costs necessary to restore the Premises (including, as applicable, the Subleased Premises) to their condition on the day operation of the business ceased at such time as the Premises (including, as applicable, the Subleased Premises) is reopened for Lessee's or, as applicable, Sublessee's, business operations or other substituted use approved by Lessor as contemplated below. Notwithstanding anything herein to the contrary, Lessee shall continue to pay Base Annual Rental and Base Monthly Rental during any period in which Lessee or, as applicable, Sublessee, discontinues operation as provided in this Lease. B. Lessee shall not, by itself or through any assignment, sublease or other type of transfer, convert the Premises to an alternative use during the Lease Term without Lessor's consent, which consent shall not be unreasonably withheld. Lessor may consider any or all of the following in determining whether to grant its consent, without being deemed to be unreasonable: (i) whether the rental paid to Lessor would be equal to or greater than the anticipated rental assuming continued existing use, (ii) whether the proposed rental to be paid to Lessor is reasonable considering the converted use of the Premises and the customary rental prevailing in the community for such use, (iii) whether the converted use will be consistent with the highest and best use of the Premises, and (iv) whether the converted use will increase Lessor's risks or decrease the value of the Premises. 15. Compliance with Laws, Restrictions, Covenants and Encumbrances. A. Lessee's use and occupancy of the Premises and, to the extent applicable, Sublessee's use and occupancy of the Subleased Premises, and the condition thereof, shall, at Lessee's sole cost and expense, comply fully with (i) all applicable statutes, regulations, rules, ordinances, codes, licenses, permits, orders and approvals of any governmental agencies, departments, commissions, bureaus, boards or instrumentalities of the United States, the state in which the Premises are located and all political subdivisions thereof, including, without limitation, all health, building, fire, safety and other codes, ordinances and requirements and all applicable standards of the National Board of Fire Underwriters, and (ii) all restrictions, covenants and encumbrances of record with respect to the Premises. B. Lessee will not permit any act or condition to exist on or about the Premises which will increase any insurance rate thereon, except when such acts are required in the normal course of its business and Lessee shall pay for such increase. C. Without limiting the generality of the other provisions of this Section, Lessee agrees that it shall be responsible for complying in all respects with the Americans with Disabilities Act of 1990, as such act may be amended from time to time, and all regulations promulgated thereunder (collectively, the "ADA"), as it affects the Premises, including, but not limited to, making such "readily achievable" changes to remove any architectural or communications barriers, and providing auxiliary aides and services within the Premises as may be required by the ADA. Lessee further agrees that any and all alterations made to the Premises during the Lease Term will comply with the requirements of the ADA. All plans for alterations which must be submitted to Lessor under the provisions of Section 17 must include a statement from a licensed Architect or Engineer certifying that they have reviewed the plans, and that the plans comply with all applicable provisions of the ADA. Any subsequent approval or consent to the plans by the Lessor shall not be deemed to be a representation of Lessor's part that the plans comply with the ADA, which obligation shall remain with Lessee. Lessee agrees that it will defend, indemnify and hold harmless Lessor and Lessor's shareholders, directors, officers, agents, attorneys and employees from and against any and all claims, demands, causes of action, suits, proceedings, liabilities, damages (including consequential and punitive damages), losses, costs and expenses, including attorneys' fees, caused by, incurred or resulting from Lessee's failure to comply with its obligations under this Section. D. To the best of Lessee's knowledge, the Premises and Lessee and, to the extent applicable, Sublessee are not in violation of or subject to any existing, pending or threatened investigation or inquiry by any Governmental Authority or to any remedial obligations under any Environmental Laws, and this representation and warranty would continue to be true and correct following disclosure to the applicable Governmental Authority of all relevant facts, conditions and circumstances, if any, pertaining to the Premises. If any such investigation or inquiry is subsequently initiated, Lessee will promptly notify Lessor. E. Lessee has not obtained and is not required to obtain any permits, licenses or similar authorizations to construct, occupy, operate or use any buildings, improvements, fixtures and equipment forming a part of the Premises by reason of any Environmental Laws, except as disclosed in writing to Lessor prior to the Effective Date. F. Lessee has taken all reasonable steps to determine and has determined to its reasonable satisfaction that (i) no Hazardous Materials or Regulated Substances have been disposed of or otherwise Released on or about the Premises, (ii) the Premises does not contain Hazardous Materials or Regulated Substances, except in De Minimis Amounts; the Premises does not contain any USTs, except in full compliance with all applicable laws, including, without limitation, all Environmental Laws; (iii) there is no Threatened Release; (iv) there is no past or present non- compliance with Environmental Laws, or with permits issued pursuant thereto, in connection with the Premises; (v) Lessee does not know of, and has not received, any written or oral notice or other communication from any person or entity (including but not limited to a governmental entity) relating to Hazardous Materials, Regulated Substances or USTs or Remediation thereof, of possible liability of any person or entity pursuant to any Environmental Law, other environmental conditions in connection with the Premises, or any actual or potential administrative or judicial proceedings in connection with any of the foregoing; and (vi) Lessee has truthfully and fully provided to Lessor, in writing, any and all information relating to environmental conditions in, on, under or from the Premises that is known to Lessee and that is contained in Lessee's files and records, including but not limited to any reports relating to Hazardous Materials, Regulated Substances or USTs in, on, under or from the Premises. G. (1) Lessee covenants and agrees that: (i) all uses and operations on or of the Premises, whether by Lessee or any other person or entity, shall be in compliance with all Environmental Laws and permits issued pursuant thereto; (ii) any Release or Threatened Release in, on, under or from the Premises will be cured or corrected by Lessee by Remediation and remediated by Lessee in compliance with all applicable laws, including, without limitation, all Environmental Laws, within 30 days of Lessee learning of, or discovering, such Release or Threatened Release (provided that if such cure, correction or remediation cannot reasonably be cured within such 30-day period, and further provided (A) such Release or Threatened Release does not place any rights or property of Lessor in immediate jeopardy, and (B) Lessee is diligently pursuing a cure, correction and/or remediation, all as determined by Lessor in its reasonable discretion, then Lessee shall have such additional reasonable period of time to cure, correct or remediate such Release or Threatened Release, which additional period of time shall in no event exceed 90 days after Lessee learns of, or discovers, such Release or Threatened Release); (iii) there shall be no Hazardous Materials or Regulated Substances in, on, or under the Premises, except in De Minimis Amounts, and there shall be no USTs in, on or under the Premises, except in full compliance with all applicable laws, including, without limitation, all Environmental Laws; (iv) Lessee shall keep the Premises free and clear of all liens and other encumbrances imposed pursuant to any Environmental Law, whether due to any act or omission of Lessee or any other person or entity (the "Environmental Liens"); (v) Lessee shall, at its sole cost and expense, fully and expeditiously cooperate in all activities pursuant to this Section 15, including but not limited to providing all relevant information and making knowledgeable persons available for interviews; (vi) Lessee shall, at its sole cost and expense, perform any environmental site assessment or other investigation of environmental conditions in connection with the Premises, pursuant to any reasonable written request of Lessor (including but not limited to sampling, testing and analysis of soil, water, air, building materials and other materials and substances whether solid, liquid or gas) in the event that: (A) Lessor shall have a reasonable basis for believing that (aa) a Release may have occurred in, on or under the Premises, or (bb) a Threatened Release may occur, or (cc) Lessee or the Premises may be in violation of any Environmental Laws, or (B) an Event of Default shall have occurred hereunder (after the expiration of any applicable cure or grace period), or (C) Lessor shall require such environmental site assessment or other investigation during the last two (2) Lease Years of the Lease Term, or any portion thereof, in connection with Lessor's efforts to obtain an extension of the term of the insurance coverage provided by the Environmental Policy, or (D) any third party requires or requests such environmental site assessment or other investigation, including, without limitation, any Governmental Authority, court of competent jurisdiction, Environmental Insurer, investor involved in any sale, disposition, transfer or assignment of the Premises or this Lease by Lessor, any rating agency and/or any of Lessor's lenders, investment bankers, or analysts relating to the status as a real estate investment trust of any of the Lessor Entities. Lessee shall share with Lessor (and Environmental Insurer if requested by Lessor) the reports and other results from any such environmental site assessment or other investigation, and Lessor and other Indemnified Parties (including Environmental Insurer) shall be entitled to rely on such reports and other results therefrom. (vii) Lessee shall, at its sole cost and expense, comply with all reasonable written requests of Lessor to (1) reasonably effectuate Remediation of any condition (including but not limited to a Release or Threatened Release) in, on, under or from the Premises, provided Lessor shall have a reasonable basis for believing that a Release may have occurred in, on or under the Premises or if Lessor shall have a reasonable basis to believe that Remediation of any condition is required by applicable law, including, without limitation, Environmental Laws or that a Threatened Release may occur or that Lessee or the Premises may be in violation of any Environmental Laws; (2) comply with any Environmental Law; (3) comply with any directive from any Governmental Authority; and (4) take any other reasonable action necessary or appropriate for protection of human health or the environment; (viii) Lessee shall not do or allow any tenant or other user of the Premises to do any act that materially increases the dangers to human health or the environment, poses an unreasonable risk of harm to any person or entity (whether on or off the Premises), impairs or may impair the value of the Premises, is contrary to any requirement of any insurer, constitutes a public or private nuisance, constitutes waste, or violates any covenant, condition, agreement or easement applicable to the Premises; and (ix) Lessee shall, immediately upon learning of or discovering the existence or occurrence of any of the following matters or events, notify Lessor in writing of (A) any Releases or Threatened Releases in, on, under, from or migrating towards the Premises; (B) any non-compliance with any Environmental Laws related in any way to the Premises; (C) any actual or potential Environmental Lien; (D) any required or proposed Remediation of environmental conditions relating to the Premises; and (E) any written or oral notice or other communication which Lessee becomes aware from any source whatsoever (including but not limited to a governmental entity) relating in any way to Hazardous Materials, Regulated Substances or USTs or Remediation thereof, possible liability of any person or entity pursuant to any Environmental Law, other environmental conditions in connection with the Premises, or any actual or potential administrative or judicial proceedings in connection with anything referred to in this Section. (2) In all circumstances other than the circumstances set forth in the preceding subparagraph 15.G(1), Lessor and any other person or entity designated by Lessor, including but not limited to, any receiver, any representative of a governmental entity, and any environmental consultant, shall have the right, but not the obligation, to enter upon the Premises at all reasonable times and upon no less than twenty-four (24) hours prior written notice to Lessee (except in cases of emergencies, in which case no prior notice to Lessee is required) to assess any and all aspects of the environmental condition of the Premises and its use, including but not limited to conducting any environmental assessment or audit (the scope of which shall be determined in Lessor's sole and absolute discretion) and taking samples of soil, groundwater or other water, air, or building materials, and conducting other invasive testing. Lessee shall cooperate with and provide access to Lessor and any person or entity designated by Lessor. Any such assessment or investigation performed pursuant to this subparagraph 15.G(2) shall be at Lessor's sole cost and expense, and Lessor shall use good faith reasonable efforts to minimize the impact of such assessments and investigations on Lessee's business activities at the Premises. H. Lessee shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless the Indemnified Parties from and against any and all Losses (excluding Losses arising out of Lessor's gross negligence or wilful misconduct) and costs of Remediation (whether or not performed voluntarily), engineers' fees, environmental consultants' fees, and costs of investigation (including but not limited to sampling, testing, and analysis of soil, water, air, building materials and other materials and substances whether solid, liquid or gas) imposed upon or incurred by or asserted against any Indemnified Parties, and directly or indirectly arising out of or in any way relating to any one or more of the following: (i) any presence of any Hazardous Materials, Regulated Substances or USTs in, on, above, or under the Premises; (ii) any past, present or threatened Release in, on, above, under or from the Premises; (iii) any activity by Lessee, any person or entity affiliated with Lessee or any tenant or other user of the Premises in connection with any actual, proposed or threatened use, treatment, storage, holding, existence, disposition or other Release, generation, production, manufacturing, processing, refining, control, management, abatement, removal, handling, transfer or transportation to or from the Premises of any Hazardous Materials or Regulated Substances, or in connection with any actual, proposed or threatened use, treatment, storage, holding, existence, disposition or other Release, control, management, abatement, removal, handling, transfer or transportation to or from the Premises of any USTs at any time located in, under, on or above the Premises; (iv) any activity by Lessee, any person or entity affiliated with Lessee or any tenant or other user of the Premises in connection with any actual or proposed Remediation of any Hazardous Materials or Regulated Substances at any time located