-----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, I1Wr4wsxAgRfqEZKYSDEodNJhfj7vpuhMPKin0/DUgFwOYXI6+GMBu6pt6Z8unnK iajtITPPH8b0wHfQuzw3Mw== 0000856465-04-000006.txt : 20040517 0000856465-04-000006.hdr.sgml : 20040517 20040514200253 ACCESSION NUMBER: 0000856465-04-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040517 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10398 FILM NUMBER: 04809598 BUSINESS ADDRESS: STREET 1: 23733 N SCOTTSDALE RD CITY: SCOTTSDALE STATE: AZ ZIP: 85255 BUSINESS PHONE: 4805858888 MAIL ADDRESS: STREET 1: 23733 N SCOTTSDALE RD CITY: SCOTTSDALE STATE: AZ ZIP: 85255 10-Q 1 firstqtr.txt GIANT INDUSTRIES, INC. 2004 FIRST QUARTER 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from _______ to _______. Commission File Number: 1-10398 GIANT INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Delaware 86-0642718 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 23733 North Scottsdale Road, Scottsdale, Arizona 85255 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (480) 585-8888 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Number of Common Shares outstanding at May 11, 2004: 12,154,401 shares. GIANT INDUSTRIES, INC. AND SUBSIDIARIES INDEX PART I - FINANCIAL INFORMATION....................................... 1 Item 1 - Financial Statements........................................ 1 Consolidated Balance Sheets March 31, 2004 and December 31, 2003 (Unaudited)........................... 1 Consolidated Statements of Earnings for the Three Months Ended March 31, 2004 and 2003 (Unaudited)...... 2 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003 (Unaudited)............ 3 Notes to Consolidated Financial Statements (Unaudited)...... 4-36 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations............... 37-52 Item 3 - Quantitative and Qualitative Disclosures About Market Risk........................................... 53 Item 4 - Controls and Procedures..................................... 53 PART II - OTHER INFORMATION........................................... 54 Item 1 - Legal Proceedings........................................... 54 Item 2 - Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities....................... 54 Item 4 - Submission of Matters to a Vote of Security Holders......... 54 Item 6 - Exhibits and Reports on Form 8-K............................ 55 SIGNATURE............................................................. 58 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. GIANT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except shares and per share data)
March 31, 2004 December 31, 2003 -------------- ----------------- ASSETS Current assets: Cash and cash equivalents............................. $ 70,281 $ 27,263 Receivables, net...................................... 90,823 82,788 Inventories........................................... 107,925 133,726 Prepaid expenses and other............................ 6,658 8,030 --------- --------- Total current assets................................ 275,687 251,807 --------- --------- Property, plant and equipment........................... 632,596 631,355 Less accumulated depreciation and amortization.......... (243,718) (236,441) --------- --------- 388,878 394,914 --------- --------- Goodwill................................................ 28,255 24,578 Assets held for sale.................................... 1,318 3,351 Other assets............................................ 26,241 25,004 --------- --------- $ 720,379 $ 699,654 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt..................... $ 12,454 $ 11,128 Accounts payable...................................... 98,649 86,651 Accrued expenses...................................... 59,002 56,629 --------- --------- Total current liabilities........................... 170,105 154,408 --------- --------- Long-term debt, net of current portion.................. 352,364 355,601 Deferred income taxes................................... 29,692 28,039 Other liabilities and deferred income................... 23,266 22,170 Commitments and contingencies (Note 12) 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, 12,621,081 and 12,537,535 shares issued............................ 126 126 Additional paid-in capital............................ 75,659 74,660 Retained earnings..................................... 105,621 101,104 --------- --------- 181,406 175,890 Less common stock in treasury - at cost, 3,751,980 shares.................................... (36,454) (36,454) --------- --------- Total stockholders' equity.......................... 144,952 139,436 --------- --------- $ 720,379 $ 699,654 ========= ========= See accompanying notes to consolidated financial statements. 1
GIANT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (In thousands, except per share data)
Three Months Ended March 31, --------------------- 2004 2003 --------- --------- Net revenues.................................................. $ 541,596 $ 480,985 Cost of products sold (excluding depreciation and amortization)........................................... 461,374 410,097 --------- --------- Gross margin.................................................. 80,222 70,888 Operating expenses............................................ 44,448 38,949 Depreciation and amortization................................. 9,145 9,114 Selling, general and administrative expenses.................. 8,200 7,024 Net loss on disposal/write-down of assets..................... 14 410 --------- --------- Operating income.............................................. 18,415 15,391 Interest expense.............................................. (9,361) (10,159) Amortization of financing costs............................... (958) (1,192) Interest and investment income................................ 39 24 --------- --------- Earnings from continuing operations before income taxes....... 8,135 4,064 Provision for income taxes.................................... 3,618 1,681 --------- --------- Earnings from continuing operations before cumulative effect of change in accounting principle.................... 4,517 2,383 Discontinued operations, net of income tax benefit of $35...................................................... - (53) Cumulative effect of change in accounting principle, net of income tax benefit of $468 (Note 4).................. - (704) --------- --------- Net earnings.................................................. $ 4,517 $ 1,626 ========= ========= Net earnings (loss) per common share: Basic Continuing operations..................................... $ 0.51 $ 0.28 Discontinued operations................................... - (0.01) Cumulative effect of change in accounting principle....... - (0.08) --------- --------- $ 0.51 $ 0.19 ========= ========= Assuming dilution Continuing operations..................................... $ 0.50 $ 0.28 Discontinued operations................................... - (0.01) Cumulative effect of change in accounting principle....... - (0.08) --------- --------- $ 0.50 $ 0.19 ========= ========= See accompanying notes to consolidated financial statements. 2
GIANT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Three Months Ended March 31, ----------------------- 2004 2003 --------- --------- Cash flows from operating activities: Net earnings..................................................... $ 4,517 $ 1,626 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization, including discontinued operations.................................... 9,145 9,373 Amortization of financing costs.............................. 958 1,192 Deferred income taxes........................................ 2,477 1,410 Deferred crude oil purchase discounts........................ 750 - Cumulative effect of change in accounting principle, net..... - 704 Net loss on the disposal/write-down of assets included in continuing operations.......................... 14 410 Net gain on disposal of discontinued operations.............. - (137) Other........................................................ 114 124 Changes in operating assets and liabilities: Increase in receivables.................................... (7,962) (3,363) Decrease in inventories.................................... 25,801 8,104 Decrease in prepaid expenses and other..................... 1,251 544 Increase in accounts payable............................... 11,999 6,681 Increase in accrued expenses............................... 2,747 6,618 --------- --------- Net cash provided by operating activities.......................... 51,811 33,286 --------- --------- Cash flows from investing activities: Capital expenditures............................................. (3,213) (5,272) Yorktown refinery acquisition contingent payments................ (4,049) (3,986) Proceeds from sale of property, plant and equipment and other assets............................................... 560 2,608 --------- --------- Net cash used by investing activities.............................. (6,702) (6,650) --------- --------- Cash flows from financing activities: Payments of long-term debt....................................... (2,007) (3,381) Proceeds from line of credit..................................... - 23,000 Payments on line of credit....................................... - (33,000) Deferred financing costs......................................... (182) (14) Proceeds from exercise of stock options.......................... 98 - --------- --------- Net cash used by financing activities.............................. (2,091) (13,395) --------- --------- Net increase in cash and cash equivalents.......................... 43,018 13,241 Cash and cash equivalents: Beginning of period............................................ 27,263 10,168 --------- --------- End of period.................................................. $ 70,281 $ 23,409 ========= ========= Significant Noncash Investing and Financing Activities. On February 25, 2004, we contributed 49,046 newly issued shares of our common stock, valued at $900,000, to our 401(k) plan as a discretionary contribution for the year 2003. On January 1, 2003, in accordance with Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations," we recorded an asset retirement obligation of $2,198,000, asset retirement assets of $1,580,000 and related accumulated depreciation of $674,000. We also reversed a previously recorded asset retirement obligation for $120,000, and recorded a cumulative effect adjustment of $1,172,000 ($704,000 net of taxes). See Note 4. See accompanying notes to consolidated financial statements. 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION: ORGANIZATION Giant Industries, Inc., through our subsidiary Giant Industries Arizona, Inc. and its subsidiaries, refines and sells petroleum products. We do this: - On the East Coast - primarily in Virginia, Maryland, and North Carolina, and - In the Southwest - primarily in New Mexico, Arizona, and Colorado, with a concentration in the Four Corners area where these states meet. In addition, our Phoenix Fuel Co., Inc. subsidiary distributes commercial wholesale petroleum products primarily in Arizona. We have three business units: - Our refining group, - Our retail group, and - Phoenix Fuel See Note 3 for a further discussion of business segments. Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, hereafter referred to as generally accepted accounting principles, for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments and reclassifications considered necessary for a fair and comparable presentation have been included. These adjustments and reclassifications are of a normal recurring nature, with the exception of the cumulative effect of a change in accounting for asset retirement obligations (see Note 4) and discontinued operations (see Note 6). Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. The accompanying financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2003. In December 2003, the Accounting Standards Executive Committee ("AcSEC") of the American Institute of Certified Public Accountants ("AICPA") submitted an exposure draft of a proposed Statement of Position ("SOP"), "Accounting for Certain Costs Related to Property, Plant, and 4 Equipment" to the Financial Accounting Standards Board ("FASB") for clearance. At March 31, 2004, and December 31, 2003, we had $9,492,000 and $10,418,000, respectively, of deferred turnaround costs included in property, plant and equipment on our balance sheet and classified as machinery and equipment. In the current draft of the SOP, costs of planned major maintenance activities are not considered a separate property, plant and equipment asset or component. Those costs should be charged to expense as incurred, except for acquisitions or replacements of components that are capitalizable under the in-service stage guidance of this SOP. We currently understand that the final SOP will be deferred indefinitely, although the FASB and the Securities and Exchange Commission continue to discuss the issues involved. We are evaluating the effect the SOP will have on our financial position and results of operations, which may include the expensing of certain deferred costs and expensing significant portions of future turnaround costs as incurred. We have made certain reclassifications to our 2003 financial statements and notes to conform to the financial statement classifications used in the current year. These reclassifications relate primarily to discontinued operations reporting. These reclassifications had no effect on reported earnings or stockholders' equity. 5 NOTE 2 - STOCK-BASED EMPLOYEE COMPENSATION: We have a stock-based employee compensation plan that is more fully described in Note 18 to our Annual Report on Form 10-K for the year ended December 31, 2003. We account for this plan under the recognition and measurement principles of Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees", and related Interpretations. We use the intrinsic value method to account for stock- based employee compensation. The following table illustrates the effect on net earnings and net earnings per share as if we had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", to stock-based employee compensation.
Three Months Ended March 31, ------------------ 2004 2003 ------- ------- (In thousands, except per share data) Net earnings, as reported....................... $ 4,517 $ 1,626 Add: Stock-based employee compensation expense included in reported net income, net of related tax effect..................... - - Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effect............. (59) (39) ------- ------- Pro forma net earnings.......................... $ 4,458 $ 1,587 ======= ======= Net earnings per share: Basic - as reported........................... $ 0.51 $ 0.19 ======= ======= Basic - pro forma............................. $ 0.51 $ 0.18 ======= ======= Diluted - as reported......................... $ 0.50 $ 0.19 ======= ======= Diluted - pro forma........................... $ 0.49 $ 0.18 ======= =======
6 NOTE 3 - BUSINESS SEGMENTS: We are 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 its principal products follows: REFINING GROUP Our refining group operates our Ciniza and Bloomfield refineries in the Four Corners area of New Mexico and the Yorktown refinery in Virginia. It also operates a crude oil gathering pipeline system in New Mexico, two finished products distribution terminals, and a fleet of crude oil and finished product trucks. Our three refineries make various grades of gasoline, diesel fuel, and other products from crude oil, other feedstocks, and blending components. We also acquire finished products through exchange agreements and from various suppliers. We sell these products through our service stations, independent wholesalers and retailers, commercial accounts, and sales and exchanges with major oil companies. We purchase crude oil, other feedstocks and blending components from various suppliers. RETAIL GROUP Our retail group operates service stations, which include convenience stores or kiosks. Our service stations sell various grades of gasoline, diesel fuel, general merchandise, including tobacco and alcoholic and nonalcoholic beverages, and food products to the general public. Our refining group or Phoenix Fuel supplies the gasoline and diesel fuel our retail group sells. We purchase general merchandise and food products from various suppliers. At March 31, 2004, we operated 127 service stations with convenience stores or kiosks. PHOENIX FUEL Phoenix Fuel distributes commercial wholesale petroleum products. It includes several lubricant and bulk petroleum distribution plants, an unmanned fleet fueling operation, a bulk lubricant terminal facility, and a fleet of finished product and lubricant delivery trucks. Phoenix Fuel purchases petroleum fuels and lubricants from suppliers and to a lesser extent from our refining group. Our operations that are not included in any of the three segments are included in the category "Other." These operations consist primarily of corporate staff operations. Operating income for each segment consists of net revenues less cost of products sold, operating expenses, depreciation and amortization, and the segment's SG&A expenses. Cost of products sold reflects current costs adjusted, where appropriate, for LIFO and lower of cost or market inventory adjustments. 7 The total assets of each segment consist primarily of net property, plant and equipment, inventories, accounts receivable and other assets directly associated with the segment's operations. Included in the total assets of the corporate staff operations are a majority of our cash and cash equivalents, and various accounts receivable, net property, plant and equipment, and other long-term assets. 8 Disclosures regarding our reportable segments with a reconciliation to consolidated totals for the three months ended March 31, 2004 and 2003, are presented below.
For the Three Months March 31, 2004 ---------------------------------------------------------------- Refining Retail Phoenix Reconciling Group Group Fuel Other Items Consolidated ---------------------------------------------------------------- (In thousands) Customer net revenues: Finished products: Four Corners operations.............. $ 86,029 Yorktown operations.................. 227,647 -------- Total................................ $313,676 $ 47,829 $122,862 $ - $ - $ 484,367 Merchandise and lubricants............. - 30,844 7,336 - - 38,180 Other.................................. 14,526 3,846 397 280 - 19,049 -------- -------- -------- -------- --------- ---------- Total................................ 328,202 82,519 130,595 280 - 541,596 -------- -------- -------- -------- --------- ---------- Intersegment net revenues: Finished products...................... 55,958 - 12,295 - (68,253) - Other.................................. 4,036 - - - (4,036) - -------- -------- -------- -------- --------- ---------- Total................................ 59,994 - 12,295 - (72,289) - -------- -------- -------- -------- --------- ---------- Total net revenues....................... 388,196 82,519 142,890 280 (72,289) 541,596 Net revenues of discontinued operations.. - - - - - - -------- -------- -------- -------- --------- ---------- Net revenues of continuing operations.... $388,196 $ 82,519 $142,890 $ 280 $ (72,289) $ 541,596 ======== ======== ======== ======== ========= ========== Operating income (loss): Four Corners operations................ $ 6,161 Yorktown operations.................... 14,435 -------- Total operating income (loss)............ $ 20,596 $ 988 $ 2,113 $ (5,268) $ (14) $ 18,415 Discontinued operations.................. - - - - - - -------- -------- -------- -------- --------- ---------- Operating income (loss) from continuing operations............. $ 20,596 $ 988 $ 2,113 $ (5,268) $ (14) $ 18,415 -------- -------- -------- -------- --------- Interest expense......................... (9,361) Amortization of financing costs (958) Interest income.......................... 39 ---------- Earnings from continuing operations before income taxes.................... $ 8,135 ========== Depreciation and amortization: Four Corners operations................ $ 3,979 Yorktown operations.................... 2,126 -------- Total................................ $ 6,105 $ 2,403 $ 415 $ 222 $ - $ 9,145 Discontinued operations.............. - - - - - - -------- -------- -------- -------- --------- ---------- Continuing operations................ $ 6,105 $ 2,403 $ 415 $ 222 $ - $ 9,145 -------- -------- -------- -------- --------- ---------- Total assets............................. $441,787 $112,956 $ 72,404 $ 93,232 $ - $ 720,379 Capital expenditures..................... $ 2,616 $ 258 $ 328 $ 11 $ - $ 3,213 Yorktown refinery acquisition contingent payment..................... $ 4,049 $ - $ - $ - $ - $ 4,049
9
For the Three Months March 31, 2003 ---------------------------------------------------------------- Refining Retail Phoenix Reconciling Group Group Fuel Other Items Consolidated ---------------------------------------------------------------- Customer net revenues: Finished products: Four Corners operations.............. $ 78,551 Yorktown operations.................. 208,067 -------- Total................................ $286,618 $ 51,743 $102,635 $ - $ - $ 440,996 Merchandise and lubricants............. - 30,934 6,010 - - 36,944 Other.................................. 9,962 4,034 611 65 - 14,672 -------- -------- -------- -------- --------- ---------- Total................................ 296,580 86,711 109,256 65 - 492,612 -------- -------- -------- -------- --------- ---------- Intersegment net revenues: Finished products...................... 46,013 - 12,634 - (58,647) - Other.................................. 4,020 - - - (4,020) - -------- -------- -------- -------- --------- ---------- Total................................ 50,033 - 12,634 - (62,667) - -------- -------- -------- -------- --------- ---------- Total net revenues....................... 346,613 86,711 121,890 65 (62,667) 492,612 Net revenues of discontinued operations.. - 11,627 - - - 11,627 -------- -------- -------- -------- --------- ---------- Net revenues of continuing operations.... $346,613 $ 75,084 $121,890 $ 65 $ (62,667) $ 480,985 ======== ======== ======== ======== ========= ========== Operating income (loss): Four Corners operations................ $ 9,503 Yorktown operations.................... 8,358 -------- Total operating income (loss)............ $ 17,861 $ 1,033 $ 1,606 $ (4,924) $ (273) $ 15,303 Discontinued operations.................. - (225) - - 137 (88) -------- -------- -------- -------- --------- ---------- Operating income (loss) from continuing operations............. $ 17,861 $ 1,258 $ 1,606 $ (4,924) $ (410) $ 15,391 -------- -------- -------- -------- --------- Interest expense......................... (10,159) Amortization of financing costs (1,192) Interest income.......................... 24 ---------- Earnings from continuing operations before income taxes.................... $ 4,064 ========== Depreciation and amortization: Four Corners operations................ $ 3,981 Yorktown operations.................... 1,734 -------- Total................................ $ 5,715 $ 2,829 $ 454 $ 375 $ - $ 9,373 Discontinued operations.............. - 259 - - - 259 -------- -------- -------- -------- --------- ---------- Continuing operations................ $ 5,715 $ 2,570 $ 454 $ 375 $ - $ 9,114 -------- -------- -------- -------- --------- ---------- Total assets............................. $429,325 $128,043 $ 70,828 $ 79,003 $ - $ 707,199 Capital expenditures..................... $ 4,787 $ 254 $ 205 $ 26 $ - $ 5,272 Yorktown refinery acquisition contingent payment..................... $ 3,986 $ - $ - $ - $ - $ 3,986
10 NOTE 4 - ASSET RETIREMENT OBLIGATIONS: On January 1, 2003, we adopted SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting obligations associated with the retirement of tangible long- lived assets and the associated asset retirement costs. This statement requires that the fair value of a liability for an Asset Retirement Obligation ("ARO") be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated Asset Retirement Cost ("ARC") is capitalized as part of the carrying amount of the long-lived asset. To initially recognize our ARO liability, we capitalized the fair value, calculated as of the date the liability would have been recognized were SFAS No. 143 in effect at that time, of all ARO's that we identified,. In accordance with SFAS No. 143, we also recognized the cumulative accretion and accumulated depreciation from the date the liability would have been recognized had the provisions of SFAS No. 143 been in effect, to January 1, 2003, the date we adopted SFAS No. 143. As a result, on January 1, 2003, we recorded an ARO liability of $2,198,000, ARC assets of $1,580,000 and related accumulated depreciation of $674,000. We also reversed a previously recorded asset retirement obligation of $120,000, and recorded a cumulative effect adjustment of $1,172,000 ($704,000 net of taxes). Our legally restricted assets that are set aside for purposes of settling ARO liabilities are less than $500,000. These assets are set aside to fund costs associated with the closure of certain solid waste management facilities. We identified the following ARO's: 1. Landfills - pursuant to Virginia law, the two solid waste management facilities at our Yorktown refinery must satisfy closure and post-closure care and financial responsibility requirements. 2. Crude Pipelines - our right-of-way agreements generally require that pipeline properties be returned to their original condition when the agreements are no longer in effect. This means that the pipeline surface facilities must be dismantled and removed and certain site reclamation performed. We do not believe these right-of-way agreements will require us to remove the underground pipe upon taking the pipeline permanently out of service. Regulatory requirements, however, may mandate that such out-of- service underground pipe be purged. 3. Storage Tanks - we have a legal obligation under applicable law to remove all underground and aboveground storage tanks, both on owned property and leased property, once they are taken out of service. Under some lease arrangements, we also have committed to restore the leased property to its original condition. The following table reconciles the beginning and ending aggregate carrying amount of our ARO's for the three months ended March 31, 2004 and the year ended December 31, 2003. 11
March 31, December 31, 2004 2003 --------- ------------ (In thousands) Liability beginning of year........... $2,223 $2,198 Liabilities incurred.................. - - Liabilities settled................... (34) (146) Accretion expense..................... 50 171 ------ ------ Liability end of period............... $2,239 $2,223 ====== ======
The effect of the change on net earnings for the three months ended March 31, 2004 and 2003 was approximately $47,000 or one-half of a cent per share in each period, excluding the cumulative effect adjustment in 2003. 12 NOTE 5 - Goodwill and Other Intangible Assets: At March 31, 2004 and December 31, 2003, we had goodwill of $28,255,000 and $24,578,000, respectively. The changes in the carrying amount of goodwill for the three months ended March 31, 2004 are as follows:
Refining Retail Phoenix Group Group Fuel Total -------- ------- ------- ------- (In thousands) Balance as of January 1, 2004.......... $ 5,379 $ 4,477 $14,722 $24,578 Yorktown refinery acquisition contingent consideration(a).......... 3,677 - - 3,677 ------- ------- ------- ------- Balance as of March 31, 2004.......... $ 9,056 $ 4,477 $14,722 $28,255 ======= ======= ======= ======= (a) The Company incurred $4,049,000 under the earn-out provision of the Yorktown acquisition agreement in the first quarter of 2004. These earn-out payments are an additional element of cost that represents an excess of purchase price over the amounts assigned to the assets and liabilities assumed. We allocated $3,677,000 of this amount to goodwill and $372,000 to deferred taxes.
A summary of intangible assets that are included in "Other Assets" in the Consolidated Balance Sheet at March 31, 2004 is presented below:
Gross Net Carrying Accumulated Carrying Value Amortization Value -------- ------------ -------- (In thousands) Amortized intangible assets: Rights-of-way.......................... $ 3,564 $ 2,586 $ 978 Contracts.............................. 1,370 1,020 350 Licenses and permits................... 1,056 236 820 ------- ------- ------- 5,990 3,842 2,148 ------- ------- ------- Unamortized intangible assets: Liquor licenses........................ 7,416 - 7,416 ------- ------- ------- Total intangible assets.................. $13,406 $ 3,842 $ 9,564 ======= ======= =======
Intangible asset amortization expense for the three months ended March 31, 2004 and 2003 was $109,200 and $94,100, respectively. 13 NOTE 6 - DISCONTINUED OPERATIONS, ASSET DISPOSALS, AND ASSETS HELD FOR SALE: The following table contains information regarding our discontinued operations, all of which are included in our retail group and include some service station/convenience stores in both periods and our travel center in 2003.
Three Months Ended March 31, ------------------ 2004 2003 -------- -------- (In thousands) Net revenues.......................................... $ - $11,627 Net operating loss.................................... $ - $ (225) Gain on disposal...................................... $ - $ 137 Impairment and other write-downs...................... $ - $ - ------ ------- Loss before income taxes.............................. $ - $ (88) ------ ------- Net loss.............................................. $ - $ (53) Allocated goodwill included in gain on disposal....... $ - $ 51
Included in "Assets Held for Sale" in the accompanying Consolidated Balance Sheets are the following categories of assets.
March 31, December 31, 2004 2003 --------- ------------ (In thousands) Closed retail units................................... $ 1,318 $ 1,755 Vacant land - industrial site......................... - 1,596 ------- ------- $ 1,318 $ 3,351 ======= =======
All of these assets are or were being marketed for sale at the direction of management. We expect to dispose of the remaining properties within the next nine months. In the first quarter of 2004, we sold one closed retail unit, and in the first quarter of 2003 we sold two retail units, one of which was closed. The vacant land - industrial site has been reclassified out of assets held for sale because it was not sold within 12 months. In the second quarter of 2004, we sold 40 acres of vacant land known as the Jomax property for approximately $5,412,000, net of expenses. In addition, we also sold two operating service station/convenience stores for approximately $684,000, net of expenses. 14 NOTE 7 - EARNINGS PER SHARE: The following table sets forth the computation of basic and diluted earnings (loss) per share:
Three Months Ended March 31, --------------------- 2004 2003 --------- --------- Numerator (In thousands) Earnings from continuing operations.............. $ 4,517 $ 2,383 Loss from discontinued operations................ - (53) Cumulative effect of change in accounting principle........................... - (704) --------- --------- Net earnings..................................... $ 4,517 $ 1,626 ========= =========
Three Months Ended March 31, --------------------- 2004 2003 --------- --------- Denominator Basic - weighted average shares outstanding...... 8,822,787 8,571,779 Effect of dilutive stock options................. 269,947 42,861 --------- --------- Diluted - weighted average shares outstanding.... 9,092,734 8,614,640 ========= =========
Three Months Ended March 31, --------------------- 2004 2003 -------- --------- Basic Earnings (Loss) Per Share Earnings from continuing operations.............. $ 0.51 $ 0.28 Loss from discontinued operations................ - (0.01) Cumulative effect of change in accounting principle........................... - (0.08) --------- --------- Net earnings..................................... $ 0.51 $ 0.19 ========= =========
15
Three Months Ended March 31, --------------------- 2004 2003 --------- --------- Diluted Earnings (Loss) Per Share Earnings from continuing operations.............. $ 0.50 $ 0.28 Loss from discontinued operations................ - (0.01) Cumulative effect of change in accounting principle........................... - (0.08) --------- --------- Net earnings..................................... $ 0.50 $ 0.19 ========= =========
On February 25, 2004, we contributed 49,046 newly issued shares of our common stock to our 401(k) plan as a discretionary contribution for the year 2003. On May 3, 2004, we sold 3,000,000 shares of our common stock at $18.50 per share in an underwritten public offering as part of a strategy to reduce our outstanding long-term debt. In addition, on May 7, 2004, an additional 283,300 shares of common stock were sold at the same price pursuant to the underwriters' over-allotment option. See Note 13 for a further discussion of these transactions. At March 31, 2004, there were 8,869,101 shares of our common stock outstanding. There were no transactions subsequent to March 31, 2004, except as described above, that if the transactions had occurred before March 31,2004, would materially change the number of common shares or potential common shares outstanding as of March 31, 2004. 16 NOTE 8 - INVENTORIES: Our inventories consist of the following:
March 31, 2004 December 31, 2003 -------------- ----------------- (In thousands) First-in, first-out ("FIFO") method: Crude oil............................ $ 41,708 $ 54,771 Refined products..................... 68,460 68,622 Refinery and shop supplies........... 11,163 11,306 Merchandise.......................... 2,750 2,946 Retail method: Merchandise.......................... 11,831 11,579 -------- -------- Subtotal........................... 135,912 149,224 Adjustment for last-in, first-out ("LIFO") method............ (27,987) (15,498) -------- -------- Total.............................. $107,925 $133,726 ======== ========
The portion of inventories valued on a LIFO basis totaled $70,122,000 and $89,239,000 at March 31, 2004 and December 31, 2003, respectively. The data in the following paragraph will facilitate comparison with the operating results of companies using the FIFO method of inventory valuation. If inventories had been determined using the FIFO method at March 31, 2004 and 2003, net earnings and diluted earnings per share would have been higher as follows:
March 31, 2004 March 31, 2003 -------------- -------------- (In thousands) Net earnings........................... $7,493,000 $10,432,000 Diluted earnings per share............. $ 0.82 $ 1.21
For interim reporting purposes, inventory increments expected to be liquidated by year-end are valued at the most recent acquisition costs, and inventory liquidations that are expected to be reinstated by year end are ignored for LIFO inventory valuation calculations. The LIFO effects of inventory increments not expected to be liquidated by year-end, and the LIFO effects of inventory liquidations not expected to be reinstated by year-end, are recorded in the period such increments and liquidations occur. 17 In the first quarter of 2004, we liquidated certain lower cost refining crude oil LIFO inventory layers, which resulted in an increase in our net earnings and related diluted earnings per share as follows:
March 31, 2004 -------------- (In thousands) Net earnings........................... $ 538,000 Diluted earnings per share............. $ 0.06
The LIFO layers that were liquidated were deemed to be a permanent liquidation due to the terms of our agreement with Statoil regarding the ownership of crude oil under the agreement. There were no similar liquidations in 2003. 18 NOTE 9 - DERIVATIVE INSTRUMENTS: We are exposed to various market risks, including changes in certain commodity prices and interest rates. To manage these normal business exposures, from time to time, we use commodity futures and options contracts to reduce price volatility, to fix margins in our refining and marketing operations and to protect against price declines associated with our crude oil and finished products inventories. In the first quarter of 2003, we entered into various crude oil futures contracts in order to economically hedge crude oil inventories and purchases for the Yorktown refinery operations. For the three months ended March 31, 2003, we recognized losses on these contracts of approximately $1,433,000 in cost of products sold. These transactions did not qualify for hedge accounting in accordance with SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities," as amended, and accordingly were marked to market each month. There were no similar transactions in the first quarter of 2004, and there were no open crude oil futures contracts or other commodity derivative contracts at March 31, 2004. 19 NOTE 10 - PENSION AND POST-RETIREMENT BENEFITS: In December 2003, FASB revised SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," to enhance disclosures of relevant accounting information by providing additional information on plan assets, obligations, cash flows, and net cost. The components of the Net Periodic Benefit Cost are as follows:
Cash Balance Plan Retiree Medical Plan --------------------------- --------------------------- Three Months Ended March 31 Three Months Ended March 31 --------------------------- --------------------------- 2004 2003 2004 2003 --------- --------- --------- --------- Service cost........................... $ 345,005 $ 287,996 $ 51,893 $ 48,095 Interest cost.......................... 134,294 132,739 48,673 44,403 Expected return on plan assets......... (28,624) (5,891) - - Amortization of prior service costs.... - - - - Amortization of net (gain)/loss........ - - 4,374 2,537 --------- --------- --------- --------- Net Periodic Benefit Cost.............. $ 450,675 $ 414,844 $ 104,940 $ 95,035 ========= ========= ========= =========
We previously disclosed in our financial statements for the year ended December 31, 2003, that we expected to contribute $2,200,000 to our Cash Balance Plan in 2004. Due to recent legislation, which affected the calculation of our required contribution, we expect to contribute $1,836,000 to the plan. As of March 31, 2004, we had not made any contributions to the plan. We presently anticipate making the contribution on or before September 15, 2004. 20 NOTE 11 - LONG-TERM DEBT: Our long-term debt consisted of the following:
March 31, 2004 December 31, 2003 -------------- ----------------- (In thousands) 11% senior subordinated notes, due 2012, net of unamortized discount of $5,191 and $5,288, interest payable semi-annually...................... $194,809 $194,712 9% senior subordinated notes, due 2007, interest payable semi-annually...................... 150,000 150,000 Senior secured revolving credit facility, due 2005, floating interest rate, interest payable monthly.... - - Senior secured mortgage loan facility, due 2005, floating interest rate, principal and interest payable monthly..................................... 20,000 22,000 Other................................................. 10 17 -------- -------- Subtotal............................................ 364,818 366,729 Less current portion.................................. (12,454) (11,128) -------- -------- Total............................................... $352,364 $355,601 ======== ========
Repayment of both the 11% and 9% senior subordinated notes (collectively, the "Notes") is jointly and severally guaranteed on an unconditional basis by our 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 specified in the indentures pursuant to which the Notes were issued, there are no restrictions on the ability of our subsidiaries to transfer funds to us 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 us in certain circumstances. Separate financial statements of our subsidiaries are not included herein because the aggregate assets, liabilities, earnings, and equity of the subsidiaries are substantially equivalent to our assets, liabilities, earnings, and equity 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 by us to be material to investors. We also have a $100,000,000 three-year senior secured revolving credit facility (the "Credit Facility") with a group of banks. The Credit Facility is primarily a working capital and letter of credit facility. There were no direct borrowings outstanding under this facility at March 31, 2004 and December 31, 2003, and there were approximately $37,361,000 at March 31, 2004 and $36,961,000 at December 31, 2003 of irrevocable letters of credit outstanding, primarily to crude oil suppliers, insurance companies and regulatory agencies. 21 The interest rate applicable to the Credit Facility is tied to various short-term indices. At March 31, 2004, this rate was approximately 4.9% per annum. We are required to pay a quarterly commitment fee of 0.50% per annum of the unused amount of the facility. We also have a $40,000,000 three-year senior secured mortgage loan facility (the "Loan Facility") with a group of financial institutions that currently has a balance of $20,000,000. We have provided notice to the lenders that we intend to prepay the remaining balance on July 14, 2004. We intend to do this from cash on hand. The interest rate applicable to the Loan Facility is tied to various short-term indices. At March 31, 2004, this rate was approximately 6.6% per annum. On May 3, 2004, we sold $150,000,000 of 8% senior subordinated notes due 2014 (the "8% Notes") and sold 3,000,000 shares of our common stock. On May 7, 2004, we sold an additional 283,300 shares of our common stock. With the proceeds of the note offering and cash on hand, we repurchased, or will be redeeming, all of the 9% Notes, and with the proceeds of the equity offering, we will be redeeming $51,171,000 aggregate principal amount of our 11% Notes. See Note 13 for a further discussion of these transactions. The Indenture supporting the 8% Notes contains covenants and restrictions similar to, but less restrictive than, those applicable to the Notes. We expect to be in compliance with these covenants going forward. 22 NOTE 12 - COMMITMENTS AND CONTINGENCIES: We have various legal actions, claims, assessments and other contingencies arising in the normal course of our business, including those matters described below, pending against us. Some 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. We have recorded accruals for losses related to those matters that we consider to be probable and that can be reasonably estimated. We currently believe that any amounts exceeding our recorded accruals should not materially affect our financial condition or liquidity. It is possible, however, that the ultimate resolution of these matters could result in a material adverse effect on our results of operations for a particular reporting period. Federal, state and local laws relating to the environment, health and safety affect nearly all of our operations. As is the case with all companies engaged in similar industries, we face 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 made, handled, used, released or disposed of by us or by our predecessors. Future expenditures related to environmental, health and safety matters cannot be reasonably quantified in many circumstances for various reasons. These reasons include 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 that may be available to us and changing environmental, health and safety laws, including changing interpretations of those laws. ENVIRONMENTAL AND LITIGATION ACCRUALS As of March 31, 2004 and December 31, 2003, we had environmental liability accruals of approximately $7,436,000 and $7,592,000, respectively, which are summarized below, and litigation accruals in the aggregate of $573,000 at March 31, 2004 and December 31, 2003. The environmental accruals are recorded in the current and long-term sections of our consolidated balance sheets and the litigation accruals are all recorded as current liabilities. 23
SUMMARY OF ACCRUED ENVIRONMENTAL CONTINGENCIES (In thousands) December 31, Increase March 31, 2003 (Decrease) Payments 2004 ------------ ---------- -------- --------- Yorktown 1991 Order....................... $ 5,916 $ - $ (150) $ 5,766 Farmington Refinery....................... 570 - - 570 Bloomfield Refinery....................... 267 - - 267 Ciniza - Solid Waste Management Units..... 275 - - 275 Ciniza - Land Treatment Facility.......... 186 - - 186 Ciniza Well Closures...................... 140 - - 140 Retail Service Stations - Various......... 146 - - 146 East Outfall - Bloomfield................. 25 - - 25 Bloomfield Tank Farm (Old Terminal)....... 67 - (6) 61 ------- ------- ------- ------- Totals................................. $ 7,592 $ - $ (156) $ 7,436 ======= ======= ======= =======
Approximately $7,064,000 of our environmental accruals are for the following projects: - certain environmental obligations assumed in connection with our acquisitions of the Yorktown refinery and the Bloomfield refinery, - the remediation of the hydrocarbon plume that appears to extend no more than 1,800 feet south of our inactive Farmington refinery, - the closure of certain solid waste management units at the Ciniza refinery, which is being conducted in accordance with the refinery's Resource Conservation and Recovery Act permit, and - closure of the Ciniza refinery land treatment facility, including post-closure expenses. The remaining amount of the accruals relate to smaller remediation and monitoring projects. YORKTOWN ENVIRONMENTAL LIABILITIES We assumed certain liabilities and obligations in connection with our purchase of the Yorktown refinery from BP. BP agreed to reimburse us in specified amounts for some matters. Among other things, and subject to certain exceptions, we assumed responsibility for all costs, expenses, liabilities, and obligations under environmental, health and safety laws caused by, arising from, incurred in connection with or relating to the ownership of the refinery or its operation. We agreed to reimburse BP for losses incurred in connection with or related to liabilities and obligations assumed by us. Certain environmental matters relating to the Yorktown refinery are discussed below. 24 YORKTOWN CONSENT DECREE Environmental obligations assumed by us include BP's responsibilities relating to the Yorktown refinery under a consent decree among various parties covering many locations (the "Consent Decree"). Parties to the Consent Decree include the United States, BP Exploration and Oil Co., Amoco Oil Company, and Atlantic Richfield Company. We assumed BP's responsibilities as of January 18, 2001, the date the Consent Decree was lodged with the court. As applicable to the Yorktown refinery, the Consent Decree requires, among other things, reduction of NOx, SO2 and particulate matter emissions and upgrades to the refinery's leak detection and repair program. We estimate that we will incur capital expenditures of between $20,000,000 and $27,000,000 to comply with the Consent Decree through 2006, although we believe we will incur most of those expenditures in 2005 and 2006. In addition, we estimate that we will incur operating expenses associated with the requirements of the Consent Decree of between $1,600,000 and $2,600,000 per year. YORKTOWN 1991 ORDER In connection with the Yorktown acquisition, we also assumed BP's obligations under an administrative order issued by EPA in 1991 under the Resource Conservation and Recovery Act. The order requires an investigation of certain areas of the refinery and the development of measures to correct any releases of contaminants or hazardous substances found in these areas. A Resource Conservation and Recovery Act Facility Investigation and a Corrective Measures Study ("RFI/ CMS") has already been prepared. It was revised by BP, in draft form, to incorporate comments from EPA and the Virginia Department of Environmental Quality ("VDEQ"). A final RFI/ CMS has not yet been approved. The draft RFI/ CMS proposes investigation, sampling, monitoring, and cleanup measures, including the construction of an on-site corrective action management unit that would be used to consolidate hazardous solid materials associated with these measures. These proposed actions relate to soil, sludge, and remediation wastes relating to solid waste management units. Groundwater in the aquifers underlying the refinery, and surface water and sediment in a small pond and tidal salt marsh on the refinery property also will be addressed in the RFI/ CMS. EPA issued a proposed cleanup plan for public comment in December 2003. EPA will review all comments, will issue an approved RFI and CMS in coordination with VDEQ, and will make a final remedy decision. We estimate that expenses associated with the actions described in the proposed RFI/ CMS will cost from $19,000,000 to $21,000,000, and will be incurred over a period of approximately 30 years. We believe that about $5,000,000 of this amount will be incurred over an initial 3-year period, and additional expenditures of about $5,000,000 will be incurred over the following 3- year period. We may not be responsible, however, for all of these 25 expenditures due to the environmental reimbursement provisions included in our purchase agreement with BP, as more fully discussed below. Additionally, the facility's underground sewer system will be cleaned, inspected and repaired as needed as part of the RFI/ CMS process. We anticipate that this work will cost from $3,000,000 to $5,000,000 over a period of three to five years, beginning around the time the construction of the corrective action management unit and related remediation work is completed in approximately 2007 or 2008. As of March 31, 2004, we have not received the final remedy decision from EPA and therefore have not begun any of the work under the administrative order. CLAIMS FOR REIMBURSEMENT FROM BP BP has agreed to reimburse us for all losses that are caused by or relate to property damage caused by, or any environmental remediation required due to, a violation of environmental health, and safety laws during BP's operation of the refinery. In order to have a claim against BP, however, the total of all our losses must exceed $5,000,000, in which event our claim only relates to the amount exceeding $5,000,000. After $5,000,000 is reached, our claim is limited to 50% of the amount by which our losses exceed $5,000,000 until the total of all our losses exceeds $10,000,000. After $10,000,000 is reached, our claim would be for 100% of the amount by which our losses exceed $10,000,000. In applying these provisions, losses amounting to a total of less than $250,000 arising out of the same event are not added to any other losses for purposes of determining whether and when the $5,000,000 or $10,000,000 has been reached. After the $5,000,000 or $10,000,000 has been reached, BP has no obligation to reimburse us for any losses amounting to a total of less than $250,000 arising out of the same event. Except as specified in the refinery purchase agreement, in order to seek reimbursement from BP, we must notify BP of a claim within two years following the closing date. Further, BP's total liability for reimbursement under the refinery purchase agreement, including liability for environmental claims, is limited to $35,000,000. FARMINGTON REFINERY In 1973, we constructed the Farmington refinery that was operated until 1982. In 1985, we became aware of soil and shallow groundwater contamination at this facility. We 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. One of our consultants 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. Our remediation activities are ongoing under the supervision of the New Mexico Oil Conservation Division ("OCD"), although OCD has not issued a cleanup order. 