-----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, Kr+eRtyi1rHAQ5R2OPBxLOAHKX+dBJmr0P3JAhUAGWqHFuKOqES4T48N1E9ptjtI AgdUW07mjY69+LVCDhRQGA== 0000856465-02-000009.txt : 20021113 0000856465-02-000009.hdr.sgml : 20021113 20021113163736 ACCESSION NUMBER: 0000856465-02-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021113 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: 02820476 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 thirdqtr-2002.txt GIANT INDUSTRIES, INC. 2002 THIRD QUARTER 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 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 [ ] Number of Common Shares outstanding at October 31, 2002: 8,571,779 shares. GIANT INDUSTRIES, INC. AND SUBSIDIARIES INDEX PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Condensed Consolidated Balance Sheets September 30, 2002 (Unaudited) and December 31, 2001 Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001 (Unaudited) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001 (Unaudited) Notes to Condensed Consolidated Financial Statements (Unaudited) Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3 - Quantitative and Qualitative Disclosures About Market Risk Item 4 - Controls and Procedures PART II - OTHER INFORMATION Item 1 - Legal Proceedings Item 6 - Exhibits and Reports on Form 8-K SIGNATURE CERTIFICATIONS PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. GIANT INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
September 30, December 31, - ----------------------------------------------------------------------------------------- 2002 2001 - ----------------------------------------------------------------------------------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 10,164 $ 26,326 Receivables, net 68,187 43,530 Inventories 100,107 58,422 Prepaid expenses and other 1,644 3,661 Deferred income taxes 10,535 3,735 - ----------------------------------------------------------------------------------------- Total current assets 190,637 135,674 - ----------------------------------------------------------------------------------------- Property, plant and equipment 651,406 519,509 Less accumulated depreciation and amortization (217,334) (200,952) - ----------------------------------------------------------------------------------------- 434,072 318,557 - ----------------------------------------------------------------------------------------- Goodwill, net 19,565 19,815 Other assets 46,656 33,128 - ----------------------------------------------------------------------------------------- $ 690,930 $ 507,174 ========================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 11,589 $ 45 Accounts payable 47,196 42,255 Accrued expenses 37,923 36,537 - ----------------------------------------------------------------------------------------- Total current liabilities 96,708 78,837 - ----------------------------------------------------------------------------------------- Long-term debt, net of current portion 409,994 256,749 Deferred income taxes 37,481 32,772 Other liabilities 18,977 2,406 Commitments and contingencies (Notes 10, 11 and 13) 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, 12,323,759 and 12,305,859 shares issued 123 123 Additional paid-in capital 73,683 73,589 Retained earnings 90,418 99,152 - ----------------------------------------------------------------------------------------- 164,225 172,864 Less common stock in treasury - at cost, 3,751,980 shares (36,454) (36,454) - ----------------------------------------------------------------------------------------- Total stockholders' equity 127,770 136,410 - ----------------------------------------------------------------------------------------- $ 690,930 $ 507,174 ========================================================================================= See accompanying notes to condensed consolidated financial statements.
GIANT INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data)
Three Months Nine Months Ended September 30, Ended September 30, - --------------------------------------------------------------------------------------------------- 2002 2001 2002 2001 - --------------------------------------------------------------------------------------------------- Net revenues $ 386,579 $ 230,315 $ 857,129 $ 737,720 Cost of products sold 333,164 172,670 706,945 561,659 - --------------------------------------------------------------------------------------------------- Gross margin 53,415 57,645 150,184 176,061 Operating expenses 38,366 26,537 95,314 80,897 Depreciation and amortization 9,442 8,138 26,672 23,503 Selling, general and administrative expenses 6,765 7,659 17,852 22,997 Net (gain) loss on disposal/write-down of assets (62) 1,301 856 1,783 - --------------------------------------------------------------------------------------------------- Operating income (loss) (1,096) 14,010 9,490 46,881 Interest expense (10,455) (6,026) (25,985) (18,109) Amortization/write-off of financing costs (954) (183) (2,071) (581) Interest and investment income 74 361 399 1,411 - --------------------------------------------------------------------------------------------------- Earnings (loss) from continuing operations before income taxes (12,431) 8,162 (18,167) 29,602 Provision (benefit) for income taxes (5,132) 3,052 (7,188) 11,482 - --------------------------------------------------------------------------------------------------- Earnings (loss) from continuing operations (7,299) 5,110 (10,979) 18,120 Discontinued operations (Note 5) Earnings (loss) from operations of discontinued retail assets (362) 42 (1,020) (137) Gain on disposal 4,921 - 4,789 - Net loss on asset sales/write-downs (15) - (28) - - --------------------------------------------------------------------------------------------------- 4,544 42 3,741 (137) Provision (benefit) for income taxes 1,817 17 1,496 (55) - --------------------------------------------------------------------------------------------------- Earnings (loss) from discontinued operations 2,727 25 2,245 (82) - --------------------------------------------------------------------------------------------------- Net earnings (loss) $ (4,572) $ 5,135 $ (8,734) $ 18,038 =================================================================================================== Net earnings (loss) per common share: Basic Continuing operations $ (0.85) $ 0.57 $ (1.28) $ 2.02 Discontinued operations $ 0.32 $ - $ 0.26 $ (0.01) - --------------------------------------------------------------------------------------------------- $ (0.53) $ 0.57 $ (1.02) $ 2.01 =================================================================================================== Assuming dilution Continuing operations $ (0.85) $ 0.57 $ (1.28) $ 2.02 Discontinued operations $ 0.32 $ - $ 0.26 $ (0.01) - --------------------------------------------------------------------------------------------------- $ (0.53) $ 0.57 $ (1.02) $ 2.01 =================================================================================================== See accompanying notes to condensed consolidated financial statements.
GIANT INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Nine Months Ended September 30, - --------------------------------------------------------------------------------------- 2002 2001 - --------------------------------------------------------------------------------------- Cash flows from operating activities: Net earnings (loss) $ (8,734) $ 18,038 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization, including discontinued operations 27,460 24,279 Amortization/write-off of financing costs 2,071 581 Deferred income taxes (2,091) 6,164 Net loss on disposal/write-down of assets 856 1,783 Net gain on disposal/write-down of retail assets included in discontinued operations (4,761) - Other 344 1,237 Changes in operating assets and liabilities excluding the effects of the Yorktown acquisition: (Increase) decrease in receivables (24,657) 17,210 Decrease (increase) in inventories 28,276 (1,201) Decrease in prepaid expenses and other 2,017 1,035 Increase (decrease) in accounts payable 4,941 (14,306) Increase (decrease) in accrued expenses 962 (4,155) - --------------------------------------------------------------------------------------- Net cash provided by operating activities 26,684 50,665 - --------------------------------------------------------------------------------------- Cash flows from investing activities: Yorktown refinery acquisition (194,866) - Purchases of property, plant and equipment (9,783) (48,144) Bloomfield refinery acquisition contingent payment - (5,139) Purchase of other assets - (6,589) Proceeds from sale of property, plant and equipment 13,445 1,482 - --------------------------------------------------------------------------------------- Net cash used by investing activities (191,204) (58,390) - --------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from long-term debt 234,144 - Payments of long-term debt (104,478) (919) Proceeds from line of credit 88,000 - Payments on line of credit (53,000) - Deferred financing costs (16,402) - Purchase of treasury stock - (153) Proceeds from exercise of stock options 94 - - --------------------------------------------------------------------------------------- Net cash provided (used) by financing activities 148,358 (1,072) - --------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (16,162) (8,797) Cash and cash equivalents: Beginning of period 26,326 26,618 - --------------------------------------------------------------------------------------- End of period $ 10,164 $ 17,821 ======================================================================================= Non-cash Investing and Financing Activities. In the second quarter of 2002, the Company issued $200,000,000 of 11% Senior Subordinated Notes at a discount of $5,856,000. In the second quarter of 2001, the Company received 103,430 shares of its common stock valued at approximately $1,107,000 from its then Chairman and Chief Executive Officer as payment for the exercise of 126,601 common stock options. These shares were immediately cancelled. In the third quarter of 2001, the Company repurchased, for cash, 59 service station/convenience stores from FFCA Capital Holding Corporation ("FFCA") for approximately $38,052,000 plus closing costs. These service station/convenience stores had been sold to FFCA in a sale-leaseback transaction completed in December 1998. Certain deferrals on the Balance Sheet relating to the sale-leaseback transaction reduced the cost basis of the assets recorded in "Property, Plant and Equipment" by approximately $1,736,000. These deferrals included a deferred gain on the original sale to FFCA and deferred lease allocations included in "Other Liabilities and Deferred Income," and deferred costs associated with the original sale included in "Other Assets." See accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION: Giant Industries, Inc., a Delaware corporation (together with its subsidiaries, "Giant" or the "Company"), through its wholly-owned subsidiary Giant Industries Arizona, Inc. and its subsidiaries ("Giant Arizona"), is engaged in the refining and marketing of petroleum products in New Mexico, Arizona, and Colorado, with a concentration in the Four Corners area where these states adjoin. With the recent acquisition of the Yorktown, Virginia refinery, the Company also is engaged in the refining and marketing of petroleum products in Virginia, Maryland, North and South Carolina, and the New York Harbor. In addition, Phoenix Fuel Co., Inc. ("Phoenix Fuel"), a wholly-owned subsidiary of Giant Arizona, operates a wholesale petroleum products distribution operation. (See Note 2 for a further discussion of Company operations and Note 4 for a discussion of the Yorktown refinery acquisition.) The accompanying unaudited condensed 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 and are of a normal recurring nature. Operating results for the interim periods presented as of September 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. The enclosed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. In 2001, the American Institute of Certified Public Accountants ("AICPA") issued an exposure draft of a proposed Statement of Position ("SOP"), "Accounting for Certain Costs Related to Property, Plant, and Equipment." This proposed SOP, which would be effective for the Company in 2004, requires the Company to create a timeline for capitalizing costs related to property, plant and equipment construction. It would require that property, plant and equipment assets be accounted for at the component level, and require administrative and general costs incurred in support of capital projects to be expensed in the current period. In addition, the Statement is expected to require companies to expense the non-capital portion of major maintenance costs as incurred. The statement is expected to require that any existing unamortized deferred non-capital major maintenance costs be expensed immediately. The AICPA plans to issue the final SOP in early 2003. The Company is in the process of evaluating the effect the proposed SOP will have on its financial position and results of operations. In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations." This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees. As used in this Statement, a legal obligation is an obligation that a party is required to settle as a result of an existing or enacted law, statute, ordinance, or written or oral contract, or by legal construction of a contract under the doctrine of promissory estoppel. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. This Statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company is in the process of evaluating the effect SFAS No. 143 will have relative to its assets. On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Tangible Assets." (See Note 3 for applicable disclosures.) On January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This Statement defines an impairment as "the condition that exists when the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value." The Statement provides for a single accounting model for the disposal of long-lived assets, whether previously held or newly acquired. Specific guidance is provided for recognition and measurement and reporting and disclosure for long-lived assets held and used, disposed of other than by sale, and disposed of by sale. This new standard had no impact on the Company's financial position and results of operations at adoption. (See Note 5 for information relating to the impairment of certain assets.) In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections," which supersedes previous guidance for reporting gains and loss from, among other things, extinguishment of debt and accounting for leases. The portion of the Statement relating to the early extinguishment of debt is effective for the Company beginning in 2003. The Company does not believe the adoption of this statement will have a material impact on its financial statements. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The Standard requires companies to recognize costs associated with exit or disposal activities when they are incurred, rather than at the date of a commitment to an exit or disposal plan. The guidance will be applied prospectively to exit or disposal activities initiated after December 31, 2002. Certain reclassifications have been made to the 2001 financial statements and notes to conform to the financial statement classifications used in 2002. NOTE 2 - BUSINESS SEGMENTS: The Company is organized into three operating segments based on manufacturing and marketing criteria. These segments are the Refining Group, the Retail Group and Phoenix Fuel. A description of each segment and its principal products follows: - Refining Group: The Refining Group owns and operates the Ciniza and Bloomfield refineries in the Four Corners area of New Mexico and the Yorktown refinery in Virginia. In addition to these three refineries, the refining group owns and operates a crude oil gathering pipeline system in New Mexico that services the Four Corners refineries, two finished products distribution terminals, and a fleet of crude oil and finished product truck transports. The Company's three refineries manufacture various grades of gasoline, diesel fuel, and other products from crude oil, other feedstocks, and blending components. In addition, finished products are acquired through exchange agreements, from third party suppliers and from Phoenix Fuel. These products are sold through Company- operated retail facilities, independent wholesalers and retailers, industrial/commercial accounts, and sales and exchanges with major oil companies. Crude oil, other feedstocks and blending components are purchased from third party suppliers. - Retail Group: The Retail Group owns and operates service stations with convenience stores or kiosks and one travel center. These operations sell various grades of gasoline, diesel fuel, general merchandise, including tobacco and alcoholic and nonalcoholic beverages, and food products to the general public through retail locations. The Refining Group or Phoenix Fuel supplies the petroleum fuels sold by the Retail Group. General merchandise and food products are obtained from third party suppliers. - Phoenix Fuel: Phoenix Fuel is a wholesale petroleum products distribution operation, which includes several lubricant and bulk petroleum distribution plants, an unmanned fleet fueling ("cardlock") operation, a bulk lubricant terminal facility, and a fleet of finished product and lubricant delivery trucks. The petroleum fuels and lubricants sold are primarily obtained from third party suppliers and to a lesser extent from the Refining Group. Operations that are not included in any of the three segments are included in the category "Other." These operations consist primarily of corporate staff operations, including selling, general and administrative ("SG&A") expenses. 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. The sales between segments are made at market prices. Cost of products sold reflects current costs adjusted, where appropriate, for LIFO and lower of cost or market inventory adjustments. The total assets of each segment consist primarily of net property, plant and equipment, inventories, accounts receivable and other assets directly associated with the segment's operations. Included in the total assets of the corporate staff operations are a majority of the Company's cash and cash equivalents, various accounts receivable, net property, plant and equipment, and other long-term assets. Disclosures regarding the Company's reportable segments with reconciliation to consolidated totals for the three months ended September 30, 2002 and 2001, are presented below.
For the Three Months Ended September 30, 2002 (In thousands) - ------------------------------------------------------------------------------------------------------------ Refining Retail Phoenix Reconciling Group Group Fuel Other Items Consolidated - ------------------------------------------------------------------------------------------------------------ Customer net revenues: Finished products: Four Corners operations $ 62,611 Yorktown operations(1) 159,844 -------- Total $222,455 $ 52,299 $ 69,054 $ - $ - $343,808 Merchandise and lubricants - 38,068 5,610 - - 43,678 Other 2,261 3,674 840 44 - 6,819 - --------------------------------------------------------------------------------------------------------- Total 224,716 94,041 75,504 44 - 394,305 - --------------------------------------------------------------------------------------------------------- Intersegment net revenues: Finished products 41,488 - 15,787 - (57,275) - Other 3,658 - - - (3,658) - - --------------------------------------------------------------------------------------------------------- Total 45,146 - 15,787 - (60,933) - - --------------------------------------------------------------------------------------------------------- Total net revenues 269,862 94,041 91,291 44 (60,933) 394,305 Net revenues of discontinued operations - (7,726) - - - (7,726) - --------------------------------------------------------------------------------------------------------- Net revenues of continuing operations $269,862 $ 86,315 $ 91,291 $ 44 $(60,933) $386,579 ========================================================================================================= Operating income (loss): Four Corners operations $ 5,824 Yorktown operations(1) (5,994) -------- Total operating income (loss) (170) $ 1,624 $ 1,751 $(4,725) $ 4,968 $ 3,448 Discontinued operations - (362) - - 4,906 4,544 - --------------------------------------------------------------------------------------------------------- Operating income (loss) from continuing operations $ (170) $ 1,986 $ 1,751 $(4,725) $ 62 $ (1,096) Interest expense (10,455) Amortization/write-off of financing costs (954) Interest income 74 - --------------------------------------------------------------------------------------------------------- Loss from continuing operations before income taxes $(12,431) ========================================================================================================= Depreciation and amortization: Four Corners operations $ 4,071 Yorktown operations(1) 1,646 -------- Total $ 5,717 $ 3,128 $ 507 $ 301 $ - $ 9,653 Discontinued operations - 211 - - - 211 - --------------------------------------------------------------------------------------------------------- Continuing operations $ 5,717 $ 2,917 $ 507 $ 301 $ - $ 9,442 Capital expenditures $ 1,447 $ 449 $ 87 $ 248 $ - $ 2,231 (1) Since acquisition on May 14, 2002.
For the Three Months Ended September 30, 2001 (In thousands) - ------------------------------------------------------------------------------------------------------------- Refining Retail Phoenix Reconciling Group Group Fuel Other Items Consolidated - ------------------------------------------------------------------------------------------------------------- Customer net revenues: Finished products $ 64,074 $ 59,437 $ 65,313 $ - $ - $188,824 Merchandise and lubricants - 38,858 6,724 - - 45,582 Other 1,161 4,962 642 57 - 6,822 - ----------------------------------------------------------------------------------------------------------- Total 65,235 103,257 72,679 57 - 241,228 - ----------------------------------------------------------------------------------------------------------- Intersegment net revenues: Finished products 44,303 - 19,063 - (63,366) - Other 5,212 - - - (5,212) - - ----------------------------------------------------------------------------------------------------------- Total 49,515 - 19,063 - (68,578) - - ----------------------------------------------------------------------------------------------------------- Total net revenues 114,750 103,257 91,742 57 (68,578) 241,228 Net revenues of discontinued operations - (10,913) - - - (10,913) - ----------------------------------------------------------------------------------------------------------- Net revenues of continuing operations $114,750 $ 92,344 $ 91,742 $ 57 $ (68,578) $230,315 =========================================================================================================== Operating income (loss) $ 16,904 $ 3,121 $ 1,082 $ (5,754) $ (1,301) $ 14,052 Discontinued operations - 42 - - - 42 - ----------------------------------------------------------------------------------------------------------- Operating income (loss) from continuing operations $ 16,904 $ 3,079 $ 1,082 $ (5,754) $ (1,301) $ 14,010 Interest expense (6,026) Amortization/write-off of financing costs (183) Interest income 361 - ----------------------------------------------------------------------------------------------------------- Earnings from continuing operations before income taxes $ 8,162 =========================================================================================================== Depreciation and amortization $ 4,110 $ 3,325 $ 682 $ 308 $ - $ 8,425 Discontinued operations - 287 - - - 287 - ----------------------------------------------------------------------------------------------------------- Continuing operations $ 4,110 $ 3,038 $ 682 $ 308 $ - $ 8,138 Capital expenditures $ 4,015 $ 38,911 $ 204 $ 85 $ - $ 43,215
Disclosures regarding the Company's reportable segments with reconciliation to consolidated totals for the nine months ended September 30, 2002 and 2001, are presented below.
As of and for the Nine Months Ended September 30, 2002 (In thousands) - ------------------------------------------------------------------------------------------------------------ Refining Retail Phoenix Reconciling Group Group Fuel Other Items Consolidated - ------------------------------------------------------------------------------------------------------------ Customer net revenues: Finished products: Four Corners operations $171,558 Yorktown operations(1) 232,678 -------- Total $404,236 $141,387 $190,213 $ - $ - $735,836 Merchandise and lubricants - 108,889 17,031 - - 125,920 Other 6,165 11,443 2,441 134 - 20,183 - ---------------------------------------------------------------------------------------------------------- Total 410,401 261,719 209,685 134 - 881,939 - ---------------------------------------------------------------------------------------------------------- Intersegment net revenues: Finished products 110,249 - 42,160 - (152,409) - Other 12,481 - - - (12,481) - - ---------------------------------------------------------------------------------------------------------- Total 122,730 - 42,160 - (164,890) - - ---------------------------------------------------------------------------------------------------------- Total net revenues 533,131 261,719 251,845 134 (164,890) 881,939 Net revenues of discontinued operations - (24,810) - - - (24,810) - ---------------------------------------------------------------------------------------------------------- Net revenues of continuing operations $533,131 $236,909 $251,845 $ 134 $(164,890) $857,129 ========================================================================================================== Operating income (loss): Four Corners operations $ 23,230 Yorktown operations(1) (9,084) -------- Total operating income (loss) 14,146 $ 2,821 $ 4,791 $(12,432) $ 3,905 $ 13,231 Discontinued operations - (1,020) - - 4,761 3,741 - ---------------------------------------------------------------------------------------------------------- Operating income (loss) from continuing operations $ 14,146 $ 3,841 $ 4,791 $(12,432) $ (856) $ 9,490 Interest expense (25,985) Amortization/write-off of financing costs (2,071) Interest income 399 - ---------------------------------------------------------------------------------------------------------- Loss from continuing operations before income taxes $(18,167) ========================================================================================================== Depreciation and amortization: Four Corners operations $ 12,703 Yorktown operations(1) 2,726 -------- Total $ 15,429 $ 9,587 $ 1,574 $ 870 $ - $ 27,460 Discontinued operations - 788 - - - 788 - ---------------------------------------------------------------------------------------------------------- Continuing operations $ 15,429 $ 8,799 $ 1,574 $ 870 $ - $ 26,672 Total assets $425,129 $139,417 $ 60,825 $ 65,559 $ - $690,930 Capital expenditures $ 6,811 $ 893 $ 360 $ 1,719 $ - $ 9,783 Yorktown refinery acquisition $194,866 $ - $ - $ - $ - $194,866 (1)Since acquisition on May 14, 2002.
As of and for the Nine Months Ended September 30, 2001 (In thousands) - ----------------------------------------------------------------------------------------------------------- Refining Retail Phoenix Reconciling Group Group Fuel Other Items Consolidated - ------------------------------------------------------------------------------------------------------------ Customer net revenues: Finished products $211,843 $183,615 $228,073 $ - $ - $623,531 Merchandise and lubricants - 109,314 18,392 - - 127,706 Other 6,966 13,192 1,997 206 - 22,361 - --------------------------------------------------------------------------------------------------------- Total 218,809 306,121 248,462 206 - 773,598 - --------------------------------------------------------------------------------------------------------- Intersegment net revenues: Finished products 135,517 - 65,653 - (201,170) - Other 12,380 - - - (12,380) - - --------------------------------------------------------------------------------------------------------- Total 147,897 - 65,653 - (213,550) - - --------------------------------------------------------------------------------------------------------- Total net revenues 366,706 306,121 314,115 206 (213,550) 773,598 Net revenues of discontinued operations - (35,878) - - - (35,878) - --------------------------------------------------------------------------------------------------------- Net revenues of continuing operations $366,706 $270,243 $314,115 $ 206 $(213,550) $737,720 ========================================================================================================= Operating income (loss) $ 56,555 $ 5,285 $ 4,307 $(17,620) $ (1,783) $ 46,744 Discontinued operations - (137) - - - (137) - --------------------------------------------------------------------------------------------------------- Operating income (loss) from continuing operations $ 56,555 $ 5,422 $ 4,307 $(17,620) $ (1,783) $ 46,881 Interest expense (18,109) Amortization/write-off of financing costs (581) Interest income 1,411 - --------------------------------------------------------------------------------------------------------- Earnings from continuing operations before income taxes $ 29,602 ========================================================================================================= Depreciation and amortization $ 12,070 $ 9,245 $ 2,011 $ 953 $ - $ 24,279 Discontinued operations - 776 - - - 776 - --------------------------------------------------------------------------------------------------------- Continuing operations $ 12,070 $ 8,469 $ 2,011 $ 953 $ - $ 23,503 Total assets $229,385 $179,665 $ 76,967 $ 39,104 $ - $525,121 Capital expenditures $ 7,162 $ 39,844 $ 782 $ 356 $ - $ 48,144
NOTE 3 - GOODWILL AND OTHER INTANGIBLE ASSETS: In June 2001, the Company adopted SFAS No. 141, "Business Combinations", which addresses financial accounting and reporting for goodwill and other intangible assets acquired in a business combination at acquisition. On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 addresses financial accounting and reporting for intangible assets acquired individually or with a group of other assets (but not those acquired in a business combination) at acquisition. This Statement also addresses financial accounting and reporting for goodwill and other intangible assets subsequent to their acquisition. SFAS No. 142, among other things, specifies that goodwill and certain intangible assets with indefinite lives no longer be amortized, but instead be subject to periodic impairment testing. Previously recognized goodwill and certain intangible assets with indefinite lives are to be initially tested for impairment as of the beginning of 2002. In the first quarter of 2002, the Company determined that there was no impairment to its indefinite lived intangible assets. These indefinite lived intangible assets will continue to be evaluated for impairment as required by SFAS No. 142. During the second quarter of 2002, the Company completed the transitional impairment test for goodwill as required by SFAS No. 142. The Company identified four reporting units for the purpose of this transitional impairment test. The reporting units consist of the Refinery Unit, the Retail Unit, the Phoenix Fuel Unit and the Travel Center Unit. The fair value of each reporting unit, except for the Travel Center Unit, was determined using a discounted cash flow model based on assumptions applicable to each reporting unit. The fair value of the Travel Center Unit was based on estimated sales price. The fair value of the reporting units exceeded their respective carrying amounts, including goodwill. As a result, the goodwill of each reporting unit is considered not impaired and the second step of the impairment test, to measure the amount of an impairment loss, is not necessary. The Company has elected to conduct its annual goodwill impairment test as of the first day of each fourth fiscal quarter (October 1). If, however, events and circumstances indicate that goodwill of a reporting unit might be impaired, then goodwill also will be tested for impairment when the impairment indicator arises. Retail unit goodwill was tested for impairment as of September 30, 2002, due to activities relating to the sale and marketing of retail units in the third quarter. No impairment was recorded as a result of this test. At September 30, 2002 and December 31, 2001, the Company had goodwill of $19,565,000 and $19,815,000, respectively. The changes in the carrying amount of goodwill for the nine months ended September 30, 2002, all occurring in the third quarter, are as follows:
Refining Retail Phoenix (In thousands) Group Group Fuel Total - -------------------------------------------------------------------------- Balance as of January 1, 2002 $125 $4,968 $14,722 $19,815 Impairment losses related to retail units held for sale - (7) - (7) Goodwill written off related to the sale of eight retail units - (243) - (243) - -------------------------------------------------------------------------- Balance as of September 30, 2002 $125 $4,718 $14,722 $19,565 ==========================================================================
Certain of the Company's retail units are classified as held for sale and are tested for impairment when circumstances change. In the third quarter, offers were received for certain retail units and these units were tested for impairment. This resulted in an impairment write-down for one unit of $117,000, including $7,000 of goodwill. Also, goodwill of $243,000 relating to retail units sold was written off and is included in the net gain on the disposal of these units reported as a part of discontinued operations. (See Note 5.) Intangible assets with finite lives will continue to be amortized over their respective useful lives and will be tested for impairment in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." A summary of intangible assets, which are included in "Other Assets" in the Condensed Consolidated Balance Sheet, at September 30, 2002 is presented below:
Gross Net Carrying Accumulated Carrying (In thousands) Value Amortization Value - -------------------------------------------------------------------- Amortized intangible assets: Rights-of-way $ 3,564 $ 2,333 $ 1,231 Contracts 3,971 3,446 525 Licenses and permits 786 37 749 - -------------------------------------------------------------------- 8,321 5,816 2,505 - -------------------------------------------------------------------- Unamortized intangible assets: Liquor licenses 7,303 - 7,303 - -------------------------------------------------------------------- Total intangible assets $ 15,624 $ 5,816 $ 9,808 ====================================================================
In the second quarter of 2002, the remaining right-of-way costs relating to certain pipeline assets that had been sold were written off. These rights-of-way had an original cost of approximately $21,000 and accumulated amortization of approximately $6,900. In the third quarter of 2002, $786,000 of the purchase price allocation for the Yorktown refinery relating to certain licenses and permits were recorded as amortizable intangible assets. (See the table above and Note 4.) Intangible asset amortization expense for the nine months ended September 30, 2002 was $255,000. Estimated amortization expense for the remainder of 2002 and the five succeeding fiscal years is as follows: (In thousands) ---------------------------- 2002 $ 94 2003 377 2004 377 2005 377 2006 374 2007 273 The following table sets forth a reconciliation of net earnings (loss) and earnings (loss) per share information for the three and nine months ended September 30, 2002 and 2001 adjusted for the non-amortization provisions of SFAS No. 142.
Three Months Nine Months Ended September 30, Ended September 30, - -------------------------------------------------------------------------------------------- (In thousands) 2002 2001 2002 2001 - -------------------------------------------------------------------------------------------- Reported net earnings (loss) $(4,572) $5,135 $(8,734) $18,038 Add: Goodwill amortization, net of tax effect - 160 - 481 - -------------------------------------------------------------------------------------------- Adjusted net earnings (loss) $(4,572) $5,295 $(8,734) $18,519 ============================================================================================ Basic earnings (loss) per share: Reported net earnings (loss) $ (0.53) $ 0.57 $ (1.02) $ 2.01 Adjusted net earnings (loss) $ (0.53) $ 0.59 $ (1.02) $ 2.07 Diluted earnings (loss) per share: Reported net earnings (loss) $ (0.53) $ 0.57 $ (1.02) $ 2.01 Adjusted net earnings (loss) $ (0.53) $ 0.59 $ (1.02) $ 2.06
NOTE 4 - YORKTOWN ACQUISITION: On May 14, 2002, the Company acquired the 61,900 bpd Yorktown refinery from BP Corporation North America Inc. and BP Products North America Inc. (collectively "BP") for $127,500,000 plus $65,182,000 for the value of inventory at closing, the assumption of certain liabilities, and a conditional earn-out. In addition, the Company incurred direct costs related to this transaction of approximately $2,000,000. As part of the Yorktown acquisition, the Company agreed to pay to BP, beginning in 2003 and concluding at the end of 2005, earn-out payments up to a maximum of $25,000,000 when the average monthly spreads for regular reformulated gasoline or No. 2 distillate over West Texas Intermediate equivalent light crude oil on the New York Mercantile Exchange exceed $5.50 or $4.00 per barrel, respectively. These earn-out considerations, if paid, would be considered additional purchase price and would be allocated to the assets acquired in the same proportions as the original purchase price was allocated, not to exceed the estimated current replacement cost, and amortized over the estimated remaining life of the assets. The Yorktown acquisition was funded with cash on hand, $32,000,000 in borrowings under a $100,000,000 senior secured revolving credit facility, $40,000,000 in borrowings from a senior secured mortgage loan facility, and part of the proceeds from the issuance of $200,000,000 of 11% Senior Subordinated Notes due 2012. In addition, the Company incurred approximately $16,402,000 of financing costs in connection with these obligations. (See Note 10 for a discussion of the obligations). Under SFAS No. 141, "Business Combinations", the Yorktown acquisition was accounted for as a purchase, whereby the purchase price was allocated to the assets acquired and liabilities assumed based upon their respective fair market values at the date of acquisition. The accompanying financial statements reflect the preliminary purchase price allocation. The Company is in the process of completing the review and determination of the fair values of the assets acquired and the liabilities assumed. Accordingly, the allocation of the purchase price is subject to revision, which is not expected to be material, based on a final determination of appraised and other fair values. The September 30, 2002 financial statements include the results of operations of the Yorktown acquisition since the date of acquisition. The preliminary purchase price allocation, including direct costs incurred in the Yorktown acquisition, is as follows:
- ---------------------------------------------------------------------- (In thousands) - ---------------------------------------------------------------------- Property, plant and equipment $ 141,396 Other assets 786 Deferred income tax assets, current 6,700 Inventories: Feedstocks and refined products 65,182 Materials and supplies 4,589 Environmental liabilities assumed (7,500) Pension and retiree medical obligations assumed (9,400) Other employee obligations assumed (287) Deferred income tax liabilities, non-current (6,600) - ---------------------------------------------------------------------- Total cash purchase price $ 194,866 ======================================================================
The following unaudited pro forma financial information for the three and nine months ended September 30, 2002 and 2001 gives effect to the (i) Yorktown acquisition, (ii) financing transactions described above, and (iii) redemption of the Company's $100,000,000 of 9 3/4% Senior Subordinated Notes due 2003 (the "9 3/4% Notes"), which occurred on June 28, 2002, as if each had occurred at the beginning of the periods presented. The pro forma results were determined using estimates and assumptions, which management believes to be reasonable, based upon limited available information from BP. This pro forma information is not necessarily indicative of the results of future operations.
Three Months Nine Months Ended September 30, Ended September 30, - --------------------------------------------------------------------------------------- (In thousands, except per share data) 2002 2001 2002 2001 - --------------------------------------------------------------------------------------- Revenues from continuing operations $ 386,579 $ 406,148 $1,057,537 $1,257,987 Net earnings (loss) $ (4,572) $ 6,535 $ (20,130) $ 21,358 Net earnings (loss) per share: Basic $ (0.53) $ 0.73 $ (2.35) $ 2.38 Diluted $ (0.53) $ 0.73 $ (2.35) $ 2.38
NOTE 5 - DISCONTINUED OPERATIONS, ASSETS HELD FOR SALE, AND DISPOSITIONS: In the third quarter of 2002, the Company sold six retail units and reclassified 10 others as assets held for sale. Two other retail units were sold in the second quarter of 2002. The remaining assets and results of operations of these 18 retail units are included in discontinued operations in the accompanying financial statements. Earnings from discontinued operations before income taxes of $4,544,000 for the three months ended September 30, 2002 include a gain on the disposal of six retail units sold of $4,921,000, which is net of $243,000 of goodwill write-offs; and a SFAS No. 144 impairment write-down of $117,000, including $7,000 of goodwill write-offs, on one of the retail units held for sale. Earnings from discontinued operations before income taxes of $3,741,000 for the nine months ended September 30, 2002 include a gain on the disposal of eight retail units sold of $4,789,000, which is net of $243,000 of goodwill write-offs; and SFAS No. 144 impairment write-downs of $289,000, including $7,000 of goodwill write-offs, on three of the retail units held for sale. Of the 10 units held for sale, four are expected to close escrow in the fourth quarter of 2002, two are in contract negotiations, and the remaining four are being marketed for sale. Two of the remaining four units are closed and two are being operated, but will be closed if not sold within 12 months. In addition to the 10 units described above, assets held for sale include vacant residential/commercial property, 12 retail units which were closed in 2001, a vacant industrial land site, and vacant land adjacent to several retail units. All of these assets are being marketed for sale. Included in "Other Assets" as assets held for sale in the accompanying Condensed Consolidated Balance Sheets are the following categories of assets.
(In thousands) September 30, 2002 December 31, 2001 - -------------------------------------------------------------------------------------------- Discontinued operations relating to 10 retail units: Property, plant and equipment $ 4,239 $ 4,965 Inventories 280 307 - -------------------------------------------------------------------------------------------- 4,519 5,272 Vacant land - residential/commercial property 5,602 5,602 Closed retail units 2,413 2,521 Vacant land - industrial site 1,596 1,596 Vacant land - adjacent to retail units 1,201 1,201 - -------------------------------------------------------------------------------------------- $15,331 $16,192 ============================================================================================
Included in discontinued operations is the following operating information.
Three Months Nine Months Ended September 30, Ended September 30, - -------------------------------------------------------------------------------------------- (In thousands) 2002 2001 2002 2001 - -------------------------------------------------------------------------------------------- Revenues $ 7,726 $ 10,913 $ 24,810 $ 35,878 Pre-tax operating earnings (loss) $ (362) $ 42 $ (1,020) $ (137)
On July 31, 2002, the Company entered into a letter of intent for the potential sale of its 26 remaining retail units in the Phoenix and Tucson marketing areas. Two of the retail units were removed from this transaction and are classified as held for sale. The Company is in the process of negotiating a purchase agreement for the remaining 24, which would be contingent upon the potential buyer obtaining lender financing on satisfactory terms. Due to the uncertainty of the potential buyer obtaining financing, the Company cannot determine with reasonable certainty that this transaction will close, or if the units will be sold to other parties within the next 12 months, and is exploring other options, including continuing to operate the units. In the second quarter of 2002, the Company recorded an impairment loss of $1,272,000 related to certain of the 26 units, based on the probability of the sale occurring and an estimate of fair value as compared to the carrying value of each unit in accordance with SFAS No. 144. As of September 30, 2002, the remaining 24 retail units were being operated and were classified as held and used in accordance with SFAS No. 144. On August 12, 2002, the Company entered into purchase and sale agreements with a buyer for the sale of nine retail units in the Phoenix marketing area. Six of these units were sold to the buyer in the third quarter for $10,850,000 and their results of operations are included in earnings (loss) from discontinued operations as discussed above. Two of the units were removed from this transaction. One of these two units is being sold to another buyer and is expected to close in the fourth quarter, and the other unit is being marketed for sale. The third unit may be subject to a right to purchase at appraised value in favor of a related party. (See Note 6 to the accompanying financial statements.) The Company expects that the sale of this unit will close in the fourth quarter of 2002. As of September 30, 2002, the three unsold units were classified as held for sale. In addition, the Company is in the process of reviewing proposals for the possible sale and potential leaseback of its corporate headquarters building. This process is in a preliminary stage, and as such, the Company does not know if, or when, this transaction will close. NOTE 6 - RELATED PARTY TRANSACTIONS: The Company is in the process of selling one of its retail units to a third-party purchaser. The unit may be subject to a right to purchase at appraised value. A limited liability company controlled by James E. Acridge, which subsequently went out of business, previously held this right. Mr. Acridge was terminated as the Company's President and Chief Executive Officer on March 29, 2002, although he remains on the Board of Directors. Mr. Acridge asserts that the right to purchase has passed to his bankruptcy estate. The Company has asked for guidance from the bankruptcy court regarding this matter. (See Note 11 for a further discussion of matters relating to Mr. Acridge.) NOTE 7 - EARNINGS PER SHARE: The following table sets forth the computation of basic and diluted earnings (loss) per share:
Three Months Nine Months Numerator Ended September 30, Ended September 30, - ----------------------------------------------------------------------------------------- (In Thousands) 2002 2001 2002 2001 - ----------------------------------------------------------------------------------------- Earnings (loss) from continuing operations $(7,299) $ 5,110 $(10,979) $ 18,120 Earnings (loss) from discontinued operations $ 2,727 $ 25 $ 2,245 $ (82) - ----------------------------------------------------------------------------------------- Net earnings (loss) $(4,572) $ 5,135 $ (8,734) $ 18,038 =========================================================================================
Three Months Nine Months Denominator Ended September 30, Ended September 30, - ----------------------------------------------------------------------------------------- 2002 2001 2002 2001 - ----------------------------------------------------------------------------------------- Basic - weighted average shares outstanding 8,571,779 8,964,551 8,564,042 8,956,808 Effect of dilutive stock options -* 13,446 -* 13,721 - ----------------------------------------------------------------------------------------- Diluted outstanding shares 8,571,779 8,977,997 8,564,042 8,970,529 ========================================================================================= *The additional shares would be antidilutive due to the net loss.
