<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
SLH CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
KANSAS 1321 43-1764632
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
</TABLE>
5000 WEST 95TH STREET, SUITE 260
SHAWNEE MISSION, KANSAS 66207
(913) 652-1000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive office)
------------------------------
JOHN H. CALVERT, ESQ.
LATHROP & GAGE L.C.
2345 GRAND AVENUE, SUITE 2800
KANSAS CITY, MO 64108
(816) 460-5807
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES TO:
ERIC GRIMSHAW, ESQ. R. JOEL SWANSON, ESQ.
Vice President and General Counsel Baker & Botts, L.L.P.
Syntroleum Corporation 3000 One Shell Plaza
1350 South Boulder, Suite 1100 910 Louisiana
Tulsa, Oklahoma 74119 Houston, Texas 77002
(918) 592-7900 (713) 229-1234
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER APPROVAL BY STOCKHOLDERS.
------------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(2) PER SHARE(2) PRICE(3) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share(1).... -- -- $6,333 $1.87
</TABLE>
(1) Consists of shares of the Registrant's Common Stock, par value $0.01 per
share, together with the preferred stock purchase rights associated
therewith, to be issued in the merger as described herein.
(2) In accordance with Rule 457(o) under the Securities Act of 1933, as amended,
the number of shares being registered and the proposed maximum offering
price per share are not included in this table.
(3) Pursuant to Rule 457(f)(2), the proposed maximum aggregate offering price is
based upon one-third of the total par value of the Common Stock, par value
$0.001 per share, of Syntroleum Corporation to be canceled in the merger as
described herein (due to an accumulated capital deficit of Syntroleum
Corporation).
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[SLH Corporation Letterhead]
, 1998
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Annual Meeting") of SLH Corporation ("SLH"), which will be held at ,
, , on , , 1998, at a.m., local time.
At the Annual Meeting, stockholders will be asked to approve and adopt an
Agreement and Plan of Merger (the "Merger Agreement") by and between SLH and
Syntroleum Corporation ("Syntroleum"), pursuant to which Syntroleum will merge
(the "Merger") with and into SLH. In connection with the Merger, SLH's name will
be changed to "Syntroleum Corporation," the officers of SLH will be replaced by
the current officers of Syntroleum and six of the eight SLH directors will be
replaced by current Syntroleum directors. James R. Seward, SLH's President and
Chief Executive Officer, and P. Anthony Jacobs, SLH's Chairman, who are
currently directors of both companies, will remain as directors of SLH after the
Merger. In addition, SLH's Articles of Incorporation will be amended to increase
its number of authorized shares of common stock and preferred stock.
Consistent with SLH's stated objective to support Syntroleum, the Board
believes that the Merger is in the best interests of the SLH stockholders
because it will enhance SLH's principal asset, which consists of Syntroleum
stock. Initially, the Merger will provide Syntroleum with approximately $50
million in assets, consisting of approximately $37 million of cash, short-term
investments and net receivables and approximately $13 million of other assets
being liquidated. These assets may be used in Syntroleum's projects to design
and construct two gas-to-liquids plants as well as for continued research and
development of process improvements and for general working capital purposes.
The Merger will also provide Syntroleum with a public market for its common
stock and enhanced investor recognition that should facilitate future debt and
equity financings needed for its planned growth. The increased number of shares
outstanding should also improve the existing market for SLH common stock and
attract greater market interest. In addition, the consolidation of management
and assets will reduce redundant administrative costs and should sharpen
investor focus. Developments at both companies also support the timing of the
Merger. Finally, the Merger is consistent with SLH's strategy to avoid becoming
subject to regulation as an investment company.
In the Merger, each outstanding share of Syntroleum common stock will be
converted into a number of shares of SLH's common stock equal to the ratio of
the implied market value of Syntroleum's common stock divided by the market
value of SLH's common stock. The market value of SLH's common stock will be the
average closing price of SLH's common stock during the five trading days ending
on the business day immediately preceding the date of the Annual Meeting. The
implied market value of Syntroleum's common stock will be equal to (i) the
difference between the market capitalization of SLH's common stock and SLH's
total stockholders' equity (excluding the book value of the shares of
Syntroleum's common stock that SLH owns) divided by (ii) the number of shares of
Syntroleum's common stock that SLH owns. For example, based on the average
closing price of SLH's common stock during the five trading days preceding April
8, 1998 ($29.275 per share), each share of Syntroleum common stock would have
been converted into 1.47484 shares of SLH common stock in the Merger. The actual
exchange ratio will be determined on the day of the Annual Meeting based on the
average closing price of SLH's common stock during the five preceding trading
days. If the market value of SLH's common stock during the five trading days
ending on the business day immediately preceding the date of the Annual Meeting
is higher than such price, the exchange ratio will increase. Correspondingly, if
such market value is lower than such price, the exchange ratio will decrease.