26 LEE ACRES LANDFILL The Farmington refinery property is located next to the Lee Acres Landfill, a closed landfill formerly operated by San Juan County. The landfill 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. While the landfill was operational, we used it to dispose of office trash, maintenance shop trash, used tires and water from the Farmington refinery's evaporation pond. The landfill was added to the National Priorities List as a Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") Superfund site in 1990. In connection with this listing, EPA defined the site as the landfill and the landfill's associated groundwater plume. EPA excluded any releases from the Farmington refinery itself from the definition of the site. In May 1991, EPA notified us that we 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 cleanup plan for the landfill available to the public in 1996. Remediation alternatives examined by BLM in connection with the development of its proposed plan ranged in projected cost from no cost to approximately $14,500,000. BLM proposed the adoption of a remedial action alternative that it believes would cost approximately $3,900,000 to implement. BLM's $3,900,000 cost estimate is based on certain assumptions that may or may not prove to be correct and is contingent on confirmation that the remedial actions, once implemented, are adequately addressing landfill contamination. For example, if assumptions regarding groundwater mobility and contamination levels are incorrect, BLM is proposing to take additional remedial actions with an estimated cost of approximately $1,800,000. BLM has received public comment on its proposed plan. The final remedy for the site, however, has not yet been selected. Although we were given reason to believe that a final remedy would be selected in 2003, that selection did not occur. We have been advised that the site remedy may be announced in 2004. In 1989, one of our consultants estimated, based on various assumptions, that our share of potential liability could be approximately $1,200,000. This figure was based upon estimated landfill remediation costs significantly higher than those being proposed by BLM. The figure also was based on the consultant's evaluation of such factors as available clean-up technology, BLM's involvement at the site and the number of other entities that may have had involvement at the site, but did not include an analysis of all of our potential legal defenses and arguments, including possible setoff rights. Potentially responsible party liability is joint and several, which means 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 the contamination. Although it is possible that we 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 for various reasons. These reasons include: 27 - 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. We have not recorded a liability in relation to BLM's proposed plan because the amount of any potential liability is currently not determinable. BLM may assert claims against us and others for reimbursement of investigative, cleanup and other costs incurred by BLM in connection with the landfill and surrounding areas. We may assert claims against BLM in connection with contamination that may be originating from the landfill. Private parties and other governmental entities also may assert claims against us, BLM, and others for property damage, personal injury and other damages allegedly arising out of any contamination originating from the landfill and the Farmington property. Parties also may request judicial determination of their rights and responsibilities, and the rights and responsibilities of others, in connection with the landfill and the Farmington property. Currently, however, there is no outstanding litigation against us by BLM or any other party. BLOOMFIELD REFINERY In connection with the acquisition of the Bloomfield refinery, we assumed certain environmental obligations including Bloomfield Refining Company's ("BRC") obligations under an administrative order issued by EPA in 1992 pursuant to the Resource Conservation and Recovery Act. The order required BRC to investigate and propose measures for correcting any releases of hazardous waste or hazardous constituents at or from the Bloomfield refinery. EPA has delegated its oversight authority over the order to NMED's Hazardous Waste Bureau ("HWB"). In December 2002, HWB and OCD approved a cleanup plan for the refinery, subject to various actions to be taken by us to implement the plan. We estimate that remediation expenses associated with the cleanup plan will be approximately $267,000, and that these expenses will be incurred through approximately 2018. BLOOMFIELD TANK FARM (OLD TERMINAL) We have discovered hydrocarbon contamination adjacent to a 55,000 barrel crude oil storage tank that was located in Bloomfield, New Mexico. We believe that all or a portion of the tank and the 5.5 acres we own on which the tank was located may have been a part of a refinery, owned by various other parties that, to our knowledge, ceased operations in the early 1960s. We received approval to conduct a pilot bioventing project to address remaining contamination at the site, which was completed in June 28 2001. Bioventing involves pumping air into the soil to stimulate bacterial activity which in turn consumes hydrocarbons. Based on the results of the pilot project, we submitted a remediation plan to OCD proposing the use of bioventing to address the remaining contamination. This remediation plan was approved by OCD in June 2002. We anticipate that we will incur about $50,000 in soil remediation expenses through 2005 in connection with the bioventing plan and approximately $20,000 to continue groundwater monitoring and testing until natural attenuation has completed the process of groundwater remediation. NOTICES OF VIOLATION AT FOUR CORNERS REFINERIES In June 2002, we received a draft compliance order from the New Mexico Environment Department ("NMED") in connection with alleged violations of air quality regulations at the Ciniza refinery. These alleged violations relate to an inspection completed in April 2001. In August 2002, we received a compliance order from NMED in connection with alleged violations of air quality regulations at the Bloomfield refinery. These alleged violations relate to an inspection completed in September 2001. In the second quarter of 2003, EPA informally told us that it also intended to allege air quality violations in connection with the 2001 inspections at both refineries. We have since participated in joint meetings with NMED and EPA. These discussions have included alleged violations through December 31, 2003, in addition to matters relating to the 2001 inspections. In the first quarter of 2004, we were informally advised that potential penalties could amount to between $3,000,000 and $5,000,000. We have accrued significantly less than these amounts because settlement discussions with NMED and EPA are ongoing. These discussions may result in reductions in the amount of potential penalties. In lieu of fines and as part of an administrative settlement, we expect that EPA and NMED may require us to undertake certain environmentally beneficial projects, known as supplemental environmental projects. We have not yet determined the nature or scope of any work that may be required in lieu of fines. In the first quarter of 2004, EPA told us that any administrative settlement also must be consistent with the consent decrees EPA has entered with other refiners as part of its national refinery enforcement program. In these other settlements, EPA generally has required that the refiner: - implement controls to reduce emissions of nitrogen oxide, sulfur dioxide, and particulate matter from the largest emitting process units; - upgrade leak-detection and repair practices; - minimize the number and severity of flaring events; and 29 - adopt strategies to ensure compliance with benzene waste requirements. We are continuing joint settlement discussions with NMED and EPA. Jet Fuel Claim In February 2003, we filed a complaint against the United States in the United States Court of Federal Claims related to military jet fuel that we sold to the Defense Energy Support Center ("DESC") from 1983 through 1994. We asserted that the U.S., acting through DESC, underpaid for the jet fuel by about $17,000,000. Our claims include a request that we be made whole in connection with payments that were less than the fair market value of the fuel, as well as a request that we be reimbursed for the value of transporting the fuel in some contracts, as well as for certain additional costs of complying with the government's special requirements. The U.S. has said that it may counterclaim and assert, based on its interpretation of the contracts, that we owe additional amounts of between $2,100,000 and $4,900,000. The U.S. denied all liability in a motion for partial summary judgment filed in the second quarter of 2003. In July 2003, we responded to the U.S.'s motion and filed our own cross- motion for partial summary judgment. All legal briefs on the U.S.'s motion and our cross-motion were filed with the court by November 2003. In the first quarter of 2004, the United States Court of Appeals for the Federal Circuit agreed to hear appeals in other jet fuel cases. The issues before the Court of Appeals in these cases are almost identical to the issues in our case. The judge in our case has halted any further action, pending a guiding decision by the Court of Appeals. We are awaiting further action by the court. Due to the preliminary nature of this matter, there can be no assurance that we will ultimately prevail on our claims or the U.S.'s potential counterclaim, nor is it possible to predict when any payment will be received if we are successful. Accordingly, we have not recorded a receivable for these claims or a liability for any potential counterclaim. MTBE Litigation Lawsuits have been filed in numerous states alleging that MTBE, a blendstock used by many refiners in producing specially formulated gasoline, has contaminated water wells. MTBE contamination primarily results from leaking underground or aboveground storage tanks. We are a defendant in three MTBE lawsuits filed in the fourth quarter of 2003. The plaintiffs are two Virginia county boards of education and a Virginia county water authority. The suits allege MTBE contamination of water wells owned and operated by the plaintiffs. The plaintiffs assert that numerous refiners, distributors, or sellers of MTBE and/or gasoline containing MTBE are responsible for the contamination. The plaintiffs also claim that the defendants are jointly and severally liable for compensatory and punitive damages, costs, and interest. Joint and several liability means that each defendant may be liable for all of the damages even though that party was responsible for only a small part of the damages. 30 Yorktown Power Outage Claim On April 28, 2003, a breaker failure disrupted operations at the electric generation plant that supplies our Yorktown refinery with power. As a result of the failure, the refinery suffered a complete loss of power and shut down all processing units. By the middle of May 2003, the refinery was operating at full capacity. We incurred costs of approximately $1,254,000 as a result of the loss of power, all of which we expensed in the second quarter of 2003. Reduced production also resulted in a loss of earnings. We are pursuing reimbursement from the power station owner. We are currently unable to determine the probability of recovery of any amounts related to this claim, so we have not recorded any receivables related to this claim. Former CEO Matters On March 29, 2002, the board of directors terminated James E. Acridge as our President and Chief Executive Officer, and replaced him as our Chairman of the Board. Mr. Acridge's term of office as a director expired on April 29, 2004. On July 22, 2002, Mr. Acridge filed a lawsuit in the Superior Court of Arizona for Maricopa County against a number of our officers and directors. The lawsuit was also filed against unidentified accountants, auditors, appraisers, attorneys, bankers and professional advisors. Mr. Acridge alleged that the defendants wrongfully interfered with his employment agreement and caused the board to fire him. The complaint sought unspecified damages to compensate Mr. Acridge for the defendants' alleged wrongdoing, as well as punitive damages, and costs and attorneys' fees. The complaint also stated that Mr. Acridge intended to initiate a separate arbitration proceeding against us, alleging that we breached his employment agreement and violated an implied covenant of good faith and fair dealing. The court subsequently ruled that the claims raised in Mr. Acridge's lawsuit were subject to arbitration and the lawsuit was dismissed. Arbitration proceedings have not been initiated. Subsequent to the filing of the claims, Mr. Acridge filed for bankruptcy. The trustee appointed in the Chapter 11 bankruptcy proceeding has questioned whether the Superior Court should have stayed the lawsuit until after the arbitration was completed instead of dismissing it. Regardless, we believe that the officers and directors sued by Mr. Acridge are entitled to indemnification from us in connection with the defense of, and any liabilities arising out of, the claims alleged by Mr. Acridge. We have an outstanding loan to Mr. Acridge in the principal amount of $5,000,000. In the fourth quarter of 2001, we established a reserve for the entire amount of the loan plus interest accrued through December 31, 2001. The loan was subsequently written off, at which time the reserve was removed. In addition to Mr. Acridge's personal bankruptcy filing, Pinnacle Rodeo LLC, Pinnacle Rawhide LLC, and Prime Pinnacle Peak Properties, Inc., three entities originally controlled by Mr. Acridge, have commenced Chapter 11 bankruptcy proceedings. A Chapter 11 trustee has been appointed 31 in these cases. The four bankruptcy cases are administered together. We have filed proofs of claim in the bankruptcy proceedings seeking to recover amounts we believe are owed to us by Mr. Acridge, and the other entities, including amounts relating to the outstanding $5,000,000 loan. We also filed a complaint in the Acridge bankruptcy proceeding on July 31, 2003 in which we sought a determination that certain of the amounts we believe are owed to us by Mr. Acridge are not dischargeable in bankruptcy. The court has entered a default against Mr. Acridge in connection with our complaint. The court, however, has not yet ruled on whether we are entitled to receive any of the damages that we have requested. Even if the court decides that we can receive damages, we do not know whether we would be able to recover any of these damages from Mr. Acridge. The official committee of unsecured creditors for the bankruptcy cases filed a plan of reorganization on November 7, 2003. The plan describes a process for the liquidation of the estates and the payment of liquidation proceeds to creditors. It will only become effective if approved by the bankruptcy court. Under the committee's plan, we would make a payment, which would have no material effect on the Company's financial statements, for the benefit of unsecured creditors in the Acridge estate. Additionally, we would give up all of our claims against the estates, with the exception of a claim for our share of any assets of the Acridge estate that have not yet been identified. In return, the four estates would release us from all of their claims against us, if any. The plan would not preclude us from pursuing our non-dischargeability complaint against Mr. Acridge. In 2003, the trustee for the Acridge estate asked the bankruptcy court to permit him to engage in discovery to determine whether any claims against us, or persons or entities associated with us, may exist. The bankruptcy court authorized the Acridge trustee to take the deposition of three of our officers or directors and to obtain documents from them. The discovery authorized by the bankruptcy court was completed in the second quarter of 2004. In order for the committee's plan to be approved, the committee must first obtain bankruptcy court approval of a disclosure statement which describes the plan and the process by which creditors can vote on the plan. The Acridge trustee and the unsecured creditors committee are working on a summary to be included in the disclosure statement containing each of their positions on whether the committee's plan should be approved. We anticipate that this statement may be sent out in the second or third quarter of 2004. The trustee in the Prime Pinnacle proceeding filed a separate plan of reorganization. The Prime Pinnacle trustee initially indicated that he was going to object to the proof of claim that we filed in the Prime Pinnacle proceeding. In addition, the Prime Pinnacle trustee indicated that he was going to evaluate any possible preferential or fraudulent transfer of assets from Prime Pinnacle to us in satisfaction of debts owed by Mr. Acridge or his other entities. An agreement was subsequently reached 32 between the Prime Pinnacle trustee, the unsecured creditors committee, and us. The committee agreed to carve out the Prime Pinnacle estate from the Committee's plan. We agreed not to receive any distribution on our unsecured claim against the Prime Pinnacle estate. The Prime Pinnacle trustee agreed to incorporate the terms of the Committee's settlement with us in the Prime Pinnacle plan and to release us from any claims the Prime Pinnacle estate may have against us. The Prime Pinnacle trustee's agreement to release us and our agreement not to receive a distribution from the Prime Pinnacle estate are both conditioned upon the entry of a final court order, which is not subject to appeal, confirming the unsecured creditors committee's plan. The Prime Pinnacle plan, which reflects these agreements, has been approved by the bankruptcy court. 33 NOTE 13 - SUBSEQUENT EVENTS CINIZA REFINERY INCIDENT: On April 08, 2004, a fire occurred at our Ciniza refinery in the alkylation unit that produces high octane blending stock for gasoline. The refinery is located near Gallup, New Mexico, and has a crude oil throughput capacity of 20,800 barrels per day and a total capacity including natural gas liquids of 26,000 barrels per day. The alkylation unit has throughput capacity of 1,800 barrels per day. Emergency personnel responded immediately and contained the fire to the alkylation unit, although there also was some damage to ancillary equipment and to two adjacent units. Four of our employees were injured and transported to an Albuquerque hospital. Presently, three have been released and one is in intensive care. As a result of the fire, we temporarily shut down all of the operating units at the Ciniza refinery. At present, we do not believe there is significant damage to any of the refinery units other than the alkylation unit. The fire is currently under investigation by various governmental agencies. We also are conducting our own investigation with the assistance of an independent refinery expert to determine the cause of the fire and the extent of the damage. We had previously scheduled a major repair and upgrade shutdown (known as a "turnaround"), which was to commence at the refinery on April 17, 2004, and some of the turnaround team already was on site at the refinery when the fire occurred. In order to minimize the disruption to the refinery's operations, we accelerated the turnaround. This allowed us to work on the necessary repairs to the alkylation unit during the turnaround period when the refinery was not operating anyway. The turnaround has been completed. Based upon a preliminary internal investigation, we currently estimate that the cost to repair the damage caused by the fire will be in the range of $4,000,000 to $6,000,000 and that repairs should be completed before the end of June. To the extent additional damage is discovered during the completion of our investigation, including portions of the unit currently unavailable, or during completion of repairs, the cost to repair could increase or repairs could take longer to complete. We have property insurance coverage that should cover a significant portion of the repair costs and also could receive proceeds from business interruption insurance if the waiting period under the policy is exceeded. We also have worker's compensation insurance. Prior to the fire, we were producing approximately 18,000 barrels per day at Ciniza and approximately 10,000 barrels per day at the Bloomfield refinery, which also is located in the Four Corners area. During the turnaround, we increased the output of our Bloomfield refinery by approximately 6,000 barrels per day. In addition, following the turnaround, at both Bloomfield and Ciniza, we will be processing the 34 excess inventory we accumulated prior to and during the turnaround. The Bloomfield refinery has a crude oil throughput capacity of 16,000 barrels per day and a total capacity including natural gas liquids of 16,600 barrels per day. After the turnaround, the Ciniza refinery can operate at full capacity while repairs to the alkylation unit are completed if we purchase high octane blending components from outside sources. Alternatively, Ciniza can sell the intermediate feedstocks processed by the unit to third parties for final processing. NEW MEXICO RETAIL STORE SAFETY REGULATIONS In May 2004, the Occupational Health and Safety Bureau of the New Mexico Environment Department issued regulations that require additional security measures in the convenience store industry. These requirements relate to exterior lighting, late night security, employee training, door and window signage, and security surveillance systems. These regulations are subject to legal challenge. If these regulations go into effect in their current form, however, our New Mexico retail stores could incur additional costs to comply. For example, one way to comply with the late night security requirements of the regulations is to have two employees on duty between the hours of 5:00 p.m. and 5:00 a.m. We estimate that having two employees at all of our stores during late night hours could increase our payroll costs between $1,000,000 and $1,500,000 annually. Alternately, we could add security enclosures to our stores at an estimated one-time cost of approximately $2,250,000. We do not anticipate we would incur any significant costs to comply with the other requirements of these regulations. We are evaluating our options for complying with these regulations. REFINANCING: On April 13, 2004, we made an offer to purchase for cash all $150,000,000 aggregate principal amount outstanding of our 9% senior subordinated notes due 2007 (the "9% Notes") at a price of 103.375% of their principal amount, plus accrued interest. The offer included a consent solicitation, which expired on April 26, 2004. The offer was subject to our successful completion of a new offering of senior subordinated notes. At the expiration of the consent period, the holders of $116,115,000 of our 9% Notes had tendered into the tender offer. The tender offer expired on May 10, 2004. On May 11, 2004, we provided irrevocable notice to the trustee to redeem the rest of the 9% Notes that were not tendered when the tender offer expired. The redemption will occur on June 11, 2004. On April 28, 2004, we priced our offering of $150,000,000 aggregate principal amount of 8% senior subordinated notes due 2014 at a discount to yield 8-1/4%. The offering closed on May 3, 2004, with net proceeds before expenses to us of approximately $147,466,500. We are using all of the net proceeds of the new senior subordinated notes offering, together with cash on hand, to settle the tender offer and to redeem all 9% Notes that remain outstanding after the expiration of the tender offer. Such proceeds are being held by the trustee in a separate redemption account pending the funding of the redemption. 35 On May 3, 2004, we issued 3,000,000 shares of our common stock at a public offering price of $18.50 per share. In connection with the offering, we granted the underwriters an option for a period of 30 days from the initial offering to purchase up to an additional 450,000 shares of common stock to cover over-allotments, if any. On May 7, 2004, the underwriters purchased an additional 283,300 shares pursuant to their over-allotment option. The net proceeds of the two sales were approximately $51,171,000. We are using all of the net proceeds of the common stock offering to redeem a portion of our outstanding 11% senior subordinated notes due 2012 (including interest to the date of redemption and the redemption premium) through the exercise of the "equity clawback" provisions of the indenture governing the notes. The redemption date is June 17, 2004. The proceeds from the common stock offering are being held by the trustee in a separate redemption account pending the funding of the redemption. In addition, we have given notice to the lenders under our Loan Facility and expect to prepay this facility from cash on hand on July 14, 2004. We also are currently renegotiating our Credit Facility. 36 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COMPANY OVERVIEW We refine and sell petroleum products and operate service stations and convenience stores. Our operations are divided into three strategic business units, the refining group, the retail group and Phoenix Fuel. The refining group operates two refineries in the Four Corners area of New Mexico and one refinery in Yorktown, Virginia. The refining group sells its products to wholesale distributors and retail chains. Our retail group operated 127 service stations at March 31, 2004. The retail group sells its petroleum products and merchandise to consumers located in New Mexico, Arizona and southern Colorado. Phoenix Fuel distributes commercial wholesale petroleum products primarily in Arizona. Our strategy is to maintain and improve our financial performance. To this end, we are focused on several critical and challenging objectives. We will be addressing these objectives in the short-term as well as over the next three to five years. In our view, the most important of these objectives are: - Increasing gross margins through management of inventories and taking advantage of sales and purchasing opportunities, while minimizing or reducing operating expenses and capital expenditures. - Increasing the available crude oil supply for our Four Corners refineries. - Cost effectively complying with current environmental regulations as they apply to our refineries, including future clean air standards, between now and the end of 2008. - Improving our overall financial health and flexibility by reducing our debt and overall cost of capital, including our interest and financing costs, and maximizing our return on capital employed. - Evaluating opportunities for growth by acquisition. CRITICAL ACCOUNTING POLICIES A critical step in the preparation of our financial statements is the selection and application of accounting principles, policies, and procedures that affect the amounts that are reported. In order to apply these principles, policies, and procedures, we must make judgments, assumptions, and estimates based on the best available information at the time. Actual results may differ based on the accuracy of the information utilized and subsequent events, some of which we may have little or no control over. In addition, the methods used in applying the above may result in amounts that differ considerably from those that would result from the application of other acceptable methods. The development and selection of these critical accounting policies, and the related disclosure below, have been reviewed with the audit committee of our board of directors. 37 Our significant accounting policies, including revenue recognition, inventory valuation and maintenance costs, are described in Note 1 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2003. The following accounting policies are considered critical due to the uncertainties, judgments, assumptions and estimates involved: - accounting for contingencies, including environmental remediation and litigation liabilities, - assessing the possible impairment of long-lived assets, - accounting for asset retirement obligations, and - accounting for our pension and post-retirement benefit plans. There have been no changes to these policies in 2004. RESULTS OF OPERATIONS The following discussion of our Results of Operations should be read in conjunction with the Consolidated Financial Statements and related notes thereto included in Part I, Item 1 and in our Annual Report on Form 10-K for the year ended December 31, 2003 in Item 8 and Note 3 to our Consolidated Financial Statements in Part I, Item 1. Below is operating data for our operations:
Three Months Ended March 31, ---------------------- 2004 2003 -------- -------- Refining Group Operating Data: Four Corners Operations: Crude Oil/NGL Throughput (BPD).......... 28,280 31,146 Refinery Sourced Sales Barrels (BPD)..... 27,615 31,534 Average Crude Oil Costs ($/Bbl).......... $ 32.61 $ 31.21 Refining Margins ($/Bbl)................. $ 8.35 $ 8.32 Yorktown Operations: Crude Oil/NGL Throughput (BPD).......... 61,200 56,256 Refinery Sourced Sales Barrels (BPD)..... 63,824 59,389 Average Crude Oil Costs ($/Bbl).......... $ 32.68 $ 32.85 Refining Margins ($/Bbl)................. $ 5.55 $ 4.25 Retail Group Operating Data: (Continuing operations only) Fuel Gallons Sold (000's).................. 37,681 35,118 Fuel Margins ($/gal)....................... $ 0.1617 $ 0.1538 Merchandise Sales ($ in 000's)............. $ 30,844 $ 28,558 Merchandise Margins........................ 26.9% 30.1% Operating Retail Outlets at Period End: Continuing Operations.................... 127 127 Discontinued Operations.................. - 8 Phoenix Fuel Operating Data: Fuel Gallons Sold (000's).................. 112,844 103,037 Fuel Margins ($/gal)....................... $ 0.0529 $ 0.0474 Lubricant Sales ($ in 000's)............... $ 6,875 $ 5,615 Lubricant Margins.......................... 13.1% 16.2%
38 We believe the comparability of our continuing results of operations for the three months ended March 31, 2004 with the three months ended March 31, 2003 was affected by, among others, the following factors: - Stronger net refining margins for our refineries in 2004, primarily for our Yorktown refinery, due to, among other things: - Increased finished product demand, - Increased sales in our Tier 1 market, - Reduced imports of foreign gasoline, due to a reduction in gasoline sulfur limits, - Elimination of MTBE in Connecticut, New York, and California, and - Tight finished product supply in certain of our market areas. - The processing of lower priced acidic crude oils at our Yorktown refinery, including crude oil purchased under our supply agreement with Statoil that began deliveries in late February 2004. - A processing unit turnaround at our Yorktown refinery in 2003, which resulted in the refinery being out of operation from March 21, 2003 to April 16, 2003. - Continued reduced production at our Four Corners refineries because of lower crude oil receipts due to supplier production problems and reduced supply availability. - Stronger finished product sales volumes and margins for our Phoenix Fuel operations, due to, among other things: - Increased finished product demand, - An expanded customer base, and - Tight finished product supplies in our Phoenix market. - Lower merchandise margins for our retail group. EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES Our earnings from continuing operations before income taxes increased $4,071,000 for the three months ended March 31, 2004, compared to the same period in 2003. This increase was primarily due to the following three factors: - An increase in operating earnings from our Yorktown refinery of $6,077,000. - A 12% increase in Phoenix Fuel's fuel margins, along with a 10% increase in fuel volumes sold by Phoenix Fuel. - An 8% decrease in interest expense. Factors negatively affecting our earnings include: - A 14% increase in operating expenses. - An 11% decline in our Four Corners refineries' fuel volumes sold. - A 17% increase in our selling, general and administrative costs. - A 10% decline in our retail group's merchandise margin. 39 YORKTOWN REFINERY Our Yorktown refinery operated at an average throughput rate of approximately 61,200 barrels per day in the first quarter of 2004, compared to 56,300 barrels per day in the first quarter of 2003. Refining margins for the first quarter of 2004 were $5.55 per barrel and were $4.25 for the first quarter of 2003. Revenues for our Yorktown refinery increased in the first quarter of 2004 primarily due to a 9% increase in finished product volumes sold, with weighted average selling prices up approximately 1%. The volume increase was due in part to the process unit turnaround begun in the first quarter of 2003. Cost of products sold for our Yorktown refinery increased in the first quarter of 2004 primarily due to the increase in finished product volumes sold, offset, in part, by slightly lower average crude oil costs, losses incurred in the first quarter of 2003 on various crude oil futures contracts used to economically hedge Yorktown's crude oil inventories and crude oil purchases and the liquidation of certain crude oil LIFO inventory layers. In late February 2004, we began receiving supplies of acidic crude oil under a long-term supply agreement with Statoil, which contributed to our lower average crude oil costs. Yorktown's refining margins improved in the first quarter of 2004 due to the factors previously discussed. Operating expenses for our Yorktown refinery increased in the first quarter of 2004 due in part to the following: - Higher maintenance costs primarily related to tank inspections and repairs and coker unit repairs. - Higher operating costs, related in part to certain environmental expenditures. - Higher chemical and catalyst costs, primarily related to higher cost catalyst required to meet more stringent sulfur reduction requirements. - Higher payroll and related costs, due in part to the capitalization of certain wages in the first quarter of 2003 and increased group medical insurance premiums and workers compensation costs. Depreciation and amortization expense for our Yorktown refinery increased in the first quarter of 2004 due in part to the amortization of certain refinery turnaround costs incurred in 2003. FOUR CORNERS REFINERIES Our Four Corners refineries operated at an average throughput rate of approximately 28,300 barrels per day in the first quarter of 2004 and 31,100 barrels per day in the first quarter of 2003. Refining margins for the first quarter of 2004 were $8.35 per barrel and were $8.32 for the first quarter of 2003. 40 Revenues for our Four Corners refineries decreased in the first quarter of 2004 primarily due to an 11% decrease in finished product volumes sold, offset in part by a 4% increase in finished product selling prices. Sales volumes were reduced because of lower crude oil supplies due to the reasons previously discussed. Cost of products sold for our Four Corners refineries decreased in the first quarter of 2004 primarily due to the decrease in finished product volumes sold, offset in part by a 4% increase in average crude oil costs. Our Four Corners refining margins were relatively flat period to period. Operating expenses for our Four Corners refineries increased in the first quarter of 2004, primarily due to increased purchased fuel costs for the Ciniza refinery related to an 18% increase in volume and higher costs. Depreciation and amortization expense for our Four Corners refineries increased slightly in the first quarter of 2004. RETAIL GROUP Average gasoline and diesel margins for our retail group were $0.162 per gallon for the first quarter of 2004 and were $0.154 per gallon for the first quarter of 2003. Gasoline and diesel fuel volumes sold for the first quarter of 2004 increased approximately 2%. Average merchandise margins for our retail group were 26.9% in the first quarter of 2004 and were 30.1% in the first quarter of 2003. Revenues for our retail group increased in the first quarter of 2004 primarily due to a 3% increase in finished product selling prices and 2% increase in finished product volumes sold. Cost of products sold for our retail group increased in the first quarter of 2003 primarily due to a 3% increase in finished product purchase prices and 2% increase in finished product volumes sold. Our retail fuel margins improved 5% in the first quarter of 2004 due to a combination of factors, including: - more effectively managing our fuel pricing, and - more favorable market conditions. Our retail merchandise margins declined 10% in the first quarter of 2004 due to, among other things, a reduction in rebates in the first quarter of 2004 as compared to the first quarter of 2003. Operating expenses for our retail group increased in the first quarter of 2004 primarily due to higher payroll and related costs and increased occupancy costs. Depreciation expense for our retail group declined in the first quarter of 2004 primarily due to some retail assets becoming fully depreciated. 41 PHOENIX FUEL Gasoline and diesel fuel volumes sold by Phoenix Fuel increased by 10% in the first quarter of 2004. Average gasoline and diesel fuel margins for Phoenix Fuel were $0.053 per gallon for the first quarter of 2004 and were $0.047 per gallon for the first quarter of 2003. Revenues for Phoenix Fuel increased in the first quarter of 2004 primarily due to a 10% increase in finished product volumes sold and a 6% increase in finished product selling prices. Finished product sales volumes increased due to the factors previously discussed. Cost of products sold for Phoenix Fuel increased in the first quarter of 2004 due to the increase in finished product volumes sold and a 6% increase in finished product purchase prices. Phoenix Fuel's finished product margins increased during the first quarter by approximately 12% as a result of the favorable market conditions previously discussed. Operating expenses for Phoenix Fuel increased in the first quarter of 2004 due to higher payroll and related costs due to higher sales volumes, and higher fuel and repair and maintenance costs due to expanded fleet operations, also related to higher sales volumes. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES FROM CONTINUING OPERATIONS For the three months ended March 31, 2004, SG&A expenses increased approximately $1,176,000 or 17% due to: - Accruals for management incentive bonuses, - Increased lease expense due to the sale and leaseback of our corporate headquarters building, - Increases to our vacation pay accrual, and - Accruals for costs associated with complying with the Sarbanes-Oxley Act. These increases were partially offset by a reduction in costs related to our self-insured health plan due to improved claims experience. INTEREST EXPENSE FROM CONTINUING OPERATIONS For the three months ended March 31, 2004, interest expense decreased approximately $798,000 or 8%. The decrease was primarily due to interest incurred on borrowings under our revolving credit facility in the first quarter of 2003. We had no borrowings under this facility in the first quarter of 2004. In addition, interest expense was reduced due to the payoff in 2003 of certain capital lease obligations and the reduction of our mortgage loan facility principal balance. INCOME TAXES FROM CONTINUING OPERATIONS The effective tax rate for the three months ended March 31, 2004 was approximately 44.5% and was approximately 41.4% for the three months ended March 31, 2003. The difference in the effective rates is due to an increase in the income tax reserve and additional state income taxes. 42 DISCONTINUED OPERATIONS Discontinued operations include the operations of some of our retail service station/convenience stores and our travel center, which was sold on June 19, 2003. See Note 6 to our Consolidated Financial Statements included in Part I, Item 1 for additional information relating to these operations. OUTLOOK Overall, we believe that our current refining fundamentals are more positive now than the same time last year. Fuel margins for our retail group are stronger now than they were this time last year, with same store fuel and merchandise volumes above the prior year's levels. Merchandise margins are, however, lower than they were this time last year. Phoenix Fuel currently continues to see growth in both wholesale and unmanned fleet fueling volumes with stronger margins than the same time last year. The businesses we are in, however, are very volatile and there can be no assurance that currently existing conditions will continue for any of our business segments. LIQUIDITY AND CAPITAL RESOURCES CAPITAL STRUCTURE At March 31, 2004, we had long-term debt of $352,364,000, net of the current portion of $12,454,000. At December 31, 2003 we had long-term debt of $355,601,000, net of the current portion of $11,128,000. Both of these amounts include: - $150,000,000 of 9% Senior Subordinated Notes due 2007, and - $200,000,000 of 11% Senior Subordinated Notes due 2012. As discussed below, we recently completed offerings of $150,000,000 of 8% Senior Subordinated Notes due 2014 and 3,283,300 shares of common stock. The proceeds from the note offering and cash on hand are being used to repurchase or redeem the 9% Notes, and the proceeds from the common stock offering are being used to redeem a portion of the 11% Notes. We also have a $100,000,000 revolving credit facility. The credit facility is primarily a working capital and letter of credit facility. At March 31, 2004, we had no direct borrowings outstanding under this facility and $37,361,000 of letters of credit outstanding. At December 31, 2003, we had no direct borrowings outstanding under this facility and $36,961,000 of letters of credit outstanding. We also have a mortgage loan facility that had a balance of $20,000,000 at March 31, 2004 and $22,000,000 at December 31, 2003. We have given notice to the lenders and expect to prepay this facility from cash on hand on July 14, 2004. At March 31, 2004, our long-term debt was 70.9% of total capital. At December 31, 2003, it was 71.8%. Our net debt (long-term debt less cash and cash equivalents) to total capitalization percentage at March 31, 2004, was 66.1%. At December 31, 2003, this percentage was 70.2%. 43 The indentures governing our notes and our credit facility and loan facility contain restrictive covenants and other terms and conditions that if not maintained, if violated, or if certain conditions are met, could result in default, affect our ability to borrow funds, make certain payments, or engage in certain activities. A default under any of the notes, the credit facility or the loan facility could cause such debt, and by reason of cross-default provisions, our other debt to become immediately due and payable. If we are unable to repay such amounts, the lenders under our credit facility and loan facility could proceed against the collateral granted to them to secure that debt. If those lenders accelerate the payment of the credit facility and loan facility, we cannot provide assurance that our assets would be sufficient to pay that debt and other debt or that we would be able to refinance such debt or borrow more money on terms acceptable to us, if at all. Our ability to comply with the covenants, and other terms and conditions, of the indentures, the credit facility and the loan facility may be affected by many events beyond our control, and we cannot provide assurance that our operating results will be sufficient to allow us to comply with the covenants. We expect to be in compliance with the covenants going forward, and we do not believe that any presently contemplated activities will be constrained. A prolonged period of low refining margins, however, would have a negative impact on our ability to borrow funds and to make expenditures and would have an adverse impact on compliance with our debt covenants. We presently have senior subordinated ratings of "B3" from Moody's Investor Services and "B-" from Standard & Poor's. Moody's Investor Services recently confirmed its "B3" rating. Standard and Poor's also reaffirmed its ratings but revised the outlook to positive from negative. As is discussed in more detail in Note 13 to our Consolidated Financial Statements included in Part I, Item 1, we are in the process of completing a refinancing of a portion of our long-term debt. As part of the refinancing, we have done, or are in the process of doing, the following: - A tender offer and consent solicitation of our 9% senior subordinated notes due 2007. - A redemption of the 9% notes not tendered in the tender offer. - The sale of $150,000,000 of 8% senior subordinated notes due 2014. - The sale of 3,283,300 shares of our common stock. - The prepayment of the outstanding balance on our mortgage loan facility. - The renegotiation of our revolving credit facility. This refinancing should reduce our annual interest expense by approximately $10,600,000 in comparison to the 2003 level, assuming no future borrowings on our revolving credit facility. In connection with these transactions, we incurred certain costs which will be expensed in the second quarter of 2004, along with the write-off of previously deferred financing costs and original issue discounts. When we prepay our mortgage loan in July 2004, we will write- off additional deferred financing costs. We estimate these costs and write-offs at between $15,000,000 and $17,000,000. 44 We also incurred additional costs that will be deferred and amortized over the term of the 8% Notes. We have not yet completed the renegotiation of our revolving credit facility and do not yet know the total cost of renegotiating the facility. We do not, however, expect it to be material. CASH FLOW FROM OPERATIONS Our operating cash flows increased by $18,525,000 for the three months ended March 31, 2004 compared to the three months ended March 31, 2003. This resulted primarily from increases in the first quarter of 2004 in cash provided by working capital items and an increase in net earnings before depreciation and amortization, amortization of financing costs, deferred income taxes, and deferred crude oil purchase discounts. WORKING CAPITAL We anticipate that working capital, including that necessary for capital expenditures and debt service, will be funded through existing cash balances, cash generated from operating activities, existing credit facilities, and, if necessary, future financing arrangements. 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. Based on the current operating environment for all of our operations, we believe that we will have sufficient working capital to meet our needs over the next 12-month period. Working capital at March 31, 2004 consisted of current assets of $275,687,000 and current liabilities of $170,105,000, or a current ratio of 1.62:1. At December 31, 2003, the current ratio was 1.63:1, with current assets of $251,807,000 and current liabilities of $154,408,000. Current assets increased in the first quarter of 2004 by $23,880,000, primarily due to increases in cash and cash equivalents and accounts receivable. These increases were offset, in part, by decreases in inventories. Accounts receivable increased in the first quarter of 2004 primarily due to higher trade receivables, due in part to higher finished product selling prices. Inventories decreased in the first quarter of 2004 primarily due to: - Decreases in onsite crude oil volumes at our Yorktown refinery, and - Decreases in Four Corners, Phoenix Fuel and terminal refined product volumes. These decreases were offset, in part, by: - Increases in crude oil and refined product prices, - Increases in crude oil volumes at the Four Corners refineries, and - Increases in refined product volumes at Yorktown. 45 Current liabilities increased in the first quarter of 2004 by $15,697,000, primarily due to increases in accounts payable and accrued expenses. Accounts payable increased in the first quarter of 2004 primarily due to higher raw material and finished product costs. Accrued expenses increased in the first quarter of 2004 primarily as a result of: - Higher fuel taxes payable, - Higher accrued interest payable, - Higher accruals for payroll and related costs, and - Higher income tax accruals. These increases were offset in part by reductions in certain accruals due to the payment of management incentive and other bonuses and 401(k) matching and discretionary contributions. CAPITAL EXPENDITURES AND RESOURCES Net cash used in investing activities for capital expenditures totaled approximately $3,213,000 for the three months ended March 31, 2004 and $5,272,000 for the three months ended March 31, 2003. Expenditures for 2004 primarily were for operational and environmental projects for the refineries, Phoenix Fuel and retail operations. Expenditures for 2003 primarily were for turnaround expenditures at the Yorktown refinery and operational and environmental projects for the refineries and retail operations. We received proceeds of approximately $560,000 from the sale of property, plant and equipment and other assets in the first quarter of 2004 and $2,608,000 in the first quarter of 2003. Proceeds received in 2004 primarily were from the sale of one closed service station/convenience store. Proceeds received in 2003 were primarily from the sale of three service station/convenience stores. In the second quarter of 2004, we sold 40 acres of vacant land known as the Jomax property for approximately $5,412,000, net of expenses. In addition, we also sold two operating service station/convenience stores for approximately $684,000, net of expenses. We continue to monitor and evaluate our assets and may sell additional non-strategic or underperforming assets that we identify as circumstances allow. We also continue to evaluate potential acquisitions in our strategic markets, including lease arrangements. As part of the Yorktown acquisition, we agreed to pay earn-out payments, up to a maximum of $25,000,000, to the sellers, beginning in 2003 and concluding at the end of 2005 based upon certain market value factors. For the three months ended March 31, 2004, we paid $4,049,000 in earn-outs under the purchase agreement. In the first quarter of 2003, we made similar payments of $3,986,000. Total earn-out payments through March 31, 2004 were $12,903,000. 46 On April 8, 2004, we had a fire in the alkylation unit at our Ciniza refinery, requiring us to temporarily shutdown all of the operating units at the refinery. See Note 13 to our Consolidated Financial Statements included in Part I, Item 1 for a further discussion of this matter. The Ciniza refinery was scheduled to commence a major repair and upgrade shutdown (known as a "turnaround") on April 17, 2004. As a result of the fire discussed above, the turnaround was accelerated. We have completed the turnaround. See Note 13 to our Consolidated Financial Statements in Part I, Item 1 for a further discussion of this matter. We continue to investigate other capital improvements to our existing facilities. The amount of capital projects that are actually undertaken in 2004 will depend on, among other things, general business conditions and results of operations. DIVIDENDS We currently do not pay dividends on our common stock. The board of directors will periodically review our policy regarding the payment of dividends. Any future dividends are subject to the results of our operations, declaration by the board of directors, and existing debt covenants. RISK MANAGEMENT We are exposed to various market risks, including changes in certain commodity prices and interest rates. To manage these normal business exposures, we may, from time to time, use commodity futures and options contracts to reduce price volatility, to fix margins in our refining and marketing operations, and to protect against price declines associated with our crude oil and finished products inventories. Our policies for the use of derivative financial instruments set limits on quantities, require various levels of approval and require review and reporting procedures. In the first quarter of 2003, we entered into various crude oil futures contracts in order to economically hedge crude oil inventories and purchases for the Yorktown refinery operations. For the three months ended March 31, 2003, we recognized losses on these contracts of approximately $1,433,000 in cost of products sold. These transactions did not qualify for hedge accounting in accordance with SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities," as amended, and accordingly were marked to market each month. There were no similar transactions in the first quarter of 2004, and there were no open crude oil futures contracts or other commodity derivative contracts at March 31, 2004. Our credit facility is floating-rate debt tied to various short-term indices. As a result, our annual interest costs associated with this debt may fluctuate. At March 31, 2004, there were no direct borrowings outstanding under this facility. 47 Our loan facility is floating-rate debt tied to various short-term indices. As a result, our annual interest costs associated with this debt may fluctuate. At March 31, 2004, there was $20,000,000 outstanding under this facility. The potential increase in annual interest expense from a hypothetical 10% adverse change in interest rates on these borrowings at March 31, 2004, would be approximately $20,500. We expect to repay the outstanding balance of the loan facility on July 14, 2004. Our operations are subject to the normal hazards, including fire, explosion and weather-related perils. We maintain various insurance coverages, including business interruption insurance, subject to certain deductibles. We are not fully insured against some risks because some risks are not fully insurable, coverage is unavailable or premium costs, in our judgment, do not justify such expenditures. Credit risk with respect to customer receivables is concentrated in the geographic areas in which we operate and relates primarily to customers in the oil and gas industry. To minimize this risk, we perform ongoing credit evaluations of our customers' financial position and require collateral, such as letters of credit, in certain circumstances. ENVIRONMENTAL, HEALTH AND SAFETY Federal, state and local laws and regulations relating to health, safety and the environment affect nearly all of our operations. As is the case with other companies engaged in similar industries, we face significant exposure from actual or potential claims and lawsuits, brought by either governmental authorities or private parties, alleging non- compliance with environmental, health, and safety laws and regulations, or property damage or personal injury caused by the environmental, health, or safety impacts of current or historic operations. 