Three Months Nine Months Basic earnings per share Ended September 30, Ended September 30, - ----------------------------------------------------------------------------------------- 2002 2001 2002 2001 - ----------------------------------------------------------------------------------------- Earnings (loss) from continuing operations $ (0.85) $ 0.57 $ (1.28) $ 2.02 Earnings (loss) from discontinued operations $ 0.32 $ - $ 0.26 $ (0.01) - ----------------------------------------------------------------------------------------- Net earnings (loss) $ (0.53) $ 0.57 $ (1.02) $ 2.01 =========================================================================================
Three Months Nine Months Diluted earnings per share Ended September 30, Ended September 30, - ----------------------------------------------------------------------------------------- 2002 2001 2002 2001 - ----------------------------------------------------------------------------------------- Earnings (loss) from continuing operations $ (0.85) $ 0.57 $ (1.28) $ 2.02 Earnings (loss) from discontinued operations $ 0.32 $ - $ 0.26 $ (0.01) - ----------------------------------------------------------------------------------------- Net earnings (loss) $ (0.53) $ 0.57 $ (1.02) $ 2.01 =========================================================================================
On April 29, 2002, 17,900 stock options granted May 1, 1992, were exercised. These stock options were scheduled to expire on April 30, 2002. At September 30, 2002, there were 8,571,779 shares of the Company's common stock outstanding. There were no transactions subsequent to September 30, 2002, that if the transactions had occurred before September 30, 2002, would materially change the number of common shares or potential common shares outstanding as of September 30, 2002. NOTE 8 - INVENTORIES:
September 30, December 31, - -------------------------------------------------------------------------------- (In thousands) 2002 2001 - -------------------------------------------------------------------------------- First-in, first-out ("FIFO") method: Crude oil $ 36,626 $ 12,835 Refined products 45,102 21,982 Refinery and shop supplies 13,089 8,111 Merchandise 2,847 3,928 Retail method: Merchandise 8,428 8,872 - -------------------------------------------------------------------------------- Subtotal 106,092 55,728 Adjustment for last-in, first-out ("LIFO") method (5,985) 5,996 Allowance for lower of cost or market - (3,302) - -------------------------------------------------------------------------------- Total $ 100,107 $ 58,422 ================================================================================
The portion of inventories valued on a LIFO basis totaled $68,060,000 and $30,872,000 at September 30, 2002 and December 31, 2001, respectively. The following data will facilitate comparison with the operating results of companies using the FIFO method of inventory valuation. If inventories had been determined using the FIFO method at September 30, 2002 and 2001, net earnings (loss) and diluted earnings (loss) per share amounts for the three months ended September 30, 2002 and 2001, would have been higher (lower) by $4,294,000 and $0.50, and $(791,000) and $(0.09), respectively, and net earnings (loss) and diluted earnings (loss) per share for the nine months ended September 30, 2002 and 2001 would have been higher (lower) by $5,208,000 and $0.61, and $(2,935,000) and $(0.33), respectively. 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. In the third quarter of 2001, certain higher cost refining LIFO inventory layers were liquidated resulting in a reduction of earnings of approximately $170,000 or $0.02 per share for the three and nine months ended September 30, 2001. There were no similar liquidations in 2002. NOTE 9 - DERIVATIVE INSTRUMENTS: The Company is exposed to various market risks, including changes in certain commodity prices and interest rates. To manage the volatility relating to these normal business exposures, the Company, from time to time, uses commodity futures and options contracts to reduce price volatility, to fix margins in its refining and marketing operations and to protect against price declines associated with its crude oil and finished products inventories. In the second and third quarters of 2002, the Company entered into various crude oil futures contracts in order to economically hedge crude oil inventories and crude oil purchases for the Yorktown refinery operations. For the three and nine months ended September 30, 2002, the Company recognized losses on these contracts of approximately $3,769,000 and $1,799,000, respectively, 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. At September 30, 2002, the Company had no open crude oil futures contracts or other commodity derivatives. NOTE 10 - LONG-TERM DEBT: Long-term debt consists of the following:
September 30, December 31, - ------------------------------------------------------------------------------- (In thousands) 2002 2001 - ------------------------------------------------------------------------------- 11% senior subordinated notes, due 2012, net of unamortized discount of $5,733, interest payable semi-annually $ 194,267 $ - 9% senior subordinated notes, due 2007, interest payable semi-annually 150,000 150,000 9 3/4% senior subordinated notes, due 2003, interest payable semi-annually - 100,000 Senior secured revolving credit facility, due 2005, floating interest rate, interest payable quarterly 35,000 - Senior secured mortgage loan facility, due 2005, floating interest rate, interest payable quarterly 35,556 - Capital lease obligations, 11.3%, due through 2007, interest payable monthly 6,703 6,703 Other 57 91 - ------------------------------------------------------------------------------- Subtotal 421,583 256,794 Less current portion (11,589) (45) - ------------------------------------------------------------------------------- Total $ 409,994 $ 256,749 ===============================================================================
On May 14, 2002, in conjunction with the Yorktown acquisition, the Company issued $200,000,000 in aggregate principal amount of outstanding notes (the "11% Notes") in a private placement under Rule 144A under the Securities Act. The 11% Notes were issued at a discount of $5,856,000 to effectively yield 11 1/2%. The proceeds from the sale of the 11% Notes, together with cash on hand and initial borrowings under the Company's new senior secured credit facilities, were used to fund the acquisition of the Yorktown refinery and associated inventory, to redeem all $100,000,000 of the Company's 9 3/4% Notes, and to pay related transaction fees and expenses. The 11% Notes mature on May 15, 2012, with interest payable semi- annually on May 15 and November 15 of each year. In accordance with a Registration Rights Agreement entered into in connection with the sale of the 11% Notes, the Company filed a registration statement with the Securities and Exchange Commission enabling the holders of the 11% Notes to exchange the 11% Notes for publicly registered exchange notes with substantially identical terms as the 11% Notes. All of the original 11% Notes were exchanged and the exchange offering was completed on September 10, 2002. On June 28, 2002, the Company redeemed all $100,000,000 of the 9 3/4% Notes at par plus accrued interest. To permit this redemption, the Company obtained a consent from the holders of the 9% Notes at a cost of approximately $1,200,000. In connection with the Yorktown acquisition, the Company also entered into a $100,000,000, three-year senior secured revolving credit facility (the "Credit Facility") with a group of banks. The Credit Facility is due and payable in full on May 13, 2005. As more fully described in Note 13 - Subsequent Events, on October 28, 2002, the Company entered into an amendment for the Credit Facility (the "Amendment"). Prior to the Amendment, obligations under the Credit Facility were guaranteed by each of the Company's principal subsidiaries and secured by a security interest in the personal property of the Company and the personal property of the Company's subsidiaries, including accounts receivable, inventory, contracts, chattel paper, trademarks, copyrights, patents, license rights, deposit and investment accounts and general intangibles, but excluding most fixed assets. Pursuant to the Amendment, the Company granted the lenders additional collateral. The Credit Facility is primarily a working capital and letter of credit facility. The Credit Facility also allows the Company to borrow up to $10,000,000 for other acquisitions as defined in the Credit Facility. The availability of funds under this facility is the lesser of (i) $100,000,000, or (ii) the amount determined under a borrowing base calculation tied to the eligible accounts receivable and inventories. At September 30 and November 1, 2002, the availability of funds under the Credit Facility was $100,000,000. There were $35,000,000 in direct borrowings outstanding under this facility at September 30, 2002, and there were approximately $14,808,000 of irrevocable letters of credit outstanding, primarily to crude oil suppliers, insurance companies and regulatory agencies. At November 1, 2002 there were $35,000,000 in direct borrowings outstanding under this facility and there were approximately $30,408,000 of irrevocable letters of credit outstanding, $16,000,000 of which expire in November 2002. The interest rate applicable to the Credit Facility is tied to various short-term indices. At September 30, 2002, this rate was approximately 4.6% per annum. Pursuant to the Amendment, the interest rate has been increased. At November 11, 2002, this rate was approximately 5.2%. The Company is required to pay a quarterly commitment fee of 0.50% per annum of the unused amount of the facility. The Credit Facility contains negative covenants limiting, among other things, the Company's ability, and the ability of the Company's subsidiaries, to incur additional indebtedness; create liens; dispose of assets; consolidate or merge; make loans and investments; enter into transactions with affiliates; use loan proceeds for certain purposes; guarantee obligations and incur contingent obligations; enter into agreements restricting the ability of subsidiaries to pay dividends to the Company; make distributions or stock repurchases; make significant changes in accounting practices or change the Company's fiscal year; and except on terms acceptable to the senior secured lenders, to prepay or modify subordinated indebtedness. The Amendment modifies certain of these covenants and imposes certain additional covenants. The Credit Facility also requires the Company to maintain certain financial ratios, each calculated on a pro forma basis for the Yorktown acquisition, including maintaining a minimum consolidated tangible net worth, a minimum fixed charge coverage ratio, a total leverage ratio, and a senior leverage ratio of consolidated senior indebtedness to consolidated Earnings Before Income Tax, Depreciation and Amortization ("EBITDA"). The Amendment also modifies certain of these financial covenants and imposes certain additional financial covenants. The Company's failure to satisfy any of these covenants is an event of default under the Credit Facility. The Credit Facility also includes other customary events of default, including, among other things, a cross-default to the Company's other material indebtedness and certain changes of control. In connection with the Yorktown acquisition, the Company also entered into a $40,000,000 three-year senior secured mortgage loan facility (the "Loan Facility") with a group of financial institutions. As more fully described in Note 13 - Subsequent Events, on October 28, 2002, the Company entered into an amendment for the Loan Facility (the "Loan Amendment"). Prior to the Loan Amendment, the loan was secured by the Yorktown refinery property, fixtures and equipment, excluding inventory, accounts receivable and other Yorktown refinery assets securing the Credit Facility. The Company and its principal subsidiaries also guaranteed the loan. Pursuant to the Loan Amendment, the Company granted the lenders additional collateral. The Company issued notes to the lenders, which bear interest at a rate that is tied to various short-term indices. At September 30, 2002, this rate was approximately 6.1% per annum. Pursuant to the Loan Amendment, the interest rate has been increased. At November 11, 2002, this rate was approximately 6.6%. The notes fully amortize during the three-year term as follows: 2002 - $7,778,000, 2003 - $10,222,000, 2004 - $11,111,000, and 2005 - $10,889,000. The Loan Facility contains negative covenants limiting the Company's ability and the ability of the Company's subsidiaries to, among other things, incur debt; create liens; dispose of assets; consolidate or merge; make loans and investments; enter into transactions with affiliates; use loan proceeds for certain purposes; guarantee obligations and incur contingent obligations; pay dividends or make distributions or stock repurchases; make significant changes in accounting practices; or change the Company's fiscal year. The Loan Amendment also modifies certain of these covenants and imposes certain additional covenants. The Loan Facility also requires the Company to maintain certain financial ratios, including maintaining (a) ratios substantially the same as the Credit Facility and (b) a total senior debt to tangible net worth (consolidated senior funded indebtedness to total consolidated net worth less intangible assets) ratio. The Loan Amendment modifies certain of these financial covenants and imposes certain additional financial covenants. The Company's failure to satisfy any of these covenants is an event of default under the Loan Facility. The Loan Facility also includes other customary events of default, including, among other things, a cross-default to the Company's other material indebtedness and certain changes of control. NOTE 11 - COMMITMENTS AND CONTINGENCIES: Various legal actions, claims, assessments and other contingencies arising in the normal course of the Company's business, including those matters described below, are pending against the Company and certain of its subsidiaries. Certain of these matters involve or may involve significant claims for compensatory, punitive or other damages. These matters are subject to many uncertainties, and it is possible that some of these matters could be ultimately decided, resolved or settled adversely. The Company has recorded accruals for losses related to those matters that it considers to be probable and that can be reasonably estimated. Although the ultimate amount of liability at September 30, 2002, which may result from those matters for which the Company has recorded accruals is not ascertainable, the Company believes that any amounts exceeding the Company's recorded accruals should not materially affect the Company's financial condition. It is possible, however, that the ultimate resolution of these matters could result in a material adverse effect on the Company's results of operations for a particular reporting period. Federal, state and local laws and regulations relating to health, safety and the environment affect nearly all of the operations of the Company. As is the case with other companies engaged in similar industries, the Company faces significant exposure from actual or potential claims and lawsuits, 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 the Company or by its predecessors. 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 property claims and lawsuits cannot be reasonably quantified in many circumstances for various reasons. These reasons include the speculative nature of remediation and cleanup cost estimates and methods, imprecise and conflicting data regarding the hazardous nature of various types of substances, the number of other potentially responsible parties involved, various defenses that may be available to the Company and changing environmental, health and safety laws, regulations, and their respective interpretations. In June 2002, the Company received a draft compliance order from the New Mexico Environment Department ("NMED") in connection with five alleged violations of air quality regulations at the Ciniza refinery. These alleged violations relate to an inspection completed in April 2001. Potential penalties could be as high as $564,000. In August 2002, the Company received a compliance order from NMED in connection with four alleged violations of air quality regulations at the Bloomfield refinery. These alleged violations relate to an inspection completed in August and September of 2001. Potential penalties could be as high as $120,000. The Company expects to provide information to NMED with respect to both of the above matters that may result in the modification or dismissal of some of the alleged violations and reductions in the amount of potential penalties. In 1973, the Company constructed the Farmington Refinery that was operated until 1982. The Company became aware of soil and shallow groundwater contamination at this facility in 1985. The Company hired environmental consulting firms to investigate the contamination and undertake remedial action. The consultants identified several areas of contamination in the soils and shallow groundwater underlying the Farmington property. A consultant to the Company has indicated that contamination attributable to past operations at the Farmington property has migrated off the refinery property, including a hydrocarbon plume that appears to extend no more than 1,800 feet south of the refinery property. Remediation activities are ongoing by the Company under the supervision of the New Mexico Oil Conservation Division ("OCD"), although no cleanup order has been received. The Company's environmental reserve for this matter is approximately $570,000. The Farmington property is located adjacent to the Lee Acres Landfill (the "Landfill"), a closed landfill formerly operated by San Juan County and 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, the Company 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, the federal Environmental Protection Agency ("EPA") defined the site as the Landfill and the Landfill's associated groundwater plume. EPA excluded any releases from the Farmington refinery itself from the definition of the site. In May 1991, EPA notified the Company that it may be a potentially responsible party under CERCLA for the release or threatened release of hazardous substances, pollutants or contaminants at the Landfill. BLM made a proposed plan of action for the Landfill available to the public in 1996. Remediation alternatives examined by BLM in connection with the development of its proposed plan ranged in projected cost from no cost to approximately $14,500,000. BLM proposed the adoption of a remedial action alternative that it believes would cost approximately $3,900,000 to implement. BLM's $3,900,000 cost estimate is based on certain assumptions 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. The Company has been advised that the site remedy may be announced in 2002 but is not aware that any such announcement has been made. In 1989, a consultant to the Company estimated, based on various assumptions, that the Company's share of potential liability could be approximately $1,200,000. This figure was based upon estimated Landfill remediation costs significantly higher than those being proposed by BLM. The figure also was based on the consultant's evaluation of such factors as available clean-up technology, BLM's involvement at the site and the number of other entities that may have had involvement at the site, but did not include an analysis of all of the Company's potential legal defenses and arguments, including possible setoff rights. Potentially responsible party liability is joint and several, such that a responsible party may be liable for all of the clean-up costs at a site even though the party was responsible for only a small part of such costs. Although it is possible that the Company may ultimately incur liability for clean-up costs associated with the Landfill, a reasonable estimate of the amount of this liability, if any, cannot be made at this time because, among other reasons, the final site remedy has not been selected, a number of entities had involvement at the site, allocation of responsibility among potentially responsible parties has not yet been made, and potentially applicable factual and legal issues have not been resolved. Based on current information, the Company does not believe that it needs to record a liability in relation to BLM's proposed plan. BLM may assert claims against the Company and others for reimbursement of investigative, cleanup and other costs incurred by BLM in connection with the Landfill and surrounding areas. It is also possible that the Company will assert claims against BLM in connection with contamination that may be originating from the Landfill. Private parties and other governmental entities also may assert claims against BLM, the Company and others for property damage, personal injury and other damages allegedly arising out of any contamination originating from the Landfill and the Farmington property. Parties also may request judicial determination of their rights and responsibilities, and the rights and responsibilities of others, in connection with the Landfill and the Farmington property. Currently, however, there is no outstanding litigation against the Company by BLM or any other party. In connection with the acquisition of the Bloomfield Refinery, the Company assumed certain environmental obligations including Bloomfield Refining Company's ("BRC") obligations under an administrative order issued by EPA in 1992 pursuant to the Resource Conservation and Recovery Act (the "Order"). The Order required BRC to investigate and propose measures for correcting any releases of hazardous waste or hazardous constituents at or from the Bloomfield Refinery. EPA has delegated its oversight authority over the Order to NMED's Hazardous Waste Bureau ("HWB"). In 2000, OCD approved the groundwater discharge permit for the refinery, which included an abatement plan that addressed the Company's environmental obligations under the Order. The abatement plan reflects new information relating to the site as well as remediation methods that were not originally contemplated in connection with the Order. Discussions between OCD, HWB and the Company have resulted in proposed revisions to the abatement plan. Adoption of the abatement plan as the appropriate corrective action remedy under the Order would significantly reduce the Company's corrective action costs. The Company estimates that remediation expenses associated with the abatement plan will be approximately $150,000, and will be incurred over a period of approximately 30 years. If the Company's request is not granted, the Company estimates that remaining remediation expenses could range as high as $800,000, after taking into account year-to-date 2002 expenditures, and could be as low as $600,000. The Company's environmental reserve for this matter is approximately $800,000. If, as expected, the abatement plan is approved as submitted, the Company anticipates that the reserve will be reduced. The Company has discovered hydrocarbon contamination adjacent to a 55,000 barrel crude oil storage tank (the "Tank") that was located in Bloomfield, New Mexico. The Company believes that all or a portion of the Tank and the 5.5 acres owned by the Company on which the Tank was located may have been a part of a refinery, owned by various other parties, that, to the Company's knowledge, ceased operations in the early 1960s. Based upon a January 13, 2000 report filed with OCD, it appears possible that contaminated groundwater is contained within the property boundaries and does not extend offsite. The Company anticipates that OCD will not require remediation of offsite soil based upon the low contaminant levels found there. In the course of conducting cleanup activities approved by OCD, it was discovered that the extent of contamination was greater than anticipated. The Company received approval to conduct a pilot bioventing project to address remaining contamination at the site, which was completed in June 2001, at a cost of approximately $15,000. Based on the results of the pilot project, the Company submitted a plan for soil and groundwater remediation and monitoring to OCD. This remediation plan, including a proposed soil bioventing remediation system, was approved by OCD on June 13, 2002. The Company anticipates that it will incur approximately $100,000 in remediation expenses in connection with this plan, and the Company has created an environmental reserve in this amount. Active remediation should occur over a period of one to two years, followed by groundwater monitoring. No remediation efforts are being undertaken to date, as the Company is awaiting OCD approval of its work plan for the proposed soil bioventing remediation system. The Company has assumed certain liabilities and obligations in connection with the purchase of the Yorktown refinery, but the Company has been provided with specified levels of indemnification for certain matters. These liabilities and obligations include, subject to certain exceptions and indemnifications, all obligations, responsibilities, liabilities, costs and expenses under health, safety and environmental laws, caused by, arising from, incurred in connection with or relating in any way to the ownership of the refinery or its operation. The Company has agreed to indemnify BP from and against losses of any kind incurred in connection with, or related to, liabilities and obligations assumed by the Company. The Company only has limited indemnification rights against BP. The environmental obligations assumed include BP's responsibilities and liabilities under a consent decree among various parties covering many locations. Parties to the consent decree include the United States, BP Exploration and Oil Co., Amoco Oil Company, and Atlantic Richfield Company. BP entered into the consent decree on August 29, 2001. 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. The Company estimates that it will incur capital expenditures of between $20,000,000 and $27,000,000 to comply with the consent decree and that these costs will be incurred over a period of approximately five years, although the Company believes most of the expenditures will be incurred in 2006. In addition, the Company estimates that it will incur operating expenses associated with the requirements of the consent decree of between $1,700,000 and $2,700,000 per year, beginning in 2002. On October 21, 2002, the Company received a notice from EPA assessing it a penalty of $110,000 under the consent decree in connection with a hydrocarbon flaring incident at the Yorktown refinery. The flaring occurred during a four-day period in April 2002 following a power outage at the refinery. Since the Company did not own the Yorktown refinery at the time that the flaring incident occurred, the Company believes that it will be entitled to indemnification from BP for the entire amount of the penalty. It is possible that the Company and BP will contest the penalty. The environmental obligations assumed in connection with the Yorktown acquisition also include BP's obligations under an administrative order issued by EPA in 1991 pursuant to the Resource Conservation and Recovery Act (the "Yorktown Order"). The Yorktown Order requires an investigation of certain areas of the refinery and the development of measures to correct any releases of contaminants or hazardous constituents found in these areas. A RCRA Facility Investigation and a Corrective Measures Study, or "RFI/CMS," already has been prepared. It was revised by BP, in draft form, to incorporate comments from EPA and the Virginia Department of Environmental Quality, although a final RFI/CMS has not yet been approved. The draft RFI/CMS proposes certain investigation, sampling, monitoring, and cleanup measures, including the construction of an on-site corrective action management unit ("CAMU") that would be used to consolidate hazardous materials associated with these measures. These proposed actions relate to soil, sludge, and remediation wastes relating to certain 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. The Company believes that final approval of the RFI/CMS may occur by the first quarter of 2003. The Company estimates that expenses associated with the actions described in the proposed RFI/CMS would range from approximately $16,000,000 to $19,000,000, and will be incurred over a period of approximately 30 years, with approximately $5,000,000 of this amount being incurred over an initial three-year period, and additional expenditures in the approximate amount of $5,000,000 being incurred over the following three-year period. The Company may not be responsible, however, for all of these expenditures as a result of the environmental indemnification provisions included in the purchase agreement with BP, as more fully discussed below. BP has agreed to indemnify, defend, save and hold the Company harmless from and against all losses that are caused by, arising from, incurred in connection with or relate in any way to property damage caused by, or any environmental remediation required due to, a violation of health, safety and environmental laws during the operation of the refinery by BP. In order to have a claim against BP, however, the aggregate of all such losses must exceed $5,000,000, in which event a claim only relates to the amount exceeding $5,000,000. After $5,000,000 is reached, a claim is limited to 50% of the amount by which the losses exceed $5,000,000 until the aggregate of all such losses exceeds $10,000,000. After $10,000,000 is reached, a claim would be for 100% of the amount by which the losses exceed $10,000,000. In applying these provisions, losses amounting to less than $250,000 in the aggregate arising out of the same occurrence or matter are not aggregated with 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 indemnify the Company with respect to such matters for any losses amounting to less than $250,000 in the aggregate arising out of the same occurrence or matter. Except as specified in the Yorktown purchase agreement, in order to seek indemnification from BP, the Company must notify BP of a claim within two years following the closing date. Further, BP's aggregate liability for indemnification under the refinery purchase agreement, including liability for environmental indemnification, is limited to $35,000,000. As of September 30, 2002, the Company had environmental liability accruals of approximately $9,600,000. Approximately $7,500,000 of the accrual is for certain environmental obligations assumed in connection with the Yorktown refinery acquisition. Approximately $1,500,000 of the accrual is for the following previously discussed projects: (i) the remediation of the hydrocarbon plume that appears to extend no more than 1,800 feet south of the Company's inactive Farmington refinery; (ii) environmental obligations assumed in connection with the acquisition of the Bloomfield Refinery; and (iii) hydrocarbon contamination on and adjacent to the 5.5 acres that the Company owns in Bloomfield, New Mexico. The remaining amount of the accrual relates to the closure of certain solid waste management units at the Ciniza Refinery, which is being conducted in accordance with the refinery's Resource Conservation and Recovery Act permit; closure of the Ciniza Refinery land treatment facility, including post-closure expenses; and certain other smaller matters. The environmental accrual is recorded in the current and long-term sections of the Company's Condensed Consolidated Balance Sheets. On June 11, 2001, the Company filed claims against the United States Defense Energy Support Center ("DESC") in connection with jet fuel that the Company sold to DESC from 1983 through 1994. The Company asserted that the DESC underpaid for the jet fuel in the approximate amount of $17,000,000. The Company believes that its claims are supported by recent federal court decisions, including decisions from the United States Court of Federal Claims, dealing with contract provisions similar to those contained in the contracts that are the subject of the Company's claims. On March 12, 2002, the DESC denied the Company's claims. The Company has 12 months to bring an action in the United States Court of Federal Claims relating to the denied claims. The DESC has indicated that it will counterclaim if the Company pursues its claims and will assert, based on its interpretation of the contract provisions, that the Company may owe additional amounts of approximately $4,900,000. The Company is evaluating its options. Due to the preliminary nature of this matter, there can be no assurance that the Company would ultimately prevail should it decide to pursue its claims nor is it possible to predict when any payment would be received if the Company were successful. Accordingly, the Company has not recorded a receivable for this claim. James E. Acridge was terminated as the Company's President and Chief Executive Officer on March 29, 2002, although he remains on the Board of Directors. The Company paid Mr. Acridge the equivalent of his pre- termination base salary until July 26, 2002. In addition, the Company extended the exercise period of Mr. Acridge's stock options until June 29, 2003. On July 22, 2002, Mr. Acridge filed a lawsuit in the Superior Court of Arizona for Maricopa County against current Company officers Messrs. Holliger, Gust, Cox, and Bullerdick, and current Company directors Messrs. Bernitsky, Kalen, and Rapport, and as yet unidentified accountants, auditors, appraisers, attorneys, bankers and professional advisors. This suit will be defended vigorously. Certain of the defendants, including the officers and directors, may be entitled to indemnification from the Company in connection with the defense of, and any liabilities arising out of, this lawsuit. The complaint alleges a breach of Mr. Acridge's employment agreement with the Company, and states that he is invoking his right to arbitrate, separate from the lawsuit, the termination of his employment and the Company's alleged breach of the implied covenant of good faith and fair dealing. The Company intends to defend any such arbitration proceeding vigorously. With respect to the defendants in the complaint, Mr. Acridge alleges that they intentionally and wrongfully interfered with his employment agreement and caused the Company to fire him. The complaint seeks unspecified general damages for pain, suffering and inconvenience, special damages including lost benefits of employment and lost business opportunities, punitive damages, and costs and attorneys' fees. Mr. Acridge personally, and three entities controlled by Mr. Acridge, have commenced Chapter 11 Bankruptcy proceedings. The entities controlled by Mr. Acridge are Pinnacle Rodeo LLC ("Pinnacle Rodeo"), Pinnacle Rawhide LLC ("Pinnacle Rawhide"), and Prime Pinnacle Peak Properties, Inc. ("Prime Pinnacle"). The four bankruptcy cases are jointly administered. It is unknown whether and to what extent creditors, including the Company, will receive any recovery on their respective debts from any of the four bankruptcy estates. As discussed in more detail in Note 6 to the Company's Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2001 (the "10-K Note"), the Company previously loaned Mr. Acridge $5,000,000 (the "Loan"). As noted in the 10-K Note, in the fourth quarter of 2001, the Company established a reserve for the entire amount of the Loan plus interest accrued through December 31, 2001. As security for the Loan, the Company received pledges of membership interests in Pinnacle Rawhide and Pinnacle Rodeo. The Company believes that Pinnacle Rodeo's principal asset is full ownership of Pinnacle Rawhide. The Company believes that Pinnacle Rawhide's principal asset was certain real property in north Scottsdale, Arizona, on which the Rawhide Wild West Town is located, which was subject to secured liens. In the course of the bankruptcy proceeding, the bankruptcy court permitted the principal lienholder on the real property to take back title to the property. Under certain circumstances, the bankruptcy estate(s) may reacquire this property for sale to a third-party, which could result in proceeds becoming available to the bankruptcy estate(s). It is unclear at this time, however, if such reacquisition and subsequent disposition will occur, and if so, if the proceeds would be sufficient to repay any creditors, including the Company. As such, the Company continues to maintain the reserve established as of December 31, 2001 for the Loan. Giant Arizona leases approximately 8,176 square feet of space from a limited liability company (the "Landlord") in which the bankruptcy estate of Prime Pinnacle has a 51% interest. Pursuant to a sublease between Giant Arizona and a separate limited liability company controlled by Mr. Acridge, Giant Arizona subleases the space to such entity for use as an inn. The initial term for each of the lease and the sublease is for five years, terminating on June 30, 2003, with one option to renew for an additional five years, and the annual rent under each currently is $21.76 per square foot. The rent is subject to adjustment annually based on changes in the Consumer Price Index. The sublease also provides that the Company may terminate the sublease at any time upon 120 days prior written notice. In August 2001, the owner of the 49% interest in the lessor notified Giant Arizona that the sublessee was delinquent on the payment of the rent due, and on or about December 28, 2001, such owner filed a derivative lawsuit for and on behalf of the lessor against Giant Arizona to collect all amounts owing under the lease. Subsequently, the matter was referred to arbitration by court order. Pursuant to a letter dated January 16, 2002, the Company made a formal demand on the sublessee for the sublessee to pay all of the past due amounts and, on May 23, 2002, made a separate demand for arbitration of this matter. In September 2002, the Company entered into a settlement agreement with the Landlord, subject to certain action by the bankruptcy court, in which it agreed to pay the Landlord approximately $375,000 for rent and other monetary obligations allegedly due under the lease from May 2001 through October 2002, and agreed to be responsible for future rental payments. This settlement was charged to operations in the third quarter of 2002. The bankruptcy court has not yet taken the necessary action to approve the settlement. Notwithstanding the settlement with the Landlord, the Company's arbitration action against the sublessee is still pending. NOTE 12 - OTHER: In the first quarter of 2002, the Company revised its estimate for accrued management incentive bonuses for the year ended December 31, 2001, following the determination of bonuses to be paid to employees. This resulted in an increase in net earnings for the first quarter of 2002 and a reduction of the net loss for the nine months ended September 30, 2002 of approximately $283,000 or $0.03 per share. NOTE 13 - SUBSEQUENT EVENTS: On October 28, 2002, the Company and its lenders entered into an Amendment to the Credit Facility. The Amendment modifies certain of the financial covenants to reflect in large part, the low refining margin environment that has persisted throughout the industry for most of 2002 and because at September 30, 2002, the Company was out of compliance with the minimum consolidated tangible net worth covenant and total leverage ratio set forth in the Credit Facility. Under the Amendment, the lenders agreed to forbear from exercising their rights and remedies under the Credit Facility until certain conditions were met. Those conditions were satisfied, and the events of default were waived for the quarter ended September 30, 2002. Under the Amendment, the Company is required to provide additional collateral to the lenders in the form of first priority liens on the Bloomfield and Ciniza refineries, including the land, improvements, equipment and fixtures related to the refineries; certain identified New Mexico service station/convenience stores; the stock of the Company's various direct and indirect subsidiaries; and all proceeds and products of this additional collateral. The Company is required to pay all costs of providing this additional collateral, including legal fees, fees for surveys and title reports, and recording and filing fees. The grant of the liens on the additional collateral must occur on or before January 26, 2003, while title reports and surveys respecting the real property portions of the additional collateral are permitted to be delivered after such date. The deadline may be extended for an additional 30 days if the Company has used its best efforts and the requirements are reasonably likely to be met within the extension period. The lenders under the Loan Facility are entitled to participate with the lenders under the Credit Facility in the additional collateral pro rata based on the obligations owed by the Company under the Credit Facility and the Loan Facility. The Amendment also, among other things: (a) increases the interest rate spread under the Credit Facility to 3.75% from 2.75%, (b) increases the available letter of credit commitment from $25,000,000 to $50,000,000, (c) amends the fixed charge coverage ratio, the total leverage ratio, and the minimum consolidated tangible net worth covenant, (d) adds a new covenant respecting minimum quarterly consolidated EBITDA, (e) requires the Company to prepay the outstanding principal amount of the revolver by $15,000,000 from the proceeds of asset sales occurring between October 1, 2002 and June 30, 2003, (f) requires the Company to provide monthly financial statements by region to the lenders, and (g) limits capital expenditures through 2003. The Company paid the lenders a fee of $250,000 for the Amendment. On October 28, 2002, the Company and its lenders also entered into an Amendment to the Loan Facility and the related Parent Guaranty. At September 30, 2002, the Company was out of compliance with the minimum consolidated tangible net worth covenant and the total leverage ratio provisions of the Parent Guaranty. As discussed above, the events of default were waived for the quarter ended September 30, 2002. The Loan Amendment generally tracks the major changes effected by the Amendment to the Credit Facility, except that the additional collateral deadline is December 12, 2002, subject to extension by the lenders, and the title reports and surveys must be delivered not later than January 26, 2003. The Company paid the lenders a fee of approximately $86,000 for the Loan Amendment. With these amendments, the Company expects to remain in compliance with its covenants in the fourth quarter and going forward, and does not believe that any presently contemplated activities will be constrained. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES Inherent in the preparation of the Company's financial statements are the selection and application of certain accounting principles, policies, and procedures that affect the amounts that are reported. In order to apply these principles, policies, and procedures, the Company 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 the Company 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 Company's significant accounting policies are described in Note 1 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. Certain critical accounting policies that materially affect the amounts recorded in the consolidated financial statements are the use of the last in, first-out ("LIFO") method of valuing certain inventories, the accounting for certain environmental remediation liabilities, the accounting for certain related party transactions, and assessing the possible impairment of certain long- lived assets. There have been no changes to these policies in 2002, except as relates to the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets" and SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". See Note 1 to the Company's Condensed Consolidated Financial Statements included in Part I, Item 1 hereof. RESULTS OF OPERATIONS Included below are certain operating results and operating data for the Company and its operating segments.
Three Months Nine Months Ended September 30, Ended September 30, - --------------------------------------------------------------------------------------------------- 2002 2001 2002 2001 - --------------------------------------------------------------------------------------------------- Net revenues $ 386,579 $ 230,315 $ 857,129 $ 737,720 Cost of products sold 333,164 172,670 706,945 561,659 - --------------------------------------------------------------------------------------------------- Gross margin 53,415 57,645 150,184 176,061 Operating expenses 38,366 26,537 95,314 80,897 Depreciation and amortization 9,442 8,138 26,672 23,503 Selling, general and administrative expenses 6,765 7,659 17,852 22,997 Net (gain) loss on disposal/write-down of assets (62) 1,301 856 1,783 - --------------------------------------------------------------------------------------------------- Operating income (loss) (1,096) 14,010 9,490 46,881 Interest expense (10,455) (6,026) (25,985) (18,109) Amortization/write-off of financing costs (954) (183) (2,071) (581) Interest and investment income 74 361 399 1,411 - --------------------------------------------------------------------------------------------------- Earnings (loss) from continuing operations before income taxes (12,431) 8,162 (18,167) 29,602 Provision (benefit) for income taxes (5,132) 3,052 (7,188) 11,482 - --------------------------------------------------------------------------------------------------- Earnings (loss) from continuing operations (7,299) 5,110 (10,979) 18,120 Discontinued operations (Note 5) Earnings (loss) from operations of discontinued retail assets (362) 42 (1,020) (137) Gain on disposal 4,921 - 4,789 - Net loss on asset sales/write-downs (15) - (28) - - --------------------------------------------------------------------------------------------------- 4,544 42 3,741 (137) Provision (benefit) for income taxes 1,817 17 1,496 (55) - --------------------------------------------------------------------------------------------------- Earnings (loss) of discontinued operations 2,727 25 2,245 (82) - --------------------------------------------------------------------------------------------------- Net earnings (loss) $ (4,572) $ 5,135 $ (8,734) $ 18,038 =================================================================================================== Net earnings (loss) per common share: Basic Continuing operations $ (0.85) $ 0.57 $ (1.28) $ 2.02 Discontinued operations $ 0.32 $ - $ 0.26 $ (0.01) - --------------------------------------------------------------------------------------------------- $ (0.53) $ 0.57 $ (1.02) $ 2.01 =================================================================================================== Assuming dilution Continuing operations $ (0.85) $ 0.57 $ (1.28) $ 2.02 Discontinued operations $ 0.32 $ - $ 0.26 $ (0.01) - --------------------------------------------------------------------------------------------------- $ (0.53) $ 0.57 $ (1.02) $ 2.01 ===================================================================================================
Three Months Nine Months Ended September 30, Ended September 30, - --------------------------------------------------------------------------------------------------- 2002 2001 2002 2001 - --------------------------------------------------------------------------------------------------- Net revenues:(1) Refining Group: Four Corners operations $109,794 $ 114,750 $300,164 $ 366,706 Yorktown operations 160,068 - 232,967 - Retail Group 86,315 92,344 236,909 270,243 Phoenix Fuel 91,291 91,742 251,845 314,115 Other 44 57 134 206 Intersegment (60,933) (68,578) (164,890) (213,550) - --------------------------------------------------------------------------------------------------- Net revenues of continuing operations 386,579 230,315 857,129 737,720 Net revenues of discontinued operations 7,726 10,913 24,810 35,878 - --------------------------------------------------------------------------------------------------- Total net revenues $394,305 $ 241,228 $881,939 $ 773,598 =================================================================================================== Income (loss) from operations:(1) Refining Group: Four Corners operations $ 5,824 $ 16,904 $ 23,230 $ 56,555 Yorktown operations (5,994) - (9,084) - Retail Group 1,986 3,079 3,841 5,422 Phoenix Fuel 1,751 1,082 4,791 4,307 Other (4,725) (5,754) (12,432) (17,620) Net gain (loss) on disposal/write-down of assets 62 (1,301) (856) (1,783) - --------------------------------------------------------------------------------------------------- Operating income (loss) from continuing operations (1,096) 14,010 9,490 46,881 Operating income (loss) from discontinued operations 4,544 42 3,741 (137) - --------------------------------------------------------------------------------------------------- Total income (loss) from operations $ 3,448 $ 14,052 $ 13,231 $ 46,744 =================================================================================================== (1) The Refining Group owns and operates the Company's three refineries, its crude oil gathering pipeline system, two finished products distribution terminals, and a fleet of crude oil and finished product truck transports. The Retail Group consists of service stations with convenience stores or kiosks and one travel center. Phoenix Fuel is a wholesale petroleum products distribution operation, which includes several lubricant and bulk petroleum distribution plants, an unmanned fleet fueling ("cardlock") operation, a bulk lubricant terminal facility, and a fleet of finished product and lubricant delivery trucks. The Other category is primarily corporate staff operations.
Three Months Nine Months Ended September 30, Ended September 30, - --------------------------------------------------------------------------------------------------- (In thousands) 2002 2001 2002 2001 - --------------------------------------------------------------------------------------------------- REFINING GROUP OPERATING DATA: Four Corners Operations: Crude Oil/NGL Throughput (BPD) 30,902 35,102 32,600 34,645 Refinery Sourced Sales Barrels (BPD) 32,408 32,830 32,548 33,071 Average Crude Oil Costs ($/Bbl) $ 25.96 $ 25.19 $ 22.63 $ 26.44 Refining Margins ($/Bbl) $ 6.04 $ 9.45 $ 6.59 $ 10.09 Yorktown Operations:(1) Crude Oil/NGL Throughput (BPD) 54,677 - 54,295 - Refinery Sourced Sales Barrels (BPD) 58,803 - 57,365 - Average Crude Oil Costs ($/Bbl) $ 26.57 $ - $ 26.64 $ - Refining Margins ($/Bbl) $ 1.71 $ - $ 1.70 $ - RETAIL GROUP OPERATING DATA: (Continuing operations only) Fuel Gallons Sold (000's) 47,058 49,241 136,197 144,033 Fuel Margins ($/gal) $ 0.143 $ 0.177 $ 0.144 $ 0.166 Merchandise Sales ($ in 000's) $ 35,854 $ 35,967 $101,411 $100,810 Merchandise Margins 28.0% 28.0% 28.0% 29.2% Number of Units at End of Period 140 147 140 147 PHOENIX FUEL OPERATING DATA: Fuel Gallons Sold (000's) 94,703 91,794 277,698 300,943 Fuel Margins ($/gal) $ 0.054 $ 0.054 $ 0.053 $ 0.052 Lubricant Sales ($ in 000's) $ 5,234 $ 6,217 $ 15,623 $ 16,692 Lubricant Margins 15.8% 15.8% 16.6% 17.5% (1)Since acquisition on May 14, 2002.
