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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): August 7, 1998
SYNTROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
KANSAS 000-21911 43-1764632
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation) File Number) Identification No.)
1350 SOUTH BOULDER
SUITE 1100
TULSA, OKLAHOMA 74119-3295
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (918) 592-7900
SLH CORPORATION
5000 WEST 95TH STREET
SUITE 260
SHAWNEE MISSION, KANSAS 66207
(Registrant's former name and former address, if changed since last report)
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT
On August 6, 1998, the stockholders of SLH Corporation, a Kansas
corporation ("SLH"), and the stockholders of Syntroleum Corporation, an Oklahoma
corporation ("Syntroleum"), at separate meetings approved and adopted the
Agreement and Plan of Merger dated as of March 30, 1998 by and between
Syntroleum and SLH (the "Merger Agreement") and the transactions contemplated by
the Merger Agreement. Pursuant to the Merger Agreement, on August 7, 1998 (i)
Syntroleum merged (the "Merger") with and into SLH, with SLH being the surviving
corporation (the survivor of the Merger is referred to herein as the "Company"),
(ii) SLH changed its name to "Syntroleum Corporation," (iii) the officers of SLH
were replaced by the officers of Syntroleum, (iv) six of the eight SLH directors
were replaced by Syntroleum directors, (v) each outstanding share of common
stock, par value $0.001 per share, of Syntroleum (the "Syntroleum Common Stock")
was converted into the right to receive 1.28990 shares of common stock, par
value $0.01 per share, of the Company (the "Company Common Stock") and (vi) the
Company's Articles of Incorporation were amended to increase the number of
authorized shares of Company Common Stock from 30,000,000 shares to 150,000,000
shares and the number of authorized shares of the Company's preferred stock, par
value $0.01 per share, from 1,000,000 shares to 5,000,000 shares. The
transactions relating to the Merger are more fully described in the Joint Proxy
Statement/Prospectus filed with the Securities and Exchange Commission pursuant
to Rule 424 under the Securities Act of 1933, as amended, on July 6, 1998 (the
"Joint Proxy Statement/Prospectus"). The Joint Proxy Statement/Prospectus
constitutes a part of the Company's Registration Statement on Form S-4
(Registration No. 333-50253), as amended (the "Registration Statement").
As a result of the Merger, an aggregate of approximately 16,825,000
shares (which represent approximately 62.5% of the total of approximately
26,900,000 shares of Company Common Stock outstanding following the Merger) are
held by the former stockholders of Syntroleum. Management of the Company
currently beneficially owns an aggregate of 8,294,058 shares of Company Common
Stock (which represents approximately 30.5% of the outstanding shares of Company
Common Stock). Of this amount, 5,014,440 shares (18.6%) of Company Common Stock
are beneficially owned by Kenneth L. Agee (Chief Executive Officer and Chairman
of the Board of the Company), 1,443,055 shares (5.4%) of Company Common Stock
are beneficially owned by Mark A. Agee (President and Chief Operating Officer of
the Company), and an aggregate of 1,836,562 shares (6.5%) of Company Common
Stock are beneficially owned by other members of the Company's management. In
addition, 3,593,983 shares (13.4%) of Company Common Stock are beneficially
owned by Robert A. Day, a long-time stockholder of Syntroleum.
In connection with the Merger, the Rights Agreement by and between the
Company and American Stock Transfer & Trust Company dated as of January 31,
1997, as amended, was amended so that neither Kenneth L. Agee, nor Mark A. Agee,
nor members of their immediate families, nor any of their affiliates or
associates, individually or collectively, would be deemed to be "Acquiring
Persons" as that term is defined in the Rights Agreement.
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Pursuant to the Merger Agreement, Kenneth L. Agee, Mark A. Agee, Alvin
R. Albe, Jr., Frank M. Bumstead, Robert Rosene, Jr. and J. Edward Sheridan were
appointed as six of the eight directors of the Company (James R. Seward, SLH's
President and Chief Executive Officer, and P. Anthony Jacobs, SLH's Chairman of
the Board, who were directors of both companies prior to the Merger, have
remained as directors of the Company). In addition, the officers of Syntroleum
replaced the officers of SLH. The current officers of the Company are as
follows: Kenneth L. Agee (Chief Executive Officer and Chairman of the Board),
Mark A. Agee (President and Chief Operating Officer), Charles A. Bayens (Vice
President of Engineering and Vice President of Research and Development), Eric
Grimshaw (Vice President, General Counsel and Secretary), Peter V. Snyder, Jr.