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 us or by our predecessors. Applicable laws and regulations govern the investigation and remediation of contamination at our current and former properties, as well as at third-party sites to which we sent wastes for disposal. We may be held liable for contamination existing at current or former properties, notwithstanding that a prior operator of the site, or other third party, caused the contamination. We may also be held responsible for costs associated with contamination clean up at third-party disposal sites, notwithstanding that the original disposal activities were in accordance with all applicable regulatory requirements at such time. We are currently engaged in a number of such remediation projects. Future expenditures related to compliance with environmental, health and safety laws and regulations, the investigation and remediation of contamination, and the defense or settlement of governmental or private party claims and lawsuits cannot be reasonably quantified in many 48 circumstances for various reasons. These reasons include 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 that may be available to us, and changing environmental, health and safety laws, regulations, and their respective interpretations. We cannot provide assurance that compliance with such laws or regulations, such investigations or cleanups, or such enforcement proceedings or private-party claims will not have a material adverse effect on our business, financial condition or results of operations. Rules and regulations implementing federal, state and local laws relating to the environment, health, and safety will continue to affect our operations. We cannot predict what new environmental, health, or safety 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 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 our financial position and the results of our operations and could require substantial expenditures by us for, among other things: - the installation and operation of refinery equipment, pollution control systems and other equipment not currently possessed by us; - the acquisition or modification of permits applicable to our activities; and - the initiation or modification of clean up activities. OTHER The Occupational Health and Safety Bureau of the New Mexico Environment Department has issued safety regulations that could require us to incur additional expenses for security at our retail stores. For a detailed discussion of this matter, see Note 13 to our Consolidated Financial Statements, captioned "Subsequent Events". Our Ciniza and Bloomfield refineries continue to be affected by reduced crude oil production in the Four Corners area. The Four Corners basin is a mature production area and as a result is subject to a natural decline in production over time. This natural decline is being offset to some extent by new drilling, field workovers, and secondary recovery projects, which have resulted in additional production from existing reserves. As a result of the declining production of crude oil in the Four Corners area in recent years, we have not been able to cost-effectively obtain sufficient amounts of crude oil to operate our Four Corners refineries at full capacity. Crude oil utilization rates for our Four Corners refineries have declined from approximately 67% for 2003 to approximately 60% for the first three months of 2004. Our current 49 projections of Four Corners crude oil production indicate that our crude oil demand will exceed the crude oil supply that is available from local sources for the foreseeable future and that our crude oil capacity utilization rates at our Four Corners refineries will continue to decline. If additional crude oil or other refinery feedstocks become available in the future, we may increase production runs at our Four Corners refineries depending on the demand for finished products and the refining margins attainable. To that end, we continue to assess short-term and long-term options to address the continuing decline in Four Corners crude oil production. The options being considered include: - evaluating potentially economic sources of crude oil produced outside the Four Corners area, including ways to reduce raw material transportation costs to our refineries, - evaluating ways to encourage further production in the Four Corners area, - changes in operation/configuration of equipment at one or both refineries to further the integration of the two refineries, and reduce fixed costs, and - with sufficient further decline in raw material supply, the temporary, partial or permanent discontinuance of operations at one or both refineries. None of these options, however, may prove to be economically viable. We cannot assure you that the Four Corners crude oil supply for our Ciniza and Bloomfield refineries will continue to be available at all or on acceptable terms for the long term. Because large portions of the refineries' costs are fixed, any significant interruption or decline in the supply of crude oil or other feedstocks would have an adverse effect on our Four Corners refinery operations and on our overall operations. We are aware of a number of actions, proposals or industry discussions regarding product pipeline projects that could impact portions of our marketing areas. The completion of some or all of these projects would result in increased competition by increasing the amount of refined products potentially available in our markets, as well as improving competitor access to these areas. It also could result in new opportunities for us, as we are a net purchaser of refined products in some of these areas. We have been informed that the Longhorn Pipeline project that runs from Houston, Texas to El Paso, Texas and connects the Chevron pipeline to the Albuquerque area and to the Kinder-Morgan pipeline to the Phoenix and Tucson, Arizona markets will begin filling the pipeline in May 2004 and has a planned starting date of June 2004. In view of past postponements of previously announced start-up dates, we do not know if the Longhorn Pipeline will begin operation in June 2004 or at all. Our refining activities are conducted at our two refinery locations in New Mexico and the Yorktown refinery in Virginia. These refineries constitute a significant portion of our operating assets, and the two New Mexico refineries supply a significant portion of our retail operations. As a result, our operations would be significantly interrupted if any of the refineries were to experience a major accident, be damaged by severe weather or other natural disaster, or otherwise be forced to shut down. If any of the refineries were to experience an interruption in supply or operations, our business, financial condition and operating results could be materially and adversely affected. 50 FORWARD-LOOKING STATEMENTS This report includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities and Exchange Act of 1934. These statements are included throughout this report, including in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." These statements relate to projections of capital expenditures and other financial items. These statements also relate to our business strategy, goals and expectations concerning our market position, future operations, acquisitions, dispositions, margins, profitability, liquidity and capital resources. We have used the words "believe," "expect," "anticipate," "estimate," "could," "plan," "intend," "may," "project," "predict," "will" and similar terms and phrases to identify forward-looking statements in this report. Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate, and the forward-looking statements based on these assumptions could be incorrect. While we have made these forward-looking statements in good faith and they reflect our current judgment regarding such matters, actual results could vary materially from the forward- looking statements. Actual results and trends in the future may differ materially depending on a variety of important factors. These important factors include the following: - the availability of crude oil and the adequacy and costs of raw material supplies generally; - our ability to negotiate new crude oil supply contracts; - the risk that our long-term crude oil supply agreement with Statoil will not supply a significant portion of the crude oil needs of our Yorktown refinery over the term of the agreement, and will not reduce our crude oil costs, improve our high-value product output, contribute significantly to higher earnings, improve our competitiveness, or reduce the impact of crude oil markets' pricing volatility; - our ability to successfully manage the liabilities, including environmental liabilities that we assumed in the Yorktown acquisition; - our ability to obtain anticipated levels of indemnification; - competitive pressures from existing competitors and new entrants, including the potential effects of various pipeline projects and various actions that have been undertaken to increase the supply of refined products to El Paso, Texas; - volatility in the difference, or spread, between market prices for refined products and crude oil and other feedstocks; 51 - the risk that our operations will not remain competitive and realize acceptable sales volumes and margins in those markets where they currently do so; - our ability to adequately control operating expenses, including the cost to comply with the Sarbanes-Oxley Act, and non- essential capital expenditures; - the risk of increased costs resulting from employee matters, including unionization efforts and increased employee benefit costs; - state, federal or tribal legislation or regulation, or findings by a regulator with respect to existing operations, including the impact of government-mandated specifications for gasoline and diesel fuel on our operations; - unplanned or extended shutdowns in refinery operations; - the risk that we will not be able to repair and start-up the alkylation unit at the Ciniza refinery before the end of June. - the risk that we will not remain in compliance with covenants, and other terms and conditions, contained in our notes, credit facility and loan facility; - the risk that we will not be able to post satisfactory letters of credit; - general economic factors affecting our operations, markets, products, services and prices; - unexpected environmental remediation costs; - weather conditions affecting our operations or the areas in which our products are refined or marketed; - the risk we will be found to have substantial liability in connection with existing or pending litigation; - the occurrence of events that cause losses for which we are not fully insured; and - other risks described elsewhere in this report or described from time to time in our other filings with the Securities and Exchange Commission. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entity by the previous statements. Forward-looking statements we make represent our judgment on the dates such statements are made. We assume no obligation to update any information contained in this report or to publicly release the results of any revisions to any forward-looking statements to reflect events or circumstances that occur, or that we become aware of, after the date of this report. 52 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The information required by this item is incorporated herein by reference to the section entitled "Risk Management" in the Company's Management's Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2. ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures as of the end of the period covered by this report were effective as of the date of that evaluation. (b) Change in Internal Control Over Financial Reporting During the first quarter of 2004, Deloitte & Touche informed us that they had identified two reportable conditions in the design of our internal controls. The conditions, which were not material weaknesses, were related to our corporate accounting review process and our information systems. In respect to our corporate accounting review processes, certain analyses are prepared outside of our corporate accounting department, and are provided to our corporate accounting department as the basis for significant accounting adjustments or account balances. Certain audit adjustments were necessary to correctly state accounts related to vacation pay and loan fee amortization. Other analyses required extensive review of amounts recorded. We have implemented and continue to implement corrective actions and organizational changes to correct this condition. With regard to our information systems, we have been advised to improve our general computer controls related to program changes and access security. In addition, we have been advised to prepare and implement a plan to replace our VAX processing platform, which processes invoicing, crude leasing accounting, drivers' payroll and tank inventory because it is no longer supported by the vendor and poses processing continuity risks. We believe we have mitigating controls and procedures in place, have implemented password policies and have plans for the remediation of VAX issues on a short-term basis. In addition, we expect to implement a new processing platform. We do not yet know whether the mitigating controls and procedures and the corrective actions and organizational changes will be adequate. 53 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are a party to ordinary routine litigation incidental to our business. We also incorporate by reference the information regarding contingencies in Notes 12 and 13 to the Consolidated Financial Statements set forth in Part I, Item 1, and the discussion of certain contingencies contained in Part I, Item 2, under the heading "Liquidity and Capital Resources - Other." ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES On April 13, 2004, we made an offer to purchase for cash all $150,000,000 aggregate principal amount outstanding of our 9% senior subordinated notes due 2007 (the "9% notes"). The offer included a consent solicitation for amendments to the indenture governing the notes. In the consent solicitation, we asked the holders of the notes to consent to proposed amendments to the indenture governing the notes to eliminate substantially all of the restrictive covenants in the indenture. The consent solicitation expired on April 26, 2004, and on that date we had received sufficient consents to make the proposed amendments. As a result, on April 26, 2004, we executed a supplemental indenture implementing the proposed amendments. The amendments became operative on May 3, 2004, when we repurchased the notes tendered through that date and paid the consideration for the consents. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Our annual meeting of stockholders was held on April 29, 2004. Proxies for the meeting were solicited under Regulation 14A. There were no matters submitted to a vote of security holders other than the election of two directors and approval of auditors as specified in our Proxy Statement. There was no solicitation in opposition to management's nominees to the Board of Directors. Larry L. DeRoin was elected as a director of the Company. The vote was as follows: Shares Voted "For" Shares Voted "Withholding" - ------------------ -------------------------- 7,333,786 215,884 Richard T. Kalen, Jr. was elected as a director of the Company. The vote was as follows: Shares Voted "For" Shares Voted "Withholding" - ------------------ -------------------------- 7,171,949 377,721 54 Deloitte & Touche LLP was ratified as independent auditors for the Company for the year ending December 31, 2004. The vote was as follows: Shares Voted "For" Shares Voted "Against" Shares Voted "Abstaining" - ------------------ ---------------------- ------------------------- 7,079,378 17,838 452,454 In addition to the two directors elected above, other members of our Board of Directors include Fred L. Holliger, Chairman, Anthony J. Bernitsky, Brooks J. Klimley, George M. Rapport and Donald M. Wilkinson. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 4.1 Supplemental Indenture to Indenture dated as of August 26, 1997 for $150,000,000 9% Senior Subordinated Notes due 2007, dated as of February 10, 1998, between DeGuelle Oil Company, as additional Subsidiary Guarantor, and The Bank of New York, as Trustee. Incorporated by reference to Exhibit 4.4 to Amendment No. 3 to the Company's Registration Statement on Form S-3 under the Securities Act of 1933 as filed April 23, 2004, File No. 333-113590. 4.2 Supplemental Indenture to Indenture dated as of August 26, 1997 for $150,000,000 9% Senior Subordinated Notes due 2007, dated as of December 1, 2000, between Giant Pipeline Company, as additional Subsidiary Guarantor, and The Bank of New York, as Trustee. Incorporated by reference to Exhibit 4.5 to Amendment No. 3 to the Company's Registration Statement on Form S-3 under the Securities Act of 1933 as filed April 23, 2004, File No. 333-113590. 4.3 Supplemental Indenture, dated as of April 2, 2002, among Giant Industries, Inc., the Subsidiary Guarantors and The Bank of New York relating to the 9% Senior Subordinated Notes due 2007. Incorporated by reference to Exhibit 4.6 to Amendment No. 3 to the Company's Registration Statement on Form S-3 under the Securities Act of 1933 as filed April 23, 2004, File No. 333-113590. 4.4 Supplemental Indenture to Indenture dated as of August 26, 1997 for $150,000,000 9% Senior Subordinated Notes due 2007, dated as of May 10, 2002, among Giant Yorktown, Inc. and Giant Yorktown Holding Company, as additional Subsidiary Guarantors, and The Bank of New York, as Trustee. Incorporated by reference to Exhibit 4.7 to Amendment No. 3 to the Company's Registration Statement on Form S-3 under the Securities Act of 1933 as filed April 23, 2004, File No. 333-113590. 55 4.5 Supplemental Indenture dated as of April 26, 2004, among Giant Industries, Inc., the Subsidiary Guarantors listed as signatories thereto, and the Bank of New York, as Trustee. Incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K, dated April 28, 2004, File No. 1-10398. 4.6* Indenture, dated as of May 3, 2004, among Giant, as Issuer, the Subsidiary Guarantors, as guarantors, and The Bank of New York, as Trustee, Providing for Issuance of Notes in Series. 4.7* Supplemental Indenture, dated as of May 3, 2004, among Giant, as Issuer, the Subsidiary Guarantors, as guarantors, and The Bank of New York, as Trustee, relating to $150,000,000 of 8% Senior Subordinated Notes due 2014. 31.1* Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1* Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2* Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *Filed herewith. (b) Reports on Form 8-K: We filed the following reports on Form 8-K during the quarter for which this report is being filed and subsequently: (i) On February 9, 2004, we filed a Form 8-K dated February 9, 2004, containing a press release announcing the signing of a crude oil supply agreement with Statoil Marketing and Trading (USA), Inc. (ii) On March 8, 2004, we filed a Form 8-K dated March 8, 2004, containing a press release detailing our earnings for the three and twelve months ended December 31, 2003. (iii) On March 15, 2004, we filed a Form 8-K dated March 15, 2004, containing a press release announcing the filing of a Form S-3 universal shelf registration with the Securities and Exchange Commission. (iv) On April 8, 2004, we filed a Form 8-K dated April 8, 2004, containing a press release announcing that a fire had occurred at our Ciniza refinery. 56 (v) On April 29, 2004, we filed a Form 8-K dated April 29, 2004, containing (1) a supplemental indenture to our $150,000,000 senior subordinated notes due 2007, (2) a press release about our tender offer and consent solicitation, (3) a press release about the pricing of our common stock offering, and (4) a press release about the pricing of our offering of 8% senior subordinated notes due 2014. (vi) On May 13, 2004, we filed a Form 8-K dated May 13, 2004, containing a press release detailing our earnings for the three months ended March 31, 2004. 57 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-Q for the quarter ended March 31, 2004 to be signed on its behalf by the undersigned thereunto duly authorized. GIANT INDUSTRIES, INC. /s/ MARK B. COX --------------------------------------------- Mark B. Cox, Vice President, Treasurer, Chief Financial Officer and Assistant Secretary, on behalf of the Registrant and as the Registrant's Principal Financial Officer Date: May 14, 2004 58 54 EX-4 2 exhibit46.txt EXHIBIT 4.6 TO GIANT INDUSTRIES, INC. FIRST QUARTER 2004 10-Q EXHIBIT 4.6 ======================================================================== GIANT INDUSTRIES, INC. AND THE SUBSIDIARY GUARANTORS AND THE BANK OF NEW YORK, AS TRUSTEE INDENTURE DATED AS OF MAY 3, 2004 PROVIDING FOR ISSUANCE OF NOTES IN SERIES ======================================================================== GIANT INDUSTRIES, INC. INDENTURE DETAILED CROSS-REFERENCE TABLE Trust Indenture Act Indenture Section Section 310 (a)..................................... 7.10 (b)..................................... 7.08, 7.10 (c)..................................... N.A. 311 (a)..................................... 7.03 (b)..................................... 7.03 (c)..................................... 7.03 312 (a)..................................... 2.10, 13.02 (b)..................................... 13.02 (c)..................................... N.A. 313 (a)..................................... 7.06 (b)..................................... 7.06 (c)..................................... 7.05, 7.06 314 (a)..................................... N.A. (b) (1)................................. N.A. (b) (2)................................. N.A. (c) (1)................................. N.A. (c) (2)................................. N.A. (c) (3)................................. N.A. (d)..................................... N.A. (e)..................................... N.A. (f)..................................... N.A. 315 (a)..................................... 7.02 (b)..................................... 7.02 (c)..................................... 7.02 (d)..................................... 7.02 (e)..................................... N.A. 316 (a)..................................... N.A. (b)..................................... N.A. (c)..................................... 13.02 317 (a) (1)................................. N.A. (a) (2)................................. N.A. (b)..................................... N.A. i Trust Indenture Act Indenture Section Section 318 (a)..................................... N.A. (b)..................................... N.A. (c)..................................... N.A. ii TABLE OF CONTENTS ARTICLE I. DEFINITIONS AND INCORPORATION BY REFERENCE.................. 1 Section 1.01. Definitions............................................ 1 Section 1.02. Rules of Construction.................................. 8 Section 1.03. Incorporation by Reference of the Trust Indenture Act.. 9 ARTICLE II. THE NOTES.................................................. 9 Section 2.01. Unlimited in Amount, Issuable in Series, Form and Dating........................................ 9 Section 2.02. Execution, Authentication and Denominations............12 Section 2.03. Registrar, Paying Agent and Authenticating Agent; Paying Agent to Hold Money in Trust....................14 Section 2.04. Replacement Notes......................................15 Section 2.05. Outstanding Notes......................................15 Section 2.06. Temporary Notes........................................16 Section 2.07. Cancellation...........................................16 Section 2.08. CUSIP Numbers..........................................17 Section 2.09. Global Notes; Transfer and Exchange....................17 Section 2.10. Noteholder Lists.......................................20 Section 2.11. Defaulted Interest.....................................21 Section 2.12. Computation of Interest................................21 ARTICLE III. REDEMPTION................................................21 Section 3.01. Method and Effect of Redemption........................21 Section 3.02. Exclusion of Certain Notes From Eligibility for Selection for Redemption...........................23 Section 3.03. Deposit of Redemption Price............................23 ARTICLE IV. COVENANTS.................................................23 Section 4.01. Payment of Principal, Premium and Interest.............23 Section 4.02. Offices for Payments, Etc..............................24 Section 4.03. Appointment to Fill a Vacancy in Office of Trustee.....24 Section 4.04. Paying Agents..........................................24 Section 4.05. Written Statement to Trustee...........................25 Section 4.06. Calculation of Original Issue Discount.................25 ARTICLE V. CONSOLIDATION, MERGER, SALE OR CONVEYANCE...................26 Section 5.01. Company May Consolidate, Merge, Etc., on Certain Terms..........................................26 Section 5.02. Successor Company Substituted..........................26 iii TABLE OF CONTENTS Section 5.03. Opinion of Counsel to Trustee..........................26 ARTICLE VI. DEFAULT AND REMEDIES........................................27 Section 6.01. Events of Default......................................27 Section 6.02. Acceleration...........................................28 Section 6.03. Other Remedies.........................................30 Section 6.04. Waiver of Past Defaults................................30 Section 6.05. Control by Majority....................................30 Section 6.06. Limitation on Suits....................................30 Section 6.07. Rights of Holders to Receive Payment...................31 Section 6.08. Collection Suit by Trustee.............................31 Section 6.09. Trustee May File Proofs of Claim.......................31 Section 6.10. Priorities.............................................32 Section 6.11. Restoration of Rights and Remedies.....................32 Section 6.12. Undertaking for Costs..................................33 Section 6.13. Rights and Remedies Cumulative.........................33 Section 6.14. Delay or Omission Not Waiver...........................33 Section 6.15. Waiver of Stay, Extension or Usury Laws................33 ARTICLE VII. THE TRUSTEE...............................................34 Section 7.01. General................................................34 Section 7.02. Certain Rights of Trustee..............................34 Section 7.03. Individual Rights of Trustee...........................35 Section 7.04. Trustee's Disclaimer...................................36 Section 7.05. Notice of Default......................................36 Section 7.06. Reports by Trustee to Holders..........................36 Section 7.07. Compensation and Indemnity.............................37 Section 7.08. Replacement of Trustee.................................37 Section 7.09. Successor Trustee by Merger............................39 Section 7.10. Eligibility............................................39 Section 7.11. Money Held in Trust....................................39 ARTICLE VIII. DEFEASANCE AND DISCHARGE.................................39 Section 8.01. Discharge of Company's Obligations.....................39 Section 8.02. Legal Defeasance.......................................40 Section 8.03. Covenant Defeasance....................................41 iv TABLE OF CONTENTS Section 8.04. Application of Trust Money.............................41 Section 8.05. Repayment to Company...................................41 Section 8.06. Reinstatement..........................................42 ARTICLE IX. SUPPLEMENTAL INDENTURES....................................42 Section 9.01. Supplemental Indentures Without Consent of Holders.....42 Section 9.02. Supplemental Indentures with Consent of Holders........44 Section 9.03. Execution of Supplemental Indentures...................45 Section 9.04. Effect of Supplemental Indentures......................45 Section 9.05. Conformity with Trust Indenture Act....................46 Section 9.06. Reference in Notes to Supplemental Indentures..........46 ARTICLE X. SINKING FUNDS...............................................46 Section 10.01. Applicability of Article...............................46 Section 10.02. Satisfaction of Sinking Fund Payments with Notes.......46 Section 10.03. Redemption of Notes for Sinking Fund...................46 ARTICLE XI. SUBORDINATION OF NOTES......................................47 Section 11.01. Applicability of Article; Agreement to Subordinate Notes to Senior Indebtedness...............47 Section 11.02. No Payment on Subordinated Notes in Certain Circumstances..................................47 Section 11.03. Subordinated Notes Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization of the Company...........49 Section 11.04. Holders of Subordinated Notes to be Subrogated to Rights of Holders of Senior Indebtedness............50 Section 11.05. Obligations of the Company Unconditional...............50 Section 11.06. Entitled to Assume Payments Not Prohibited in Absence of Notice......................................51 Section 11.07. Application by Trustee of Assets Deposited With It.....51 Section 11.08. Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Indebtedness...........................................51 Section 11.09. Holders Authorize Trustee to Effectuate Subordination of Subordinated Notes....................52 Section 11.10. Right of Trustee to Hold Senior Indebtedness...........52 Section 11.11. Article Eleven Not to Prevent Events of Default........52 Section 11.12. Payment................................................52 Section 11.13. Trustee Not Fiduciary for Holders of Senior Indebtedness...........................................53 v TABLE OF CONTENTS ARTICLE XII. SUBSIDIARY GUARANTEES.....................................53 Section 12.01. Unconditional Guarantees...............................53 Section 12.02. Execution and Delivery of Guarantees...................54 Section 12.03. Limitation of Guarantor's Liability....................55 Section 12.04. Subordination of Guarantees............................55 ARTICLE XIII. MISCELLANEOUS............................................55 Section 13.01. Trust Indenture Act of 1939............................55 Section 13.02. Noteholder Communications; Noteholder Actions..........55 Section 13.03. Notices................................................56 Section 13.04. Certificate and Opinion as to Conditions Precedent.....57 Section 13.05. Statements Required in Certificate or Opinion..........58 Section 13.06. Payment Date Other Than a Business Day.................58 Section 13.07. Governing Law; Waiver of Jury Trial....................58 Section 13.08. No Adverse Interpretation of Other Agreements..........58 Section 13.09. Successors.............................................58 Section 13.10. Duplicate Originals....................................58 Section 13.11. Separability...........................................59 Section 13.12. Table of Contents and Headings.........................59 Section 13.13. No Liability of Directors, Officers, Employees, Incorporators and Stockholders.........................59 EXHIBIT EXHIBIT A - DTC Legend................................................A-1 vi INDENTURE, dated as of May 3, 2004, among Giant Industries, Inc., a Delaware corporation (the "Company"), the Subsidiary Guarantors listed as signatories hereto, and The Bank of New York, a New York banking corporation, as Trustee ("Trustee"). RECITALS The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its senior or subordinated debentures, notes or other evidences of indebtedness, which may be convertible into or exchangeable for any securities of any person (including the Company), and which may be guaranteed by the Subsidiary Guarantors, to be issued in one or more series (the "Notes"), as herein provided, up to such principal amount as may from time to time be authorized in or pursuant to one or more resolutions of the Board of Directors or by supplemental indenture. All things necessary to make this Indenture a valid, legal and binding agreement of the Company and each of the Subsidiary Guarantors, in accordance with its terms, have been done. This Indenture is subject to, and will be governed by, the provisions of the Trust Indenture Act that are required to be a part of and govern indentures qualified under the Trust Indenture Act. For and in consideration of the premises and the purchase from time to time of the Notes by the Holders thereof, the parties hereto covenant and agree, for the equal and proportionate benefit of all Holders, as follows: ARTICLE I. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions. "Act" has the meaning assigned to such term in Section 13.02(b). "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person directly or indirectly, whether through the ownership of Voting Stock, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent" means any Registrar, Paying Agent or Authenticating Agent. "Agent Member" means a member of, or a participant in, the Depositary. "Authenticating Agent" refers to a Person engaged to authenticate the Notes instead of the Trustee. "Bankruptcy Default" has the meaning assigned to such term in Section 6.01(h). "Board of Directors" means, with respect to any Person, the Board of Directors of such Person or any committee of the Board of Directors of such Person duly authorized to act on behalf of the Board of Directors of such Person. "Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York City or in the city where the Corporate Trust Office of the Trustee is located are authorized by law to close. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of corporate stock or partnership interests and any and all warrants, options and rights with respect thereto (whether or not currently exercisable), including each class of common stock and preferred stock of such Person. "Certificated Note" means a Note in fully-registered certificated form without interest coupons. "Commission" means the Securities and Exchange Commission. "Company" means Giant Industries, Inc., a Delaware corporation, or any successor obligor under the Indenture and the Notes pursuant to Article V. "Company Order" means a written request or order signed in the name of the Company by two Officers of the Company or by an Officer and the controller, treasurer, an assistant treasurer, the secretary or an assistant secretary, and delivered to the Trustee in respect of the series of Notes to which the Company Order shall relate. A Company Order shall specify the amount of Notes to be authenticated and the date on which the original issue of Notes is to be authenticated. "Corporate Trust Office" means the office of the Trustee, the Registrar and any Paying Agent, the principal corporate trust office at which at any particular time such respective entity's corporate trust business shall be administered, which at the date of the Indenture is located at 101 Barclay Street, 8 West, New York, New York 10286. "Credit Agreements" means the Company's Second Amended and Restated Credit Agreement dated as of May 14, 2002, among the Company, Bank of America, N. A., as Administrative Agent and as Letter of Credit Bank, and the lenders party thereto, as amended, and the Company's Loan Agreement, dated as of May 14, 2002, by and among Giant Yorktown, Inc., as Borrower, Wells Fargo Bank Nevada, National Association, as Collateral Agent, and the persons listed therein as lenders, as amended. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. 2 "Depositary" means with respect to the Notes of any series issuable or issued in whole or in part in the form of one or more Global Notes, the Person designated as Depositary for such series by the Company, which Depositary shall be a clearing agency registered under the Exchange Act; and if at any time there is more than one such Person, "Depositary" as used with respect to the Notes of any series shall mean the Depositary with respect to the Notes of such series. The initial Depositary shall be DTC. "Designated Senior Indebtedness" means (1) any Senior Indebtedness of the Company and/or any Subsidiary Guarantor permitted under this Indenture, the original principal amount of which is $20 million or more and that has been designated by the Company or such Subsidiary Guarantor as "Designated Senior Indebtedness" and (2) the Indebtedness and/or other obligations under the Credit Agreements. "DTC" means The Depository Trust Company, a New York corporation, and its successors. "DTC Legend" means the legend set forth in Exhibit A. "Event of Default" has the meaning assigned to such term in Section 6.01 hereof. "Exchange Act" means the Securities and Exchange Act of 1934, as amended, and the rules of and regulations of the SEC thereunder. "GAAP" means generally accepted accounting principles as in effect in the United States of America from time to time. "Global Note" means a Note in registered global form without interest coupons. "Guarantees" means, with respect to the Notes of any series, the guarantees with respect to the Notes of such series by a Subsidiary Guarantor pursuant to Article XII or a supplemental indenture thereto. "Guarantor Obligations" has the meaning assigned to such term in Section 12.01. "Holder" or "Noteholder" means the registered holder of any Note. "Indebtedness" has, for any series of Notes issued or outstanding hereunder, the meaning assigned to such term pursuant to a Board Resolution or an Officers' Certificate or established in one or more indentures supplemental hereto, prior to the issuance of Notes of any series pursuant to Section 2.01. "Indenture" means this indenture, as amended, supplemented or restated from time to time and shall include the terms of the or those particular series of Notes established as contemplated by Section 2.01 and the particular Guarantees, if any, established as contemplated by Section 12.01; provided, however, that, if at any time more than one Person is acting as Trustee under this instrument, "Indenture" shall mean, with respect to any one or more series of Notes for which a Person is Trustee, this instrument as originally executed or as it may from time to time be amended, supplemented or restated by one or more indentures supplemental hereto 3 entered into pursuant to the applicable provisions hereof, and shall include the terms of the or those particular series of Notes for which such Person is Trustee established as contemplated by Section 2.01, exclusive, however, of any provisions or terms which relate solely to other series of Notes for which such Person is not Trustee, regardless of when such terms or provisions were adopted, and exclusive of any provisions or terms adopted by means of one or more indentures supplemental hereto executed and delivered after such Person had become such Trustee but to which such Person, as such Trustee, was not a party. "Insolvency or Liquidation Proceeding" means, with respect to any Person, (i) an insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization proceeding or other similar case or proceeding, relative to such Person, as such, or its assets, or (ii) any liquidation, dissolution, reorganization proceeding or winding up of such Person (other than any reincorporation of such Person in another jurisdiction), whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors or any other marshaling of assets and liabilities of such Person. "Interest", when used with respect to an Original Issue Discount Note that by its terms bears interest only after maturity, means interest payable after maturity. "Interest Payment Date" means, for any series of Notes issued and outstanding hereunder, the date or dates in each year on which any interest on such series is due and payable. "Lien" means, with respect to any Person, any mortgage, pledge, lien, encumbrance, easement, restriction, covenant, right-of-way, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property of such Person, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option, right of first refusal or other similar agreement to sell, in each case securing obligations of such Person, and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statute or statutes) of any jurisdiction). "Notes" has the meaning assigned to such term in the recitals hereof and more particularly means any Notes authenticated and delivered under this Indenture; provided, however, that, if at any time there is more than one Person acting as Trustee under this Indenture, "Notes" with respect to the series as to which such Person is Trustee shall have the meaning stated in the first recital of this Indenture and shall more particularly mean Notes authenticated and delivered under this Indenture, exclusive, however, of Notes of any series as to which such Person is not Trustee. "Officer" means the president or chief executive officer, any vice president, the chief financial officer, the chief accounting officer, the controller, the treasurer or any assistant treasurer, or the secretary or any assistant secretary, of the Company or any Subsidiary Guarantor, as the case may be. "Officers' Certificate" means, with respect to any Person, a certificate signed by two officers, one of which must be the principal executive, principal financial or principal accounting officer. 4 "Opinion of Counsel" means a written opinion signed by legal counsel, who may be an employee of or counsel to the Company or any Subsidiary Guarantor. Each opinion shall include the statements provided for in Section 13.05 hereof. "Original Issue Discount Note" means any Note that provides that an amount less than its principal amount is due and payable upon acceleration after an Event of Default. "Payment Blockage Period" has the meaning assigned to such term in Section 11.02. "Payment Default" has the meaning assigned to such term in Section 11.02. "Payment Notice" has the meaning assigned to such term in Section 11.02. "Paying Agent" has the meaning assigned to such term in Section 2.03(a) hereof. "Person" means any individual, corporation, partnership, joint venture, trust, estate, unincorporated organization or government or any agency or political subdivision thereof. "Post-Commencement Interest" means all interest accrued or accruing after the commencement of any Insolvency or Liquidation Proceeding in accordance with and at the contract rate (including, without limitation, any rate applicable upon default) specified in the agreement or instrument creating, evidencing, or governing any Senior Indebtedness, whether or not, pursuant to applicable law or otherwise, the claim for such interest is allowed as a claim in such Insolvency or Liquidation Proceeding. "Principal" of any indebtedness means the principal amount of such indebtedness (or if such indebtedness was issued with original issue discount, the face amount of such indebtedness less the remaining unamortized portion of the original issue discount of such indebtedness), together with, unless the context otherwise indicates, any premium then payable on such indebtedness. "Redemption Price" has the meaning assigned to such term in Section 3.01(b)(ii). "Register" has the meaning assigned to such term in Section 2.03(a) hereof. "Registrar" has the meaning assigned to such term in Section 2.03(a) hereof. "Regular Record Date" means, for the interest payable on any Interest Payment Date in respect of any series of Notes, except as provided in, or pursuant to, Board Resolution and/or supplemental indenture (if any) relating thereto, the day (whether or not a Business Day) that is fifteen days preceding the applicable Interest Payment Date. "Responsible Officer" shall mean, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, treasurer, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such 5 person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "Senior Indebtedness" has, for any series of Notes issued or outstanding hereunder, the meaning assigned to such term pursuant to a Board Resolution or an Officers' Certificate or established in one or more indentures supplemental hereto, prior to the issuance of Notes of any series pursuant to Section 2.01. "Special Record Date" has the meaning assigned to such term in Section 2.11 hereof. "Stated Maturity" means with respect to any indebtedness, the date specified as the fixed date on which the final installment of principal of such indebtedness is due and payable. "Subordinated Notes" has the meaning assigned to such term in Section 11.01 hereof. "Subordinated Securities" means, with respect to Subordinated Notes, securities of the Company or any Subsidiary Guarantor that are subordinated at least to the same extent as the Subordinated Notes or Guarantees, respectively, to Senior Indebtedness of the Company and such Subsidiary Guarantor and to any securities that are issued in exchange for any such Senior Indebtedness. A "subsidiary" of any Person means (1) a corporation a majority of whose Voting Stock is at the time, directly or indirectly, owned by such Person, by one or more subsidiaries of such Person or by such Person and one or more subsidiaries of such Person, (2) a partnership in which such Person or a subsidiary of such Person is, at the date of determination, a general or limited partner of such partnership, but only if such Person or its subsidiary is entitled to receive more than 50% of the assets of such partnership upon its dissolution, or (3) any other Person (other than a corporation or partnership) in which such Person, directly or indirectly, at the date of determination thereof, has (A) at least a majority ownership interest or (B) the power to elect or direct the election of a majority of the directors or other governing body of such Person. For purposes of the foregoing definition, an arrangement by which a Person who owns an interest in an oil and gas property is subject to a joint operating agreement, processing agreement, net profits interest, overriding royalty interest, farm-out agreement, development agreement, area of mutual interest agreement, joint bidding agreement, unitization agreement, pooling arrangement or other similar agreement or arrangement shall not, in and of itself, cause such Person to be considered a Subsidiary. "Subsidiary" means any subsidiary of the Company. "Subsidiary Guarantor" means (i) each of the Company's Subsidiaries in existence on the date of this Indenture, except for Navajo Convenient Stores Co., LLC, (ii) each of the Subsidiaries that becomes a guarantor of the Notes in compliance with the provisions of this Indenture and (iii) each of the Subsidiaries executing a supplemental indenture in which such Subsidiary agrees to be bound by the terms of the Indenture; and their respective successors 6 and assigns until released from their obligations under their Guarantee in accordance with the Indenture. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in effect on the date this Indenture is originally executed. "Trustee" means the party named as such in the first paragraph of the Indenture or any successor trustee under the Indenture pursuant to Article VII. If at any time there is more than one Person acting as Trustee hereunder, "Trustee" as used with respect to the Notes of any series shall mean the Trustee with respect to the Notes of that series. "Unrestricted Subsidiary" means (1) any Subsidiary of the Company which at the time of determination shall be an Unrestricted Subsidiary (as designated by the Company's Board of Directors, as provided below) and (2) any Subsidiary of an Unrestricted Subsidiary. The Company's Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns, or holds any Lien on, any property of the Company or any other Restricted Subsidiary of the Company which is not a Subsidiary of the Subsidiary to be so designated. The Company's Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary. The Company shall not, and shall not cause or permit any Restricted Subsidiary to, at any time (1) provide credit support for, or subject any of its property or assets, other than the capital stock of any Unrestricted Subsidiary, to the satisfaction of, any Indebtedness of any Unrestricted Subsidiary, including any undertaking, agreement or instrument evidencing such Indebtedness, or (2) be directly or indirectly liable for any Indebtedness of any Unrestricted Subsidiary. For purposes of the foregoing, the designation of a Subsidiary as an Unrestricted Subsidiary shall be deemed to be the designation of all of the Subsidiaries of such Subsidiary. "U.S. Government Obligations" means securities that are (1) direct obligations of the United States of America for the payment of which its full faith and credit is pledged, (2) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation of the United States of America, which, in either case under clauses (1) or (2) are not callable or redeemable at the option of the issuer thereof. "Voting Stock" means, with respect to any Person, securities of any class or classes of Capital Stock in such Person entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of any contingency) to vote in the election of members of the Board of Directors or other governing body of such Person. Section 1.02. Rules of Construction. Unless the context otherwise requires or except as otherwise expressly provided, (1) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; 7 (2) "herein," "hereof" and other words of similar import refer to the Indenture as a whole and not to any particular Section, Article or other subdivision; (3) all references to Sections or Articles or Exhibits refer to Sections or Articles or Exhibits of or to the Indenture unless otherwise indicated; (4) references to agreements or instruments, or to statutes or regulations, are to such agreements or instruments, or statutes or regulations, as amended from time to time (or to successor statutes and regulations); (5) in the event that a transaction meets the criteria of more than one category of permitted transactions or listed exceptions the Company may classify such transaction as it, in its sole discretion, determines; (6) a term has the meaning assigned to it; (7) "or" is not exclusive; (8) words in the singular include the plural, and words in the plural include the singular; (9) any gender used in this Indenture shall be deemed to include the neuter, masculine or feminine genders; and (10) provisions apply to successive events and transactions. Section 1.03. Incorporation by Reference of the Trust Indenture Act. Whenever this Indenture refers to a provision of the Trust Indenture Act, the provision is incorporated by reference in and made a part of this Indenture. The following Trust Indenture Act terms used in this Indenture have the following meanings: (1) "indenture securities" means the Notes. (2) "indenture securityholder" means a Noteholder. (3) "indenture to be qualified" means this Indenture. (4) "indenture trustee" or "institutional trustee" means the Trustee. (5) "obligor" on the Notes means the Company and any successor obligor on the Notes. All other terms used in this Indenture that are defined by the Trust Indenture Act, defined by Trust Indenture Act reference to another statute or defined by Commission rule under the Trust Indenture Act have the meanings so assigned to them. 8 ARTICLE II. THE NOTES Section 2.01. Unlimited in Amount, Issuable in Series, Form and Dating. The aggregate principal amount of Notes that may be authenticated and delivered under this Indenture is unlimited. The Notes may be issued in one or more series. The Notes may be subordinated in right of payment to Senior Indebtedness as provided in Article XI. There shall be established in or pursuant to a Board Resolution or an Officers' Certificate pursuant to authority granted under a Board Resolution or established in one or more indentures supplemental hereto, prior to the issuance of Notes of any series, any or all of the following, as applicable: (a) the title and series designation of the Notes of the series (which shall distinguish the Notes of the series from all other series of Notes); (b) any limit upon the aggregate principal amount of Notes of the series that may be authenticated and delivered under this Indenture (except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Notes of the series pursuant to this Article II); (c) the price or prices (expressed as a percentage of the aggregate principal amount thereof) at which the Notes of the series will be issued; (d) the date or dates on which the principal of the Notes of the series is payable or the manner in which such date or dates are determined; (e) the rate or rates that may be fixed or variable at which the Notes of the series shall bear interest, if any, or the manner in which such rate or rates shall be determined, the date or dates from which such interest shall accrue, the Interest Payment Dates for the Notes of the series and the Regular Record Dates for the determination of Holders to whom interest is payable and the basis upon which interest shall be calculated, if other than on the basis of a 360-day year of twelve, 30-day months; (f) the place or places where the principal of, premium, if any, and any interest, if any, on Notes of the series shall be payable or the method of such payment, if by wire transfer, mail or by other means; and the place or places where notices or demands to or upon the Company in respect of the Notes of the series and this Indenture may be served, if, in each case, other than as provided herein; (g) the obligation or right, if any, of the Company to redeem, purchase or repay Notes of the series, in whole or in part, pursuant to any redemption, any sinking fund or analogous provisions or at the option of a Holder thereof, and the price or prices at which and the period and periods within which and the terms and conditions upon which Notes of the series may or shall be redeemed, purchased or repaid, in whole or in part, pursuant to such obligation or right; (h) the date or dates, if any, on which, and the price or prices at which, the Notes of the series will be repurchased by the Company at the option of the Holders thereof and other detailed terms and provisions of such repurchase obligations; 9 (i) if other than the Trustee, the identity of the trustee, Registrar and/or Paying Agent and, if applicable, the Authentication Agent for the Notes of that series; (j) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which Notes of the series shall be issuable; (k) if other than the principal amount thereof, the portion of the principal amount of Notes of the series which shall be payable upon declaration of acceleration of the maturity thereof pursuant to Section 6.02 hereof or the method by which such portion shall be determined; (l) any addition to, change in, or deletion from the covenants set forth in Articles IV or V or the discharge and defeasance provisions set forth in Article VIII that applies to Notes of the series; (m) any addition to, changes in or deletion from the Events of Default with respect to the Notes of a particular series and any change in the right of the Trustee or the requisite Holders of such Notes to declare the principal amount thereof due and payable pursuant to Section 6.02 hereof; (n) whether the amount of payment of principal of (and premium, if any, on) or interest, if any, on the Notes of the series may be determined with reference to an index, formula or other method (which index, formula or method may be based, without limitation, on one or more currencies, commodities, equity indices, or other indices), and the manner in which such amounts shall be determined; (o) the terms and conditions of any warrants that may be offered by the Company in connection with Notes of any series; (p) the forms of the Notes of the series and whether the Notes will be issuable, in whole or in part, as Global Notes; (q) the terms and conditions, if any, upon which such Global Note or Notes may be exchanged in whole or in part for other individual Notes, and the Depositary for such Global Note and Notes, if other than as set forth herein; (r) the provisions, if any, relating to any security provided for the Notes of the series; (s) the terms and conditions, if any, upon which additional interest or amounts may be payable with respect to Notes of any series; (t) the terms and conditions, if any, upon which the Notes of the series shall be exchanged for or converted into other securities of the Company or securities of another Person; (u) any depositories, interest rate calculation agents or other agents with respect to Notes of such series if other than those appointed herein; 10 (v) whether the Notes of such series are subject to subordination and any modification of, addition to or provision in lieu of any of the provisions of Article XI hereof, and whether such Notes rank as senior Subordinated Notes or Subordinated Notes or any combination thereof; (w) whether payment of any amounts due on the Notes will be guaranteed by one of more guarantors, including Subsidiary Guarantors; (x) any terms and conditions of the Guarantees that differ from those described herein; (y) the securities exchange or quotation system, if any, upon which Notes of any series will be listed or quoted and any CUSIP number, if any; and (z) any other terms of the series (which terms may modify, supplement or delete any provision of this Indenture with respect to such series; provided, however, that no such term may modify or delete any provision hereof if imposed by the Trust Indenture Act; and provided, further, that any modification or deletion of the rights, duties or immunities of the Trustee hereunder shall have been consented to in writing by the Trustee). All Notes of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to such Board Resolution or Officers' Certificate or in any such indenture supplemental hereto in each case, with appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture. Not all Notes of any one series need be issued at the same time, and, unless otherwise provided, a series may be reopened for issuance of additional Notes of such series. Notes may differ between series in respect of any matters, provided that all series of Notes shall be equally and ratably entitled to the benefits of this Indenture. The principal of, premium, if any, and any interest on the Notes shall be payable at the office or agency of the Company designated in the form of Note for the series (if other than the office or agency designated in Section 4.02 hereof); provided, however, that payment of interest may be made at the option of the Company by check mailed to the address of the Person entitled thereto as such address shall appear in the Register of Notes referred to in Section 2.03 hereof or by wire transfer to an account of the Person entitled thereto as such account shall be provided to the Registrar and shall appear on the Register. Each Note shall be in one of the forms approved from time to time by or pursuant to a Board Resolution or Officers' Certificate, or established in one or more indentures supplemental hereto. Prior to the delivery of a Note to the Trustee for authentication in any form approved by or pursuant to a Board Resolution, Officers' Certificate or supplemental indenture hereto, the Company shall deliver to the Trustee the Board Resolution, Officers' Certificate or supplemental indenture hereto by or pursuant to which such form of Note has been approved, which Board Resolution, Officers' Certificate or supplemental indenture hereto shall have attached thereto a true and correct copy of the form of Note that has been approved by or pursuant thereto. 