Certain factors affecting the Company's operations for the three and nine months ended September 30, 2002, include, among other things, the following: - The acquisition of the Yorktown refinery on May 14, 2002. Since the acquisition, the Yorktown refinery has experienced three significant unscheduled unit shutdowns, the last of which occurred on July 23, 2002. These shutdowns impacted the yield of high value products, as well as crude oil charge rates. - Weaker refining margins at the Company's refineries due to, among other things, continuing high inventories of distillates resulting from a drop in jet fuel demand following the September 11, 2001 terrorists attack and warmer than normal winter temperatures in the Northeast; worldwide crude oil production levels and Middle East tensions, which added to higher crude values; and imported finished products that placed downward pressure on gasoline values. - Due to the significantly greater volume of products produced and sold by the Yorktown refinery, as compared to its other operations, the Company has a much larger exposure to volatile refinery margins which could positively or negatively affect the Company's profitability. - Continuing decline in Four Corners crude oil supplies. - Competitive conditions in the Company's Phoenix and Tucson retail markets due to increased price competition. - The sale of six retail units during the third quarter, and the sale of two others and the closure of two more in the second quarter. The units sold resulted in a gain on disposal of approximately $4,921,000 for the three months ended September 30, 2002 and $4,789,000 for the nine months ended September 30, 2002. The gains on disposal are reported as a part of discontinued operations. Earnings (Loss) From Continuing Operations Before Income Taxes - -------------------------------------------------------------- For the three months ended September 30, 2002, the Company incurred a loss from continuing operations before income taxes of $12,431,000, compared to earnings from continuing operations before income taxes of $8,162,000 for the three months ended September 30, 2001. The decrease includes the following items related to the operation and acquisition of the Yorktown refinery: (i) an operating loss of $5,994,000; (ii) an increase in the amortization of financing costs of $771,000, and (iii) additional interest expense of $4,429,000. The remainder of the decrease, relating to the Company's other operations, was primarily due to a 36% decline in Four Corners refinery margins. Also contributing to the decrease was a 4% decrease in retail fuel volumes sold, along with a 19% decrease in retail fuel margins. Four Corner refinery fuel volumes sold declined 1%. These decreases were offset in part by reduced operating expenses and lower selling, general, and administrative ("SG&A") expenses for other Company operations, and a 9% increase in wholesale fuel volumes sold by Phoenix Fuel to third-party customers with relatively constant margins. In addition, in the third quarter of 2001, the Company recorded a loss of $1,301,000 on the write-off/write-down of certain Refinery Group and Retail Group assets. For the nine months ended September 30, 2002, the Company incurred a loss from continuing operations before income taxes of $18,167,000, compared to earnings from continuing operations before income taxes of $29,602,000 for the nine months ended September 30, 2001. The decrease includes the following items related to the operation and acquisition of the Yorktown refinery: (i) an operating loss of $9,084,000; (ii) an increase in the amortization of financing costs of $1,490,000, and (iii) additional interest expense of $7,876,000. In addition, an impairment loss of $1,100,000 was recorded, in the second quarter for certain retail service stations. The remainder of the decrease, relating to the Company's other operations, was primarily due to a 35% decline in Four Corners refinery margins. Also contributing to the decrease was a 2% decline in Four Corner refinery fuel volumes sold; a 5% decrease in retail fuel volumes sold, along with a 13% decrease in retail fuel margins; a 4% decline in retail merchandise margins; and a 3% decrease in wholesale fuel volumes sold by Phoenix Fuel to third-party customers with relatively constant margins. These decreases were offset in part by reduced operating expenses and lower SG&A expenses for other Company operations. In addition, in the first nine months of 2001, the Company recorded a loss of $1,783,000 on the write-off/write-down of Refinery Group and Retail Group assets. Continuing the trend of the first six months of the year, refining margins in the third quarter were well below prior year's levels. The negative trend in 2002 refining margins appears to have moderated, however, so far in the fourth quarter. An industry-wide increase in demand, coupled with reduced production, has been a major factor in the recent improvement in distillate margins. Nationwide, gasoline demand has continued at strong levels and reduced gasoline inventories, which recently reached a new one- year low, may contribute to a continuation of the recent improvement in gasoline margins. In addition, the Company's crude oil costs recently have dropped as the OPEC producing members have increased crude oil production by an estimated 2,700,000 barrels per day. The Company cannot, however, provide assurance that these trends will continue for the remainder of the quarter or beyond. For the three and nine months ended September 30, 2001, higher than normal refining margins had a significant impact on earnings from continuing operations before income taxes. Revenues From Continuing Operations - ----------------------------------- Revenues for the three months ended September 30, 2002, increased approximately $156,264,000 or 68% to $386,579,000 from $230,315,000 in the comparable 2001 period. The increase includes additional revenues for the Yorktown refinery of $160,068,000. Revenue decreases relating to the Company's other operations were primarily due to a 3% decline in Four Corner refining weighted average selling prices, along with a 1% decline in Four Corner refinery fuel volumes sold; a 1% decline in Phoenix Fuel's weighted average selling prices; and a 4% decrease in retail refined product selling prices, along with a 4% decline in retail fuel volumes sold. These decreases were offset in part by a 9% increase in wholesale fuel volumes sold by Phoenix Fuel to third-party customers. Overall retail merchandise sales were down slightly, while same store merchandise sales were up approximately 3%. The volumes of refined products sold through the Company's retail units decreased approximately 4% from period to period. The volume declines were primarily related to the sale or closure of 18 retail units since the end of second quarter of 2001 and reduced volumes from stores in the Company's Phoenix market area due to increased price competition. The volume of finished product sold from retail units that were in operation for a full year increased approximately 3% in spite of reduced volumes from stores in the Company's Phoenix market. Volumes sold from the Company's travel center decreased approximately 4%. Revenues for the nine months ended September 30, 2002, increased approximately $119,409,000 or 16% to $857,129,000 from $737,720,000 in the comparable 2001 period. The increase includes additional revenues for the Yorktown refinery of $232,967,000. Revenue decreases relating to the Company's other operations were primarily due to an 18% decline in Four Corner refining weighted average selling prices, along with a 2% decline in Four Corner refinery fuel volumes sold; an 8% decrease in Phoenix Fuel's weighted average selling prices, along with an 3% decline in wholesale fuel volumes sold by Phoenix Fuel to third-party customers; and a 12% decrease in retail refined product selling prices, along with a 5% decline in retail fuel volumes sold. Overall retail merchandise sales were up slightly, while same store merchandise sales were up approximately 5%. The volumes of refined products sold through the Company's retail units decreased approximately 5% from period to period. The volume declines were primarily related to the sale or closure of 29 retail units since the end of 2000 and reduced volumes from stores in the Company's Phoenix market area due to increased price competition. The volume of finished product sold from retail units that were in operation for a full year was up slightly, in spite of reduced volumes from stores in the Company's Phoenix market area. Volumes sold from the Company's travel center increased approximately 4%. Cost of Products Sold From Continuing Operations - ------------------------------------------------ For the three months ended September 30, 2002, cost of products sold increased approximately $160,494,000 or 93% to $333,164,000 from $172,670,000 in the comparable 2001 period. The increase includes additional cost of products sold for the Yorktown refinery of $150,587,000. Cost of products sold increases relating to the Company's other operations were primarily due to a 9% increase in wholesale fuel volumes sold by Phoenix Fuel to third-party customers and slightly higher Four Corners refining weighted average crude oil costs. Cost of products sold also includes a loss of approximately $3,769,000 from crude oil futures contracts used to economically hedge crude oil inventories and crude oil purchases for the Yorktown refinery. These decreases were offset in part by a 1% decline in the cost of finished products purchased by Phoenix Fuel and a 1% decrease in refinery sourced finished product sales volumes. For the nine months ended September 30, 2002, cost of products sold increased approximately $145,286,000 or 26% to $706,945,000 from $561,659,000 in the comparable 2001 period. The increase includes additional cost of products sold for the Yorktown refinery of $219,026,000. Cost of products sold decreases relating to the Company's other operations were primarily due to a 10% decline in the cost of finished products purchased by Phoenix Fuel, along with an 3% decrease in wholesale fuel volumes sold by Phoenix Fuel to third-party customers, and a 14% decline in Four Corners refining weighted average crude oil costs, along with a 2% decrease in refinery sourced finished product sales volumes. Cost of products sold also includes a loss of approximately $1,799,000 from crude oil futures contracts used to economically hedge crude oil inventories and crude oil purchases for the Yorktown refinery. Operating Expenses From Continuing Operations - --------------------------------------------- For the three months ended September 30, 2002, operating expenses increased approximately $11,829,000 or 45% to $38,366,000 from $26,537,000 in the comparable 2001 period. For the nine months ended September 30, 2002, operating expenses increased approximately $14,417,000 or 18% to $95,314,000 from $80,897,000 in the comparable 2001 period. The increase in both periods includes operating expenses relating to the Yorktown refinery of $13,316,000 and $19,714,000 for the three and nine months ended September 30, 2002, respectively. Operating expense decreases relating to the Company's other operations in each period were due to, among other things, lower lease expense due to the repurchase of 59 retail units from FFCA Capital Holding Corporation ("FFCA") in July 2001 that had been sold to FFCA as part of a sale-leaseback transaction between the Company and FFCA in December 1998; reduced expenses for payroll and related costs, and other operating expenses, for retail operations, due in part to the sale or closure of 18 retail units since the end of the second quarter of 2001 and 29 since the end of 2000, as well as the implementation of certain cost reduction programs; and lower repair and maintenance and utility expenditures for refinery operations. These decreases were offset in part in each period by higher general insurance premiums and purchased fuel costs for the Four Corners refineries. Depreciation and Amortization From Continuing Operations - -------------------------------------------------------- For the three months ended September 30, 2002, depreciation and amortization increased approximately $1,304,000 or 16% to $9,442,000 from $8,138,000 in the comparable 2001 period. For the nine months ended September 30, 2002, depreciation and amortization increased approximately $3,169,000 or 13% to $26,672,000 from $23,503,000 in the comparable 2001 period. The increase in both periods includes depreciation and amortization relating to the Yorktown refinery of $1,646,000 and $2,726,000 for the three and nine months ended September 30, 2002, respectively. Depreciation and amortization increases relating to the Company's other operations in each period were primarily related to additional depreciation expense related to the repurchase of 59 retail units from FFCA in July 2001; construction, remodeling and upgrades in retail and refining operations during 2001 and 2002; and for the nine month period higher refinery amortization costs in 2002 due to a 2001 revision in the estimated amortization period for certain refinery turnaround costs incurred in 1998. These increases were offset in part by reductions in depreciation expense due to the sale or closure of 18 retail units since the end of the first quarter of 2001 and 29 since the end of 2000, and the non-amortization of goodwill in 2002 due to the adoption of SFAS No. 142. Selling, General and Administrative Expenses From Continuing Operations - ----------------------------------------------------------------------- For the three months ended September 30, 2002, SG&A expenses decreased approximately $894,000 or 12% to $6,765,000 from $7,659,000 in the comparable 2001 period. For the nine months ended September 30, 2002, SG&A expenses decreased approximately $5,145,000 or 22% to $17,852,000 from $22,997,000 in the comparable 2001 period. The decrease in both periods includes SG&A relating to the Yorktown refinery of $251,000 and $323,000 for the three and nine months ended September 30, 2002, respectively. SG&A expense decreases relating to the Company's other operations in each period were primarily due to lower expense accruals for management incentive bonuses in 2002, lower workers compensation costs, and expenses incurred in 2001 related to certain related party transactions. For the nine-month period the decrease also is due to the revision of estimated accruals for 2001 management incentive bonuses, following the determination of bonuses to be paid to employees. These decreases were offset in part by expenses recorded for the settlement of certain claims, assessments, and legal matters, including the matter set forth in Note 11 to the Company's Condensed Consolidated Financial Statements included in Part I, Item 1 hereof. Interest Expense and Interest Income From Continuing Operations - --------------------------------------------------------------- For the three months ended September 30, 2002, interest expense increased approximately $4,429,000 or 73% to $10,455,000 from $6,026,000 in the comparable 2001 period. For the nine months ended September 30, 2002, interest expense increased approximately $7,876,000 or 43% to $25,985,000 from $18,109,000 in the comparable 2001 period. For the three and nine months ended September 30, 2002, approximately $6,889,000 and $10,469,000, respectively, of the increase is due to the issuance of new senior subordinated notes and borrowings under the Company's new loan facilities entered into in connection with the acquisition of the Yorktown refinery as more fully described in Notes 10 and 13 to the Company's Condensed Consolidated Financial Statements included in Part I, Item 1 hereof. In addition, for the nine month period, because of the timing of the Yorktown refinery acquisition and the 11% Notes financing, the Company was unable to provide the 45 day notice required by the Indenture supporting the Company's 9 3/4% Notes for refinancing the notes prior to the issuance of the 11% Notes. As a result, the Company paid interest on the 9 3/4% Notes for 45 days after the financing, which amounted to approximately $1,230,000. For the three and nine month periods, these increases were offset in part by a decrease in interest expense of approximately $2,438,000 and $3,722,000, respectively, relating to the repayment of the Company's $100,000,000 of 9 3/4% Senior Subordinated Notes due 2003 with a portion of the proceeds of the Company's issuance of $200,000,000 of 11% Notes. For the three months ended September 30, 2002, interest income decreased approximately $287,000 or 80% to $74,000 from $361,000 in the comparable 2001 period. For the nine months ended September 30, 2002, interest income decreased approximately $1,012,000 or 72% to $399,000 from $1,411,000 in the comparable 2001 period. The decrease in each period was primarily due to a reduction in interest and investment income from the investment of funds in short-term instruments. This reduction in interest and investment income was due in part to a reduction in the amount of funds available for investment because of the repurchase of 59 retail units from FFCA in July 2001, and funds used to acquire the Yorktown refinery. In addition, no interest was accrued in 2002 relating to a note from a related party. Amortization/Write-Off of Financing Costs From Continuing Operations - -------------------------------------------------------------------- In connection with the acquisition of the Yorktown refinery and the refinancing of the 9 3/4% Notes, the Company incurred approximately $16,402,000 of deferred financing costs relating to new senior subordinated debt and new senior secured loan facilities. These costs are being amortized over the term of the related debt. The increase in the amortization/write-off of financing costs for the three and nine months ended September 30, 2002 was $771,000 and $1,490,000, respectively. The increase for the nine month period includes the write-off of approximately $364,000 in deferred financing costs related to the Company's 9 3/4% Notes that were repaid with a portion of the proceeds of the Company's issuance of $200,000,000 of 11% Notes. Income Taxes From Continuing Operations - --------------------------------------- The effective tax benefit rate for the three and nine months ended September 30, 2002 was approximately 41% and 40%, respectively. The Company believes that the tax benefit created in 2002 will be fully realizable. The effective tax rate for the three and nine months ended September 30, 2001 was approximately 37% and 39%, respectively. The difference in the rates is primarily due to the relationship of permanent tax differences and certain tax credits, to estimated annual income used in each period to estimate income taxes. Discontinued Operations - ----------------------- In the third quarter of 2002, the Company sold six retail units and reclassified 10 others as assets held for sale. Two other retail units were sold in the second quarter of 2002. The remaining assets and results of operations of these 18 retail units are included in discontinued operations in the Company's Condensed Consolidated Financial Statements included in Part I, Item 1 hereof. Earnings from discontinued operations before income taxes of $4,544,000 for the three months ended September 30, 2002 include a gain on the disposal of six retail units sold of $4,921,000, which is net of $243,000 of goodwill write-offs; and a SFAS No. 144 impairment write- down of $117,000, including $7,000 of goodwill write-offs, on one of the retail units held for sale. Earnings from discontinued operations before income taxes of $3,741,000 for the nine months ended September 30, 2002 include a gain on the disposal of eight retail units sold of $4,789,000, which is net of $243,000 of goodwill write-offs; and SFAS No. 144 impairment write-downs of $289,000, including $7,000 of goodwill write- offs, on three of the retail units held for sale. See Note 5 to the Company's Condensed Consolidated Financial Statements included in Part I, Item 1 hereof for a further discussion of discontinued operations. LIQUIDITY AND CAPITAL RESOURCES Cash Flow From Operations - ------------------------- Operating cash flows decreased for the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, primarily as a result of a decrease in net earnings before depreciation and amortization, amortization/write-off of financing costs, deferred income taxes, and net (gain) loss on disposal/write-down of assets in 2002, offset in part by an increase in cash flows related to changes in operating assets and liabilities in each period. Net cash provided by operating activities totaled $26,684,000 for the nine months ended September 30, 2002, compared to net cash provided by operating activities of $50,665,000 in the comparable 2001 period. Working Capital - --------------- Working capital at September 30, 2002 consisted of current assets of $190,637,000 and current liabilities of $96,708,000, or a current ratio of 1.97:1. At December 31, 2001, the current ratio was 1.72:1 with current assets of $135,674,000 and current liabilities of $78,837,000. Current assets have increased since December 31, 2001, primarily due to increases in accounts receivable, inventories, and current deferred taxes. These increases were offset in part by a decrease in cash and cash equivalents and prepaids and other. Accounts receivable have increased primarily due to trade receivables recorded in connection with sales by the Yorktown refinery and an increase in other trade receivables resulting from increased sales volumes and higher finished product selling prices. Inventories have increased primarily due to inventories on hand related to the Yorktown refinery. For other Company operations, inventories have increased due to increases in crude oil and refined product prices and exchange inventory volumes. These increases were offset in part by decreases in pipeline and refinery onsite crude oil volumes, and decreases in refinery onsite, terminal, Phoenix Fuel and retail refined product volumes. Prepaids and other have decreased primarily due to the expensing of prepaid insurance premiums. The increase in current deferred taxes relates to the Yorktown refinery acquisition. Current liabilities have increased since December 31, 2001, due to an increase in accounts payable and accrued expenses. Accounts payable have increased due to accounts payable recorded in connection with the operations of the Yorktown refinery and for other Company operations primarily as a result of higher raw material and finished product costs, offset in part by a reduction in other trade payables. Accrued expenses have increased primarily because of the operations of the Yorktown refinery, and for other Company operations have decreased as a result of the payment and reversal of 2001 accrued bonuses, the payment of 2001 401(k) Company matching and discretionary contributions, the payment of certain accrued interest balances, and lower excise tax accruals. These decreases were offset in part by higher accrued interest balances related in part to the additional debt incurred in connection with the Yorktown refinery acquisition and accruals for 2002 401(k) Company matching and discretionary contributions. Capital Expenditures and Resources - ---------------------------------- Net cash used in investing activities for the purchase of property, plant and equipment totaled approximately $9,783,000 for the nine months ended September 30, 2002. Expenditures were primarily for turnaround expenditures for the Ciniza and Bloomfield refineries, financial accounting software upgrades, operational and environmental projects for the refineries, and retail operation upgrades. As described in Note 13 to the Company's Condensed Consolidated Financial Statements included in Part I, item 1 hereof, the amendments to the Credit Facility and the Loan Facility limit the Company's capital expenditures on a quarterly basis through the fourth quarter of 2003. Capital expenditures are limited to $6,000,000 in the fourth quarter of 2002. The limitations permit all capital expenditures currently anticipated for 2003. Prior approval from the Company's lenders would be required to exceed the agreed upon levels and the Company cannot provide assurance that it could obtain such approval. See the discussion below in "Capital Structure" for further information relating to the Company's debt covenants. The Company expects that maintenance capital expenditures will be approximately $5,500,000 and $3,300,000 annually over each of the next three years for the Four Corners refining operations and the Retail Group/Phoenix Fuel operations, respectively, exclusive of any growth projects, acquisitions, and acquisition related capital expenditures. The Company expects that maintenance capital expenditures for the Yorktown refinery will be approximately $7,800,000 annually over each of the next three years, exclusive of any growth projects, acquisitions, and acquisition related capital expenditures. On May 14, 2002, the Company acquired the 61,900 bpd Yorktown refinery from BP Corporation North America Inc. and BP Products North America Inc. for $127,500,000 plus $65,182,000 for inventories, the assumption of certain liabilities, and a conditional earn-out, the maximum amount of which cannot exceed $25,000,000. The Company also incurred transaction costs of approximately $2,000,000 in connection with the acquisition. See Note 4 to the Company's Condensed Consolidated Financial Statements in Part I, Item 1 hereof, for a more detailed discussion of this transaction. Approximately $16,402,000 of financing fees were paid to various financial institutions in connection with financing arrangements for the Company's acquisition of the Yorktown refinery and refinancing of the 3/4% Notes. Following the acquisition of the Yorktown refinery, the Company developed a debt reduction strategy with the goal of reducing indebtedness by $50,000,000 prior to year-end 2002. The goal is to be accomplished by managing inventory to a lower level, reducing non-essential capital expenditures and selling non-core and/or under-performing assets. Cost cutting measures also have been implemented that should contribute to this debt reduction strategy. In the third quarter, the Company reduced working capital inventory levels in excess of $15,000,000 and received proceeds from the sale of assets of approximately $11,000,000. In the third quarter the Company reduced the outstanding balance of the Loan Facility by approximately $3,333,000 and reduced the outstanding balance of its Revolving Credit facility by $25,000,000. Prior to the end of the second quarter, the Company had reduced the outstanding balance of the Loan Facility by $1,111,000. The Company can give no assurances that it can reach its goal of reducing indebtedness by $50,000,000 prior to year-end 2002. The achievement of this goal would require the closing of certain transactions described in more detail in the following paragraphs. On July 31, 2002, the Company entered into a letter of intent for the potential sale of its 26 remaining retail units in the Phoenix and Tucson marketing areas. Two of the retail units were removed from this transaction and are classified as held for sale. The Company in the process of negotiating a purchase agreement for the remaining 24, which would be contingent upon the potential buyer obtaining lender financing on satisfactory terms. Due to the uncertainty of the potential buyer obtaining financing, the Company cannot determine with reasonable certainty that this transaction will close, or if the units will be sold to other parties within the next 12 months, and is exploring other options, including continuing to operate the units. In the second quarter of 2002, the Company recorded an impairment loss of $1,272,000 related to certain of the 26 units, based on the probability of the sale occurring and an estimate of fair value as compared to the carrying value of each unit in accordance with SFAS No. 144. As of September 30, 2002, the remaining 24 retail units were being operated and were classified as held and used in accordance with SFAS No. 144. On August 12, 2002, the Company entered into purchase and sale agreements with a buyer for the sale of nine retail units in the Phoenix marketing area. Six of these units were sold to the buyer in the third quarter for $10,850,000 and their results of operations are included in earnings (loss) from discontinued operations. Two of the units were removed from this transaction. One of these two units is being sold to another buyer and is expected to close in the fourth quarter, and the other unit is being marketed for sale. The third unit may be subject to a right to purchase at appraised value in favor of a related party. See Note 6 to the Company's Condensed Consolidated Financial Statements included in Item 1, Part 1 hereof. The Company expects that the sale of this unit will close in the fourth quarter of 2002. As of September 30, 2002, the three unsold units were classified as held for sale. In addition, the Company is in the process of reviewing proposals for the possible sale and potential leaseback of its corporate headquarters building. This process is in a preliminary stage, and as such, the Company does not know if, or when, this transaction will close. The Company also is evaluating the possible sale of other non- strategic or under-performing assets in addition to the assets described above. The Company currently intends to use the proceeds from these potential sales, and savings or proceeds generated from other parts of the Company's debt reduction initiative, to reduce long-term debt. As previously mentioned, the amendments to the Credit Facility and Loan Facility require the Company to reduce the outstanding principal balance of the Credit Facility by $15,000,000 from the proceeds of asset sales occurring between October 1, 2002 and June 30, 2003. The Company anticipates that working capital, including that necessary for capital expenditures and debt service, will be funded through existing cash balances, cash generated from operating activities, and, if necessary, future borrowings. Future liquidity, both short and long-term, will continue to be primarily dependent on producing or purchasing, and selling, sufficient quantities of refined products at margins sufficient to cover fixed and variable expenses. The Company believes that it will have sufficient working capital to meet its needs over the next 12-month period. Giant purchases crude oil and other feedstocks from a number of suppliers to operate its Four Corners and Yorktown refineries. The Company acquires the feedstocks for its Yorktown refinery from a number of domestic and international suppliers. Giant has not historically participated in this market, and as such, has not had a credit relationship with these suppliers. Due to the weak economy and the poor profitability experienced by refiners and marketers, including Giant, throughout 2002, several suppliers to the Yorktown refinery have required the Company to provide letters of credit for either a portion or the full amount of the purchase. As of November 1, 2002, the Company had approximately $30,408,000 of letters of credit outstanding. The Company recently increased the availability of letters of credit under its Credit Facility from $25,000,000 to $50,000,000. The inability of the Company to post satisfactory letters of credit could constrain the Company's ability to purchase feedstocks on the most beneficial terms. The Company's cash flow from operations depends primarily on producing and selling quantities of refined products at refinery margins sufficient to cover fixed and variable expenses. In recent years, crude oil costs and prices of refined products have fluctuated substantially. These costs and prices depend on numerous factors beyond the Company's control, including, among other things: - the demand for crude oil, gasoline and other refined products; - changes in the economy; - changes in the level of foreign and domestic production of crude oil and refined products; - worldwide political conditions; - availability of crude oil and refined product imports; - the marketing of alternative and competing fuels; - the extent of government regulations; and - local factors, including market conditions, pipeline capacity, and the level of operations of other refineries in the Company's markets. The Company's crude oil requirements are supplied from sources that include major oil companies, large independent producers, and smaller local producers. In general, crude oil supply contracts are relatively short-term contracts with market-responsive pricing provisions. An increase in crude oil prices would adversely affect the Company's operating margins if the Company cannot pass along the increased cost of raw materials to customers. The Company's sale prices for refined products are influenced by the commodity price of crude oil. Generally, an increase or decrease in the price of crude oil results in a corresponding increase or decrease in the price of gasoline and other refined products. The timing of the relative movement of the prices, however, as well as the overall change in product prices, could reduce profit margins and could have a significant impact on the Company's refining and marketing operations, earnings, and cash flows. In addition, the Company maintains inventories of crude oil, intermediate products, and refined products, the values of which are subject to rapid fluctuation in market prices. The Company purchases its refinery feedstocks prior to selling the refined products manufactured from them. Price level changes during the period between purchasing feedstocks and selling the manufactured refined products could have a significant effect on the Company's operating results. Any long-term adverse relationships between costs and prices could impact the Company's ability to generate sufficient operating cash flows to meet its working capital needs. Furthermore, because of the significantly greater volume of products produced and sold by the Yorktown refinery, as compared to its other operations, the Company has a much larger exposure to volatile refining margins than it had in the past. Moreover, the industry is highly competitive. Many of the Company's competitors are large, integrated oil companies which, because of their more diverse operations, larger refineries, stronger capitalization and better brand name recognition, may be better able than the Company is to withstand volatile industry conditions, including shortages or excesses of crude oil or refined products or intense price competition at the wholesale and retail levels. Because some of the Company's competitors' refineries are larger and more efficient than the Company's refineries, these refineries may have lower per barrel crude oil refinery processing costs. In addition, the Company's ability to borrow funds under its current Credit Facility could be adversely impacted by low product prices that could reduce the borrowing base tied to eligible accounts receivable and inventories. The Company's debt instruments also contain certain restrictive covenants that could limit the Company's ability to borrow funds if certain thresholds are not maintained. At present, the Company can only borrow additional amounts under its Credit Facility as a result of the limitation on additional indebtedness contained in the indentures supporting the Company's notes. See the discussion below in "Capital Structure" for further information relating to these loan covenants. The Company presently has senior subordinated ratings of "B3" from Moody's Investor Services and "B" from Standard & Poor's. Capital Structure - ----------------- At September 30, 2002 and December 31, 2001, the Company's long-term debt was 76.2% and 65.3% of total capital, respectively, and the Company's net debt (long-term debt less cash and cash equivalents) to total capitalization percentages were 75.8% and 62.8%, respectively. The increase in each percentage is primarily related to the increased debt incurred in connection with the acquisition of the Yorktown refinery. At September 30, 2002 the Company had long-term debt of $409,994,000, net of current portion of $11,589,000. See Notes 10 and 13 to the Company's Condensed Consolidated Financial Statements included in Part I, Item 1 hereof for a description of these obligations. As described in more detail in Notes 10 and 13 to the Company's Condensed Consolidated Financial Statements included in Part I, Item 1 hereof, the indentures supporting the Company's notes and the Company's Credit Facility and Loan Facility contain certain restrictive covenants, and other terms and conditions that if not maintained, if violated, or if certain conditions are met, could result in default, early redemption of the notes, and affect the Company's 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, the Company's other debt to become immediately due and payable. If the Company is unable to repay such amounts, the lenders under the Company's 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, the Company cannot provide assurance that its assets would be sufficient to pay that debt and other debt or that it would be able to refinance such debt or borrow more money on terms acceptable to it, if at all. The Company's 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 the Company's control, and the Company cannot provide assurance that its operating results will be sufficient to comply with the covenants, terms and conditions. The Company's high degree of leverage and these covenants may, among other things: - limit the Company's ability to use cash flow, or obtain additional financing, for future working capital, capital expenditures, acquisitions or other general corporate purposes; - require a substantial portion of cash flow from operations to make debt service payments; - limit the Company's flexibility to plan for, or react to, changes in business and industry conditions; - place the Company at a competitive disadvantage compared to less leveraged competitors; and - increase the Company's vulnerability to the impact of adverse economic and industry conditions and, to the extent of the Company's outstanding debt under senior credit facilities, the impact of increases in interest rates. If the Company is not able to generate sufficient cash flow from operations or to borrow sufficient funds to service its debt, or meet its working capital and capital expenditure requirements, due to borrowing base restrictions, increased letter of credit requirements, or otherwise, it may be required to sell assets, reduce capital expenditures, refinance all or a portion of its existing debt, or obtain additional financing. The Company cannot provide assurance that it will be able to refinance its debt, sell assets or borrow more money on terms acceptable to it, if at all. In addition, the acquisition of the Yorktown refinery could constrain the Company's ability to borrow funds, make payments, or engage in other contemplated activities under the terms of the indentures supporting its notes, the Credit Facility, or the Loan Facility, particularly in the first three years of operations. As described in more detail in Note 13 to the Company's Condensed Consolidated Financial Statements included in Item I, Part 1 hereof, the Company had loan covenant issues in the quarter ending September 30, 2002. The amendments to the Credit Facility and the Loan Facility addressed these issues. The Company expects to be in compliance with the amended covenants in the fourth quarter and going forward, and does not believe that any presently contemplated activities will be constrained. A prolonged period of low refining margins, however, would have a negative impact on the Company's ability to borrow funds and to make expenditures for certain purposes and would have an impact on compliance with the Company's loan covenants. Included in the tables below are a list of the Company's obligations and commitments to make future payments under contracts and under commercial commitments as of September 30, 2002.
PAYMENTS DUE ------------------------------------------------------------------------------------------ ALL REMAINING CONTRACTUAL OBLIGATIONS TOTAL 2002 2003 2004 2005 2006 YEARS - --------------------------------------------------------------------------------------------------------------------- Long-Term Debt* $420,613,000 $ 3,344,000 $10,252,000 $11,128,000 $45,889,000 $ - $350,000,000 Capital Lease Obligations 6,703,000 - - - - - 6,703,000 Operating Leases 17,126,000 1,229,000 3,700,000 2,855,000 1,982,000 1,351,000 6,009,000 - --------------------------------------------------------------------------------------------------------------------- Total Contractual Cash Obligations $444,442,000 $ 4,573,000 $13,952,000 $13,983,000 $47,871,000 $1,351,000 $362,712,000 ===================================================================================================================== *Excluding original issue discount.
AMOUNT OF COMMITMENT EXPIRATION ------------------------------------------------------------------------------------------ OTHER ALL REMAINING COMMERCIAL OBLIGATIONS TOTAL 2002 2003 2004 2005 2006 YEARS - --------------------------------------------------------------------------------------------------------------------- Line of Credit* $100,000,000 $ - $ - $ - $100,000,000 $ - $ - Standby Letters of Credit 14,808,000 908,000 13,900,000 - - - - *Standby letters of credit reduce the availability of funds for direct borrowings under the line of credit. At September 30, 2002 there was $35,000,000 of direct borrowings under the line of credit.