in, under, on or above the Premises, whether or not such Remediation is voluntary or pursuant to court or administrative order, including but not limited to any removal, remedial or corrective action; (v) any past, present or threatened non- compliance or violations of any Environmental Laws (or permits issued pursuant to any Environmental Law) in connection with the Premises or operations thereon, including but not limited to any failure by Lessee, any person or entity affiliated with Lessee or any tenant or other user of the Premises to comply with any order of any Governmental Authority in connection with any Environmental Laws; (vi) the imposition, recording or filing or the threatened imposition, recording or filing of any Environmental Lien encumbering the Premises; (vii) any administrative processes or proceedings or judicial proceedings in any way connected with any matter addressed in this Section; (viii) any past, present or threatened injury to, destruction of or loss of natural resources in any way connected with the Premises, including but not limited to costs to investigate and assess such injury, destruction or loss; (ix) any acts of Lessee or other users of the Premises in arranging for disposal or treatment, or arranging with a transporter for transport for disposal or treatment, of Hazardous Materials or Regulated Substances owned or possessed by such Lessee or other users, at any facility or incineration vessel owned or operated by another person or entity and containing such or similar Hazardous Materials or Regulated Substances; (x) any acts of Lessee or other users of the Premises, in accepting any Hazardous Materials or Regulated Substances for transport to disposal or treatment facilities, incineration vessels or sites selected by Lessee or such other users, from which there is a Release, or a threatened Release of any Hazardous Material or Regulated Substance which causes the incurrence of costs for Remediation; (xi) any personal injury, wrongful death, or property damage arising under any statutory or common law or tort law theory, including but not limited to damages assessed for the maintenance of a private or public nuisance or for the conducting of an abnormally dangerous activity on or near the Premises; and (xii) any misrepresentation or inaccuracy in any representation or warranty or material breach or failure to perform any covenants or other obligations pursuant to this Section. I. At its sole cost and expense, Lessee shall have the Premises inspected as may be required by any Environmental Law for seepage, spillage and other environmental concerns. Lessee shall maintain and monitor the USTs in accordance with all Environmental Laws. Lessee shall provide Lessor with written certified results of all inspections performed on the Premises. All costs and expenses associated with the inspection, preparation and certification of results, as well as those associated with any corrective action, shall be paid by Lessee. All inspections and tests performed on the Premises shall be in compliance with all Environmental Laws. J. Lessee shall comply or cause the compliance with all applicable federal, state and local regulations and requirements regarding USTs including, without limitation, any of such regulations or requirements which impose (i) technical standards, including, without limitation, performance, leak prevention, leak detection, notification reporting and record keeping, (ii) corrective action with respect to confirmed and suspected Releases, and (iii) financial responsibility for the payment of costs of corrective action and compensation to third parties for injury and damage resulting from Releases. Lessee shall immediately notify Lessor, in writing, of (i) any Release or Threatened Release, the presence on or under the Premises of any Hazardous Materials or Regulated Substances in violation of any applicable laws, including, without limitation, any Environmental Laws, or the escape, seepage, leakage, spillage, discharge, emission or release from any USTs on, above or under the Premises, of any Hazardous Materials or Regulated Substances, apparent or real and (ii) any and all enforcement, clean-up, remedial, removal or other governmental or regulatory actions threatened, instituted or completed pursuant to any of the Environmental Laws affecting the Premises. K. Upon any such Release, escape, seepage, leakage, spillage, discharge, emission or release from any USTs on, above or under the Premises of any Hazardous Materials or Regulated Substances, Lessee shall immediately remedy such situation in accordance with all Environmental Laws and any request of Lessor. Should Lessee fail to remedy or cause the remedy of such situation in accordance with all Environmental Laws, Lessor shall be permitted to take such actions in its sole discretion to remedy such situation and any reasonable costs and expenses incurred in connection therewith will be paid by Lessee. L. The obligations of Lessee and the rights and remedies of Lessor set forth in this Section are independent from those of Lessee. Furthermore, such obligations of Lessee and rights and remedies of Lessor shall survive the termination, expiration and/or release of this Lease. M. In addition to the other requirements of this Section, Lessee shall, at all times throughout the Lease Term, comply, and cause Guarantor and, as applicable, Sublessee to comply, with all federal, state or local statutes, laws, rules, regulations, ordinances, codes, policies or rules of common law now or hereafter in effect and in each case, as amended, and any judicial or administrative interpretation thereof, including any judicial order, consent, decree or judgment, applicable to Lessee and Guarantor and, as applicable, Sublessee. 16. Condition of Premises; Maintenance. Lessee has inspected, or had the opportunity to inspect, the Premises and hereby accepts the Premises "AS IS" and "WHERE IS" with no representation or warranty of Lessor as to the condition thereof. The Premises shall be kept in good, clean, sanitary and working condition; and Lessee shall at all times at its own expense maintain, repair and replace, as necessary, the Premises, including all portions of the Premises, whether or not the Premises were in such condition on the Effective Date. 17. Waste; Alterations and Improvements. Lessee shall not commit actual or constructive waste upon the Premises. Lessee shall not alter (or permit to be altered) the exterior, structural, plumbing or electrical elements of the Premises in any manner without the consent of Lessor, which consent shall not be unreasonably withheld or conditioned; provided, however, Lessee may undertake nonstructural alterations to the Premises costing less than $100,000.00 without Lessor's consent. If Lessor consents to the making of any such alterations, the same shall be made by Lessee at Lessee's sole expense by a licensed contractor and according to plans and specifications approved by Lessor and subject to such other conditions as Lessor shall require. Any work at any time commenced by Lessee on the Premises shall be prosecuted diligently to completion, shall be of good workmanship and materials and shall comply fully with all the terms of this Lease. Upon completion of any alterations, Lessee shall promptly provide Lessor with (i) evidence of full payment to all laborers and materialmen contributing to the alterations, (ii) an architect's certificate certifying the alterations to have been completed in conformity with the plans and specifications, (iii) a certificate of occupancy, and (iv) any other documents or information reasonably requested by Lessor. Lessee shall execute and file or record, as appropriate, a "Notice of Non-Responsibility," or any equivalent notice permitted under applicable law in the state where the Premises is located. Any addition to or alteration of the Premises shall be deemed a part of the Premises and belong to Lessor, and Lessee shall execute and deliver to Lessor such instruments as Lessor may require to evidence the ownership by Lessor of such addition or alteration. 18. Indemnification. Except for the gross negligence or willful misconduct of Lessor, Lessee shall indemnify, protect, defend and hold harmless Lessor and Lessor's shareholders, directors, officers, lenders, agents, lenders, attorneys and employees from and against any and all claims, demands, causes of action, suits, proceedings, liabilities, damages (including consequential and punitive damages), losses, costs and expenses, including Lessor's attorneys' fees, caused by, incurred or resulting from its operations of or relating in any manner to the Premises, whether relating to their original design or construction, latent defects, alteration, maintenance, use by Lessee or any person thereon, supervision or otherwise, or from any breach of, default under or failure to perform any term or provision of this agreement by Lessee, its officers, employees, agents or other persons. It is expressly understood and agreed that Lessee's obligations under this Section shall survive the expiration or earlier termination of this Lease for any reason. 19. Quiet Enjoyment. So long as Lessee shall pay the rental and other sums herein provided and shall keep and perform all of the terms, covenants and conditions on its part herein contained, Lessee shall have, subject and subordinate to Lessor's rights herein, the right to the peaceful and quiet occupancy of the Premises. 20. Condemnation or Destruction. A. In case of a taking of all or any part of the Premises or the commencement of any proceedings or negotiations which might result in a taking for any public or quasi-public purpose by any lawful power or authority by exercise of the right of condemnation or eminent domain or by agreement between Lessor, Lessee and those authorized to exercise such right ("Taking"), Lessee will promptly give written notice thereof to Lessor, generally describing the nature and extent of such Taking and including copies of any documents or notices received in connection therewith. B. In case of a Taking of the whole of the Premises, other than for temporary use ("Total Taking"), this Lease shall terminate as of the date of such Total Taking and all rentals, sums of money and other charges provided to be paid by Lessee shall be apportioned and paid to the date of such Total Taking. Total Taking shall include a taking of substantially all the Premises if, in the sole determination of Lessor, the remainder of the Premises is not useable and cannot be made useable for the purposes provided herein. Lessor shall be entitled to receive the entire award or payment in connection with any taking of the Premises without deduction for any estate vested in Lessee by this Lease. Lessee hereby expressly assigns to Lessor all of its right, title and interest in and to every such award or payment and agrees that Lessee shall not be entitled to any award or payment for the value of Lessee's leasehold interest in the Lease. Lessee shall be entitled to claim and receive any award or payment from the condemning authority expressly granted for the taking of Lessee's personal property, the interruption of its business and moving expenses, but only if such claim or award does not adversely affect or interfere with the prosecution of Lessor's claim for the Taking. Lessee shall promptly send Lessor copies of all correspondence and pleadings relating to any such claim. C. In case of a temporary use of all or any part of the Premises by a Taking ("Temporary Taking"), this Lease shall remain in full force and effect without any reduction of Base Annual Rental, Additional Rental or any other sum payable hereunder. Except as provided below, Lessee shall be entitled to the entire award for a Temporary Taking, whether paid by damages, rent or otherwise, unless the period of occupation and use by the condemning authorities shall extend beyond the date of expiration of this Lease, in which case the award made for such Taking shall be apportioned between Lessor and Lessee as of the date of such expiration. At the termination of any such Temporary Taking, Lessee will, at its own cost and expense and pursuant to the terms of Section 17 above, promptly commence and complete the restoration of the Premises; provided, however, Lessee shall not be required to restore the Premises if the term of this Lease shall expire prior to, or within one year after, the date of termination of the Temporary Taking, and in such event Lessor shall be entitled to recover all damages and awards arising out of the failure of the condemning authority to repair and restore the Premises at the expiration of such Temporary Taking. D. In the event of a Taking of less than all of the Premises for other than a temporary use ("Partial Taking") or of damage or destruction to all or any part of the Premises, all awards, compensation or damages shall be paid to Lessor, and Lessor shall have the option to (i) terminate this Lease by notifying Lessee within 60 days after Lessee gives Lessor notice of such damage or destruction or that title has vested in the taking authority or (ii) continue this Lease in effect, which election may be evidenced by either a notice from Lessor to Lessee or Lessor's failure to notify Lessee that Lessor has elected to terminate this Lease within such 60-day period. Lessee shall have a period of 60 days after Lessor's notice that it has elected to terminate this Lease during which to elect to continue this Lease on the terms herein provided. If Lessee does not elect to continue this Lease or shall fail during such 60-day period to notify Lessor of Lessee's intent to continue this Lease, then this Lease shall terminate as of the last day of the month during which such period expired. Lessee shall then immediately vacate and surrender the Premises, all obligations of either party hereunder shall cease as of the date of termination (provided, however, Lessee's obligations to Lessor under Section 18 and Lessee's obligations to pay Base Annual Rental, Additional Rental and all other sums (whether payable to Lessor or a third-party) accruing under this Lease prior to the date of termination shall survive such termination) and Lessor may retain all such awards, compensation or damages. If Lessor elects not to terminate this Lease, or if Lessor elects to terminate this Lease but Lessee elects to continue this Lease, then this Lease shall continue in full force and effect on the following terms: (i) all Base Annual Rental, Additional Rental and other sums and obligations due under this Lease shall continue unabated, and (ii) Lessee shall promptly commence and diligently prosecute or caused to be commenced and diligently prosecuted restoration of the Premises to the same condition, as nearly as practicable, as prior to such partial condemnation, damage or destruction as approved by Lessor. Lessor shall promptly make available in installments as restoration progresses an amount up to but not exceeding the amount of any award, compensation or damages received by Lessor, upon request of Lessee accompanied by evidence reasonably satisfactory to Lessor that such amount has been paid or is due and payable and is properly a part of such costs and that Lessee has complied with the terms of Section 17 above in connection with the restoration. Lessor shall be entitled to keep any portion of such award, compensation or damages which may be in excess of the cost of restoration, less the costs and expenses of Lessor incurred in connection with such award, compensation or damages (the "Excess Award"). Lessee shall bear all additional costs, fees and expenses of such restoration in excess of the amount of any such award, compensation or damages. Upon payment of the Excess Award, if any, to Lessor, Lessor and Lessee shall enter into an amendment to this Lease pursuant to which (a) the Minimum Purchase Price will be reduced by an amount equal to the Excess Award paid to Lessor, and (b) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of the Excess Award paid to Lessor multiplied by 9.75%. E. Notwithstanding the foregoing, if at the time of any Taking or at any time thereafter Lessee shall be in default under this Lease and such default shall be continuing, Lessor is hereby authorized and empowered but shall not be obligated, in the name and on behalf of Lessee and otherwise, to file and prosecute Lessee's claim, if any, for an award on account of any Taking and to collect such award and apply the same, after deducting all costs, fees and expenses incident to the collection thereof, to the curing of such default and any other then existing default under this Lease. F. Lessee hereby waives any and all rights, claims, counterclaims and defenses available to Lessee arising under, or pursuant to, Arizona Revised Statutes Section 33- 343. 