11 The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Section 2.02. Execution, Authentication and Denominations. The Notes shall be executed for the Company by two Officers by facsimile or manual signature in the name and on behalf of the Company. Such signatures may be the manual or facsimile signatures of such Officers. If an Officer whose signature is on a Note no longer holds that office at the time the Note is authenticated, the Note will still be valid. (a) A Note will not be valid until the Trustee manually signs the certificate of authentication on the Note, with the signature conclusive evidence that the Note has been authenticated under the Indenture. The form of the Trustee's certificate of authentication to be borne by the Notes shall be substantially as follows: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Notes issued under the within-mentioned Indenture. [Trustee], as Trustee By: _________________________________ Authorized Signatory Dated: _____________ (b) At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Notes of any series executed by the Company to the Trustee, together with a Company Order for the authentication and delivery of such Notes. The Company Order may provide that the Notes that are the subject thereof shall be authenticated and delivered by the Trustee upon the written order of Persons designated in the Company Order, and that such Persons are authorized to specify the terms and conditions of such Notes, to the extent permitted by the Board Resolutions, Officers' Certificate and/or supplemental indenture (if any) relating thereto. If not all the Notes of any series are to be issued at one time and if the Board Resolution, Officers' Certificate or supplemental indenture establishing such series shall so permit, such Company Order may set forth procedures acceptable to the Trustee for the issuance of such Notes and determination of the terms of particular Notes of such series such as interest rate, maturity date, date of issuance and date from which interest shall accrue. The Trustee shall execute and deliver the supplemental indenture (if any) relating to the Notes and the Trustee shall authenticate and deliver the Notes as specified in such Company Order; provided that, prior to authentication and delivery of the first Notes of any Series, the Trustee shall have received: (1) a copy of the Board Resolutions or Officers' Certificate, with a copy of (i) the form of Note approved thereby and (ii) with respect to an Officers' Certificate, the Board Resolution approving such series, attached thereto, or a supplemental indenture in respect of the issuance of the Notes of the series, executed on behalf of the Company; 12 (2) an Officers' Certificate to the effect that the Notes of such series comply or will comply with the requirements of this Indenture and the Board Resolutions, Officer's Certificate and/or supplemental indenture (if any); (3) an Opinion of Counsel: (i) to the effect that (A) the Notes of such series, the Board Resolutions, Officers' Certificate and/or the supplemental indenture (if any) relating thereto comply or will comply with the requirements of this Indenture, and (B) the Notes of such series, when authenticated and delivered by the Trustee in accordance with the said Company Order, will constitute valid, legal and binding obligations of the Company enforceable in accordance with their terms and will be entitled to the benefits of the Indenture, subject to (x) bankruptcy and other laws affecting creditors' rights generally as in effect from time to time, (y) limitations of generally applicable equitable principles and (z) other exceptions acceptable to the Trustee and its counsel; and (ii) relating to such other matters as may reasonably be requested by the Trustee or its counsel; and (4) if the Notes to be issued are Original Issue Discount Notes, an Officers' Certificate setting forth the yield to maturity for the Notes or other information sufficient to compute amounts due on acceleration, or specifying the manner in which such amounts are to be determined, if such yield to maturity and other facts are not specified in the form of the Notes. (c) Subject to Section 7.02 hereof, the Trustee shall be fully protected in relying upon the documents delivered to it as provided above in connection with the issuance of any series of Notes. (d) The Trustee shall have the right to decline to authenticate and deliver any Notes under this Section 2.02 if the Trustee, being advised by counsel, determines that such action may not lawfully be taken or the Trustee in good faith shall determine that such action would expose the Trustee to liability to Holders of previously issued and outstanding Notes. (e) Each Note shall be dated the date of its authentication unless otherwise specified in the Officers' Certificate, Board Resolutions and/or supplemental indenture relating thereto. (f) The Notes of each series shall be issuable in definitive registered form without coupons and, except for any Global Note, in such denominations as shall be specified as contemplated by Section 2.01. In the absence of any such provisions with respect to the Notes of any series, the Notes of such series, other than a Global Note, shall be issuable in denominations of $1,000 and any integral multiple thereof. Section 2.03. Registrar, Paying Agent and Authenticating Agent; Paying Agent to Hold Money in Trust. (a) The Company shall maintain an office or agency where Notes of a particular series may be presented for registration of transfer or for exchange (the 13 "Registrar") and an office or agency where Notes of that series may be presented for payment (a "Paying Agent"). The Registrar for a particular series of Notes shall keep a register of the holders of the Notes of that series and of their registration of transfer and exchange (the "Register"). The Company may appoint one or more co-Registrars and one or more additional paying agents for each series of Notes. The term "Paying Agent" includes any additional paying agent. The Company shall promptly notify the Trustee in writing of the name and address of any Paying Agent not a party to this Indenture. The Company may appoint an Authenticating Agent, in which case each reference in the Indenture to the Trustee in respect of the obligations of the Trustee to be performed by that Agent will be deemed to be references to the Agent. The Company may act as Registrar or (except for purposes of Article VIII) Paying Agent. In each case the Company and the Trustee will enter into an appropriate agreement with the Agent implementing the provisions of the Indenture relating to the obligations of the Trustee to be performed by the Agent and the related rights. The Company initially appoints the Trustee as Registrar and Paying Agent. The Company may change the Registrar or Paying Agent without notice to any Holder; provided that upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee may serve as Paying Agent for the Notes. (b) On or prior to each due date of the principal of, premium, if any, and interest on any Note, the Company shall deposit with the Paying Agent a sum sufficient to pay such amount when so becoming due. The Company will require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of the Holders or the Trustee all money held by the Paying Agent for the payment of principal of, premium, if any, and interest on the Notes and will promptly notify the Trustee of any default by the Company in making any such payment. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and account for any funds disbursed, and the Trustee may at any time during the continuance of any payment default, upon written request to a Paying Agent, require the Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed. Upon doing so, the Paying Agent will have no further liability for the money so paid over to the Trustee. Section 2.04. Replacement Notes. If a mutilated Note is surrendered to the Trustee or the Company or if a Holder claims that its Note has been lost, destroyed or wrongfully taken, the Company will issue and the Trustee will authenticate a replacement Note of like tenor and principal amount and bearing a number not contemporaneously outstanding. Every replacement Note is an additional obligation of the Company and entitled to the benefits of the Indenture. An indemnity must be furnished by the Holder that is sufficient in the judgment of both the Trustee and the Company to protect the Company, the Subsidiaries, the Trustee, and any Agent from any loss they may suffer if a Note is replaced. The Company may charge the Holder for the expenses of the Company and the Trustee in replacing a Note. In case the mutilated, lost, destroyed or wrongfully taken Note has become or is about to become due and payable, the Company in its discretion may pay the Note instead of issuing a replacement Note. Upon the issuance of any replacement Note under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. 14 Section 2.05. Outstanding Notes. (a) Notes outstanding at any time are all Notes that have been authenticated by the Trustee except for: (i) Notes cancelled by the Trustee or delivered to it for cancellation; (ii) any Note which has been replaced pursuant to Section 2.04 unless and until the Trustee and the Company receive proof satisfactory to them that the replaced Note is held by a bona fide purchaser in whose hands such Note is a valid obligation of the Company; (iii) on or after the maturity date or any redemption date, those Notes payable or to be redeemed or purchased on that date for which the Trustee (or Paying Agent, other than the Company or an Affiliate of the Company) holds in trust money sufficient to pay all amounts then due; provided that if such Notes, or portions thereof, are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as herein provided, or provisions satisfactory to the Trustee shall have been made for giving such notice; and (iv) solely to the extent provided in Article VIII, Notes which are subject to legal defeasance or covenant defeasance as provided in Section 8.02 or 8.03. (b) A Note does not cease to be outstanding because the Company, a Subsidiary or one of their Affiliates holds the Note, provided that in determining whether the Holders of the requisite principal amount of the outstanding Notes have given or taken any request, demand, authorization, direction, notice, consent, waiver or other action hereunder, Notes owned by the Company or any Affiliate of the Company will be disregarded and deemed not to be outstanding (it being understood that in determining whether the Trustee is protected in relying upon any such request, demand, authorization, direction, notice, consent, waiver or other action, only Notes which a Responsible Officer of the Trustee knows to be so owned will be so disregarded). Notes so owned which have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Company or any Affiliate of the Company. (c) In determining whether the holders of the requisite principal amount of outstanding Notes of any or all series have given any request, demand, authorization, direction, notice, consent or waiver hereunder, (i) the principal amount of an Original Issue Discount Note that shall be deemed to be outstanding for such purposes shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon a declaration of acceleration of the maturity thereof, and (ii) Notes owned beneficially by the Company or any other obligor on the Notes with respect to which such determination is being made or any Affiliate of the Company or any Affiliate of any other obligor on the Notes with respect to which such determination is being made shall be disregarded and deemed not to be outstanding, except that, in determining 15 whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Notes so owned by the Company which have been pledged in good faith may be regarded as outstanding for such purpose if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Issuer. Section 2.06. Temporary Notes. Until definitive Notes of any series are ready for delivery, the Company may prepare and the Trustee will authenticate temporary Notes upon a Company Order. Temporary Notes will be substantially in the form of definitive Notes of such series but may have insertions, substitutions, omissions and other variations determined to be appropriate by the Officers executing the temporary Notes, as evidenced by the execution and authentication of the temporary Notes. If temporary Notes are issued, the Company will cause definitive Notes to be prepared without unreasonable delay. After the preparation of definitive Notes, the temporary Notes will be exchangeable for definitive Notes upon surrender of the temporary Notes at the office or agency of the Company designated for the purpose pursuant to Section 4.02, without charge to the Holder. Upon surrender for cancellation of any temporary Notes, the Company will execute and the Trustee will authenticate and deliver in exchange therefor a like principal amount of definitive Notes of authorized denominations. Until so exchanged, the temporary Notes will be entitled to the same benefits under the Indenture as definitive Notes. Section 2.07. Cancellation. The Company at any time may deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee for cancellation any Notes previously authenticated hereunder that the Company has not issued and sold. Any Registrar or the Paying Agent will forward to the Trustee any Notes surrendered to it for transfer, exchange or payment. The Trustee will cancel all Notes surrendered for transfer, exchange, payment or cancellation and dispose of them in accordance with its normal procedures or a Company Order. The Trustee shall deliver certification of all cancelled Notes to the Company and shall return cancelled Notes to the Company upon its written request therefor. The Company may not issue new Notes to replace Notes it has paid in full or delivered to the Trustee for cancellation. If the Company acquires any of the Notes, such acquisition shall not operate as a redemption or satisfaction of indebtedness represented by such Notes unless or until the same are delivered to the Trustee for cancellation. Section 2.08. CUSIP Numbers. The Company in issuing the Notes may use "CUSIP" numbers, and the Trustee will use CUSIP numbers in notices of redemption or exchange as a convenience to Holders. Any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of redemption or exchange and reliance may be placed only on the identification number printed on the Notes, and any such redemption or exchange shall not be affected by any defect or omission in such numbers. The Company will promptly notify the Trustee in writing of any change in the CUSIP numbers. Section 2.09. Global Notes; Transfer and Exchange. 16 (a) The Notes will be issued in registered form only, without coupons, and the Company shall cause the Registrar to maintain the Register for registering the record ownership of the Notes by the Holders and transfers and exchanges of the Notes. (b) Each Global Note will be registered in the name of the Depositary or its nominee. The Depositary shall be a clearing agency registered under the Exchange Act. The Company initially appoints DTC to act as Depositary with respect to the Notes in global form. Initially, the Global Notes shall be issued to the Depositary, registered in the name of Cede & Co., as the nominee of the Depositary, and deposited with the Trustee as custodian for Cede & Co. So long as DTC is serving as the Depositary thereof, each Global Note will bear the DTC Legend. (i) Each Global Note will be delivered to the Trustee as custodian for the Depositary. Transfers of a Global Note (but not a beneficial interest therein) will be limited to transfers thereof in whole, but not in part, by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary except as set forth in Section 2.09(b)(iv). (ii) Agent Members will have no rights under the Indenture with respect to any Global Note held on their behalf by the Depositary, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner and Holder of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, the Depositary or its nominee may grant proxies and otherwise authorize any Person (including any Agent Member and any Person that holds a beneficial interest in a Global Note through an Agent Member) to take any action which a Holder is entitled to take under the Indenture or the Notes, and nothing herein will impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any security. (iii) If (A) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for a Global Note and a successor depositary is not appointed by the Company within 90 days of the notice or (B) the Company notifies the Trustee to effect such exchange, the Trustee will promptly exchange each beneficial interest in the Global Note for one or more Certificated Notes in authorized denominations having an equal aggregate principal amount and registered in the name of the owner of such beneficial interest, as identified to the Trustee by the Depositary, and thereupon the Global Note will be deemed canceled. (iv) Unless otherwise provided herein or in a Board Resolution or Officers' Certificate establishing a series of Notes or in an indenture supplemental hereto, beneficial interests in a Global Note may not be exchanged for Certificated Notes. 17 (c) Each Certificated Note will be registered in the name of the Holder thereof or its nominee. (d) A Holder may transfer a Note of any series (or a beneficial interest therein) to another Person or exchange a Note of any series (or a beneficial interest therein) for another Note or Notes of any authorized denomination of the same series by presenting to the Trustee a written request therefor stating the name of the proposed transferee or requesting such an exchange, accompanied by any certification, opinion or other document reasonably required by the Trustee. The Trustee will promptly register any transfer or exchange that meets the requirements of this Section by noting the same in the register maintained by the Trustee for the purpose; provided that: (i) no transfer or exchange will be effective until it is registered in such register, and (ii) the Trustee will not be required (A) to issue, register the transfer of or exchange any Note of any particular series during the period 15 days before the day of mailing of a note of redemption of Notes of that series to be redeemed or purchased, (B) to register the transfer of or exchange any Note so selected for redemption or purchase in whole or in part, except, in the case of a partial redemption or purchase, that portion of any Note not being redeemed or purchased, or (C) if a redemption or a purchase is to occur after a Regular Record Date but on or before the corresponding Interest Payment Date, to register the transfer of or exchange such Note on or after the Regular Record Date and before the date of redemption or purchase. Prior to the registration of any transfer, the Company, the Trustee and their agents will treat the Person in whose name the Note is registered as the owner and Holder thereof for all purposes (whether or not the Note is overdue) and will not be affected by notice to the contrary. From time to time the Company will execute and the Trustee will authenticate additional Notes as necessary in order to permit the registration of a transfer or exchange in accordance with this Section. No service charge will be imposed in connection with any transfer or exchange of any Note, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than a transfer tax or other similar governmental charge payable upon exchange pursuant to subsection (b)(iv)). (e) If a beneficial interest in a Global Note of any particular series is transferred or exchanged for a beneficial interest in another Global Note of the same series, the Trustee will (A) record a decrease in the principal amount of the Global Note being transferred or exchanged equal to the principal amount of such transfer or exchange and (B) record a like increase in the principal amount of the other Global Note. Any beneficial interest in one Global Note that is so transferred to a Person who takes delivery in the form of an interest in another Global Note, or so exchanged for an interest in another Global Note, will, upon such transfer or exchange, cease to be an interest in such 18 Global Note and become an interest in such other Global Note for as long as it remains such an interest. (f) If a beneficial interest in a Global Note of any particular series is transferred or exchanged for a Certificated Note of the same series, the Trustee will (A) record a decrease in the principal amount of such Global Note equal to the principal amount of such transfer or exchange and (B) deliver one or more new Certificated Notes of such series in authorized denominations having an equal aggregate principal amount to the transferee (in the case of a transfer) or the owner of such beneficial interest (in the case of an exchange), registered in the name of such transferee or owner, as applicable. (g) If a Certificated Note of any particular series is transferred or exchanged for a beneficial interest in a Global Note of the same series, the Trustee will (A) cancel such Certificated Note, (B) record an increase in the principal amount of such Global Note equal to the principal amount of such transfer or exchange and (C) in the event that such transfer or exchange involves less than the entire principal amount of the canceled Certificated Note, deliver to the Holder thereof one or more new Certificated Notes of the same series in authorized denominations having an aggregate principal amount equal to the untransferred or unexchanged portion of the canceled Certificated Note, registered in the name of the Holder thereof. (h) If a Certificated Note of any particular series is transferred or exchanged for another Certificated Note of the same series, the Trustee will (A) cancel the Certificated Note being transferred or exchanged, (B) deliver one or more new Certificated Notes of such series in authorized denominations having an aggregate principal amount equal to the principal amount of such transfer or exchange to the transferee (in the case of a transfer) or the Holder of the canceled Certificated Note (in the case of an exchange), registered in the name of such transferee or Holder, as applicable, and (C) if such transfer or exchange involves less than the entire principal amount of the canceled Certificated Note, deliver to the Holder thereof one or more Certificated Notes of such series in authorized denominations having an aggregate principal amount equal to the untransferred or unexchanged portion of the canceled Certificated Note, registered in the name of the Holder thereof. (i) With respect to the Trustee, (i) The Trustee shall have no responsibility or obligation to any beneficial owner in a Global Note, a member of, or a participant in the Depository or other Person with respect to the accuracy of the records of the Depository or its nominee or of any participant or member thereof, with respect to any ownership interest in the Notes or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depository) of any notice (including any notice of redemption) or the payment of any amount, under or with respect to such Notes. All notices and communications to be given to the Holders and all payments to be made to Holders under the Notes shall be given or made only to or upon the order of the registered Holders (which shall be the Depository or its nominee in the case of the Global Note). The rights of beneficial owners in 19 the Global Note shall be exercised only through the Depository subject to the applicable rules and procedures of the Depository. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depository with respect to its members, participants and any beneficial owners. (ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among Depository participants, members or beneficial owners in the Global Note) other than to make any required delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. Section 2.10. Noteholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Noteholders, separately by series, and shall otherwise comply with Trust Indenture Act Section 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee on the Regular Record Date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Noteholders, separately by series, relating to such Interest Payment Date or request, as the case may be. Section 2.11. Defaulted Interest. If the Company defaults in a payment of interest on the Notes of any series, such installment of interest shall forthwith cease to be payable to the Holders in whose names the Notes were registered on the Regular Record Date applicable to such installment of interest. Defaulted interest (including any interest on such defaulted interest) may be paid by the Company, at its election, as provided in clause (a) or (b) below. (a) The Company may elect to make payment of any defaulted interest (including any interest on such defaulted interest) to the Holders in whose names the Notes are registered at the close of business on a special record date for the payment of such defaulted interest (a "Special Record Date"), which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid and the date of the proposed payment. Thereupon the Trustee shall fix a Special Record Date for the payment of such defaulted interest, which shall not be more than 15 calendar days and not less than 10 calendar days prior to the date of the proposed payment and not less than 10 calendar days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payments of such defaulted interest and the Special Record Date therefor to be sent, first-class mail, postage prepaid, to each Holder at such Holder's address as it appears in the registration books of the Registrar, at least 15 calendar days prior to such Special Record Date. Notice of the proposed payment of such defaulted interest and the Special Record Date therefor having been mailed as aforesaid, such defaulted interest shall be paid to the Holders in whose names the Notes are 20 registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (b). (b) Alternatively, the Company may make payment of any defaulted interest (including any interest on such defaulted interest) in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause (b), such manner of payment shall be deemed practicable by the Trustee. Section 2.12. Computation of Interest. Except as otherwise specified as contemplated by Section 2.01 for Notes of any series, any interest on the Notes of each series shall be computed on the basis of a 360-day year of twelve, 30-day months. ARTICLE III. REDEMPTION Section 3.01. Method and Effect of Redemption. (a) If the Company elects to redeem Notes of any series pursuant to the optional redemption provisions (if any) thereof, it must notify the Trustee of the redemption date, the redemption price and the principal amount of Notes of that series to be redeemed by delivering written notice at least 35 days before the redemption date (unless a shorter period is satisfactory to the Trustee). Any such notice may be cancelled at any time prior to notice of such redemption being mailed to any Holder and shall thereby be void and of no effect. If fewer than all of the Notes of any series are being redeemed, the particular Notes to be redeemed shall be selected not more than 30 days prior to the redemption date by the Trustee, from the outstanding Notes of such series not previously called for redemption, by such method as may be specified by the terms of such Notes or, if no such method is so specified, by such method as the Trustee shall deem fair and appropriate. The Trustee shall notify the Company promptly in writing of the Notes or portions of Notes to be called for redemption and, in the case of any Notes selected for partial redemption, the principal amount thereof to be redeemed. Except as otherwise provided as to any particular series of Notes, Notes and portions thereof that the Trustee selects shall be in amounts equal to the minimum authorized denomination for Notes of the series to be redeemed or any integral multiple thereof, except that if all of the Notes of the series are to be redeemed, the entire outstanding amount of the Notes of the series held by such Holder, even if not equal to the minimum authorized denomination for the Notes of that series, shall be redeemed. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. (b) Notice of redemption must be mailed by first-class mail by the Company or at the Company's request, by the Trustee in the name and at the expense of the Company, to Holders at the address set forth in the most recent noteholder list described in Section 2.10 hereof whose Notes are to be redeemed at least 30 days but not more than 60 days before the redemption date (unless the Trustee shall have agreed to a shorter 21 period). The notice of redemption will identify the Notes (including CUSIP numbers) to be redeemed and will include or state the following: (i) the redemption date; (ii) the redemption price fixed in accordance with the terms of the Notes of the series to be redeemed, plus accrued interest, if any, to the date fixed for redemption (the "Redemption Price"); (iii) the place or places where Notes are to be surrendered to the Paying Agent for redemption; (iv) that Notes called for redemption must be so surrendered to the Paying Agent in order to collect the Redemption Price; (v) that, on the redemption date, the Redemption Price will become due and payable on Notes called for redemption, and, unless the Company defaults in payment of the Redemption Price, interest on Notes called for redemption will cease to accrue on and after the redemption date; (vi) if less than all the outstanding Notes of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Notes to be redeemed; (vii) if any Note contains a CUSIP number, no representation is being made as to the correctness of the CUSIP number either as printed on the Notes or as contained in the notice of redemption and that the Holder should rely only on the other identification numbers printed on the Notes; and (viii) that the redemption is for a sinking fund, if such is the case. (ix) Once notice of redemption is sent to the Holders, Notes called for redemption become due and payable at the Redemption Price on the redemption date, and upon surrender of the Notes called for redemption, the Company shall redeem such Notes at the Redemption Price. Commencing on the redemption date, Notes redeemed will cease to accrue interest. Upon surrender of any Note redeemed in part, the Holder will receive a new Note equal in principal amount to the unredeemed portion of the surrendered Note. Section 3.02. Exclusion of Certain Notes From Eligibility for Selection for Redemption. Notes shall be excluded from eligibility for selection for redemption if they are identified by registration and certificate number in an Officers' Certificate delivered to the Trustee at least 40 days prior to the last date on which notice of redemption may be given as being owned of record and beneficially by, and not pledged or hypothecated by either (a) the Company or (b) an entity specifically identified in such Officers' Certificate as an Affiliate of the Company. Section 3.03. Deposit of Redemption Price. Prior to 10:00 a.m. E.S.T. on any redemption date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the 22 Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 4.04) an amount of money sufficient to pay the Redemption Price of, and (except if the redemption date shall be an Interest Payment Date, unless otherwise specified in or pursuant to the Board Resolutions or in the supplemental indenture executed in connection with the particular series of Notes) any accrued interest on, all the Notes or portions thereof which are to be redeemed on that date. ARTICLE IV. COVENANTS Section 4.01. Payment of Principal, Premium and Interest. The Company covenants and agrees for the benefit of each series of Notes that it will duly and punctually pay or cause to be paid the principal of, and interest on, each of the Notes of such series (together with any additional amounts payable pursuant to the terms of such Notes) at the place or places, at the respective time or times and in the manner provided in such Notes and in this Indenture. Each installment of interest on any Note may at the Company's option be paid by mailing a check for such interest, payable to or upon the written order of the Person entitled thereto pursuant to Section 2.03, to the address of such Person as it appears on the Register or by wire transfer to an account of the Person entitled thereto as such account shall be provided to the Registrar and shall appear on the Register. At the option of the Company, all payments of principal may be paid by official bank check to the Holder of the Note or other Person entitled thereto against surrender of such Note. Section 4.02. Offices for Payments, Etc. The Company will maintain in the Borough of Manhattan, The City of New York, an agency where the Notes of each series may be presented for payment, an agency where the Notes of each series may be presented for exchange as is provided in this Indenture and, if applicable, pursuant to Section 2.03 an agency where the Notes of each series may be presented for registration of transfer as is provided in this Indenture, which, in each case, initially shall be the Corporate Trust Office of the Trustee. The Company will give to the Trustee written notice of the location of each such agency and of any change of location thereof. In case the Company shall fail to maintain any agency required by this Section to be located in the Borough of Manhattan, The City of New York, or shall fail to give such notice of the location or of any change in the location of any of the above agencies, presentations and demands may be made and notices may be served at the Corporate Trust Office of the Trustee. The Company hereby initially appoints the Trustee as its agency for each of said purposes. The Company may from time to time designate one or more additional agencies where the Notes of a series may be presented for payment, where the Notes of that series may be presented for exchange as provided in this Indenture and pursuant to Section 2.03 and where the Notes of that series may be presented for registration of transfer as provided in this Indenture, and the Company may from time to time rescind any such designation, as the Company may deem desirable or expedient; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain the agency provided for in the first paragraph of this Section 4.02. The Company will give to the Trustee prompt written notice of any such designation or rescission thereof. 23 Section 4.03. Appointment to Fill a Vacancy in Office of Trustee. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 7.08, a Trustee, so that there shall at all times be a Trustee with respect to each series of Notes hereunder. Section 4.04. Paying Agents. Whenever the Company shall appoint a paying agent other than the Trustee with respect to the Notes of any series, it will cause such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section, (a) that it will hold all sums received by it as such agent for the payment of the principal of or interest on the Notes of such series in trust for the benefit of the holders of the Notes of such series or of the Trustee; (b) that it will give the Trustee notice of any failure by the Company to make any payment of the principal of or interest on the Notes of such series when the same shall be due and payable; and (c) that at any time during the continuance of any such failure, upon the written request of the Trustee it will forthwith pay to the Trustee all sums so held in trust by such paying agent. The Company will, prior to each due date of the principal of or interest on the Notes of such series, deposit with the paying agent a sum sufficient to pay such principal or interest so becoming due, and (unless such paying agent is the Trustee) the Company will promptly notify the Trustee of any failure to take such action. If the Company shall act as its own paying agent with respect to the Notes of any series, it will, on or before each due date of the principal of or interest on the Notes of such series, set aside, segregate and hold in trust for the benefit of the holders of the Notes of such series a sum sufficient to pay such principal or interest so becoming due. The Company will promptly notify the Trustee of any failure to take such action. Notwithstanding anything in this Section to the contrary, the Company may, at any time, for the purpose of obtaining satisfaction and discharge of one or more series of Notes, or for any other reason, pay, or cause to be paid, to the Trustee all sums held in trust by the Company or any Paying Agent, such sums to be held by the Trustee upon the same trusts and upon the same arrangement as those upon which such sums were held by the Company or such Paying Agent. Notwithstanding anything in this Section to the contrary, the agreement to hold sums in trust as provided in this Section is subject to the provisions of Section 8.05. Section 4.05. Written Statement to Trustee. The Company shall deliver to the Trustee on or before May 15 in each year (beginning the May 15 after the first issuance of Notes under this Indenture) a written statement (which need not comply with Section 13.05 hereof), signed by two of its Officers, one of which shall be the principal executive, principal financial or principal accounting officer to the Company, stating that in the course of the performance of their duties as officers of the Company they would normally have knowledge of any default by the Company in 24 the performance or fulfillment of any covenant, agreement or condition contained in this Indenture, without regard to notice requirements or periods of grace, stating whether or not they have knowledge of any such default and, if so, specifying each such default of which the signers have knowledge and the nature thereof. The Company shall deliver to a Responsible Officer of the Trustee, as soon as possible and in any event within 10 Business Days after the Company becomes aware of the occurrence of any Event of Default or an event which, with notice or the lapse of time or both, would constitute an Event of Default, in each case, under clauses (d), (e) or (f) of Section 6.01 hereof, an Officers' Certificate setting forth the details of such Event of Default or default and the action which the Company proposes to take with respect thereto. Section 4.06. Calculation of Original Issue Discount. The Company shall file with the Trustee promptly at the end of each calendar year (a) a written notice specifying the amount of original issue discount (including daily rates and accrual periods) accrued on outstanding Notes as of the end of such year and (b) such other specific information relating to such original issue discount as may then be relevant under the Internal Revenue Code of 1986, as amended from time to time. ARTICLE V. CONSOLIDATION, MERGER, SALE OR CONVEYANCE Section 5.01. Company May Consolidate, Merge, Etc., on Certain Terms. The Company covenants that it will not merge or consolidate into or convey, transfer or lease all or substantially all of its assets to any Person, unless (i) either, in the case of a merger, the Company shall be the surviving corporation, or the Person into which the Company is merged or which acquires all or substantially all the assets of the Company (if other than the Company) shall expressly assume the due and punctual payment of the principal of and interest on all the Notes of each series, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed or observed by the Company, by supplemental indenture satisfactory to the Trustee, executed and delivered to the Trustee by such corporation or Person, and (ii) the Company or such surviving corporation or Person, as the case may be, shall not, immediately after such merger or consolidation, or such conveyance, transfer or lease, be in Default in the performance of any such covenant or condition. Section 5.02. Successor Company Substituted. In case of any such consolidation, merger, conveyance, transfer or lease, and following such an assumption by the successor corporation, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein. Such successor corporation may cause to be signed, and may issue either in its own name or in the name of the Company prior to such succession any or all of the Notes issuable hereunder, which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor corporation instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Notes, which previously shall have been signed and delivered by the Officers of the Company to the Trustee for authentication, and any Notes, which such successor corporation thereafter shall cause to be 25 signed and delivered to the Trustee for that purpose. All of the Notes so issued shall in all respects have the same legal rank and benefit under this Indenture as the Notes theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Notes had been issued at the date of the execution hereof. In case of any such consolidation, merger, sale, transfer or lease, such changes in phraseology and form (but not in substance) may be made in the Notes thereafter to be issued as may be appropriate. In the event of any such sale or conveyance (other than a conveyance by way of lease), the Company or any successor corporation which shall theretofore have become such in the manner described in this Article shall be discharged from all obligations and covenants under this Indenture and the Notes and may be liquidated and dissolved. Section 5.03. Opinion of Counsel to Trustee. The Trustee, subject to the provisions of Sections 7.01 and 7.02, shall be provided with an Opinion of Counsel, prepared in accordance with Section 13.05, as conclusive evidence that any such consolidation, merger, conveyance, sale or lease, and any such assumption, and any such liquidation or dissolution, complies with the applicable provisions of this Indenture. ARTICLE VI. DEFAULT AND REMEDIES Section 6.01. Events of Default. An "Event Of Default" occurs with respect to Notes of any particular series, unless it is specifically deleted or modified in the Officers' Certificate, Board Resolutions and/or supplemental indenture (if any) in respect of such series, and in addition to any other events which may be specified as Events of Default in the Officers' Certificate, Board Resolutions and/or supplemental indenture (if any) in respect of such series, if: (a) the Company or any Subsidiary Guarantor defaults in the payment of the principal of or premium, if any, on any Note of such series when the same becomes due and payable at maturity, upon acceleration or redemption, or otherwise (whether or not prohibited by the subordination provisions of the Indenture); (b) the Company or any Subsidiary Guarantor defaults in the payment of interest on any Note of such series when the same becomes due and payable (whether or not prohibited by the subordination provisions of this Indenture), and the default continues for a period of 30 days; (c) the Company defaults in the payment of any sinking fund installment, when and as due by the terms of a Note of that series, and the default continues for a period of 30 days; (d) the Company or any Subsidiary Guarantor defaults in the performance of or breaches any other covenant or agreement of the Company contained in the Notes of such series, in the Guarantees or in this Indenture (other than a default specified in (a) or (b) above) and the default or breach continues for a period of 60 consecutive days after written notice to the Company or such Subsidiary Guarantor by the Trustee or to the 26 Company or such Subsidiary Guarantor and the Trustee by the Holders of 25% or more in principal amount of the Notes of such affected series then outstanding; (e) the acceleration of the maturity, or failure to make any payment when due at the final maturity, of any other Indebtedness of the Company, any Subsidiary Guarantor or any Restricted Subsidiary having an outstanding principal amount of $15 million or more individually or in the aggregate; (f) judgments or orders for the payment of money in an aggregate amount in excess of $15 million (net of applicable insurance coverage which is acknowledged in writing by the insurer) having been rendered against the Company, any Subsidiary Guarantor or any Restricted Subsidiary and such judgments or orders shall continue unsatisfied and unstayed for a period of 60 days; (g) a Guarantee by a Subsidiary Guarantor shall cease to be in full force and effect (other than a release of a Guarantee in accordance with this Indenture or any supplemental indenture) or any Subsidiary Guarantor shall deny or disaffirm its obligations with respect thereto; (h) there has been an entry of a decree or order by a court having jurisdiction in the premises adjudging the Company, any Subsidiary Guarantor or any Restricted Subsidiary as bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustments or composition of or in respect of the Company, any Subsidiary Guarantor or any Restricted Subsidiary under the Federal Bankruptcy Code or any other applicable federal or state law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company, any Subsidiary Guarantor or any Restricted Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 90 consecutive days; (i) the Company, any Subsidiary Guarantor or any Restricted Subsidiary institute proceedings to be adjudicated as bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency proceedings against it, or file a petition or answer or consent seeking reorganization or relief under the Federal Bankruptcy Code or any other applicable federal or state law, or consent to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company, any Subsidiary Guarantor or any Restricted Subsidiary or of any substantial part of its property, or makes an assignment for the benefit of creditors, or admits in writing its inability to pay its debts generally as they become due (an event of default specified in clause (g) or (h) a "Bankruptcy Default"). Section 6.02. Acceleration. (a) If an Event of Default (other than a Bankruptcy Default) with respect to the Notes of any series occurs and is continuing under the Indenture, unless the principal of all the Notes of such series have already become due and payable, the Trustee or the Holders of at least 25% in principal amount of the Notes of such series then outstanding 27 (each such series voting as a separate class), by written notice to the Company (and to the Trustee if the notice is given by the Holders), may, and the Trustee at the request of such Holders shall, declare the principal of, premium, if any, and accrued interest on the Notes to be immediately due and payable (or if the Notes of such series are Original Discount Notes, such portion of the principal amount as may be specified in the terms of such series). Upon a declaration of acceleration, such principal and interest will become immediately due and payable. If a Bankruptcy Default occurs and is continuing with respect to the Company, the principal of, premium, if any, and accrued interest on all Notes of each series then outstanding (or if the Notes of such series are Original Discount Notes, such portion of the principal amount as may be specified in the terms of such series) will, unless the principal of all the Notes of such series shall have already become due and payable, become immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. (b) At any time after such a declaration of acceleration with respect to the Notes of a series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter provided, the Holders of a majority in principal amount of outstanding Notes of such series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (i) the Company has paid or deposited with the Trustee a sum sufficient to pay: (A) all overdue interest on all the Notes of such series; (B) the principal of, and premium, if any, on any of the Notes of such series which has become due otherwise than by such declaration of acceleration, and interest thereon at the rate or rates prescribed therefor in such Notes; (C) to the extent that payment of such interest is lawful and applicable, interest upon overdue installments of interest at the rate or rates prescribed therefor in such Notes; and (D) all sums paid or advanced by the Trustee under this Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; (ii) such rescission would not conflict with any judgment or decree of a court of competent jurisdiction; and (iii) all Events of Default with respect to the Notes of such series, other than the non-payment of the principal of, and interest on, such Notes which have become due solely by such declaration of acceleration, have been cured or waived or otherwise remedied in accordance with the provisions of this Indenture. 