The Company is also committed under a long-term purchase contract that expires in August 2005 to purchase a minimum of 3,500 barrels per day of natural gasoline at market price plus an additional amount per gallon. The Board suspended the payment of cash dividends on common stock in the fourth quarter of 1998. At the present time, the Company has no plans to reinstate such dividends. The payment of future dividends is subject to the results of the Company's operations, declaration by the Company's Board, and compliance with certain debt covenants. Risk Management - --------------- The Company is exposed to various market risks, including changes in certain commodity prices and interest rates. To manage the volatility relating to these normal business exposures, the Company, from time to time, uses commodity futures and options contracts to reduce price volatility, to fix margins in its refining and marketing operations and to protect against price declines associated with its crude oil and finished products inventories. In the second and third quarters of 2002, the Company entered into various crude oil futures contracts in order to economically hedge crude oil inventories and crude oil purchases for the Yorktown refinery operations. For the three and nine months ended September 30, 2002, the Company recognized losses on these contracts of approximately $3,769,000 and $1,799,000, respectively, 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. At September 30, 2002, the Company had no open crude oil futures contracts or other commodity derivatives. The Company's Credit Facility is floating-rate debt tied to various short-term indices. As a result, the Company's annual interest costs associated with this debt may fluctuate. At September 30, 2002, there was $35,000,000 of direct borrowings outstanding under this facility. The potential increase in annual interest expense from a hypothetical 10% adverse change in interest rates on these borrowings at September 30, 2002, would be approximately $60,100. The Company's Loan Facility is floating-rate debt tied to various short-term indices. As a result, the Company's annual interest costs associated with this debt may fluctuate. At September 30, 2002, there was $35,556,000 of direct borrowings outstanding under this facility. The potential increase in annual interest expense from a hypothetical 10% adverse change in interest rates on these borrowings at September 30, 2002, would be approximately $61,000. The Company's operations are subject to normal hazards of operations, including fire, explosion and weather-related perils. The Company maintains various insurance coverages, including business interruption insurance, subject to certain deductibles. The Company is not fully insured against certain risks because such risks are not fully insurable, coverage is unavailable or premium costs, in the judgment of the Company, do not justify such expenditures. Credit risk with respect to customer receivables is concentrated in the geographic areas in which the Company operates and relates primarily to customers in the oil and gas industry. To minimize this risk, the Company performs ongoing credit evaluations of its customers' financial position and requires collateral, such as letters of credit, in certain circumstances. ENVIRONMENTAL, HEALTH AND SAFETY - ------------------------------- Federal, state and local laws and regulations relating to health, safety and the environment affect nearly all of the operations of the Company. As is the case with other companies engaged in similar industries, the Company faces significant exposure from actual or potential claims and lawsuits, 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 the Company or by its predecessors. Claims and lawsuits brought by governmental authorities may seek penalties and fines for alleged violations of environmental, health, and safety laws and regulations. Applicable laws and regulations govern the investigation and remediation of contamination at the Company's current and former properties, as well as at third-party sites to which the Company sent wastes for disposal. The Company 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. The Company 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. The Company is 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 property claims and lawsuits cannot be reasonably quantified in many circumstances for various reasons. These reasons include the speculative nature of remediation and cleanup cost estimates and methods, imprecise and conflicting data regarding the hazardous nature of various types of substances, the number of other potentially responsible parties involved, various defenses that may be available to the Company and changing environmental, health and safety laws, regulations, and their respective interpretations. The Company 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 the Company's business, financial condition or results of operation. Rules and regulations implementing federal, state and local laws relating to health, safety, and the environment will continue to affect the operations of the Company. The Company cannot predict what 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 of the Company. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of regulatory agencies, could have an adverse effect on the financial position and the results of operations of the Company and could require substantial expenditures by the Company for, among other things: (i) the installation and operation of refinery equipment, pollution control systems and other equipment not currently possessed by the Company; (ii) the acquisition or modification of permits applicable to Company activities; and (iii) the initiation or modification of cleanup activities. Developments have occurred in connection with the following environmental, health or safety matters that were previously discussed in either the Company's Annual Report on Form 10-K for the year ended December 31, 2001, or the Company's Quarterly Report on Form 10-Q for the first and second quarters of 2002, under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations." The federal Environmental Protection Agency ("EPA") has issued a rule that requires refiners, including the Yorktown refinery, to begin producing gasoline the satisfies low-sulfur, or "Tier 2," gasoline standards in 2004 and to begin producing diesel fuel that satisfies ultra low sulfur diesel ("ULSD") standards by mid-2006. All refiners and importers of Tier 2 gasoline and ULSD are required to be in full compliance with these new standards by 2008 and 2010, respectively. The Company anticipates that it will spend approximately $27,000,000 to purchase and install the equipment necessary to produce Tier 2 gasoline at its Yorktown refinery, and projects that it will incur half of these expenditures in 2003 and half in 2004. The Company anticipates that it will spend approximately $15,000,000 to purchase and install the equipment necessary to produce ULSD by 2006 at the Yorktown refinery, and projects that it will incur half of these expenditures in 2005 and half in 2006. In May 2002, the Company applied to the EPA for a postponement of the date when it must begin making Tier 2 gasoline at the Yorktown refinery. There can be no assurance, however, that the Company will be successful in obtaining such temporary relief. The implementation schedule for achieving the Tier 2 and ULSD requirements at the Yorktown refinery are tight. The Company believes that BP identified a reasonable plan for achieving these requirements, but made little actual progress in implementing this plan. In lieu of beginning installation of the necessary equipment in 2004, the Company is exploring possible operational changes that could postpone necessary equipment installations until mid-2005. These operational changes could include using sulfur reduction catalysts, changing the crude oil diet of the refinery, purchasing sulfur allotments or credits, selling high-sulfur components of the refinery to other refiners, or a combination of the foregoing. Each of these options could result in reduced refining earnings. Although the Company still believes it will be possible to complete the Tier 2 and ULSD projects at the Yorktown refinery in a timely manner, this cannot be assured. Any failure to complete either of these projects by the applicable deadlines could result in a reduction of the quantity of gasoline and diesel fuel available for sale, and an increase of the quantity of components available for sale that are not subject to the requirements, such as heating oil, which would likely reduce refining earnings. With respect to the Ciniza and Bloomfield refineries, as a result of certain extensions permitted by the Tier 2 gasoline standards, including an extension based on anticipated production levels of ULSD, the Company believes that it will qualify for an extension until 2007 of the date when the annual average sulfur content of its gasoline must begin to be reduced, with full compliance required in 2008. The Company anticipates that it will spend approximately $3,500,000 to make the necessary changes to the Four Corners refineries, primarily in 2004 and 2005, to comply with the Tier 2 gasoline rule, and approximately $15,000,000, primarily in 2005 and 2006, to comply with the ULSD rule. There are a number of factors that could affect the Company's cost of compliance with the Tier 2 and ULSD standards. These regulations affect the entire industry, therefore, contract engineering and construction companies will be busy and may charge a premium for their services. Moreover, detailed engineering for the Yorktown refinery is not yet completed, and this refinery may have some unusual circumstances that could be costly to correct. Also, the relatively short time left to comply might result in increased costs at the Yorktown refinery to expedite ordering for otherwise long delivery items or added overtime by contractors to meet the implementation schedule. The Company received a draft compliance order from the New Mexico Environment Department ("NMED") in June 2002 in connection with five alleged violations of air quality regulations at the Ciniza refinery. In August 2002, the Company received a compliance order from NMED in connection with four alleged violations of air quality regulations at the Bloomfield refinery. The Company expects to provide information to NMED with respect to both of those matters that may result in the modification or dismissal of some of the alleged violations and reductions in the amount of potential penalties. A further discussion of these alleged violations is found in Note 11 to the Company's Condensed Consolidated Financial Statements included in Part I, Item 1 hereof. The Company assumed certain obligations, including certain environmental obligations, in connection with the acquisition of the Yorktown refinery. For a discussion of the current status of these matters see Note 11 to the Company's Condensed Consolidated Financial Statements included in Part I, Item 1, hereof. On October 21, 2002, the Company received a notice from the EPA assessing a penalty of $110,000 in connection with a hydrocarbon flaring incident at the Yorktown refinery. Since the Company did not own the Yorktown refinery at the time that the flaring incident occurred, the Company believes that it will be entitled to indemnification from BP for the entire amount of the penalty. A further discussion of this penalty is found in Note 11 to the Company's Condensed Consolidated Financial Statements included in Part I, Item 1 hereof. As of September 30, 2002, the Company had environmental liability accruals of approximately $9,600,000. A further discussion of this accrual is found in Note 11 to the Company's Condensed Consolidated Financial Statements included in Part I, Item 1 hereof. OTHER - ----- The Company's Ciniza and Bloomfield refineries primarily process a mixture of high gravity, low sulfur crude oil, condensate, and natural gas liquids. The locally produced, high quality crude oil known as Four Corners Sweet is the primary feedstock of these refineries. These 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 accordingly is subject to natural decline in production over time. In the past, this natural decline has been offset to some extent by new drilling, field workovers, and secondary recovery projects, which resulted in additional production from existing reserves. Many of these projects were cut back, however, when crude oil prices declined dramatically in 1998. Although crude oil prices have recovered from 1998 levels, a lower than anticipated allocation of capital to Four Corners basin production activities has resulted in greater than anticipated net declines in production. As a result of the declining production of crude oil in the Four Corners area since 1997, the Company has not been able to cost-effectively obtain sufficient amounts of crude oil to operate the Company's Four Corners refineries at full capacity. The Company's utilization rates declined from 92% in 1997 to 73% in 2001, and remains at approximately 73% for the first nine months of 2002. The Company's current projections of Four Corners crude oil production indicate that the Company's crude oil demand will exceed the crude oil supply that is available from local sources for the foreseeable future. The Company expects to operate the Ciniza and Bloomfield refineries at lower levels than would otherwise be scheduled as a result of shortfalls in Four Corners crude oil production. Because a large portion of the Company's refinery costs are fixed, a decrease in utilization could significantly affect the Company's profitability. The Company continues to evaluate supplemental feedstock alternatives for its Four Corners refineries on both a short-term and long-term basis. The Company has not, however, identified any significant, cost effective crude oil feedstock alternatives to date. Whether or not supplemental feedstocks are used at the refineries depends on a number of factors. These factors include, among other things, the availability of supplemental feedstocks, the cost involved, the quantities required, the quality of the feedstocks, the demand for finished products, and the selling prices of finished products. In addition, the Company is assessing other long-term options to address the continuing decline in Four Corners crude oil production. The options being considered include: (a) encouraging, and occasionally sponsoring, exploration and production activities in the Four Corners area; and (b) examining other potentially economic raw material sources, such as crude oil produced outside the Four Corners area. None of these options, however, may prove to be economically viable. The Company cannot provide assurance that the Four Corners crude oil supply for the Ciniza and Bloomfield refineries will continue to be available at all or on acceptable terms. Any significant, long-term interruption or decline in the supply of crude oil or other feedstocks for the Company's Four Corners refineries, either by reduced production or significant long-term interruption of transportation systems, would have an adverse effect on our Four Corners refinery operations and on the Company's overall operations. The Company is aware of a number of actions, proposals or industry discussions regarding product pipeline projects that could impact portions of its marketing areas. One of these projects is the potential conversion and extension of the existing Texas-New Mexico crude oil pipeline to transport refined products from West Texas to New Mexico, including Albuquerque, New Mexico and potentially Bloomfield, New Mexico. Another potential project would take product on to Salt Lake City, Utah. Previously, these two projects were referred to as the Aspen Pipeline. In addition, various actions have been undertaken to increase the supply of refined products to El Paso, Texas, which is connected by the Chevron pipeline to the Albuquerque, New Mexico area to the north and by the Kinder-Morgan pipeline to the Phoenix and Tucson, Arizona markets to the west. The completion of some or all of these projects, including the Longhorn Pipeline that runs from Houston, Texas to El Paso, could result in increased competition by increasing the amount of refined products potentially available in these markets, as well as improving competitor access to these areas. The Company's refining activities are conducted at its two refinery locations in New Mexico and the Yorktown refinery in Virginia. These refineries constitute a significant portion of the Company's operating assets, and the two New Mexico refineries supply a significant portion of the Company's retail operations. As a result, the Company's operations would be subject to significant interruption 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, the Company's business, financial condition and operating results could be materially and adversely affected. In addition, the Company's operations are subject to normal hazards of operations, including fire, explosion and weather-related perils. The Company maintains various insurance coverages, including business interruption insurance, subject to certain deductibles and consistent with standard practices for comparable companies. The Company is not, however, fully insured against certain risks because such risks are not fully insurable, coverage is unavailable or premium costs, in the Company's judgment, do not justify the expenditures. Any such event that causes a loss for which the Company is not fully insured could have a material and adverse effect on the Company's business, financial condition and operating results. In June 2002, the Company's Board of Directors (the "Board") approved the election of Larry L. DeRoin to the Board. In addition to serving on the Board, Mr. DeRoin also serves as a member of the Audit Committee, the Compensation Committee and the Nominating Committee and is Chairman of the Stock Incentive Plan Committee. Since September 2000, Mr. DeRoin has been the President of DeRoin Management, Inc., which provides consulting services to Northern Border Pipeline Co. and Northern Border Partners, L.P. From 1993 to September 2000, Mr. DeRoin was Chairman and Chief Executive Officer of Northern Border Partners, L.P., Chairman of the Management Committee for Northern Border Pipeline Co., and President of Northern Plains Natural Gas Co. In August 2002, the Board approved the election of Brooks J. Klimley to the Board. In addition to serving on the Board, Mr. Klimley also serves as a member of the Audit Committee and the Compensation Committee. Since September 2002, Mr. Klimley has been the Co-Head of the Global Diversified Industrial Group for Salomon Smith Barney, Inc. From 2001 to September 2002, Mr. Klimley was the Managing Director, Multisector Industrial Group for Salomon Smith Barney, Inc., where he was responsible for global client management of large capitalization industrial companies. From 1998 to 2001, Mr. Klimley was Senior Managing Director and Co-Head Natural Resources Group for Bear, Stearns & Co., Inc., where he led origination and execution teams covering a broad range of natural resources companies. From 1995 to 1998, Mr. Klimley was Managing Director and Global Head of Energy and Natural Resources Group for UBS Securities LLC. From 1984-1994, Mr. Klimley was Managing Director and Co-Head of the Natural Resources Group for Kidder, Peabody & Co. Incorporated. From 1981 to 1984, Mr. Klimley worked in the Energy & Minerals Group of Chemical Bank. James E. Acridge was terminated as the Company's President and Chief Executive Officer on March 29, 2002, although he remains on the Board of Directors. For a further discussion of matters relating to Mr. Acridge, see Notes 6 and 11 to the Company's Condensed Consolidated Financial Statements included in Part I, Item 1 hereof. FORWARD-LOOKING STATEMENTS - -------------------------- This report includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. 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 statements. These statements also relate to the Company's business strategy, goals and expectations concerning the Company's market position, future operations, acquisitions, dispositions, margins, profitability, liquidity and capital resources. The Company has 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 the Company believes 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 the Company has made these forward-looking statements in good faith and they reflect the Company's 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 Four Corners sweet crude oil and the adequacy and costs of raw material supplies generally; - the Company's ability to negotiate new crude oil supply contracts; - the Company's ability to successfully integrate the Yorktown refinery and manage the liabilities, including environmental liabilities that the Company assumed in the Yorktown acquisition; - the Company's ability to obtain anticipated levels of indemnification from BP in connection with the Yorktown refinery acquisition; - competitive pressures from existing competitors and new entrants, including the potential efforts 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, and the risk that the weak refining margins experienced by the Company during the quarter ended September 30, 2002 could continue at least through the end of the year; - the Company's ability to reduce operating expenses and non- essential capital expenditures; - the risk that the Company will not be able to sell non-strategic and under-performing assets on terms favorable to the Company; - the risk that the Company will not receive the expected amounts from the potential sale of certain retail units, the headquarters building and other assets; - the risk that an acceptable purchase agreement cannot be negotiated for the sale of certain retail units in the Company's Phoenix and Tucson marketing areas and that the potential buyer cannot obtain lender financing on acceptable terms. - state or federal 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 the Company's operations; - unplanned or extended shutdowns in refinery operations; - the risk that the Company will not remain in compliance with covenants, and other terms and conditions, contained in its notes, Credit Facility and Loan Facility; - the risk that the Company will not be able to post satisfactory letters of credit; - general economic factors affecting the Company's operations, markets, products, services and prices; - unexpected environmental remediation costs; - weather conditions affecting the Company's operations or the areas in which its products are refined or marketed; and - other risk described elsewhere in this report or described from time to time in the Company's filings with the Securities and Exchange Commission. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entity by the previous statements. Forward-looking statements the Company makes represent its judgment on the dates such statements are made. The Company assumes 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 the Company becomes aware of, after the date of this report. 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 hereof. ITEM 4. CONTROLS AND PROCEDURES As of a date within 90 days of the date of this report (the "Evaluation Date"), under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as defined in Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based upon this evaluation the Company's CEO and CFO concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures were adequate to ensure that information required to be disclosed by the Company in the reports filed or submitted by the Company under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. In addition, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and internal weaknesses. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is a party to ordinary routine litigation incidental to its business. There is also hereby incorporated by reference the information regarding certain related party transactions in Note 6 and commitments and contingencies in Note 11 to the Condensed Consolidated Financial Statements set forth in Part I, Item 1 hereof; and the discussion of certain contingencies contained in Part I, Item 2, hereof, under the headings "Environmental, Health and Safety" and "Other." ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.1* First Amendment, dated October 28, 2002, to Second Amended and Restated Credit Agreement, dated May 14, 2002, among Giant Industries, Inc., Bank of America, N.A., as Administrative Agent and as Letter of Credit Issuing Bank and the Lenders parties thereto. 10.2* Amendment to Loan Agreement and Omnibus Amendment, dated as of May 22, 2002, among Giant Yorktown, Inc., Giant Industries, Inc., Giant Industries Arizona, Inc., Wells Fargo Bank Nevada, National Association, as collateral agent, and the Lenders listed on the signature pages thereto. 10.3* Second Amendment to Loan Agreement and Omnibus Amendment, dated as of October 28, 2002, among Giant Yorktown, Inc., Giant Industries, Inc., Giant Industries Arizona, Inc., Wells Fargo Bank Nevada, National Association, as collateral agent, and the Lenders listed on the signature pages thereto. 99.1* Chief Executive Officer's Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2* Chief Financial Officer's Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *Filed herewith. (b) Reports on Form 8-K: The Company filed the following reports on Form 8-K during the quarter for which this report is being filed: (i) Form 8-K dated and filed August 6, 2002 - filed as an exhibit a press release dated August 6, 2002 providing an update on the Company's Yorktown refinery acquisition, announcing a debt reduction initiative and second quarter 2002 operating results. (ii) Form 8-K dated and filed July 15, 2002 - the Company, in connection with a registration statement filed July 15, 2002 on Form S-4, reported that it amended its audited financial statements and related items as originally reported in its 2001 Annual Report on Form 10-K for the year ended December 31, 2001 to reflect the following: - Transitional pro forma disclosures under Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," adopted January 1, 2002. - Information regarding the subsidiary guarantors of Giant Industries, Inc.'s $200,000,000 of senior subordinated notes. 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 September 30, 2002 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: November 13, 2002 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER I, Fred Holliger, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Giant Industries, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures 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 quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002. By: /S/ FRED HOLLIGER - ------------------------------ Name: Fred Holliger Title: Chief Executive Officer CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER 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 quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures 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 quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002. By: /s/ MARK B. COX - ------------------------------ Name: Mark B. Cox Title: Chief Financial Officer EX-10 3 exhibit10-1.txt EXHIBIT 10.1 EXHIBIT 10.1 FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT This FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this "First Amendment") is entered into effective as of October 28, 2002 (the "Amendment Effective Date"), among GIANT INDUSTRIES, INC., a Delaware corporation (the "Company"), the financial institutions from time to time parties to the Credit Agreement (collectively, the "Lenders"), and BANK OF AMERICA, N.A. as administrative agent (the "Administrative Agent") for the Lenders and as a Lender and as Letter of Credit Issuing Bank. Capitalized terms which are used herein without definition and which are defined in the Credit Agreement referred to below shall have the meanings ascribed to them in the Credit Agreement. WHEREAS, the Company, the Administrative Agent and the Lenders are parties to that certain Second Amended and Restated Credit Agreement dated as of May 14, 2002 (the "Credit Agreement"); and WHEREAS, the Company desires to (i) modify certain financial covenants of the Credit Agreement, (ii) dispose of certain assets pursuant to its business plan, and (iii) modify other provisions of the Credit Agreement. In order to permit such modifications and dispositions, the Company has requested certain amendments to the Credit Agreement as herein set forth, and subject to the terms hereof the Administrative Agent and the Lenders are willing to agree to the Company's requested amendments; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. Amendments to the Credit Agreement Regarding Letters of Credit. Subject to satisfaction of the conditions precedent set forth in Section 5(a) of this First Amendment: (a) Amendment to Section 1.01 (Certain Defined Terms). Section 1.01 of the Credit Agreement is amended by amending the definition of L/C Commitment by substituting "$50,000,000" for "$25,000,000." (b) Amendment to Section 3.01 (Letter of Credit Facility). The Credit Agreement is amended by amending Section 3.01 thereof by deleting the words "360 days" in subsection (b)(iii)(A) thereof and substituting "365 days" therefor. SECTION 2. Other Amendments to the Credit Agreement. Subject to satisfaction of the conditions precedent set forth in Section 5(b) of this First Amendment: (a) Amendment to Section 1.01 (Certain Defined Terms). Section 1.01 of the Credit Agreement is amended by amending the definition of Applicable Margin in its entirety as follows. "Applicable Margin" means with respect to Base Rate Loans and Offshore Rate Loans, respectively, (a) from the Execution Date through and including September 30, 2002, the specified percent per annum therefor set forth in Schedule 2.02A corresponding to the applicable pricing level determined in accordance therewith; and (b) at all times on and after October 1, 2002, the specified percent per annum therefor set forth in Schedule 2.02B corresponding to the applicable pricing level determined in accordance therewith." (b) Amendment to Section 1.01 (Certain Defined Terms). Section 1.01 of the Credit Agreement is amended by amending the definition of Consolidated Funded Indebtedness in its entirety as follows. "Consolidated Funded Indebtedness" means, for the Company and its Consolidated Subsidiaries, at any time, without duplication, the sum of: (a) all Indebtedness (other than undrawn or unfunded amounts under outstanding Surety Instruments and Indebtedness of the type described in clause (h)(ii) of the definition of Indebtedness), (b) obligations to redeem or purchase any stock or other equity security of the Company or a Subsidiary, and (c) any guaranty obligations in respect of any of the foregoing." (c) Amendment to Section 1.01 (Certain Defined Terms). Section 1.01 of the Credit Agreement is amended by amending the definition of Fixed Charge Coverage Ratio in its entirety as follows: "Fixed Charge Coverage Ratio" means: (x) as of any date of determination from the Execution Date through September 30, 2002, and as of any date of determination after January 1, 2004, the ratio of (A) the sum, without duplication, of (i) Consolidated EBITDA for the period of four fiscal quarters ending on such date, plus (ii) Consolidated Rents for such period, plus (iii) to the extent excluded in the calculation of Consolidated EBITDA, Margin Payments made by the Company under the Yorktown Asset Purchase Agreement during such period, minus (iv) Capital Expenditures during such period (excluding Margin Payments treated as Capital Expenditures), minus (v) all taxes measured by income and paid in cash during such period, to (B) the sum, without duplication, of (i) Consolidated Interest Expense during such period, plus (ii) Consolidated Rents during such period, plus (iii) scheduled amortization of the Company's and its Subsidiaries' Indebtedness during such period, plus (iv) Margin Payments made by the Company under the Yorktown Asset Purchase Agreement during such period; and (y) as of any date of determination from October 1, 2002 through December 31, 2003, the ratio of (A) the sum, without duplication, of (i) Consolidated EBITDA for the period of four fiscal quarters ending on such date, plus (ii) Consolidated Rents for such period, to (B) the sum, without duplication, of (i) Consolidated Interest Expense during such period, plus (ii) Consolidated Rents during such period, plus (iii) scheduled amortization of the Company's and its Subsidiaries' Indebtedness during such period, plus (iv) all taxes measured by income and paid in cash during such period. With respect to Indebtedness incurred in connection with the Yorktown Acquisition (including Loans hereunder), Consolidated Interest Expense shall be calculated on a pro forma basis for the four fiscal quarters most recently ended as if such Indebtedness had been incurred on the first day of such period." (d) Amendment to Section 1.01 (Certain Defined Terms). Section 1.01 of the Credit Agreement is amended by adding the following definitions in the appropriate order. "Additional Collateral" has the meaning assigned to it in Section 2.14(c) hereof. "Additional Collateral Closing" has the meaning assigned to it in Section 2.14(c) hereof. "Additional Collateral Closing Deadline" has the meaning assigned to it in Section 2.14(c) hereof. "Additional Collateral Documents" has the meaning assigned to it in Section 2.14(c) hereof. "Additional Due Diligence Materials" has the meaning assigned to it in Section 2.14(c) hereof. "Disposition" means the sale, transfer, license or other disposition (including any sale and leaseback transaction) of any property (including stock, partnership and other equity interests) by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith. "Insurance Subsidiary" has the meaning assigned to in Section 8.04(e) hereof. "Net Cash Proceeds" means, with respect to any Disposition, cash (including any cash received by way of deferred payment pursuant to a promissory note or otherwise, as and when received) received by the Company or any of its Subsidiaries in connection with and as consideration therefor, on or after the date of consummation of such transaction, after (i) deduction of Taxes payable in connection with or as a result of such transaction, and (ii) payment of all usual and customary brokerage commissions and all other reasonable fees and expenses related to such transaction (including, without limitation, reasonable attorneys' fees and closing costs incurred in connection with such transaction); provided, however, in the case of Taxes that are deductible under clause (i) above, but which Taxes have not actually been paid or are not yet payable, the Company or any of its Subsidiaries selling such assets may deduct from the cash proceeds an amount (the 'Reserved Amount') equal to the amount reserved in accordance with GAAP as a reasonable estimate for such Taxes so long as, at the time such Taxes are actually paid, the amount, if any, by which the Reserved Amount exceeds the Taxes actually paid shall constitute additional Net Cash Proceeds of such Disposition." "Scheduled Assets" means the assets listed on Schedule 8.02 hereto, which the Company has represented are not subject to any Liens other than Liens in favor of the Lenders. (e) Amendment to Section 2.07 (Borrowing Base Determinations; Deposit Account Triggering Event; Mandatory Prepayments of Loans). The Credit Agreement is amended by amending Section 2.07 thereof by adding new subsection (e) thereof as follows: "(e) The Company shall, without notice or demand, prepay the outstanding principal amount of the Revolving Loans by an amount equal to the Net Cash Proceeds received from any Disposition of Scheduled Assets within 5 Business Days after receipt of such Net Cash Proceeds, and the provisions of Section 4.04 shall be applicable; provided, that the amount required to be prepaid hereunder shall not exceed $15,000,000 in the aggregate if Net Cash Proceeds from Dispositions of Scheduled Assets exceed such amount; and provided further, that such Mandatory Prepayments shall not reduce the Commitments." (f) Amendment to Section 2.14 (Security and Guaranty). The Credit Agreement is amended by adding the following new subsection (c) to Section 2.14: "(c) As additional security for payment of the Obligations, the Company and its Subsidiaries shall grant first priority, perfected Liens in favor of the Administrative Agent or an independent collateral agent or trustee acceptable to the Administrative Agent, as secured party and/or mortgagee, as applicable, for the benefit of the Lenders and the holders of the Yorktown Term Loan on the following property and assets (the "Additional Collateral"): (i) the Bloomfield Refinery including land, improvements and all equipment and fixtures, (ii) the Ciniza Refinery including land, improvements and all equipment and fixtures, (iii) the service stations and convenience stores of the Company and its Subsidiaries located in the State of New Mexico listed on Schedule 2.14(c)(iii), (iv) all capital stock, membership interests and other equity interests owned by the Company or any Subsidiary in all domestic Subsidiaries, and (v) all proceeds and products thereof. The Additional Collateral shall constitute part of the Collateral for all purposes of this Agreement. The Company and its Subsidiaries shall (x) execute and deliver or cause to be executed and delivered to the Administrative Agent, and record or cause to be recorded in all applicable recording offices, such mortgages, security agreements, related collateral assignments and financing statements, and such other documents, amendments, consents and instruments (the "Additional Collateral Documents") as the Administrative Agent shall request, all such Additional Collateral Documents to be in form and substance satisfactory to the Administrative Agent, (y) deliver or cause to be delivered, at the Company's sole expense, to the Administrative Agent such UCC lien searches, title searches/title reports ("Title Searches/Title Reports"), boundary surveys ("Boundary Surveys"), and opinions of counsel with respect to the Additional Collateral as the Administrative Agent may request, in form and substance satisfactory to the Administrative Agent and the Majority Lenders, and (z) take all other actions necessary or desirable in the opinion of the Administrative Agent to create valid and enforceable, first priority, perfected Liens on the Additional Collateral. The Additional Collateral Documents shall constitute Collateral Documents for all purposes of this Agreement. The Administrative Agent reserves the right to require at any time that the Company furnish, at the Company's sole expense, such environmental assessments and title insurance policies (with such endorsements and coverage as the Administrative Agent shall request), and additional surveys and other due diligence materials (collectively, the "Additional Due Diligence Materials"), each in form and substance satisfactory to the Administrative Agent, with respect to any or all of the Additional Collateral as the Administrative Agent may determine in its sole discretion; provided, that it shall not be a condition to the Additional Collateral Closing that the Company furnish any Additional Due Diligence Materials prior to the Additional Collateral Closing Date. The Company shall promptly pay, or reimburse the Lenders for payment of, all reasonable costs and expenses incurred in connection with consummation of the transaction contemplated by this subsection (c), including without limitation recording and filing fees, stamp and recording taxes, title insurance premiums, and Attorney Costs of the Administrative Agent. The holders of the Yorktown Term Loan shall be permitted to share in or otherwise take Liens on the Additional Collateral (but not Liens on any other Collateral), provided that the Agent for the holders of the Yorktown Term Loan and the Administrative Agent shall have entered into an intercreditor agreement providing, inter alia, that (1) all proceeds of Additional Collateral (but not any other Collateral) shall be shared pari passu and pro rata among the Lenders and the holders of the Yorktown Term Loan in proportion determined, in each case, after giving effect to the application of the proceeds of all other collateral held by or for the benefit of the Lenders or the holders of the Yorktown Term Loan, as follows: (aa) as to the Lenders as a group, by dividing the total outstanding Obligations (as the same may be increased as hereinafter provided and including, for sake of clarity, contingent reimbursement obligations under issued but undrawn Letters of Credit) of all Lenders by the sum of the total outstanding Obligations (as the same may be increased as hereinafter provided and including, for sake of clarity, contingent reimbursement obligations under issued but undrawn Letters of Credit) of all Lenders plus the entire outstanding amount of the Yorktown Term Loan (such principal amount thereof not to exceed the unpaid principal amount thereof on the Amendment Effective Date), as of any date of determination, and (bb) as to the holders of the Yorktown Term Loan as a group, by dividing the entire outstanding amount of the Yorktown Term Loan (such principal amount thereof not to exceed the unpaid principal amount thereof on the Amendment Effective Date) by the sum of the total outstanding Obligations (as the same may increased as hereinafter provided and including, for sake of clarity, contingent reimbursement obligations under issued but undrawn Letters of Credit) of all Lenders plus the entire outstanding amount of the Yorktown Term Loan (such principal amount thereof not to exceed the unpaid principal amount thereof on the Amendment Effective Date), as of any date of determination, regardless of the time or order of creation or perfection of such Liens, and (2) for so long as the intercreditor agreement is in effect, the Lenders shall not (aa) increase the total Commitments under this Agreement by more than $25,000,000 more than the total Commitments in effect on the Amendment Effective Date (nothing herein shall constitute a commitment by any Lender to increase its Commitment), and (yy) increase the advance rates with respect to Eligible Refinery Hydrocarbon Inventory, Eligible Lubricants Inventory, or Eligible Accounts Receivable from the levels in effect on the Amendment Effective Date or amend the Borrowing Base to include any components other than Eligible Refinery Hydrocarbon Inventory, Eligible Lubricants Inventory, or Eligible Accounts Receivable. The intercreditor agreement shall contain such other terms and provisions requested by the Administrative Agent and be in form and substance satisfactory to the Administrative Agent and the Majority Lenders. The Company shall, and shall cause its Subsidiaries to, use its and their best efforts to consummate all transactions contemplated by this subsection (c) including, without limitation, execution and delivery by the holders of the Yorktown Term Loan of an intercreditor agreement in form and substance satisfactory to the Administrative Agent and the Majority Lenders, in a closing (the "Additional Collateral Closing") as promptly as practicable after the Amendment Effective Date; provided, that (i) the Additional Collateral Closing shall occur not later than the date (such date, including any extension thereof as hereinafter provided, the "Additional Collateral Closing Deadline") which is 45 calendar days after the Amendment Effective Date and (ii) the Company shall deliver, or cause to be delivered, the Title Searches/Title Reports and the Boundary Surveys to the Administrative Agent, in form and substance satisfactory to the Administrative Agent, and shall execute and deliver or cause to be executed and delivered to the Administrative Agent, and record or cause to be recorded in all applicable recording offices, such amendments or supplements to the Additional Collateral Documents and such other documents, consents, instruments and opinions as may be required or requested by the Administrative Agent as a result of the information set forth in the Title Searches/Title Reports and the Boundary Surveys not later than the date (such date, including any extension thereof as hereinafter provided, the "Title Report/Boundary Survey Delivery Deadline") which is 90 calendar days after the Amendment Effective Date. The Administrative Agent may, in its sole discretion, grant one extension of the Additional Collateral Closing Deadline and the Title Report/Boundary Survey Delivery Deadline of not more than thirty (30) calendar days if the Administrative Agent is satisfied that the Company and its Subsidiaries have previously used their best efforts to consummate the Additional Collateral Closing and meet the requirements of clause (ii) above within such 45 or 90 calendar days, respectively, as the case may be, and that the Additional Collateral Closing is reasonably likely to be consummated, and the requirements of clause (ii) above are reasonably likely to be met, within such extensions." (g) Amendment to Section 6.17 (Insurance). The Credit Agreement is amended by amending Section 6.17 thereof in its entirety as follows. "6.17 Insurance. (a) The properties and business of the Company and its Subsidiaries are insured under insurance policies (the "Policies") with insurance companies ("Insurer" or "Insurers"), in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Company or such Subsidiary operates. (b) Either (i) the Insurers are financially sound and reputable insurance companies that are not Affiliates of the Company, or (ii) the Insurer is a Subsidiary of the Company ("Subsidiary Insurer"), the Subsidiary Insurer has all governmental approvals necessary to operate its business and to comply with this Section 6.17 and Section 7.06(a), the Subsidiary Insurer has in place agreement(s) with financially sound and reputable insurance companies that are not Affiliates of the Company ("Unaffiliated Insurers") providing insurance coverage with such deductibles and covering such risks as required by clause (a) of this Section 6.17, and such agreements provide to the Administrative Agent and the Lenders substantially the same rights as the Administrative Agent and the Lenders would have if the Policies were issued directly by the Unaffiliated Insurers, including without limitation (w) the right to receive notice of cancellation from the Unaffiliated Insurers, (x) clauses or endorsements stating that the interest of and the rights of the Administrative Agent and the Lenders vis-...