21. Inspection. Lessor and its authorized representatives shall have the right, at all reasonable times and upon giving no less than twenty-four (24) hours prior written notice to Lessee (except in cases of emergencies, in which case no prior notice to Lessee is required), to enter the Premises or any part thereof and inspect the same and make photographic or other evidence concerning Lessee's compliance with the terms of this Lease. Lessor shall use good faith reasonable efforts to minimize the impact of such entry and inspections on Lessee's business activities at the Premises, and Lessee hereby waives any claim for damages for any injury or inconvenience to or interference with Lessee's business, any loss of occupancy or quiet enjoyment of the Premises and any other loss occasioned by such entry. Lessee shall keep and maintain at the Premises or at Lessee's headquarter offices full, complete and appropriate books of account and records of Lessee's business activities relating to the Premises in accordance with generally accepted accounting principles consistently applied. The books and records of Lessee shall at all reasonable times be open for inspection by Lessor, its auditors or other authorized representatives. 22. Franchisor Requirements. In the event Lessor approves the use of a portion of the Premises by Lessee for the operation of a Franchisor Restaurant, Lessee shall, in addition to the requirements set forth in this Lease, in its use, occupancy and maintenance of the Premises, comply with all requirements of its franchise, license and/or area development agreement with Franchisor. Lessee hereby consents to Lessor providing information it obtains to Franchisor and to Lessor obtaining from Franchisor information which Franchisor receives relating to Lessee's operation of its business on the Premises. 23. Right of First Refusal. A. During the Lease Term, Lessee shall have the right of first refusal to purchase the Premises upon the terms and conditions set forth in this Section 23. If at any time during the Lease Term, Lessor shall receive a bona fide offer from a third party for the purchase of the Premises (whether or not solicited by Lessor) and Lessor shall desire to accept such offer, Lessor shall notify Lessee of any such offer (the "Offering Notice") by notice to Lessee specifying the following terms and information: A. the name and address of the third-party offeror, B. the purchase price for the Premises, C. the terms of any financing for the purchase, D. the type of deed to be delivered by Lessor at the closing (if such deed is other than a special warranty deed), E. a list of any consensual mortgages, liens or encumbrances placed on the Premises by Lessor that will not be discharged and satisfied at the closing, F. whether Lessor, as seller, or the purchaser is responsible for payment of applicable transfer, documentary, stamp, deed or other taxes payable in connection with the proposed sale, G. a list of fees and expenses payable by the purchaser in connection with the proposed sale, and H. any other terms and conditions set forth in the purchase agreement between Lessor and such third-party offeror (the "Third-Party Purchase Agreement") that are material to the sale of the Premises, as determined by Lessor in Lessor's reasonable discretion. Notwithstanding the foregoing, Lessee shall not have the right to exercise the right of first refusal or consummate the exercise thereof if at the time of exercise or consummation Lessee shall be in default of any of the terms and conditions of this Lease or if any condition shall exist which upon the giving of notice or the passage of time, or both, would constitute a default by Lessee under this Lease. B. Lessee shall have fifteen (15) calendar days from the date of delivery of the Offering Notice to exercise its right of first refusal hereunder. Such right of first refusal shall be exercisable by Lessee notifying Lessor (within such 15-day period) of Lessee's election to purchase the Premises on the same terms and conditions as those set forth in the Offering Notice (the "Exercise Notice"). Time shall be of the essence with respect to Lessee's election and the giving of the Exercise Notice, and any failure to give Lessor the Exercise Notice within such 15-day period shall be deemed to be an election by Lessee to waive the rights granted to Lessee under this Section 23. C. Upon Lessee giving Lessor the Exercise Notice, Lessor and Lessee shall open an escrow account with a recognized title insurance or trust company selected by Lessor. Such escrow shall be subject to the standard escrow instructions of the escrow agent, to the extent they are not inconsistent with the terms of this Section 23 or the terms of the Offering Notice. At or before the close of escrow, Lessor shall deliver to the escrow agent its special warranty deed (or such other type of deed as is specified in the Offering Notice) conveying to Lessee all of Lessor's right, title and interest in the Premises, free and clear of all liens and encumbrances, except liens for taxes and assessments and easements, covenants and restrictions of record which were attached to the Premises as of the date hereof, attached during the Lease Term through Lessee's action or inaction, as the case may be, have been granted by Lessor in lieu of a taking by the power of eminent domain or the like, have been approved by Lessee, or which do not materially adversely affect the use of the Premises as a Facility or as otherwise specified in the Offering Notice. In the event Lessor (in the exercise of Lessor's good faith reasonable efforts) is unable to convey title as required, Lessee agrees that Lessee's sole remedy or recourse shall be either (i) to accept such title as Lessor can convey, or (ii) to elect not to consummate its exercise of the right of first refusal, in which case the right of first refusal shall lapse and Lessor shall be entitled to sell and convey the Premises to the third-party offeror substantially on the terms set forth in the Offering Notice. D. Both Lessor and Lessee agree to execute a purchase agreement, escrow instructions and such other instruments as may be necessary or appropriate to consummate the sale of the Premises in the manner herein provided. Unless otherwise specifically provided in the Offering Notice, the sale of the Premises to Lessee shall be an "AS IS" and "WHERE IS" sale, without any representations or warranties, express or implied, on the part of Lessor relative to the Premises and the condition of the Premises and the suitability of the Premises for any particular use or purpose, and with "ALL FAULTS" associated with the Premises. E. Notwithstanding any term or provision contained in the Third-Party Purchase Agreement to the contrary, the close of escrow of the sale of the Premises to Lessee shall occur no later than the date that is forty-five (45) days after Lessee gives Lessor the Exercise Notice. At the close of escrow of the sale of the Premises to Lessee pursuant to Lessee's right of first refusal hereunder (i) this Lease shall terminate and Lessee shall receive a credit towards the purchase price in an amount equal to that portion of the Base Monthly Rental paid to Lessor prior to the date of the close of escrow that is attributable to the period of time after the close of escrow, and (ii) Lessee shall pay to the third-party offeror identified in the Offering Notice, in immediately available funds, an amount equal to such third- party's reasonable out-of-pocket costs and expenses incurred in connection with the proposed sale of the Premises to such third party, including, without limitation, its reasonable attorneys' fees. F. In the event Lessee waives or is deemed to have waived its right of first refusal to purchase the Premises, Lessor shall thereafter have the right to sell and convey the Premises to such third-party offeror on terms which are substantially similar to the terms set forth in the Offering Notice, and upon the consummation of such a sale, Lessee's right of first refusal shall cease to exist, and this Section 23 shall no longer be part of this Lease. In the event Lessor shall not consummate such a sale to the third party offeror or shall desire to sell the Premises to another third-party offeror on terms not substantially similar to the terms set forth in the Offering Notice, then Lessee's right of first refusal shall remain in full force and effect for the remainder of the Lease Term, and Lessor shall be required to again offer the Premises to Lessee in accordance with this Section 23. G. Notwithstanding any provision or right contained in this Lease to the contrary, Lessee's right of first refusal shall not be applicable to any of the following events, sales, dispositions or transfers, whether occurring in one transaction or a series of transactions: (a) any disposition, sale or other transfer of the Premises to any of the Lessor Entities; (b) any disposition, sale or other transfer to the holder of a mortgage, lien or deed of trust covering Lessor's interest in the Premises, or any nominee of such holder, or any other person, firm, corporation, or other entity who or which shall acquire title to Lessor's interest in the Premises as a result of a foreclosure of such mortgage, lien or deed of trust or as a result of delivery of a deed in lieu of foreclosure; (c) any disposition, sale or other transfer of Lessor's interest in the Premises, or any portion thereof, to any Governmental Authority or quasi-Governmental Authority exercising the right or power of eminent domain or condemnation, whether by reason of the exercise of such right of power or by reason of the delivery of a deed in lieu of eminent domain or condemnation; (d) any change in the form of business entity or ownership of any of the Lessor Entities, including, but not limited to, any change by merger or consolidation of any of the Lessor Entities, any acquisition, sale, disposition or other transfer of all or a substantial portion of the assets or business of any of the Lessor Entities, any sale, disposition, pledge, creation, issuance, repurchase, redemption, exchange or swap of common stock, preferred stock or other equity interests of any type or nature in any of the Lessor Entities, or any capitalization or recapitalization in any form of any of the Lessor Entities; (e) any disposition, sale or other transfer of the Premises in connection with a simultaneous disposition, sale or other transfer of other property or properties (which are not being leased to Lessee) by any of the Lessor Entities; and/or (f) any disposition, sale, assignment or other transfer of the Premises by any of the Lessor Entities to a corporation, trust or other entity identified by any of the Lessor Entities, and the issuance of certificates or other instruments evidencing interests in pools of properties (of which the Premises forms all or a part), whether in connection with a permanent asset securitization or other financing or investment arrangement or a disposition, sale, assignment or other transfer of properties in anticipation of a permanent asset securitization or other financing or investment arrangement. 24. Default, Remedies and Measure of Damages. A. Each of the following shall be deemed a material breach of this Lease and a default by Lessee: (i) If any representation or warranty of Lessee herein was false in any material respect when made or, in the event that any such representation or warranty is continuing, becomes false in any material respect at any time, or if Lessee renders any statement or account that is false in any material respect; (ii) If any rent or other monetary sum due hereunder is not paid within five days after the date when due; (iii) If Lessee or Guarantor becomes insolvent within the meaning of the Code, files or notifies Lessor that it intends to file a petition under the Code, initiates a proceeding under any similar law or statute relating to bankruptcy, insolvency, reorganization, winding up or adjustment of debts (collectively, hereinafter, an "Action"), becomes the subject of either a petition under the Code or an Action, or is not generally paying its debts as the same become due; (iv) If Lessee vacates or abandons the Premises; (v) If Lessee fails to observe or perform any of the covenants, conditions, or obligations of this Lease; (vi) If there is a breach, default or expiration of any franchise, license and/or area development agreement permitting Lessee to operate the Premises as a Franchisor Restaurant or if such franchise, license and/or area development agreement otherwise terminates or expires; (vii) If there is a breach or default under any of the Other Agreements; and/or (viii) If a final, nonappealable judgment is rendered by a court against either Lessee or Guarantor which has a material adverse effect on the ability to conduct business at the Premises for its intended use, or which does not have a material adverse effect on the ability to conduct business at the Premises for its intended use but which is in the amount of $10,000,000.00 or more, and in either event is not discharged or provision made for such discharge within 60 days from the date of entry thereof. B. If any default occurs pursuant to subsection A.