(Vice President of Product Sales), Randall M. Thompson (Vice President and Chief
Financial Officer), and Larry J. Weick (Vice President of Licensing and Business
Development).
As a result of the foregoing, management of the Company or the former
stockholders of Syntroleum (to the extent they act together) could be deemed to
effectively control the Company.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Pursuant to the Merger Agreement, Syntroleum merged with and into SLH
on August 7, 1998. In connection with the Merger, each outstanding share of
Syntroleum Common Stock was converted into the right to receive 1.28990 shares
of Company Common Stock. The exchange ratio relating to the exchange of Company
Common Stock for Syntroleum Common Stock in the Merger was determined by
negotiations between management of SLH and management of Syntroleum and was
based upon a formula set forth in the Merger Agreement that established the
exchange ratio as equal to the ratio of the Implied Syntroleum Per Share Common
Stock Market Value divided by the SLH Per Share Common Stock Market Value. "SLH
Per Share Common Stock Market Value" was defined in the Merger Agreement as the
average closing price of Company Common Stock during the five trading days
ending on the business day immediately preceding the meeting of stockholders of
the Company held to vote upon the Merger Agreement (the "Company Stockholders
Meeting"), which was held on August 6, 1998. The "Implied Syntroleum Per Share
Common Stock Market Value" was defined in the Merger Agreement as equal to (i)
the difference between the SLH Market Capitalization and $50,520,000 (SLH's
total stockholders' equity as of March 31, 1998 (excluding the book value of the
shares of Syntroleum Common Stock that SLH owned, which was zero)) divided by
(ii) 5,950,000 (the number of shares of Syntroleum Common Stock that SLH owned).
The "SLH Market Capitalization" was defined in the Merger Agreement as the
product of (A) the average closing price of Company Common Stock during the five
trading days ending on the business day immediately preceding the Company
Stockholders Meeting and (B) 10,519,121 (the sum of the number of shares of
Company Common Stock outstanding on the date of the Merger Agreement, the number
of shares of Company Common Stock issuable pursuant to vested options (as of
such date) to purchase such shares and 250,000 shares (which reflected a portion
of the number of shares of Company Common Stock issuable pursuant to non-vested
options)). The SLH Per Share Common Stock Market Value was calculated to be
$17.7625, and the Implied Syntroleum Per Share Common Stock Market Value was
calculated to be $22.9119. The ratio of the Implied Syntroleum Per Share Common
Stock Market Value divided by the SLH Per Share Common Stock Market Value was
calculated to be
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1.28990 (the exchange ratio in the Merger). Approximately 16,825,000 shares of
Company Common Stock were issued in the Merger to former stockholders of
Syntroleum.
Prior to the Merger, SLH owned approximately 31% of the outstanding
shares of Syntroleum Common Stock. In addition, as indicated above, James R.
Seward, SLH's President and Chief Executive Officer, and P. Anthony Jacobs,
SLH's Chairman of the Board, were directors of Syntroleum prior to the Merger
and continue as directors of the Company following the Merger.
As a result of the Merger, the Company has acquired all of the assets
of Syntroleum and has become subject to all of its liabilities. Syntroleum is
the developer and owner of a proprietary process (the "Syntroleum Process")
designed to catalytically convert natural gas into synthetic liquid hydrocarbons
("gas-to-liquids" or "GTL"). Syntroleum has formed a joint venture with Enron
Capital & Trade Resources Corp. with respect to the development of a proposed
8,000 barrel-per-day GTL plant in Sweetwater County, Wyoming. Syntroleum has
also entered into a project development agreement with Texaco, Inc. ("Texaco")
and Brown & Root, Inc. with respect to the development of a small GTL plant. To
date, Syntroleum has entered into license agreements for the Syntroleum Process
with Texaco, Atlantic Richfield Company, Marathon Oil Company, YPF
International, Ltd., an affiliate of Argentina-based Yacimentos Petroliferos
Fiscales, S.A., Enron Capital & Trade Resources Corp. and Kerr-McGee
Corporation.