28 Notwithstanding the preceding paragraph, in the event of a declaration of acceleration in respect of the Notes of any series because an Event of Default shall have occurred and be continuing, such declaration of acceleration shall be automatically annulled if the Indebtedness that is the subject of such Event of Default has been discharged or the holders thereof have rescinded their declaration of acceleration in respect of such Indebtedness, and written notice of such discharge or rescission, as the case may be, shall have been given to the Trustee by the Company and countersigned by the Holders of such Notes or a trustee, fiduciary or agent for such Holders within 30 days after such declaration of acceleration in respect of the Notes of any series, and no other Event of Default has occurred during such 30-day period which has not been cured or waived during such period. For all purposes under this Indenture, if a portion of the principal of any Original Issue Discount Notes shall have been accelerated and declared due and payable pursuant to the provisions hereof, then, from and after such declaration, unless such declaration has been rescinded and annulled, the principal amount of such Original Issue Discount Notes shall be deemed, for all purposes hereunder, to be such portion of the principal thereof as shall be due and payable as a result of such acceleration, and payment of such portion of the principal thereof as shall be due and payable as a result of such acceleration together with interest, if any, thereon and all other amounts owing thereunder, shall constitute payment in full of such Original Issue Discount Notes. Section 6.03. Other Remedies. If an Event of Default occurs, has not been waived, and is continuing with respect to the Notes of any series, the Trustee may pursue, in its own name or as trustee of an express trust, any available remedy by proceeding at law or in equity to collect the payment of principal of, premium, if any and interest on the Notes of such series or to enforce the performance of any provision of the Notes of such series or the Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes of such series or does not produce any of them in the proceeding. Section 6.04. Waiver of Past Defaults. Except as otherwise provided in Sections 6.02, 6.07 and 9.02, the Holders of a majority in aggregate principal amount of the outstanding Notes may, by notice to the Trustee, waive an existing Default and its consequences. Upon such waiver, the Default will cease to exist, any Event of Default arising therefrom will be deemed to have been cured and each of the Company, the Subsidiary Guarantors, if any, the Trustee and the Holders of the Notes will be restored to their former positions and rights hereunder; provided, however, that no such waiver will extend to any subsequent or other Default or impair any right consequent thereon. Section 6.05. Control by Majority. The Holders of a majority in aggregate principal amount of the outstanding Notes of a particular series (or if more than one series is affected, of all such series voting as a separate class) may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. The Trustee may, however, refuse to follow any such direction that conflicts with law or this Indenture, that may involve the Trustee in personal liability, or that the Trustee determines in good faith may be unduly prejudicial to the rights of Holders of Notes of such series not joining in the giving of such direction, and may take any other action it deems proper that is not inconsistent with such direction. 29 Section 6.06. Limitation on Suits. A Holder may not pursue any proceeding, judicial or otherwise, or the appointment of a receiver or trustee, or any other remedy under the Indenture or the Notes of the applicable series, unless: (a) the Holder has previously given to the Trustee written notice of a continuing Event of Default; (b) Holders of at least 25% in principal amount of then outstanding Notes of the series in respect of which the Event of Default has occurred have made written request to the Trustee to pursue a remedy in respect of the Event of Default; (c) such Holders have offered and, if requested, provided to the Trustee indemnity and security reasonably satisfactory to the Trustee against any costs, liabilities or expenses to be incurred in compliance with such request; (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to pursue any such remedy; and (e) during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding Notes of such series have not given the Trustee a direction that is inconsistent with such written request. The foregoing limitations do not apply to the right of any Holder to receive payment of principal of, premium, if any, or interest on any series of Notes or to bring suit for the enforcement of any payment on or after the due date, which right shall not be impaired or affected without the consent of the Holder. No Holder of any series of Notes may use this Indenture to affect, disturb or prejudice the rights of another Holder of Notes of that series or to obtain a preference or priority over another Holder of Notes of that series (it being understood that the Trustee does not have an affirmative duty to ascertain whether or not such actions or forbearances are unduly prejudicial to such Holders). Section 6.07. Rights of Holders to Receive Payment. Notwithstanding anything herein to the contrary, the right of any Holder to receive payment of principal of and premium, if any, and interest on its Note on or after the Stated Maturities thereof, or to bring suit for the enforcement of any such payment on or after such respective dates, may not be impaired or affected without the consent of that Holder. Section 6.08. Collection Suit by Trustee. If an Event of Default in payment of principal or interest specified in clause (a) or (b) of Section 6.01 occurs and is continuing with respect to the Notes of any series, upon the demand of the Trustee, the Company will pay to the Trustee for the benefit of the Holders of any affected series of Notes the premium, if any, and interest remaining unpaid on the Notes of that series then outstanding, together with interest on overdue principal and, to the extent lawful, overdue installments of interest, in each case at the rate specified in the Notes, and such further amount as is sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amounts due the Trustee hereunder. If the 30 Company fails to pay such amount upon demand by the Trustee, the Trustee will be empowered to recover judgment in its own name and as trustee of an express trust the sums so due and payable. Section 6.09. Trustee May File Proofs of Claim. The Trustee may file proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee hereunder) and the Holders allowed in any judicial proceedings relating to the Company, the Subsidiary Guarantors, if applicable, or their respective creditors or property, and is entitled and empowered to collect, receive and distribute any money, securities or other property payable or deliverable upon any such claims. Any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, if the Trustee consents to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee hereunder. Nothing in the Indenture will be deemed to empower the Trustee to authorize or consent to, or accept or adopt on behalf of any Holder, any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.10. Priorities. If the Trustee collects any money with respect to Notes of any series pursuant to this Article, it shall pay out the money in the following order: (a) First, to the payment of costs and expenses applicable to such series in respect of which monies have been collected, including reasonable compensation to the Trustee and each predecessor Trustee and their respective agents and attorneys and of all expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee except as a result of negligence or bad faith, and all other amounts due to the Trustee or any predecessor Trustee pursuant to Section 7.07; (b) Second, in accordance with the subordination provisions, if any, of the Notes of such series; (c) Third, in case the principal of the Notes of such series in respect of which monies have been collected shall not have become and be then due and payable, to the payment of interest on the Notes of such series in default in the order of the maturity of the installments of such interest, with interest (to the extent that such interest has been collected by the Trustee) upon the overdue installments of interest at the same rate as the rate of interest or yield to maturity (in the case of Original Issue Discount Notes) specified in such Notes, such payments to be made ratably to the Persons entitled thereto, without discrimination or preference; (d) Fourth, in case the principal of the Notes of such series in respect of which monies have been collected shall have become and shall be then due and payable, to the payment of the whole amount then owing and unpaid upon all the Notes of such series for 31 principal and interest, with interest upon the overdue principal, and (to the extent such interest has been collected by the Trustee) upon overdue installments of interest at the same rate as the rate of interest or yield to maturity (in the case of Original Issue Discount Notes) specified in the Notes of such series; and in case such monies shall be insufficient to pay in full the whole amount so due and unpaid upon the Notes of such series, then to the payment of such principal and interest, without preference or priority of principal over interest or yield to maturity, or of interest or yield to maturity over principal, or of any installment of interest over any other installment of interest, or of any Notes of such series over any other Notes of such series, ratably to the aggregate of such principal and accrued and unpaid interest or yield to maturity; and (e) Fifth, to the Company or such other Person as a court of competent jurisdiction may direct. The Trustee, upon written notice to the Company, may fix a record date and payment date for any payment to Holders pursuant to this Section. Section 6.11. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted a proceeding to enforce any right or remedy under the Indenture and the proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to the Holder, then, subject to any determination in the proceeding, the Company, the Subsidiary Guarantors, the Trustee and the Holders will be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Company, the Subsidiary Guarantors, the Trustee and the Holders will continue as though no such proceeding had been instituted. Section 6.12. Undertaking for Costs. In any suit for the enforcement of any right or remedy under the Indenture or in any suit against the Trustee for any action taken or omitted to be taken by it as Trustee, all parties to this Indenture agree, and each Holder shall be deemed to have agreed, that a court may require any party litigant in such suit (other than the Trustee) to file an undertaking to pay the costs of the suit, and the court may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant (other than the Trustee) in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by a Holder to enforce payment of principal, premium, if any, and interest on any Note of any series on the respective due dates, or a suit by Holders of more than 10% in principal amount of the outstanding Notes of any series. Section 6.13. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement of lost, destroyed or wrongfully taken Notes of any series in Section 2.04, no right or remedy conferred or reserved to the Trustee or to the Holders under this Indenture is intended to be exclusive of any other right or remedy, and all such rights and remedies are, to the extent permitted by law, cumulative and in addition to every other right and remedy hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or exercise of any right or remedy hereunder, or otherwise, will not prevent the concurrent assertion or exercise of any other right or remedy. 32 Section 6.14. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder to exercise any right or remedy accruing upon any Event of Default will impair the exercise of any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. Section 6.15. Waiver of Stay, Extension or Usury Laws. Each of the Company and the Subsidiary Guarantors, if any, covenants, to the extent that it may lawfully do so, that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company and the Subsidiary Guarantors from paying all or any portion of the principal of, premium, if any, or interest on the Notes of any series as contemplated herein, wherever enacted, now or at any time hereafter in force, or that may affect the covenants or the performance of the Indenture. The Company hereby expressly waives, to the extent that it may lawfully do so, all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as if no such law had been enacted. ARTICLE VII. THE TRUSTEE Section 7.01. General. (a) The duties and responsibilities of the Trustee are as provided by the Trust Indenture Act and as set forth herein. Whether or not expressly so provided, every provision of the Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee is subject to this Article. (b) Except during the continuance of an Event of Default with respect to the Notes of any series, the Trustee need perform only those duties that are specifically set forth in the Indenture and no others, and no implied covenants or obligations will be read into the Indenture that are adverse to the Trustee. In case an Event of Default has occurred and is continuing with respect to the Notes of any series, the Trustee shall exercise those rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (c) No provision of the Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct. Section 7.02. Certain Rights of Trustee. Subject to Trust Indenture Act Section 315(a) through (d): (a) In the absence of negligence or willful misconduct on its part, the Trustee may conclusively rely, and will be protected in acting or refraining from acting, upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, 33 consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document (whether in its original or facsimile form) believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document, but, in the case of any document which is specifically required to be furnished to the Trustee pursuant to any provision hereof, the Trustee shall examine the document to determine whether it conforms to the requirements of the Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). The Trustee, in its discretion, may make further inquiry or investigation into such facts or matters as it sees fit. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel conforming to Section 13.05, and the Trustee will not be liable for any action it takes or omits to take in good faith in reliance on the certificate or opinion. (c) The Trustee may act through its attorneys and agents and will not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee will be under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request or direction of any of the Holders of any series of Notes, unless such Holders have offered to the Trustee reasonable security or indemnity satisfactory to it against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (e) The Trustee will not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within its rights or powers or for any action it takes or omits to take in accordance with the direction of the Holders of any series of Notes in accordance with Section 6.05 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture. (f) The Trustee may consult with counsel, and the advice of such counsel or any Opinion of Counsel will be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (g) No provision of this Indenture will require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties hereunder, or in the exercise of its rights or powers, unless it receives indemnity satisfactory to it against any loss, liability or expense. (h) The Trustee shall not be deemed to have notice of any default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at its Corporate Trust Office and such notice references the Notes and this Indenture. 34 (i) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its rights to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder. (j) In no event shall the Trustee be responsible or liable for special, indirect or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action. (k) The Trustee may request that the Company deliver an Officers' Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers' Certificate may be signed by any person authorized to sign an Officers' Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded. Section 7.03. Individual Rights of Trustee. The Trustee, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not the Trustee. Any Agent may do the same with like rights. The Trustee is, however, subject to Trust Indenture Act Section 311. For purposes of Trust Indenture Act Sections 311(b)(4) and (6): (a) "Cash Transaction" means any transaction in which full payment for goods or securities sold is made within seven days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand; and (b) "Self-Liquidating Paper" means any draft, bill of exchange, acceptance or obligation which is made, drawn, negotiated or incurred by the Company for the purpose of financing the purchase, processing, manufacturing, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of, or a lien upon, the goods, wares or merchandise or the receivables or proceeds arising from the sale of the goods, wares or merchandise previously constituting the security, provided the security is received by the Trustee simultaneously with the creation of the creditor relationship arising from the making, drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation. Section 7.04. Trustee's Disclaimer. The Trustee (i) makes no representation as to the validity or adequacy of the Indenture or the Notes of any series, (ii) is not accountable for the Company's use or application of the proceeds from the Notes of any series, and (iii) is not responsible for any statement in the Notes of any series other than its certificate of authentication. Section 7.05. Notice of Default. If any Default or Event of Default occurs and is continuing with respect to the Notes of any series, and if it is known to the Trustee, the Trustee will send notice of the uncured Default to each Holder of the Notes of such series within five days after it occurs, unless the Default has been cured; provided that, except in the case of a 35 default in the payment of the principal of, premium, if any, or interest on any such Note, the Trustee may withhold the notice if and so long as the board of directors, the executive committee or a trust committee of directors of the Trustee in good faith determines that withholding the notice is in the interest of the Holders. Notice to Holders under this Section will be given in the manner and to the extent provided in Trust Indenture Act Section 313(c); and provided further that in the case of any Default of the character specified in Section 6.01(4) no such notice to Holders shall be given until at least 30 days after the occurrence thereof. Except in the case of an Event of Default resulting from nonpayment on any Note, the Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a Default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Notes and this Indenture. Section 7.06. Reports by Trustee to Holders. The Trustee shall transmit to each Holder such reports concerning, among other things, the Trustee and its action under this Indenture as may be required pursuant to the Trust Indenture Act at the time and in compliance with Section 313(a) of the Trust Indenture Act. The Trustee also shall comply with Sections 313(b)(2) and 313(c) of the Trust Indenture Act. A copy of each such report at the time of its mailing to Noteholders shall be filed with the Commission and each stock exchange, if any, on which the Notes of any series are listed. The Company shall notify the Trustee in writing if the Notes of any series become listed on any stock exchange or any delisting thereof. Section 7.07. Compensation and Indemnity. (a) The Company and the Subsidiary Guarantors, if applicable, jointly and severally, will pay the Trustee from time to time such compensation as shall be agreed upon in writing for its services. The compensation of the Trustee is not limited by any law on compensation of a Trustee of an express trust. The Company and the Subsidiary Guarantors, if applicable, will reimburse the Trustee upon request for all reasonable out-of-pocket expenses, disbursements and advances incurred or made by the Trustee while acting as Trustee under this Indenture, including the reasonable compensation, disbursements and expenses of the Trustee's attorneys, accountants, experts and other such professionals as the Trustee deems necessary, advisable or appropriate, except any such expense as shall be determined to have been caused by its own negligence or willful misconduct. (b) The Company and the Subsidiary Guarantors, if applicable, will jointly and severally indemnify the Trustee and any predecessor Trustee (which for purposes of this Section 7.07 shall include its officers, directors, employees, agents and shareholders) for, and hold it harmless against, any and all loss, damage, claim or liability or expense (including the reasonable fees and expenses of counsel and taxes other than those based upon the income of the Trustee) incurred by it without negligence or willful misconduct on its part arising out of or in connection with the acceptance or administration of the Indenture and its duties under the Indenture and the Notes of each series, including the costs and expenses of defending itself against any claim (whether asserted by the Company, any Holder or any Person) or liability and of complying with any process served upon it or any of its officers in connection with the exercise or performance of any 36 of its powers or duties under the Indenture and any such Notes. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(7) and (8) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any bankruptcy law. (c) The obligations of the Company and the Subsidiary Guarantors, if applicable, under this Section shall not be subordinated to the payment of Senior Indebtedness pursuant to Article XI hereof and shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture. To secure the Company's and the Subsidiary Guarantors', if applicable, payment obligations in this Section, the Trustee will have a lien prior to the Notes of each series on all money or property held or collected by the Trustee, in its capacity as Trustee, except money or property held in trust to pay principal of, premium, if any, and interest on particular Notes of any series. Section 7.08. Replacement of Trustee. (a) (i) The Trustee may resign at any time by written notice to the Company. (i) The Holders of a majority in aggregate principal amount of the outstanding Notes of all series for which any one Trustee is acting as Trustee (voting as a single class) may remove such Trustee by written notice to the Company and the Trustee. (ii) If the Trustee is no longer eligible under Section 7.10 or in the circumstances described in Trust Indenture Act Section 310(b), any Holder that satisfies the requirements of Trust Indenture Act Section 310(b) may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (iii) The Company may remove the Trustee if: (i) the Trustee is no longer eligible under Section 7.10; (ii) the Trustee is adjudged a bankrupt or an insolvent; (iii) a receiver or other public officer takes charge of the Trustee or its property; or (iv) the Trustee becomes incapable of acting. A resignation or removal of the Trustee and appointment of a successor Trustee will become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. (b) If the Trustee has been removed by the Holders, Holders of a majority in principal amount of the outstanding Notes of all series for which the Trustee was acting as Trustee (voting as a single class) may appoint a successor Trustee for all such series with the consent of the Company. Otherwise, if the Trustee resigns or is removed, or if a vacancy exists in the office of Trustee for any reason, the Company will promptly appoint a successor Trustee. If the successor Trustee does not deliver its written acceptance within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of a majority in aggregate principal amount of the 37 outstanding Notes of all series for which such Trustee was acting as Trustee (voting as a single class) may petition at the expense of the Company any court of competent jurisdiction for the appointment of a successor Trustee. (c) Upon delivery by the successor Trustee of a written acceptance of its appointment to the retiring Trustee and to the Company, (i) the retiring Trustee will upon payment of charges hereunder transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07(c), (ii) the resignation or removal of the retiring Trustee will become effective, and (iii) the successor Trustee will have all the rights, powers and duties of the Trustee under the Indenture. Upon request of any successor Trustee, the Company will execute any and all instruments for fully vesting in and confirming to the successor Trustee all such rights, powers and trusts. The successor Trustee will mail notice of any resignation and any removal of the Trustee and its appointment to all Holders, and include in the notice its name and the address of its Corporate Trust Office. (d) Notwithstanding replacement of the Trustee pursuant to this Section, the Company's obligations under Section 7.07 will continue for the benefit of the retiring Trustee. (e) The Trustee agrees to give the notices provided for in, and otherwise comply with, Trust Indenture Act Section 310(b). Section 7.09. Successor Trustee by Merger. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or national banking association, the resulting, surviving or transferee corporation or national banking association without any further act will, if such resulting, surviving or transferee corporation or national banking association is otherwise eligible under the Indenture, be the successor Trustee with the same effect as if the successor Trustee had been named as the Trustee in the Indenture. Section 7.10. Eligibility. The Indenture must always have a Trustee that satisfies the requirements of Trust Indenture Act Section 310(a) and (b) and has a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. Section 7.11. Money Held in Trust. The Trustee will not be liable for interest on any money received by it except as it may agree with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law and except for money held in trust under Article XI. ARTICLE VIII. DEFEASANCE AND DISCHARGE Section 8.01. Discharge of Company's Obligations. (a) Subject to paragraph (b) of this Section 8.01, the Company's obligations under any series of Notes and this Indenture will terminate if: 38 (i) all Notes of such series previously authenticated and delivered (other than (A) destroyed, lost or stolen Notes of such series that have been replaced or (B) Notes of such series that are paid pursuant to Section 4.01 or (C) Notes of such series for whose payment money or U.S. Government Obligations have been held in trust and then repaid to the Company pursuant to Section 8.05) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder, or the Notes of such series not theretofore delivered to the Trustee have become due and payable, or mature within one year, or all of them are to be called for redemption within one year under arrangements satisfactory to the Trustee for giving the notice of redemption; and (ii) the Company irrevocably deposits in trust with the Trustee, as trust funds solely for the benefit of the Holders of such Notes, money or U.S. Government Obligations or a combination thereof sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certificate delivered to the Trustee, without consideration of any reinvestment, to pay principal of, premium, if any, and each installment of interest on such Notes to maturity or redemption, as the case may be, and to pay all other sums payable by it hereunder; and (iii) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (iv) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the satisfaction and discharge of the Indenture have occurred. (b) After satisfying the conditions in clause (i), only the Company's obligations under Section 7.07 will survive. After satisfying the conditions in clause (ii), only the Company's obligations in Article II, Sections 4.01, 4.02, 7.07, 7.08 and this Article VIII, and the rights, powers, trusts, duties and immunities of the Trustee hereunder will survive such satisfaction and discharge. In either case, upon request, the Trustee will acknowledge in writing the discharge of the Company's obligations under the Notes of such series and the Indenture other than the surviving obligations. Section 8.02. Legal Defeasance. Unless this Section 8.02 is otherwise specified to be inapplicable to Notes of any series pursuant to Section 2.01(1), after the 91st day following the deposit referred to in clause (a) of this Section 8.02, the Company will be deemed to have paid and will be discharged from its obligations in respect of the Notes of such series and the Indenture (as it relates to the Notes of such series), other than its obligations in Article II, Sections 4.01, 4.02, 7.07, 7.08, and this Article VIII and the rights, powers, trusts, duties and immunities of the Trustee hereunder, provided the following conditions have been satisfied: (a) The Company has irrevocably deposited in trust with the Trustee, as trust funds solely for the benefit of the Holders of Notes of such series, money or U.S. Government Obligations or a combination thereof sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written 39 certificate thereof delivered to the Trustee, without consideration of any reinvestment, to pay principal of, premium, if any, and each installment of interest on the Notes of such series to maturity or redemption, as the case may be, provided that any redemption before maturity has been irrevocably provided for under arrangements satisfactory to the Trustee. (b) No Default or event that with the passing of time or the giving of notice, or both, would constitute an Event of Default, has occurred and is continuing on the date of the deposit. (c) The deposit will not result in a breach or violation of, or constitute a default under, the Indenture or any other agreement or instrument to which the Company is a party or by which it is bound. (d) The Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the defeasance have occurred. (e) The Company has delivered to a Responsible Officer of the Trustee: (i) an Opinion of Counsel stating either that (A) the Company has received from or there has been published by the Internal Revenue Service a ruling or (B) there has been a change in law after the date of this Indenture to the effect that the Holders of the Notes of such series will not recognize gain or loss for federal income tax purposes as a result of the deposit, defeasance and discharge and will be subject to federal income tax on the same amount and in the same manner and at the same times as would otherwise have been the case, and (ii) an Opinion of Counsel to the effect that after the passage of 91 days following the deposit, the trust funds will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law. (f) Such defeasance shall not cause the Trustee to have a conflicting interest, as determined by the Trustee, with respect to any securities of the Company. Prior to the end of the 91-day period, none of the Company's obligations under the Indenture will be discharged. Thereafter, upon request, the Trustee will acknowledge in writing the discharge of the Company's obligations under the Notes of such series and the Indenture (as it relates to the Notes of such series) except for the surviving obligations set forth in this Section 8.02. Section 8.03. Covenant Defeasance. Unless this Section 8.03 is otherwise specified to be inapplicable to the Notes of any series pursuant to Section 2.01(1), after the 91st day following the deposit referred to in clause (a) of Section 8.02, the Company's obligations set forth in Article V will terminate, and clauses (c), (d), (e), (f), (g) and (h) of Section 6.01 will no longer constitute Events of Default, provided the Company has complied with Section 8.02. Notwithstanding the foregoing, for purposes of this Section 8.03, the Opinion of Counsel 40 required pursuant to Section 8.02(e)(i) does not need to be based upon either an Internal Revenue Service ruling or a change in law after the date of this Indenture. Except as specifically stated in this Section 8.03, none of the Company's obligations under the Indenture will be discharged as a result of covenant defeasance pursuant to this Section 8.03. Section 8.04. Application of Trust Money. Subject to Section 8.05, the Trustee will hold in trust the money or U.S. Government Obligations deposited with it pursuant to Section 8.01, 8.02 or 8.03, and apply the deposited money and the proceeds from deposited U.S. Government Obligations to the payment of principal of, premium, if any, and interest on the series of Notes for which such deposit was made in accordance with the Notes of such series and the Indenture. Such money and U.S. Government Obligations need not be segregated from other funds except to the extent required by law. Section 8.05. Repayment to Company. Subject to Sections 7.07, 8.01, 8.02 or 8.03, the Trustee will promptly pay to the Company upon request any excess money or U.S. Government Obligations held by the Trustee at any time and thereupon be relieved from all liability with respect to such money. The Trustee will pay to the Company upon request any money or U.S. Government Obligations held for payment with respect to the Notes of any series that remains unclaimed for two years; provided that before making such payment the Trustee may at the expense of the Company publish once in a newspaper of general circulation in New York City, or send to each Holder entitled to such money, notice that the money remains unclaimed and that after a date specified in the notice (at least 30 days after the date of the publication or notice) any remaining unclaimed balance of money will be repaid to the Company. After payment to the Company, Holders entitled to such money must look solely to the Company for payment, unless applicable law designates another Person, and all liability of the Trustee with respect to such money will cease. Section 8.06. Reinstatement. If and for so long as the Trustee is unable to apply any money or U.S. Government Obligations held in trust pursuant to Section 8.01, 8.02 or 8.03 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under the Indenture (with respect to the applicable series of Notes) and the Notes of the applicable series will be reinstated as if no such deposit in trust had been made. If the Company makes any payment of principal of, premium, if any, or interest on any Notes because of the reinstatement of its obligations, it will be subrogated to the rights of the Holders of such Notes to receive such payment from the money or U.S. Government obligations held in trust. ARTICLE IX. SUPPLEMENTAL INDENTURES Section 9.01. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, the Subsidiary Guarantors, if any, and when authorized by a Board Resolution, and the Trustee, at any time and 41 from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (a) to evidence the succession of another corporation to the Company or any Subsidiary Guarantor and the assumption by such successor of the covenants of the Company herein and in the Notes; (b) to add to the covenants of the Company or any Subsidiary Guarantor for the benefit of the Holders of all or any series of Notes (and, if such covenants are to be for the benefit of less than all series of Notes, stating that such covenants are expressly being included solely for the benefit of such series), or to surrender any right or power herein conferred upon the Company or any Subsidiary Guarantor; (c) to add any additional Events of Default (and, if such Events of Default are to be applicable to less than all series of Notes, stating that such Events of Default are expressly being included solely to be applicable to such series); provided, however, that in respect of any such additional Events of Default such supplemental indenture may provide for a particular grace period after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default or may limit the right of the Holders of a majority in aggregate principal amount of the series of Notes to which such additional Events of Default apply to waive such default; (d) to change or eliminate any restrictions on the payment of principal (or premium, if any) of Notes, provided that any such action shall not adversely affect the interests of the Holders of Notes of any series in any material respect; (e) to change or eliminate any of the provisions of this Indenture; provided that any such change or elimination shall become effective only when there is no outstanding Note of any series created prior to the execution of such supplemental indenture that is entitled to the benefit of such provision; (f) to establish the form or terms of Notes of any series as permitted by Section 2.01; (g) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Notes of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee; (h) to add to the provisions of this Indenture relating to the Guarantees, including additional subordination provisions; (i) to reflect the addition or release of any Subsidiary Guarantor, as provided for by this Indenture; 42 (j) to provide for uncertificated outstanding Notes in addition to or in the place of outstanding Notes; (k) to supplement any of the provisions of the Indenture to such extent as shall be necessary to permit or facilitate the defeasance and discharge of any series of Notes pursuant to Sections 8.01, 8.02 or 8.03; provided that any such action shall not adversely affect the interests of the Holders of Notes of such series or any other series of Notes in any material respect; (l) to cure any ambiguity or omission, to correct or supplement any provision herein that may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture that shall not be inconsistent with any provisions of this Indenture; provided such other provisions shall not adversely affect the interests of the Holders of Notes of any series in any material respect; (m) to secure the Notes; (n) to make any changes that would provide any additional rights or benefits to Holders of Notes or that do not adversely affect the rights of any such Holder in any material respect; (o) to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act; (p) to provide for the conversion rights of Holders of Notes in certain events such as an amalgamation, consolidation, merger or sale of all or substantially all of the assets of the Company; or (q) to reduce the conversion price, if applicable, of any series of Notes. Section 9.02. Supplemental Indentures with Consent of Holders. (a) Except as provided in Section 9.01, with the consent of the Holders of not less than a majority in principal amount of the outstanding Notes affected by such supplemental indenture, by act of such Holders delivered to the Company and the Trustee, the Company when authorized by a Board Resolution, the Subsidiary Guarantors, if any and when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture of such Notes; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each outstanding Note affected thereby: (i) reduce the percentage of principal amount of outstanding Notes whose Holders may consent to an amendment, supplement or waiver; 43 (ii) reduce the rate or change the time or times for payment of interest, including default interest, on any outstanding Note; (iii) reduce the principal amount of any Note or change the Maturity Date of the Notes; (iv) reduce the redemption price, including premium, if any, payable upon redemption of any Note or change the time or times at which any Note may or shall be redeemed; (v) reduce the repurchase price, including premium, if any, payable upon the repurchase of any Note; (vi) make any Note payable in money other than that stated in the Note; (vii) impair the right to institute suit for the enforcement of principal of, premium, if any, or interest on any Note; or (viii) make any change in the percentage of principal amount of Notes necessary to amend or waive compliance in Section 6.04 or Section 6.07 or in this sentence of this Section 9.02. (b) In addition, any amendment to, or waiver of, the provisions of this Indenture relating to subordination of any Notes that adversely affects the rights of the Holders of the outstanding Notes of such series will require the consent of the Holders of at least 75% in aggregate principal amount of outstanding Notes of such series then outstanding. (c) It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. (d) A supplemental indenture that changes or eliminates any covenant or other provisions of this Indenture that has expressly been included solely for the benefit of one or more particular series of Notes, or that modifies the rights of the Holders of Notes of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Notes of any other series. (e) After an amendment, modification or waiver under this Section becomes effective, the Company will send to the Holders affected thereby a notice briefly describing the amendments, modification or waiver. The Company will send supplemental indentures to Holders upon request. Any failure of the Company to send such notice, or any defect therein, will not, however, in any way impair or affect the validity of any such amendment, modification, supplemental indenture or waiver. Section 9.03. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article (other than Section 9.01(f)) or the modifications thereby of the trusts created by this Indenture, the Trustee 44 shall be provided with and, subject to Section 7.02, shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture, is not inconsistent herewith, is a valid, legal and binding obligation of the Company and any Subsidiary Guarantor enforceable in accordance with its terms, subject to enforceability being limited by bankruptcy, insolvency or other laws or foreign governmental actions affecting the enforcement of creditors' rights generally and equitable remedies including the remedies of specific performance and injunction being granted only in the discretion of a court of competent jurisdiction and, in connection with a supplemental indenture executed pursuant to Section 9.01, that the Trustee is authorized to execute and deliver such supplemental indenture without the consent of the Holders and, in connection with a supplemental indenture executed pursuant to Section 9.02, that the requisite consents of the Holders have been validly obtained in accordance with Section 9.02 hereof. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture that affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Section 9.04. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of a series of Notes affected by the supplemental indenture theretofore or thereafter authenticated and delivered under this Indenture shall be bound by the supplemental indenture. Section 9.05. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. Section 9.06. Reference in Notes to Supplemental Indentures. Notes of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Notes of any series so modified as to conform to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for outstanding Notes of such series. ARTICLE X. SINKING FUNDS Section 10.01. Applicability of Article. The provisions of this Article shall be applicable to any sinking fund for the retirement of Notes of a series except as otherwise specified pursuant to Section 2.01 for Notes of such series. The minimum amount of any sinking fund payment provided for by the terms of Notes of any series is herein referred to as "mandatory sinking fund payment", and any payment in excess of such minimum amount provided for by the terms of Notes of any series is herein referred to as an "optional sinking fund payment". If provided for by the terms of Notes of any series, the amount of any sinking fund payment may be subject to reduction as provided in Section 10.02. Each sinking fund payment shall be applied to the redemption of Notes of any series as provided for by the terms of such Notes. 45 Section 10.02. Satisfaction of Sinking Fund Payments with Notes. In lieu of making all or part or any mandatory sinking fund payment in cash, the Company may deliver outstanding Notes of a series (other than any previously called for redemption) and may apply as a credit Notes of a series that have been redeemed either at the election of the Company pursuant to the terms of such Notes or through the application of permitted optional sinking fund payments pursuant to the terms of such Notes, in each case, in satisfaction of all or any part of any sinking fund payment with respect to such Notes of such series required to be made pursuant to, and as provided for by, their terms; provided that such Notes have not been previously so credited. Such Notes shall be received and credited for such purpose by the Trustee at the redemption price specified in such Notes for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. Section 10.03. Redemption of Notes for Sinking Fund. Not less than 60 days prior to each sinking fund payment date for any series of Notes (unless a shorter period shall be satisfactory to the Trustee), the Company will deliver to the Trustee an Officers' Certificate of such entity specifying the amount of the next sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, that is to be satisfied by delivering and crediting Notes of that series pursuant to Section 10.02 and the basis for any such credit and, prior to or concurrently with the delivery of such Officers' Certificate, also will deliver to the Trustee any Notes to be credited and not theretofore delivered to the Trustee. Not less than 45 days (unless a shorter period shall be satisfactory to the Trustee) before each sinking fund payment date the Trustee shall select the Notes to be redeemed upon such sinking fund payment date in the manner specified in Section 3.01 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 3.01. Such notice having been duly given, the redemption of such Notes shall be made upon the terms and in the manner stated in Sections 3.01 and 3.02. ARTICLE XI. SUBORDINATION OF NOTES Section 11.01. Applicability of Article; Agreement to Subordinate Notes to Senior Indebtedness. In the event a series of Notes is designated as subordinated pursuant to Section 2.01 ("Subordinated Notes") and except as otherwise provided in a supplemental indenture or pursuant to Section 2.01, the Company, for itself, its successors and assigns, covenants and agrees, and each Holder of Subordinated Notes by his acceptance thereof, likewise covenants and agrees, that the payment of the principal of, premium, if any, and interest on each and all of the Subordinated Notes is hereby expressly subordinated, to the extent and in the manner set forth in this Article, in right of payment to the prior payment in full of all Senior Indebtedness. This Article XI shall constitute a continuing offer to all Persons who become holders of, or continue to hold, Senior Indebtedness, and such provisions are made for the benefit of the holders of Senior Indebtedness, and such holders are made obligees hereunder and any one or more of them may enforce such provisions. 46 Section 11.02. No Payment on Subordinated Notes in Certain Circumstances. Upon the maturity of any Senior Indebtedness by lapse of time, acceleration or otherwise, unless and until all principal thereof, premium, if any, interest thereon and other amounts due thereon shall first be paid in full, no payment shall be made by or on behalf of the Company with respect to the principal of, premium, if any, interest on or other amounts owing on the Subordinated Notes (except that, subject to applicable law, Holders may receive Subordinated Securities of the Company). Upon the happening of any default in the payment of any principal of or interest on or other amounts due on any Senior Indebtedness (a "Payment Default"), then, unless and until such default shall have been cured or waived or shall have ceased to exist, no payment shall be made by or on behalf of the Company with respect to the principal of, premium, if any, interest on or other amounts owing on the Subordinated Notes. Upon the happening of any default or event of default (other than a Payment Default) (including any event which with the giving of notice or the lapse of time or both would become an event of default and including any default or event of default which would result upon any payment with respect to the Subordinated Notes) with respect to any Designated Senior Indebtedness, as such default or event of default is defined therein or in the instrument or agreement or other document under which it is outstanding, then upon written notice thereof given to the Company and the Trustee by a holder or holders of any such Designated Senior Indebtedness or their representative ("Payment Notice"), no payment shall be made by or on behalf of the Company with respect to the principal of, premium, if any, interest on or other amounts owing on the Subordinated Notes during the period (the "Payment Blockage Period") commencing on the date of such receipt of such Payment Notice and ending on the earlier of (i) the date, if any, on which such default is cured or waived or ceases to exist or (ii) the date, if any, on which the Designated Senior Indebtedness to which such default relates is discharged, provided, however, that no default or event of default (other than a Payment Default) shall prevent the making of any payment for more than 179 days after the Payment Notice shall have been given. Notwithstanding the foregoing, (i) not more than one Payment Notice shall be given within a period of 360 consecutive days, (ii) no event of default which existed or was continuing on the date of any Payment Notice shall be made the basis for the giving of a subsequent Payment Notice unless all such events of default shall have been cured or waived for a period of at least 180 consecutive days after such date, and (iii) if the Company or the Trustee receives any Payment Notice, a similar notice relating to or arising out of the same default or facts giving rise to such default (whether or not such default is on the same issue of Designated Senior Indebtedness) shall not be effective for purposes of this paragraph. The Company shall resume payments of principal of, premium, if any, and interest on the Subordinated Notes (i) in the case of a Payment Default, upon the date such Payment Default is cured or waived by the holders of Senior Indebtedness to which such Payment Default relates and (ii) in the case of a default or event of default (other than a Payment Default) with respect to Designated Senior Indebtedness, on the earlier of (A) the date such default or event of default is cured or (B) the expiration of the Payment Blockage Period with respect thereto if, in the case of this clause (B), this Article XI otherwise does not prohibit such payment. 