(ii) above, Lessor shall not be entitled to exercise its remedies set forth in subsection D. below unless and until Lessor shall have given Lessee notice thereof and a period of five days from the delivery of such notice shall have elapsed without such default being cured. C. If any such breach or default does not involve the payment of any rent or other monetary sum, is not willful or intentional, does not place any rights or property of Lessor in immediate jeopardy, and is within the reasonable power of Lessee to cure within 30 days after receipt of notice thereof, all as determined by Lessor in its reasonable discretion, then such event shall not constitute a default hereunder, unless and until Lessor shall have given Lessee notice thereof and a period of 30 days shall have elapsed, during which period Lessee may correct or cure such event, upon failure of which a default shall be deemed to have occurred hereunder without further notice or demand of any kind. If such nonmonetary breach or default cannot reasonably be cured within such 30-day period, as determined by Lessor in its reasonable discretion, and Lessee is diligently pursuing a cure of such breach or default, then Lessee shall have a reasonable period to cure such breach or default, which shall in no event exceed 90 days after receiving notice of the default from Lessor. D. As a material inducement to Lessor executing this Lease, in the event of any breach or default, and with or without any notice or demand, except the notice prior to default required under certain circumstances by subsection B. above or such other notice as may be required by statute and cannot be waived by Lessee (all other notices being hereby waived), Lessor shall be entitled to exercise, at its option, concurrently, successively, or in any combination, all remedies available at law or in equity, including without limitation any one or more of the following: (i) To terminate this Lease, whereupon Lessee's right to possession of the Premises shall cease and this Lease, except as to Lessee's liability, shall be terminated; (ii) To reenter and take possession of the Premises, any or all personal property or fixtures of Lessee upon the Premises and, to the extent permissible, all franchises, licenses, distribution agreements, permits and other rights or privileges of Lessee pertaining to the use and operation of the Premises and to expel Lessee and those claiming under or through Lessee, without being deemed guilty in any manner of trespass or becoming liable for any loss or damage resulting therefrom, without resort to legal or judicial process, procedure or action. No notice from Lessor hereunder or under a forcible entry and detainer statute or similar law shall constitute an election by Lessor to terminate this Lease unless such notice specifically so states. If Lessee shall, after default, voluntarily give up possession of the Premises to Lessor, deliver to Lessor or its agents the keys to the Premises, or both, such actions shall be deemed to be in compliance with Lessor's rights and the acceptance thereof by Lessor or its agents shall not be deemed to constitute a termination of the Lease. Lessor reserves the right following any reentry and/or reletting to exercise its right to terminate this Lease by giving Lessee written notice thereof, in which event this Lease will terminate as specified in said notice; (iii) To seize all personal property or trade fixtures or fixtures upon the Premises which Lessee owns or in which it has an interest (subject, however, to the rights of any third party (other than any of the Lessee Entities) who owns, or has a prior security interest in, any such personal property), in which Lessor shall have a landlord's lien and/or security interest, and to dispose thereof in accordance with the laws prevailing at the time and place of such seizure or to remove all or any portion of such property and cause the same to be stored in a public warehouse or elsewhere at Lessee's sole expense, without becoming liable for any loss or damage resulting therefrom and without resorting to legal or judicial process, procedure or action; (iv) To bring an action against Lessee for any damages sustained by Lessor or any equitable relief available to Lessor; (v) To relet the Premises or any part thereof for such term or terms (including a term which extends beyond the original term of this Lease), at such rentals and upon such other terms as Lessor, in its sole discretion, may determine, with all proceeds received from such reletting being applied to the rental and other sums due from Lessee in such order as Lessor, may, in it sole discretion, determine, which other sums include, without limitation, all reasonable repossession costs, brokerage commissions, reasonable attorneys' fees and expenses, employee expenses, and reasonable alteration, remodeling and repair costs and expenses of preparing for such reletting. Except to the extent required by applicable law, Lessor shall have no obligation to relet the Premises or any part thereof and shall in no event be liable for refusal or failure to relet the Premises or any part thereof, or, in the event of any such reletting, for refusal or failure to collect any rent due upon such reletting, and no such refusal or failure shall operate to relieve Lessee of any liability under this Lease or otherwise to affect any such liability. Lessor reserves the right following any reentry and/or reletting to exercise its right to terminate this Lease by giving Lessee written notice thereof, in which event this Lease will terminate as specified in said notice; (vi) To accelerate and recover from Lessee all rent and other monetary sums due and owing and scheduled to become due and owing under the Lease both before and after the date of such breach for the entire original scheduled term of this Lease; (vii) To recover from Lessee all reasonable costs and expenses, including attorneys' fees, court costs, expert witness fees, costs of tests and analyses, travel and accommodation expenses, deposition and trial transcripts, copies and other similar costs and fees, paid or incurred by Lessor as a result of such breach, regardless of whether or not legal proceedings are actually commenced; (viii) To immediately or at any time thereafter, and with or without notice, at Lessor's sole option but without any obligation to do so, correct such breach or default and charge Lessee all reasonable costs and expenses incurred by Lessor therein. Any sum or sums so paid by Lessor, together with interest at the then existing maximum legal rate, but not higher than 18% per annum, shall be deemed to be additional rent hereunder and shall be immediately due from Lessee to Lessor. Any such acts by Lessor in correcting Lessee's breaches or defaults hereunder shall not be deemed to cure said breaches or defaults or constitute any waiver of Lessor's right to exercise any or all remedies set forth herein; (ix) To immediately or at any time thereafter, and with or without notice, except as required herein, set off any money of Lessee held by Lessor under this Lease against any sum owing by Lessee or Guarantor hereunder; and/or (x) To enforce, and Lessee does hereby consent to such enforcement, notwithstanding the laws of the State to the contrary, all of Lessor's self-help remedies available at law or in equity without Lessor resorting to any legal or judicial process, procedure or action. 25. Mortgage, Subordination, Nondisturbance and Attornment. A. Lessor's interest in this Lease and/or the Premises shall not be subordinate to any encumbrances placed upon the Premises by or resulting from any act of Lessee, and nothing herein contained shall be construed to require such subordination by Lessor. Lessee shall keep the Premises free from any liens for work performed, materials furnished or obligations incurred by Lessee. NOTICE IS HEREBY GIVEN THAT LESSEE IS NOT AUTHORIZED TO PLACE OR ALLOW TO BE PLACED ANY LIEN, MORTGAGE, DEED OF TRUST OR ENCUMBRANCE OF ANY KIND UPON ALL OR ANY PART OF THE PREMISES OR LESSEE'S LEASEHOLD INTEREST THEREIN, AND ANY SUCH PURPORTED TRANSACTION SHALL BE VOID. FURTHERMORE, ANY SUCH PURPORTED TRANSACTION SHALL BE DEEMED A TORTIOUS INTERFERENCE WITH LESSOR'S RELATIONSHIP WITH LESSEE AND LESSOR'S FEE OWNERSHIP OF THE PREMISES. B. NOTWITHSTANDING THE PROVISIONS OF SECTION 25.A TO THE CONTRARY, LESSEE SHALL HAVE THE RIGHT (UPON PRIOR WRITTEN NOTICE TO LESSOR) TO ENCUMBER LESSEE'S INTEREST IN THIS LEASE, PROVIDED THAT THE FORM AND SUBSTANCE OF THE INSTRUMENT, PURSUANT TO WHICH LESSEE SHALL ENCUMBER LESSEE'S INTEREST IN THIS LEASE, IS APPROVED BY LESSOR, WHICH APPROVAL SHALL NOT BE UNREASONABLY WITHHELD. C. This Lease at all times shall automatically be subordinate to the lien of any and all ground leases, mortgages and trust deeds now or hereafter placed upon the Premises by Lessor, and Lessee covenants and agrees to execute and deliver, upon demand, such further instruments subordinating this Lease to the lien of any or all such ground leases, mortgages or trust deeds as shall be desired by Lessor, or any present or proposed mortgagees or trustees under trust deeds, upon the condition that Lessee shall have the right to remain in possession of the Premises under the terms of this Lease, notwithstanding any default in any or all such mortgages or trust deeds, or after foreclosure thereof, so long as Lessee is not in default under any of the covenants, conditions and agreements contained in this Lease. D. If any mortgagee or trustee elects to have this Lease and the interest of Lessee hereunder be superior to any such interest or right and evidences such election by notice given to Lessee, then this Lease and the interest of Lessee hereunder shall be deemed superior to any such mortgage or trust deed, whether this Lease was executed before or after such mortgage or trust deed and in that event such mortgagee or trustee shall have the same rights with respect to this Lease as if it had been executed and delivered prior to the execution and delivery of the mortgage or trust deed and has been assigned to such mortgagee or trustee. E. Although the foregoing provisions shall be self-operative and no future instrument of subordination shall be required, upon request by Lessor, Lessee shall execute and deliver whatever instruments may be required for such purposes, and in the event Lessee fails so to do within 10 days after demand, Lessee does hereby make, constitute and irrevocably appoint Lessor as its agent and attorney-in-fact and in its name, place and stead so to do, which appointment shall be deemed "power coupled with an interest". The preceding power of attorney is not affected by subsequent disability or incapacity of Lessee or lapse of time. F. In the event any purchaser at a foreclosure sale acquires title to the Premises pursuant to the exercise of any remedy provided for in any mortgage or trust deed or otherwise, Lessee shall attorn to such purchaser and recognize such purchaser as Lessor under this Lease, which shall continue in full force and effect as a direct lease between such purchaser and Lessee. The foregoing provision shall be self operative and effective without the execution of any further instruments. G. Lessee shall give written notice to any lender of Lessor having a recorded lien upon the Premises or any part thereof of which Lessee has been notified of any breach or default by Lessor of any of its obligations under this Lease and give such lender at least 60 days beyond any notice period to which Lessor might be entitled to cure such default before Lessee may exercise any remedy with respect thereto. Upon request by Lessor, Lessee shall also provide Lessee's most recent audited financial statements to Lessor or any such lender and certify the continuing accuracy of such financial statements in such manner as Lessor or such lender may request. 26. Estoppel Certificate. A. At any time, and from time to time, Lessee agrees, promptly and in no event later than 10 days after a request from Lessor, to execute, acknowledge and deliver to Lessor or any present or proposed mortgagee or purchaser designated by Lessor a certificate in the form supplied by Lessor, certifying: (i) that Lessee has accepted the Premises (or, if Lessee has not done so, that Lessee has not accepted the Premises, and specifying the reasons therefor); (ii) that this Lease is in full force and effect and has not been modified (or if modified, setting forth all modifications), or, if this Lease is not in full force and effect, the certificate shall so specify the reasons therefor; (iii) the commencement and expiration dates of the Lease Term and the terms of any extension options of Lessee; (iv) the date to which the rentals have been paid under this Lease and the amount thereof then payable; (v) whether there are then any existing defaults by Lessor in the performance of its obligations under this Lease, and, if there are any such defaults, specifying the nature and extent thereof; (vi) that no notice has been received by Lessee of any default under this Lease which has not been cured, except as to defaults specified in the certificate; (vii) the capacity of the person executing such certificate, and that such person is duly authorized to execute the same on behalf of Lessee; and (viii) any other information reasonably requested by Lessor, or its present or proposed purchaser or mortgagee. B. If Lessee shall fail or refuse to sign a certificate in accordance with the provisions of this Section within 10 days following a request by Lessor, Lessee irrevocably constitutes and appoints Lessor as its attorney-in-fact to execute and deliver the certificate to any such third party, it being stipulated that such power of attorney is a "power coupled with an interest" and is irrevocable and binding. The preceding power of attorney is not affected by subsequent disability or incapacity of Lessee or lapse of time. C. At any time, and from time to time, Lessee agrees, promptly and in no event later than 15 days after a request from Lessor, to cause Sublessee (to the extent Lessee subleases the Subleased Premises to Sublessee pursuant to the Sublease) to execute, acknowledge and deliver to Lessor or any present or proposed mortgagee or purchaser designated by Lessor a certificate in the form supplied by Lessor, certifying: (i) that Sublessee has accepted the Subleased Premises (or, if Sublessee has not done so, that Sublessee has not accepted the Subleased Premises, and specifying the reasons therefor); (ii) that the Sublease is in full force and effect and has not been modified (or if modified, setting forth all modifications), or, if the Sublease is not in full force and effect, the certificate shall so specify the reasons therefor; (iii) the commencement and expiration dates of the term of the Sublease and the terms of any extension options of Sublessee; (iv) the date to which the rentals have been paid under the Sublease and the amount thereof then payable; (v) whether there are then any existing defaults by sublessor in the performance of its obligations under the Sublease, and, if there are any such defaults, specifying the nature and extent thereof; (vi) that no notice has been received by Sublessee of any default under the Sublease which has not been cured, except as to defaults specified in the certificate; (vii) the capacity of the person executing such certificate, and that such person is duly authorized to execute the same on behalf of Sublessee; and (viii) any other information reasonably requested by Lessor, or its present or proposed purchaser or mortgagee. 27. Assignment. A. Lessor shall have the right to sell or convey the Premises subject to this Lease or to assign its right, title and interest as Lessor under this Lease in whole or in part. In the event of any such sale or assignment other than a security assignment, Lessee shall attorn to such purchaser or assignee and Lessor shall be relieved, from and after the date of such transfer or conveyance, of liability for the performance of any obligation of Lessor contained herein, except for obligations or liabilities accrued prior to such assignment or sale. B. Lessee acknowledges that Lessor has relied both on the business experience and creditworthiness of Lessee and upon the particular purposes for which Lessee intends to use the Premises in entering into this Lease. Lessee shall not, without the prior written consent of Lessor, which consent shall not be unreasonably withheld or delayed: (i) assign, transfer, convey, pledge, encumber or mortgage this Lease or any interest therein, whether by operation of law or otherwise (except that Lessee may assign Lessee's interest in this Lease to an Affiliate of Lessee without the consent of Lessor, provided that Lessee shall have notified Lessor in writing of such intended assignment prior to the date on which Lessee shall assign this Lease to Lessee's Affiliate, and provided Lessor with a copy of the documents, agreements and instruments pursuant to which Lessee shall assign its interest in this Lease. In connection with any assignment of this Lease by Lessee to Lessee's Affiliate, Lessee shall transfer to such assignee all necessary licenses and franchises or distribution agreements to continue operating the Premises for the purposes herein provided. At the time of any such assignment of this Lease by Lessee to Lessee's Affiliate, such assignee shall assume all of the duties and obligations of Lessee under this Lease pursuant to Lessor's standard form of assumption agreement. No such assignment by Lessee to Lessee's Affiliate shall relieve Lessee of its duties and obligations respecting this Lease, and no such assignment by Lessee to Lessee's Affiliate shall relieve Guarantor of its obligations respecting the Guaranty); (ii) assign, transfer, convey, pledge or mortgage any interest in Lessee, whether by operation of law or otherwise, including, without limitation, dissolution of Lessee or, if Lessee is a corporation, a transfer (by one or more transactions) of a majority of the voting stock of Lessee, or if Lessee is a partnership, a transfer of the controlling interest in Lessee (including the admission of new partners or withdrawal of existing partners having a controlling interest), regardless of whether the transfer is made by one or more transactions, or whether one or more persons hold the controlling interest prior to the transfer or afterwards; or (iii) sublet all or any part of the Premises other than to Sublessee pursuant to the Sublease. It is expressly agreed that Lessor may withhold or condition such consent based upon such matters as Lessor may in its reasonable discretion determine, including, without limitation, the experience and creditworthiness of the assignee, the assumption by the assignee of all of Lessee's obligations hereunder by undertakings enforceable by Lessor, payment to Lessor of any rentals owing under a sublease which are in excess of the rentals owing hereunder (after deducting from such excess an amount equal to the reasonable, actual costs and expenses incurred by Lessee in connection with such subletting, provided Lessee shall have provided Lessor with a reasonable description and amount of all such deductions), the transfer to such assignee of all necessary licenses and franchises or distribution agreements to continue operating the Premises for the purposes herein provided, receipt of such representations and warranties from such assignee as Lessor may request, including such matters as its organization, existence, good standing and finances and other matters, whether or not similar in kind. At the time of any such assignment which is approved by Lessor, the assignee shall assume all of the obligations of Lessee under this Lease pursuant to Lessor's standard form of assumption agreement. No such assignment or subletting shall relieve Lessee of its obligations respecting this Lease and no such assignment or subletting shall relieve Guarantor of its obligations respecting the Guaranty. Any purported transfer, conveyance, pledge or mortgage in violation of this paragraph shall be voidable at the sole option of Lessor. 