Syntroleum's business is more fully described in the Joint Proxy
Statement/Prospectus.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
The financial statements of Syntroleum included on pages F-1 to F-15
of the Joint Proxy Statement/ Prospectus are incorporated herein by
reference.
(b) Pro forma financial information.
The unaudited pro forma financial information of Syntroleum and SLH
included on pages 33-37 of the Joint Proxy Statement/Prospectus are
incorporated herein by reference.
(c) Exhibits
*2.1 Agreement and Plan of Merger dated as of March 30, 1998 by and
between SLH and Syntroleum (incorporated by reference to
Appendix A to the Joint Proxy Statement/Prospectus).
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*4.1 Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3(a) to the Form 10 of the Company filed
with the Securities and Exchange Commission on December 24,
1996).
4.2 Certificate of Merger filed on August 7, 1998.
*4.3 Bylaws of the Company (incorporated by reference to Exhibit
3(b) to the Form 10 of the Company filed with the Securities and
Exchange Commission on December 24, 1996).
*4.4 Rights Agreement dated as of January 31, 1997 (incorporated by
reference to Exhibit 4 to the Form 10/A of SLH filed with the
Securities and Exchange Commission on February 12, 1997).
*4.5 Amendment to Rights Agreement dated as of March 30, 1998
(incorporated by reference to Exhibit 4.2 to the Registration
Statement).
4.6 Second Amendment to Rights Agreement dated as of August 7, 1998.
*4.7 Certificate of Designations of Series A Junior Participating
Preferred Stock of SLH Corporation, dated February 19, 1997,
together with Statement of Increase, dated June 1, 1998
(incorporated by reference to Exhibit 4.3 to the Registration
Statement).
99.1 Press Release dated August 6, 1998.
99.2 Press Release dated August 7, 1998.
*99.3 Audited Consolidated Financial Statements of Syntroleum as of
December 31, 1996 and 1997 and for the years ended December 31,
1995, 1996 and 1997 (incorporated by reference to pages F-1 to
F-15 of the Joint Proxy Statement/Prospectus).
*99.4 Unaudited Consolidated Financial Statements of Syntroleum as of
March 31, 1998 and for the three-month periods ended March 31,
1997 and 1998 (incorporated by reference to pages F-1 to F-15 of
the Joint Proxy Statement/Prospectus).
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*99.5 Unaudited Pro Forma Combined Financial Statements of SLH and
Syntroleum as of March 31, 1998, for the year ended December 31,
1997 and for the three-month period ended March 31, 1998
(incorporated by reference to pages 33 to 37 of the Joint Proxy
Statement/Prospectus).
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*Incorporated by reference as indicated
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SYNTROLEUM CORPORATION
By: /s/ Eric Grimshaw
----------------------------
Name: Eric Grimshaw
Title: Vice President, General Counsel
and Secretary
Date: August 12, 1998
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EXHIBIT 4.2
CERTIFICATE OF MERGER
OF
SYNTROLEUM CORPORATION, AN OKLAHOMA CORPORATION
INTO
SLH CORPORATION, A KANSAS CORPORATION
(PURSUANT TO SECTION 17-6702 OF THE KANSAS GENERAL CORPORATION
CODE AND SECTION 1082 OF THE OKLAHOMA GENERAL CORPORATION ACT)
Pursuant to the provisions of the Kansas General Corporation Code and
the Oklahoma General Corporation Act, the undersigned corporation certifies as
follows:
1. The constituent corporations to the merger are SLH Corporation, a
Kansas corporation, and Syntroleum Corporation, an Oklahoma corporation.
2. SLH Corporation and Syntroleum Corporation have entered into an
Agreement and Plan of Merger and Reorganization, dated as of March 30, 1998 (the
"Merger Agreement"), which has been approved, adopted, certified, executed and
acknowledged by SLH Corporation and Syntroleum Corporation in accordance with
Section 17-6702 of the Kansas General Corporation Code and Section 1082 of the
Oklahoma General Corporation Act.