SLH currently owns 5,950,000 shares of Syntroleum's common stock
(representing approximately 31% of the outstanding shares of Syntroleum's common
stock as of the date hereof). Based on the assumed exchange ratio described
above and the outstanding shares of Syntroleum's common stock and SLH's common
stock as of the date hereof, the current holders of outstanding shares of SLH's
common stock would own approximately 34% of the outstanding shares of the
combined company following the Merger.
<PAGE>
The Merger, the determination of the exchange ratio and related matters are
described more fully in the accompanying Joint Proxy Statement/Prospectus. A
copy of the Merger Agreement is attached to the Joint Proxy Statement/Prospectus
as Appendix A.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER AGREEMENT IS IN THE BEST
INTERESTS OF SLH AND RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT. In addition, the Board of Directors has received the opinion
of Salomon Smith Barney that the exchange ratio was fair from a financial point
of view to SLH at the date of such opinion. Approval and adoption of the Merger
Agreement requires the affirmative vote of the holders of a majority of the
outstanding shares of SLH.
In order to satisfy legal requirements in connection with the Annual Meeting
and to elect directors in the event the Merger is not consummated, at the Annual
Meeting you will also be asked to vote upon the election of W. D. Grant, W. T.
Grant II and David W. Kemper as class B directors, to serve until the earlier of
the 2001 Annual Meeting of Stockholders or the effective time of the Merger.
Stockholders will also be asked to approve and adopt Syntroleum's stock option
plans that will be assumed by SLH in the Merger, effective only upon the
consummation of the Merger, and to ratify the Board's appointment of SLH's
independent public accountants for the 1998 fiscal year. THE BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF EACH NOMINEE TO THE BOARD OF
DIRECTORS NAMED ABOVE, FOR APPROVAL AND ADOPTION OF SYNTROLEUM'S STOCK OPTION
PLANS AND FOR RATIFICATION OF THE APPOINTMENT OF SLH'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE 1998 FISCAL YEAR.
You are urged to read carefully the Joint Proxy Statement/Prospectus and the
Appendices in their entirety for a complete description of the Merger, the
Merger Agreement and the additional proposals. Whether or not you plan to be at
the Annual Meeting of Stockholders, please be sure to date, sign and return the
proxy card in the enclosed envelope as promptly as possible so that your shares
may be represented at the meeting and voted in accordance with your wishes. Your
vote is important regardless of the number of shares you own.
Sincerely,
James R. Seward
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
2
<PAGE>
[Syntroleum Corporation Letterhead]
, 1998
To Our Stockholders:
You are cordially invited to attend a Special Meeting (the "Special
Meeting") of Stockholders of Syntroleum Corporation ("Syntroleum"), which will
be held at , , , on , , 1998, at a.m.,
local time.
At the Special Meeting, stockholders will be asked to approve and adopt an
Agreement and Plan of Merger (the "Merger Agreement") by and between Syntroleum
and SLH Corporation ("SLH") pursuant to which Syntroleum will merge (the
"Merger") with and into SLH. In connection with the Merger, SLH's name will be
changed to "Syntroleum Corporation," the officers of SLH will be replaced by the
current officers of Syntroleum and six of the eight SLH directors will be
replaced by current Syntroleum directors. In addition, SLH's Articles of
Incorporation will be amended to increase its number of authorized shares of
common stock and preferred stock.
Your Board of Directors believes that the Merger will accelerate
Syntroleum's commercial development by enhancing its ability to obtain the
capital necessary to fund its planned commercial-scale gas-to-liquids plants. In
the Merger, SLH will contribute approximately $50 million in assets, consisting
of approximately $37 million of cash, short-term investments and net receivables
and approximately $13 million of other assets being liquidated. These assets
should enable Syntroleum to meet its short-term commitments to fund the proposed
Sweetwater plant and the plant under development through its joint venture with
Texaco Inc. and Brown & Root, Inc., as well as provide funds for continued
research and development of process improvements and for general working capital
purposes. Furthermore, as a public company, Syntroleum should have more ready
access to the public debt and equity markets for future financings.