47 In furtherance of the provisions of Section 11.01, in the event that, notwithstanding the foregoing provisions of this Section 11.02, any payment (other than a payment in the form of Subordinated Securities) with respect to the principal of, premium, if any, or interest on the Notes shall be made by or on behalf of the Company, and received by the Trustee, by any Holder or by any such Paying Agent (or, if the Company is acting as its own Paying Agent, money for any such payment shall be segregated and held in trust), at a time when such payment was prohibited by the provisions of this Section 11.02, then, unless and until such payment is no longer prohibited by this Section 11.02, such payment (subject to the provisions of Sections 11.06 and 11.07) shall be received and held in trust by the Trustee or such Holder or Paying Agent for the benefit of and shall be immediately paid over to the holders of Senior Indebtedness or their representative, ratably according to the aggregate amounts remaining unpaid on account of the principal of, premium, if any, and interest on the Senior Indebtedness held or represented by each, for application to the payment of all Senior Indebtedness in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the benefit of the holders of Senior Indebtedness. The provisions of this Section 11.02 shall not modify or limit in any way the application of Section 11.03. The Company shall give prompt written notice to the Trustee of any default in the payment of any Senior Indebtedness or any acceleration under any Senior Indebtedness or under any agreement pursuant to which Senior Indebtedness may have been issued. Failure to give such notice shall not affect the subordination of the Subordinated Notes to the Senior Indebtedness or the application of the other provisions provided in this Article XI. Section 11.03. Subordinated Notes Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization of the Company. In the event of any Insolvency or Liquidation Proceeding with respect to the Company, all amounts payable in respect of any Senior Indebtedness shall first be paid in full before the Holders of Subordinated Notes are entitled to receive any direct or indirect payment or distribution of any cash, property or securities (other than Subordinated Securities of the Company) on account of principal of or interest on the Subordinated Notes or any other payment with respect to the Notes. The holders of Senior Indebtedness shall be entitled to receive directly, for application to the payment of Senior Indebtedness (to the extent necessary to pay in full all Senior Indebtedness, whether or not due, including specifically, without limitation, all Post-Commencement Interest, whether or not allowed as a claim in such Insolvency or Liquidation Proceedings, after giving effect to any substantially concurrent payment or distribution to the holders of Senior Indebtedness on account of Senior Indebtedness), any payment or distribution of any kind or character, whether in cash, property or securities (other than Subordinated Securities of the Company), including any payment or distribution which may be payable or deliverable by reason of the payment of any other Indebtedness of the Company being subordinated to the payment of the Subordinated Notes which may be payable or deliverable in respect of the Subordinated Notes in any such Insolvency or Liquidation Proceeding. 48 In the event that, notwithstanding the foregoing provisions of this Section 11.03, the Trustee or any Paying Agent or the Holder of any Subordinated Note shall have received any payment from or distribution of assets of the Company or the estate created by the commencement of any such Insolvency or Liquidation Proceeding, of any kind or character in respect of the Subordinated Notes, whether in cash, property or securities (other than Subordinated Securities of the Company), including any payment or distribution which may be payable or deliverable by reason of the payment of any other Indebtedness of the Company being subordinated to the payment of the Subordinated Notes, before all Senior Indebtedness (whether or not due including specifically, without limitation, all Post- Commencement Interest, whether or not allowed as a claim in such Insolvency or Liquidation Proceeding) is paid in full, then and in such event such payment or distribution shall be received and held in trust by the Trustee, any such Paying Agent or Holder for and shall be paid over to the holders of Senior Indebtedness (to the extent necessary to pay in full all such Senior Indebtedness, whether or not due, including specifically, without limitation, all Post-Commencement Interest thereon, whether or not allowed as a claim in such Insolvency or Liquidation Proceeding), after giving effect to any substantially concurrent payment or distribution to the holders of Senior Indebtedness on account of Senior Indebtedness, for application to the payment in full of such Senior Indebtedness. The Company shall give prompt written notice to the Trustee of any Insolvency or Liquidation Proceeding with respect to it. Section 11.04. Holders of Subordinated Notes to be Subrogated to Rights of Holders of Senior Indebtedness. After all amounts payable under or in respect of Senior Indebtedness (whether or not due) are paid in full, the Holders of Subordinated Notes shall be subrogated (without any duty on the part of the holders of Senior Indebtedness to warrant, create, effectuate, preserve or protect such subrogation), to the extent of the payments or distributions made to the holders of Senior Indebtedness pursuant to the provisions of this Article XI (equally and ratably with the holders of all other indebtedness of the Company which by its express terms is subordinate and subject in right of payment to Senior Indebtedness to substantially the same extent as the Subordinated Notes are so subordinate and subject in right of payment and which is entitled to like rights of subrogation), to the rights of the holders of Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness, until the principal of, and premium, if any, and interest on the Subordinated Notes shall be paid in full. For the purpose of such subrogation no such payments or distributions to the holders of Senior Indebtedness by or on behalf of the Company, or by or on behalf of the Holders by virtue of this Article XI, which otherwise would have been made to the Holders shall, as between the Company and the Holders of the Subordinated Notes, be deemed to be payment by the Company to or on account of the Senior Indebtedness, it being understood that the provisions of this Article XI are and are intended solely for the purpose of defining the relative rights of the Holders of Subordinated Notes, on the one hand, and the holders of Senior Indebtedness, on the other hand. 49 Section 11.05. Obligations of the Company Unconditional. Nothing contained in this Article XI or elsewhere in this Indenture or in any Subordinated Note is intended to or shall impair, as between the Company and the Holders of the Subordinated Notes, the obligations of the Company, which are absolute and unconditional, to pay to the Holders of the Subordinated Notes the principal of and premium, if any, and interest on the Subordinated Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall effect the relative rights of the Holders of Subordinated Notes and creditors of the Company, other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or any Holder of any Subordinated Note from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article XI, of the holders of Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any distribution of assets of the Company referred to in this Article XI, the Trustee, subject to the provisions of Section 7.01, and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such Insolvency or Liquidation Proceeding is pending, or a certificate of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XI. Section 11.06. Entitled to Assume Payments Not Prohibited in Absence of Notice. The Trustee shall not at any time be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Subordinated Notes, unless and until the Trustee or any Paying Agent shall have received written notice from the Company or from one or more holders of Senior Indebtedness or from any representative therefor and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 7.01, shall be entitled in all respects conclusively to assume that no such facts exist. Nothing in this Section 11.06 is intended to or shall relieve any Holder of Subordinated Notes from the obligations imposed under Sections 11.02 and 11.03 with respect to money or other distributions received in violation of the provisions thereof. Section 11.07. Application by Trustee of Assets Deposited With It. All money and U.S. Government Obligations deposited in trust with the Trustee pursuant to and in accordance with Section 8.01 shall be for the sole benefit of the Holders and shall not be subject to this Article XI. Otherwise, any deposit of assets by the Company with the Trustee or any Paying Agent (whether or not in trust) for the payment of principal of, premium, if any, or interest on any Subordinated Notes shall be subject to the provisions of this Article XI; provided that, if prior to the second Business Day preceding the date on which by the terms of this Indenture any such assets may become distributable for any purpose (including without limitation, the payment of the principal of (and premium, if any, of interest on any Subordinated Note) the Trustee or such Paying Agent shall not have received with respect to such assets the written notice provided for in Section 11.06, then the Trustee or such Paying Agent shall have full power and authority to receive such assets and to apply the same to the purpose for which 50 they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such date. The preceding sentence shall be construed solely for the benefit of the Trustee and each Paying Agent and shall not otherwise affect the rights of holders of Senior Indebtedness. Section 11.08. Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Indebtedness. No right of any present or future holder of any Senior Indebtedness to enforce the subordination provisions in this Article XI shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act by any such holder, or by any noncompliance by the Company with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or be otherwise charged with. The holders of Senior Indebtedness may extend, renew, modify or amend the terms of the Senior Indebtedness or any security therefor and release, sell or exchange such security and otherwise deal freely with the Company, all without affecting the liabilities and obligations of the parties to this Indenture or the Holders of the Subordinated Notes. Section 11.09. Holders Authorize Trustee to Effectuate Subordination of Subordinated Notes. Each Holder of Subordinated Notes by his acceptance thereof (a) authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article XI and to protect the rights of the Holders of Subordinated Notes pursuant to this Indenture, and (b) appoints the Trustee his attorney-in-fact for such purpose, including in the event of any Insolvency or Liquidation Proceeding with respect to the Company, the timely filing of a claim for the unpaid balance of his Subordinated Notes in the form required in such proceeding and the causing of such claim to be approved. If the Trustee shall not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Senior Indebtedness or their representative shall have the right to file an appropriate claim for and on behalf of the Holders of Subordinated Notes. Nothing herein contained shall be deemed to authorize the Trustee or any holder of Senior Indebtedness or their representative to authorize or consent to or accept or adopt on behalf of any Holder of Subordinated Notes any plan of reorganization, arrangement, adjustment or composition affecting the Subordinating Notes or the rights of any Holder of Subordinated Notes, or to authorize the Trustee or any holder of Senior Indebtedness or their representative to vote in respect of the claim of any Holder of Subordinated Notes in any such proceeding. Section 11.10. Right of Trustee to Hold Senior Indebtedness. The Trustee shall be entitled to all of the rights set forth in this Article XI in respect of any Senior Indebtedness at any time held by it to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall be construed to deprive the Trustee of any of its rights as such holder. 51 Section 11.11. Article Eleven Not to Prevent Events of Default. The failure to make a payment of principal of, premium, if any, or interest on the Subordinated Notes by reason of any provision of this Article XI shall not be construed as preventing the occurrence of a Default or an Event of Default. Section 11.12. Payment. A payment with respect to a Subordinated Note or with respect to principal of or interest on a Subordinated Note shall include, without limitation, payment of, principal of, premium, if any, and interest on any Subordinated Note, any depositing of funds under Article VIII, any payment on account of any mandatory or optional repurchase or redemption of any Subordinated Note (including payments pursuant to Article III) and any payment or recovery on any claim and any payment or recovery on any claim (whether for rescission or damages and whether based on contract, tort, duty imposed by law, or any other theory of liability) relating to or arising out of the offer, sale or purchase of any Subordinated Note, provided that any such payment, deposit, other payment or recovery (a) not prohibited pursuant to this Article XI at the time actually made shall not be subject to any recovery by any holder of Senior Indebtedness or representative therefor or other Person pursuant to this Article XI at any time thereafter and (b) made by or from any Person other than the Company shall not be subject to any recovery by any holder of Senior Indebtedness or representative therefor or other Person pursuant to this Article XI at any time thereafter except to the extent such Person recovers any such amount paid from the Company, whether pursuant to rights of indemnity, rescission or otherwise. Section 11.13. Trustee Not Fiduciary for Holders of Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders if the Trustee shall in good faith mistakenly pay over or distribute to Holders of Notes or to the Company or to any other Person cash, property or securities to which any holders of Senior Indebtedness shall be entitled to by virtue of this Article or otherwise. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants or obligations as are specifically set forth in this Article, and no implied covenants or obligations with respect to holders of Senior Indebtedness shall be read into this Indenture against the Trustee. Nothing in this Article shall apply to the claims of, or payments to, the Trustee under or pursuant to Section 7.07. ARTICLE XII. SUBSIDIARY GUARANTEES Section 12.01. Unconditional Guarantees. (a) If any Notes of or within a series are specified to be guaranteed by the Subsidiary Guarantors, then each of the Subsidiary Guarantors hereby fully and unconditionally guarantees, jointly and severally, to each Holder of any such Note which is authenticated and delivered by the Trustee and to the Trustee for itself and on behalf of each such Holder, the due and punctual payment of the principal of, premium, if any, and 52 interest (including, in case of default, interest on principal and, to the extent permitted by applicable law, on overdue interest, and including any additional interest required to be paid according to the terms of any such Note), if any, on each such Note, and the due and punctual payment of any sinking fund payment (or analogous obligation), if any, provided for with respect to any such Note, when and as the same shall become due and payable, whether at Stated Maturity, upon redemption, upon acceleration, upon tender for repayment at the option of any Holder or otherwise, according to the terms thereof and of this Indenture and all other obligations of the Company hereunder (the "Guarantor Obligations"). In case of the failure of the Company or any successor thereto punctually to pay any such principal, premium, interest or sinking fund payment, each of the Subsidiary Guarantors hereby agrees to cause any such payment to be made punctually when and as the same shall become due and payable, whether at Stated Maturity, upon redemption, upon declaration of acceleration, upon tender for repayment at the option of any Holder or otherwise, as if such payment were made by the Company. (b) Each of the Subsidiary Guarantors hereby agrees that its Guarantor Obligations hereunder shall be as if it were principal debtor and not merely surety and shall be absolute and unconditional, irrespective of the identity of the Company, the validity, regularity or enforceability of any such Note or this Indenture, the absence of any action to enforce the same, any waiver or consent by the Holder of any such Note with respect to any provisions thereof, the recovery of any judgment against the Company or any action to enforce the same, or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Subsidiary Guarantor. Each of the Subsidiary Guarantors hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that its Guarantee will not be discharged except by complete performance of its obligations contained in any such Note and in its Guarantee. (c) If the Trustee or the Holder of any Note is required by any court or otherwise to return to the Company or any Subsidiary Guarantor, or any custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official acting in relation to the Company or such Subsidiary Guarantor, any amount paid to the Trustee or such Holder in respect of a Note, the related Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each of the Subsidiary Guarantors further agrees, to the fullest extent that it may lawfully do so, that, as between such Subsidiary Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, the maturity of the obligations guaranteed hereby may be accelerated as provided in Article VI hereof for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition under any applicable bankruptcy law preventing such acceleration in respect of the obligations guaranteed hereby. (d) Each of the Subsidiary Guarantors shall be subrogated to all rights of the Holders of the Notes of a series against the Company in respect of any amounts paid by such Subsidiary Guarantor on account of such Notes or this Indenture; provided, however, that such Subsidiary Guarantor shall not be entitled to enforce or to receive any 53 payments arising out of, or based upon, such right of subrogation until the principal of, premium, if any, and interest, if any, on all Notes of such series shall have been indefeasibly paid in full. Section 12.02. Execution and Delivery of Guarantees. (a) To evidence the Guarantees with respect to Notes of or within any series that are specified to be guaranteed by the Subsidiary Guarantors, each of the Subsidiary Guarantors hereby agrees to execute its Guarantee, in a form established pursuant to Section 2.01, to be endorsed on each Note of such series authenticated and delivered by the Trustee. Each such Guarantee shall be executed on behalf of such Subsidiary Guarantor by two Officers. The signature of any of these Officers on the Guarantees may be manual or facsimile. (b) Any Guarantee bearing the manual or facsimile signatures of the individuals who were the proper Officers of any Subsidiary Guarantor shall bind such Subsidiary Guarantor, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of the Notes upon which such Guarantee are endorsed or did not hold such offices at the date of such Notes. (c) The delivery of any Notes by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Guarantees endorsed thereon on behalf of the Subsidiary Guarantors. Each of the Subsidiary Guarantors hereby agrees that its Guarantee set forth in this Article XII shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Guarantee. Section 12.03. Limitation of Guarantor's Liability. Each of the Subsidiary Guarantors, and by its acceptance of a Note each Holder, hereby confirms that it is the intention of all such parties that in no event shall any Guarantor Obligations under the Guarantees constitute or result in a fraudulent transfer or conveyance for purposes of, or result in a violation of, any United States federal, or applicable United States state, fraudulent transfer or conveyance or similar law. To effectuate the foregoing intention, in the event that the Guarantor Obligations of any Subsidiary Guarantor in respect of the Notes of any series would, but for this sentence, constitute or result in such a fraudulent transfer or conveyance or violation, then the liability of such Subsidiary Guarantor under its Guarantee in respect of the Notes of such series shall be reduced to the extent necessary to eliminate such fraudulent transfer or conveyance or violation under the applicable fraudulent transfer or conveyance or similar law. Section 12.04. Subordination of Guarantees. If any Notes of or within a series specified to be guaranteed by the Subsidiary Guarantors are Subordinated Notes, then each of the Subsidiary Guarantors hereby agrees that the Guarantees are subordinated to the same extent and subject to the same terms, conditions, restrictions and limitations as apply to the Company with respect to the Subordinated Notes in Article XI of this Indenture. 54 ARTICLE XIII. MISCELLANEOUS Section 13.01. Trust Indenture Act of 1939. The Indenture shall incorporate and be governed by the provisions of the Trust Indenture Act that are required to be part of and to govern indentures qualified under the Trust Indenture Act. Section 13.02. Noteholder Communications; Noteholder Actions. (a) The rights of Holders to communicate with other Holders with respect to the Indenture or the Notes are as provided by the Trust Indenture Act, and the Company, the Subsidiary Guarantors and the Trustee shall comply with the requirements of Trust Indenture Act Sections 312(a) and 312(b). Neither the Company, the Subsidiary Guarantors, nor the Trustee will be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act. (b) Any request, demand, authorization, direction, notice, consent to amendment, modification or waiver or other action provided by this Indenture to be given or taken by a Holder (an "Act") may be evidenced by an instrument signed by the Holder delivered to the Trustee. The fact and date of the execution of the instrument, or the authority of the Person executing it, may be proved in any manner that the Trustee deems sufficient. (c) The Trustee may make reasonable rules for action by or at a meeting of Holders of any one or more series of Notes, which will be binding on all the Holders of such Notes. (d) The ownership of Notes shall be proved by the Register. (e) Any Act by the Holder of any Note binds that Holder and every subsequent Holder of a Note that evidences the same debt as the Note of the acting Holder, even if no notation thereof appears on the Note. Subject to Section 13.02(f), a Holder may revoke an Act as to its Notes, but only if the Trustee receives the notice of revocation before the date the amendment or waiver or other consequence of the Act becomes effective. (f) The Company or any Subsidiary Guarantor may, but is not obligated to, fix a record date (which need not be within the time limits otherwise prescribed by Trust Indenture Act Section 316(c)) for the purpose of determining the Holders entitled to Act with respect to any amendment or waiver or in any other regard, except that during the continuance of an Event of Default, only the Trustee may set a record date as to notices of default, any declaration or acceleration or any other remedies or other consequences of the Event of Default. If a record date is fixed, those Persons that were Holders at such record date and only those Persons will be entitled to Act, or to revoke any previous Act, whether or not those Persons continue to be Holders after the record date. No Act will be valid or effective for more than 90 days after the record date. 55 Section 13.03. Notices. (a) Any notice or communication to the Company or any Subsidiary Gurantor will be deemed given if in writing (i) when delivered in person or (ii) five days after mailing when mailed by first class mail, or (iii) when sent by facsimile transmission, with transmission confirmed. Any notice or communication to the Trustee will be deemed given if in writing (i) when delivered in person, or (ii) when sent by facsimile transmission, with transmission confirmed. In each case the notice or communication should be addressed as follows: if to the Company or any Subsidiary Guarantor: Giant Industries, Inc. 23733 N. Scottsdale Road Scottsdale, Arizona 85255 Fax: (480) 585-8893 Attention: Chief Financial Officer and General Counsel if to the Trustee: The Bank of New York 101 Barclay Street, 8 West New York, New York 10286 Fax: (212) 815-5707 Attention: Corporate Trust Administration The Company, any Subsidiary Guarantor or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. (b) Except as otherwise expressly provided with respect to published notices, any notice or communication to a Holder will be deemed given when mailed to the Holder at its last address as it appears on the Register by first class mail or, as to any Global Note registered in the name of DTC or its nominee, as agreed by the Company, the Trustee and DTC. Copies of any notice or communication to a Holder, if given by the Company or any Subsidiary Guarantor, will be mailed to the Trustee at the same time. Defect in mailing a notice or communication to any particular Holder will not affect its sufficiency with respect to other Holders. (c) Where the Indenture provides for notice, the notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and the waiver will be the equivalent of the notice. Waivers of notice by Holders must be filed with the Trustee, but such filing is not a condition precedent to the validity of any action taken in reliance upon such waivers. Section 13.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company or any Subsidiary Guarantor to the Trustee to take any action under 56 the Indenture, the Company or such Subsidiary Guarantor will furnish to a Responsible Officer of the Trustee: (a) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in the Indenture relating to the proposed action have been complied with; and (b) an Opinion of Counsel stating that all such conditions precedent have been complied with. Section 13.05. Statements Required in Certificate or Opinion. Each Officers' Certificate or Opinion of Counsel with respect to compliance with a condition or covenant provided for in the Indenture must include: (a) a statement that each Person signing the Officers' Certificate or Opinion of Counsel has read the covenant or condition and the related definitions; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statement or opinion contained in the Officers' Certificate or Opinion of Counsel is based; (c) a statement that, in the opinion of each such Person, that Person has made such examination or investigation as is necessary to enable the Person to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of each such Person, such condition or covenant has been complied with, provided that an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials with respect to matters of fact. Section 13.06. Payment Date Other Than a Business Day. If any payment with respect to a payment of any principal of, premium, if any, or interest on any Note (including any payment to be made on any date fixed for redemption or purchase of any Note) is due on a day which is not a Business Day, then the payment need not be made on such date, but may be made on the next Business Day with the same force and effect as if made on such date, and no interest will accrue for the intervening period. Section 13.07. Governing Law; Waiver of Jury Trial. This Indenture and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York without giving effect to applicable principles of conflicts of laws thereof. EACH OF THE COMPANY AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE NOTES OR THE TRANSACTION CONTEMPLATED HEREBY. Section 13.08. No Adverse Interpretation of Other Agreements. The Indenture may not be used to interpret another indenture or loan or debt agreement of the Company or any 57 Subsidiary of the Company, and no such indenture or loan or debt agreement may be used to interpret the Indenture. Section 13.09. Successors. All agreements of the Company and the Subsidiary Guarantors in the Indenture, the Notes and the Guarantees, as the case may be, will bind their respective successors. All agreements of the Trustee in the Indenture will bind its successor. Section 13.10. Duplicate Originals. The parties may sign any number of copies of the Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 13.11. Separability. In case any provision in the Indenture or in the Notes is invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby. Section 13.12. Table of Contents and Headings. The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of the Indenture have been inserted for convenience of reference only, are not to be considered a part of the Indenture and in no way modify or restrict any of the terms and provisions of the Indenture. Section 13.13. No Liability of Directors, Officers, Employees, Incorporators and Stockholders. No director, officer, employee, incorporator, member or stockholder of the Company or any Subsidiary will have any liability for any obligations of the Company or any Subsidiary Guarantor under the Notes, the Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. * * * This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 58 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused the Indenture to be duly executed as of the date first written above. COMPANY: GIANT INDUSTRIES, INC. By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer SUBSIDIARY GUARANTORS: GIANT INDUSTRIES ARIZONA, INC. By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer CINIZA PRODUCTION COMPANY By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer GIANT STOP-N-GO OF NEW MEXICO, INC. By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer 59 GIANT FOUR CORNERS, INC. By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer PHOENIX FUEL CO., INC. By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer SAN JUAN REFINING COMPANY By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer GIANT MID-CONTINENT, INC. By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer GIANT PIPELINE COMPANY By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer 60 GIANT YORKTOWN, INC. By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer GIANT YORKTOWN HOLDING COMPANY By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer TRUSTEE: THE BANK OF NEW YORK By: /s/ REMO REALE --------------------------------- Name: Remo Reale Title: Vice President 61 EXHIBIT A For Global Note only: UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (THE "DEPOSITORY", WHICH TERM INCLUDES ANY SUCCESSOR DEPOSITORY FOR THE CERTIFICATES), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AND ANY PAYMENT HEREIN IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. A-1 1525419.8 A-1 EX-4 3 exhibit47.txt EXHIBIT 4.7 TO GIANT INDUSTRIES, INC. FIRST QUARTER 2004 10-Q EXHIBIT 4.7 ======================================================================= GIANT INDUSTRIES, INC. AND THE SUBSIDIARY GUARANTORS AND THE BANK OF NEW YORK, AS TRUSTEE FIRST SUPPLEMENTAL INDENTURE DATED AS OF MAY 3, 2004 ======================================================================= TABLE OF CONTENTS Page Article I. DEFINITIONS........................................ 1 Section 1.01. Certain Terms Defined in the Indenture........... 1 Section 1.02. Definitions...................................... 1 Article II. FORM AND TERMS OF THE NOTES........................14 Section 2.01. Terms of the Notes...............................14 Section 2.02. Events of Default................................15 Section 2.03. Covenants........................................15 Section 2.04. Consolidation, Merger, Sale or Conveyance........23 Section 2.05. Application of Article III of the Indenture Regarding Redemption of Notes..........23 Section 2.06. Application of Article X of the Indenture Regarding Sinking Funds................24 Section 2.07. Subsidiary Guarantees............................24 Article III. MISCELLANEOUS......................................35 Section 3.01. Governing Law; Waiver of Jury Trial..............35 Section 3.02. Separability.....................................35 Section 3.03. Ratification.....................................36 Section 3.04. Effectiveness....................................36 EXHIBIT EXHIBIT A - Form of 8% Senior Subordinated Note due 2014........A-1 FIRST SUPPLEMENTAL INDENTURE (this "First Supplemental Indenture"), dated as of May 3, 2004, among Giant Industries, Inc., a Delaware corporation (the "Company"), the Subsidiary Guarantors listed as signatories hereto, and The Bank of New York, a New York banking corporation, as Trustee ("Trustee"). RECITALS The Company, Trustee and the Subsidiary Guarantors executed and delivered an Indenture, dated as of May 3, 2004 (the "Base Indenture" and, as supplemented by this First Supplemental Indenture, the "Indenture"), to provide for the issuance by the Company from time to time of Notes to be issued in one or more series as provided in the Indenture. The issuance and sale of $150 million aggregate principal amount of a new series of the Company's 8% Senior Subordinated Notes due May 15, 2014 guaranteed by the Subsidiary Guarantors (the "Notes") have been authorized by resolutions adopted by the Board of Directors of the Company on February 19, 2004 and April 28, 2004 and by the Subsidiary Guarantors on March 12, 2004. The Company desires to issue and sell $150 million aggregate principal amount of the Notes on the date hereof, with the terms set forth in this Indenture. All things necessary to make this First Supplemental Indenture a valid supplement to the Indenture according to its terms and the terms of the Indenture have been done. For and in consideration of the premises and the purchase of the Notes by the Holders thereof, the parties hereby enter into this First Supplemental Indenture, and covenant and agree, for the equal and proportionate benefit of all Holders of the Notes, as follows: ARTICLE I. DEFINITIONS Section 1.01. Certain Terms Defined in the Indenture. All capitalized terms used but not defined in this First Supplemental Indenture shall have the meanings ascribed to such terms in the Base Indenture, as amended hereby. Section 1.02. Definitions. (a) Except as may be provided in a future supplemental indenture, for the benefit of the Holders of all Notes, Section 1.01 of the Indenture shall be amended by adding or superceding the following definitions: "Asset Sale" means any sale, capitalized lease (within the meaning of GAAP), transfer, exchange or other disposition (or series of related sales, capitalized leases, transfers, exchanges or dispositions) of shares of Capital Stock of a Subsidiary (other than directors' qualifying shares), or of property or assets or any interests therein (each referred to for purposes of this definition as a "disposition") by the Company or any of its Restricted Subsidiaries, including any disposition by means of a merger, consolidation or similar transaction (other than, (i) by the Company to a Restricted Subsidiary or by a Restricted Subsidiary to the Company or a Restricted Subsidiary, (ii) a sale of inventory or hydrocarbons or other products (including both crude oil and refined products), in each case in the ordinary course of business of the Company's or a Restricted Subsidiary's operations, (iii) the merger or consolidation of, or the disposition of all or substantially all of the assets of the Company made in compliance with Section 5.01, (iv) the merger or consolidation of a Restricted Subsidiary made in compliance with Section 12.02(b)(i)(A), (v) the sale or lease of equipment, inventory, accounts receivable or other assets in the ordinary course of business, (vi) dispositions of receivables in connection with the compromise, settlement or collection thereof in the ordinary course of business or in bankruptcy or similar proceedings and exclusive of factoring or similar arrangements, (vii) a Restricted Payment that is permitted by Section 4.08, and (viii) any sale or disposition of any property or equipment that has become damaged, worn out, obsolete or otherwise unsuitable for use in connection with the business of the Company or its Restricted Subsidiaries. "Average Life" means, as of the date of determination, with respect to any Indebtedness, the quotient obtained by dividing (i) the sum of the products of (A) the number of years from such date to the date of each successive scheduled principal payment of such Indebtedness multiplied by (B) the amount of such principal payment by (ii) the sum of all such principal payments. "Bank Credit Facility" means a revolving credit and/or letter of credit and/or bankers' acceptance facility the proceeds of which are used for working capital and other general corporate purposes existing on the Issue Date or entered into after the Issue Date by one or more of the Company and its Restricted Subsidiaries and one or more financial institutions, as amended, extended or refinanced from time to time. "Borrowing Base" means, as of any date, an amount equal to the sum of (i) 85% of the book value of all accounts receivable owned by the Company and its Restricted Subsidiaries (excluding any accounts receivable from an Affiliate of the Company or that are more than 90 days past due, less (without duplication) the allowance for doubtful accounts attributable to such current accounts receivable) and (ii) 60% of the book value of all inventory owned by the Company and its Restricted Subsidiaries as of such date, all calculated on a consolidated basis and in accordance with GAAP. To the extent that information is not available as to the amount of accounts receivable as of a specific date, the Company may utilize the most recent available information for purposes of calculating the Borrowing Base. "Capitalized Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under a lease of property, real or personal, that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Change of Control" means any event or series of events by which: (i) any "Person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of 50% or more of the total voting power of the Voting Stock of the Company; 2 (ii) the Company consolidates with or merges or amalgamates with or into another Person or conveys, transfers, or leases all or substantially all of its assets to any Person, or any Person consolidates with, or merges or amalgamates with or into the Company, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is changed into or exchanged for cash, securities or other property, other than any such transaction where (A) the outstanding Voting Stock of the Company is changed into or exchanged for Voting Stock of the surviving corporation which is not Disqualified Stock and (B) the holders of the Voting Stock of the Company immediately prior to such transaction own, directly or indirectly, not less than a majority of the Voting Stock of the surviving corporation immediately after such transaction; (iii) the stockholders of the Company approve any plan of liquidation or dissolution of the Company; or (iv) during any period of 12 consecutive months, individuals who at the beginning of such period constituted the Board of Directors of the Company (or whose appointment or nomination for election by the stockholders of the Company was approved by a vote of not less than a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office. "Change of Control Notice" has the meaning assigned to such term in Section 4.15(b). "Change of Control Offer" has the meaning assigned to such term in Section 4.15(a). "Change of Control Payment Date" has the meaning assigned to such term in Section 4.15(a). "Consolidated Coverage Ratio" means, for any Reference Period, the ratio on a pro forma basis of (i) Consolidated EBITDA for the Reference Period to (ii) Consolidated Interest Expense for such Reference Period; provided that, in calculating Consolidated EBITDA and Consolidated Interest Expense (A) with respect to any acquisition or disposition which occurs during the Reference Period or subsequent to the Reference Period and on or prior to the date giving rise to the need to calculate the Consolidated Coverage Ratio (the "Determination Date"), such acquisition or disposition shall be assumed to have occurred on the first day of the Reference Period, (B) with respect to the incurrence of any Indebtedness (including the Notes) during the Reference Period or subsequent to the Reference Period and on or prior to the Determination Date, the incurrence of such Indebtedness shall be assumed to have occurred on the first day of such Reference Period, (C) any Indebtedness that had been outstanding during the Reference Period that has been repaid on or prior to the Determination Date shall be assumed to have been repaid as of the first day of such Reference Period, (D) the Consolidated Interest Expense attributable to interest or dividends on any Indebtedness bearing a floating interest (or dividend) rate shall be computed on a pro forma basis as if the rate in effect on the Determination Date were the average rate in effect during the entire Reference Period, and (E) in determining the amount of Indebtedness pursuant to Section 4.07, the incurrence of Indebtedness giving rise to the need to calculate the Consolidated Coverage Ratio and, to the extent the net proceeds from 3 the incurrence or issuance thereof are used to retire Indebtedness, the application of the proceeds therefrom, shall be assumed to have occurred on the first day of the Reference Period. "Consolidated EBITDA" means, for any Reference Period, the Consolidated Net Income of the Company and its Restricted Subsidiaries for such Reference Period, increased (to the extent deducted in determining Consolidated Net Income) by the sum of (i) all income taxes of the Company and its Restricted Subsidiaries paid or accrued according to GAAP for such period (other than income taxes attributable to extraordinary gains or losses), (ii) all interest expense of the Company and its Restricted Subsidiaries paid or accrued in accordance with GAAP for such period (including amortization of original issue discount and other non-cash interest expense), (iii) depreciation and depletion of the Company and its Restricted Subsidiaries, (iv) amortization of the Company and its Restricted Subsidiaries including, without limitation, amortization of capitalized debt issuance costs, (v) other non-cash charges (excluding any such non-cash charges to the extent they require an accrual of, or a reserve for, cash charges for any future periods) to the extent such non- cash charges are deducted in connection with the determination of Consolidated Net Income minus non-cash items increasing such Consolidated Net Income and (vi) extraordinary losses to the extent deducted in connection with the determination of Consolidated Net Income. "Consolidated Interest Expense" means, with respect to the Company and its Restricted Subsidiaries, for any Reference Period, the aggregate amount (without duplication) of (i) interest expensed or capitalized in accordance with GAAP (including, in accordance with the following sentence, interest attributable to Capitalized Lease Obligations) during such period in respect of all Indebtedness of the Company and its Restricted Subsidiaries, including (A) amortization of original issue discount on any Indebtedness, (B) the interest portion of all deferred payment obligations, calculated in accordance with GAAP, and (C) all commissions, discounts and other fees and charges owed with respect to bankers' acceptance financing and currency and interest rate swap arrangements, in each case to the extent attributable to such Reference Period, and (ii) dividend requirements of the Company and its Restricted Subsidiaries with respect to Disqualified Stock of the Company or its Restricted Subsidiaries, whether in cash or otherwise (except dividends paid solely in shares of Qualified Stock of the Company), paid (other than to the Company or any of its Restricted Subsidiaries), declared, accrued or accumulated during such period, divided by the difference of one minus the applicable actual combined federal, state, local and foreign income tax rate of the Company and its Restricted Subsidiaries (expressed as a decimal), on a consolidated basis, for the four quarters immediately preceding the date of the transaction giving rise to the need to calculate Consolidated Interest Expense, in each case to the extent attributable to such Reference Period and excluding items eliminated in consolidation. For purposes of this definition, (i) interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by the Company to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP and (ii) interest expense attributable to any Indebtedness represented by the guarantee by the Company or a Restricted Subsidiary of the Company of an obligation of another Person shall be deemed to be the interest expense attributable to the Indebtedness guaranteed. "Consolidated Net Income" of the Company means, for any period, the aggregate net income (or loss) of the Company and its Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP, provided that (i) the net income for 4 such period of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends, payments or distributions actually paid to the Company or its Restricted Subsidiaries by such other Person in such period; (ii) the net income for such period of any Restricted Subsidiary of the Company that is subject to any Payment Restriction will be included only to the extent of the amount of dividends, payments or distributions which (A) are actually paid by such Restricted Subsidiary in such period to the Company (or another Restricted Subsidiary which is not subject to a Payment Restriction) and (B) are not in excess of the amount which such Restricted Subsidiary would be permitted to pay to the Company (or another Restricted Subsidiary which is not subject to a Payment Restriction) in any future period under the Payment Restrictions applicable to such Restricted Subsidiary, assuming that the net income of such Restricted Subsidiary in each future period is equal to the net income for such Restricted Subsidiary for such period; and (iii) the following will be excluded: (A) any net gain on the sale or other disposition by the Company or any of its Restricted Subsidiaries of assets (other than a sale of inventory or hydrocarbons or other products (including both crude oil and refined products), in each case in the ordinary course of business of the Company's operations) and of the Capital Stock of any Restricted Subsidiary of the Company, (B) the net income (or loss) of any other Person acquired by the Company or any Restricted Subsidiary prior to the date of such acquisition, (C) extraordinary gains, and (D) the $5.4 million reserve recorded in 2001 for a related party note and interest thereon. "Consolidated Net Tangible Assets" means, as of any date, the total assets of the Company and its Restricted Subsidiaries on a consolidated basis as of such date (less applicable reserves and other items properly deductible from total assets) and after deducting therefrom: (i) total liabilities and total capital items as of such date except the following: items constituting Indebtedness, paid-in capital and retained earnings, provisions for deferred income taxes and deferred gains, and reserves which are not reserves for any contingencies not allocated to any particular purpose; (ii) goodwill, trade names, trademarks, patents, unamortized debt discount and expense, and other intangible assets; and (iii) all Investments other than Permitted Investments. "Consolidated Tangible Net Worth" means, with respect to any Person, as at any date of the determination, the sum of Capital Stock (other than Disqualified Stock) and paid-in capital plus retained earnings (or minus accumulated deficit) minus all intangible assets, including, without limitation, organization costs, patents, trademarks, copyrights, franchise, research and development costs, and any amount reflected in treasury stock, of such Person determined on a consolidated basis in accordance with GAAP. "Disqualified Stock" means any Capital Stock of a Person which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event or with the passage of time, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the Maturity Date or which is exchangeable or convertible into debt securities of such Person or any other Person, except to the extent that such exchange or conversion rights cannot be exercised prior to the Maturity Date. 5 "Domestic Subsidiary" means any Restricted Subsidiary that was formed under the laws of the United States or any state thereof or the District of Columbia or that guarantees or otherwise provides direct credit support for any Indebtedness of the Company or any Subsidiary Guarantor. "Equity Offering" means a public or private sale of Capital Stock (other than Disqualified Stock) of the Company. "Indebtedness" means, without duplication, with respect to any Person, (i) all obligations of such Person (A) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (B) evidenced by bonds, notes, debentures or similar instruments, (C) representing the balance deferred and unpaid of the purchase price of any property or services (other than accounts payable or other obligations arising in the ordinary course of business), (D) evidenced by bankers' acceptances or similar instruments issued or accepted by banks, (E) for the payment of money relating to a Capitalized Lease Obligation, or (F) evidenced by a letter of credit or a reimbursement obligation of such Person with respect to any letter of credit; (ii) all net obligations of such Person as of the date of a required calculation under interest rate swap obligations and foreign currency hedges, other than interest rate swap obligations and foreign currency hedges incurred to protect the Company or its Restricted Subsidiaries from fluctuations in interest rates or foreign currency exchange rates; (iii) all liabilities of others of the kind described in the preceding clauses (i) or (ii) that such Person has guaranteed or that are otherwise its legal liability; (iv) Indebtedness (as otherwise defined in this definition) of another Person secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person, the amount of such obligations being deemed to be the lesser of (A) the full amount of such obligations so secured, and (B) the fair market value of such asset, as determined in good faith by the Board of Directors of such Person, which determination shall be evidenced by a Board Resolution of such Person; (v) the liquidation preference and any mandatory redemption payment obligations in respect of Disqualified Stock of such Person; and (vi) any and all deferrals, renewals, extensions, refinancings and refundings (whether direct or indirect) of, or amendments, modifications or supplements to, any liability of the kind described in any of the preceding clauses (i), (ii), (iii), (iv), (v), or this clause (vi), whether or not between or among the same parties. "Investment" of any Person means (i) all investments by such Person in any other Person in the form of loans, advances or capital contributions (excluding advances to employees in the ordinary course of business in an aggregate amount outstanding at any one time not to exceed $5 million), (ii) all guarantees of Indebtedness or other obligations of any other Person by such Person, (iii) all purchases (or other acquisitions for consideration) by such Person of Indebtedness, Capital Stock or other securities of any other Person and (iv) all other items that would be classified as investments or advances on a balance sheet of such Person prepared in accordance with GAAP. "Issue Date" means the date on which the Notes are originally issued under this First Supplemental Indenture. "Make-Whole Premium" means, with respect to a Note on any date of redemption, the greater of (i) 1% of the principal amount of such Note or (ii) the excess of (A) the present value 6 at such date of redemption of (1) the redemption price of such Note at May 15, 2009 (as provided in Section 3.04(a)) plus (2) all remaining required interest payments (exclusive of interest accrued and unpaid to the date of redemption) due on such Note through May 15, 2009, computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (B) the then outstanding principal amount of such Note. "Maturity Date" means May 15, 2014. "Net Available Proceeds" means, with respect to any Asset Sale of any Person, cash proceeds received (including any cash proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, and excluding any other consideration until such time as such consideration is converted into cash) therefrom, in each case net of all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all federal, state or local taxes required to be accrued as a liability as a consequence of such Asset Sale, and in each case net of all Indebtedness which