3. The name of the surviving corporation is SLH Corporation.
4. The Articles of Incorporation of the surviving corporation shall be
SLH Corporation's Articles of Incorporation with the following amendments:
(a) Article I shall be amended to change the name of the
corporation to Syntroleum Corporation, as follows:
ARTICLE I
NAME
The name of the corporation (which is hereinafter referred to as
the "Corporation") is:
SYNTROLEUM CORPORATION
(b) The first paragraph of Article IV shall be amended (i) to
increase the authorized shares of Common Stock, par value
$0.01 per share, from Thirty
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Million shares to One Hundred Fifty Million shares and (ii) to
increase the authorized shares of Preferred Stock, par value
$0.01 per share, from One Million shares to Five Million
shares, as follows:
ARTICLE IV
Capital Stock
The total number of shares of stock which the Corporation shall have
authority to issue is One Hundred Fifty Five Million (155,000,000),
consisting of Five Million (5,000,000) shares of Preferred Stock, par
value $0.01 per share (hereinafter referred to as "Preferred Stock"),
and One Hundred Million (150,000,000) shares of Common Stock, par value
$0.01 per share (hereinafter referred to as "Common Stock").
5. The executed Merger Agreement is on file at the office of the
surviving corporation located at 1350 South Boulder, Suite 1100, Tulsa, Oklahoma
74119.
6. A copy of the Merger Agreement will be furnished by the surviving
corporation, on request and without cost, to any stockholder of SLH Corporation
or Syntroleum Corporation.
7. The authorized capital stock of Syntroleum Corporation, the only
constituent corporation to the merger which is not a Kansas corporation, is as
follows:
Common Stock, par value $.001 per share - 50,000,000 shares
Preferred Stock, par value $0.01 per share - 1,000,000 shares
8. SLH Corporation hereby agrees that it may be served with process in
Oklahoma in any proceeding for enforcement of any obligation of Syntroleum
Corporation, as well as for enforcement of any obligation of SLH Corporation
arising from the merger, including any suit or other proceeding to enforce the
right of any stockholders as determined in appraisal proceedings pursuant to
Section 1091 of the Oklahoma General Corporation Act and SLH Corporation hereby
irrevocably appoints the Secretary of State of the State of Oklahoma as its
agent to accept service of process in any such suit or other proceedings and a
copy of such process shall be mailed by the Secretary of State to SLH
Corporation at the following address:
1350 South Boulder, Suite 1100
Tulsa, Oklahoma 74119
Attn: General Counsel
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IN WITNESS WHEREOF, this Certificate of Merger has been executed on
behalf of the surviving corporation by James R. Seward, its President and Chief
Executive Officer, as of August 7, 1998.
SLH CORPORATION
a Kansas corporation
By: /s/ James R. Seward
-----------------------------------------
Name: James R. Seward
Title: President and Chief Executive Officer
Attest:
/s/ Steven K. Fitzwater
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Steven K. Fitzwater, Secretary
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EXHIBIT 4.6
SECOND AMENDMENT TO
THE RIGHTS AGREEMENT
BETWEEN
SYNTROLEUM CORPORATION
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY
THIS SECOND AMENDMENT TO THE RIGHTS AGREEMENT (the "Second Amendment") is
made and entered into as of the 7th day of August, 1998, by and between
Syntroleum Corporation, a Kansas corporation formerly named SLH Corporation
("Syntroleum"), and American Stock Transfer & Trust Company (the "Rights
Agent").
W I T N E S S E T H:
WHEREAS, Syntroleum and the Rights Agent entered into that certain Rights
Agreement dated as of January 31, 1997 (the "Rights Agreement"); and
WHEREAS, Syntroleum and the Rights Agent amended the Rights Agreement
effective as of March 30, 1998 (the "First Amendment"); and
WHEREAS, in connection with the merger between SLH Corporation, a Kansas
corporation, and Syntroleum Corporation, an Oklahoma corporation, Syntroleum and
the Rights Agent deem it desirable to further amend the Rights Agreement as set
forth below;
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein and in the Rights Agreement, the parties hereto agree
as follows:
1. Section 1(a) of the Rights Agreement is amended, effective as of the
day of execution of the Agreement and Plan of Merger Agreement by and between
SLH Corporation, a Kansas corporation, and Syntroleum Corporation, an Oklahoma
corporation, pursuant to Section 27 of the Rights Agreement by deleting the last
sentence of Section 1(a) thereof (which sentence was added by the First
Amendment to the Rights Agreement) and adding the following sentence to the end
of Section 1(a) thereof:
"Notwithstanding anything in this Section 1(a) relating to the definition of
Acquiring Person to the contrary, neither Kenneth L. Agee, nor Mark A. Agee, nor
members of their immediate families, nor any of their Affiliates or Associates,
individually or collectively, shall be deemed an Acquiring Person."