-vis the Unaffiliated Insurers shall not be impaired or invalidated by any act or neglect of, or any bankruptcy, insolvency, dissolution or other event with respect to, the Company, the Subsidiary Insurer, or any other Subsidiary of the Company, and (z) the right to enforce insurance coverage directly against the Unaffiliated Insurer. The Company has delivered to the Administrative Agent evidence of compliance with the foregoing requirements." (h) Amendment to Section 7.01 (Financial Statements). The Credit Agreement is amended by amending Section 7.01 thereof by changing the period at the end of existing subsection (b) thereof to a colon, adding the word "and" at the end of existing subsection (b), and adding the following as new subsection (c) thereto: "(c) As soon as available, but not later than 30 days after the end of each month during the term hereof, financial information concerning the Company and its Subsidiaries as of the end of such month, by business line and by region, in form and substance satisfactory to the Administrative Agent and the Majority Lenders." (i) Amendment to Section 7.03 (Notices). The Credit Agreement is amended by amending Section 7.03 thereof by changing the period at the end of existing subsection (i) thereof to a colon, adding the word "and" at the end of existing subsection (i), and adding the following as new subsection (j) thereto: "(j) of the Disposition of any Scheduled Assets and the Net Cash Proceeds received therefrom." (j) Amendment to Section 7.06 (Insurance). The Credit Agreement is amended by amending subsection (a) of Section 7.06 in its entirety as follows: "(a) The Company shall maintain insurance with respect to its properties and business in accordance with the requirements set forth in Section 6.17. Upon request by the Administrative Agent, the Company shall deliver to the Administrative Agent a copy of all Policies and all agreements between any Subsidiary Insurer and any Unaffiliated Insurer(s) (as such terms are defined in Section 6.17), together with such evidence as the Administrative Agent may require demonstrating that the Policies and agreements with Unaffiliated Insurers satisfy the requirements of Section 6.17 and this Section 7.06." (k) Amendment to Section 7.12 (New Subsidiary Guarantors; New Subsidiary Security Agreements). The Credit Agreement is amended by amending subsection (c) of Section 7.12 in its entirety as follows: "(c) Notwithstanding subsections (a) and (b) of this Section 7.12, as long as (i) Navajo Convenient Stores Co., LLC has total assets with a book value of less than $5,000,000 and has not guaranteed any Indebtedness, Navajo Convenient Stores Co., LLC shall not be required to execute a Supplemental Guaranty or a Security Agreement; (ii) Giant Yorktown Holding Company has no assets and has not guaranteed any Indebtedness other than the Subordinated Notes, Giant Yorktown Holding Company shall not be required to execute a Supplemental Guaranty or a Security Agreement; (iii) Giant Southwest Refining has no assets and has not guaranteed any Indebtedness, Giant Southwest Refining Company shall not be required to execute a Supplemental Guaranty or a Security Agreement; and (iv) Insurance Subsidiary has total assets with a book value of less than $250,000 and has not guaranteed any Indebtedness, Insurance Subsidiary shall not be required to execute a Supplemental Guaranty or a Security Agreement." (l) Amendment to Section 7.12 (New Subsidiary Guarantors; New Subsidiary Security Agreements). The Credit Agreement is amended by amending Section 7.12 to add new subsection (d) as follows: "(d) Promptly after formation or acquisition of any new Subsidiary, the Company shall, and shall cause each Subsidiary owning shares, membership interests or other equity interests in such Subsidiary to, (i)execute and deliver to the Administrative Agent a Security Agreement in form and substance satisfactory to the Administrative Agent, creating Liens in all such shares, membership interests or other equity interests in such Subsidiary in favor of the Administrative Agent, the Lenders and the other Swap Providers, together with any certificates evidencing such shares of stock, membership interests or other equity interests, stock powers executed in blank, and such financing statements and other documents and instruments related thereto as the Administrative Agent or the Majority Lender may require, (ii) take all other actions necessary or, in the opinion of the Administrative Agent or the Majority Lenders, desirable to perfect and protect the first priority Liens created by the Collateral Documents, and to enhance the Administrative Agent's ability to preserve and protect its interests in and access to the Collateral; and (iii) furnish the Administrative Agent with a written opinion of counsel in form and substance satisfactory to the Administrative Agent or the Majority Lenders." (m) Amendment (Dispositions Generating Net Cash Proceeds). The Credit Agreement is amended by adding new Section 7.16 thereto as follows: "7.16 Dispositions Generating Net Cash Proceeds. The Company has presented its business plan to the Lenders whereby the Company proposes to Dispose of, for cash, the Scheduled Assets in one or more transactions for not less than an amount that is equal to their fair market value, including Dispositions which are anticipated to generate not less than $15,000,000 in Net Cash Proceeds on or prior to June 30, 2003. The Company covenants and agrees to, and shall cause its Subsidiaries to, consummate a sufficient number of Dispositions of Scheduled Assets after October 1, 2002 and on or prior to June 30, 2003 to generate Net Cash Proceeds of not less than $15,000,000 in the aggregate during such period. If a Deposit Account Triggering Event has occurred, all Net Cash Proceeds of Dispositions shall be deposited in the Concentration Account." (n) Amendment to Section 8.01 (Limitation on Liens). The Credit Agreement is amended by amending subsection (a) of Section 8.01 in its entirety as follows: "(a) (i) any Lien (other than a Lien on property constituting Collateral) existing on the property of the Company or any Subsidiary on the Execution Date and set forth in Schedule 8.01 securing Indebtedness outstanding on such date, (ii) Liens on the Yorktown Assets described in Schedule 8.01 owned by Giant Yorktown securing Giant Yorktown's obligations under the Yorktown Term Loan Agreement, and (iii) Liens on the Additional Collateral (but not on any other Collateral) in favor of the holders of the Yorktown Term Loan, securing Giant Yorktown's obligations under the Yorktown Term Loan Agreement, provided, that such Liens shall be subject to the terms of an intercreditor agreement between the agent for the holders of Yorktown Term Loan and the Administrative Agent, such intercreditor agreement to be in form and substance satisfactory to the Administrative Agent and the Majority Lenders." (o) Amendment to Section 8.02 (Disposition of Assets). Section 8.02 of the Credit Agreement is amended by deleting the word "and" after existing subsection (c), adding the word "unencumbered" before "assets" in each instance where the latter appears in existing subsection (d), renumbering existing subsection (d) as subsection (e), and by adding the following as new subsection (d): "(d) Dispositions of the Scheduled Assets by the Company and of its Subsidiaries, in one or more transactions for cash, for not less than an amount that is equal to their fair market value; and" (p) Amendment to Section 8.04 (Loans and Investments). The Credit Agreement is amended by amending subsection (c) of Section 8.04 in its entirety as follows: "(c) investments by the Company or any of its Subsidiaries in any Subsidiary that, prior to such investment, is a Wholly-Owned Subsidiary;" (q) Amendment to Section 8.04 (Loans and Investments). Section 8.04 of the Credit Agreement is amended by renumbering existing subsection (e) as subsection (f), by changing the reference in renumbered subsection (f) to subsection "(d)" to subsection "(e)," and by adding the following as new subsection (e): "(e) loans and investments by the Company and its Wholly-Owned Subsidiaries not to exceed $250,000 in the aggregate from and after the Amendment Effective Date in the capital stock, equity interests, and other obligations or securities of a Wholly-Owned Subsidiary (the "Insurance Subsidiary") formed de novo by the Company for the purpose of acquiring property insurance solely for the Company and its Subsidiaries. The Insurance Subsidiary shall take such action as necessary to qualify as a Subsidiary Insurer; and" (r) Amendment to Section 8.05 (Limitations on Indebtedness and Contingent Obligations). Section 8.05 of the Credit Agreement is amended by restating subsection (f) thereof in its entirety as follows: "(f) Contingent Obligations consisting of endorsements for collections or deposit in the ordinary course of business, and Surety Instruments consisting of surety bonds issued for the account of the Company or any of its Subsidiaries in the ordinary course of business not to exceed $15,000,000 in the aggregate at any time outstanding;" (s) Amendment to Section 8.12 (Minimum Consolidated Tangible Net Worth). Section 8.12 of the Credit Agreement is amended in its entirety as follows: "Section 8.12. Minimum Consolidated Tangible Net Worth. From and after October 1, 2002, the Company will maintain at all times Consolidated Tangible Net Worth in an amount not less than the sum of (i) $80,000,000, plus (ii) 50% of Consolidated Net Income computed on a cumulative basis for the period beginning October 1, 2002 and ending on the date of determination (provided that no negative adjustment will be made in the event that Consolidated Net Income is a deficit figure for such period), plus (iii) 75% of the aggregate amount of the net assets (cash or otherwise) received by the Company from the issuance of any class of capital stock after October 1, 2002." (t) Amendment to Section 8.13 (Minimum Fixed Charge Coverage Ratio). Section 8.13 of the Credit Agreement is amended in its entirety as follows: "8.13. Minimum Fixed Charge Coverage Ratio. The Company shall not permit the Fixed Charge Coverage Ratio as of the end of any fiscal quarter during each period set forth below to be less than the ratio set forth below opposite such period: From October 1, 2002 through June 30, 2003 1.00 to 1.00 From July 1, 2003 and thereafter 1.10 to 1.00" (u) Amendment to Section 8.14 (Total Leverage Ratio). Section 8.14 of the Credit Agreement is amended in its entirety as follows: "8.14. Total Leverage Ratio. The Company shall not permit the Total Leverage Ratio at any time during each period set forth below to be greater than the ratio set forth below opposite such period: From October 1, 2002 to December 31, 2002 6.50 to 1.00 From January 1, 2003 to March 31, 2003 7.50 to 1.00 From April 1, 2003 to June 30, 2003 7.00 to 1.00 From July 1, 2003 to September 30, 2003 5.50 to 1.00 From October 1, 2003 to December 31, 2003 4.50 to 1.00 From January 1, 2004 to March 31, 2004 4.00 to 1.00 April 1, 2004 and thereafter 3.75 to 1.00" (v) Amendment (Minimum Quarterly Consolidated EBITDA). The Credit Agreement is amended by adding new Section 8.19 thereto as follows: "8.19. Minimum Quarterly Consolidated EBITDA. The Company shall not permit Consolidated EBITDA for any fiscal quarter during each period set forth below at any time to be less than the amount set forth below opposite such period: From October 1, 2002 through March 31, 2003 $ 8,500,000 From March 31, 2003 and thereafter $15,000,000 For purposes of this Section 8.19 only, Consolidated EBITDA shall be calculated without adjustments for the Yorktown Acquisition (and the definition of Consolidated EBITDA is amended, solely for purposes of this Section 8.19, to delete the last sentence thereof)." (w) Amendment (Limitation on Capital Expenditures). The Credit Agreement is amended by adding new Section 8.20 thereto as follows: "8.20. Limitation on Capital Expenditures. The Company shall not, and shall not permit any of its Subsidiaries to, make or become contractually obligated to make any Capital Expenditure (other than Margin Payments treated as Capital Expenditures), except for Capital Expenditures (other than Margin Payments treated as Capital Expenditures) in the ordinary course of business not exceeding, in the aggregate for the Company and its Subsidiaries during each period set forth below, the amount set forth opposite such period: From October 1, 2002 through December 31, 2002 $ 6,000,000 From January 1, 2003 through March 31, 2003 $ 6,000,000 From April 1, 2003 through June 30, 2003 $ 8,000,000 From July 1, 2003 through September 30, 2003 $ 18,000,000 From October 1, 2003 through December 31, 2003 $ 12,000,000; provided, that so long as no Default has occurred and is continuing or would result from such expenditure, any portion of any amount set forth above, if not expended in the quarter for which it is permitted above, may be carried over for expenditures in successive quarters. (x) Amendment to Section 9.01(c) (Specific Defaults). Section 9.01(c) of the Credit Agreement is amended in its entirety as follows: "(c) Specific Defaults. The Company (i) fails to perform or observe any term, covenant or agreement contained in Section 2.14(c), 7.02(a), 7.02(f), 7.03(a), 7.06, 7.14, 7.16, 8.12, 8.13, 8.14, 8.15, 8.19 or 8.20; or (ii) fails to perform or observe any term, covenant or agreement contained in Article VIII (which is not specified in the foregoing clause (c)(i)), and such default shall continue unremedied for a period of 15 days after the occurrence thereof; or" (y) Amendment to Section 9.01 (Additional Collateral Closing). Section 9.01 of the Credit Agreement is further amended by changing the period at the end of existing subsection (p) thereof to a colon, adding the word "or" at the end of subsection (p), and adding new subsection (q) thereto as follows: "(q) Additional Collateral Closing. The Additional Collateral Closing does not for any reason occur on or prior to the Additional Collateral Closing Deadline or the Company does not perform its covenants and agreements set forth in clause (ii) of the second paragraph of Section 2.14(c) hereof by the TitleReport/Boundary Survey Delivery Deadline." (z) Amendment - Schedule 2.02. The Credit Agreement is amended by amending Schedule 2.02 as follows: Schedule 2.02 shall be consist of two parts: Schedule 2.02A and Schedule 2.02B; existing Schedule 2.02 shall be renumbered as Schedule 2.02A and Schedule 2.02B hereto shall be added to the Credit Agreement as Schedule 2.02B thereto. The pricing terms set forth in Schedule 2.02A shall be in effect from the Execution Date through and including September 30, 2002 for purposes of determining Applicable Margins, Risk Participation Fees and Commitment Fees; and the pricing terms set forth in Schedule 2.02B shall be in effect at all times on and after October 1, 2002 for purposes of determining Applicable Margins, Risk Participation Fees and Commitment Fees. All references in the Credit Agreement to "Schedule 2.02" are amended to read "Schedule 2.02A or Schedule 2.02B, as applicable." (aa) Amendment - Schedule 2.14(c)(iii). The Credit Agreement is amended by adding Schedule 2.14(c)(iii) hereto as Schedule 2.14(c)(iii) thereto. (bb) Amendment - Schedule 8.02. The Credit Agreement is further amended by adding Schedule 8.02 hereto as Schedule 8.02 thereto. (cc) Amendment - Schedule 8.05. The Credit Agreement is further amended by deleting existing Schedule 8.05 and substituting therefor Schedule 8.05 hereto. SECTION 3. Representations and Warranties. In order to induce the Administrative Agent and the Lenders to enter into this Amendment, the Company represents and warrants to the Administrative Agent and to each Lender that: (a) This Amendment, the Credit Agreement as amended hereby and each Loan Document have been duly authorized, executed and delivered by the Company and the applicable Loan Parties and constitute their legal, valid and binding obligations enforceable in accordance with their respective terms (subject, as to the enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium and similar laws affecting creditors' rights generally and to general principles of equity). (b) The representations and warranties set forth in Article VI of the Credit Agreement are true and correct in all material respects on and as of the Amendment Effective Date, after giving effect to, as if made on and as of the Amendment Effective Date. (c) As of the date hereof, at the time of and after giving effect to this Amendment, no Default or Event of Default (other than the Specified Defaults (as hereinafter defined)) has occurred and is continuing. (d) Except as related to the Leay Acres landfill site located in San Juan County, New Mexico, as described in Giant Industries' most recently filed Annual Report on Form 10-Q, no event or circumstance has occurred that has resulted or would reasonably be expected to result in a Material Adverse Effect. (e) No approval, consent, exemption, authorization or other action by, or notice to, or filing (other than filings required under Section 2.14(c) of the Agreement as amended hereby) with, any Governmental Authority is necessary or required in connection with the execution and delivery of this Amendment or the performance by the Company or any Loan Party of its obligations hereunder. This Amendment has been duly authorized by all necessary corporate action, and the execution, delivery and performance of this Amendment and the documents and transactions contemplated hereby does not and will not (a) contravene the terms of the Company's or any Loan Party's Organization Documents; (b) conflict with or result in any breach or contravention of, or result in or require the imposition or creation of any Lien under, any document evidencing any material Contractual Obligation to which the Company or any Loan Party is a party or any order, injunction, writ or decree of any Governmental Authority to which the Company or any Loan Party is subject; or (c) violate any Requirement of Law. SECTION 4. Specified Defaults; Limited Forbearance; Waiver upon Satisfaction of Conditions; Payment of Default Interest. (a) The Company acknowledges that (i) it is or may be in default of its obligations under Section 8.12 of the Credit Agreement regarding Minimum Consolidated Tangible Net Worth for the fiscal quarter ended September 30, 2002, and from September 30, 2002 up to and including the Amendment Effective Date, and (ii) it is in default of its obligations under Section 8.14 of the Credit Agreement regarding Total Leverage Ratio for the fiscal quarter ended September 30, 2002 (the "Specified Defaults"). (b) Unless the written waiver as provided in subsection (c) below has been delivered to the Company by the Administrative Agent, neither the Administrative Agent, the Issuing Bank nor any Lender shall be deemed to have waived the Specified Defaults or its or their right to decline Requests for Borrowing, Notices of Conversion/Continuation, or L/C Applications or L/C Amendment Applications, as a result of entering into this Amendment. Subject to the foregoing, the Administrative Agent, the Issuing Bank and the Lenders agree to forbear from exercising its or their rights and remedies (excluding, however, the right to give a Control Notice, such right being expressly reserved by the Administrative Agent, the Issuing Bank and the Lenders) arising as a result of the occurrence of the Specified Defaults for (but solely for) the period (the "Forbearance Period") commencing on the Amendment Effective Date and ending on the earlier to occur of: (i) 5:00 p.m. (Houston time) on October 30, 2002 or such later date as may be agreed by the Majority Lenders, (ii) the occurrence of any Default or Event of Default other than the Specified Defaults, (iii) the occurrence of a Material Adverse Effect, (iv) one or more holders of the Yorktown Term Loan states that it will not amend the Yorktown Term Loan Documents to contain representations, warranties, covenants and conditions no more restrictive than those contained in the Agreement, as amended or proposed to be amended by this Amendment, with the result that such amendment of the Yorktown Term Loan Documents fails to receive approval of the requisite holders of the Yorktown Term Loan to effect such amendment, or (v) any holder of the Yorktown Term Loan accelerates maturity of the Yorktown Term Loan, or takes any other action to enforce its or their rights and remedies under the Yorktown Term Loan Documents. Such agreement to forbear shall automatically, and without action, notice, demand or any other occurrence, expire on and as of the end of the Forbearance Period. The Administrative Agent, the Issuing Bank and the Lenders expressly reserve their rights, at any time after the Forbearance Period, to proceed to enforce any or all of their rights and remedies under or in respect of the Credit Agreement or the Loan Documents and applicable law which are available as a result of the occurrence of the Specified Defaults. This agreement to forbear shall apply only to the Specified Defaults; no forbearance with respect to any other Default or Event of Default, whether presently existing or hereafter arising, is agreed to hereby. This agreement to forbear is not a commitment by the Administrative Agent, the Issuing Bank or any Lender to honor any Requests for Borrowing, Notices of Conversion/Continuation, or L/C Applications or L/C Amendment Applications during the Forbearance Period, it being expressly acknowledged by the Company that neither the Issuing Bank nor any Lender is under any obligation to do so. Any Loans which the Lenders choose to make, any continuations or conversions of Interest Rate Types or Interest Periods, and any Letters of Credit which Issuing Bank chooses to issue, renew or extend, during the Forbearance Period are being made, issued, continued, converted, renewed or extended without waiver and without prejudice to the rights and remedies of the Administrative Agent, the Issuing Bank and the Lenders under the Credit Agreement and the Loan Documents. (c) If all of the conditions set forth in Section 5(b) of this Amendment have been satisfied prior to the expiration of the Forbearance Period, as determined by the Administrative Agent in its sole discretion, the Lenders shall waive (i) the Specified Default resulting from non-compliance by the Company with Section 8.12 of the Credit Agreement regarding Minimum Consolidated Tangible Net Worth during the fiscal quarter ended September 30, 2002 and the period from September 30, 2002 up to and including the Amendment Effective Date only, and (ii) the Specified Default resulting from non-compliance by the Company with Section 8.14 of the Credit Agreement regarding Total Leverage Ratio for the fiscal quarter ended September 30, 2002. Such waiver shall apply only to the Specified Defaults for the periods set forth herein. The Lenders hereby authorize the Administrative Agent to deliver the waiver pursuant this Section 3(b) on their behalf without further action or consent by such Lenders. No waiver with respect to any other Default or Event of Default, whether presently existing or hereafter arising, is agreed to thereby. (d) The Company agrees to pay interest on the principal amount of all outstanding Revolving Loans at the rate set forth in Section 2.08(b)(iii) of the Credit Agreement from and after September 30, 2002 through and including the date on which all of the conditions precedent set forth in Section 5(b) of this First Amendment are satisfied in full. If all of the conditions precedent set forth in Section 5(b) of this First Amendment are satisfied in full prior to expiration of the Forbearance Period, then interest on Revolving Loans shall accrue from and after such date at the applicable rate with respect to such Revolving Loans set forth in Section 2.08(b)(i) of the Credit Agreement. The Administrative Agent, the Issuing Bank and the Lenders expressly reserve all rights with respect to interest after an Event of Default in the event all of the conditions precedent set forth in Section 5(b) of this First Amendment are not satisfied in full prior to expiration of the Forbearance Period. SECTION 5. (a) Conditions of Effectiveness. The amendments to the Credit Agreement set forth in Section 1 of this First Amendment shall be effective upon satisfaction of the following conditions precedent: (i) Amendment. The Administrative Agent shall have received counterparts of this Amendment duly executed by the Company, the Loan Parties, the Administrative Agent, and the Majority Lenders. (ii) Amendment Fee. The Company shall have paid the amendment fee described in Section 6 of this First Amendment, and all accrued, unpaid fees, costs and expenses owed pursuant to this First Amendment, the Credit Agreement or any other agreement related thereto, to the extent then due and payable, together with Attorney Costs of the Administrative Agent to the extent then invoiced prior to or on the closing date of this Amendment. (b) Conditions to Effectiveness of Other Amendments. Notwithstanding any other provision of this First Amendment, the amendments to the Credit Agreement set forth in Section 2 of this First Amendment shall not be effective until satisfaction of the conditions precedent set forth in Section 5(a) of this First Amendment and satisfaction of the following additional conditions precedent not later than expiration of the Forbearance Period or such later date as may be agree by the Majority Lenders: (i) No Default under, and Amendment of, Yorktown Term Loan. Evidence satisfactory to the Administrative Agent that (i) the Yorktown Term Loan Documents have been amended to contain representations, warranties, covenants and conditions no more restrictive than those contained in the Agreement, as amended by this Amendment; and shall not be in conflict with the Agreement, as amended by this Amendment; and (ii) no default or event of default shall exist under the Yorktown Term Loan or Yorktown Term Loan Documents. (ii) Resolutions. (i) Resolutions of the board of directors of the Company authorizing the execution and delivery of this Amendment, certified by the Secretary or an Assistant Secretary of the Company; (ii) if not previously delivered to the Administrative Agent, a certificate of the Secretary or Assistant Secretary of the Company/applicable Guarantor certifying the names and true signatures of the officers of the Company and the Guarantors authorized to execute and deliver this Amendment. (iii) Opinions. The Administrative Agent shall have received opinions of counsel to the Loan Parties in form and substance satisfactory to the Administrative Agent and its counsel. (iv) No Material Adverse Effect. Except as disclosed in writing to the Administrative Agent and the Lenders prior to the Amendment Effective Date, no event or circumstance has occurred that has resulted or would reasonably be expected to result in a Material Adverse Effect. (v) No Default. As of such effective date, at the time of and after giving effect to the waiver pursuant to this Amendment, no Default or Event of Default has occurred and is continuing. (vi) Payment of Fees. The Company shall have paid all accrued, unpaid fees, costs and expenses owed pursuant to this Amendment, the Credit Agreement or any other agreement between the Company and the Administrative Agent or any Lender, to the extent then due and payable, together with Attorney Costs of the Administrative Agent to the extent then invoiced prior to or on the closing date of this Amendment. (vii) Other. The Administrative Agent shall have received such other approvals, opinions and documents as the Administrative Agent deems appropriate. Upon satisfaction of the foregoing conditions precedent set forth in this Section 5(b), the Administrative Agent shall notify the Company and the Lenders in writing, and the date set forth in such notice shall be the effective date of the amendments to the Credit Agreement set forth in Section 2 of this First Amendment. SECTION 6. Amendment Fee. The Company agrees to pay to the Administrative Agent for the account of each Lender which timely executes a counterpart of this Amendment, in accordance with its Pro Rata Share, an amendment fee equal to 0.25% of the total Commitments. Such amendment fee shall be due and payable in full on the date of execution of this Amendment by the Company and such Lender, shall be fully earned when due and payable, and shall be in addition to any other fee, cost or expense payable pursuant to the Credit Agreement. SECTION 7. Costs, Expenses and Taxes. The Company agrees to pay on demand reasonable Attorney Costs of the Administrative Agent and all other costs and expenses of the Administrative Agent, the Issuing Bank and the Lenders in connection with the preparation, execution and delivery of this Amendment and the mortgages, assignments, security agreements, financing statements and other documents and instruments contemplated hereby. In addition, the Company shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution and delivery, filing or recording of this Amendment and the other documents and instruments to be executed and delivered hereunder, and agrees to save the Administrative Agent, the Issuing Bank and the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes or fees. SECTION 8. Effect of Amendment. This Amendment (i) except as expressly provided herein, shall not be deemed to be a consent to the modification or waiver of any other term or condition of the Credit Agreement or of any of the instruments or agreements referred to therein and (ii) shall not prejudice any right or rights which the Administrative Agent, the Issuing Bank or the Lenders may now have under or in connection with the Credit Agreement, as amended by this Amendment. Except as otherwise expressly provided by this Amendment, all of the terms, conditions and provisions of the Credit Agreement shall remain the same. It is declared and agreed by each of the parties hereto that the Credit Agreement, as amended hereby, shall continue in full force and effect, and that this Amendment and such Credit Agreement shall be read and construed as one instrument. The Company and each of the other Loan Parties hereby confirm and agree that all Liens and other security now or hereafter held by the Administrative Agent for the benefit of the Lenders as security for payment of the Obligations are the legal, valid and binding obligations of the Company and the Loan Parties, remain in full force and effect, are unimpaired by this Amendment, and are hereby ratified and confirmed as security for payment of the Obligation. SECTION 9. RELEASE. EACH OF THE COMPANY AND THE LOAN PARTIES, AND EACH OF THEIR RESPECTIVE AFFILIATES, SUBSIDIARIES, SUCCESSORS, AND ASSIGNS (COLLECTIVELY, THE "RELEASORS") HEREBY RELEASES AND FOREVER DISCHARGES EACH OF THE ADMINISTRATIVE AGENT, THE ISSUING BANK AND EACH LENDER, AND EACH OF THEIR RESPECTIVE SHAREHOLDERS, SUBSIDIARIES, AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS, PREDECESSORS, SUCCESSORS AND ASSIGNS, BOTH PRESENT AND FORMER (COLLECTIVELY, TOGETHER WITH THE ADMINISTRATIVE AGENT, THE ISSUING BANK AND THE LENDERS, THE "LENDER AFFILIATES"), OF AND FROM ANY AND ALL ACTIONS, CAUSES OF ACTION, SUITS, DEBTS, CONTROVERSIES, DAMAGES, JUDGMENTS, EXECUTIONS, CLAIMS AND DEMANDS WHATSOEVER, ASSERTED OR UNASSERTED, AT LAW OR IN EQUITY, AGAINST ANY OF THE LENDER AFFILIATES WHICH ANY RELEASOR EVER HAD OR NOW HAS ON THE DATE HEREOF UPON OR BY REASON OF ANY MANNER, CAUSE, CAUSES OR THING WHATSOEVER, WHETHER PRESENTLY EXISTING, SUSPECTED OR UNSUSPECTED, KNOWN OR UNKNOWN, FIXED OR CONTINGENT, DIRECT OR INDIRECT, CONTEMPLATED OR ANTICIPATED, ARISING OUT OF OR IN CONNECTION WITH THE CREDIT AGREEMENT OR THE LOAN DOCUMENTS. SECTION 10. Authorization to Administrative Agent. By execution of a counterpart of this Amendment, each of the Lenders does hereby authorize the Administrative Agent to execute and deliver with respect to the Additional Collateral an intercreditor agreement in form and substance satisfactory to the Administrative Agent and the Majority Lenders. SECTION 11. Miscellaneous. This Amendment shall for all purposes be construed in accordance with and governed by the laws of the State of New York and applicable federal law. The captions in this Amendment are for convenience of reference only and shall not define or limit the provisions hereof. This Amendment may be executed in separate counterparts, each of which when so executed and delivered shall be an original, but all of which together shall constitute one instrument. In proving this Amendment, it shall not be necessary to produce or account for more than one such counterpart. This Amendment may be delivered by facsimile transmission of the relevant signature pages hereof. [SIGNATURES BEGIN ON NEXT PAGE] THE CREDIT AGREEMENT (AS AMENDED BY THIS AMENDMENT) AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the date and year first above written. GIANT INDUSTRIES, INC. By: /S/ GARY R. DALKE ---------------------- Name: Gary Dalke Title: C.A.O. [SIGNATURES CONTINUED ON NEXT PAGE] THIS IS A SIGNATURE PAGE TO THE GIANT INDUSTRIES, INC. FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT BANK OF AMERICA, N.A., as Administrative Agent, as Letter of Credit Issuing Bank and as a Lender By: /s/ CLAIRE LIU -------------------------------- Claire M. Liu Managing Director [SIGNATURES CONTINUED ON NEXT PAGE] THIS IS A SIGNATURE PAGE TO THE GIANT INDUSTRIES, INC. FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT BANK OF SCOTLAND By: /S/ JOSEPH FRATUS --------------------------- Name: Joseph Fratus Title: First Vice President [SIGNATURES CONTINUED ON NEXT PAGE] THIS IS A SIGNATURE PAGE TO THE GIANT INDUSTRIES, INC. FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT BNP PARIBAS By: /S/ MARK A. COX -------------------------- Name: Mark A. Cox Title: Director By: /S/ GREG SMOTHERS -------------------------- Name: Greg Smothers Title: Vice President [SIGNATURES CONTINUED ON NEXT PAGE] THIS IS A SIGNATURE PAGE TO THE GIANT INDUSTRIES, INC. FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT COMERICA BANK-CALIFORNIA By: /S/ PETER F. FITZPATRICK ---------------------------- Name: Peter F. Fitzpatrick Title: Vice President [SIGNATURES CONTINUED ON NEXT PAGE] THIS IS A SIGNATURE PAGE TO THE GIANT INDUSTRIES, INC. FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT FLEET NATIONAL BANK By: /S/ CHRISTOPHER C. HOLMGREN ------------------------------ Name: Christopher C. Holmgren Title: Managing Director [SIGNATURES CONTINUED ON NEXT PAGE] THIS IS A SIGNATURE PAGE TO THE GIANT INDUSTRIES, INC. FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT HIBERNIA NATIONAL BANK By: /S/ NANCY G. MORAGAS --------------------------- Name: Nancy G. Moragas Title: Vice President [SIGNATURES CONTINUED ON NEXT PAGE] THIS IS A SIGNATURE PAGE TO THE GIANT INDUSTRIES, INC. FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT RZB FINANCE LLC By: /S/ P. GEFFERS ---------------------------- Name: Pearl Geffers Title: First Vice President By: /S/ JOHN A. VALISKA ---------------------------- Name: John A. Valiska Title: Group Vice President [SIGNATURES CONTINUED ON NEXT PAGE] THIS IS A SIGNATURE PAGE TO THE GIANT INDUSTRIES, INC. FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT WELLS FARGO BANK, N.A. By: /S/ ART KRASNY ---------------------------- Name: Art Krasny Title: Relationship Manager THIS IS A SIGNATURE PAGE TO THE GIANT INDUSTRIES, INC. FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT RATIFICATION AND AGREEMENT Each of the undersigned Loan Parties hereby consents to and accepts the terms and conditions of the foregoing Amendment and the transactions contemplated thereby, agrees to be bound by the terms and conditions thereof, including without limitation the Release of the Lender Affiliates provided for in Section 9 thereof, and ratifies and confirms that each of the Loan Documents to which it is a party is, and shall remain, in full force and effect after giving effect to the foregoing Amendment. GIANT INDUSTRIES ARIZONA, INC., GIANT FOUR CORNERS, INC., DEGUELLE OIL COMPANY, GIANT MID-CONTINENT, INC., GIANT STOP-N-GO OF NEW MEXICO, INC., SAN JUAN REFINING COMPANY, CINIZA PRODUCTION COMPANY, PHOENIX FUEL CO., INC., GIANT PIPELINE COMPANY, and GIANT YORKTOWN, INC. as Loan Parties By: /S/ GARY R. DALKE ------------------------------ Name: Gary R. Dalke in each case, as Controller SCHEDULE 2.02B PRICING CHART (Expressed in percent per annum) Letter of Base Credit Risk Total LIBOR Rate Participation Commitment Level Leverage Ratio Margin Margin Fee Fee I Less than or equal to 2.50 3.25% 2.25% 3.25% 0.50% II Greater than 2.50, 3.50% 2.50% 3.50% 0.50% but less than or equal to 3.50 III Greater than 3.50 3.75% 2.75% 3.75% 0.50% Each adjustment of the Applicable Margins, the Risk Participation Fee and the Commitment Fee shall be made by the Administrative Agent and shall be effective as of the earlier of (a) the date upon which the Company delivers a Compliance Certificate to the Administrative Agent pursuant to Section 7.02(b) reflecting a changed pricing level (accompanied and supported by the financial statements with respect to which such Compliance Certificate is required to be delivered) and (b) the date upon which the Company is required by Section 7.02(b) to deliver such Compliance Certificate; provided, however, that, if a Compliance Certificate is not delivered by the date required in Section 7.02(b), then, subject to the other provisions of this Agreement, commencing on the date such Compliance Certificate was required until such Compliance Certificate is delivered, the Applicable Margins, the Risk Participation Fee and the Commitment Fee shall be those indicated for Level III, and from and after the date such Compliance Certificate is thereafter received, the Applicable Margins, the Risk Participation Fee and the Commitment Fee shall be as determined from such Compliance Certificate. Notwithstanding any provision of the foregoing to the contrary, the Applicable Margins, the Risk Participation Fee and the Commitment Fee shall be those indicated for Level III for the period commencing on the Amendment Effective Date and continuing through the date upon which the Company delivers a Compliance Certificate to the Administrative Agent pursuant to Section 7.02(b) reflecting a changed pricing level (accompanied and supported by the financial statements with respect to which such Compliance Certificate is required to be delivered), but in any event not earlier than the date upon which the Company delivers the Compliance Certificate for the fiscal quarter ended September 30, 2002. SCHEDULE 2.14(c)(iii) SERVICE STATIONS AND CONVENIENCE STORES [See the following pages]
SCHEDULE 2.14(c)(iii) Retail Store Directory Intersection Store Bldg. NBV Store# Title Mailing/Physical Address Vicinity City ST Zip County Brand Size Type 08/31/02 3101 Fee 517 W. Broadway Farmington NM 87401 San Juan Conoco/Mustang 515 C-Store 371,138 3103 Fee PO Box 295; 4151 US Hwy. 64 Kirtland NM 87417 San Juan Giant 2400 C-Store 912,707 6002 Fee 2654 E. Hwy 66 Gallup NM 87301 McKinley Conoco/Giant 1800 U/Canopy 652,265 6004 Fee 531 E. Broadway Farmington NM 87401 San Juan Giant 1800 C-Store 453,762 6005 Fee 6100 San Mateo NE Albuquerque NM 87109 Bernalillo Conoco/Giant 3324 C-Store 494,899 6011 Fee 201 Rio Bravo SW Albuquerque NM 87105 Bernalillo Giant 4028 C-Store 1,350,736 6014 Fee 3341 E. Main St. Farmington NM 87401 San Juan Giant 1400 U/Canopy 583,592 6015 Fee 3603 Hwy 528 Albuquerque NM 87114 Bernalillo Conoco/Giant 1320 C-StoreU/C 778,750 6020 Fee 201 Coors Rd. NW Albuquerque NM 87105 Bernalillo Giant 2048 C-Store 801,256 6023 Fee 3730 Cerrillos Rd. Santa Fe NM 87505 Santa Fe Giant 1,486,561 6024 Fee 4720 Tramway NE Albuquerque NM 87111 Bernalillo Conoco 1838 C-StoreU/C 827,096 6025 Fee 2930 Coors Rd. NW Albuquerque NM 87120 Bernalillo Conoco/Giant 1600 C-StoreU/C 893,396 6026 Fee 1897 Coors Rd. SW Albuquerque NM 87105 Bernalillo Conoco/Giant 2178 C-Store 708,229 6027 Fee 6104 Academy NE Albuquerque NM 87109 Bernalillo Conoco/Giant 2178 C-Store 999,972 6033 Fee 3524 Hwy 47 Los Lunas NM 87031 Valencia Conoco/Giant 3700 C-Store 642,238 6034 Fee 135 Candelaria Rd. NW Albuquerque NM 87107 Bernalillo Conoco/Giant 2178 C-Store 667,520 6035 Fee 10400 Central SE Albuquerque NM 87123 Bernalillo Conoco/Giant 2178 C-Store 757,680 6036 Fee 224 Hwy 44 Bernalillo NM 87004 Sandoval Conoco/Giant 2633 C-Store 771,036 6037 Fee 1050 Hwy 528 Rio Rancho NM 87124 Sandoval Conoco/Giant 3250 C-Store 1,007,143 6038 Fee 6242 4th St. NW Rancho de Albuquerque NM 87107 Bernalillo Conoco/Giant 2178 C-Store 783,835 6041 Fee 9690 Golf Course Rd. NW Albuquerque NM 87114 Bernalillo Conoco/Giant 3203 C-Store 853,220 6043 Fee 233 Main St. SE Los Lunas NM 87031 Valencia Conoco/Giant 2720 C-Store 661,933 6044 Fee 122 Aztec Blvd. Aztec NM 87410 San Juan Express/Giant 9.5 U/Canopy 612,455 6046 Fee 2691 Sawmill Rd. Santa Fe NM 87505 Santa Fe Giant 4325 C-Store 1,362,500 6047 Fee 220 Bloomfield Blvd. Bloomfield NM 87413 San Juan Shamrock 421,157 6048 Fee PO Box 116; 6385 Hwy. 44 Cuba NM 87013 Sandoval Mustang 820 C-Store 322,946 6049 Fee 862 E. Main Farmington NM 87401 San Juan Mustang 765 C-Store 490,388 7118 Fee 17401 US 550 Aztec NM 87410 San Juan Mustang 1504 C-Store 738,035 7168 Fee 118 Hwy. 44 West Bernalillo NM 87004 Sandoval Mustang 2100 C-StoreU/C 90,713 7183 Fee 902 N. Riverside Dr. Espanola NM 87532 Rio Arriba Mustang 1430 C-StoreU/C 252,031 7197 Fee 321 Main Ave. Aztec NM 87410 San Juan Mustang 1104 C-Store 414,878 7200 Fee PO Box 741; 6475 Main Cuba NM 87013 Sandoval Conoco/Mustang 3300 C-Store 721,956 7204 Fee HCR 4, Box 20; Hwy. 666 Gallup NM 87301 McKinley Mustang 6450 C-Store 1,695,049 7210 Fee 204 S. Bloomfield Blvd. Bloomfield NM 87413 San Juan Mustang 3990 C-Store 1,162,472 7211 Fee 2700 W. Main Farmington NM 87401 San Juan Mustang 2950 C-Store 1,282,241 7214 Fee 602 W. Broadway Bloomfield NM 87413 San Juan Mustang 1932 C-Store 235,167 7218 Fee 5702 Hwy. 64 Farmington NM 87401 San Juan Conoco/Mustang 2650 C-Store 744,228 7227 Fee 416 N. Main Aztec NM 87410 San Juan Mustang 4355 C-Store 728,291 7239 Fee State Rte 4, Box 3000 Bloomfield NM 87413 San Juan Mustang 1830 C-Store 316,444 7240 Fee 3001 Bloomfield Hwy. Farmington NM 87401 San Juan Mustang 2650 C-Store 289,141 7257 Fee PO Box 609; Hwy. 371 Thoreau NM 87323 McKinley Mustang 11025 C-Store 582,958 7270 Fee 3215 Hwy. 64 Waterflow NM 87421 San Juan Mustang 1,506,040 7278 Fee Box 28; 5th & Joseph Estancia NM 87016 Torrance Mustang 2180 C-Store 428,981 7283 Fee 1224 S. Main St. Belen NM 87002 Valencia Mustang 730 C-Store 241,875 7292 Fee PO Box 15186; 1020 Farmington NM 87401 San Juan Mustang 3690 C-Store 788,810 7293 Fee 401 W. Hwy. Bernalillo NM 87004 Sandoval Conoco/Giant 870 C-Store 1,325,742 7294 Fee Rte 3 Box 151; Hwy. 285 Espanola NM 87532 Santa Fe Mustang 1176 C-Store 120,597 7295 Fee PO Box 3047; 610 W Hwy 66 Milan NM 87021 Cibola Mustang 432 U/Canopy 66,799 7297 Fee PO Box 1858; 5180 Hwy. 68 Rancho de Taos NM 87557 Taos Mustang 1525 C-Store 547,452 7310 Fee PO Box 1443 Waterflow NM 87421 San Juan Mustang 2996 C-Store 1,266,669 7408 Fee 3340 E. Hwy. 66 Gallup NM 87301 McKinley Mustang 1377 C-Store 362,357 7409 Fee 3302 W. Hwy. 66 Gallup NM 87301 McKinley Conoco/Mustang 1537 C-Store 432,818 7445 Fee 1312 Bridge SW Albuquerque NM 87105 Bernalillo Gasman Kiosk 104,991 7549 Fee 650 Bosque Farms Blvd. BosqueFarms NM 87068 Valencia Conoco/Giant 759,955 7554 Fee 822 Camino Sierra Vista Santa Fe NM 87501 Santa Fe Mustang Kiosk 286,675 7556 Fee 1500 San Juan Blvd. Farmington NM 87401 San Juan Mustang 700 119,454 7557 Fee 800 E. Coal Gallup NM 87301 McKinley Mustang 1720 16,060 Total 38,297,289