is secured by such assets, in accordance with the terms of any Lien upon or with respect to such assets, or which must, by its terms or in order to obtain a necessary consent to such Asset Sale to prevent a default or event of default under Senior Indebtedness or by applicable law, be repaid out of the proceeds from such Asset Sale and which is actually so repaid. "Net Cash Proceeds" means, in the case of any sale by the Company of securities pursuant to Section 4.08(a)(iii)(B) or (C), the aggregate net cash proceeds received by the Company, after payment of expenses, commissions, discounts and any other transaction costs incurred in connection therewith. "Pari Passu Indebtedness" means the 9% Notes and the 11% Notes and any other Indebtedness of the Company that specifically provides that such Indebtedness is to rank pari passu with the Notes in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of the Company which is not Senior Indebtedness. "Permitted Business Investments" means: (i) Investments by the Company or any Restricted Subsidiary in any Person which immediately prior to the making of such Investment is a Restricted Subsidiary; (ii) Investments in the Company by any Restricted Subsidiary; (iii) Investments by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment (A) such Person becomes a Restricted Subsidiary of the Company or (B) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys all or substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company; (iv) Investments arising in connection with interest rate protection agreements, foreign currency hedging agreements and commodity hedging agreements incurred in the ordinary course of business for the purpose of fixing or hedging interest rate, currency or 7 commodity risk in connection with the conduct of the business of the Company and its Restricted Subsidiaries and not for speculative purposes; (v) Investments received by the Company or any Restricted Subsidiary in connection with Asset Sales, provided that the aggregate fair market value of all Investments permitted pursuant to this clause (v) after the Issue Date shall not exceed $10 million in the aggregate; (vi) Investments to the extent acquired in exchange for, or out of the Net Cash Proceeds of a substantially concurrent offering of, Capital Stock (other than Disqualified Stock) of the Company; (vii) stock, obligations or securities received in satisfaction of judgments; and (viii) other Investments in any Person that is not an Affiliate of the Company (other than a Restricted Subsidiary) having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (viii) since the date of the Indenture, not to exceed $10 million. "Permitted Financial Investments" means: (i) United States dollars; (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof; (iii) certificates of deposit and eurodollar time deposits with maturities of 12 months or less from the date of acquisition, bankers' acceptances with maturities not exceeding 12 months and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $300 million; (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) entered into with any financial institution meeting the qualifications specified in clause (iii) above; (v) commercial paper rated at least A-2 or the equivalent thereof at the time of purchase by Standard & Poor's or rated at least P-2 or the equivalent at the time of purchase by Moody's Investors Service, Inc., and in each case maturing within 12 months after the date of acquisition; (vi) money market mutual or similar funds having assets in excess of $100 million; and (vii) any debt securities or adjustable rate preferred stock issued by a corporation organized under the laws of a state of the United States of America or issued by any state, county or municipality located within the United States of America which is rated at least AA- or the equivalent thereof by Moody's Investors Service, Inc. and 8 Standard & Poor's Corporation and maturing or having a call provision not exceeding 24 months from the date of acquisition. "Permitted Investments" means Permitted Business Investments and Permitted Financial Investments. "Permitted Liens" means: (i) Liens existing on the Issue Date; (ii) Liens on property of the Company now or hereafter securing Senior Indebtedness of the Company and Liens on property of a Subsidiary Guarantor now or hereafter securing Senior Indebtedness of such Subsidiary Guarantor; (iii) Liens now or hereafter securing any interest rate hedging obligations (A) that the Company is required to enter into with respect to the Bank Credit Facility or (B) that are entered into for the purpose of managing interest rate risk with respect to Indebtedness of the Company and its Restricted Subsidiaries, provided that such interest rate obligations under clauses (A) and (B) do not have an aggregate notional amount which exceeds the aggregate principal amount of Indebtedness of the Company and its Restricted Subsidiaries; (iv) Liens securing obligations under agreements that the Company enters into in the ordinary course of business for the purpose of protecting against fluctuations in oil, natural gas, or refined products prices; (v) Liens securing Indebtedness, the proceeds of which are used to refinance secured Indebtedness of the Company or its Restricted Subsidiaries; provided that such Liens extend to or cover only the property or assets currently securing the Indebtedness being refinanced; (vi) Liens for taxes, assessments and governmental charges not yet delinquent or being contested in good faith and for which adequate reserves have been established to the extent required by GAAP; (vii) mechanics', workmen's, materialmen's, operator's or similar Liens arising in the ordinary course of business for sums that are not yet delinquent or are being contested in good faith by appropriate action; (viii) Liens in connection with workmen's compensation, unemployment insurance or other social security, old age pension or public liability obligations not yet due or which are being contested in good faith by appropriate action; (ix) Liens, deposits or pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of money), leases, public or statutory obligations, surety, stay, appeal, indemnity, performance or other similar bonds, or other similar obligations arising in the ordinary course of business; 9 (x) survey exceptions, encumbrances, easements or reservations, or rights of others for, rights of way, zoning or other restrictions as to the use of real properties, and minor defects in title which, in the case of any of the foregoing, were not incurred or created to secure the payment of borrowed money or the deferred purchase price of property or services, and in the aggregate do not materially adversely affect the value of such properties or materially impair use for the purposes of which such properties are held by the Company or any Restricted Subsidiaries; (xi) Liens on, or related to, properties to secure all or part of the costs incurred in the ordinary course of business of exploration, drilling, development or operation thereof; (xii) Liens on pipeline or pipeline facilities which arise out of operation of law; (xiii) judgment and attachment Liens not giving rise to an Event of Default or Liens created by or existing from any litigation or legal proceeding that are currently being contested in good faith by appropriate proceedings and for which adequate reserves have been established to the extent required by GAAP; (xiv) (A) Liens upon any property of any Person existing at the time of acquisition thereof by the Company or a Subsidiary, (B) Liens upon any property of a Person existing at the time such Person is merged or consolidated with the Company or any Restricted Subsidiary or existing at the time of the sale or transfer of any such property of such Person to the Company or any Restricted Subsidiary, or (C) Liens upon any property of a Person existing at the time such Person becomes a Restricted Subsidiary; provided that in each case such Lien has not been created in contemplation of such sale, merger, consolidation, transfer or acquisition, and provided further that in each such case no such Lien shall extend to or cover any property of the Company or any Restricted Subsidiary other than the property being acquired and improvements thereon; (xv) Liens on deposits to secure public or statutory obligations or in lieu of surety or appeal bonds entered into in the ordinary course of business; (xvi) Liens in favor of collecting or payor banks having a right of setoff, revocation, refund or chargeback with respect to money or instruments of the Company or any Restricted Subsidiary on deposit with or in possession of such bank; (xvii) purchase money Liens granted in connection with the acquisition of fixed assets in the ordinary course of business and consistent with past practices, provided that (A) such Liens attach only to the property so acquired with the purchase money indebtedness secured thereby and (B) such Liens secure only Indebtedness that is not in excess of 100% of the purchase price of such fixed assets; (xviii) Liens reserved in oil and gas mineral leases for bonus or rental payments and for compliance with the terms of such leases; (xix) Liens arising under partnership agreements, oil and gas leases, farm-out agreements, division orders, contracts for the sale, purchase, exchange, transportation or 10 processing of oil, gas or other hydrocarbons, unitization and pooling declarations and agreements, development agreements, operating agreements, area of mutual interest agreements, and other agreements which are customary in the Principal Business; and (xx) other Liens provided that such other Liens shall not secure obligations in excess of $10 million in the aggregate at any one time outstanding. "Permitted Refinancing Indebtedness" means: (i) Indebtedness of the Company or any Restricted Subsidiary, the terms of which have been amended, modified or supplemented in a manner that does not (A) affect the priority of such Indebtedness in right of payment in relation to the Notes or the Guarantees, (B) accelerate the maturity of such Indebtedness or (C) shorten the Average Life of such Indebtedness, and (ii) Indebtedness of the Company or any Restricted Subsidiary, the net proceeds of which are used to renew, extend, refinance, defease, refund or repurchase outstanding Indebtedness of the Company or such Subsidiary, provided that (A) if the Indebtedness (including any guarantee thereof) being renewed, extended, refinanced, defeased, refunded or repurchased is pari passu with or subordinated in right of payment to the Notes or Guarantees, then such Indebtedness is pari passu with or subordinated in right of payment to, as the case may be, the Notes or Guarantees at least to the same extent as the Indebtedness being renewed, extended, refinanced, defeased, refunded or repurchased, (B) such Indebtedness is scheduled to mature no earlier than the Indebtedness being renewed, extended, refinanced, defeased, refunded or repurchased, (C) such Indebtedness has an Average Life at the time such Indebtedness is incurred that is equal to or greater than the remaining Average Life of the Indebtedness being renewed, extended, refinanced, defeased, refunded or repurchased and (D) such Indebtedness is incurred either by the Company or the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; provided further that such Indebtedness (to the extent that such Indebtedness constitutes Permitted Refinancing Indebtedness) is in an aggregate principal amount (or, if such Indebtedness is issued at a price less than the principal amount thereof, the aggregate amount of gross proceeds therefrom is) not in excess of the aggregate principal amount then outstanding under the Indebtedness being renewed, extended, refinanced, defeased, refunded or repurchased (or if the Indebtedness being renewed, extended, refinanced, defeased, refunded or repurchased was issued at a price less than the principal amount thereof, then not in excess of the amount of liability in respect thereof determined in accordance with GAAP) plus all accrued interest thereon and the amount of any reasonably determined premium necessary to accomplish such refinancing and such reasonable expenses incurred in connection therewith. "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, 11 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. "Publicly Traded Stock" means, with respect to any Person, Voting Stock of such Person which is registered under Section 12 of the Exchange Act and which is actively traded on the New York Stock Exchange or American Stock Exchange or quoted in the Nasdaq National Market System. "Qualified Stock" means any Capital Stock that is not Disqualified Stock. "Reference Period" means, with respect to any Person, the four full fiscal quarters ended immediately preceding any date upon which any determination is to be made pursuant to the terms of the Notes or the Indenture. "Restricted Payment" means, with respect to any Person, any of the following: (i) any dividend or other distribution in respect of such Person's Capital Stock (other than (A) dividends or distributions payable solely in Capital Stock (other than Disqualified Stock) of such Person and (B) in the case of Restricted Subsidiaries of the Company, dividends or distributions payable to the Company or to a Restricted Subsidiary of the Company; (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock, or any option, warrant, or other right to acquire shares of Capital Stock, of the Company or any of its Restricted Subsidiaries other than any such purchase, redemption or other acquisition or retirement for value by the Company or any Restricted Subsidiary of the Company of any Capital Stock, or any option, warrant or other right to acquire shares of Capital Stock, of any Restricted Subsidiary with respect to such Capital Stock, option, warrant or other right which is owned, at the time of any such transaction, by the Company or another Restricted Subsidiary; (iii) the making of any principal payment on, or the purchase, defeasance, repurchase, redemption or other acquisition or retirement for value, prior to any scheduled maturity, scheduled repayment or scheduled sinking fund payment, of any Indebtedness which is subordinated in right of payment to the Notes or any Guarantee; and (iv) the making by such Person of any Investment other than a Permitted Investment. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. By a Board Resolution of the Company, as evidenced by written notice thereof delivered to the Trustee, the Company may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that, immediately after giving effect to such designation, (i) the Company could incur at least $1.00 in additional Indebtedness pursuant to Section 4.07(a), and (ii) no Default or Event of Default shall have occurred and be continuing. 12 "Senior Indebtedness" means any Indebtedness (other than the 9% Notes and the 11% Notes and any Restricted Subsidiary's guarantee thereof) of a Person (whether outstanding on the date hereof or hereafter incurred), unless such Indebtedness is stated to be pari passu with or is contractually subordinate or junior in right of payment to the Notes or Guarantee; provided that Senior Indebtedness does not include (i) any liability for federal, state, local or other taxes owed or owing by the Company; (ii) any Indebtedness of the Company to any of its Subsidiaries or other Affiliates; (iii) any trade payables; or (iv) the portion of any Indebtedness that is incurred in violation of the Indenture. "Subsidiary Guarantor" means (i) each of the Company's Subsidiaries in existence on the Issue Date, except for Navajo Convenient Stores Co., LLC, (ii) each of the Subsidiaries that becomes a guarantor of the Notes in compliance with the provisions of the Indenture and (iii) each of the Subsidiaries executing a supplemental indenture in which such Subsidiary agrees to be bound by the terms of the Indenture; and their respective successors and assigns until released from their obligations under their Guarantee in accordance with the Indenture. "Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) which has become publicly available at least two Business Days prior to the date fixed for prepayment (or, if such Statistical Release is no longer published, any publicly available source for similar market data)) most nearly equal to the then remaining term of the Notes to May 15, 2009; provided, however, that if the then remaining term to May 15, 2009 is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the then remaining term of the Notes to May 15, 2009 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. "Unrestricted Subsidiary" means (i) any Subsidiary of an Unrestricted Subsidiary or (ii) any Subsidiary of the Company or of a Restricted Subsidiary that is designated as an Unrestricted Subsidiary by a Board Resolution of the Company in accordance with the following sentence. The Company may designate any Subsidiary of the Company or of a Restricted Subsidiary (including any Restricted Subsidiary or any newly formed or newly acquired Subsidiary) to be an Unrestricted Subsidiary by a Board Resolution of the Company, as evidenced by written notice thereof delivered to the Trustee, if after giving effect to such designation, (i) the Company could incur $1.00 of additional Indebtedness pursuant to Section 4.07(a), (ii) the Company could make an additional Restricted Payment of $1.00 pursuant to Section 4.08(a), (iii) such Subsidiary does not own or hold any Capital Stock of, or any Lien on any property of, the Company or any Restricted Subsidiary and (iv) such Subsidiary is not liable, directly or indirectly, with respect to any Indebtedness other than Unrestricted Subsidiary Indebtedness and Indebtedness to be released upon such Subsidiary's designation as an Unrestricted Subsidiary. "Unrestricted Subsidiary Indebtedness" of any Person means Indebtedness of such Person (i) as to which neither the Company nor any Restricted Subsidiary is directly or indirectly liable 13 (by virtue of the Company's or such Restricted Subsidiary's being the primary obligor, or guarantor of, or otherwise liable in any respect on, such Indebtedness), (ii) which, with respect to Indebtedness incurred after the date of the Indenture by the Company or any Restricted Subsidiary, upon the occurrence of a default with respect thereto, does not result in, or permit any holder of any Indebtedness of the Company or any Restricted Subsidiary to declare, a default on such Indebtedness of the Company or any Restricted Subsidiary and (iii) which is not secured by any assets of the Company or of any Restricted Subsidiary. "9% Notes" means the 9% senior subordinated notes due 2007 of the Company issued under an indenture, dated as of August 26, 1997, among the Company, the guarantors party thereto and The Bank of New York, as trustee. "11% Notes" means the 11% senior subordinated notes due 2012 of the Company issued under an indenture, dated as of May 14, 2002, among the Company, the guarantors party thereto and The Bank of New York, as trustee. ARTICLE II. FORM AND TERMS OF THE NOTES Section 2.01. Terms of the Notes. The following terms relating to the Notes are hereby established: (a) The Notes shall constitute a series of Notes having the title "8% Senior Subordinated Notes due 2014." The Notes shall form their own series for voting purposes, and shall not be part of the same class or series as any other notes issued by the Company. (b) The aggregate principal amount of the Notes that may be authenticated and delivered under this First Supplemental Indenture is unlimited; provided, however, that the Company complies with the provisions of this First Supplemental Indenture. (c) The entire outstanding principal amount of the Notes shall be payable on May 15, 2014. (d) The rate at which the Notes shall bear interest shall be 8%. Interest on the Notes shall accrue from the date hereof. The Interest Payment Dates for the Notes on which interest shall be payable shall be May15 and November 15 of each year, beginning November 15, 2004. The Regular Record Dates for the interest payable on the Notes on any Interest Payment Date shall be May 1 with respect to the May 15 Interest Payment Date and November 1 with respect to the November 15 Interest Payment Date. Interest on overdue principal and premium, if any, shall be at the same rate as borne by the Notes, to the extent lawful, and interest on overdue interest (without regard to any applicable grace period) shall be at the same rate, to the extent lawful. (e) Each of the Notes shall be issuable in whole in the registered form of one or more Global Notes, without coupons, and the Depositary for such Global Notes will be DTC. 14 (f) Each of the Notes shall be guaranteed by the Subsidiary Guarantors in accordance with Article XII of the Base Indenture and Section 2.07 of this First Supplemental Indenture. (g) The Notes shall rank pari passu with the Pari Passu Indebtedness of the Company. (h) All provisions of the Base Indenture shall apply to the Notes, except as otherwise provided in this First Supplemental Indenture and except as provided in any future Supplemental Indenture. Without limiting the generality of the foregoing, the subordination provisions of Article XI of the Base Indenture shall apply to the Notes. (i) The Notes, Subsidiary Guarantees and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A attached hereto. Section 2.02. Events of Default. Except as may be provided in a future supplemental indenture, for the benefit of the Holders of the Notes, Section 6.01(a) of the Base Indenture is deleted in its entirety and replaced with the following new Section 6.01(a): "the Company or any Subsidiary Guarantor defaults in the payment of the principal of or premium, if any, on any Note of such series when the same becomes due and payable at maturity, upon repurchase pursuant to a Change of Control Offer or a Asset Sale Offer, upon acceleration or otherwise (whether or not prohibited by the subordination provisions of the Indenture);" Section 2.03. Covenants. Except as may be provided in a future supplemental indenture, for the benefit of the Holders of the Notes, the following new Sections 4.07 through 4.15 are hereby added to the Indenture: "4.07 Limitation on Incurrence of Additional Indebtedness. (a) The Company will not, and will not permit any of the Restricted Subsidiaries, directly or indirectly, to issue, incur, assume, guarantee, become liable, contingently or otherwise, with respect to or otherwise become responsible for the payment of (collectively, "incur") any Indebtedness; provided, however, that if no Default or Event of Default with respect to the Notes shall have occurred and be continuing at the time or as a consequence of the incurrence of such Indebtedness, the Company or the Restricted Subsidiaries may incur Indebtedness if, on a pro forma basis, after giving effect to such incurrence and the application of the proceeds therefrom, the Consolidated Coverage Ratio would have been equal to or greater than 2.0 to 1.0. (b) Notwithstanding the foregoing, (i) the Company may incur Indebtedness consisting of the Notes to be issued on the Issue Date; (ii) the Subsidiary Guarantors may incur the Guarantees; (iii) the Company and the Subsidiary Guarantors may incur Indebtedness in existence on the date of this Indenture; (iv) the Company or any Subsidiary may incur secured or unsecured Indebtedness outstanding at any time in an aggregate principal amount not to exceed the greater of (A) $100 million or (B) the Borrowing Base; (v) the Company may incur Permitted Company Refinancing Indebtedness; (vi) any Restricted Subsidiary may incur Permitted 15 Subsidiary Refinancing Indebtedness; (vii) the Company may incur Indebtedness to any Restricted Subsidiary, and any Restricted Subsidiary may incur Indebtedness to the Company or to any Restricted Subsidiary; provided that (X) any subsequent issuance or transfer that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary or (Y) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary, shall be deemed, in each case to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (vii); (viii) the Company or any Subsidiary Guarantor may incur Indebtedness represented by Capitalized Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Subsidiary Guarantor, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (viii), not to exceed $15 million at any time outstanding; (ix) this covenant will not prohibit the Guarantee by the Company or any of the Subsidiary Guarantors of Indebtedness of the Company or a Restricted Subsidiary of the Company that was permitted to be incurred by another provision of this covenant; and (x) the Company or any Subsidiary Guarantor may incur additional Indebtedness in an aggregate principal amount at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (x), not to exceed $15 million. (c) Any Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary. For purposes of determining compliance with this Section 4.07, in the event that any proposed Indebtedness meets the criteria of more than one of the categories of debt described in paragraph (b) above or is entitled to be incurred pursuant to paragraph (a) above, the Company will be permitted to classify such item of Indebtedness on the date of its incurrence in any manner that complies with this covenant, including applying such Indebtedness to any one or more categories. 4.08 Limitation on Restricted Payments. (a) The Company will not, and will not permit any of the Restricted Subsidiaries to, directly or indirectly, make any Restricted Payment, unless: (i) 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; (ii) 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 Section 4.07(a); and 16 (iii) immediately after giving effect to such Restricted Payment, the aggregate of all Restricted Payments declared or made after August 26, 1997 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 and ending on the last day of the fiscal quarter immediately preceding the date of such Restricted Payment; (B) the aggregate Net Cash Proceeds, and the fair market value of property other than cash (as determined in good faith by the Company's Board of Directors and evidenced by a Board Resolution), received by the Company during such period from any Person other than a Restricted Subsidiary of the Company as a result of the issuance or sale of Capital Stock of the Company (other than any Disqualified Stock), other than in connection with the conversion of Indebtedness or Disqualified Stock; (C) the aggregate Net Cash Proceeds, and the fair market value of property other than cash (as determined in good faith by the Company's Board of Directors and evidenced by a Board Resolution), received by the Company during such period from any Person other than a Restricted Subsidiary of the Company as a result of the issuance or sale of any Indebtedness or Disqualified Stock to the extent that at the time the determination is made such Indebtedness or Disqualified Stock, as the case may be, has been converted into or exchanged for Capital Stock of the Company (other than Disqualified Stock); (D)(1) in case any Unrestricted Subsidiary has been redesignated a Restricted Subsidiary, an amount equal to the lesser of (x) the book value (determined in accordance with GAAP) at the date of such redesignation of the aggregate Investments made by the Company and its Restricted Subsidiaries in such Unrestricted Subsidiary and (y) the fair market value of such Investments in such Unrestricted Subsidiary at the time of such redesignation, as determined in good faith by the Board of Directors of the Company, whose determination shall be conclusive and evidenced by a Board Resolution; or (2) in case any Restricted Subsidiary has been designated an Unrestricted Subsidiary, minus the greater of (x) the book value (determined in accordance with GAAP) at the date of designation of the aggregate Investments made by the Company and its Restricted Subsidiaries in such Restricted Subsidiary and (y) the fair market value of such Investments in such Restricted Subsidiary at the time of such designation, as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution; (E) without duplication, with respect to any Investment (other than a Permitted Investment) of any Person which has previously been made by the Company or any of its Restricted Subsidiaries, the amount of any such Investment that has been fully and unconditionally repaid to the Company or a Restricted Subsidiary, not to exceed the cash amount received by the Company or such Restricted Subsidiary upon such repayment or with respect to any Indebtedness of any Person that has previously been guaranteed by the Company or any of its Restricted Subsidiaries (other than the Notes or Subsidiary Guarantees), the amount of any such Indebtedness that has been fully and unconditionally released from any and all further obligation or liability with respect thereto, provided in each case that such amount shall not exceed the aggregate amount of Restricted Payments previously taken into account with respect to such amount for purposes of determining the aggregate amount of all Restricted Payments declared or made pursuant to this clause (iii); and (F) $30 million. 17 Notwithstanding the foregoing, the above limitations will not prevent (i) the payment of any dividend within 60 days after the date of declaration thereof, if at such date of declaration, such payment complied with the provisions hereof, (ii) the purchase, redemption, acquisition or retirement of any shares of Capital Stock of the Company or any Subsidiary Guarantor in exchange for, or out of the net proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of, other shares of Capital Stock (other than Disqualified Stock) of the Company; (iii) the defeasance, redemption, repurchase, retirement or other acquisition of Indebtedness which is subordinate in right of payment to the Notes or any Guarantee, in exchange for, by conversion into, or out of the net proceeds of the substantially concurrent issue or sale (other than to a Restricted Subsidiary of the Company) of Capital Stock (other than Disqualified Stock) of the Company (iv) the defeasance, redemption, repurchase, retirement or other acquisition of Indebtedness which is subordinate in right of payment to the Notes or any Guarantee with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (v) the payment of any dividend by a Restricted Subsidiary of the Company to the holders of its common Equity Interests on a pro rata basis; or (vi) the repurchase of Capital Stock deemed to occur upon the exercise of options or warrants if such Capital Stock represents all or a portion of the exercise price thereof; provided that, other than with respect to clause (i) above, no Default or Event of Default has occurred and is continuing at the time, or shall occur as a result thereof. 4.09 Limitation on Sale of Assets. (a) The Company will not, and will not permit any Restricted Subsidiary to, make any Asset Sales that, in the aggregate, have a fair market value of $15 million or more in any 12-month period unless: (i) the Company (or its Restricted Subsidiaries, as the case may be) receives consideration at the time of such sale or other disposition at least equal to the fair market value thereof (as determined in good faith by the Company's Board of Directors and evidenced by a Board Resolution in the case of any Asset Sales or series of related Asset Sales having a fair market value of $15 million or more; (ii) not less than 75% of the proceeds received by the Company (or its Restricted Subsidiaries, as the case may be) from each such Asset Sale consists of (A) cash, (B) cash equivalents which would constitute Permitted Financial Investments, (C) Publicly Traded Stock of a Person primarily engaged in a Principal Business, (D) other consideration with an aggregate fair market value, together with all other consideration of the type specified in this clause (D) received by the Company and its Restricted Subsidiaries from all Asset Sales after the Issue Date, not to exceed $5 million; provided that any sale of such other consideration shall be for cash and shall be considered an Asset Sale under this Indenture, (E) all or substantially all of the assets of a Principal Business, the majority of the Voting Stock of another Person engaged in a Principal Business that thereupon becomes a Restricted Subsidiary or long- term assets that are used or useful in a Principal Business, or (F) any combination of the foregoing; provided, however, that (1) the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet or in the notes thereto) of the 18 Company or such Restricted Subsidiary (other than liabilities that are by their terms expressly subordinated to the Notes or any guarantee thereof) that are assumed by the transferee of any such assets and (y) any notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that, within 90 days following the closing of such sale or disposition, are converted by the Company or such Restricted Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this provision and (2) the aggregate fair market value (as determined in good faith by the Board of Directors of the Company, evidenced by a Board Resolution) of all consideration of the type specified in clause (C) above received by the Company and its Restricted Subsidiaries from all Asset Sales after the Issue Date shall not exceed 15% of Consolidated Net Tangible Assets at the time of such Asset Sale; and (iii) the Net Available Proceeds received by the Company (or its Restricted Subsidiaries, as the case may be) from such Asset Sales are applied in accordance with paragraph (b) or (c) hereof. (b) The Company may, within 360 days following the receipt of Net Available Proceeds from any Asset Sale, apply such Net Available Proceeds to: (i) the repayment of Indebtedness of the Company under a Bank Credit Facility or other Senior Indebtedness of the Company or Senior Indebtedness of a Subsidiary Guarantor or Indebtedness of a Restricted Subsidiary that is not a Subsidiary Guarantor (but only from proceeds of Asset Sales of such Restricted Subsidiary) that results in a permanent reduction in the principal amount of such Senior Indebtedness in an amount equal to the principal amount so repaid; or (ii) make an investment in capital assets used in a Principal Business. (c) Any Net Available Proceeds from Asset Sales that are not applied or invested as provided in the preceding paragraph will constitute "Excess Proceeds." Within 10 days after the aggregate amount of Excess Proceeds exceeds $10 million, the Company will make an Asset Sale Offer to all holders of Notes and all holders of other Indebtedness that is pari passu with the Notes or any Subsidiary Guarantee containing provisions similar to those set forth in the Indenture with respect to offers to purchase with the proceeds of sales of assets, to purchase the maximum principal amount of Notes and such other Pari Passu Indebtedness that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of the principal amount of the Notes and such other Pari Passu Indebtedness plus accrued and unpaid interest to the date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use such Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and such other Pari Passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Notes and such other Pari Passu Indebtedness shall be purchased on a pro rata basis based on the principal amount of Notes and such other Pari Passu Indebtedness tendered. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. (d) The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with 19 the Asset Sales provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Asset Sale provisions of the Indenture by virtue of such compliance. (e) During the period between any Asset Sale and the application of the Net Available Proceeds therefrom in accordance with this covenant, all Net Available Proceeds shall be invested in Permitted Financial Investments or may be used to repay indebtedness under a Bank Credit Facility. 4.10 Limitation on Liens Securing Indebtedness. The Company will not, and will not permit any of Restricted Subsidiaries to, create, incur, assume or suffer to exist any Liens (other than Permitted Liens) upon any of their respective properties securing (a) any Indebtedness of the Company (other than Senior Indebtedness of the Company), unless the Notes are equally and ratably secured until such time as such obligations are no longer secured by a Lien or (b) any Indebtedness of any Subsidiary Guarantor (other than Senior Indebtedness of such Subsidiary Guarantor), unless the Guarantees of such Subsidiary Guarantors are equally and ratably secured until such time as such obligations are no longer secured by a Lien; provided, however, that if such Indebtedness is expressly subordinated to the Notes or the Guarantees, the Lien securing such Indebtedness will be subordinated and junior to the Lien securing the Notes or the Guarantees, with the same relative priority as such subordinated Indebtedness of the Company or a Subsidiary Guarantor will have with respect to the Notes or the Guarantees, as the case may be. 4.11 Limitation on Payment Restrictions Affecting Restricted Subsidiaries. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or consensual restriction on the ability of any Restricted Subsidiary of the Company to (i) pay dividends or make any other distributions on its Capital Stock, or any other interest or participation in a Restricted Subsidiary; (ii) pay any Indebtedness owed to the Company or a Restricted Subsidiary of the Company; (iii) make loans or advances to the Company or a Restricted Subsidiary of the Company; or (iv) transfer any of its properties or assets to the Company or a Restricted Subsidiary of the Company (each, a "Payment Restriction"), except for (A) encumbrances or restrictions with respect to Senior Indebtedness in effect on the Issue Date; (B) encumbrances or restrictions under a Bank Credit Facility; (C) consensual encumbrances or consensual restrictions binding upon any Person at the time such Person becomes a Restricted Subsidiary of the Company (unless the agreement creating such consensual encumbrance or consensual restrictions was entered into in connection with, or in contemplation of, such entity becoming a Restricted Subsidiary); (D) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of any Restricted Subsidiary; (E) customary restrictions in security agreements or mortgages securing Indebtedness of a Restricted Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements and mortgages; (F) customary restrictions in purchase money obligations for property acquired in the ordinary course of business restricting the transfer of the property acquired thereby; (G) consensual encumbrances or consensual restrictions under any agreement that refinances or replaces any agreement described in clauses 20 (A), (B), (C), (D), (E) or (F) above, provided that the terms and conditions of any such restrictions are no less favorable to the Holders of the Notes than those under the agreement so refinanced or replaced; and (H) any encumbrance or restriction due to applicable law. Section 4.12 Limitation on Transactions with Affiliates. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, (i) sell, lease, transfer or otherwise dispose of any of its properties, assets or securities to, (ii) purchase or lease any property, assets or securities from, (iii) make any Investment in, or (iv) enter into or amend any contract or agreement with or for the benefit of, either (A) an Affiliate of any of them, (B) any Person, or Person who is a member of a group (as such term is used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable) that, directly or indirectly, is the beneficial holder of 10% or more of any class of equity securities of the Company, (C) any Person who is an Affiliate of any such holder, or (D) any officers, directors, or employees of any of the above (each case under (A), (B), (C) and (D), an "Affiliate Transaction"), in one or a series of related transactions (to either party), except for transactions evidenced by an Officers' Certificate addressed and delivered to the Trustee stating that such Affiliate Transaction is made in good faith, the terms of which are fair and reasonable to the Company and such Restricted Subsidiary, as the case may be, or, with respect to Affiliate Transactions between the Company and any of its Subsidiaries, to the Company; provided that (v) transactions between or among the Company and any of its Restricted Subsidiaries shall not be deemed to constitute Affiliate Transactions, (w) any reasonable employment, compensation, benefit or indemnification agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business shall not be deemed to constitute Affiliate Transactions, (x) Restricted Payments that are permitted by the provisions of this Indenture described in Section 4.08 shall not be deemed to constitute Affiliate Transactions, (y) any sale of Capital Stock (other than Disqualified Stock) of the Company shall not be deemed to constitute Affiliate Transactions, and (z) with respect to any Affiliate Transaction or series of related transactions with an aggregate value (to either party) in excess of $2 million (excluding issuances of Qualified Stock of the Company and any forgiveness of Indebtedness to an Affiliate existing on the Issue Date), the Company must, prior to the consummation thereof, obtain a written favorable opinion as to the fairness of such transaction to itself from a financial point of view from an independent accounting, appraisal or investment banking firm of national reputation. Section 4.13 Limitation on Future Senior Subordinated Indebtedness. The Company shall not incur any Indebtedness that is subordinated in right of payment to any other Indebtedness of the Company unless such Indebtedness by its terms, is pari passu with or subordinated to the Notes to the same extent. No Subsidiary Guarantor shall incur any Indebtedness that is subordinated in right of payment to any other Indebtedness of such Subsidiary Guarantor unless such Indebtedness, by its terms, is pari passu with or subordinated to the Guarantee of such Subsidiary Guarantor to the same extent. For purposes of the foregoing, no Indebtedness will be deemed to be subordinated in right of payment to any other Indebtedness of the Company or any Subsidiary Guarantor, as applicable, solely by virtue of being unsecured or by virtue of the fact that the holders of any secured Indebtedness have entered into 21 intercreditor agreements giving one or more of such holders priority over the other holders in the collateral held by them. Section 4.14 Line of Business. For so long as any Notes are outstanding, the Company shall not, and shall not permit any of its Restricted Subsidiaries to, engage in any business or activity other than a Principal Business. Section 4.15 Change of Control. (a) Within 30 days following the occurrence of any Change of Control, the Company shall offer (a "Change of Control Offer") to purchase all outstanding Notes at a purchase price equal to 101% of the aggregate principal amount of the Notes, plus accrued and unpaid interest to the date of purchase. The Change of Control Offer shall include a payment date (the "Change of Control Payment Date"), which shall be no earlier than 30 days and no later than 60 days from the date the Change of Control Offer is mailed. If the Change of Control Payment Date is on or after an interest payment record date and on or before the related interest payment date, any accrued interest will be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest will be payable to Holders who tender Notes pursuant to the Change of Control Offer. (b) Within 30 days after any Change of Control, the Company (with notice to the Trustee), or the Trustee at the Company's request, will mail or cause to be mailed to all Holders on the date of the Change of Control a notice (the "Change of Control Notice") of the occurrence of such Change of Control and of the Holders' rights arising as a result thereof. The Change of Control Notice will contain all instructions and materials necessary to enable Holders to tender their Notes to the Company. The Change of Control Notice, which shall govern the terms of the Change of Control Offer, shall state: (1) that the Change of Control Offer is being made pursuant to this Section 4.15; (2) the purchase price and the Change of Control Payment Date; (3) that any Note not tendered will continue to accrue interest; (4) that any Note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest on the Change of Control Payment Date; (5) that Holders electing to have a Note purchased pursuant to any Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice prior to termination of the Change of Control Offer; (6) that Holders will be entitled to withdraw their election if the Company, depositary or Paying Agent, as the case may be, receives, not later than the expiration of the Change of Control Offer, or such longer period as may be required by law, a facsimile transmission or letter setting forth the name of the Holder, the certificate or other identifying number, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have the Note purchased; and (7) that Holders whose Notes are purchased only in part will be issued Notes equal in principal amount to the unpurchased portion of the Notes surrendered. (c) On the Change of Control Payment Date, the Company shall (i) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Notice, (ii) if the 22 Company appoints a depositary or Paying Agent, deposit with such depositary or Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so tendered and (iii) deliver to the Trustee Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof tendered to the Company. The depositary, the Company or the Paying Agent, as the case may be, shall promptly mail to the Holder of Notes so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail to such Holders a new Note equal in principal amount to any unpurchased portion of the Note surrendered. Prior to complying with the provisions of this Section 4.15, but in any event within 30 days following a Change of Control, the Company will either repay all outstanding Senior Indebtedness or obtain the requisite consents, if any, under all agreements governing Senior Indebtedness to permit the repurchase of the Notes required by this Section 4.15. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For purposes of this Section 4.15, the Trustee shall act as the Paying Agent. (d) The Company, to the extent applicable and if required by law, will comply with Section 14 of the Exchange Act and the provisions of Regulation 14E and any other tender offer rules under the Exchange Act and any other federal and state securities laws, rules and regulations which may then be applicable to any offer by the Company to purchase the Notes of the Holders upon a Change of Control." (e) The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Indenture applicable to a Change of Control Offer made by the Company and purchases all of the Notes validly tendered and not withdrawn under such Change of Control Offer. Section 2.04. Consolidation, Merger, Sale or Conveyance. Except as may be provided in a future supplemental indenture, for the benefit of the Holders of the Notes, Section 5.01 of the Base Indenture is hereby deleted and replaced with the following new Section 5.01: "5.01 Company May Consolidate, Merge, Etc. on Certain Terms. The Company will not, directly or indirectly, consolidate with or merge with or into another Person or convey, transfer, lease or otherwise dispose of all or substantially all of the properties and assets of the Company and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to any Person, unless: (a) the Company survives such merger or the Person formed by such consolidation or into which the Company is merged or that acquires by conveyance or transfer or other disposition, or which leases, all or substantially all of the property of the Company is a corporation organized and existing under the laws of the United States of America, any state thereof or the District of Columbia and expressly assumes, by supplemental indenture, the due and punctual payment of the principal of, premium, if any, and interest on, all the Notes and the performance of every other covenant and obligation of the Company under this Indenture; (b) immediately before and after giving effect to such transaction no Default or Event of Default exists; (c) immediately after giving effect to such transaction on a pro forma basis, the Company (or the surviving or transferee entity) would be able to incur $1.00 of additional Indebtedness under the tests described in Section 4.07(a) and (d) the Company delivers to the Trustee an Officers' Certificate (attaching the arithmetic computation to demonstrate compliance with 23 clause (c) above) and Opinion of Counsel, in each case stating that such transaction and such agreement complies with this covenant and that all conditions precedent provided for herein relating to such transaction have been complied with. Upon any such consolidation, merger, lease, conveyance or transfer in accordance with the foregoing, the successor Person formed by such consolidation or into which the Company is merged or to which such lease, conveyance or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor had been named as the Company therein and thereafter (except in the case of a lease) the predecessor corporation will be relieved of all further obligations and covenants under this Indenture and the Notes. Clause (c) above of this covenant will not apply to any merger, conveyance, transfer or other disposition of assets between or among the Company and any of its Restricted Subsidiaries." Section 2.05. Application of Article III of the Indenture Regarding Redemption of Notes. Article III of the Base Indenture, as amended hereby, shall apply to the Notes. Except as may be provided in a future supplemental indenture, for the benefit of the Holders of the Notes, a new Section 3.04 shall be added to Article III of the Indenture as follows: "3.04 Optional Redemption. (a) At any time on or after May 15, 2009, the Company may, at its option, redeem all or any portion of the Notes at the redemption prices (expressed as percentages of the principal amount of the Notes) set forth below, plus, in each case, accrued interest thereon to the applicable redemption date, if redeemed during the 12-month period beginning May 15, 2009 of the years indicated below: Year Percentage 2009.................... 104.000% 2010.................... 102.667% 2011.................... 101.333% 2012 and thereafter..... 100.000% (b) In addition, at any time prior to May 15, 2009, the Company may redeem all or part of the Notes upon not less than 30 days nor more than 60 days' notice at a redemption price equal to the sum of (i) the principal amount thereof, plus (ii) accrued and unpaid interest, if any, to the applicable date of redemption, plus (iii) the Make-Whole Premium. (c) At any time on or prior to May 15, 2007, the Company may, at its option, redeem up to 35% of the aggregate principal amount of the Notes originally issued with the net cash proceeds of one or more Equity Offerings at a redemption price equal to 108.000% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, provided that at least 65% of the aggregate initial principal amount of the Notes remain outstanding after giving effect to each such redemption. In order to effect the foregoing redemption, the Company must mail notice of redemption no later than 60 days after the related Equity Offering. 