28. Option To Extend. Lessee, provided Lessee is not in default hereunder at the time of exercise or at the expiration of the Lease Term or, if applicable, the first and second extensions of the Lease, shall have the option to continue this Lease in effect for up to three (3) additional successive periods of five (5) years each in accordance with the terms and provisions of this Lease then in effect, including, without limitation, the terms and provisions of Subsection 4.B of this Lease relative to making periodic increases in Base Annual Rental. Lessee shall exercise such extension option by giving notice to Lessor of Lessee's intention to do so not more than 270 days or less than 210 days prior to the expiration of the Lease Term or, as applicable, the first and second extensions of the Lease Term. 29. Notices. All notices, consents, approvals or other instruments required or permitted to be given by either party pursuant to this Lease shall be in writing and given by (i) hand delivery, (ii) facsimile, (iii) express overnight delivery service or (iv) certified or registered mail, return receipt requested, and shall be deemed to have been delivered upon (a) receipt, if hand delivered, (b) transmission, if delivered by facsimile, (c) the next business day, if delivered by express overnight delivery service, or (d) the third business day following the day of deposit of such notice with the United States Postal Service, if sent by certified or registered mail, return receipt requested. Notices shall be provided to the parties and addresses (or facsimile numbers, as applicable) specified below: If to Lessee: c/o Giant Industries, Inc. Attention: Mr. Mark Cox 23733 North Scottsdale Road Scottsdale, Arizona 85255 Telephone: (602) 585-8888 Telecopy: (602) 585-8893 With a copy to: Giant Industries, Inc. Legal Department Attention: General Counsel 23733 North Scottsdale Road Scottsdale, Arizona 85255 Telephone: (602) 585-8851 Telecopy: (602) 585-8985 If to Lessor: Dennis L. Ruben, Esq. Executive Vice President and General Counsel FFCA Capital Holding Corporation 17207 North Perimeter Drive Scottsdale, AZ 85255 Telephone: (602) 585-4500 Telecopy: (602) 585-2226 or to such other address or such other person as either party may from time to time hereafter specify to the other party in a notice delivered in the manner provided above. 30. Holding Over. If Lessee remains in possession of the Premises after the expiration of the term hereof, Lessee, at Lessor's option and within Lessor's sole discretion, may be deemed a tenant on a month-to-month basis and shall continue to pay rentals and other sums in the amounts herein provided, except that the Base Monthly Rental shall be automatically doubled, and to comply with all the terms of this Lease; provided that nothing herein nor the acceptance of rent by Lessor shall be deemed a consent to such holding over. Lessee shall defend, indemnify, protect and hold Lessor harmless from and against any and all claims, losses and liabilities for damages resulting from Lessee's failure to surrender possession upon the expiration of the Lease Term, including, without limitation, any claims made by any succeeding lessee. 31. Landlord's Lien/Security Interest. Lessee agrees that Lessor shall have a landlord's lien, and additionally hereby separately grants to Lessor a first and prior security interest, in, on and against all personal property (other than inventory held for sale in the normal course of business), appliances, furniture, machinery, trade fixtures and equipment of Lessee from time to time situated on the Premises, which lien and security interest shall secure the payment of all rental and other charges payable by Lessee to Lessor under the terms hereof and all other obligations of Lessee to Lessor under this Lease. Lessee represents and warrants to Lessor that except for a limited number of items of personal property (collectively, the "Limited Items of Personal Property") which Limited Items of Personal Property, in the aggregate, constitute an insignificant portion of all personal property, appliances, furniture, machinery, trade fixtures and equipment located at the Premises, the landlord's lien and security interest granted to Lessor under this Section 31 shall at all times be a first and prior lien and security interest. Lessee further represents and warrants to Lessor that the removal of the Limited Items of Personal Property from the Premises would have no material adverse effect or impact on the Premises or on Lessee's business activities conducted at the Premises. Lessee further agrees to execute and deliver to Lessor from time to time such financing statements and other documents as Lessor may then deem appropriate or necessary to perfect and maintain said lien and security interest, and expressly acknowledges and agrees that, in addition to any and all other rights and remedies of Lessor whether hereunder or at law or in equity, in the event of any default of Lessee hereunder, Lessor shall have any and all rights and remedies granted a secured party under the Uniform Commercial Code then in effect in the State in which the Premises is located. If Lessee shall fail for any reason to execute any such financing statement or document within 10 days after Lessor's request therefor, Lessor shall have the right to execute the same as attorney-in-fact of Lessee, which appointment shall be deemed "power coupled with an interest". The preceding power of attorney is not affected by subsequent disability or incapacity of Lessee or lapse of time. Lessee covenants to promptly notify Lessor of any changes in Lessee's name and/or organizational structure which may necessitate the execution and filing of additional financing statements (provided, however, the foregoing shall not be construed as Lessor's consent to such changes). 32. Removal of Lessee's Property. At the expiration of the term of this Lease, and if Lessee is not then in breach hereof, Lessee may remove from the Premises all personal property belonging to Lessee. Lessee shall repair any damage caused by such removal and shall leave the Premises broom clean and in good and working condition and repair inside and out, ordinary wear and tear excepted. Any property of Lessee left on the Premises on the tenth day following the expiration of the Lease Term shall automatically and immediately become the property of Lessor. 33. Financial Statements. Within 45 days after the end of each fiscal quarter and within 120 days after the end of each fiscal year of Lessee, Lessee shall deliver to Lessor (i) complete financial statements of Lessee including a balance sheet, profit and loss statement, statement of cash flows and all other related schedules for the fiscal period then ended; and (ii) income statements for the business at the Premises. All such financial statements shall be prepared in accordance with generally accepted accounting principles, consistently applied from period to period, and shall be certified to be accurate and complete by Lessee (or the Treasurer or other appropriate officer of Lessee). Lessee and Guarantor understand that Lessor is relying upon such financial statements and Lessee and Guarantor represent that such reliance is reasonable. In the event that Lessee's property and business at the Premises is ordinarily consolidated with other business for financial statement purposes, such financial statements shall be prepared on a consolidated basis showing separately the sales, profits and losses, assets and liabilities pertaining to the Premises with the basis for allocation of overhead of other charges being clearly set forth. The financial statements delivered to Lessor need not be audited, but Lessee shall deliver to Lessor copies of any audited financial statements of Lessee which may be prepared, as soon as they are available. 34. Force Majeure. Any prevention, delay or stoppage due to strikes, lockouts, acts of God, enemy or hostile governmental action, civil commotion, fire or other casualty beyond the control of the party obligated to perform shall excuse the performance by such party for a period equal to any such prevention, delay or stoppage, except the obligations imposed with regard to rental and other monies to be paid by Lessee pursuant to this Lease. 35. Document Review. In the event Lessee makes any request upon Lessor requiring Lessor or its attorneys to review and/or prepare (or cause to be reviewed and/or prepared) any document or documents in connection with or arising out of or as a result of this Lease, then, except as expressly stated elsewhere herein, Lessee shall reimburse Lessor or its designee promptly upon Lessor's demand therefor a reasonable processing and review fee. 36. Time Is of the Essence. Time is of the essence with respect to each and every provision of this Lease in which time is a factor. 37. Lessor's Liability. Notwithstanding anything to the contrary provided in this Lease, it is specifically understood and agreed, such agreement being a primary consideration for the execution of this Lease by Lessor, that (i) there shall be absolutely no personal liability on the part of Lessor, its successors or assigns and its officers, directors, employees and agents to Lessee with respect to any of the terms, covenants and conditions of this Lease, (ii) Lessee waives all claims, demands and causes of action against Lessor's officers, directors, employees and agents in the event of any breach by Lessor of any of the terms, covenants and conditions of this Lease to be performed by Lessor, and (iii) Lessee shall look solely to the Premises and the other Sites (as the term "Sites" is defined in the Sale and Lease Agreement) for the satisfaction of each and every remedy of Lessee in the event of any breach by Lessor of any of the terms, covenants and conditions of this Lease to be performed by Lessor, or any other matter in connection with this Lease or the Premises, such exculpation of liability to be absolute and without any exception whatsoever. 38. Consent of Lessor. Unless specified otherwise herein, Lessor's consent to any request of Lessee may be conditioned or withheld in Lessor's sole discretion. Lessor shall have no liability for damages resulting from Lessor's failure to give any consent, approval or instruction reserved to Lessor, Lessee's sole remedy in any such event being an action for injunctive relief. 39. Waiver and Amendment. No provision of this Lease shall be deemed waived or amended except by a written instrument unambiguously setting forth the matter waived or amended and signed by the party against which enforcement of such waiver or amendment is sought. Waiver of any matter shall not be deemed a waiver of the same or any other matter on any future occasion. No acceptance by Lessor of an amount less than the monthly rent and other payments stipulated to be due under this Lease shall be deemed to be other than a payment on account of the earliest such rent or other payments then due or in arrears nor shall any endorsement or statement on any check or letter accompanying any such payment be deemed a waiver of Lessor's right to collect any unpaid amounts or an accord and satisfaction. 40. Successors Bound. Except as otherwise specifically provided herein, the terms, covenants and conditions contained in this Lease shall bind and inure to the benefit of the respective heirs, successors, executors, administrators and assigns of each of the parties hereto. 41. No Merger. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, shall not result in a merger of Lessor's and Lessee's estates, and shall, at the sole option of Lessor, either terminate any or all existing subleases or subtenancies, or operate as an assignment to Lessor of any or all of such subleases or subtenancies. 42. Captions. Captions are used throughout this Lease for convenience of reference only and shall not be considered in any manner in the construction or interpretation hereof. 43. Severability. The provisions of this Lease shall be deemed severable. If any part of this Lease shall be held unenforceable by any court of competent jurisdiction, the remainder shall remain in full force and effect, and such unenforceable provision shall be reformed by such court so as to give maximum legal effect to the intention of the parties as expressed therein. 44. Characterization. A. It is the intent of the parties hereto that the business relationship created by this Lease and any related documents is solely that of a long-term commercial lease between landlord and tenant and has been entered into by both parties in reliance upon the economic and legal bargains contained herein. None of the agreements contained herein, is intended, nor shall the same be deemed or construed, to create a partnership between Lessor and Lessee, to make them joint venturers, to make Lessee an agent, legal representative, partner, subsidiary or employee of Lessor, nor to make Lessor in any way responsible for the debts, obligations or losses of Lessee. Lessee acknowledges that Lessor (or any Affiliate of Lessor) and Franchisor are not affiliates, agents, partners or joint venturers, nor do they have any other legal, representative or fiduciary relationship. B. Lessor and Lessee acknowledge and warrant to each other that each has been represented by independent counsel and has executed this Lease after being fully advised by said counsel as to its effect and significance. This Lease shall be interpreted and construed in a fair and impartial manner without regard to such factors as the party which prepared the instrument, the relative bargaining powers of the parties or the domicile of any party. Whenever in this Lease any words of obligation or duty are used, such words or expressions shall have the same force and effect as though made in the form of a covenant. 45. Easements. During the Lease Term Lessor shall have the right to grant utility easements on, over, under and above the Premises without the prior consent of Lessee, provided that such easements will not materially interfere with Lessee's long-term use of the Premises. 