SCHEDULE 8.02 SCHEDULED ASSETS Store Address City State 6906 945 N. Arizona Ave. Chandler AZ 6911 1807 10th Street Douglas AZ 6801 344 S. Power Rd. Mesa AZ 6915 6807 E. Baseline Rd. Mesa AZ 6918 2743 S. Alma School Rd. Mesa AZ 6908 300 Hwy. 70 Safford AZ 6902 2946 W. Hwy. 70 Thatcher AZ 6921 7366 N. Oracle Road Tucson AZ 6922 2100 W. Ruthrauff Rd. Tucson AZ 6923 1530 W. St. Mary's Road Tucson AZ 6924 761 W. Ajo Tucson AZ 6925 1202 W. Ajo Tucson AZ 6929 9491 E. 22nd St. Tucson AZ 6931 3780 W. Magee Rd. Tucson AZ 6900 201 N. Haskell Wilcox AZ 6917 3559 E. University Mesa AZ 6904 7630 E. McDowell Rd. Scottsdale AZ 6909 3301 N. Hayden Rd. Scottsdale AZ 6916 1951 E. Baseline Gilbert AZ 6910 7450 W. Thomas Rd. Phoenix AZ 7553 2504 Broadway SE Albuquerque NM 6907 1405 E. Ash Globe AZ 6903 2120 Hwy. 60/70 Miami AZ 6927 4479 W. Ina Rd. Tucson AZ 7442 3501 Isleta Blvd., SW Albuquerque NM 7291 Hwy. 371 Thoreau NM 7111 20329 Hwy 160 West Durango CO 7219 138 W. Main, Hwy. 60 Springerville AZ 6829 4740 E. Dynamite Blvd. Cave Creek AZ 6001 7035 North 35th Avenue Phoenix AZ 6802 1143 North Ellsworth Road Mesa AZ 6811 7810 North Silverbell Road Marana AZ 6812 10505 North Oracle Road Oro Valley AZ 6813 12885 North Oracle Road Oro Valley AZ 6901 825 Monroe Buckeye AZ 6912 5103 West Peoria Glendale AZ 6919 4180 West Ina Road Tucson AZ 6926 6500 South 12th Avenue Tucson AZ 6930 2750 South Kolb Road Tucson AZ 6051 4335 Highway 64 Kirtland NM 6928 6608 E. Main Mesa AZ 7150 2401 Main Ave. Durango CO 7559 435 Bosque Farms Blvd. Bosque Farms NM 7185 510 N. 666 Gallup NM 933 Greenfield @ Warner Gilbert AZ 803 I-10 @ Palo Verde - Raw Land Phoenix AZ 31-X Southern - Raw Land Albuquerque NM 19 Tanque Verde@Houghton-Raw Land Tucson AZ 806/22 22nd Street & Prudence-Raw Land Tucson AZ 841 Elmore Property - Hwy 160 East Durango CO 27-X 6104 Academy NE Albuquerque NM 800 Behind #48, NM SR 147 Cuba NM T.C.X. Jamestown Excess Property Gallup NM 6052 Hwy 66 Milan NM Travel Center Jamestown NM Kingman - Raw Land Safford - Raw Land 91st and Bell - Raw land Headquarters Scottsdale AZ Jomax - Raw Land Scottsdale AZ Tamarron Condos Durango CO SCHEDULE 8.05 CERTAIN PERMITTED INDEBTEDNESS 1. The Company and Giant Arizona: DESCRIPTION BALANCE Miscellaneous $ 500,000 (estimate) TOTAL $ 500,000 ========== 2. Phoenix: DESCRIPTION BALANCE David G. & Judith G. Scott $ 63,740.77 Chrysler Credit Corporation $ 6,869.29 Capital Lease Naumann Hobbs $ 8,225.82 Capital Lease ------------- $ 78,835.88 ============= 3. Obligations of Giant Four Corners, Inc. under the Master Lease and Option Agreement executed pursuant to, and in the form attached as Exhibit B to, the Definitive Agreement dated April 18, 1997 by and between Giant Four Corners, Inc. as "Buyer" and Thriftway Marketing Corp. and Clayton Investment Company, collectively as "Seller", and the Associated Purchase and Sale Agreements to such Definitive Agreement, not to exceed $6,702,831.72 in the aggregate, such obligations to be guaranteed by Giant Arizona. 4. The Company is Issuer of, and the Subsidiaries that are Guarantors hereunder are Guarantors of, the $150,000,000 9% Senior Subordinated Notes Due 2007, pursuant to the Indenture dated as of August 26,1997. 5. The Company is Issuer of, and the Subsidiaries that are Guarantors hereunder are Guarantors of, the $200,000,000 11% Senior Subordinated Notes Due 2012, pursuant to Indenture dated as of May 14, 2002. 6. Surety Bonds up to a maximum of $15,000,000. (See attached Listing)
Date Type of Bond Number Limit 1-1 Nevada License - Special Fuel Supplier 400SP7743 $383,600 1-1 Nevada Excise Tax - Fuel Tax 400SP7744 $502,900 1-1 Aviation, Liquid use and Motor Vehicle Fuel Bond SK1590 $100,000 1-1 Aviation, Liquid use and Motor Vehicle Fuel Bond - PF SK1591 $100,000 1-8 Nevada - Motor Fuel Bond 400SP7745 $1,000 1-12 Reservation Business Bond #756 SK1576 $10,000 1-12 Performance Bond #756 SK1577 $8,400 1-12 Reservation Business Bond #7233 SK1578 $10,000 1-12 Reservation Business Bond #7251 SK1579 $10,000 1-12 Reservation Business Bond #7252 SK1580 $10,000 1-12 Reservation Business Bond #7255 SK1586 $10,000 1-12 Reservation Business Bond #7263 SK1587 $10,000 1-12 Reservation Business Bond #7266 SK1588 $10,000 1-12 Reservation Business Bond #7267 SK1589 $10,000 1-25 Contract Postal Unit Bond #3106 SK1582 $4,000 1-26 Reservation Business Bond #3106 SK1584 $10,000 1-26 Reservation Business Bond #3107 400KA2115 $10,000 1-26 Reservation Business Bond #3108 SK1583 $10,000 1-26 Reservation Business Bond #3105 SK1585 $10,000 1-30 Reservation Bond #7225 KA2110 $10,000 1-30 Performance Bond #7225 KA2111 $10,000 1-30 Reservation Bond #3603 KA2112 $10,000 1-30 Performance Bond #3603 KA2113 $10,000 2-1 Performance Bond #3105 400KA2116 $16,500 2-1 Performance Bond #3106 400KA2117 $15,000 2-3 Performance Bond #7233 SK1575 $10,000 2-3 Performance Bond #7252 SK1595 $10,000 2-3 Performance Bond #7251 SK1596 $10,000 2-3 Performance Bond #7255 SK1597 $10,000 2-3 Performance Bond #7266 SK1598 $10,000 2-3 Performance Bond #7263 400KA2121 $10,000 2-3 Performance Bond #7267 400KA2122 $24,000 2-7 Fuel Distributor's License Bond SK1581 $600,000 2-7 Fuel Distributor's License Bond 400KA2120 $1,000 2-10 Performance Bond #3107 400KA2118 $17,000 2-10 Performance Bond #3108 400KA2119 $19,500 2-28 Performance Bond #245 SK1592 $10,000 2-28 Performance Bond #254 SK1593 $10,000 2-28 Reservation Business Bond #7202 SK1599 $10,000 2-28 Reservation Business Bond #7245 SK1600 $10,000 2-28 Reservation Business Bond #7254 SK1601 $10,000 2-28 Performance Bond #7202 SK1602 $10,000 3-3 Fuel Distributor's License Bond - PF SK1594 $5,000 3-8 Performance Bond, City of Chandler - PF SK1604 $5,000 3-16 Contract Postal Unit Bond #266 SK1605 $3,000 3-16 Contract Postal Unit Bond #263 SK1606 $2,500 3-17 Petroleum Weights and Measures SK1608 $1,000 3-28 US Dept. of Treasury Fuel Bond - PF SK1607 $200,000 4-10 Continuous Customs Bond - Yorktown I01127 $100,000 4-19 Foreign Trade Zone Bond - Yorktown I01128 $260,000 5-10 Virginia Natural Gas - Yorktown ST1623 $90,000 5-12 Wildlife Bond #7229 SK1611 $75,000 5-14 Fuel Tax Bond - Yorktown SK1603 $2,000,000 5-27 Purchase Livestock Bond #7265 SK1614 $10,000 5-30 Performance Bond #7253 SK1613 $10,000 5-30 Dealers & Packers Bond #7265 SK1612 $10,000 5-31 Motor Fuel Dealers/User/Seller - Yorktown SK1624 $210,000 Beginning Date 4-1 6-3 SRP Utility Bond ST1624 $29,345 6-11 Utah-Motor Fuel Tax Bond SK1621 $35,000 6-16 Fish & Wildlife Bond SK1619 $2,500 6-24 Tucson Electric Power Co. SK1616 $47,000 7-1 Utah, Fuel Tax Bond SK1622 $35,000 7-10 New Mexico Weighmaster Bond SK1618 $1,000 7-10 Reservation Business Bond #7253 SK1620 $10,000 7-19 City of Phoenix Surety Bond SK1615 $1,000 7-31 City of Mesa, Performance Bond - PF $100,000 8-1 Motor Fuels Tax Bond - Yorktown ST1637 $2,000,000 8-9 Performance Bond #6812 $5,210 8-9 Landscaping Performance Bond #6812 $30,552 8-9 Performance Bond #6802 $16,600 8-13 Fish & Wildlife Bond #5109 ST1627 $2,500 8-13 Fish & Wildlife Bond #7601 ST1630 $2,500 8-13 Fish & Wildlife Bond #7266 ST1628 $2,500 8-13 Fish & Wildlife Bond #3108 ST1625 $2,500 8-13 Fish & Wildlife Bond #7204 ST1626 $2,500 8-13 Fish & Wildlife Bond #7251 ST1629 $2,500 8-27 Contract Postal Unit Bond - T.C. ST1613 $11,000 9-4 New Mexico Alcohol Server Training Bond ST1634 $5,000 9-26 Texas Gasoline/Diesel Fuel Bond - PF ST1631 $490,000 9-26 City of Mesa/Unified School Dist. Fuel Bond - PF $100,000 9-26 Texas Gasoline/Diesel Fuel Bond - PF ST1632 $330,000 9-27 New Mexico Damage Bond for Right of Way ST1633 $2,500 10-3 One-Well Plugging Bond- New Mexico $30,000 10-17 Gasoline/Diesel Fuel Excess Tax - Oklahoma $100,000 11-15 Administrative Appeal Bond $93,889.23 11-21 Surety Bond for Waste Mgt. - New Mexico $25,000 12-2 Navajo Reservation Business Bond #7601 $10,000 12-2 Navajo Reservation Business Bond #7249 $10,000 12-2 Navajo Reservation Business Bond #7269 $10,000 12-31 Landscaping Bond - Oro Valley $27,516 12-31 Restoration Bond - Oro Valley $55,238 12-31 Newmont Realty Bond - Guarantee Lease Agreement 400KA2114 $10,000 Total $8,692,750.23
EX-10 4 exhibit10-2.txt EXHIBIT 10.2 EXHIBIT 10.2 ================================================================== AMENDMENT TO LOAN AGREEMENT AND OMNIBUS AMENDMENT Dated as of May 22, 2002 in respect of GIANT YORKTOWN, INC. ================================================================== AMENDMENT TO LOAN AGREEMENT AND OMNIBUS AMENDMENT AMENDMENT TO LOAN AGREEMENT AND OMNIBUS AMENDMENT (this "Amendment") dated as of May 22, 2002 is among GIANT YORKTOWN, INC., a Delaware corporation (the "Borrower"), GIANT INDUSTRIES, INC., a Delaware corporation ("Giant Industries"), GIANT INDUSTRIES ARIZONA, INC., an Arizona corporation ("Giant Arizona"), WELLS FARGO BANK NEVADA, NATIONAL ASSOCIATION, a national banking association, not in its individual capacity (except as specifically set forth herein), but solely in its capacity as collateral agent (the "Collateral Agent"), and each of the Persons listed on the signature pages hereto as a Lender (each, a "Lender"). RECITALS: A. The Borrower, the Collateral Agent, and the Lenders have heretofore entered into that certain Loan Agreement (as amended, supplemented or otherwise modified from time to time, the "Loan Agreement") dated as of May 14, 2002. Giant Industries and Giant Arizona have heretofore entered into that certain Parent Guaranty Agreement (as amended, supplemented or otherwise modified from time to time, the "Parent Guaranty") dated as of May 14, 2002. Capitalized terms used, but not otherwise defined in this Amendment, shall have those meanings assigned to such terms in Section 1 to the Loan Agreement, as amended by this Amendment. B. The parties hereto desire to amend the Loan Agreement and certain of the other Operative Documents. C. All requirements of law have been fully complied with and all other acts and things necessary to make this Amendment a valid, legal and binding instrument according to its terms for the purposes herein expressed have been done or performed. NOW, THEREFORE, in consideration of good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows: SECTION 1. AMENDMENTS TO LOAN AGREEMENT. Section 1.1. Section 1. (a) Section 1 of the Loan Agreement shall be and is hereby amended by deleting the definitions of "Benefited Lender", "Rating Agency" and "Synthetic Lease" therefrom. (b) Section 1 of the Loan Agreement shall be and is hereby further amended by amending and restating in their entirety the definitions of "Indemnitee" and "LIBO Rate" to read as follows: ""Indemnitee" shall mean the Arranger, each Lender, the Collateral Agent, the Deed of Trust Trustee, the Trust Company and their respective Affiliates, successors, permitted assigns, permitted transferees, invitees, contractors, servants, employees, officers, directors, shareholders, partners, participants, representatives agents and their respective designees or nominees; provided, however, that in no event shall any other Person (other than the Arranger, each Lender, the Collateral Agent, the Deed of Trust Trustee, the Trust Company and their respective Affiliates, successors, permitted assigns, permitted transferees, invitees, contractors, servants, employees, officers, directors, shareholders, partners, participants, representatives, agents and their respective designees or nominees) who purchases the Mortgaged Property for value following a foreclosure or other remedy be an Indemnitee. "LIBO Rate" shall mean with respect to any Interest Period at any time, the applicable London interbank offered rate per annum for deposits in Dollars for a period equal to such Interest Period appearing on Telerate Page 3750 as of 11:00 a.m. (London time) two (2) Business Days prior to the first day of such Interest Period; or if no London interbank offered rate of such maturity then appears on Telerate Page 3750, then the rate equal to the London interbank offered rate per annum for deposits in Dollars maturing immediately before or immediately after such maturity, whichever is higher, as determined by the Collateral Agent from Telerate Page 3750; or if Telerate Page 3750 is not available, the applicable LIBO Rate for the relevant Interest Period shall be the rate per annum determined by the Collateral Agent to be the arithmetic average of the rates at which Bank of America offers to place deposits in Dollars with first-class banks in the London interbank market at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of such Interest Period, in the approximate amount of the aggregate outstanding principal amount of the Notes and having a maturity approximately equal to such Interest Period." Section 1.2. Section 3.3. Section 3.3 of the Loan Agreement shall be and is hereby amended by adding to the end thereof a sentence to read as follows: "Additionally, Borrower shall provide written notice within five (5) Business Days thereof to Collateral Agent and the Lenders of the submittal to Borrower's Board of Directors or senior management of any written plan or proposal to close all of the Mortgaged Property, other than a planned major maintenance turnaround in accordance with this Section 3.3." Section 1.3. Section 3.6. Subparagraph (d) of Section 3.6 of the Loan Agreement shall be and is hereby amended by adding at the end thereof a sentence to read as follows: "In the event the Borrower elects to make a replacement of any portion of the Mortgaged Property pursuant to this Section 3.6(d), upon the request of any Lender, in its sole discretion and at any time, the Borrower shall promptly provide to the Lenders evidence of: the estimated cost of such replacement, the source of funds for such replacement, the estimated time to complete such replacement, the status towards completion of such replacement, and such other information as the Lenders may reasonably request." Section 1.4. Section 3.8. Subparagraph (a) of Section 3.8 of the Loan Agreement shall be and is hereby amended and restated in its entirety to read as follows: "(a) All insurance shall be written by reputable insurance companies that are financially sound and solvent, rated in Best's Insurance Guide or any successor thereto (or if there be none, an organization having a similar national reputation) with a general policyholder rating of at least "A" and a financial rating of at least "X" or otherwise reasonably acceptable to Borrower and Collateral Agent." Section 1.5. Sections 3.12 and 3.13. New Sections 3.12 and 3.13 shall be and are hereby included the Loan Agreement immediately following Section 3.11 thereof to read as follows: "Section 3.12. Notice of Default. Borrower shall promptly notify the Collateral Agent of the occurrence of any Default or Event of Default, and of the occurrence or existence of any event or circumstance that would reasonably be expected to become a Default or Event of Default. Section 3.13. Additional Covenants of Borrower. Borrower covenants and agrees to perform the obligations applicable to the Borrower set forth in Sections 6 and 6A of the Parent Guaranty (and such Sections 6 and 6A of the Parent Guaranty is hereby incorporated by reference)." Section 1.6. Section 4.10. Section 4.10 of the Loan Agreement shall be and is hereby amended and restated in its entirety to read as follows: "Section 4.10. Adjustment. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Loan made by it in excess of its ratable share of payments on account of the Loan made by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participation in the Loans owing to them as shall be necessary to cause such purchasing Lender to share the excess payment ratably, in the proportion that such Lender's Loan to which the payment applies bears to the total of all Loans to which the payment applies, provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 4.10 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation." Section 1.7. Section 8.1. (a) Subparagraph (q) of Section 8.1 of the Loan Agreement shall be and is hereby amended and restated in its entirety to read as follows: "(q) Environmental Matters. Either (i) Borrower, Giant Industries or any of its Subsidiaries shall be liable, whether directly, indirectly through required indemnification of any Person or otherwise, for the costs of investigation and/or remediation of any Hazardous Substance originating from or affecting any property or properties, whether or not owned, leased or operated by Borrower, Giant Industries or any of its Subsidiaries, which liability, together with all other such liabilities of Borrower or any of its Subsidiaries, could reasonably be expected to exceed $9,000,000 in the aggregate or require payments by Borrower or any of its Subsidiaries exceeding $3,000,000 in any fiscal year of Borrower (excluding for purposes of such determination (i) such amount of any insurance proceeds paid to or for the benefit of the Borrower, Giant Industries or any of its Subsidiaries in respect of such liability or unconditionally acknowledged in writing to be payable by the insurance carrier that issued the related insurance policy, (ii) such amount of any indemnity payments made to the Borrower, Giant Industries or any of its Subsidiaries in respect of such liability or unconditionally acknowledged in writing to be payable by the party that indemnified such amounts, or (iii) an amount not to exceed $7,500,000 in the aggregate paid by the Borrower, Giant Industries or any of its Subsidiaries in respect of such liability pursuant to the Yorktown Asset Purchase Agreement) or (ii) any federal, state, regional, local or other environmental regulatory agency or authority shall commence an investigation or take any other action that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; or" (b) Section 8.1 of the Loan Agreement shall be and is hereby further amended by adding a subparagraph (r) thereto to read as follows: "(r) Operations. If the Mortgaged Property ceases to be used in the manner in which it is intended or ceases to operate, closes or shuts down, for any reason whatsoever, for a period of time greater than ninety (90) days, other than as a result of any Partial Casualty." Section 1.8. Section 9.1. The last sentence of Section 9.1 of the Loan Agreement shall be and is hereby amended and restated in its entirety to read as follows: "Any assignment or transfer by a Lender of rights or obligations as a Lender under this Loan Agreement that does not comply with this paragraph shall be treated for purposes of this Loan Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 9.2." Section 1.9. Section 10.5. The first sentence of Section 10.5 of the Loan Agreement shall be and is hereby amended and restated in its entirety to read as follows: "The Collateral Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless the Collateral Agent has received notice from a Lender, a Guarantor or the Borrower referring to this Loan Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default"." Section 1.10. Section 10.9. The last sentence of Section 10.9 of the Loan Agreement shall be and is hereby amended and restated in its entirety to read as follows: "Notwithstanding the foregoing if no Event of Default and no Default, shall have occurred and be continuing, then no successor Collateral Agent shall be appointed under this Section 10.9 without the prior written consent of Borrower, which consent shall not be unreasonably withheld or delayed and until such consent is granted and a successor Collateral Agent is appointed, the retiring Collateral Agent shall continue to serve in such capacity." Section 1.11. Section 11.5. Subparagraph (a) of Section 11.5 of the Loan Agreement shall be and is hereby amended and restated in its entirety to read as follows: "(a) the presence on, under or around the Mortgaged Property or any portion thereof of any Hazardous Substance, or any releases or discharges of any Hazardous Substance on, under, from, onto or around the Mortgaged Property or any portion thereof," Section 1.12. Section 11.8. Section 11.8 of the Loan Agreement shall be and is hereby amended and restated in its entirety to read as follows: "Section 11.8. Actions of Lenders. Each Lender shall use reasonable efforts (including reasonable efforts to change the booking office for this transaction) to avoid or minimize any amounts which might otherwise be payable pursuant to Sections 11.2 and 11.3; provided, however, that such efforts shall not be deemed by such Lender, in its sole discretion, to be disadvantageous to it." Section 1.13. Section 12.5. Section 12.5 of the Loan Agreement shall be and is hereby amended and restated in its entirety to read as follows: "Section 12.5. Effect and Modification. This Loan Agreement and the other Operative Documents exclusively and completely states the rights of the Lenders and Borrower with respect to the Loans and the Mortgaged Property and supersedes all prior agreements, oral or written, with respect thereto. No Operative Document nor any of the terms thereof may be terminated, amended, supplemented, waived or modified without the written agreement or consent of Collateral Agent, Borrower and the Required Lenders, and in the case of the Parent Guaranty, the Constituent Company Guaranty or any definition used therein, the Guarantors affected thereby; provided, however, that Sections 12.1 and 12.16 hereof may not be terminated, amended, supplemented, waived or modified without the written agreement or consent of the Arranger; and provided, further, that any termination, amendment, supplement, waiver or modification shall require the written agreement or consent of each Lender if such termination, amendment, supplement, waiver or modification would: (a) modify any of the provisions of this Section 12.5, change the definition of "Required Lenders" or modify or waive any provision of an Operative Document requiring action by each Lender; (b) amend, modify, waive or supplement any of the provisions of Section 4.5 or 4.6 of this Loan Agreement; (c) reduce, modify, amend or waive any fees or indemnities in favor of any Lender, including without limitation amounts payable pursuant to Section 11 (except that any Person may consent to any reduction, modification, amendment or waiver of any indemnity payable to it); (d) modify, postpone, reduce or forgive, in whole or in part, any payment of principal or Interest (other than pursuant to the terms of the Operative Documents), or any Loan or Loan Balance (except that any Person may consent to any modification, postponement, reduction or forgiveness of any payment of any Fee payable to it) or, subject to clause (c) above, any other amount payable to it under this Loan Agreement, or modify the definition or method of calculation of Interest (other than pursuant to the terms of the Operative Documents), Loans or Loan Balances or any other definition which would affect the amounts to be advanced or which are payable under the Operative Documents or extend, modify or amend the Loan Term; (e) release of any Lien granted by Borrower under the Operative Documents or release the Parent Guaranty or the Constituent Companies Guaranty, except as provided in the Operative Documents; or (f) increase the Commitment of any Lender or subject such Lender to additional obligations. Notwithstanding the foregoing, neither the Parent Guaranty or the Constituent Companies Guaranty nor any of the terms thereof may be amended, modified or waived, unless such amendment, modification or waiver is in writing entered into by, or approved in writing by the Required Lenders, the Collateral Agent and the Guarantors." Section 1.14. Revised Commitment Amounts. Schedule I-A to the Loan Agreement shall be and is hereby amended and restated in its entirety to read as Exhibit A attached hereto. Section 1.15. Revised Notice Information. Schedule I-B, to the Loan Agreement shall be and is hereby amended and restated in its entirety to read as Exhibit B attached hereto. SECTION 2. AMENDMENTS TO PARENT GUARANTY. Section 2.1. Introductory Paragraph. The reference to "Giant Industries, Inc., an Arizona corporation" in the introductory paragraph to the Parent Guaranty is hereby amended and restated to read "Giant Industries, Inc., a Delaware corporation". Section 2.2. Section 5. Subparagraph (b) of Section 5 of the Parent Guaranty shall be and is hereby amended and restated in its entirety to read as follows: "(b) Corporate Authorization; No Contravention. The execution, delivery and performance by each of Giant Industries and Giant Arizona of this Guaranty and by Giant Industries and its Subsidiaries of each other Operative Document to which such Person is a party, have been duly authorized by all necessary corporate action, and do not and will not: (i) contravene the terms of any of that Person's Organization Documents; (ii) conflict with or result in any breach or contravention of, or the creation of any Lien under, any document evidencing any material Contractual Obligation to which such Person is a party or any order, injunction, writ or decree of any Governmental Authority to which such Person or its property is subject; or (iii) violate any Requirement of Law." Section 2.3. Section 6. (a) Subparagraph (b)(ii) of Section 6 of the Parent Guaranty shall be and is hereby amended and restated in its entirety to read as follows: "(ii) concurrently with the delivery of the financial statements referred to in subsections (i) and (ii) of Section 6(a), a Compliance Certificate in substantially the form set forth in Exhibit E- 6 to the Loan Agreement executed by a Responsible Officer, which Compliance Certificate shall also indicate that no material change in terms (as documented in a written amendment) has occurred with respect to the Giant Industries Credit Agreement (or similar replacement facility) or, in the event that a change in terms has occurred, Giant Industries shall furnish to the Collateral Agent and the Lenders any such amendments to the Giant Industries Credit Agreement concurrently with delivery of the Compliance Certificate. Additionally, said Compliance Certificate shall (i) confirm that Bank of America, as agent under the Giant Industries Credit Agreement, has not been terminated or resigned its position as agent under the Giant Industries Credit Agreement and (ii) indicate that a "Deposit Account Triggering Event" (as defined in the Giant Industries Credit Agreement) has not occurred or, in the event that a "Deposit Account Triggering Event" (as defined in the Giant Industries Credit Agreement) has occurred, Giant Industries shall provide written notice thereof to the Collateral Agent and the Lenders within five (5) Business Days thereof. Furthermore, attached to each quarterly Compliance Certificate Giant Industries shall provide a duplicate copy of the most recent signed detailed Borrowing Base Report (which includes current collateral advance rates and bank reserves) (as defined in the Giant Industries Credit Agreement) for the appropriate quarterly period;" (b) Subparagraph (c)(ix) of Section 6 of the Parent Guaranty shall be and is hereby amended and restated in its entirety to read as follows: "(ix) of the formation or acquisition of any Subsidiary; and" (c) Subparagraph (c) of Section 6 of the Parent Guaranty shall be and is hereby further amended by adding a clause (x) thereto to read as follows: "(x) Borrower and Giant Industries shall provide written notice within five (5) Business Days to Collateral Agent and the Lenders of the submittal to Borrower's and/or Giant Industries' Board of Directors or senior management of any written plan or proposal to close all of the Mortgaged Property, other than a planned major maintenance turnaround in accordance with Section 3.3 of the Loan Agreement." SECTION 3. [RESERVED] SECTION 4. EFFECTIVENESS. This Amendment shall become effective on May 22, 2002 (the "Effective Date") upon the satisfaction of the following conditions precedent: (a) This Amendment and all other agreements and instruments related thereto shall have been duly authorized, executed and delivered by each of the parties thereto, shall be in form and substance satisfactory to each party thereto and an executed counterpart of each thereof shall have been received by each of the parties thereto. After giving effect to this Amendment, the Operative Documents shall be in full force and effect as to all parties and no Default or Event of Default shall have occurred or be continuing. (b) Since May 14, 2002, there shall have been no Material Adverse Effect. SECTION 5. FEES AND EXPENSES. Borrower agrees to pay all the reasonable fees and expenses of the Collateral Agent and the Lender (including the reasonable expenses of their respective counsel) in connection with the negotiation and preparation of this Amendment. SECTION 6. MISCELLANEOUS. Section 6.1. Guarantor Obligations. Each Guarantor hereby ratifies and affirms in all respects it obligations under its guaranty and acknowledges that such guaranty shall remain in full force and effect. Section 6.2. Construction. This Amendment shall be construed in connection with and as part of the Loan Agreement and the other Operative Documents, and except as modified and expressly amended by this Amendment, all terms, conditions and covenants contained in the Loan Agreement and the other Operative Documents are hereby ratified and shall be and remain in full force and effect. Section 6.3. Headings and Table of Contents. The headings of the Sections of this Amendment are inserted for purposes of convenience only and shall not be construed to affect the meaning or construction of any of the provisions hereof and any reference to numbered Sections, unless otherwise indicated, are to Sections of this Amendment. Section 6.4. References. Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Amendment may refer to the Loan Agreement and the other Operative Documents without making specific reference to this Amendment but nevertheless all such references shall be deemed to include this Amendment unless the context otherwise requires. Section 6.5. Counterparts. This Amendment may be executed in any number of counterparts, each executed counterpart constituting an original but all together only one Amendment. Section 6.6. Governing Law. This Amendment shall be governed by and construed in accordance under the laws of the State of New York without regard to conflict of law principles (other than Title 14 of Article V of the New York General Obligation Law). [Signature Pages begin on Next Page] Executed and delivered as of this 21 day of May, 2002. GIANT YORKTOWN, INC., as Borrower By: /S/ GARY R. DALKE ----------------------------------- Name: Gary R. Dalke ------------------------------ Its: Vice President ------------------------------ GIANT INDUSTRIES, INC., as a Guarantor By: /S/ GARY R. DALKE ----------------------------------- Name: Gary R. Dalke ------------------------------ Its: Vice President ------------------------------ GIANT INDUSTRIES ARIZONA, INC. , as a Guarantor By: /S/ GARY R. DALKE ----------------------------------- Name: Gary R. Dalke ------------------------------ Its: Vice President ------------------------------ BANC OF AMERICA LEASING & CAPITAL, LLC, as Lender By: /S/ ALBERT Z. NORONA ----------------------------------- Name: Albert Z. Norona ------------------------------ Its: Principal ------------------------------ WELLS FARGO BANK NEVADA, NATIONAL ASSOCIATION, as Collateral Agent By: /S/ VAL T. ORTON ----------------------------------- Name: Val T. Orton ------------------------------ Its: Trust Officer ------------------------------ Each of the undersigned hereby further confirms its continued guaranty of the obligations of the Borrower under the Loan Agreement, as amended hereby, pursuant to the terms of its guaranty on this ______ day of ___________, 2002. GIANT FOUR CORNERS, INC. By: /S/ GARY R. DALKE ----------------------------------- Name: Gary R. Dalke ------------------------------ Its: Vice President ------------------------------ Address: c/o Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255-3465 Attention: President SAN JUAN REFINING COMPANY By: /S/ GARY R. DALKE ----------------------------------- Name: Gary R. Dalke ------------------------------ Its: Vice President ------------------------------ Address: c/o Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255-3465 Attention: President PHOENIX FUEL CO., INC. By: /S/ GARY R. DALKE ----------------------------------- Name: Gary R. Dalke ------------------------------ Its: Vice President ------------------------------ Address: c/o Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255-3465 Attention: President GIANT MID-CONTINENT, INC. By: /S/ GARY R. DALKE ----------------------------------- Name: Gary R. Dalke ------------------------------ Its: Vice President ------------------------------ Address: c/o Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255-3465 Attention: President GIANT STOP-N-GO OF NEW MEXICO, INC. By: /S/ GARY R. DALKE ----------------------------------- Name: Gary R. Dalke ------------------------------ Its: Vice President ------------------------------ Address: c/o Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255-3465 Attention: President SCHEDULE IA TO LOAN AGREEMENT DATED AS OF MAY 14, 2002 LENDERS' COMMITMENTS Lender Commitment Commitment Percentage Black Diamond International Funding, Ltd. 18.21% $7,281,481 TRS1 LLC 17.50% $7,000,000 GMAC Business Credit LLC 28.56% $11,425,185 ORIX Financial Services, Inc. 21.45% $8,580,741 Transamerica Equipment Financial Services Corporation 14.28% $5,712,593 ------ ----------- Total: 100% $40,000,000 EXHIBIT A (to Amendment) SCHEDULE IB TO LOAN AGREEMENT DATED AS OF MAY 14, 2002 1. COLLATERAL AGENT Address for all communications: Wells Fargo Bank Nevada, National Association c/o Wells Fargo Bank Northwest, National Association 79 South Main Street, 3rd Floor Salt Lake City, Utah 84111 Attn: Corporate Trust Department ABA #: 121-000-248 Account No. 0510922115 Reference: Giant Yorktown Contact: Eric Morgan Phone: (801) 246-5289 2. BLACK DIAMOND INTERNATIONAL FUNDING, LTD. Address for all notices, credit communications and legal documentation: Black Diamond International Funding, Ltd. c/o Black Diamond Capital Management, L.L.C. One Conway Park 100 Field Drive, Suite 140 Lake Forest, IL 60045 Attn: Loan Administrator In the case of notices: Phone: (847) 582-9104 Fax: (847) 582-9144 In the case of credit communications and legal documentation: Phone: (847) 615-9000 Fax: (847) 615-9064 Address for wire transfers: JP Morgan Chase Bank Houston, Texas ABA# 113000609 Account No.: 00102619468 BNF=: Wires Clearing-Asset Backed Securities OBI=: Ref: Joanne Murray/Black Diamond CDO/Acct #23295-01 EXHIBIT B (to Amendment) 3. TRS1 LLC Address for all credit contacts: TRS1 LLC c/o Deutsche Bank AG, as Trustee for TRS1 LLC 1761 East St. Andrews Place Santa Ana, CA 92705-4934 Attention: Jennifer Bohannon Phone: (714) 247-6340 Fax: (714) 247-6475 Copy to: TRS1 LLC c/o Black Diamond Capital Management, L.L.C. One Conway Park 100 Field Drive, Suite 140 Lake Forest, IL 60045 Attn: Loan Administrator Phone: (847) 615-9000 Fax: (847) 615-9064 Administrative contacts: Deutsche Bank AG Attention: Marco Ruggiero Phone: (201) 593-2243 Fax: (201) 593-2310 Reference: TRS1 - Giant Yorktown, Inc. Copy to: Attention: Loan Administrator Phone: (847) 615-9000 Fax: (847) 615-9064 Reference: TRS1 - Giant Yorktown, Inc. Address for wire transfers: Bankers Trust Company ABA# 021 001 033 Account No.: 01 419 663 Account Name: LA Asset Based Re: TRS1 LLC Reference: Giant Yorktown, Inc. 4. GMAC BUSINESS CREDIT LLC Address: 210 Interstate North Parkway Suite 315 Atlanta, GA 30339 Credit contact: Renay Jeune Vice President, Senior Risk Manager Phone: (678) 553-2711 Fax: (678) 553-2707 E-mail: rjeune@gmacbc.com Operations contact: Steffanie Williams Assistant Vice President Phone: (678) 553-2727 Fax: (678) 553-2707 E-mail: swilliams@gmacbc.com Address for wire transfers: Bank One, Michigan Detroit, Michigan ABA# 072 000 326 Account No.: 363-301-424 5. ORIX FINANCIAL SERVICES, INC. Address: 600 Town Park Lane, 3rd Floor Kennesaw, GA 30144 Credit contact: Beth Billhime Senior Credit Analyst Phone: (770) 970-6104 Fax: (770) 970-6001 E-mail: bbillhime@orixfin.com Business contact: Tim Maloof Vice President Phone: (770) 970-6133 Fax: (770) 970-6001 E-mail: tmaloof@orixfin.com Operations contact: Joe O'Laughlin Portfolio Administrator Phone: (770) 970-6143 Fax: (770) 970-6001 E-mail: jolaughlin@orixfin.com Address for wire transfers: Mellon Bank, NA Pittsburgh, PA ABA# 043 000 261 Account No.: 104-1648 Account name: ORIX Financial Services, Inc. Reference: Infolease Acct/Giant 6. TRANSAMERICA EQUIPMENT FINANCIAL SERVICES CORPORATION Address: 5080 Spectrum Drive Suite 1100 West Addison, TX 75001 Credit and operations contact: Pam Lenamon Assistant Vice President - Investment Manager Phone: (972) 458-5925 Fax: (972) 458-5959 E-mail: pam.lenamon@transamerica.com Address for wire transfers: Bank One, NA 1 Bank One Plaza Chicago, IL ABA# 071000013 Account No.: 55-41948 Reference: Transamerica Equipment Finance and Leasing EX-10 5 exhibit10-3.txt EXHIBIT 10.3 EXHIBIT 10.3 Execution Copy ============================================================================== SECOND AMENDMENT TO LOAN AGREEMENT AND OMNIBUS AMENDMENT Dated as of October 28, 2002 in respect of GIANT YORKTOWN, INC. ============================================================================== SECOND AMENDMENT TO LOAN AGREEMENT AND OMNIBUS AMENDMENT This SECOND AMENDMENT TO LOAN AGREEMENT AND OMNIBUS AMENDMENT (this "Amendment") dated as of October 28, 2002 is among GIANT YORKTOWN, INC., a Delaware corporation (the "Borrower"), GIANT INDUSTRIES, INC., a Delaware corporation ("Giant Industries"), GIANT INDUSTRIES ARIZONA, INC., an Arizona corporation ("Giant Arizona", and together with Giant Industries, the "Parent Guarantors"), WELLS FARGO BANK NEVADA, NATIONAL ASSOCIATION, a national banking association, not in its individual capacity (except as specifically set forth herein), but solely in its capacity as collateral agent (the "Collateral Agent"), and each of the Persons listed on the signature pages hereto as a Lender (each, a "Lender"). RECITALS: A. The Borrower, the Collateral Agent and the Lenders have heretofore entered into that certain Loan Agreement (as amended by that certain Amendment to Loan Agreement and Omnibus Amendment dated as of May 22, 2002, and as further amended, supplemented or otherwise modified from time to time, the "Loan Agreement") dated as of May 14, 2002. Giant Industries and Giant Arizona have heretofore entered into that certain Parent Guaranty Agreement (as amended by that certain Amendment to Loan Agreement and Omnibus Amendment dated as of May 22, 2002, and as further amended, supplemented or otherwise modified from time to time, the "Parent Guaranty") dated as of May 14, 2002. Capitalized terms used, but not otherwise defined in this Amendment, shall have those meanings assigned to such terms in Section 1 to the Loan Agreement, as amended hereby. B. The parties hereto desire to amend the Loan Agreement and certain of the other Operative Documents. C. All requirements of law have been fully complied with and all other acts and things necessary to make this Amendment a valid, legal and binding instrument according to its terms for the purposes herein expressed have been done or performed. NOW, THEREFORE, in consideration of good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows: SECTION 1. AMENDMENTS TO LOAN AGREEMENT. Section 1.1. Section 1. (a) Section 1 of the Loan Agreement shall be and is hereby amended by amending and restating in their entirety the following definitions to read as follows: ""Applicable Lender Margin" shall mean, at any time of determination of the LIBO Rate, 5.50% per annum." ""Base Rate" shall mean, on any day with respect to the Loan Balance, the rate per annum equal to the higher of (a) the Federal Funds Rate for such day plus 1.75% and (b) the Prime Rate for such day plus 3.25%. Any change in the Base Rate due to a change in the Federal Funds Rate or the Prime Rate shall be effective on the effective date of such change in the Federal Funds Rate or the Prime Rate, without notice to the Borrower or any Guarantor." ""Consolidated Funded Indebtedness" means, for Giant Industries and its Consolidated Subsidiaries, at any time, without duplication, the sum of: (a) all Indebtedness (other than undrawn or unfunded amounts under outstanding Surety Instruments and Indebtedness of the type described in clause (h)(ii) of the definition of Indebtedness), (b) obligations to redeem or purchase any stock or other equity security of Giant Industries or a Subsidiary, and (c) any guaranty obligations in respect of any of the foregoing." ""Fixed Charge Coverage Ratio" means: (x) as of any date of determination from the Closing Date through September 30, 2002, and as of any date of determination after January 1, 2004, the ratio of (A) the sum, without duplication, of (i) Consolidated EBITDA for the period of four fiscal quarters ending on such date, plus (ii) Consolidated Rents for such period, plus (iii) to the extent excluded in the calculation of Consolidated EBITDA, Margin Payments made by Giant Industries under the Yorktown Asset Purchase Agreement during such period, minus (iv) Capital Expenditures during such period (excluding Margin Payments treated as Capital Expenditures), minus (v) all taxes measured by income and paid in cash during such period, to (B) the sum, without duplication, of (i) Consolidated Interest Expense during such period, plus (ii) Consolidated Rents during such period, plus (iii) scheduled amortization of Giant Industries' and its Subsidiaries' Indebtedness during such period, plus (iv) Margin Payments made by Giant Industries under the Yorktown Asset Purchase Agreement during such period; and (y) as of any date of determination from October 1, 2002 through December 31, 2003, the ratio of (A) the sum, without duplication, of (i) Consolidated EBITDA for the period of four fiscal quarters ending on such date, plus (ii) Consolidated Rents for such period, to (B) the sum, without duplication, of (i) Consolidated Interest Expense during such period, plus (ii) Consolidated Rents during such period, plus (iii) scheduled amortization of Giant Industries' and its Subsidiaries' Indebtedness during such period, plus (iv) all taxes measured by income and paid in cash during such period. With respect to Indebtedness incurred in connection with the Yorktown Acquisition (including Loans hereunder), Consolidated Interest Expense shall be calculated on a pro forma basis for the four fiscal quarters most recently ended as if such Indebtedness had been incurred on the first day of such period." (b) Section 1 of the Loan Agreement shall be and is hereby further amended by inserting in alphabetical order the following new defined terms: ""Additional Collateral" has the meaning assigned to it in Section 6(u) of the Parent Guaranty." ""Additional Collateral Closing" has the meaning assigned to it in Section 6(u) of the Parent Guaranty." ""Additional Collateral Closing Deadline" has the meaning assigned to it in Section 6(u) of the Parent Guaranty." ""Additional Collateral Documents" has the meaning assigned to it in Section 6(u) of the Parent Guaranty." ""Additional Due