24 (d) If less than all of the Notes are to be redeemed, the Trustee shall select pro rata or by lot the Notes to be redeemed in multiples of $1,000. Notes in denominations larger than $1,000 may be redeemed in part." Section 2.06. Application of Article X of the Indenture Regarding Sinking Funds. Except as may be provided in a future supplemental indenture, the Notes shall not be entitled to the benefit of any sinking fund and the provisions of the Base Indenture relating to a sinking fund, including Article X, shall not apply to the Notes. Section 2.07. Subsidiary Guarantees. Except as may be provided in a future supplemental indenture, for the benefit of the Holders of the Notes, Article XII of the Base Indenture is hereby deleted and replaced with the following new Article XII: "Section 12.01 Unconditional Guarantee. Each Subsidiary Guarantor hereby, jointly and severally, unconditionally guarantees (such guarantee to be referred to herein as the "Guarantee") to each Holder and to the Trustee the due and punctual payment of the principal of, premium, if any, and interest on the Notes and all other amounts due and payable under this Indenture and the Notes by the Company whether at maturity, by acceleration, redemption, repurchase or otherwise, including, without limitation, interest on the overdue principal of, premium, if any, and interest on the Notes, to the extent lawful, all in accordance with the terms hereof and thereof; subject, however, to the limitations set forth in Article XII. Failing payment when due of any amount so guaranteed for whatever reason, the Subsidiary Guarantors will be jointly and severally obligated to pay the same immediately. Each Subsidiary Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Subsidiary Guarantor hereby waives diligence, presentment, demand of payments, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that this Guarantee will not be discharged except by complete performance of the obligations contained in the Notes, this Indenture and in this Guarantee. If any Holder or the Trustee is required by any court or otherwise to return to the Company, any Subsidiary Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or any Subsidiary Guarantor, any amount paid by the Company or any Subsidiary Guarantor to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Subsidiary Guarantor agrees it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Subsidiary Guarantor further agrees that, as between each Subsidiary Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article VI for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition 25 preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any acceleration of such obligations as provided in Article VI, such obligations (whether or not due and payable) shall forthwith become due and payable by each Subsidiary Guarantor for the purpose of this Guarantee. The guarantee of each Subsidiary Guarantor herein shall be, in the manner and to the extent set forth in Article XII, subordinated in right of payment to the prior payment when due of the principal of, premium, if any, accrued and unpaid interest and all other amounts owing on all existing and future Senior Indebtedness of such Subsidiary Guarantor and of the Company, as the case may be, and senior to the right of payment of principal of, premium, if any, and accrued and unpaid interest on all existing and future Subordinated Indebtedness of such Subsidiary Guarantor. Section 12.02 Subsidiary Guarantors May Consolidate, Etc., on Certain Terms. (a) Nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Subsidiary Guarantor with or into the Company or another Subsidiary Guarantor or shall prevent any sale or conveyance of all or substantially all of its assets to the Company or another Subsidiary Guarantor. (b) The Company may not sell the Capital Stock of a Subsidiary Guarantor, and a Subsidiary Guarantor may not consolidate with or merge into or sell all or substantially all of its assets (in a single transaction or series of related transactions) to any Person other than the Company or another Subsidiary Guarantor (whether or not affiliated with the Company or the Subsidiary Guarantor), unless (i) with respect to a consolidation or merger of such Subsidiary Guarantor, either (A)(1) the surviving entity is a Restricted Subsidiary of the Company or, as a result of the transaction, becomes a Restricted Subsidiary of the Company, (2) the surviving entity remains a Restricted Subsidiary of the Company or, simultaneously with the consummation of the transaction, is designated as a Restricted Subsidiary of the Company, (3) immediately after giving effect to such transaction on a pro forma basis, the Company would be able to incur $1.00 of additional Indebtedness under the test described in Section 4.07(a), (4) if the surviving entity is not the Subsidiary Guarantor, the surviving entity agrees to assume such Subsidiary Guarantor's Guarantee and all its obligations pursuant to this Indenture in accordance with the provisions of Section 12.03, and (5) such transaction does not (x) violate any covenant in the Indenture or (y) result in a Default or an Event of Default immediately thereafter that is continuing or (B)(1) such transaction is made in accordance with Section 4.09 and (2) such transaction does not (x) violate any other covenant in the Indenture or (y) result in a Default or Event of Default immediately thereafter that is continuing and (ii) with respect to the sale of the Capital Stock or all or substantially all of the assets of such Subsidiary Guarantor, (A) such transaction is made in accordance with Section 4.09 and (B) such transaction does not (x) violate any other covenants in the Indenture or (y) result in a Default or Event of Default immediately thereafter that is continuing. In the case of any such consolidation, merger, sale or conveyance involving the assumption by the successor entity of a Subsidiary Guarantor's obligations under the Indenture, such successor entity shall assume such obligations by supplemental indenture executed and delivered to the Trustee in accordance with the provisions of Section 12.03. Upon execution and delivery of such supplemental indenture, such successor entity shall succeed to 26 and be substituted for the Subsidiary Guarantor with the same effect as if it had been named herein as a Subsidiary Guarantor. Section 12.03 Addition of Subsidiary Guarantors. (a) The Company agrees to cause each Person that shall become a Domestic Subsidiary after the Issue Date to execute and deliver a supplemental indenture pursuant to which such Restricted Subsidiary shall guarantee the payment of the Notes pursuant to the terms hereof. (b) Any Person who is not a Subsidiary Guarantor on the Issue Date may become a Guarantor by executing and delivering to the Trustee (i) a supplemental indenture in form and substance satisfactory to the Trustee, which subjects such Person to the provisions (including the representations and warranties) of this Indenture as a Subsidiary Guarantor and (ii) an Opinion of Counsel and Officers' Certificate to the effect that such supplemental indenture has been duly authorized and executed by such Person and constitutes the legal, valid, binding and enforceable obligation of such Person (subject to such customary exceptions concerning creditors' rights and equitable principles as may be acceptable to the Trustee and provided that no opinion need be rendered concerning the enforceability of the Guarantee). Section 12.04 Release of a Subsidiary Guarantor. A Subsidiary Guarantor shall be deemed released from its Guarantee and all of its obligations in this Indenture upon (i) (A) the sale of all of the Capital Stock of such Subsidiary Guarantor, the consolidation or merger of such Subsidiary Guarantor, or in the event of the liquidation and dissolution of such Subsidiary Guarantor into the Company or any other Subsidiary Guarantor, made in accordance with the provisions of either Section 12.02(b)(i)(B) or Section 12.02(b)(ii) (other than a sale of substantially all of the assets of the Subsidiary Guarantor) or (B) the designation of a Restricted Subsidiary as an Unrestricted Subsidiary, provided that such designation is made in accordance with the provisions of this Indenture, and (ii) receipt of a request by the Company accompanied by an Officers' Certificate and an Opinion of Counsel certifying that all conditions specified in this Indenture for such release have been satisfied in accordance with the provisions of this Indenture. Upon receipt of the items specified in clause (ii) of the preceding sentence, the Trustee shall deliver to the Company an appropriate instrument evidencing such release. Any Subsidiary Guarantor not so released remains liable for the full amount of principal of and interest on the Notes as provided in this Article XII. Section 12.05 Limitation of Subsidiary Guarantor's Liability. Each Subsidiary Guarantor and by its acceptance hereof each Holder hereby confirms that it is the intention of all such parties that the guarantee by such Subsidiary Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or conveyance for purposes of any federal, state or foreign law. To effectuate the foregoing intention, the Holders and each Subsidiary Guarantor hereby irrevocably agree that the obligations of each Subsidiary Guarantor under the Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary 27 Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Guarantee or pursuant to Section 12.06, result in the obligations of such Subsidiary Guarantor under the Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal, state or foreign law. Section 12.06 Contribution. In order to provide for just and equitable contribution among the Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the event any payment or distribution is made by any Subsidiary Guarantor (a "Funding Guarantor") under the Guarantee, such Funding Guarantor shall be entitled to a contribution from each other Subsidiary Guarantor for all payments, damages and expenses incurred by the Funding Guarantor in discharging the Company's obligations with respect to the Notes or any other Subsidiary Guarantor's obligations with respect to the Guarantee. Section 12.07 Execution and Delivery of Guarantee. To further evidence the Guarantees set forth in Section 12.01, each Subsidiary Guarantor hereby agrees that a notation relating to such Guarantee shall be endorsed on each Note authenticated and delivered by the Trustee and executed by either manual or facsimile signature of two Officers of each Subsidiary Guarantor. Each of the Subsidiary Guarantors hereby agrees that its Guarantee set forth in Section 12.01 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation relating to such Guarantee. If an Officer of a Guarantor whose signature is on this Indenture or a Note no longer holds that office at the time the Trustee authenticates such security or at any time thereafter, such Subsidiary Guarantor's Guarantee of such Note shall be valid nevertheless. The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of any Guarantee set forth in this Indenture on behalf of the Subsidiary Guarantor. Section 12.08 Severability. In case any provision of this Guarantee shall be invalid, illegal or unenforceable, that portion of such provision that is not invalid, illegal or unenforceable shall remain in effect, and the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 12.09 Consent to Jurisdiction and Service of Process. Each Subsidiary Guarantor that is not organized under the laws of the United States or any state thereof (each a "Non-U.S. Subsidiary Guarantor") hereby appoints the principal office of CT Corporation System in The City of New York which, on the date hereof, is located at 1633 Broadway, New York, New York 10019, as the authorized agent thereof (the "Authorized Agent") upon whom process may be served in any action, suit or proceeding arising 28 out of or based on this Indenture or the Notes which may be instituted in the Supreme Court of the State of New York or the United States District Court for the Southern District of New York, in either case in The Borough of Manhattan, The City of New York, by the Holder of any Note, and each Non-U.S. Subsidiary Guarantor hereby waives any objection which it may now have to the laying of venue of any such proceeding and expressly and irrevocably accepts and submits, for the benefit of the Holders from time to time of the Notes, to the nonexclusive jurisdiction of any such court in respect of any such action, suit or proceeding, for itself and with respect to its properties, revenues and assets. Such appointment shall be irrevocable unless and until the appointment of a successor authorized agent for such purpose, and such successor's acceptance of such appointment, shall have occurred. Each Non-U.S. Subsidiary Guarantor agrees to take any and all actions, including the filing of any and all documents and instruments, that may be necessary to continue such appointment in full force and effect as aforesaid. Service of process upon the Authorized Agent with respect to any such action shall be deemed, in every respect, effective service of process upon any such Non-U.S. Subsidiary Guarantor. Notwithstanding the foregoing, any action against any Non-U.S. Subsidiary Guarantor arising out of or based on any Note may also be instituted by the Holder of such Note in any court in the jurisdiction of organization of such Non-U.S. Subsidiary Guarantor, and such Non-U.S. Subsidiary Guarantor expressly accepts the jurisdiction of any such court in any such action. The Company shall require the Authorized Agent to agree in writing to accept the foregoing appointment as agent for service of process. Section 12.10 Waiver of Immunity. To the extent that any Non-U.S. Subsidiary Guarantor or any of its properties, assets or revenues may have or may hereafter become entitled to, or have attributed to it, any right of immunity, on the grounds of sovereignty or otherwise, from any legal action, suit or proceeding, from the giving of any relief in any thereof, from set-off or counterclaim, from the jurisdiction of any court, from service of process, from attachment upon or prior to judgment, from attachment in aid of execution of judgment, or from execution of judgment, or other legal process or proceeding for the giving of any relief or for the enforcement of any judgment, in any jurisdiction in which proceedings may at any time be commenced, with respect to its obligations, liabilities or any other matter under or arising out of or in connection with this Indenture or the Notes, such Non-U.S. Subsidiary Guarantor, to the maximum extent permitted by law, hereby irrevocably and unconditionally waives, and agrees not to plead or claim, any such immunity and consents to such relief and enforcement. Section 12.11 Judgment Currency. Each Non-U.S. Subsidiary Guarantor agrees to indemnify the Trustee and each Holder against any loss incurred by it as a result of any judgment or order against such Non-U.S. Subsidiary being given or made and expressed and paid in a currency (the "Judgment Currency") other than United States dollars and as a result of any variation as between (i) the rate of exchange at which the United States dollar amount is converted into the Judgment Currency for the purpose of such judgment or order and (ii) the spot rate of exchange in The City of New York at which the Trustee or such Holder on the date of payment of such judgment or order is able to purchase United States dollars with the amount of the Judgment Currency actually received by the Trustee or such Holder. The foregoing indemnity shall constitute a separate and 29 independent obligation of each Non-U.S. Subsidiary Guarantor and shall continue in full force and effect notwithstanding any such judgment or order as aforesaid. The term "spot rate of exchange" shall include any premiums and costs of exchange payable in connection with the purchase of, or conversion into, United States dollars. Section 12.12 Subordination of Subsidiary Guarantees. (a) Guarantees Subordinated to Senior Indebtedness. Each Subsidiary Guarantor, for itself and its successors, and each Holder, by his acceptance of Notes, agrees that the Guarantees of such Subsidiary Guarantor are subordinated, to the extent and in the manner provided in this Section 12.12, to the prior payment in full of all Senior Indebtedness of such Subsidiary Guarantor (hereinafter in this Section 12.12 referred to as "Senior Indebtedness"). The Guarantees shall rank pari passu in right of payment with all guarantees by a Subsidiary Guarantor of Pari Passu Indebtedness of the Company. This Section 12.12 shall constitute a continuing offer to all Persons who become holders of, or continue to hold, Senior Indebtedness, and such provisions are made for the benefit of the holders of Senior Indebtedness, and such holders are made obligees hereunder and any one or more of them may enforce such provisions. (b) No Payment on Guarantees in Certain Circumstances. Upon the maturity of any Senior Indebtedness by lapse of time, acceleration or otherwise, unless and until all principal thereof, premium, if any, interest thereon and other amounts due thereon shall first be paid in full, no payment shall be made by or on behalf of any Subsidiary Guarantor pursuant to the Guarantees with respect to the principal of, premium, if any, interest on or other amounts owing on the Notes. Upon the happening of any default in the payment of any principal of, premium, if any, or interest on or other amounts due on any Senior Indebtedness (a "Payment Default"), then, unless and until such default shall have been cured or waived or shall have ceased to exist, no payment shall be made by or on behalf of any Subsidiary Guarantor pursuant to the Guarantees with respect to the principal of, premium, if any, interest on or other amounts owing on the Notes (except that, subject to applicable law, Holders may receive Subordinated Securities of Subsidiary Guarantors). Upon the happening of any default or event of default (other than a Payment Default) (including any event which with the giving of notice or the lapse of time or both would become an event of default and including any default or event of default which would result upon any payment pursuant to the Guarantees) with respect to any Senior Indebtedness of a Subsidiary Guarantor, as such default or event of default is defined therein or in the instrument or agreement or other document under which it is outstanding, then upon written notice thereof given to the Subsidiary Guarantors and the Trustee by a holder or holders of any Designated Senior Indebtedness or their representative ("Payment Notice"), no payment shall be made by or on behalf of the Subsidiary Guarantors pursuant to the Guarantees with respect to the principal of, premium, if any, interest on or other amounts owing on the Notes during the period (the "Payment Blockage Period") commencing on the date of such receipt of such Payment Notice 30 and ending on the earlier of (i) the date, if any, on which such default is cured or waived or ceases to exist or (ii) the date, if any, on which the Designated Senior Indebtedness to which such default relates is discharged; provided, however, that no default or event of default (other than a Payment Default) shall prevent the making of any payment pursuant to the Guarantees for more than 179 days after the Payment Notice shall have been given. Notwithstanding the foregoing, (i) not more than one Payment Notice shall be given within a period of 360 consecutive days, and (ii) no event of default which existed or was continuing on the date of any Payment Notice shall be made the basis for the giving of a subsequent Payment Notice unless all such events of default shall have been cured or waived for a period of at least 180 consecutive days after such date, and (iii) if any Subsidiary Guarantor or the Trustee receives any Payment Notice, a similar notice relating to or arising out of the same default or facts giving rise to such default (whether or not such default is on the same issue of Designated Senior Indebtedness) shall not be effective for purposes of this paragraph. The Subsidiary Guarantors shall resume payments of principal of, premium, if any, and interest on the Guarantees (i) in the case of a Payment Default, upon the date such Payment Default is cured or waived by the holders of Senior Indebtedness to which such Payment Default relates and (ii) in the case of a default or event of default (other than a Payment Default) with respect to Designated Senior Indebtedness, on the earlier of (A) the date such default or event of default is cured or (B) the expiration of the Payment Blockage Period with respect thereto if, in the case of this clause (B), this Section 12.12 otherwise does not prohibit such payment. In furtherance of the provisions of Section 12.12(a), in the event that, notwithstanding the foregoing provisions of this Section 12.12(b), any payment (other than a payment in the form of Subordinated Securities of Subsidiary Guarantors) with respect to the principal of, premium, if any or interest on the Notes shall be made by or on behalf of any Subsidiary Guarantor, and received by the Trustee, by any Holder or by any Paying Agent (or, if the Company is acting as its own Paying Agent, money for any such payment shall be segregated and held in trust), at a time when such payment was prohibited by the provisions of this Section 12.02, then, unless and until such payment is no longer prohibited by this Section 12.12(b), such payment (subject to the provisions of Sections 12.12(f) and 12.12(g)) shall be received and held in trust by the Trustee or such Holder or Paying Agent for the benefit of and shall be immediately paid over to the holders of Senior Indebtedness or their representative, ratably according to the aggregate amounts remaining unpaid on account of the principal of, premium, if any, and interest on the Senior Indebtedness held or represented by each, for application to the payment of all Senior Indebtedness in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the benefit of the holders of Senior Indebtedness. The provisions of this Section 12.12(b) shall not modify or limit in any way the application of Section 12.12(c). Each Subsidiary Guarantor shall give prompt written notice to the Trustee of any default in the payment of any Senior Indebtedness of such Subsidiary Guarantor or any acceleration under any such Senior Indebtedness or under any agreement pursuant to which such Senior Indebtedness may have been issued. Failure to give such notice shall not affect the 31 subordination of the Guarantees to the Senior Indebtedness or the application of the other provisions provided in this Section 12.12. (c) Guarantees Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization of a Subsidiary Guarantor. In the event of any Insolvency or Liquidation Proceeding with respect to any Subsidiary Guarantor, all amounts payable in respect of any Senior Indebtedness of such Subsidiary Guarantor shall first be paid in full before the Holders are entitled to receive any direct or indirect payment or distribution of any cash, property or securities (other than Subordinated Securities of Subsidiary Guarantors) pursuant to the Guarantees on account of principal of, premium, if any, or interest on the Notes or any other payment with respect to the Notes. The holders of Senior Indebtedness shall be entitled to receive directly, for application to the payment of Senior Indebtedness (to the extent necessary to pay in full all Senior Indebtedness, whether or not due, including specifically, without limitation, all Post-Commencement Interest, whether or not allowed as a claim in such insolvency or Liquidation Proceeding, after giving effect to any substantially concurrent payment or distribution to the holders of Senior Indebtedness on account of Senior Indebtedness), any payment or distribution of any kind or character, whether in cash, property or securities (other than Subordinated Securities of Subsidiary Guarantors), including any payment or distribution which may be payable or deliverable by reason of the payment of any other payment of any other indebtedness of such Subsidiary Guarantor being subordinated to the payment of the Guarantees) which may be payable or deliverable in respect of the Guarantees in any such Insolvency or Liquidation Proceeding. In the event that, notwithstanding the foregoing provisions of this Section 12.12(c), the Trustee or any Paying Agent or the Holder of any Note shall have received any payment from or distribution of assets of such Subsidiary Guarantor or the estate created by the commencement of any such Insolvency or Liquidation Proceeding, of any kind or character in respect of the Guarantees, whether in cash, property or securities (other than Subordinated Securities of Subsidiary Guarantors), including any payment or distribution which may be payable or deliverable by reason of the payment of any other indebtedness of such Subsidiary Guarantor being subordinated to the payment of the Guarantees, before all Senior Indebtedness (whether or not due including specifically, without limitation, all Post-Commencement Interest, whether or not allowed as a claim in such Insolvency or Liquidation Proceeding) is paid in full, then and in such event such payment or distribution shall be received and held in trust by the Trustee, any such Paying Agent or Holder for and shall be paid over to the holders of Senior Indebtedness (to the extent necessary to pay in full all such Senior Indebtedness, whether or not due, including specifically, without limitation, all Post-Commencement Interest thereon, whether or not allowed as a claim in such Insolvency or Liquidation Proceeding), after giving effect to any substantially concurrent payment or distribution to the holders of Senior Indebtedness on account of Senior Indebtedness, for application to the payment in full of such Senior Indebtedness. 32 The Company and each Subsidiary Guarantor shall give prompt written notice to the Trustee of any Insolvency or Liquidation Proceeding with respect to such Subsidiary Guarantor. (d) Holders to Be Subrogated to Rights of Holders of Senior Indebtedness. After all amounts payable under or in respect of Senior Indebtedness (whether or not due) are paid in full, the Holders shall be subrogated (without any duty on the part of the holders of Senior Indebtedness to warrant, create, effectuate, preserve or protect such subrogation), to the extent of the payments or distributions made to the holders of Senior Indebtedness pursuant to the provisions of this Section 12.12 (equally and ratably with the holders of all other indebtedness of any Subsidiary Guarantor which by its express terms is subordinate and subject in right of payment to Senior Indebtedness to substantially the same extent as the Guarantees are so subordinated and subject in right of payment and which is entitled to like rights and subrogation), to the rights of the holders of Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness, until the principal of and interest on the Notes shall be paid in full. For the purpose of such subrogation no such payments or distributions to the holders of Senior Indebtedness by or on behalf of the Company, or by or on behalf of the Holders by virtue of this Section 12.12, which otherwise would have been made to the Holders shall, as between any Subsidiary Guarantor and the Holders, be deemed to be payment by such Subsidiary Guarantor to or on account of the Senior Indebtedness, it being understood that the provisions of this Section 12.12 are and are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of Senior Indebtedness, on the other hand. (e) Guarantees Unconditional. Except as otherwise provided herein, nothing contained in this Indenture or in any Guarantee is intended to or shall impair, as between the Subsidiary Guarantors and the Holders, the Guarantees, which are absolute and unconditional, as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Subsidiary Guarantors, other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Section 12.12, of the holders of Senior Indebtedness in respect of cash, property or securities of any Subsidiary Guarantor received upon the exercise of any such remedy. Upon any distribution of assets of any Subsidiary Guarantor referred to in this Section 12.12, the Trustee, subject to the provisions of Section 7.01, and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such Insolvency or Liquidation Proceedings is pending, or a certificate of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of such Subsidiary Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 12.12. 33 (f) Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice. The Trustee shall not at any time be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee unless and until the Trustee or any Paying Agent shall have received written notice at the address specified in Section 13.03 from the Company or a Subsidiary Guarantor or from one or more holders of Senior Indebtedness or from any representative therefor and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 7.01, shall be entitled in all respects conclusively to assume that no such fact exits. Nothing in this Section 12.12(f) is intended to or shall relieve any Holder from the obligations imposed under Sections 12.12(b) and 12.12(c) with respect to money or other distributions received in violation of the provisions thereof. (g) Application by Trustee of Assets Deposited With It. All money and U.S. Government Obligations deposited in trust with the Trustee pursuant to and in accordance with Section 8.01 shall be for the sole benefit of the Holder and shall not be subject to this Section 12.12. Otherwise, any deposit of assets by any Subsidiary Guarantor pursuant to the Guarantees with the Trustee or any Paying Agent (whether or not in trust) for the payment of principal of or interest on any Notes shall be subject to the provisions of this Section 12.12; provided that, if prior to the second Business Day preceding the date on which by the terms of this Indenture any such assets may become distributable for any purpose (including without limitation, the payment of either principal of or interest on any Note) the Trustee or such Paying Agent shall not have received with respect to such assets the written notice provided for in Section 12.12(f), then the Trustee or such Paying Agent shall have full power and authority to receive such assets and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such date. The preceding sentence shall be construed solely for the benefit of the Trustee and each Paying Agent and shall not otherwise affect the rights of holders of Senior Indebtedness. (h) Subordination Rights Not Impaired by Acts or Omissions of the Subsidiary Guarantors or Holders of Senior Indebtedness. No right of any present or future holder of any Senior Indebtedness to enforce the subordination provisions in this Section 12.12 shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of any Subsidiary Guarantor or by any act or failure to act by any such holder, or by any noncompliance by the Company with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or be otherwise charged with. The holders of Senior Indebtedness may extend, renew, modify or amend the terms of the Senior Indebtedness or any security therefor and release, sell or exchange such security and otherwise deal freely with the Subsidiary Guarantors, all without affecting the liabilities and obligations of the parties to this Indenture or the Holders. (i) Holders Authorize Trustee to Effectuate Subordination of Notes. 34 Each Holder of Notes by his acceptance thereof (i) authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Section 12.12 and to protect the rights of the Holders pursuant to this Indenture, and (ii) appoints the Trustee his attorney-in-fact for such purpose, including in the event of any Insolvency or Liquidation Proceeding with respect to any Subsidiary Guarantor, the timely filing of a claim of the unpaid balance of his Notes pursuant to the Guarantees in the form required in said proceeding and the causing of such claim to be approved. If the Trustee shall not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Senior Indebtedness or their representative shall have the right to file an appropriate claim for and on behalf of the Holders. Nothing herein contained shall be deemed to authorize the Trustee or any holder of Senior Indebtedness or their representative to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes, the Guarantees or the rights of any Holder, or to authorize the Trustee or any holder of Senior Indebtedness or their representative to vote in respect of the claim of any Holder in any such proceeding. (j) Right of Trustee to Hold Senior Indebtedness. The Trustee shall be entitled to all of the rights set forth in this Section 12.12 in respect of any Senior Indebtedness at any time held by it to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall be construed to deprive the Trustee of any of its rights as such holder. (k) Payment. A payment pursuant to the Guarantees with respect to a Note or with respect to principal of, premium, if any, or interest on a Note shall include, without limitation, payment of principal of, premium, if any, and interest on any Note, any depositing of funds under Article IV, any payment on account of any mandatory or optional repurchase or redemption of any Note (including payments pursuant to Article III or Section 4.08 or Section 4.15) and any payment or recovery on any claim (whether for rescission or damages and whether based on contract, tort, duty imposed by law, or any other theory of liability) relating to or arising out of the offer, sale or purchase of any Note, provided that any such payment, deposit, other payment or recovery (i) not prohibited pursuant to this Section 12.12 at the time actually made shall not be subject to any recovery by any holder of Senior Indebtedness or representative therefor or other Person pursuant to this Section 12.12 at any time thereafter and (ii) made by or from any Persons other than any Subsidiary Guarantor shall not be subject to any recovery by any holder of Senior Indebtedness or representative therefor or other Person pursuant to this Section 12.12 at any time thereafter except to the extent such Person recovers any such amount paid from such Subsidiary Guarantor, whether pursuant to rights of indemnity, rescission or otherwise. (l) Trustee Not Fiduciary for Holders of Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants or obligations as are specifically set forth in 35 this Article and no implied covenants or obligations with respect to holders of Senior Indebtedness shall be read into this Indenture against the Trustee." ARTICLE III. MISCELLANEOUS Section 3.01. Governing Law; Waiver of Jury Trial. This Indenture and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York without giving effect to applicable principles of conflicts of law thereof. EACH OF THE COMPANY AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE NOTES OR THE TRANSACTION CONTEMPLATED HEREBY. Section 3.02. Separability. In case any provision in the Indenture or in the Notes is invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby. Section 3.03. Ratification. The Base Indenture, as supplemented and amended by this First Supplemental Indenture, is in all respects ratified and confirmed, and the Base Indenture and this First Supplemental Indenture shall be read, taken and construed as one and the same instrument. All provisions included in this First Supplemental Indenture supersede any conflicting provisions included in the Base Indenture unless not permitted by law. Section 3.04. Effectiveness. The provisions of this First Supplemental Indenture shall become effective as of the date hereof. * * * This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused the First Supplemental Indenture to be duly executed as of the date first written above. COMPANY: GIANT INDUSTRIES, INC. By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer SUBSIDIARY GUARANTORS: GIANT INDUSTRIES ARIZONA, INC. By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer CINIZA PRODUCTION COMPANY By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer GIANT STOP-N-GO OF NEW MEXICO, INC. By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer 37 GIANT FOUR CORNERS, INC. By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer PHOENIX FUEL CO., INC. By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer SAN JUAN REFINING COMPANY By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer GIANT MID-CONTINENT, INC. By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer GIANT PIPELINE COMPANY By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer 38 GIANT YORKTOWN, INC. By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer GIANT YORKTOWN HOLDING COMPANY By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer TRUSTEE: THE BANK OF NEW YORK By: /s/ REMO REALE --------------------------------- Name: Remo Reale Title: Vice President 39 EXHIBIT A [Face of Note] GIANT INDUSTRIES, INC. FORM OF 8% SENIOR SUBORDINATED NOTES DUE 2014 For Global Notes only: UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (THE "DEPOSITORY", WHICH TERM INCLUDES ANY SUCCESSOR DEPOSITORY FOR THE CERTIFICATES), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AND ANY PAYMENT HEREIN IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. No. ________ $150,000,000.00 CUSIP No. 374508AG4 Giant Industries, Inc., a Delaware corporation, promises to pay to Cede & Co. or registered assigns the principal sum of ONE HUNDRED FIFTY MILLION DOLLARS on May 15, 2014. Interest Payment Dates: May 15 and November 15, commencing November 15, 2004 Record Dates: May 1 and November 1. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. 40 In Witness Whereof, Giant Industries, Inc. has caused this Note to be signed manually or by facsimile by its duly authorized officers. GIANT INDUSTRIES, INC. By: /s/ ROGER D. SANDEEN --------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer By: --------------------------------- Name: Title: Dated: May 3, 2004 Certificate of Authentication: The Bank of New York, as Trustee, certifies that this is one of the Notes referred to in the within- mentioned Indenture. By: /s/ REMO REALE -------------------------- Authorized Signatory 41 [Reverse of Note] GIANT INDUSTRIES, INC. 8% Senior Subordinated Notes due 2014 1. Interest. Giant Industries, Inc., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at 8% per annum from May 3, 2004 until maturity. The Company will pay interest semiannually on May 15 and November 15 of each year (each an "Interest Payment Date"), or if any such day is not a Business Day, on the next succeeding Business Day. Interest on the Notes will accrue from the most recent Interest Payment Date on which interest has been paid or, if no interest has been paid, from May 3, 2004; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided further that the first Interest Payment Date shall be November 15, 2004. The Company shall pay interest on overdue principal and premium, if any, from time to time on demand at a rate equal to the interest rate then in effect; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. The Company will pay interest on the Notes to the persons who are registered holders of Notes at the close of business on the record date immediately preceding the Interest Payment Date, even if such Notes are cancelled after the record date and on or before the Interest Payment Date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company will pay principal of, premium, if any, and interest on the Notes in money of the United States of America that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay such amounts by check payable in such money. It may mail an interest check to a Holder's registered address. 3. Paying Agent and Registrar. Initially, the Trustee will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-registrar without notice. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. 4. Indenture. The Company issued the Notes under an Indenture, dated as of May 3, 2004, as amended by the First Supplemental Indenture, dated as of May 3, 2004 (together, the "Indenture"), each among the Company, the Subsidiary Guarantors and the Trustee. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbb) as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and control. The Indenture pursuant to which the Notes are issued provides that an unlimited aggregate principal amount of Notes may be issued thereunder. 5. Ranking and Guarantees. The Notes are general senior subordinated unsecured obligations of the Company. The Company's obligation to pay principal, premium, if any, and interest with respect to the Notes is unconditionally guaranteed on a senior subordinated basis, jointly and severally, by the Subsidiary Guarantors pursuant to Article XII of the Indenture. Certain limitations to the obligations of the Subsidiary Guarantors are set forth in further detail in the Indenture. 6. Optional Redemption. At any time on or after May 15, 2009, the Company may, at its option, redeem all or any portion of the Notes at the redemption prices (expressed as percentages of the principal amount of the Notes) set forth below, plus, in each case, accrued interest thereon to the applicable redemption date, if redeemed during the 12-month period beginning May 15 of the years indicated below: Year Percentage 2009 104.000% 42 2010 102.667% 2011 101.333% 2012 and thereafter 100.000% In addition, at any time prior to May 15, 2009, the Company may redeem all or part of the Notes upon not less than 30 days nor more than 60 days' notice at a redemption price equal to the sum of (i) the principal amount thereof, (ii) accrued and unpaid interest, if any, to the applicable date of redemption, and (iii) the Make-Whole Premium. At any time and from time to time on or prior to May 15, 2007, the Company may redeem in the aggregate up to 35% of the aggregate principal amount of the Notes originally issued with the net proceeds of one or more Equity Offerings, at a redemption price (expressed as a percentage of principal amount) of 108%, plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, that at least 65% of the aggregate initial principal amount of the Notes must remain outstanding after each such redemption. In order to effect the foregoing redemption, the Company must mail notice of redemption in accordance with the terms of the Indenture no later than 60 days after the related Equity Offering. 7. Notice of Redemption. Notice of redemption will be mailed to the Holder's registered address at least 30 days but not more than 60 days before the redemption date to each Holder of Notes to be redeemed. If less than all Notes are to be redeemed, the Trustee shall select pro rata or by lot the Notes to be redeemed in multiples of $1,000. Notes in denominations larger than $1,000 may be redeemed in part. On and after the redemption date interest ceases to accrue on Notes or portions of them called for redemption (unless the Company shall default in the payment of the redemption price or accrued interest). 8. Change of Control. In the event of a Change of Control of the Company, the Company shall be required to make an offer to purchase each Holder's Notes, at 101% of the principal amount thereof, plus accrued interest to the Change of Control Payment Date. 9. Asset Sales Offer. In the event of certain Asset Sales, the Company may be required to make an Asset Sales Offer to purchase pro rata or by lot all or any portion of each Holder's Notes, at 100% of the principal amount of the Notes plus accrued interest to the date of purchase. 10. Restrictive Covenants. The Indenture imposes certain limitations on, among other things, the ability of the Company to merge or consolidate with any other Person or sell, lease or otherwise transfer all or substantially all of its properties or assets, and the ability of the Company and its Restricted Subsidiaries to dispose of certain assets, to pay dividends and make certain other distributions and payments, to make certain investments or redeem, retire, repurchase or acquire for value shares of Capital Stock, to incur additional Indebtedness or incur encumbrances against certain property and to enter into certain transactions with Affiliates, all subject to certain limitations described in the Indenture. 11. Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not transfer or exchange any Notes selected for redemption. Also, it need not transfer or exchange any Notes for a period of 15 days before the mailing of a notice of redemption of Notes to be redeemed. 12. Persons Deemed Owners. The registered Holder of a Note may be treated as the owner of it for all purposes and neither the Company, any Subsidiary Guarantor, the Trustee nor any Agent shall be affected by notice to the contrary. 13. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for one year, the Trustee or Paying Agent will pay the money back to the Company at its written request. After that, all liability of the Trustee and such Paying Agent with respect to such money shall cease. 43 14. Amendment, Supplement, Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes, and any past default or noncompliance with any provision may be waived with the consent of the Holders of a majority in principal amount of the Notes. In addition, any amendment to, or waiver of, the provisions of the Indenture relating to subordination that adversely affects the right of the Holders of the Notes will require the consent of the Holders of at least 75% in aggregate principal amount of Notes then outstanding. Without the consent of any Holder, the Company may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency or to provide for uncertificated Notes in addition to certificated Notes or to make any change that does not adversely affect the rights of any Holder. 15. Successor Corporation. When a successor corporation assumes all the obligations of its predecessor under the Notes and the Indenture, the predecessor corporation will be released from those obligations. 16. Defaults and Remedies. An event of default generally is: default by the Company or any Subsidiary Guarantor for 30 days in payment of interest on the Notes; default by the Company or any Subsidiary Guarantor in payment of principal of or premium, if any, on the Notes; default by the Company or any Subsidiary Guarantor in the deposit of any optional redemption payment when due and payable; failure to pay at maturity or defaults resulting in acceleration prior to maturity of certain other Indebtedness; failure by the Company or any Subsidiary Guarantor for 60 days after notice to comply with any of its other agreements in the Indenture; certain final judgments against the Company or Subsidiaries; a failure of any Guarantee of a Subsidiary Guarantor to be in full force and effect or denial by any Subsidiary Guarantor of its obligations with respect thereto; and certain events of bankruptcy or insolvency. Subject to certain limitations in the Indenture, if an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately, except that in the case of an Event of Default arising from certain events of bankruptcy, insolvency or reorganization relating to the Company, all outstanding Notes shall become due and payable immediately without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity and security satisfactory to it before it enforces the Indenture or the Notes. Subject to certain limitations, Holders of a majority in principal amount of the Notes may direct the Trustee in its exercise of any trust or power. The Company must furnish an annual compliance certificate to the Trustee. 17. Trustee Dealings with Company and Subsidiary Guarantors. The Bank of New York, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company, the Subsidiary Guarantors or their respective Subsidiaries or Affiliates with the same rights it would have if it were not Trustee. 18. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company, any Subsidiary Guarantor or the Trustee, shall not have any liability for any obligations of the Company, any Subsidiary Guarantor or the Trustee, under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Notes. 19. Authentication. This Note shall not be valid until the Trustee or an authenticating agent signs the certificate of authentication on the other side of this Note. 20. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 21. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company will cause CUSIP numbers to be printed on the Notes as a convenience to Holders of the Notes. No representation is made as to the accuracy of such numbers as printed on the Notes and reliance may be placed only on the other identification numbers printed hereon. 44 This Note shall be governed by and construed in accordance with the laws of the State of New York. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Giant Industries, Inc., 23733 North Scottsdale Road, Scottsdale, Arizona 85255, Attention: Treasurer. 45 GUARANTEE The Subsidiary Guarantors (as defined in the Indenture), jointly and severally, have unconditionally guaranteed the due and punctual payment of the principal of, premium, if any, and interest on the Notes, and all other amounts due and payable under the Indenture and the Notes by the Company, whether at maturity, acceleration, redemption, repurchase or otherwise, including, without limitation, the due and punctual payment of interest on the overdue principal of, premium, if any, and interest on the Notes, to the extent lawful. The obligations of the Subsidiary Guarantors pursuant to the Guarantee are subject to the terms and limitations set forth in Article XII of the Indenture, and reference is made thereto for the precise terms of the Guarantee. 46 In Witness Whereof, the Subsidiary Guarantors have caused this Guarantee to be signed manually or by facsimile by its duly authorized officers. SUBSIDIARY GUARANTORS Giant Industries Arizona, Inc., an Arizona corporation Attest: By: -------------- ------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer Ciniza Production Company, a New Mexico corporation Attest: By: -------------- ------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer Giant Stop-N-Go of New Mexico, Inc., a New Mexico corporation Attest: By: -------------- ------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer Giant Four Corners, Inc., an Arizona corporation Attest: By: -------------- ------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer Phoenix Fuel Co., Inc., an Arizona corporation Attest: By: -------------- ------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer 47 San Juan Refining Company, a New Mexico corporation Attest: By: -------------- ------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer Giant Mid-Continent, Inc., an Arizona corporation Attest: By: -------------- ------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer Giant Pipeline Company, a New Mexico corporation Attest: By: -------------- ------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer Giant Yorktown, Inc., a Delaware corporation Attest: By: -------------- ------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer Giant Yorktown Holding Company, a Delaware corporation Attest: By: -------------- ------------------------------- Name: Roger D. Sandeen Title: Vice President and Chief Accounting Officer 48 ASSIGNMENT FORM To assign this Note, fill in the form below: I or we assign and transfer this Note to: _________________________________________________________________________ (Insert assignee's social security or tax I.D. no.) _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint________________as agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. _________________________________________________________________________ Your Signature:__________________________________________________________ (Sign exactly as your name appears on the other side of this Note) Your Name:_______________________________________________________________ Date:______________________ Signature Guarantee:_____________________________________________________ 49 FORM OF OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.09 or Section 4.15 of the Indenture, check the box:[ ] If you want to have only part of this Note purchased by the Company pursuant to Section 4.09 or Section 4.15 of the Indenture, state the amount (in integral multiples of $1,000): $________________________ Date:____________________ Signature:_________________________________ (Sign exactly as your name appears on the other side of this Note) Name:__________________________________________________________________ Signature Guarantee:___________________________________________________ 50 SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE The following increases or decreases in this Global Note have been made: Date of Amount of Amount of Principal Signature of Exchange decrease in increase in Amount of this authorized Principal Principal Global Note signatory of Amount of this Amount of this following such Trustee or Global Note Global Note decrease or Notes increase Custodian 51 1527639.6 EX-31 4 exhibit311.txt EXHIBIT 31.1 TO GIANT INDUSTRIES, INC. FIRST QUARTER 2004 10-Q EXHIBIT 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Fred L. Holliger, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Giant Industries, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 14, 2004. By: /s/ FRED L. HOLLIGER -------------------------------- Name: Fred L. Holliger Title: Chief Executive Officer EX-31 5 exhibit312.txt EXHIBIT 31.2 TO GIANT INDUSTRIES, INC. FIRST QUARTER 2004 10-Q EXHIBIT 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Mark B. Cox, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Giant Industries, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 14, 2004. By: /s/ MARK B. COX ----------------------------- Name: Mark B. Cox Title: Chief Financial Officer EX-32 6 exhibit321.txt EXHIBIT 32.1 TO GIANT INDUSTRIES, INC. FIRST QUARTER 2004 10-Q EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Giant Industries, Inc. ("Giant") on Form 10-Q for the quarter ending March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Fred L. Holliger, Chief Executive Officer of Giant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (a) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (b) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Giant. By: /s/ FRED L. HOLLIGER -------------------------------- Name: Fred L. Holliger Title: Chief Executive Officer Date: May 14, 2004. EX-32 7 exhibit322.txt EXHIBIT 32.2 TO GIANT INDUSTRIES, INC. FIRST QUARTER 2004 10-Q EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Giant Industries, Inc. ("Giant") on Form 10-Q for the quarter ending March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Mark B. Cox, Chief Financial Officer of Giant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (a) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (b) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Giant. By: /s/ MARK B. COX ----------------------------- Name: Mark B. Cox Title: Chief Financial Officer Date: May 14, 2004. -----END PRIVACY-ENHANCED MESSAGE-----