46. Bankruptcy. A. As a material inducement to Lessor executing this Lease, Lessee acknowledges and agrees that Lessor is relying upon (i) the financial condition and specific operating experience of Lessee and Lessee's obligation to use the Premises specifically in accordance with this Lease, (ii) Lessee's timely performance of all of its obligations under this Lease notwithstanding the entry of an order for relief under the Code for Lessee and (iii) all defaults under the Lease being cured promptly and the Lease being assumed within 60 days of any order for relief entered under the Code for Lessee, or the Lease being rejected within such 60 day period and the Premises surrendered to Lessor. Accordingly, in consideration of the mutual covenants contained in this Lease and for other good and valuable consideration, Lessee hereby agrees that: (i) All obligations that accrue under this Lease (including the obligation to pay rent), from and after the date that an Action is commenced shall be timely performed exactly as provided in this Lease and any failure to so perform shall be harmful and prejudicial to Lessor; (ii) Any and all rents that accrue from and after the date that an Action is commenced and that are not paid as required by this Lease shall, in the amount of such rents, constitute administrative expense claims allowable under the Code with priority of payment at least equal to that of any other actual and necessary expenses incurred after the commencement of the Action; (iii) Any extension of the time period within which the Lessee may assume or reject the Lease without an obligation to cause all obligations under the Lease to be performed as and when required under the Lease shall be harmful and prejudicial to Lessor; (iv) Any time period designated as the period within which the Lessee must cure all defaults and compensate Lessor for all pecuniary losses which extends beyond the date of assumption of the Lease shall be harmful and prejudicial to Lessor; (v) Any assignment of the Lease must result in all terms and conditions of the Lease being assumed by the assignee without alteration or amendment, and any assignment which results in an amendment or alteration of the terms and conditions of the Lease without the express written consent of Lessor shall be harmful and prejudicial to Lessor; (vi) Any proposed assignment of the Lease to an assignee: (a) that will not use the Premises specifically in accordance with this Lease, (b) that does not possess financial condition, operating performance and experience characteristics equal to or better than the financial condition, operating performance and experience of Lessee as of the Effective Date, or (c) that does not provide Guarantor of the Lease obligations with financial condition equal to or better than the financial condition of the original Guarantor of the Lease as of the Effective Date, shall be harmful and prejudicial to Lessor; and (vii) The rejection (or deemed rejection) of the Lease for any reason whatsoever shall constitute cause for immediate relief from the automatic stay provisions of the Code, and Lessee stipulates that such automatic stay shall be lifted immediately and possession of the Premises will be delivered to Lessor immediately without the necessity of any further action by Lessor. B. No provision of this Lease shall be deemed a waiver of Lessor's rights or remedies under the Code or applicable law to oppose any assumption and/or assignment of this Lease, to require timely performance of Lessee's obligations under this Lease, or to regain possession of the Premises as a result of the failure of Lessee to comply with the terms and conditions of this Lease or the Code. C. Notwithstanding anything in this Lease to the contrary, all amounts payable by Lessee to or on behalf of Lessor under this Lease, whether or not expressly denominated as such, shall constitute "rent" for the purposes of the Code. D. For purposes of this Section addressing the rights and obligations of Lessor and Lessee in the event that an Action is commenced, the term "Lessee" shall include Lessee's successor in bankruptcy, whether a trustee, Lessee as debtor in possession or other responsible person. 47. No Offer. No contractual or other rights shall exist between Lessor and Lessee with respect to the Premises until both have executed and delivered this Lease, notwithstanding that deposits may have been received by Lessor and notwithstanding that Lessor may have delivered to Lessee an unexecuted copy of this Lease. The submission of this Lease to Lessee shall be for examination purposes only, and does not and shall not constitute a reservation of or an option for Lessee to lease or otherwise create any interest on the part of Lessee in the Premises. 48. Other Documents. Each of the parties agrees to sign such other and further documents as may be necessary or appropriate to carry out the intentions expressed in this Lease. 49. Attorneys' Fees. In the event of any judicial or other adversarial proceeding between the parties concerning this Lease, to the extent permitted by law, the prevailing party shall be entitled to recover all of its reasonable attorneys' fees and other costs in addition to any other relief to which it may be entitled. In addition, Lessor shall, upon demand, be entitled to all reasonable attorneys' fees and all other costs incurred in the preparation and service of any notice or demand hereunder, whether or not a legal action is subsequently commenced. References in this Lease to Lessor's attorneys' fees and/or costs shall mean both the fees and costs of independent counsel retained by Lessor with respect to the matter and the fees and costs of Lessor's in-house counsel incurred in connection with the matter. 50. Entire Agreement. This Lease, and any other instruments or agreements referred to herein, constitute the entire agreement between the parties with respect to the subject matter hereof, and there are no other representations, warranties or agreements except as herein provided. Without limiting the foregoing, Lessee specifically acknowledges that neither Lessor nor any agent, officer, employee or representative of Lessor has made any representation or warranty regarding the projected level of Lessee's Gross Sales or the projected profitability of the business to be conducted on the Premises. Furthermore, Lessee acknowledges that Lessor did not prepare or assist in the preparation of any of the projected figures used by Lessee in analyzing the economic viability and feasibility of the business to be conducted by Lessee at the Premises. 51. Forum Selection; Jurisdiction; Venue; Choice of Law. Lessee acknowledges that this Lease was substantially negotiated in the State of Arizona, the executed Lease was delivered in the State of Arizona, all payments under the Lease will be delivered in the State of Arizona and there are substantial contacts between the parties and the transactions contemplated herein and the State of Arizona. For purposes of any action or proceeding arising out of this Lease, the parties hereto expressly submit to the jurisdiction of all federal and state courts located in the State of Arizona. Lessee consents that it may be served with any process or paper by registered mail or by personal service within or without the State of Arizona in accordance with applicable law. Furthermore, Lessee waives and agrees not to assert in any such action, suit or proceeding that it is not personally subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum or that venue of the action, suit or proceeding is improper. The creation of this Lease and the rights and remedies of Lessor with respect to the Premises, as provided herein and by the laws of the state in which the Premises is located, shall be governed by and construed in accordance with the internal laws of the state in which the Premises is located without regard to principles of conflict of law. With respect to other provisions of this Lease, this Lease shall be governed by the internal laws of the State of Arizona. Nothing contained in this Section shall limit or restrict the right of Lessor to commence any proceeding in the federal or state courts located in the state in which the Premises is located to the extent Lessor deems such proceeding necessary or advisable to exercise remedies available under this Lease. 52. Counterparts. This Lease may be executed in one or more counterparts, each of which shall be deemed an original. 53. Joint and Several Liability. If Lessee consists of more than one individual or entity, each such individual and/or entity shall be jointly and severally liable for all obligations of Lessee under this Lease. 54. Memorandum of Lease. Concurrently with the execution of this Lease, Lessor and Lessee are executing Lessor's standard form memorandum of lease in recordable form, indicating the names and addresses of Lessor and Lessee, a description of the Premises, the Lease Term, and the terms of any options to extend the Lease Term, but omitting rent and such other terms of this Lease as Lessor may not desire to disclose to the public. Further, upon Lessor's request, Lessee agrees to execute and acknowledge a termination of lease and/or quit claim deed in recordable form to be held by Lessor until the expiration or sooner termination of the Lease Term. 55. No Brokerage. Lessor and Lessee represent and warrant to each other that they have had no conversation or negotiations with any broker concerning the leasing of the Premises. Each of Lessor and Lessee agrees to protect, indemnify, save and keep harmless the other, against and from all liabilities, claims, losses, costs, damages and expenses, including attorneys' fees, arising out of, resulting from or in connection with their breach of the foregoing warranty and representation. 56. Waiver of Jury Trial and Punitive, Consequential, Special and Indirect Damages. LESSOR AND LESSEE HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF LESSOR AND LESSEE, LESSEE'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, LESSEE AND LESSOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT EITHER MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM THE OTHER WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY LESSEE OR LESSOR AGAINST THE OTHER OR ITS RESPECTIVE SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY LESSEE AND LESSOR OF ANY RIGHT EITHER MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. 57. Reliance By Environmental Insurer. Lessee acknowledges and agrees that Environmental Insurer may rely on, and Environmental Insurer shall be an express third- party beneficiary of, the representations, warranties, covenants and agreements of Lessee set forth in this Lease, and that Environmental Insurer shall have all rights and remedies available at law or in equity as a result of a breach of such representations, warranties, covenants and agreements of Lessee, including to the extent applicable, the right of subrogation. 58. Sublease. A. In the event Lessee shall sublease the Subleased Premises to Sublessee pursuant to the Sublease, Lessee shall execute and deliver to Lessor and shall cause Sublessee to execute and deliver to Lessor a subordination agreement (in form and substance reasonably acceptable to Lessor), pursuant to which Lessee and Sublessee shall make such amendments or modifications to the Sublease as Lessor may reasonably request and pursuant to which Lessee and Sublessee shall agree that the Sublease is junior, subject and subordinate in all respects and at all times to the terms and provisions of this Lease. In connection with such subordination agreement, Lessor will agree not to disturb Sublessee's use of the Subleased Premises in the event of a termination of this Lease by Lessor for Lessee's breach or default hereunder, provided that Sublessee is not in default under the terms of the Sublease, and further provided that neither Lessor nor Lessor's successors or assigns shall have any duty or obligation to operate or conduct any type of business or business activities on or at the Premises, and further provided Lessor shall have the right to enter into a new lease with any third party for the operation of business activities on the Premises on terms and provisions acceptable to Lessor, and the Sublease shall be junior, subordinate and subject to the terms and provisions of such new lease. B. Lessee shall not amend, modify or terminate the Sublease without prior written notice thereof to Lessor. Lessee shall not permit the Sublease to be encumbered or mortgaged in any manner without the prior written consent of Lessor, which consent shall not be unreasonably withheld. Lessee shall not permit Sublessee to change the use of the Subleased Premises without the prior written consent of Lessor, which consent shall not be unreasonably withheld. Lessee shall cause Sublessee to comply in all material respects with the duties and obligations of Sublessee under the Sublease, and shall cause Sublessee to comply with all applicable laws, now in effect or hereafter enacted, pertaining to the Premises and the Subleased Premises. The term of the Sublease shall be no longer than the Lease Term hereunder. C. Except for the gross negligence or willful misconduct of Lessor, Lessee shall indemnify, protect, defend and hold harmless Lessor and Lessor's shareholders, directors, officers, lenders, agents, lenders, attorneys and employees from and against any and all claims, demands, causes of action, suits, proceedings, liabilities, damages (including consequential and punitive damages), losses, costs and expenses, including Lessor's attorneys' fees, caused by, incurred or resulting from the Sublease, Sublessee or the operations of Sublessee or relating in any manner to the Subleased Premises, whether relating to their original design or construction, latent defects, alteration, maintenance, use by Sublessee or any person thereon, supervision or otherwise, or from any breach of, default under or failure to perform any term or provision of the Sublease. It is expressly understood and agreed that Lessee's obligations under this Section shall survive the expiration or earlier termination of this Lease for any reason. D. Nothing in the Sublease shall affect, amend, modify or alter in any manner the terms, provisions and covenants of this Lease. Lessee agrees that the Sublease shall at all times be junior, subordinate and subject to the terms and provisions of this Lease. Unless otherwise specifically agreed to in writing by Lessor, Lessee agrees that Lessor shall have no duty, obligation or liability arising under or pursuant to the Sublease. Lessee shall perform and fulfil all of the duties and obligations of Lessee under the Sublease. IN WITNESS WHEREOF, Lessor and Lessee have entered into this Lease as of the date first above written. LESSOR: FFCA CAPITAL HOLDING CORPORATION, a Delaware corporation By____________________________________ Name: Stephen Y. Schwanz Its: Vice President LESSEE: GIANT INDUSTRIES ARIZONA, INC., an Arizona corporation Lessee's Tax Identification Number: 86-0218157 By Name: Mark B. Cox Its: Vice President Financial Officer and Treasurer Witness In accordance with the requirements of Arizona Revised Statutes Section 14-5501, et seq., the undersigned has executed this Lease solely for the purpose of witnessing the grant of the powers of attorney by Lessee to Lessor, as described in this Lease. ________________________________________ Printed Name of Witness STATE OF ARIZONA ] ] SS. COUNTY OF MARICOPA ] The foregoing instrument was acknowledged before me on December , 1998, by Stephen Y. Schwanz, Vice President, of FFCA Capital Holding Corporation, a Delaware corporation, on behalf of the corporation. Notary Public My Commission Expires: STATE OF ARIZONA ] ] SS. COUNTY OF MARICOPA ] The foregoing instrument was acknowledged before me on December , 1998, by Mark B. Cox, Vice President, Financial Officer and Treasurer of Giant Industries Arizona, Inc., an Arizona corporation, on behalf of the corporation. Notary Public My Commission Expires: EXHIBIT A LEGAL DESCRIPTION EX-10.34 15 EXHIBIT 10.34 AGREEMENT 1. EFFECTIVE DATE: September 17, 1998. 2. PARTIES: 2.1. JAMES E. ACRIDGE, an unmarried man ("Borrower"); and 2.2. GIANT INDUSTRIES, INC., a Delaware corporation ("Lender"). 3. RECITALS: 3.1. Lender is making a loan in the original principal sum of $4,000,000.00 (the "Loan") to Borrower in accordance with the terms of a Promissory Note of even date herewith (the "Note"). 