Diligence Materials" has the meaning assigned to it in Section 6(u) of the Parent Guaranty." ""Amendment Effective Date" means October 28, 2002." ""Attorney Costs" means and includes all reasonable fees and disbursements of any law firm or other external counsel, the allocated cost of internal legal services and all disbursements of internal counsel." ""Capital Expenditures" means, for any period, expenditures (including, without limitation, the aggregate amount of Capital Lease Obligations incurred during such period) made by Giant Industries or any of its Consolidated Subsidiaries to acquire or construct fixed assets, plant and equipment (including renewals, improvements and replacements thereof) during such period computed in accordance with GAAP." ""Capital Lease Obligations" means, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP (including Statement of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board), and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP (including such Statement No. 13)." ""Collateral" means all property and interests in property and proceeds thereof now owned or hereafter acquired by the Borrower or any Parent Guarantor and their respective Subsidiaries in or upon which a Lien now or hereafter exists in favor of the Lenders, or the Collateral Agent on behalf of the Lenders, whether under the Deed of Trust or under any other document executed by any such Person and delivered to the Collateral Agent or the Lenders." ""Collateral Documents" means, collectively, (a) the Deed of Trust and all other security agreements, mortgages, deeds of trust, patent and trademark assignments, lease assignments, guarantees and other similar agreements executed by the Borrower or any Parent Guarantor and their respective Subsidiaries for the benefit of the Lenders now or hereafter delivered to the Lenders or the Collateral Agent pursuant to or in connection with the transactions contemplated hereby, and all financing statements (or comparable documents now or hereafter filed in accordance with the UCC or comparable law) against the Borrower or any Parent Guarantor and their respective Subsidiaries as debtor in favor of the Lenders or the Collateral Agent for the benefit of the Lenders as secured party, and (b) any amendments, supplements, modifications, renewals, replacements, consolidations, substitutions and extensions of any of the foregoing." ""Insurance Subsidiary" has the meaning assigned to in Section 6A(d) of the Parent Guaranty." ""Net Cash Proceeds" means, with respect to any Disposition, cash (including any cash received by way of deferred payment pursuant to a promissory note or otherwise, as and when received) received by Giant Industries or any of its Subsidiaries in connection with and as consideration therefor, on or after the date of consummation of such transaction, after (i) deduction of Taxes payable in connection with or as a result of such transaction, and (ii) payment of all usual and customary brokerage commissions and all other reasonable fees and expenses related to such transaction (including, without limitation, reasonable attorneys' fees and closing costs incurred in connection with such transaction); provided, however, in the case of Taxes that are deductible under clause (i) above, but which Taxes have not actually been paid or are not yet payable, Giant Industries or any of its Subsidiaries selling such assets may deduct from the cash proceeds an amount (the "Reserved Amount") equal to the amount reserved in accordance with GAAP as a reasonable estimate for such Taxes so long as, at the time such Taxes are actually paid, the amount, if any, by which the Reserved Amount exceeds the Taxes actually paid shall constitute additional Net Cash Proceeds of such Disposition." ""Revolving Credit Lenders" shall mean the "Lenders" under the Giant Industries Credit Agreement." ""Revolving Loans" shall have the meaning assigned thereto in the Giant Industries Credit Agreement." ""Scheduled Assets" means the assets listed on Schedule 6(t) to the Parent Guaranty, which Giant Industries has represented are not subject to any Liens other than Liens in favor of the Revolving Credit Lenders." Section 1.2. Section 8.1 (a) Subparagraph (c) of Section 8.1 of the Loan Agreement shall be and is hereby amended and restated in its entirety to read as follows: "(c) Specific Defaults. Giant Industries or Borrower, as the case may be, (i) fails to perform or observe any term, covenant or agreement contained in Section 6(b)(i), 6(c)(i), 6(f), 6(n), 6(r), 6(t), 6(u), 6A(l), 6A(m), 6A(n), 6A(o), 6A(s) or 6A(t) of the Parent Guaranty or Section 3.2, 3.5, 3.7 or Section 5 of this Loan Agreement; or (ii) fails to perform or observe any term, covenant or agreement contained in Section 6A of the Parent Guaranty (which is not specified in the foregoing clause (c)(i)), and such default shall continue unremedied for a period of 15 days after the occurrence thereof; or" (b) Section 8.1 of the Loan Agreement shall be and is hereby amended by deleting the period at the end of Subparagraph (q) thereof and substituting therefor a semicolon and the word "or", and adding the following as a new Subparagraph (r) thereto: "(r) Additional Collateral Closing. The Additional Collateral Closing does not for any reason occur on or prior to the Additional Collateral Closing Deadline or Giant Industries does not perform its covenants and agreements set forth in clause (ii) of the second paragraph of Section 6(u) of the Parent Guaranty by the Title Report/Boundary Survey Delivery Deadline." Section 1.3. Exhibit E-6. Exhibit E-6 to the Loan Agreement shall be and is hereby amended and restated in its entirety to read as Exhibit A attached hereto. SECTION 2. AMENDMENTS TO PARENT GUARANTY. Section 2.1. Section 5. (a) Subparagraph (q) of Section 5 of the Parent Guaranty shall be and is hereby amended and restated in its entirety to read as follows: "(q) Insurance. (i) The properties and business of Giant Industries and its Subsidiaries are insured under insurance policies (the "Policies") with insurance companies ("Insurer" or "Insurers"), in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where Giant Industries or such Subsidiary operates. (ii) Either (1) the Insurers are financially sound and reputable insurance companies that are not Affiliates of Giant Industries, or (ii) the Insurer is a Subsidiary of Giant Industries ("Subsidiary Insurer"), the Subsidiary Insurer has all governmental approvals necessary to operate its business and to comply with this Section 5(q) and Section 6(f)(i), the Subsidiary Insurer has in place agreement(s) with financially sound and reputable insurance companies that are not Affiliates of Giant Industries ("Unaffiliated Insurers") providing insurance coverage with such deductibles and covering such risks as required by clause (i) of this Section 5(q), and such agreements provide to the Collateral Agent and the Lenders substantially the same rights as the Collateral Agent and the Lenders would have if the Policies were issued directly by the Unaffiliated Insurers, including without limitation (x) the right to receive notice of cancellation from the Unaffiliated Insurers, (y) clauses or endorsements stating that the interest of and the rights of the Collateral Agent and the Lenders vis-.-vis the Unaffiliated Insurers shall not be impaired or invalidated by any act or neglect of, or any bankruptcy, insolvency, dissolution or other event with respect to, Giant Industries, the Subsidiary Insurer, or any other Subsidiary of Giant Industries, and (z) the right to enforce insurance coverage directly against the Unaffiliated Insurer. Giant Industries has delivered to the Collateral Agent and the Lenders evidence of compliance with the foregoing requirements." Section 2.2. Section 6. (a) Subparagraph (a) of Section 6 of the Parent Guaranty shall be amended by deleting the period at the end of existing clause (ii) thereof and substituting therefor a semicolon and the word "and", and adding the following as a new clause (iii) thereto: "(iii) As soon as available, but not later than 30 days after the end of each month during the term hereof, financial information concerning Giant Industries and its Subsidiaries by business line and by region as of the end of such month, substantially in the form of Schedule 6(a)(iii) hereto, and otherwise in form and substance satisfactory to the Collateral Agent and the Required Lenders." (b) Subparagraph (b) of Section 6 of the Parent Guaranty shall be amended by amending and restating clause (i) thereof as follows: "(i) As soon as available, but not later than 12:00 noon (Dallas, Texas time) on the last Business Day of each week, the Borrowing Base Report delivered to the "Administrative Agent" and the "Lenders" under the Giant Industries Credit Agreement;" (c) Subparagraph (c) of Section 6 of the Parent Guaranty shall be amended by adding a new clause (xi) thereto to read as follows: "(xi) of the Disposition of any Scheduled Assets and the Net Cash Proceeds received therefrom." (d) Subparagraph (f) of Section 6 of the Parent Guaranty shall be amended by amending and restating clause (i) thereof as follows: "(i) Giant Industries shall maintain insurance with respect to its properties and business in accordance with the requirements set forth in Section 5(q). Upon request by the Collateral Agent, Giant Industries shall deliver to the Collateral Agent a copy of all Policies and all agreements between any Subsidiary Insurer and any Unaffiliated Insurer(s) (as such terms are defined in Section 5(q)), together with such evidence as the Collateral Agent may require demonstrating that the Policies and agreements with Unaffiliated Insurers satisfy the requirements of Section 5(q) and this Section 6(f)(i)." (e) Subparagraph (l) of Section 6 of the Parent Guaranty shall be amended by amending and restating clause (iii) thereof as follows: "(iii) Notwithstanding subsection (i) of this Section 6(l), as long as (A) Navajo Convenient Stores Co., LLC has total assets with a book value of less than $5,000,000 and has not guaranteed any Indebtedness, Navajo Convenient Stores Co., LLC shall not be required to execute a Supplemental Guaranty; (B) Giant Yorktown Holding Company has no assets and has not guaranteed any Indebtedness other than the Subordinated Notes, Giant Yorktown Holding Company shall not be required to execute a Supplemental Guaranty; (C) Giant Southwest Refining has no assets and has not guaranteed any Indebtedness, Giant Southwest Refining Company shall not be required to execute a Supplemental Guaranty; and (D) Insurance Subsidiary has total assets with a book value of less than $250,000 and has not guaranteed any Indebtedness, Insurance Subsidiary shall not be required to execute a Supplemental Guaranty." (f) Subparagraph (l) of Section 6 of the Parent Guaranty shall be amended by adding a new clause (iv) thereof to read as follows: "(iv) Promptly after formation or acquisition of any new Subsidiary, Giant Industries shall, and shall cause each Subsidiary owning shares, membership interests or other equity interests in such Subsidiary to, (A) execute and deliver to the Collateral Agent a security agreement in form and substance satisfactory to the Required Lenders creating Liens in all such shares, membership interests or other equity interests in such Subsidiary, in favor of the Collateral Agent and the Lenders, together with any certificates evidencing such shares of stock, membership interests or other equity interests, stock powers executed in blank, and such financing statements and other documents and instruments related thereto as the Collateral Agent or the Required Lenders may require, (B) take all other actions necessary or, in the opinion of the Collateral Agent or the Required Lenders, desirable to perfect and protect the first priority Liens created by such security agreement, and to enhance the Collateral Agent's ability to preserve and protect its interests in and access to such shares, membership interests or other equity interests, and (C) furnish the Collateral Agent with a written opinion of counsel in form and substance satisfactory to the Required Lenders." (g) The following shall be added as new Subparagraphs (t) and (u) of Section 6 of the Parent Guaranty: "(t) Dispositions Generating Net Cash Proceeds. Giant Industries has presented its business plan to the Lenders whereby Giant Industries proposes to Dispose of, for cash, the Scheduled Assets in one or more transactions for not less than an amount that is equal to their fair market value, including Dispositions which are anticipated to generate not less than $15,000,000 in Net Cash Proceeds on or prior to June 30, 2003. Giant Industries covenants and agrees to, and shall cause its Subsidiaries to, consummate a sufficient number of Dispositions of Scheduled Assets after October 1, 2002 and on or prior to June 30, 2003 to generate Net Cash Proceeds of not less than $15,000,000 in the aggregate during such period. (u) Additional Security. As additional security for payment of the Obligations, Giant Industries and its Subsidiaries shall grant first priority, perfected Liens in favor of the Collateral Agent or an independent collateral agent or trustee acceptable to the Required Lenders as secured party and/or mortgagee, as applicable, for the benefit of the Lenders and the Revolving Credit Lenders on the following property and assets (the "Additional Collateral"): (i) the Bloomfield Refinery including land, improvements and all equipment and fixtures, (ii) the Ciniza Refinery including land, improvements and all equipment and fixtures, (iii) the service stations and convenience stores of Giant Industries and its Subsidiaries located in the State of New Mexico listed on Schedule 6(u)(iii), (iv) all capital stock, membership interests and other equity interests owned by Giant Industries or any Subsidiary in all domestic Subsidiaries, and (v) all proceeds and products thereof. The Additional Collateral shall constitute part of the Collateral for all purposes of the Operative Documents. Giant Industries and its Subsidiaries shall (x) execute and deliver or cause to be executed and delivered to the Collateral Agent and the Lenders, and record or cause to be recorded in all applicable recording offices, such mortgages, security agreements, related collateral assignments and financing statements, and such other documents, amendments, consents and instruments (the "Additional Collateral Documents") as the Required Lenders shall request, all such Additional Collateral Documents to be in form and substance satisfactory to the Required Lenders, (y) deliver or cause to be delivered, at Giant Industries' sole expense, to the Collateral Agent and the Lenders such U.C.C. lien searches, title searches/title reports ("Title Searches/Title Reports"), boundary surveys (the "Boundary Surveys") and opinions of counsel with respect to the Additional Collateral as the Required Lenders may request, in form and substance satisfactory to the Required Lenders, and (z) take all other actions necessary or desirable in the opinion of the Required Lenders to create valid and enforceable, first priority, perfected Liens on the Additional Collateral. The Additional Collateral Documents shall constitute Collateral Documents for all purposes of the Operative Documents. The Required Lenders reserve the right to require at any time that Giant Industries furnish, at Giant Industries' sole expense, such environmental assessments and title insurance policies (with such endorsements and coverage as the Required Lenders shall request), and additional surveys and other due diligence materials (collectively, the "Additional Due Diligence Materials"), each in form and substance satisfactory to the Required Lenders, with respect to any or all of the Additional Collateral as the Required Lenders may determine in their sole discretion; provided, that it shall not be a condition to the Additional Collateral Closing that Giant Industries furnish any Additional Due Diligence Materials prior to the Additional Collateral Closing Date. Giant Industries shall promptly pay, or reimburse the Lenders for payment of, all reasonable costs and expenses incurred in connection with consummation of the transaction contemplated by this subsection (u), including without limitation recording and filing fees, stamp and recording taxes, title insurance premiums, and Attorney Costs of the Collateral Agent and the Lenders. The Revolving Credit Lenders shall be permitted to share in or otherwise take Liens on the Additional Collateral (but not Liens on the Mortgaged Property), provided that the Collateral Agent and the Administrative Agent for the Revolving Credit Lenders shall have entered into an intercreditor agreement providing, inter alia, that (1) all proceeds of Additional Collateral (but not any other Collateral) shall be shared pari passu and pro rata among the Lenders and the Revolving Credit Lenders in proportion determined in each case, after giving effect to the application of the proceeds of all other collateral held by or for the benefit of the Lenders or the Revolving Credit Lenders as follows: (aa) as to the Revolving Credit Lenders as a group, by dividing the total outstanding Obligations (as defined in the Giant Industries Credit Agreement as in effect on the Amendment Effective Date and as the same may be increased as hereinafter provided and including, for the sake of clarity, contingent reimbursement obligations under issued but undrawn letters of credit) of all Revolving Credit Lenders by the sum of the total outstanding Obligations (as defined in the Giant Industries Credit Agreement as in effect on the Amendment Effective Date and as the same may be increased as hereinafter provided and including, for the sake of clarity, contingent reimbursement obligations under issued but undrawn letters of credit) of all Revolving Credit Lenders plus the entire outstanding amount of the Obligations (such principal amount thereof, not to exceed the unpaid principal amount thereof on the Amendment Effective Date), as of any date of determination, and (bb) as to the Lenders as a group, by dividing the entire outstanding amount of the Obligations (such principal amount thereof, not to exceed the unpaid principal amount thereof on the Amendment Effective Date) by the sum of the total outstanding Obligations (as defined in the Giant Industries Credit Agreement as in effect on the Amendment Effective Date and as the same may be increased as hereinafter provided and including, for the sake of clarity, contingent reimbursement obligations under issued but undrawn letters of credit) of all Revolving Credit Lenders plus the entire outstanding amount of the Obligations (such principal amount thereof not to exceed the unpaid principal amount thereof on the Amendment Effective Date), as of any date of determination, regardless of the time or order of creation or perfection of such Liens, and (2) for so long as the intercreditor agreement is in effect, the Revolving Credit Lenders shall not (aa) increase the total commitments under the Giant Industries Credit Agreement by more than $25,000,000 more than the total commitments in effect on the Amendment Effective Date and (bb) shall not increase the advance rates with respect to Eligible Refinery Hydrocarbon Inventory, Eligible Lubricants Inventory, or Eligible Accounts Receivable (as such terms are defined in the Giant Credit Agreement) from the levels in effect on the Amendment Effective Date or amend the Borrowing Base to include any components other than Eligible Refinery Hydrocarbon Inventory, Eligible Lubricants Inventory, or Eligible Accounts Receivable (as such terms are defined in the Giant Industries Credit Agreement). The intercreditor agreement shall otherwise contain such other terms and provisions requested by the Required Lenders and be in form and substance satisfactory to the Collateral Agent and the Required Lenders. Giant Industries shall, and shall cause its Subsidiaries to, use its and their best efforts to consummate all transactions contemplated by this subsection (u) including, without limitation, execution and delivery by the Revolving Credit Lenders or their agent of an intercreditor agreement in form and substance satisfactory to the Collateral Agent and the Required Lenders, in a closing (the "Additional Collateral Closing") as promptly as practicable after the Amendment Effective Date; provided, that (i) the Additional Collateral Closing shall occur not later than the date (such date, including any extension thereof as hereinafter provided, the "Additional Collateral Closing Deadline") which is 45 calendar days after the Amendment Effective Date and (ii) Giant Industries shall deliver, or cause to be delivered, the Title Searches/Title Reports and the Boundary Surveys to the Collateral Agent and the Lenders in form and substance satisfactory to the Collateral Agent and the Required Lenders, and shall execute and deliver or cause to be executed and delivered to the Collateral Agent and the Lenders, and record or cause to be recorded in all applicable recording offices, such amendments or supplements to the Additional Collateral Documents and such other documents, consents, instruments and opinions as may be required or requested by the Required Lenders as a result of the information set forth in the Title Searches/Title Reports and the Boundary Surveys not later than the date (such date, including any extension thereof as hereinafter provided, the "Title Report/Boundary Survey Delivery Deadline") which is 90 calendar days after the Amendment Effective Date. The Required Lenders may, in their sole discretion, grant one extension of each of the Additional Collateral Closing Deadline and the Title Report/Boundary Survey Delivery Deadline of not more than 30 calendar days if the Required Lenders are satisfied that Giant Industries and its Subsidiaries have previously used their best efforts to consummate the Additional Collateral Closing and meet the requirements of clause (ii) above within such 45 or 90 calendar days, respectively, as the case may be, and that the Additional Collateral Closing is reasonably likely to be consummated, and the requirements of clause (ii) above are reasonable likely to be met, within such extensions." Section 2.3. Section 6A. (a) Clause (i) of Subparagraph (a) of Section 6A of the Parent Guaranty shall be and is hereby amended and restated in its entirety to read as follows: "(i) (A) any Lien (other than a Lien on property constituting Mortgaged Property) existing on property of Giant Industries or any Subsidiary on the Closing Date and set forth in Schedule 6A(a) securing Indebtedness outstanding on such date, (B) Liens on the Yorktown Assets described in Schedule 6A(a) securing Borrower's obligations under the Loan Agreement and (C) Liens on the Additional Collateral (but not on any other Mortgaged Property) in favor of the holders of the loans under the Giant Industries Credit Agreement, securing the "Obligations" under the Giant Industries Credit Agreement, provided, that such Liens shall be subject to the terms of an intercreditor agreement between the Collateral Agent, the Lenders and Administrative Agent for the holders of the loans under the Giant Industries Credit Agreement, such intercreditor agreement to be in form and substance satisfactory to the Collateral Agent and the Required Lenders." (b) Clauses (iv) and (v) of Subparagraph (b) of Section 6A of the Parent Guaranty shall be and are hereby amended and restated in their entirety to read as follows: "(iv) Dispositions of the Scheduled Assets by Giant Industries and of its Subsidiaries, in one or more transactions for cash, for not less than an amount that is equal to their fair market value; provided that Giant Industries shall apply the Net Cash Proceeds in respect thereof to the prepayment of the Revolving Loans in accordance with Section 2.07(e) of the Giant Industries Credit Agreement; and (v) Dispositions of unencumbered assets not otherwise permitted hereunder which are made for fair market value, provided, that (i) at the time of any such Disposition, no Event of Default shall exist or shall result from such Disposition, and (ii) the aggregate book value of unencumbered assets disposed of by Giant Industries and its Subsidiaries in any fiscal year, beginning with fiscal year 2002, shall not exceed $5,000,000." (c) Subparagraph (d) of Section 6A of the Parent Guaranty shall be and is hereby amended by amending and restating existing clauses (iii), (iv) and (v) as new clauses (iii) through (vi) below:: "(iii) investments by Giant Industries or any of its Subsidiaries in any Subsidiary that, prior to such investment, is a Wholly-Owned Subsidiary; (iv) extensions of credit described in Schedule 6(A)(d) through and including the maturity date thereof, but not any increases or renewals; (v) loans and investments by Giant Industries and its Wholly-Owned Subsidiaries not to exceed $250,000 in the aggregate from and after the Amendment Effective Date in the capital stock, equity interests, and other obligations or securities of a Wholly-Owned Subsidiary (the "Insurance Subsidiary") formed de novo by Giant Industries for the purpose of acquiring property insurance solely for Giant Industries and its Subsidiaries. The Insurance Subsidiary shall take such action as necessary to qualify as a Subsidiary Insurer; and (vi) investments by Giant Industries and its Subsidiaries not otherwise permitted in Section 6A(d)(i) through Section 6A(d)(v), which do not exceed $1,000,000 in the aggregate at any time outstanding." (d) Clause (vii) of Subparagraph (e) of Section 6A of the Parent Guaranty shall be and is hereby amended and restated in its entirety to read as follows: "(vii) Contingent Obligations consisting of endorsements for collections or deposit in the ordinary course of business, and Surety Instruments consisting of surety bonds issued for the account of Giant Industries or any of its Subsidiaries in the ordinary course of business not to exceed $15,000,000 in the aggregate at any time outstanding;" (e) Subparagraphs (l), (m) and (n) of Section 6A of the Parent Guaranty shall be and are hereby amended and restated in their entirety to read as follows: "(l) Minimum Consolidated Tangible Net Worth. From and after October 1, 2002, Giant Industries will maintain at all times Consolidated Tangible Net Worth in an amount not less than the sum of (i) $80,000,000, plus (ii) 50% of Consolidated Net Income computed on a cumulative basis for the period beginning October 1, 2002 and ending on the date of determination (provided that no negative adjustment will be made in the event that Consolidated Net Income is a deficit figure for such period), plus (iii) 75% of the aggregate amount of the net assets (cash or otherwise) received by Giant Industries from the issuance of any class of capital stock after October 1, 2002. (m) Minimum Fixed Charge Coverage Ratio. Giant Industries shall not permit the Fixed Charge Coverage Ratio as of the end of any fiscal quarter during each period set forth below to be less than the ratio set forth below opposite such period: Minimum Fixed Period Charge Coverage Ratio From October 1, 2002 through June 30, 2003 1.00 to 1.00 From July 1, 2003 and thereafter 1.10 to 1.00 (n) Total Leverage Ratio. Giant Industries shall not permit the Total Leverage Ratio at any time during each period set forth below to be greater than the ratio set forth below opposite such period: Maximum Total Period Leverage Ratio From October 1, 2002 to December 31, 2002 6.50 to 1.00 From January 1, 2003 to March 31, 2003 7.50 to 1.00 From April 1, 2003 to June 30, 2003 7.00 to 1.00 From July 1, 2003 to September 30, 2003 5.50 to 1.00 From October 1, 2003 to December 31, 2003 4.50 to 1.00 From January 1, 2004 to March 31, 2004 4.00 to 1.00 April 1, 2004 and thereafter 3.75 to 1.00" (f) The following shall be added as new Subparagraphs (s) and (t) of Section 6A of the Parent Guaranty: "(s) Minimum Quarterly Consolidated EBITDA. Giant Industries shall not permit Consolidated EBITDA for any fiscal quarter during each period set forth below at any time to be less than the amount set forth below opposite such period: Minimum Period Consolidated EBITDA From October 1, 2002 through March 31, 2003 $ 8,500,000 From April 1, 2003 and thereafter $15,000,000 For purposes of this Section 6A(s) only, Consolidated EBITDA shall be calculated without adjustments for the Yorktown Acquisition (and the definition of Consolidated EBITDA is amended, solely for purposes of this Section 6(s), to delete the last sentence thereof). (t) Limitation on Capital Expenditures. Giant Industries shall not, and shall not permit any of its Subsidiaries to, make or become contractually obligated to make any Capital Expenditure (other than Margin Payments treated as Capital Expenditures), except for Capital Expenditures (other than Margin Payments treated as Capital Expenditures) in the ordinary course of business not exceeding, in the aggregate for Giant Industries and its Subsidiaries during each period set forth below, the amount set forth opposite such period: Maximum Period Capital Expenditures From October 1, 2002 to December 31, 2002 $ 6,000,000 From January 1, 2003 to March 31, 2003 $ 6,000,000 From April 1, 2003 to June 30, 2003 $ 8,000,000 From July 1, 2003 to September 30, 2003 $ 18,000,000 From October 1, 2003 to December 31, 2003 $ 12,000,000 provided, that so long as no Default has occurred and is continuing or would result from such expenditure, any portion of any amount set forth above, if not expended in the quarter for which it is permitted above, may be carried over for expenditures in successive quarters." Section 2.4. Schedule 6(a)(iii). Exhibit B attached hereto shall be and is hereby inserted as Schedule 6(a)(iii) to the Parent Guaranty. Section 2.5. Schedule 6(u)(iii). Exhibit C attached hereto shall be and is hereby inserted as Schedule 6(u)(iii) to the Parent Guaranty. Section 2.6. Schedule 6A(b). Exhibit D attached hereto shall be and is hereby inserted as Schedule 6A(b) to the Parent Guaranty. Section 2.7. Schedule 6A(e). Schedule 6A(e) to the Parent Guaranty shall be and is hereby amended and restated as Exhibit E attached hereto. SECTION 3. REPRESENTATIONS AND WARRANTIES In order to induce the Collateral Agent and the Lenders to enter into this Amendment, the Borrower and the Parent Guarantors each represent and warrant to the Collateral Agent and to each Lender that: (a) This Amendment, the Loan Agreement and the Parent Guaranty (each as amended hereby) and each other Operative Document have been duly authorized, executed and delivered by the Borrower and the Parent Guarantors and constitute their legal, valid and binding obligations enforceable in accordance with their respective terms (subject, as to the enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium and similar laws affecting creditors' rights generally and to general principles of equity). (b) The representations and warranties set forth in Section 2 of the Loan Agreement and Section 5 of the Parent Guaranty are true and correct in all material respects on and as of the Amendment Effective Date, after giving effect to, as if made on and as of the Amendment Effective Date. (c) As of the date hereof, at the time of and after giving effect to this Amendment, no Default or Event of Default (other than the Specified Defaults (as hereinafter defined)) has occurred and is continuing. (d) Except as related to the Leay Acres landfill site located in San Juan County, NM, as described in Giant Industries' most recently filed Annual Report on Form 10-Q, no event or circumstance has occurred that has resulted or would reasonably be expected to result in a Material Adverse Effect. (e) No approval, consent, exemption, authorization or other action by, or notice to, or filing (other than filings required under Section 6(u) of the Parent Guaranty, as amended hereby) with, any Governmental Authority is necessary or required in connection with the execution and delivery of this Amendment or the performance by the Borrower or either Parent Guarantor of its obligations hereunder. This Amendment has been duly authorized by all necessary corporate action, and the execution, delivery and performance of this Amendment and the documents and transactions contemplated hereby does not and will not (a) contravene the terms of the Borrower's or either Parent Guarantor's Organization Documents; (b) conflict with or result in any breach or contravention of, or result in or require the imposition or creation of any Lien under, any document evidencing any material Contractual Obligation to which the Borrower or either Parent Guarantor is a party or any order, injunction, writ or decree of any Governmental Authority to which the Borrower or either Parent Guarantor is subject; or (c) violate any Requirement of Law. SECTION 4. WAIVER OF SPECIFIED DEFAULTS. (a) Giant Industries acknowledges that (i) it is or may be in default of its obligations under Section 6A(l) of the Parent Guaranty regarding Minimum Consolidated Tangible Net Worth for the fiscal quarter ended September 30, 2002, and from September 30, 2002 up to and including the Amendment Effective Date, and (ii) it is in default of its obligations under Section 6A(n) of the Parent Guaranty regarding Total Leverage Ratio for the fiscal quarter ended September 30, 2002 (the "Specified Defaults"). (b) The Lenders hereby waive (i) the Specified Default resulting from non-compliance by Giant Industries with Section 6A(l) of the Parent Guaranty regarding Minimum Consolidated Tangible Net Worth during the fiscal quarter ended September 30, 2002 and the period from September 30, 2002 up to and including the Amendment Effective Date only, and (ii) the Specified Default resulting from non-compliance by Giant Industries with Section 6A(n) of the Parent Guaranty regarding Total Leverage Ratio for the fiscal quarter ended September 30, 2002. Such waiver shall apply only to the Specified Defaults for the periods set forth herein. No waiver with respect to any other Default or Event of Default, whether presently existing or hereafter arising, is agreed to hereby. SECTION 5. EFFECTIVENESS. This Amendment shall become effective on October 28, 2002 (the "Effective Date") upon the satisfaction of the following conditions precedent not later than October 30, 2002 or such later date as may be agreed by the Required Lenders: (a) Amendment. The Collateral Agent and the Lenders shall have received counterparts of this Amendment duly executed by Giant Industries, Giant Arizona, the Borrower, the Constituent Company Guarantors, the Collateral Agent, and the Required Lenders. (b) Amendment Fee. Giant Industries shall have paid the amendment fee described in Section 6 of this Amendment, and all accrued, unpaid fees, costs and expenses owed pursuant to this Amendment, the Operative Documents or any other agreement related thereto, to the extent then due and payable, together with Attorney Costs of the Collateral Agent and the Lenders to the extent then invoiced prior to or on the closing date of this Amendment. (c) No Default under, and Amendment of, Giant Industries Credit Agreement. Giant Industries shall have provided evidence satisfactory to the Collateral Agent and the Lenders that (i) the Giant Industries Credit Agreement has been amended to contain representations, warranties, covenants and conditions no more restrictive than those contained in the Operative Documents, as amended by this Amendment; and shall not be in conflict with the Operative Documents, as amended by this Amendment; and (ii) no default or event of default shall exist under the Giant Industries Credit Agreement. (d) Resolutions. The Collateral Agent and the Lenders shall have received (i) resolutions of the board of directors of the Parent Guarantors and the Borrower authorizing the execution and delivery of this Amendment, certified by the Secretary or an Assistant Secretary of each such entity; (ii) if not previously delivered to the Collateral Agent and the Lenders, a certificate of the Secretary or Assistant Secretary of the Parent Guarantors and the Borrower certifying the names and true signatures of the officers of each such entity authorized to execute and deliver this Amendment. (e) Opinions. The Collateral Agent and the Lenders shall have received opinions of counsel to the Parent Guarantors and the Borrower in form and substance satisfactory to the Collateral Agent, the Lenders and their counsel. (f) No Material Adverse Effect. Except as disclosed in writing to the Collateral Agent and the Lenders prior to the Amendment Effective Date, no event or circumstance has occurred that has resulted or would reasonably be expected to result in a Material Adverse Effect. (g) No Default. As of such effective date, at the time of and after giving effect to the waiver pursuant to this Amendment, no Default or Event of Default has occurred and is continuing. (h) Payment of Fees. Giant Industries shall have paid all accrued, unpaid fees, costs and expenses owed pursuant to this Amendment, the Operative Documents or any other agreement between the Parent Guarantors and the Borrower and the Collateral Agent or any Lender, to the extent then due and payable, together with Attorney Costs of the Collateral Agent to the extent then invoiced prior to or on the closing date of this Amendment. (i) Other. The Lenders shall have received such other approvals, opinions and documents as the Lenders deem appropriate. Upon satisfaction of the foregoing conditions precedent set forth in this Section 5, the Collateral Agent shall notify Giant Industries and the Lenders in writing, and the date set forth in such notice shall be the effective date of this Amendment. SECTION 6. AMENDMENT FEE. Giant Industries agrees to pay to the Collateral Agent for the account of each Lender which timely executes a counterpart of this Amendment, an amendment fee equal to 0.25% of such Lender's Commitment. Such amendment fee shall be due and payable in full on the date of execution of this Amendment by Giant Industries and such Lender, shall be fully earned when due and payable, and shall be in addition to any other fee, cost or expense payable pursuant to the Operative Documents. SECTION 7. COSTS, EXPENSES AND TAXES. Giant Industries agrees to pay on demand reasonable Attorney Costs of the Lenders and the Collateral Agent and all other costs and expenses of the Lenders and the Collateral Agent in connection with the preparation, execution and delivery of this Amendment and the mortgages, assignments, security agreements, financing statements and other documents and instruments contemplated hereby. In addition, Giant Industries shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution and delivery, filing or recording of this Amendment and the other documents and instruments to be executed and delivered hereunder, and agrees to save the Collateral Agent and the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes or fees. SECTION 8. ACKNOWLEDGEMENT OF DEFAULT INTEREST RATE. The Borrower and the Parent Guarantor each hereby acknowledge and agree that, in accordance with the definition of the term "Interest Rate" as set forth in the Loan Agreement, from and after September 30, 2002 through and including the Effective Date, Interest with respect to the Loans shall be payable at the Interest Rate in effect immediately prior to the occurrence of the Specified Defaults plus 2.00%. SECTION 9. MISCELLANEOUS. Section 9.1. Guarantor Obligations. Each Guarantor hereby ratifies and affirms in all respects it obligations under its guaranty and acknowledges that such guaranty shall remain in full force and effect. Section 9.2. Construction. This Amendment shall be construed in connection with and as part of the Loan Agreement and the other Operative Documents, and except as modified and expressly amended by this Amendment, all terms, conditions and covenants contained in the Loan Agreement and the other Operative Documents are hereby ratified and shall be and remain in full force and effect. Section 9.3. Headings and Table of Contents. The headings of the Sections of this Amendment are inserted for purposes of convenience only and shall not be construed to affect the meaning or construction of any of the provisions hereof and any reference to numbered Sections, unless otherwise indicated, are to Sections of this Amendment. Section 9.4. References. Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Amendment may refer to the Loan Agreement and the other Operative Documents without making specific reference to this Amendment but nevertheless all such references shall be deemed to include this Amendment unless the context otherwise requires. Section 9.5. Counterparts. This Amendment may be executed in any number of counterparts, each executed counterpart constituting an original but all together only one Amendment. Section 9.6. Governing Law. This Amendment shall be governed by and construed in accordance under the laws of the State of New York without regard to conflict of law principles (other than Title 14 of Article V of the New York General Obligation Law). [Signature Pages begin on Next Page] Executed and delivered as of this 28th day of October, 2002. GIANT YORKTOWN, INC., as Borrower By: /S/ GARY R. DALKE -------------------------------- Name: GARY DALKE Its: CAO GIANT INDUSTRIES, INC., as a Guarantor By: /S/ GARY R. DALKE -------------------------------- Name: GARY DALKE Its: CAO GIANT INDUSTRIES ARIZONA, INC. , as a Guarantor By: /S/ GARY R. DALKE -------------------------------- Name: GARY DALKE Its: CAO BLACK DIAMOND INTERNATIONAL FUNDING, LTD., as a Lender By: /S/ ALAN CORKISH ------------------------------- Name: ALAN CORKISH Title: DIRECTOR TRS1 LLC, as a Lender By: /S/ ROSEMARY F. DUNNE ------------------------------- Name: ROSEMARY F. DUNNE Title: ATTORNEY-IN-FACT GMAC BUSINESS CREDIT LLC, as a Lender By: /S/ L. M. STEVENS ------------------------------- Name: L. M. STEVENS Title: DIVISION CHIEF CREDIT OFFICER ORIX FINANCIAL SERVICES, INC. , as a Lender By: /S/ MARK A. KASSIS ------------------------------- Name: MARK A. KASSIS Title: SENIOR VICE PRESIDENT TRANSAMERICA EQUIPMENT FINANCIAL SERVICES CORPORATION, as a Lender By: /S/ JAMES R. BATES ------------------------------- Name: JAMES R. BATES Title: VICE PRESIDENT WELLS FARGO BANK NEVADA, NATIONAL ASSOCIATION, as Collateral Agent By: /S/ VAL T. ORTON ------------------------------- Name: VAL T. ORTON Title: TRUST OFFICER Each of the undersigned hereby further confirms its continued guaranty of the obligations of the Borrower under the Loan Agreement, as amended hereby, pursuant to the terms of its guaranty on this 28th day of October, 2002. GIANT FOUR CORNERS, INC. By: /S/ GARY R. DALKE -------------------------------- Name: GARY DALKE Title: CAO Address: c/o Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255-3465 Attention: President SAN JUAN REFINING COMPANY By: /S/ GARY R. DALKE -------------------------------- Name: GARY DALKE Title: CAO Address: c/o Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255-3465 Attention: President PHOENIX FUEL CO., INC. By: /S/ GARY R. DALKE -------------------------------- Name: GARY DALKE Title: CAO Address: c/o Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255-3465 Attention: President GIANT MID-CONTINENT, INC. By: /S/ GARY R. DALKE -------------------------------- Name: GARY DALKE Title: CAO Address: c/o Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255-3465 Attention: President GIANT STOP-N-GO OF NEW MEXICO, INC. By: /S/ GARY R. DALKE -------------------------------- Name: GARY DALKE Title: CAO Address: c/o Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255-3465 Attention: President EXHIBIT E-6 TO LOAN AGREEMENT DATED AS OF MAY 14, 2002 FORM OF COMPLIANCE CERTIFICATE The undersigned authorized Responsible Officer of GIANT INDUSTRIES, INC. (the "Company"), delivers this Certificate pursuant to the Parent Guaranty Agreement, dated as of May 14, 2002 (as the same may be amended, modified or restated from time to time, the "Parent Guaranty"), from the Company and Giant Industries Arizona, Inc.). The undersigned hereby certifies to the Collateral Agent (as defined below) and the Lenders (as defined below) as follows: 1. A review of the activities of the Company and its Subsidiaries during the period from ___________, 200__ to ____________, 200__, has been made to obtain the information necessary to execute and deliver this Certificate. 