2. Except as expressly amended hereby, the Rights Agreement shall remain
in full force and effect in accordance with the provisions thereof.
<PAGE>
3. This Second Amendment shall be deemed to be a contract made under the
laws of the State of Kansas and for all purposes shall be governed by and
construed in accordance with the laws of such state applicable to contracts to
be made and performed entirely within such state.
4. This Second Amendment may be executed in any number of counterparts
and each of such counterparts shall for all purposes be deemed to be an
original, and all such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
to be duly executed and attested, effective as of the day and year first above
written.
SYNTROLEUM CORPORATION
By: /s/ Randall M. Thompson
------------------------------------
Name: Randall M. Thompson
-----------------------------------
Title: Chief Financial Officer
----------------------------------
ATTEST:
By: /s/ Eric Grimshaw
-------------------------------
Name: Eric Grimshaw
-----------------------------
Title: Vice President/Secretary
----------------------------
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By: /s/ Geraldine M. Zarbo
----------------------------
Name: Geraldine M. Zarbo
--------------------------
Title: Vice President
-------------------------
ATTEST:
By: /s/ Robert Shiner
---------------------------
Name: Robert Shiner
-------------------------
Title: Senior Vice President
------------------------
<PAGE>
EXHIBIT 99.1
NEWS RELEASE [SLH CORPORATION LOGO
APPEARS HERE]
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5000 W. 95TH STREET, SUITE 260
P.O. BOX 7568
SHAWNEE MISSION, KS 66207
PHONE (913) 652-1000
FAX (913) 652-1025
FOR IMMEDIATE RELEASE:
Contacts: Steve Fitzwater
Kim Schaefer
August 6, 1998
SLH CORPORATION ANNOUNCES MERGER APPROVAL
SHAWNEE MISSION, KS - SLH Corporation (SLH) announced that both SLH and
Syntroleum (R) Corporation stockholders voted to approve the merger between SLH
and Syntroleum. The merger is expected to become effective on August 7, 1998.
In the merger, each share of Syntroleum common stock not presently owned by
SLH will be exchanged for 1.2899 shares of SLH common stock, the name of SLH
will be changed to "Syntroleum Corporation", and SLH management and six of the
eight SLH directors will be replaced with Syntroleum management and directors.
P. Anthony Jacobs, Chairman of SLH, and James R. Seward, President and CEO of
SLH, who are currently directors of both companies, will remain as directors of
the merged company.
Approximately 16,825,000 shares of common stock are to be issued pursuant
to the merger, resulting in approximately 26,900,000 shares of SLH common stock
issued and outstanding. Although the merger will effect a change in the name of
SLH to "Syntroleum Corporation," certificates evidencing shares of SLH common
stock prior to the merger that bear the name "SLH Corporation" will continue to
evidence the same number of shares of SLH common stock after the merger.
However, holders of SLH certificates may obtain new certificates that bear the
name "Syntroleum Corporation" by delivering the old certificates to SLH's
transfer agent together with appropriate transmittal documents that may be
obtained from the transfer agent upon request. SLH's transfer agent is American
Stock Transfer & Trust Company, 40 Wall Street, 46/th/ Floor, New York, NY
10005, and the telephone number is (718) 921-8200.
The common stock of the newly merged company is expected to begin trading
on the National Market System of Nasdaq on Monday, August 10 under the symbol
"SYNM".
(R)Syntroleum is both a service mark and trademark of Syntroleum Corporation.
This document contains forward-looking statements as well as historical
information. Forward-looking statements are identified by or are associated with
such words as "intend," "believe," "estimate," "expect," "anticipate," "should,"
"hopeful" and similar expressions, and include statements relating to the
effectiveness of the merger. They reflect management's beliefs and estimates of
future circumstances and conditions. Although the Company believes that the
expectations reflected in any forward-looking statements are reasonable, it can
give no assurance that such expectations will be met. These and other forward-
looking statements are based on many assumptions and factors, all of which may
not be detailed in this document. Any changes in the assumptions or factors
could produce materially different results than those predicted and could impact
stock values.