3.2 Lender and Borrower desire to memorialize certain agreements made between them in connection with the Loan. 3.3 Borrower is willing to make the agreements contained herein in consideration of Lender having made the Loan to Borrower, and Lender is willing to make the Loan to Borrower only upon the additional terms and conditions set forth in this Agreement. 3.4 Lender has determined that it has, as one of the business purposes in making the Loan to Borrower, the protection of the value of its common stock, of which Borrower is one of the principal owners, from the effects of any foreclosure of stock pledges made by Borrower in the event of adverse action by lenders holding pledges of such stock ("Stock Pledges"). 3.5 Borrower desires to avoid any such adverse action, and desires to make certain agreements with Lender to protect against any such adverse action. 4. AGREEMENTS 4.1 ADOPTION OF RECITALS. The foregoing recitals are adopted as agreements of the parties and not as mere recitals of fact, and are incorporated herein. 4.2 NOTICE OF STATUS OF STOCK PLEDGES. Borrower agrees to provide to Lender, immediately upon receipt thereof, written notice of (and in the case of an item which is written, true copies of): 4.2.1. any notice of default received on any Stock Pledge or the underlying loan which Stock Pledge secures; 4.2.2. any margin call or other demand for the furnishing of any additional security for any loan secured by a Stock Pledge which Borrower is unable or unwilling to satisfy; 4.2.3. any notice of any fact which, with the passage of time, will become a default under any loan secured by a Stock Pledge; 4.2.4. any notice that any lender holding a loan secured by a Stock Pledge deems itself insecure or for any other reason demands payment of the loan or gives notice that it will not renew the loan upon its maturity even if such renewal is requested by Borrower; 4.2.5. any notice that any lender refuses to renew a loan secured by a Stock Pledge following application or other request for renewal by Borrower; 4.2.6. any demand for payment by any lender under a loan secured by a Stock Pledge, whether or not there is any claim of default (other than requests for payments due in the ordinary course of such loan which are not of a material amount); or 4.2.7. the receipt of any levy or notice of levy or issuance of a writ of replevin, execution or other writ of any nature against any stock of Lender owned by Borrower, whether or not such stock is subject to a Stock Pledge. Any such notice shall be referred to herein as a "Default Notice". 4.3 RIGHT OF FIRST REFUSAL. So long as there is an unpaid balance under the Loan, in the event Borrower decides to sell or otherwise dispose of any of the stock subject to a Stock Pledge, Borrower shall first give written notice to Lender of his intent to sell or otherwise dispose of the stock, with all details of the intended disposition, including but not limited to the identity of the transferee; the price upon sale or disposition; and the terms of such sale or disposition. Borrower agrees that he shall not complete such contemplated sale or disposition until the earlier of ten days after said notice or a written waiver by Lender of this right of first refusal. During the ten day period, Lender shall be entitled to elect to exercise this right of first refusal by giving written notice to Borrower of such election. In the event the election is to exercise the right of first refusal, then Lender shall proceed to close the transaction upon the same terms and conditions as were contained in the original notice from Borrower, or upon such other terms as Borrower and Lender may thereupon agree. If Lender does not give notice of election to exercise the right of first refusal on or before the close of business on the 10th day following receipt of written notice by Lender, such right shall lapse as to the stock involved in the notice, and Borrower may sell or dispose of such stock on the same terms and conditions as contained in such notice. 4.4 NEGATIVE PLEDGE. Borrower agrees that, so long as there is an outstanding balance under the Loan, Borrower shall not, without the prior written consent of Lender (or compliance with the right of first refusal set forth in the preceding section), sell, transfer, encumber or further encumber any of the common stock of Lender owned or controlled by Borrower, and that the sale, transfer or encumbrance of any of such stock shall be a default hereunder, and shall entitle Lender to accelerate the balance due under the Promissory Note and to exercise any or all remedies available to it. The foregoing negative pledge shall not prohibit Borrower from exercising his full borrowing authority under any of the existing loans of Borrower that are secured by a Stock Pledge. 4.5 PAYMENT OF LOANS SECURED BY STOCK PLEDGES. Borrower agrees that he shall promptly discharge when due all sums due under each loan secured by a Stock Pledge. If Lender determines that a default exists or is imminent, Lender may give notice to Borrower to cure such default or imminent default, and, if Borrower does not do so within ten days (or such shorter period as may be required in any Default Notice), Lender shall have the right, but not the obligation, to cure such default on behalf of Borrower, and any amounts expended pursuant to such cure by Lender shall be added to the indebtedness and shall thereafter bear interest at the default rate set forth in the Promissory Note until paid. Borrower hereby appoints Lender as his attorney in fact for the purpose of making any such cure, which power is coupled with an interest and is irrevocable so long as any balance remains outstanding under the Loan. 4.6 VOTING RIGHTS. Notwithstanding anything in this agreement to the contrary, during the period of this Agreement or until any stock is actually sold or otherwise transferred out of the control of Borrower, Borrower shall retain all voting rights attributable to such stock, other than as may be specified in any Stock Pledge. 4.7 RELEASE OF GIANT. Borrower acknowledges with respect to the amounts owing to Lender that Borrower has no offset, defense or counterclaim with respect thereto, no claim or defense in the abatement or reduction thereof, nor any other claim against Lender or with respect to any document forming part of the transaction in respect of which the Note was made, which shall include, but not be limited to, any action which Lender may take in enforcing its rights given under the Note or this Agreement. To the extent any such offset, defense, counterclaim, or other claim (collectively, "Claims") may exist, Borrower, on behalf of himself and his successors and assigns, 4.7.1. hereby forever and irrevocably releases and discharges Lender and its officers, successors, representatives, agents, attorneys, employees, predecessors, and assigns, and each of them, from any and all Claims, demands, obligations, suits, causes of action, and liabilities whatsoever, in law or in equity, which Borrower had, now has or may have which have arisen out of, or may arise from, any matter, cause, event, or transaction, whether known or unknown, or whether or not presently asserted, arising from or in connection with the Loan, and 4.7.2. hereby waives the provisions of any law providing that a general release does not extend to claims a party does not know of or suspect to exist at the time it gives such release, and 4.7.3. Borrower does hereby agree that this waiver and covenant on the part of Borrower is contractual, and not a mere recital, and the parties acknowledge and agree that no liability whatever is admitted by any party, except Borrower's indebtedness to Lender under the Note and its associated documents and this Agreement. 4.8 GENERAL BORROWER AGREEMENTS. Borrower agrees: 4.8.1. to provide Lender with all other documents reasonably required by Lender to give effect to this Agreement; 4.8.2. Lender has no obligation whatsoever to make any other loans or advances to or for his benefit; 4.8.3. this Agreement is not intended for and shall not be construed for the benefit of any party not a signatory hereto; 4.8.4. this Agreement shall be binding upon, and inure to the benefit of the parties hereto and their respective successors and assigns; 4.8.5. this Agreement constitutes the entire agreement (including all representations and promises made) among the parties with respect to the subject matter hereof, and no modification or waiver shall be effective unless in writing and signed by the party to be charged; 4.8.6. the indebtedness represented by the Note and this Agreement is for commercial or business purposes; 4.8.7. time is of the essence hereof; and 4.8.8. Borrower acknowledges that he has thoroughly read and reviewed the terms and provisions of this Agreement and is familiar with the same, that the terms and provisions contained herein are clearly understood by him and have been fully and unconditionally consented to by him, and that Borrower's execution of this Agreement is done freely, voluntarily, with full knowledge and without duress, and that in executing this Agreement, Borrower is relying on no other representations either written or oral, express or implied, made to Borrower by any other party hereto, and that the consideration received by Borrower hereunder has been actual and adequate. 4.9. NO RELEASE OF STOCK RESTRICTIONS. Nothing contained herein shall annul, release, vary, modify or affect any currently-existing restrictions on any stock of Lender owned by Borrower, all of which shall continue in full force and effect. Lender specifically reserves and shall have all rights and remedies available to it under such stock restrictions for the purpose of compliance with law, regulation or contract. 4.10. TIME OF THE ESSENCE. Time is of the essence of all provisions of the Note and this Agreement. 4.11. NOTICES. Any notices required to be sent to any party shall be sent to the parties as follows: To Borrower: James E. Acridge 23733 North Scottsdale Road Scottsdale, Arizona 85255 Facsimile number (602) 585-8985 To Lender: Office of the General Counsel Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255 Facsimile number (602) 585-8985 Notices shall be effective upon hand delivery or delivery by facsimile transmission, followed by hand delivery. Either party shall have the right to change the address for notices by delivery of a written notice to such effect to the other party. Dated as of the date first above written. BORROWER: /s/ James E. Acridge ------------------------------- James E. Acridge LENDER: GIANT INDUSTRIES, INC., a Delaware corporation By: /s/ Mark B. Cox ---------------------------- Name: Mark B. Cox Title: Treasurer EX-10.35 16 EXHIBIT 10.35 PROMISSORY NOTE James E. Acridge Principal Amount: $4,000,000.00 Initial Rate: Prime plus 2.0% Date of Note: September 17, 1998 For value received, JAMES E. ACRIDGE ("Borrower") promises to pay to GIANT INDUSTRIES, INC., a Delaware corporation ("Giant"), or order, in lawful money of the United States of America, the principal amount of four million dollars ($4,000,000.00), together with interest on the unpaid principal balance from September 17, 1998, until paid in full. The annual interest rate on this Note is the Prime rate as published in the Western Edition of the Wall Street Journal on September 17, 1998 plus two percent (2.0%). Borrower will pay this loan in one principal and interest payment of $4,188,712.33 on February 28, 1999. Borrower will pay Giant at Giant's corporate offices, 23733 North Scottsdale Road, Scottsdale, Arizona, 85255, or at such other place as Giant may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges. The annual interest rate for this Note is computed on the basis of a 365-day year; that is, by applying the ratio of the annual interest rate over a year of 365 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due; (b) Borrower fails to comply with or to perform when due any other term, obligation, covenant, or condition contained in this Note; (c) a receiver is appointed for any part of Borrower's property, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws; or (d) Borrower defaults under that certain Agreement, or even date herewith, between Borrower and Giant. Upon default, Giant may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount. Upon default, including failure to pay upon final maturity, Giant, at its option, may also, if permitted under applicable law, increase the interest rate on this Note by an additional three percent (3.0%). The interest rate will not exceed the maximum rate permitted by applicable law. Giant may hire or pay someone else to help collect this Note if Borrower does not pay, and Borrower also will pay Giant that amount, if reasonable. This includes, subject to any limits under applicable law, Giant's reasonable attorneys' fees and Giant's reasonable legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law. This Note has been delivered to Giant and accepted by Giant in the State of Arizona. If there is a lawsuit, Borrower agrees upon Giant's request to submit to the jurisdiction of the courts of Maricopa County, the State of Arizona. This Note shall be governed by and construed in accordance with the laws of the State of Arizona. Giant may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower, to the extent allowed by law, waives presentment, demand for payment, protest and notice of dishonor. The parties agree that Giant may modify this loan without the consent of or notice to anyone other than Borrower. Borrower agrees to an effective rate of interest that is the rate specified in this Note plus any additional rate resulting from any other charges in the nature of interest paid or to be paid in connection with this Note. This Note has been issued pursuant to an Agreement, of even date herewith, between Borrower and Giant, the provisions of which are incorporated herein by reference. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTANDS ALL THE PROVISIONS OF THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE. BORROWER: /s/ JAMES E. ACRIDGE ---------------------- James E. Acridge EX-10.36 17 EXHIBIT 10.36 MODIFICATION AGREEMENT 1. EFFECTIVE DATE: December 23, 1998 2. PARTIES: 2.1. GIANT INDUSTRIES, INC., an Delaware corporation ("Giant"); and 2.2. JAMES E. ACRIDGE ("Borrower"). 3. RECITALS: 3.1. Borrower and Giant entered into an Agreement dated September 17, 1998, providing for the loan by Giant to Borrower of Four Million Dollars ($4,000,000.00) upon the terms set forth therein (the "Loan Agreement"). Pursuant to the Loan Agreement, Borrower executed his Promissory Note of the same date in favor of Giant calling for the repayment of such sum (the "Original Note"). 3.2. Borrower has requested that Giant advance additional funds pursuant to the terms set forth herein. 3.3. Giant is willing to advance the additional funds described herein, and in accordance with the terms hereof. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties do hereby agree as follows: 4. AGREEMENTS: 4.1. Giant hereby agrees to advance to Borrower an additional sum of One Million Dollars ($1,000,000.00), to be repaid by Borrower in accordance with the terms of the Amended and Restated Promissory Note, in the form attached hereto as Exhibit "A" and incorporated herein by this reference. 4.2. Borrower agrees to make an early interest payment on the principal balance outstanding on December 31, 1998 under the Amended and Restated Promissory Note at the Prime rate published in the Western Edition of the Wall Street Journal on September 17, 1998, plus two percent (2.0%) from September 17, 1998, through December 22, 1998, and at the Prime rate published in the Western Edition of the Wall Street Journal on September 17, 1998, plus three percent (3%) from December 23, 1998, through December 31, 1998. Thereafter, interest shall be payable in accordance with the terms of the Amended and Restated Note. 4.3. Borrower agrees to present to Giant, on or before March 31, 1999, a plan of repayment for the Amended and Restated Note in reasonable detail for the information of Giant's Board of Directors. 