2. To the best of the undersigned's knowledge, information and belief, except as described in Attachment 2 attached hereto, as of the date hereof: (a) no Default or Event of Default exists under the Loan Agreement (as defined below); (b) the Company and its Subsidiaries are in compliance with the financial covenants contained in the Parent Guaranty as set forth in Attachment 1 attached hereto; (c) the representations and warranties contained in Section 5 of the Parent Guaranty are true and correct (except such representations and warranties which expressly refer to an earlier date, which are true and correct in all material respects as of such earlier date; (d) [no material change in terms (as documented in a written amendment) has occurred with respect to the Giant Industries Credit Agreement (or similar replacement facility)] / [a material change in terms (as documented in a written amendment) has occurred with respect to the Giant Industries Credit Agreement (or similar replacement facility) and the amendment documenting such change in terms is attached hereto]; (e) Bank of America, as agent under the Giant Industries Credit Agreement, has not been terminated or resigned its position as agent under the Giant Industries Credit Agreement and (f) [a "Deposit Account Triggering Event" (as defined in the Giant Industries Credit Agreement) has not occurred] / [a "Deposit Account Triggering Event" (as defined in the Giant Industries Credit Agreement) has occurred, and the Company hereby provides written notice thereof to the Collateral Agent and the Lenders, or has previously provided written notice thereof to the Collateral Agent and the Lenders within five (5) Business Days thereof]). 3. The Company and each of its Subsidiaries are in compliance with their notice and reporting obligations under Section 6 of the Parent Guaranty executed by the Company and Section 16 of the Constituent Companies Guaranty executed by a Subsidiary. EXHIBIT A (to Second Amendment) Capitalized terms used herein without definition have the meanings assigned to them in that certain Loan Agreement, dated as of May 14, 2002 ("Loan Agreement"), by and among Giant Yorktown, Inc., as borrower, Wells Fargo Bank Nevada, National Association, as collateral agent ("Collateral Agent") and the Persons listed on Schedule IA thereto, as lenders (the "Lenders"). EXECUTED AND DELIVERED as of _________________, ____. GIANT INDUSTRIES, INC. ________________________ Responsible Officer ATTACHMENT 1 GIANT INDUSTRIES, INC. & SUBSIDIARIES CALCULATION OF FINANCIAL COVENANTS AND RATIOS AS OF ________________, 200_ (THE "DETERMINATION DATE") 1. Minimum Consolidated Tangible Net Worth (Section 6A(l) of the Parent Guaranty) (a) Consolidated Net Income, computed on a cumulative basis for the period beginning October 1, 2002, and ending on the Determination Date (provided no negative adjustment will be made in the event Consolidated Net Income is a deficit for such period): $________ (b) 50% of the amount in 1(a): $________ (c) 75% of the net assets received from the issuance of any capital stock by the Company after October 1, 2002: $________ (d) Plus $80,000 $________ (e) Minimum Consolidated Tangible Net Worth (the sum of 1(b) plus 1(c) plus 1(d)): $________ (f) Consolidated Tangible Net Worth: (i) Consolidated Net Worth: $________ (ii) Net book value of intangible assets: $________ (iii) Consolidated Tangible Net Worth (1(f)(i) minus 1(f)(ii)): $________ 2. Minimum Fixed Charge Coverage Ratio (Section 6A(m) of the Parent Guaranty) A. For any date of determination from October 1, 2002 through December 31, 2003: (a) Consolidated EBITDA for the four fiscal quarters ending on the Determination Date: (i) Consolidated Net Income: $________ (ii) Consolidated Interest Expense: $________ (iii) Taxes measured by income included in the determination of Consolidated Net Income: $________ (iv) Expenses for depreciation and amortization of intangibles deducted from the determination of Consolidated Net Income: $________ (v) Non-cash losses associated with asset dispositions deducted from the determination of Consolidated Net Income: $________ (vi) Adjustment on pro forma basis to account for Yorktown Acquisition [Applicable for four fiscal quarters ended on June 30, 2002, September 30, 2002, December 31, 2002, and March 31, 2003]: $________ (vii) Non-cash gains associated with asset dispositions included in the determination of Consolidated Net Income: $________ (viii)Consolidated EBITDA (the sum of 2(a)(i) through 2(a)(vi) minus 2(a)(vii)): $________ (b) Consolidated Rents for the four fiscal quarters ending on the Determination Date: $________ (c) Subtotal (the sum of 2(a)(viii) plus 2(b)): $________ (d) Consolidated Interest Expense during the four fiscal quarters ending on the Determination Date: (i) Interest in respect of Indebtedness and imputed interest with respect to Capital Leases accrued or capitalized (whether or not paid and including fees payable in respect of letters of credit and bankers' acceptances): $________ (ii) Net amounts payable (or minus net amounts receivable) under Swap Contracts (other than Commodity Swaps): $________ (iii) Dividends paid, declared or accrued in respect of preferred stock: $________ (iv) Subtotal (the sum of 2(d)(i) through 2(d)(iii): $________ (v) Non-amortized fees and financing costs related to the incurrence of the Indebtedness: $________ (vi) Consolidated Interest Expense (the sum of item 2(d)(iv) minus 2(d)(v)): $________ (e) Consolidated Rents during the four fiscal quarters ending on the Determination Date: $________ (f) Scheduled amortization of Company's and Subsidiaries' Indebtedness during the four fiscal quarters ending on the Determination Date: $________ (g) Cash income taxes during the four fiscal quarters ending on the Determination Date: $________ (h) Subtotal (the sum of 2(d)(vi) plus 2(e) plus 2(f) plus 2(g)): $________ (i) Interest Coverage Ratio (the ratio of 2(c) to 2(h)): ____:1.00 (j) Minimum Fixed Charge Coverage Ratio required by Section 6A(m) of the Parent Guaranty: From October 1, 2002 to June 30, 2003 1.00:1.00 From July 1, 2003 and thereafter 1.10:1.00 B. For any date of determination from the Closing Date through September 30, 2002, and after January 1, 2004: (a) Consolidated EBITDA for the four fiscal quarters ending on the Determination Date: (i) Consolidated Net Income: $________ (ii) Consolidated Interest Expense: $________ (iii) Taxes measured by income included in the determination of Consolidated Net Income: $________ (iv) Expenses for depreciation and amortization of intangibles deducted from the determination of Consolidated Net Income: $________ (v) Non-cash losses associated with asset dispositions deducted from the determination of Consolidated Net Income: $________ (vi) Adjustment on pro forma basis to account for Yorktown Acquisition [Applicable for four fiscal quarters ended on June 30, 2002, September 30, 2002, December 31, 2002, and March 31, 2003]: $________ (vii) Non-cash gains associated with asset dispositions included in the determination of Consolidated Net Income: $________ (viii)Consolidated EBITDA (the sum of 2(a)(i) through 2(a)(vi) minus 2(a)(vii)): $________ (b) Consolidated Rents for the four fiscal quarters ending on the Determination Date: $________ (c) To the extent excluded from calculation of Consolidated EBITDA in 2(a), Margin Payments under Yorktown Asset Purchase Agreement during the four fiscal quarters ending on the Determination Date (excluding Margin Payments treated as Capital Expenditures). $________ (d) Capital expenditures during the four fiscal quarters ending on the Determination Date: $________ (e) Cash income taxes during the four fiscal quarters ending on the Determination Date: $________ (f) Subtotal (the sum of 2(a)(viii) plus 2(b) plus 2(c) minus 2(d) minus 2(e)): $________ (g) Consolidated Interest Expense during the four fiscal quarters ending on the Determination Date: (i) Interest in respect of Indebtedness and imputed interest with respect to Capital Leases accrued or capitalized (whether or not paid and including fees payable in respect of letters of credit and bankers' acceptances): $________ (ii) Net amounts payable (or minus net amounts receivable) under Swap Contracts (other than Commodity Swaps): $________ (iii) Dividends paid, declared or accrued in respect of preferred stock: $________ (iv) Subtotal (the sum of 2(g)(i) through 2(g)(iii): $________ (v) Non-amortized fees and financing costs related to the incurrence of the Indebtedness: $________ (vi) Consolidated Interest Expense (the sum of item 2(g)(iv) minus 2(g)(v)): $________ (h) Consolidated Rents during the four fiscal quarters ending on the Determination Date: $________ (i) Scheduled amortization of Company's and Subsidiaries' Indebtedness during the four fiscal quarters ending on the Determination Date: $________ (j) Margin Payments under Yorktown Asset Purchase Agreement during the four fiscal quarters ending on the Determination Date: $________ (k) Subtotal (the sum of 2(g)(vi) plus 2(h) plus 2(i) plus 3(j)): $________ (l) Interest Coverage Ratio (the ratio of 2(f) to 2(k)): ____:1.00 (m) Minimum Fixed Charge Coverage Ratio required by Section 6A(m) of the Parent Guaranty: From October 1, 2002 to June 30, 2003 1.00:1.00 From July 1, 2003 and thereafter 1.10:1.00 3. Total Leverage Ratio (Section 6A(n) of the Parent Guaranty) (a) Consolidated Funded Indebtedness: (i) Liabilities for borrowed money: $________ (ii) Liabilities for deferred purchase price of property or services (other than trade payables incurred in ordinary course on ordinary terms): $________ (iii) Obligations with respect to Surety Instruments: $________ (iv) Other obligations evidenced by Notes: $________ (v) Indebtedness of the type described in clause (e) of the definition of Indebtedness: $________ (vi) Capital Leases: $________ (vii) Off-Balance Sheet obligations: $________ (viii)Net obligations under Swap Contracts: $________ (ix) Indebtedness of the type described in clause (h) of the definition Indebtedness: $________ (x) Obligations to redeem or purchase stock or other equity interests: $________ (xi) Guaranty obligations in respect of the foregoing: $________ (xii) Consolidated Funded Indebtedness (the sum of items 3(a)(i) through 3(a)(xi)): $________ (b) Consolidated EBITDA for the four fiscal quarters ending on the Determination Date (3(a)(viii)): $________ (c) Total Leverage Ratio (the ratio of 3(a)(xii) to 3(b)): ____:1.0 (d) Maximum Total Leverage Ratio permitted under Section 6A(n) of the Parent Guaranty: From October 1, 2002 to December 31, 2002 6.50:1.00 From January 1, 2003 to March 31, 2003 7.50:1.00 From April 1, 2003 to June 30, 2003 7.00:1.00 From July 1, 2003 to September 30, 2003 5.50:1.00 From October 1, 2003 to December 31, 2003 4.50:1.00 From January 1, 2004 to March 31, 2004 4.00:1.00 April 1, 2004 and thereafter 3.75:1.00 4. Senior Leverage Ratio (Section 6A(o) of the Parent Guaranty) (a) Consolidated Funded Indebtedness (4(a)(xii)): $________ (b) Indebtedness evidenced by Subordinated Notes: $________ (c) Consolidated Senior Indebtedness (4(a) minus 4(b)): $________ (d) Consolidated EBITDA for the four fiscal quarters ending on the Determination Date: $________ (e) Senior Leverage Ratio (ratio of 4(c) to 4(d)): ____:1.0 Maximum Senior Leverage Ratio permitted under Section 6A(o) of the Parent Guaranty: 1.50:1.00 5. Minimum Quarterly Consolidated EBITDA (Section 6A(s) of the Parent Guaranty) (a) Consolidated EBITDA for fiscal quarters ending on the Determination Date: $________ (i) Consolidated Net Income: $________ (ii) Consolidated Interest Expense: $________ (iii) Taxes measured by income included in the determination of Consolidated Net Income: $________ (iv) Expenses for depreciation and amortization of intangibles deducted from the determination of Consolidated Net Income: $________ (v) Non-cash losses associated with asset dispositions deducted from the determination of Consolidated Net Income: $________ (vi) Non-cash gains associated with asset dispositions included in the determination of Consolidated Net Income: $________ (vii) Consolidated EBITDA (the sum of 5(a)(i) through 5(a)(v) minus 5(a)(vi)): $________ (b) Minimum Quarterly Consolidated EBITDA required under 6A(s) of the Parent Guaranty: From October 1, 2002 through March 31, 2003 $8,500,000 From April 1, 2003 and thereafter $15,000,000 6. Maximum Capital Expenditures (Section 6A(t) of the Parent Guaranty) (a) Capital Expenditures (other than Margin Payments treated as Capital Expenditures) for fiscal quarter ending on the Determination Date: $________ (b) Maximum Capital Expenditures required under 6A(t) of the Parent Guaranty: From October 1, 2002 through December 31, 2002 $6,000,000 From January 1, 2003 through March 31, 2003 $6,000,000 From April 1, 2003 through June 30, 2003 $8,000,000 From July 1, 2003 through September 30, 2003 $18,000,000 From October 1, 2003 through December 31, 2003 $12,000,000 Capitalized terms used herein without definition have the meanings assigned to them in the Loan Agreement. EXECUTED AND DELIVERED as of _________________, _____. GIANT INDUSTRIES, INC. _________________________ Responsible Officer ATTACHMENT 2 EXCEPTIONS TO COMPLIANCE CERTIFICATE SCHEDULE 6(a)(iii) FINANCIAL INFORMATION See the following pages EXHIBIT B (to Second Amendment) GIANT INDUSTRIES, INC. Consolidated Balance Sheets June 30, 2002 6/30/2002 12/31/2001 Assets --------- ---------- Current Assets Cash and cash equivalents Accounts receivable, net Inventories, at cost Prepaid expenses and other current assets Deferred income taxes Total current assets --------- ---------- --------- ---------- Property, plant and equipment, at cost less accumulated depreciation --------- ---------- --------- ---------- Other assets --------- ---------- ========= ========== Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt Accounts payable Accrued liabilities --------- ---------- Total current liabilities --------- ---------- Long-term debt, net of current portion Long-term pension obligations Other liabilities Deferred income taxes Stockholders' equity --------- ---------- ========= ========== GIANT INDUSTRIES, INC. Consolidated Income Statements June 30, 2002 Current Quarter Year to Date ------------------- ------------------- Actual Last Year Actual Last Year ------ --------- ------ --------- Net revenues Cost of products sold ------ --------- ------ --------- Gross margin Operating expenses Selling, general and administrative (Gain)/Loss on disposal/ sale of assets Depreciation and amortization ------ --------- ------ --------- Operating income Interest expense Amortization of Financing Fees Interest and Investment Income ------ --------- ------ --------- Interest expense, net ------ --------- ------ --------- Earnings from operations Provision (benefit) for taxes ------ --------- ------ --------- Net earnings (loss) ====== ========= ====== ========= Earnings per common share: Weighted average shares outstanding GIANT INDUSTRIES, INC. Consolidating Income Statements June 30, 2002
Current Month ---------------------------------------------------------------------------- Refining Retail Phoenix Reclass and Group Group Fuel Corporate Total eliminations Consolidated Revenues Cost of products sold ---------------------------------------------------------------------------- Gross margin ---------------------------------------------------------------------------- Operating expenses SGA (Gain)/Loss on disposal/sale of assets Deprecation & Amortization Interest expense, net ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Earnings before taxes ============================================================================ Year to Date ---------------------------------------------------------------------------- Refining Retail Phoenix Reclass and Group Group Fuel Corporate Total eliminations Consolidated Revenues Cost of products sold ---------------------------------------------------------------------------- Gross margin ---------------------------------------------------------------------------- Operating expenses SGA (Gain)/Loss on disposal/sale of assets Deprecation & Amortization Interest expense, net ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Earnings before taxes ============================================================================
GIANT INDUSTRIES, INC. Consolidating Income Statements June 30, 2002
Current Quarter ---------------------------------------------------------------------------- Refining Retail Phoenix Reclass and Group Group Fuel Corporate Total eliminations Consolidated Revenues Cost of products sold ---------------------------------------------------------------------------- Gross margin ---------------------------------------------------------------------------- Operating expenses SGA (Gain)/Loss on disposal/sale of assets Deprecation & Amortization Interest expense, net ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Earnings before taxes ============================================================================
GIANT INDUSTRIES, INC. Consolidated Cash Flow Statements June 30, 2002
Month Quarter Year to Date ----- ------- ------------ Cash flows from operating activities: Net earnings (loss) Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Depreciation and amortization Deferred income taxes (Gain) Loss on disposal or write-down of assets Changes in operating assets and liabilities: Decrease (increase) in accounts receivable Decrease (increase) in inventories Decrease (increase) in prepaid expense Increase (decrease) in accounts payable Increase (decrease) in accrued liabilities Increase (decrease) in income taxes payable Decrease (increase) in other non-current assets ----- ------- ------------ Net cash provided by (used in) operations ----- ------- ------------ Cash flows from investing activities: Purchase of property, plant and equipment Yorktown Refinery acquisition, incl. Inventory & other costs Decrease (increase) of other assets Proceeds from sale of assets ----- ------- ------------ Net cash provided by (used in) investing activities ----- ------- ------------ Cash flows from financing activities: Payments of long-term debt (Increase) Decrease to Financing costs Proceeds from long-term debt Proceeds from exercise of stock options ----- ------- ------------ Net cash provided by (used in) financing activities ----- ------- ------------ Net increase (decrease) in cash and cash equivalents Cash and cash equivalents: Beginning of period ----- ------- ------------ End of period ===== ======= ============
GIANT INDUSTRIES, INC. Operating Statistics June 30, 2002 Current Month 2002 2001 - ------------------------------------------ ---- ---- Refinery sourced sales bbls (bbls/day) Average crude oil costs ($/bbl) Refinery margin ($/bbl) Retail Stores - Fuel volume Retail Stores - Fuel margin (per gal) Retail Stores - Total merchandise sales Retail Stores Merchandise margin GTC Division - Fuel volume GTC Division - Fuel margin (per gal) GTC Division - Total merchandise sales GTC Merchandise margin Current Quarter 2002 2001 - ------------------------------------------ ---- ---- Refinery sourced sales bbls (bbls/day) Average crude oil costs ($/bbl) Refinery margin ($/bbl) Retail Stores - Fuel volume Retail Stores - Fuel margin (per gal) Retail Stores - Total merchandise sales Retail Stores Merchandise margin GTC Division - Fuel volume GTC Division - Fuel margin (per gal) GTC Division - Total merchandise sales GTC Merchandise margin GIANT INDUSTRIES, INC. Operating Statistics June 30, 2002 Year to Date 2002 2001 - ------------------------------------------ ---- ---- Refinery sourced sales bbls (bbls/day) Average crude oil costs ($/bbl) Refinery margin ($/bbl) Retail Stores - Fuel volume Retail Stores - Fuel margin (per gal) Retail Stores - Total merchandise sales Retail Stores Merchandise margin GTC Division - Fuel volume GTC Division - Fuel margin (per gal) GTC Division - Total merchandise sales GTC Merchandise margin GIANT INDUSTRIES, INC. Cash Flow Statement by Operating Division June 30, 2002
Current Month --------------------------------------------------------- Earnings (Loss) Add Less capital Cash flow From Operations depreciation expenditures by division Division - -------- Ciniza Refinery Bloomfield Refinery Yorktown Refinery Refinery Other Transportation (Incl Pipeline) Giant Division Thriftway Division Travel Center Phoenix Fuel Companies Yorktown Refinery Acquisition Corporate -------- -------- -------- --------- Totals -------- -------- -------- --------- Year to Date --------------------------------------------------------- Earnings (Loss) Add Less capital Cash flow From Operations depreciation expenditures by division Division - -------- Ciniza Refinery Bloomfield Refinery Yorktown Refinery Refinery Other Transportation (Incl Pipeline) Giant Division Thriftway Division Travel Center Phoenix Fuel Companies Yorktown Refinery Acquisition Corporate -------- -------- -------- --------- Totals -------- -------- -------- ---------
GIANT INDUSTRIES, INC. Cash Flow Statement by Operating Division June 30, 2002
Current Quarter --------------------------------------------------------- Earnings (Loss) Add Less capital Cash flow From Operations depreciation expenditures by division Division - -------- Ciniza Refinery Bloomfield Refinery Yorktown Refinery Refinery Other Transportation (Incl Pipeline) Giant Division Thriftway Division Travel Center Phoenix Fuel Companies Yorktown Refinery Acquisition Corporate -------- -------- -------- --------- Totals -------- -------- -------- ---------
GIANT REFINING COMPANY Yorktown Refinery Quarter Ended June 2002 Actual Last Year ------ --------- Refinery Sourced Revenues - ------------------------- Gasoline Diesel Other product, misc. Differentials ------ --------- Total refinery revenues ------ --------- Cost of Revenues - ---------------- Cost of revenues Own consumed fuel LIFO/LCM inventory adjustment ------ --------- Total cost of revenues ------ --------- Refinery Margin Miscellaneous ------ --------- Gross Margin Operating Expenses - ------------------ Refinery operations (Gain) loss on disposal of assets ------ --------- Earnings (Loss) Before Taxes ------ --------- Refinery Sourced Sales Barrels Refinery Production Barrels Statement of Income per Barrel: - ------------------------------ Revenues Cost of revenues ------ --------- Refinery margin-LIFO ------ --------- Refinery margin-FIFO ------ --------- Oper. exp. per production barrel ------ --------- Average crude oil costs ------ --------- Average natural gas costs ------ --------- GIANT REFINING COMPANY Ciniza Refinery Quarter Ended June 2002 Actual Last Year ------ --------- Refinery Sourced Revenues - ------------------------- Gasoline Diesel Jet A/kerosene Other product, misc. Differentials ------ --------- Total refinery revenues ------ --------- Cost of Revenues - ---------------- Cost of revenues Own consumed fuel LIFO/LCM inventory adjustment ------ --------- Total cost of revenues ------ --------- Refinery Margin ------ --------- Gross Margin Operating Expenses - ------------------ Refinery operations (Gain) loss on disposal of assets ------ --------- Earnings (Loss) Before Taxes ------ --------- Refinery Sourced Sales Barrels Refinery Production Barrels Statement of Income per Barrel: - ------------------------------ Revenues Cost of revenues ------ --------- Refinery margin-LIFO ------ --------- Refinery margin-FIFO ------ --------- Oper. exp. per production barrel ------ --------- Average crude oil costs ------ --------- Average natural gas costs ------ --------- GIANT REFINING COMPANY Bloomfield Refinery Quarter Ended June 2002 Actual Last Year ------ --------- Refinery Sourced Revenues - ------------------------- Gasoline Diesel Other product, misc. Differentials ------ --------- Total refinery revenues ------ --------- Cost of Revenues - ---------------- Cost of revenues Own consumed fuel LIFO/LCM inventory adjustment ------ --------- Total cost of revenues ------ --------- Refinery Margin ------ --------- Gross Margin Operating Expenses - ------------------ Refinery operations (Gain) loss on disposal of assets ------ --------- Earnings (Loss) Before Taxes ------ --------- Refinery Sourced Sales Barrels Refinery Production Barrels Statement of Income per Barrel: - ------------------------------ Revenues Cost of revenues ------ --------- Refinery margin-LIFO ------ --------- Refinery margin-FIFO ------ --------- Oper. exp. per production barrel ------ --------- Average crude oil costs ------ --------- Average natural gas costs ------ --------- GIANT INDUSTRIES, INC. Retail Group By Market Area Analysis Of Net Income/Investment Year to Date June 2002 12 Month Rolling
Cash Flow Based Store Operating on Store Store Operating Cash Flow Gross Market Areas Profit Operating Profit Profit Annualized Annualized Investment ROI - ------------ ------------------------------------------------------------------------------------- Albuquerque: #5-Albq. San_Mateo #10-Albq. Menaul #11-Albq. Rio_Bravo #15-Albq. Rio_Rancho #20-Albq. Coors/Central #24-Albq. Tramway #25-Albq. Coors/Quail #26-Albq. Coors/Arenal #27-Albq. Academy #31-Albq. Southern #33-Los_Lunas #34-Albq. Candalaria #35-Albq. Eubank #36-Bernalillo #37-Rio_Rancho SR_528 #38-Albq. 4th/Vineyard #39-Belen #41-Golf_Course #43-Los_Lunas Main #48-Cuba, NM #168, FFCA-Bernalillo, NM #278, FFCA-Estancia, NM #283, FFCA-Belen, NM #293, FFCA-Bernalillo, NM #445, Albuquerque, NM Giant #549 Bosque Farms, NM ------------------------------------------------------------------------------------- Santa Fe: #023, Cerrillos Rd, Santa Fe, NM #46-Santa_Fe Sawmill #55-Santa_Fe St. #56-Santa Fe/St. Michaels #163, FFCA-Espancia, NM #200, Cuba, NM #232, San Ysidro, NM #294, Arroyo Seco, NM #297, FFCA-Rancho de Taos, NM #554, FFCA-Santa Fe, NM ------------------------------------------------------------------------------------- Bloomfield: #101-Farmington
Cash Flow Based Store Operating on Store Store Operating Cash Flow Gross Market Areas Profit Operating Profit Profit Annualized Annualized Investment ROI - ------------ ------------------------------------------------------------------------------------- #103-Kirtland #4-Farmington Broadway #14-Farmington Main_St #44-Aztec, NM #47-Bloomfield, NM #49-662 E. Main, Farmington #118 FFCA-Aztec, NM #159, Farmington, NM #197, FFCA-Aztec, NM #210, FFCA-Bloomfield, NM #211, FFCA-Farmington, NM #214, FFCA-Bloomfield, NM #218, FFCA-Farmington, NM #220, Farmington, NM #227, Aztec, NM #239, FFCA-Bloomfield, NM #240, FFCA-Farmington, NM #262, Kirtland, NM #265 and #270 #292, Farmington, NM #310, FFCA-Waterflow, NM #556, FFCA-Farmington, NM ------------------------------------------------------------------------------------- Gallup: #24-Hwy. 66, Gallup #9-Gallup 2nd_Street #12-Gallup Hwy_666 #196, Vanderwagen, NM #203, FFCA-Sanders, AZ #204, FFCA-Gallup, NM #207, Church Rock, NM #208, Gallup, NM #245, Crownpoint NM #256, Zuni, NM #257, FFCA - Thoreau, NM #295, FFCA - Milan, NM #408, FFCA - Gallup, NM #409, FFCA - Gallup, NM #557, FFCA - Gallup, NM ------------------------------------------------------------------------------------- Northeast Arizona: #202, LLC - Shiprock, NM #245, LLC - Teec Nos Pos, AZ #254, LLC - Winslow, AZ #233, Kayenta, AZ #251, Tohatchi, NM #252, Ganado, AZ #253, Lukachukai, AZ
Cash Flow Based Store Operating on Store Store Operating Cash Flow Gross Market Areas Profit Operating Profit Profit Annualized Annualized Investment ROI - ------------ ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- #255, Chinle, AZ #263, Cameron, AZ #268, Newcomb-Burnham, NM #267, Chinle, AZ #268, A&W, Chinle, AZ #106-Rock Point #107-Many Farms #108-Ft Definance Station #109-Tse Bonito #320, FFCA - Window Rock, AZ #601, Window Rock, AZ ------------------------------------------------------------------------------------- North Central Arizona: #03-Sedona #8-Flagstaff #16-Cottonwood #042-Payson, AZ #45-Flagstaff Butler #193, FFCA-Holbrook, AZ #219, FFCA-Springerville, AZ #222, FFCA-Lakeside, AZ #223, FFCA-Show Low, AZ #224, FFCA-Taylor, AZ Phoenix/Scottsdale: #01-Phx. 35th Glendale #13-Phx. Bell Road #17-Phx. Cave Creek #28-Phx. Greenway #30-Phx. Fl Wright #32-Scott Pinn Peak #801-Power and Broadway, Mesa, AZ #802-Brown & Ellsworth, Mesa, AZ #820-McDowell Mountain Ranch #829-Tatum & Dynamite, Phoenix, AZ #908 FFCA-Chandler, AZ #909 FFCA-Scottsdale, AZ #915 FFCA-Mesa, AZ #901 FFCA-Buckeye, AZ #917 FFCA-Mesa, AZ #918 FFCA-Mesa, AZ #912 Glendale, AZ ------------------------------------------------------------------------------------- Tucson & Southern Arizona: #511-Silverbell & Cortaro, Marana, AZ #812-Push View & Oracle, Oro Valley, AZ #813-Rancho Visi/Oracle, Oro Valley, AZ #900-Wilcox, AZ
Cash Flow Based Store Operating on Store Store Operating Cash Flow Gross Market Areas Profit Operating Profit Profit Annualized Annualized Investment ROI - ------------ ------------------------------------------------------------------------------------- #902 FFCA-Thatcher, AZ #903 FFCA-Safford, AZ #911 Douglas, AZ #919 Tucson, AZ #921 FFCA-Tucson, AZ #922 FFCA-Tucson, AZ #923 FFCA-Tucson, AZ #924 FFCA-Tucson, AZ #925 FFCA-Tucson, AZ #926 FFCA-Tucson, AZ #929 FFCA-Tucson, AZ #930 FFCA-Tucson, AZ #931 FFCA-Tucson, AZ ------------------------------------------------------------------------------------- Colorado #7-Durango #60-FFCA-Conoco, Main Ave. Durango, CO #61-FFCa-Conoco, Camino Del Rio, Durango #83-conoco Express-Bayfield CO #64-FFCA - Conoco Express - Cortez, CO #65-Conoco Express-Heromsa, CO #111 FFCA - Durango CO #184, Cortez, CO #229, FFCA - Dolores, CO #280, FFCA - Cortez, CO ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- Subtotal Giant Travel Center Division ------------------------------------------------------------------------------------- Subtotal Other: Discontinued Operations Rel Op Org Future Stores Retail Divisional Admin Thriftway Consignment Units ------------------------------------------------------------------------------------- TOTALS -------------------------------------------------------------------------------------
SCHEDULE 6(u)(iii) - SERVICE STATIONS AND CONVENIENCE STORES See the following pages EXHIBIT C (to Second Amendment)
Intersection Store Bldg. NBV Store# Title Mailing/Physical Address Vicinity City ST Zip County Brand Size Type 08/31/02 3101 Fee 517 W. Broadway Farmington NM 87401 San Juan Conoco/Mustang 515 C-Store 371,138 3103 Fee PO Box 295, 4151 US Hwy. 64 Kirtland NM 87417 San Juan Giant 2400 C-Store 912,707 6002 Fee 2654 E. Hwy 66 Gallup NM 87301 McKinley Conoco/Giant 1800 U/Canopy 652,265 6004 Fee 531 E. Broadway Farmington NM 87401 San Juan Giant 1800 C-Store 453,762 6005 Fee 6100 San Mateo NE Albuquerque NM 87109 Bernalillo Conoco/Giant 3324 C-Store 494,899 6011 Fee 201 Rio Bravo SW Albuquerque NM 87105 Bernalillo Giant 4028 C-Store 1,350,736 6014 Fee 3341 E. Main St. Farmington NM 87401 San Juan Giant 1400 U/Canopy 583,592 6015 Fee 3603 Hwy 528 Albuquerque NM 87114 Bernalillo Conoco/Giant 1320 C-Store U/C 778,750 6020 Fee 201 Coors Rd. NW Albuquerque NM 87105 Bernalillo Giant 2048 C-Store 801,256 6023 Fee 3730 Cerrillos Rd. Santa Fe NM 87505 Santa Fe Giant 1,486,561 6024 Fee 4720 Tramway NE Albuquerque NM 87111 Bernalillo Conoco 1838 C-Store U/C 827,096 6025 Fee 2930 Coors Rd. NW Albuquerque NM 87120 Bernalillo Conoco/Giant 1600 C-Store U/C 893,396 6026 Fee 1897 Coors Rd. Albuquerque NM 87105 Bernalillo Conoco/Giant 2178 C-Store 708,229 6027 Fee 6104 Academy NE Albuquerque NM 87109 Bernalillo Conoco/Giant 2178 C-Store 999,972 6033 Fee 3524 Hwy 47 Los Lunas NM 87031 Valencia Conoco/Giant 3700 C-Store 642,238 6034 Fee 135 Candelaria Rd. NW Albuquerque NM 87107 Bernalillo Conoco/Giant 2178 C-Store 667,520 6035 Fee 10400 Central SE Albuquerque NM 87123 Bernalillo Conoco/Giant 2178 C-Store 757,680 6036 Fee 224 Hwy 44 Bernalillo NM 87004 Sandoval Conoco/Giant 2633 C-Store 771,036 6037 Fee 1050 Hwy 528 Rio Rancho NM 87124 Sandoval Conoco/Giant 3250 C-Store 1,007,143 6038 Fee 6242 4th St. NW Rancho de Albuquerque NM 87107 Bernalillo Conoco/Giant 2178 C-Store 783,835 6041 Fee 9690 Golf Course Rd. NW Albuquerque NM 87114 Bernalillo Conoco/Giant 3203 C-Store 853,220 6043 Fee 233 Main St. SE Los Lunas NM 87031 Valencia Conoco/Giant 2720 C-Store 661,933 6044 Fee 122 Aztec Blvd. Aztec NM 87410 San Juan Giant Express 9.5 U/Canopy 612,455 6046 Fee 2691 Sawmill Rd Santa Fe NM 87505 Santa Fe Giant 4325 C-Store 1,362,500 6047 Fee 220 Bloomfield Blvd. F Bloomfield NM 87413 San Juan Shamrock 421,157 6048 Fee PO Box 116 6385 Hwy. 44 Cuba NM 87013 Sandoval Mustang 820 C-Store 322,946 6049 Fee 862 E. Main Farmington NM 87401 San Juan Mustang 765 C-Store 490,388 7118 Fee 17401 US 550 Aztec NM 87410 San Juan Mustang 1504 C-Store 738,035 7168 Fee 118 Hwy. 44 West Bernalillo NM 87004 Sandoval Mustang 2100 C-Store U/C 90,713 7183 Fee 902 N. Riverside Dr. Espanola NM 87532 Rio Arriba Mustang 1430 C-Store U/C 252,031 7197 Fee 321 Main Ave. Aztec NM 87410 San Juan Mustang 1104 C-Store 414,878 7200 Fee PO Box 741 6475 Main Cuba NM 87013 Sandoval Conoco/Mustang 3300 C-Store 721,956 7204* Fee HCR 4, Box 20 Hwy. 666 Gallup NM 87301 McKinley Mustang 6450 C-Store 1,695,049 7210 Fee 204 S. Bloomfield Blvd Bloomfield NM 87413 San Juan Mustang 3990 C-Store 1,162,472 7211 Fee 2700 W. Main Farmington NM 87401 San Juan Mustang 2950 C-Store 1,282,241 7214 Fee 602 W. Broadway Bloomfield NM 87413 San Juan Mustang 1932 C-Store 235,167 7218 Fee 5702 Hwy. 64 Farmington NM 87401 San Juan Conoco/Mustang 2650 C-Store 744,228 7227 Fee 416 N. Main Aztec NM 87410 San Juan Mustang 4355 C-Store 728,291 7239* Fee State Rte 4, Box 3000 Bloomfield NM 87413 San Juan Mustang 1830 C-Store 316,444 7240 Fee 3001 Bloomfield Hwy. Farmington NM 87401 San Juan Mustang 2650 C-Store 289,141 7257* Fee PO Box 609 Hwy. 371 Thoreau NM 87323 McKinley Mustang 11025 C-Store 582,958 7270* Fee 3215 Hwy. 64 Waterflow NM 87421 San Juan Mustang 1,506,040 7278 Fee Box 28 5th & Joseph Estancia NM 87016 Torrance Mustang 2180 C-Store 428,981 7283 Fee 1224 S. Main St. Belen NM 87002 Valencia Mustang 730 C-Store 241,875 7292* Fee PO Box 15186 1020 Bisti Hwy. 371 Farmington NM 87401 San Juan Mustang 3690 C-Store 788,810 7293 Fee 401 W. Hwy. 44 Bernalillo NM 87004 Sandoval Conoco/Giant 870 C-Store 1,325,742 7294 Fee Rte 3 Box 151 Hwy. 285 (Arroyo Seco, NM 87514) Espanola NM 87532 Santa Fe Mustang 1176 C-Store 120,597 7295 Fee P.O. Box 3047 610 W. Hwy. 66 Milan NM 87021 Cibola Mustang 432 U/Canopy 66,799 7297 Fee PO Box 1858 5180 Hwy. 68 RanchodeTaosNM 87557 Taos Mustang 1525 C-Store 547,452 7310 Fee PO Box 1443 3890 US Hwy. 64, Fruitland, NM Waterflow NM 87421 San Juan Mustang 2996 C-Store 1,266,669 7408 Fee 3340 E. Hwy. 66 Gallup NM 87301 McKinley Mustang 1377 C-Store 362,357 7409 Fee 3302 W. Hwy. 66 Gallup NM 87301 McKinley Conoco/Mustang 1537 C-Store 432,818 7445 Fee 1312 Bridge SW Albuquerque NM 87105 Bernalillo Gasman Kiosk 104,991 7549 Fee 650 Bosque Farms Blvd. BosqueFarms NM 87068 Valencia Conoco/Giant 759,955 7554 Fee 822 Camino Sierra Vista Santa Fe NM 87501 Santa Fe Mustang Kiosk 286,675 7556 Fee 1500 San Juan Blvd. Farmington NM 87401 San Juan Mustang 700 119,454 7557 Fee 800 E. Coal Gallup NM 87301 McKinley Mustang 1720 16,060 Total 38,297,287 *WIC
SCHEDULE 6A(b) - SCHEDULED ASSETS STORE ADDRESS CITY STATE 6906 945 N. Arizona Ave. Chandler AZ 6911 1807 10th Street Douglas AZ 6801 344 S. Power Rd. Mesa AZ 6915 6807 E. Baseline Rd. Mesa AZ 6918 2743 S. Alma School Rd. Mesa AZ 6908 300 Hwy. 70 Safford AZ 6902 2946 W. Hwy. 70 Thatcher AZ 6921 7366 N. Oracle Road Tucson AZ 6922 2100 W. Ruthrauff Rd. Tucson AZ 6923 1530 W. St. Mary's Road Tucson AZ 6924 761 W. Ajo Tucson AZ 6925 1202 W. Ajo Tucson AZ 6929 9491 E. 22nd St. Tucson AZ 6931 3780 W. Magee Rd. Tucson AZ 6900 201 N. Haskell Wilcox AZ 6917 3559 E. University Mesa AZ 6904 7630 E. McDowell Rd. Scottsdale AZ 6909 3301 N. Hayden Rd. Scottsdale AZ 6916 1951 E. Baseline Gilbert AZ 6910 7450 W. Thomas Rd. Phoenix AZ 7553 2504 Broadway SE Albuquerque NM 6907 1405 E. Ash Globe AZ 6903 2120 Hwy. 60/70 Miami AZ 6927 4479 W. Ina Rd. Tucson AZ 7442 3501 Isleta Blvd., SW Albuquerque NM 7291 Hwy. 371 Thoreau NM 7111 20329 Hwy 160 West Durango CO 7219 138 W. Main, Hwy. 60 Springerville AZ 6829 4740 E. Dynamite Blvd. Cave Creek AZ 6001 7035 North 35th Avenue Phoenix AZ EXHIBIT D (to Second Amendment) STORE ADDRESS CITY STATE 6802 1143 North Ellsworth Road Mesa AZ 6811 7810 North Silverbell Road Marana AZ 6812 10505 North Oracle Road Oro Valley AZ 6813 12885 North Oracle Road Oro Valley AZ 6901 825 Monroe Buckeye AZ 6912 5103 West Peoria Glendale AZ 6919 4180 West Ina Road Tucson AZ 6926 6500 South 12th Avenue Tucson AZ 6930 2750 South Kolb Road Tucson AZ 6051 4335 Highway 64 Kirtland NM 6928 6608 E. Main Mesa AZ 7150 2401 Main Ave. Durango CO 7559 435 Bosque Farms Blvd. Bosque Farms NM 7185 510 N. 666 Gallup NM 933 Greenfield @ Warner Gilbert AZ 803 I-10 @ Palo Verde - Raw Land Phoenix AZ 31-X Southern - Raw Land Albuquerque NM 19 Tanque Verde@Houghton - Raw Land Tucson AZ 806/22 22nd Street & Prudence - Raw Land Tucson AZ 841 Elmore Property - Hwy 160 East Durango CO 27-X 6104 Academy NE Albuquerque NM 800 Behind #48, NM SR 147 Cuba NM T.C.X. Jamestown Excess Property Gallup NM 6052 Hwy 66 Milan NM Travel Center Jamestown NM Kingman - Raw Land Kingman AZ Safford - Raw Land Safford AZ 91st and Bell - Raw Land Phoenix AZ Headquarters Scottsdale AZ Jomax - Raw Land Scottsdale AZ Tamarron Condos Durango CO SCHEDULE 6(A)(e) OTHER INDEBTEDNESS AND CONTINGENT OBLIGATIONS 1. Giant Industries and Giant Arizona: DESCRIPTION BALANCE Miscellaneous $ 500,000 (estimate) TOTAL $ 500,000 ========== 2. Phoenix: DESCRIPTION BALANCE David G. & Judith G. Scott $ 63,740.77 Chrysler Credit Corporation $ 6,869.29 Capital Lease Naumann Hobbs $ 8,225.82 Capital Lease ------------- $ 78,835.88 ============= 3. Obligations of Giant Four Corners, Inc. under the Master Lease and Option Agreement executed pursuant to, and in the form attached as Exhibit B to, the Definitive Agreement dated April 18, 1997 by and between Giant Four Corners, Inc. as "Buyer" and Thriftway Marketing Corp. and Clayton Investment Company, collectively as "Seller", and the Associated Purchase and Sale Agreements to such Definitive Agreement, not to exceed $6,702,831.72 in the aggregate, such obligations to be guaranteed by Giant Arizona. 4. Giant Industries is issuer of, and the Subsidiaries that are guarantors under the Operative Documents are guarantors of, the $150,000,000 9% Senior Subordinated Notes Due 2007, pursuant to the Indenture dated as of August 26,1997. 5. Giant Industries is issuer of, and the Subsidiaries that are guarantors under the Operative Documents are guarantors of, the $200,000,000 11% Senior Subordinated Notes Due 2012, pursuant to the Indenture dated as of May 14, 2002. EXHIBIT E (to Second Amendment) 6. Surety Bonds up to a maximum of $15,000,000.
Date Type of Bond Number Limit 1-1 Nevada License - Special Fuel Supplier 400SP7743 $383,600 1-1 Nevada Excise Tax - Fuel Tax 400SP7744 $502,900 1-1 Aviation, Liquid use and Motor Vehicle Fuel Bond SK1590 $100,000 1-1 Aviation, Liquid use and Motor Vehicle Fuel Bond - PF SK1591 $100,000 1-8 Nevada - Motor Fuel Bond 400SP7745 $1,000 1-12 Reservation Business Bond #756 SK1576 $10,000 1-12 Performance Bond #756 SK1577 $8,400 1-12 Reservation Business Bond #7233 SK1578 $10,000 1-12 Reservation Business Bond #7251 SK1579 $10,000 1-12 Reservation Business Bond #7252 SK1580 $10,000 1-12 Reservation Business Bond #7255 SK1586 $10,000 1-12 Reservation Business Bond #7263 SK1587 $10,000 1-12 Reservation Business Bond #7266 SK1588 $10,000 1-12 Reservation Business Bond #7267 SK1589 $10,000 1-25 Contract Postal Unit Bond #3106 SK1582 $4,000 1-26 Reservation Business Bond #3106 SK1584 $10,000 1-26 Reservation Business Bond #3107 400KA2115 $10,000 1-26 Reservation Business Bond #3108 SK1583 $10,000 1-26 Reservation Business Bond #3105 SK1585 $10,000 1-30 Reservation Bond #7225 KA2110 $10,000 1-30 Performance Bond #7225 KA2111 $10,000 1-30 Reservation Bond #3603 KA2112 $10,000 1-30 Performance Bond #3603 KA2113 $10,000 2-1 Performance Bond #3105 400KA2116 $16,500 2-1 Performance Bond #3106 400KA2117 $15,000 2-3 Performance Bond #7233 SK1575 $10,000 2-3 Performance Bond #7252 SK1595 $10,000 2-3 Performance Bond #7251 SK1596 $10,000 2-3 Performance Bond #7255 SK1597 $10,000 2-3 Performance Bond #7266 SK1598 $10,000 2-3 Performance Bond #7263 400KA2121 $10,000 2-3 Performance Bond #7267 400KA2122 $24,000 2-7 Fuel Distributor's License Bond SK1581 $600,00 2-7 Fuel Distributor's License Bond 400KA2120 $1,000 2-10 Performance Bond #3107 400KA2118 $17,000 2-10 Performance Bond #3108 400KA2119 $19,500 2-28 Performance Bond #245 SK1592 $10,000 2-28 Performance Bond #254 SK1593 $10,000 2-28 Reservation Business Bond #7202 SK1599 $10,000 2-28 Reservation Business Bond #7245 SK1600 $10,000 2-28 Reservation Business Bond #7254 SK1601 $10,000 2-28 Performance Bond #7202 SK1602 $10,000 3-3 Fuel Distributor's License Bond - PF SK1594 $5,000 3-8 Performance Bond, City of Chandler - PF SK1604 $5,000 3-16 Contract Postal Unit Bond #266 SK1605 $3,000 3-16 Contract Postal Unit Bond #263 SK1606 $2,500 3-17 Petroleum Weights and Measures SK1608 $1,000 3-28 US Dept. of Treasury Fuel Bond - PF SK1607 $200,000 4-10 Continuous Customs Bond - Yorktown I01127 $100,000 4-19 Foreign Trade Zone Bond - Yorktown I01128 $260,000 5-10 Virginia Natural Gas - Yorktown ST1623 $90,000 5-12 Wildlife Bond #7229 SK1611 $75,000 5-14 Fuel Tax Bond - Yorktown SK1603 $2,000,000 5-27 Purchase Livestock Bond #7265 SK1614 $10,000 5-30 Performance Bond #7253 SK1613 $10,000 5-30 Dealers & Packers Bond #7265 SK1612 $10,000 5-31 Motor Fuel Dealers/User/Seller - Yorktown SK1624 $210,000 Beginning Date 4-1 6-3 SRP Utility Bond ST1624 $29,345 6-11 Utah-Motor Fuel Tax Bond SK1621 $35,000 6-16 Fish & Wildlife Bond SK1619 $2,500 6-24 Tucson Electric Power Co. SK1616 $47,000 7-1 Utah, Fuel Tax Bond SK1622 $35,000 7-10 New Mexico Weighmaster Bond SK1618 $1,000 7-10 Reservation Business Bond #7253 SK1620 $10,000 7-19 City of Phoenix Surety Bond SK1615 $1,000 7-31 City of Mesa, Performance Bond - PF $100,000 8-1 Motor Fuels Tax Bond - Yorktown ST1637 $2,000,000 8-9 Performance Bond #6812 $5,210 8-9 Landscaping Performance Bond #6812 $30,552 8-9 Performance Bond #6802 $16,600 8-13 Fish & Wildlife Bond #5109 ST1627 $2,500 8-13 Fish & Wildlife Bond #7601 ST1630 $2,500 8-13 Fish & Wildlife Bond #7266 ST1628 $2,500 8-13 Fish & Wildlife Bond #3108 ST1625 $2,500 8-13 Fish & Wildlife Bond #7204 ST1626 $2,500 8-13 Fish & Wildlife Bond #7251 ST1629 $2,500 8-27 Contract Postal Unit Bond - T.C. ST1613 $11,000 9-4 New Mexico Alcohol Server Training Bond ST1634 $5,000 9-26 Texas Gasoline/Diesel Fuel Bond - PF ST1631 $490,000 9-26 City of Mesa/Unified School Dist. Fuel Bond - PF $100,000 9-26 Texas Gasoline/Diesel Fuel Bond - PF ST1632 $330,000 9-27 New Mexico Damage Bond for Right of Way ST1633 $2,500 10-3 One-Well Plugging Bond- New Mexico $30,000 10-17 Gasoline/Diesel Fuel Excess Tax - Oklahoma $100,000 11-15 Administrative Appeal Bond $93,889.23 11-21 Surety Bond for Waste Mgt. - New Mexico $25,000 12-2 Navajo Reservation Business Bond #7601 $10,000 12-2 Navajo Reservation Business Bond #7249 $10,000 12-2 Navajo Reservation Business Bond #7269 $10,000 12-31 Landscaping Bond - Oro Valley $27,516 12-31 Restoration Bond - Oro Valley $55,238 12-31 Newmont Realty Bond - Guarantee Lease Agreement 400KA2114 $10,000 Total $8,692,750.23
EX-99 6 exhibit99-1.txt EXHIBIT 99.1 EXHIBIT 99.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Fredric L. Holliger, Chief Executive Officer of Giant Industries, Inc. ("Giant"), do hereby certify that: (a) the Quarterly Report on Form 10-Q of Giant for the quarterly period ended September 30, 2002 (the "Form 10-Q") to which this certification is being furnished as an exhibit 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 Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Giant. Giant Industries, Inc. By: /S/ FREDRIC L. HOLLIGER - ----------------------------------- Name: Fredric L. Holliger Title: Chief Executive Officer Date: November 13, 2002. EX-99 7 exhibit99-2.txt EXHIBIT 99.2 EXHIBIT 99.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Mark B. Cox, Chief Financial Officer of Giant Industries, Inc. ("Giant"), do hereby certify that: (a) the Quarterly Report on Form 10-Q of Giant for the quarterly period ended September 30, 2002 (the "Form 10-Q") to which this certification is being furnished as an exhibit 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 Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Giant. Giant Industries, Inc. By: /S/ MARK B. COX - ------------------------------------ Name: Mark B. Cox Title: Chief Financial Officer Date: November 13, 2002. -----END PRIVACY-ENHANCED MESSAGE-----