<PAGE>
EXHIBIT 99.2
FRIDAY AUGUST 7, 3:02 PM EASTERN TIME
COMPANY PRESS RELEASE
SOURCE: Syntroleum Corporation
SLH AND SYNTROLEUM COMPLETE MERGER
MERGER PROVIDES CAPITAL TO ACCELERATE COMMERCIAL DEVELOPMENT OF SYNTROLEUM
PROCESS AND FUND CONSTRUCTION OF GAS-TO-LIQUIDS PLANTS
TULSA, Okla., Aug. 7 -- Syntroleum Corporation today announced that it has
completed its merger with SLH Corporation which, prior to the merger owned
approximately 31% of the outstanding common shares of Syntroleum. The merger
was approved by the shareholders of both companies at separate meetings held
yesterday.
Among other things, the merger gives the combined company, which will be called
Syntroleum Corporation, access to approximately $50 million of cash and other
assets formerly held by SLH. Syntroleum intends to use this capital to
accelerate the development and commercial implementation of its proprietary
process designed to catalytically convert natural gas into synthetic crude oil
and other hydrocarbon-based products.
In the merger, each outstanding share of Syntroleum common stock was converted
into 1.28990 shares of SLH common stock. As a result, pre-merger shareholders
of Syntroleum own 62.5% of the combined company and pre-merger shareholders of
SLH own the remaining 37.5%. Approximately 16,825,000 shares of SLH common
stock were issued in the merger, resulting in a total of approximately
26,900,000 outstanding shares after the merger. The last trading day for the
common shares of SLH will be today, August 7, 1998. Shares of Syntroleum common
stock will begin trading on August 10, 1998 on Nasdaq under the trading symbol
"SYNM".
"With the financial resources and access to capital provided by this
transaction, Syntroleum can now move aggressively to bring our gas-to-liquids
technology to the energy market and capitalize on the significant opportunities
we see there," said Kenneth Agee, Syntroleum's Chairman and Chief Executive
Officer. With the assets provided by the merger, we now have capital to push
the development of our commercial plants forward.
Mark Agee, Syntroleum's President, added, "As a result of becoming a publicly
traded company after the merger, our current and potential shareholders,
licensees, business partners and employees will now have access to much greater
information about Syntroleum, its strategy and its prospects. We believe this
will work to the benefit of all concerned."
"We are also convinced that our business model, which combines the considerable
capabilities of our own R&D and engineering staffs with those of our licensees
and technology partners, creates a clear and compelling competitive advantage
for Syntroleum," said Mark Agee.
<PAGE>
Syntroleum plans to use a portion of the cash made available by the merger to
fund its capital commitments for two previously announced gas-to-liquids
projects -- a specialty product GTL plant being developed with Enron Capital &
Trade Resources in Sweetwater County, Wyoming, and a second GTL plant being
developed with Texaco and the engineering firm of Brown & Root. The company
also intends to continue to make significant investments in the research and
development of improvements to the Syntroleum Process.
The Syntroleum Process
The Syntroleum Process is a simplification of traditional GTL technologies aimed
at substantially reducing both the capital cost and minimum economical size of a
GTL plant, as well as plant operating costs. To this end, a unique
characteristic and primary advantage of the Syntroleum Process over competing
processes is its use of air, rather than pure oxygen, in the conversion process.
Syntroleum believes that the Syntroleum Process can, in some circumstances, be
cost effective in GTL plants with throughput levels as low as 2,000 barrels per
day (based on energy prices in recent years), and can be competitive with other
GTL processes at any plant size. Syntroleum believes its ability to scale plant
size down will enable it to place its GTL plants in skids, barges and
ocean-going vessels. This is expected to allow Syntroleum licensees to use GTL
plants in a wider variety of locations, including isolated and offshore areas
where much of the world's stranded gas reserves are found.