4.4. The provisions of the Loan Agreement shall continue in full force and effect in every respect, except that the Amended and Restated Note shall govern the repayment of the Loan as increased and extended by this Modification Agreement and the Amended and Restated Promissory Note. 4.5. Giant and Borrower acknowledge and agree that (a) the unpaid principal balance of the Loan as of the effective date hereof is as set forth in the Amended and Restated Promissory Note; (b) the Loan Agreement is a valid, binding agreement enforceable in accordance with its terms as amended hereby; (c) except as expressly provided herein, this Agreement shall not modify the Loan Agreement; (d) nothing herein contained, and nothing done pursuant hereto (i) is intended to affect, shall affect, or shall be construed as affecting, the obligations set forth in the Loan Agreement, or (ii) is intended to release or affect, shall release or affect, or shall be construed as releasing or affecting, the liability of any party or parties who may now or hereafter be liable under or on account of the Loan Agreement; and (e) the restrictions and terms of the Loan Agreement continue in full force and effect except as expressly modified hereby. 4.6. Borrower acknowledges that he has thoroughly read and reviewed the terms and provisions of this Agreement and is familiar with the same, that the terms and provisions contained herein are clearly understood by him and have been fully and unconditionally consented to by him, and that Borrower's execution of this Agreement is done freely, voluntarily, with full knowledge and without duress, and that in executing this Agreement, Borrower is relying on no other representations either written or oral, express or implied, made to Borrower by any other party hereto, and that the consideration received by Borrower hereunder has been actual and adequate. 4.7. Except as herein provided, all of the terms and conditions of the Loan Agreement shall remain in full force and effect, and the parties hereby ratify and confirm the security and enforceability of the Loan Agreement, as expressly modified by this Modification Agreement. 4.8. This Modification Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns and the subsequent holders or owners of the Loan Agreement. This Agreement shall be governed by and construed in accordance with the laws of the State of Arizona. 4.9. This Agreement may be executed by the signing in counterparts of this instrument. The execution of this instrument by each of the parties signing a counterpart hereof shall constitute a valid execution, and this instrument and all of its counterparts so executed shall be deemed for all purposes to be a single instrument. The signature of a counterpart with the delivery thereof by facsimile transmission, with the original to be placed in the U.S. Postal Service, given to a recognized express delivery service or hand delivered is acceptable for establishing the execution and effectiveness hereof, and the parties are authorized to proceed upon receipt of such signed counterparts by facsimile or delivery, even though the originals may not arrive until later. IN WITNESS WHEREOF, this Modification Agreement has been executed to be effective (though not necessarily executed) as of the date first above written. GIANT: GIANT INDUSTRIES, INC., a Delaware corporation By: /s/ Mark B. Cox ---------------------------- Name: Mark B. Cox Title: Treasurer BORROWER: /s/ James E. Acridge ------------------------------- James E. Acridge EX-10.37 18 EXHIBIT 10.37 AMENDED AND RESTATED PROMISSORY NOTE AMENDED AND RESTATED PROMISSORY NOTE James E. Acridge Initial Principal Amount: $4,000,000.00 Initial Rate: Prime plus 2.0% Date of Note: September 17, 1998 Additional Principal Amount: $1,000,000.00 Amended Rate: Prime plus 3.0% from and after December 23, 1998 Effective Date of Amendment: December 23, 1998 For value received, JAMES E. ACRIDGE ("Borrower") promises to pay to GIANT INDUSTRIES, INC., a Delaware corporation ("Giant"), or order, in lawful money of the United States of America, (a) the initial principal amount of four million dollars ($4,000,000.00), together with interest on the unpaid initial principal amount from September 17, 1998, until paid in full and (b) the additional principal amount of one million dollars ($1,000,000.00), together with interest on the unpaid additional principal amount from December 23, 1998, until paid in full. The annual interest rate on this Note is the Prime rate as published in the Western Edition of the Wall Street Journal on September 17, 1998, plus two percent (2.0%) from September 17, 1998, through December 22, 1998, and the Prime rate as published in the Western Edition of the Wall Street Journal on September 17, 1998, plus three percent (3%) from December 23, 1998, through February 28, 2001. Borrower will pay an initial interest payment on or before February 28, 1999 on all principal advanced through and including December 31, 1998. Thereafter, Borrower will pay interest only semi-annually on each June 30 and December 31 of each year until February 28, 2001 (the "Maturity Date"), at which time all outstanding principal and interest shall be fully due and payable. Borrower will pay Giant at Giant's corporate offices, 23733 North Scottsdale Road, Scottsdale, Arizona, 85255, or at such other place as Giant may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges. The annual interest rate for this Note is computed on the basis of a 365-day year; that is, by applying the ratio of the annual interest rate over a year of 365 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due; (b) Borrower fails to comply with or to perform when due any other term, obligation, covenant, or condition contained in this Note; (c) a receiver is appointed for any part of Borrower's property, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws; (d) Borrower defaults under that certain Agreement, dated September 17, 1998, between Borrower and Giant; or (e) Borrower defaults under that certain Agreement, of even date herewith, between Borrower and Giant. Upon default, Giant may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount. Upon default, including failure to pay upon final maturity, Giant, at its option, may also, if permitted under applicable law, increase the interest rate on this Note by an additional three percent (3.0%). The interest rate will not exceed the maximum rate permitted by applicable law. Giant may hire or pay someone else to help collect this Note if Borrower does not pay, and Borrower also will pay Giant that amount, if reasonable. This includes, subject to any limits under applicable law, Giant's reasonable attorneys' fees and Giant's reasonable legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by Law. This Note has been delivered to Giant and accepted by Giant in the State of Arizona. If there is a lawsuit, Borrower agrees upon Giant's request to submit to the jurisdiction of the courts of Maricopa County, the State of Arizona. This Note shall be governed by and construed in accordance with the laws of the State of Arizona. Giant may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower, to the extent allowed by law, waives presentment, demand for payment, protest and notice of dishonor. The parties agree that Giant may modify this loan without the consent of or notice to anyone other than Borrower. Borrower agrees to an effective rate of interest that is the rate specified in this Note plus any additional rate resulting from any other charges in the nature of interest paid or to be paid in connection with this Note. This Amended and Restated Note has been issued pursuant to a Loan Agreement dated September 17, 1998, followed by a Modification Agreement, of even date herewith, between Borrower and Giant, the provisions of which are incorporated herein by reference. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTANDS ALL THE PROVISIONS OF THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE. BORROWER: /s/ James E. Acridge -------------------------- James E. Acridge EX-21.1 19 EXHIBIT 21.1 SUBSIDIARIES OF GIANT INDUSTRIES, INC. (a Delaware corporation) Jurisdiction of Names Under Which Subsidiary Incorporation Company Does Business ---------- --------------- --------------------- Giant Industries Arizona, Inc. Arizona Giant Refining Company Ciniza Pipe Line Company Giant Transportation Giant Service Stations Giant Travel Center TransWest Tank Lines - Giant Four Corners, Inc.* Arizona - Giant Mid-Continent, Inc.* Arizona - Phoenix Fuel Co., Inc.* Arizona - DeGuelle Oil Company* Colorado - Ciniza Production Company* New Mexico - Giant Stop-N-Go of New Mexico, Inc.* New Mexico - San Juan Refining Company* New Mexico 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-23.1 20 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 4, 1999 and March 30, 1999, appearing in the Annual Report on Form 10-K of Giant Industries, Inc. for the year ended December 31, 1998 and in the Annual Report on Form 11-K of Giant Industries, Inc. for the year ended December 31, 1998, respectively. DELOITTE & TOUCHE LLP Phoenix, Arizona March 30, 1999 EX-27.1 21 ART. 5 FDS FOR YEAR ENDED DECEMBER 31, 1998
5 1000 YEAR DEC-31-1998 DEC-31-1998 55,697 0 39,510 460 51,349 171,726 439,940 138,008 525,785 80,622 282,484 0 0 122 127,580 525,785 642,504 642,504 465,605 597,309 0 0 25,464 (3,726) (1,509) (2,217) 0 0 0 (2,217) (0.20) (0.20)
EX-99.1 22 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, 1998 EMPLOYEE STOCK OWNERSHIP PLAN OF GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES 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 for Benefits - December 31, 1998 and 1997.......... F-2 Statements of Changes in Net Assets Available for Benefits - Years Ended December 31, 1998 and 1997......................... F-3 Notes to Financial Statements...................... F-4 to F-6 Supplemental Schedules: Schedule of Assets Held for Investment Purposes.... F-7 Schedule of Reportable Transactions................ F-8 (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 30, 1999 Signature: /s/ Kim H. Bullerdick ------------------------------- Kim H. Bullerdick Secretary, Vice President and Director, Legal Department Date: March 30, 1999 Signature: /s/ Gary R. Dalke ------------------------------- Gary R. Dalke, Vice President, Controller, Accounting Officer and Assistant Secretary Date: March 30, 1999 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, 1998 and 1997, 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, such financial statements 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, 1998 and 1997, 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, 1998 on pages F-7 and F-8 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 1998 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 30, 1999 F-1 EMPLOYEE STOCK OWNERSHIP PLAN OF GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 1998 AND 1997
1998 1997 ----------- ----------- ASSETS INVESTMENTS AT FAIR VALUE (Note 3): Cash and cash equivalents.................... $ 35,989 Mutual funds................................. $ 3,339,084 2,876,097 Limited partnership.......................... 6,600 6,096 Common stock of Giant Industries, Inc........ 10,778,803 23,220,850 Loans to participants........................ 33,955 28,941 ----------- ----------- Total investments at fair value........... 14,158,442 26,167,973 CONTRIBUTION RECEIVABLE........................ 536,478 INTEREST AND DIVIDENDS RECEIVABLE.............. 61,550 OTHER RECEIVABLES.............................. 1,406 470 ----------- ----------- Total assets......................... 14,159,848 26,766,471 LIABILITIES ACCRUED LIABILITIES............................ 9,247 9,247 ----------- ----------- NET ASSETS AVAILABLE FOR BENEFITS.............. $14,150,601 $26,757,224 =========== ===========
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, 1998 AND 1997
1998 1997 ----------- ----------- ADDITIONS: Net appreciation in fair value of investments (Note 3).......................... $ 6,536,632 Interest and dividend income....................... $ 186,571 342,652 Employer contribution.............................. 536,478 ----------- ----------- Total additions.................................. 186,571 7,415,762 DEDUCTIONS Distributions to participants.................... 2,122,077 1,686,067 Net depreciation in fair value of investments (Note 3)........................... 10,671,117 ----------- ----------- Total deductions................................. 12,793,194 1,686,067 ----------- ----------- NET (DECREASE) INCREASE............................ (12,606,623) 5,729,695 NET ASSETS AVAILABLE FOR BENEFITS, BEGINNING OF YEAR.................................. 26,757,224 21,027,529 ----------- ----------- NET ASSETS AVAILABLE FOR BENEFITS, END OF YEAR..... $14,150,601 $26,757,224 =========== ===========
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, 1998 AND 1997 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. Subsequent to December 31, 1998, the Plan changed its trustee and custodian to Wells Fargo Bank, N.A. AMENDMENTS - The Plan was amended nine times prior to 1997. 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 F-4 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, 1998 and 1997, with the Bank of America Balanced Fund and common stock of the Company representing investments greater than 5 percent of the Plan's net assets at December 31, 1998 and 1997.
DECEMBER 31, 1998 ----------------------- NUMBER OF SHARES OR PRINCIPAL FAIR AMOUNT VALUE ----------- Mutual Funds: ML Lee Acquisition 25 $ 5,733 Bank of America Balanced Fund 115,668 3,333,351 ----------- Total mutual funds 3,339,084 ----------- Limited partnership - Recorp. Mtg. Investors II 1.5 6,600 ----------- Giant Industries, Inc. common stock 1,149,739 10,778,803 ----------- Loans to participants 33,955 ----------- Total $14,158,442 ===========
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 ===========
Net (depreciation) 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:
1998 1997 Recorp. Mtg. Investors II $ 504 $ (504) Mutual funds 449,992 418,954 Giant Industries, Inc. common stock (11,121,613) 6,118,182 ------------ ---------- Net (depreciation) appreciation $(10,671,117) $6,536,632 ============ ==========
4. FEDERAL INCOME TAX STATUS The plan obtained its latest determination letter on April 2, 1997, 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. 6. SUBSEQUENT EVENT In the first quarter of 1999, the Company made contributions totaling $3,000,000 to the Plan for the fiscal year ending December 31, 1999. These contributions were made to, among other things, provide an incentive for employees to focus on achieving the Company's strategic goals for 1999. Allocation of this amount to participants' accounts will be made as of December 31, 1999. * * * * * * F-6 EMPLOYEE STOCK OWNERSHIP PLAN OF GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES SUPPLEMENTAL SCHEDULE DECEMBER 31, 1998 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 ---------------------------- -------------------------------------------- ---------- ----------- ML Lee Acquisition Mutual Fund - 25 shares $ 25,000 $ 5,733 Bank of America Balanced Fund - 115,668 shares 2,634,263 3,333,351 Recorp. Mtg. Investors II Limited Partnership - 1.5 units 60,000 6,600 Giant Industries, Inc. Common stock - 1,149,739 shares 6,793,080 10,778,803 Loans to participants Loans at prime plus 3%, collateralized by vested accounts, due 1999 through 2004 33,955 33,955 ---------- ----------- Total assets held for investment purposes $9,546,298 $14,158,442 ========== ===========
F-7 EMPLOYEE STOCK OWNERSHIP PLAN OF GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES SUPPLEMENTAL SCHEDULE DECEMBER 31, 1998 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 Short-Term Investment Fund $3,075,458 $3,075,458 $3,075,458 Bank of America Short-Term Investment Fund $3,111,447 3,111,447 3,111,447 Bank of America Giant Industries, Inc. Common Stock 560,410 560,410 560,410 Bank of America Giant Industries, Inc. Common Stock 970,845 303,067 970,845 $667,778 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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