The potential for small and portable plants also makes Syntroleum's GTL
technology more suitable for converting natural gas associated with oil fields
that would otherwise be flared (which is now prohibited or severely restricted
in many countries) or reinjected into the reservoir at significant cost. In
addition, the synthetic crude oil produced by the Syntroleum Process has certain
performance and environmental advantages over conventional crude oil.
Syntroleum's Strategy
Syntroleum's objective is to be a leading GTL technology provider to the oil and
gas industry. Its strategy to achieve this objective involves the following key
elements:
Broadly License the Syntroleum Process. Syntroleum intends to continue
offering licenses to the Syntroleum Process and related proprietary
catalysts to the oil and gas industry for the production of synthetic
crude oil and liquid fuels primarily outside of North America.
To date, Syntroleum has entered into license agreements with Texaco, ARCO,
Marathon, YPF, Enron, and Kerr-McGee, and is currently in discussions with
several other oil and gas companies with respect to additional license
agreements.
Own Specialty Product GTL Plants. Syntroleum intends to establish joint
ventures with its licensees and other oil and gas industry partners and/or
financial partners to design, construct and operate GTL plants designed to
produce high margin specialty products.
Syntroleum has formed a joint venture with Enron with respect to the
development of a proposed 8,000-barrel per day GTL plant in Sweetwater
County, Wyoming. The company is currently in discussions with several
other potential participants in this joint venture. Syntroleum has also
entered into a project development agreement with Texaco and Brown & Root
with respect to the development of a small GTL plant.
Provide Mobile GTL Plants on a Contract Basis. Syntroleum intends to make
mobile GTL plants available to customers on a contract basis through
efforts with industry partners and others. Syntroleum believes that there
will be a significant market potential for mobile GTL plants in various
applications, including (i) extended well testing; (ii) conversion of
small associated gas fields; and (iii) short-term use of a GTL plant on
large fields while a permanent GTL plant is being built.
<PAGE>
Continue Reducing Costs Through Research and Development Activities and
Acquisitions. Syntroleum intends to continue its research and development
activities with a focus on developing further improvements to the
Syntroleum Process and further reducing the capital and operating costs of
GTL plants based on the Syntroleum Process.
Syntroleum has leveraged its own research and development capabilities
through joint development arrangements with its licensees and other
industry partners. Texaco, ARCO, Marathon, Bateman Engineering, Brown &
Root, ABB Power Generation and ABB STAL AB, AGC Manufacturing Services,
Catalytica Combustion Systems and Catalytica Advanced Technologies are
currently participating in specific joint development projects with
Syntroleum.
Syntroleum believes that the network created through its license and joint
development agreements, along with its strategic alliances with
engineering companies and critical component vendors, will allow it to
more rapidly commercialize and improve the Syntroleum Process, thereby
providing it and its licensees with an important competitive advantage and
enhancing Syntroleum's ability to attract additional licensees and joint
development partners. Under these agreements, Syntroleum generally
acquires title to or rights to use all inventions and improvements to the
Syntroleum Process that results from these collaborative efforts. Those
improvements are then made available to all licensees.
This document includes forward-looking statements as well as historical
information. Forward-looking statements include, but are not limited to,
statements relating to the use of funds provided by the merger, the Syntroleum
Process and related technologies, GTL plants based on the Syntroleum Process
(including the development of planned plants), the economic use of such plants
and the continued development of the Syntroleum Process. When used in this
document, the words "anticipate," "believe," "estimate," "expect," "intent,"
"may," "project," "plan," "should," and similar expressions are intended to be
among the statements that identify forward-looking statements. Although
Syntroleum believes that its expectations reflected in these forward-looking
statements are reasonable, such statements involve risks and uncertainties and
no assurance can be given that actual results will be consistent with these
forward-looking statements. Important factors that could cause actual results to
differ from these forward-looking statements include the potential that
commercial-scale GTL plants will not achieve the same results as those
demonstrated on a laboratory or pilot basis or that such plants will experience
technological and mechanical problems, the potential that improvements to the
Syntroleum Process currently under development may not be successful, the impact
on plant economics of operating conditions (including energy prices),
competition, intellectual property risks, Syntroleum's ability to obtain
financing and other risks described in the company's filings with the Securities
and Exchange Commission.
(R) "Syntroleum" is registered as a trademark and service mark in the U.S.
Patent and Trademark Office.