In the Merger, each outstanding share of Syntroleum common stock will be
converted into a number of shares of SLH's common stock equal to the ratio of
the implied market value of Syntroleum's common stock divided by the market
value of SLH's common stock. The market value of SLH's common stock will be the
average closing price of SLH's common stock during the five trading days ending
on the business day immediately preceding the date of SLH's 1998 Annual Meeting
(which is scheduled to be held on the same day as the Special Meeting). The
implied market value of Syntroleum's common stock will be equal to (i) the
difference between the market capitalization of SLH's common stock and SLH's
total stockholders' equity (excluding the book value of the shares of
Syntroleum's common stock that SLH owns) divided by (ii) the number of shares of
Syntroleum's common stock that SLH owns. For example, based on the average
closing price of SLH's common stock during the five trading days preceding April
8, 1998 ($29.275 per share), each share of Syntroleum common stock would have
been converted into 1.47484 shares of SLH common stock in the Merger. The actual
exchange ratio will be determined on the day of SLH's 1998 Annual Meeting based
on the average closing price of SLH's common stock during the five preceding
trading days. If the market value of SLH's common stock during the five trading
days ending on the business day immediately preceding the date of SLH's 1998
Annual Meeting is higher than such price, the exchange ratio will increase.
Correspondingly, if such market value is lower than such price, the exchange
ratio will decrease.
SLH currently owns 5,950,000 shares of Syntroleum's common stock
(representing approximately 31% of the outstanding shares of Syntroleum's common
stock as of the date hereof). Based on the assumed exchange ratio described
above and the outstanding shares of Syntroleum's common stock and SLH's common
stock as of the date hereof, the current holders of outstanding shares of
Syntroleum's common stock would own approximately 66% of the outstanding shares
of the combined company following the Merger.
The Merger, the determination of the exchange ratio and related matters are
described more fully in the accompanying Joint Proxy Statement/Prospectus. A
copy of the Merger Agreement is attached to the Joint Proxy Statement/Prospectus
as Appendix A.
<PAGE>
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER AGREEMENT IS IN THE BEST
INTERESTS OF SYNTROLEUM AND RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. In addition,
the Board of Directors has received the opinion of J. P. Morgan Securities Inc.
that the consideration to be paid to holders of Syntroleum common stock in the
Merger was fair from a financial point of view to the holders of Syntroleum
Common Stock at the date of such opinion. Approval and adoption of the Merger
Agreement requires the affirmative vote of the holders of a majority of the
outstanding shares of Syntroleum common stock.
You are urged to read carefully the Joint Proxy Statement/Prospectus and the
Appendices in their entirety for a complete description of the Merger and the
Merger Agreement. Whether or not you plan to be at the Special Meeting of
Stockholders, please be sure to date, sign and return the proxy card in the
enclosed envelope as promptly as possible so that your shares may be represented
at the meeting and voted in accordance with your wishes. Your vote is important
regardless of the number of shares you own.
Sincerely,
Kenneth L. Agee
CHIEF EXECUTIVE OFFICER
AND CHAIRMAN OF THE BOARD
2
<PAGE>
SLH CORPORATION
5000 W. 95th St.
Suite 260
Shawnee Mission, Kansas 66207
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD , 1998
To the Stockholders:
The Annual Meeting of Stockholders of SLH Corporation, a Kansas corporation
("SLH"), will be held at , , , on
, , 1998 at a.m., local time, to vote upon:
1. A proposal to approve and adopt the Agreement and Plan of Merger (the
"Merger Agreement"), dated as of March 30, 1998, by and between SLH and
Syntroleum Corporation ("Syntroleum"), which is described in the attached
Joint Proxy Statement/Prospectus, and the transactions contemplated
thereby. Pursuant to the Merger Agreement, (a) Syntroleum will merge (the
"Merger") with and into SLH and each outstanding share of Syntroleum
common stock will be converted into shares of SLH common stock, (b) SLH's
name will be changed to "Syntroleum Corporation," (c) the officers of SLH
will be replaced by the current officers of Syntroleum, (d) six of the
eight SLH directors will be replaced by current Syntroleum directors and
(e) the Articles of Incorporation of SLH will be amended to increase its
number of authorized shares of common stock and preferred stock.
2. A proposal to elect three class B directors, to serve until the earlier
of the 2001 Annual Meeting of Stockholders or the effective time of the
Merger.
3. A proposal to approve and adopt the Syntroleum 1993 Stock Option and
Incentive Plan and the Syntroleum Stock Option Plan for Outside
Directors, effective only upon the consummation of the Merger.
4. A proposal to approve and ratify the appointment of SLH's independent
public accountants for the 1998 fiscal year.
5. Such other business as may properly come before the Annual Meeting or
any adjournment or postponement thereof.
These proposals and related matters are described more fully in the
accompanying Joint Proxy Statement/Prospectus. A copy of the Merger Agreement is
attached to the Joint Proxy Statement/ Prospectus as Appendix A.
Only SLH stockholders of record at the close of business on ,
1998 are entitled to notice of and to vote at the Annual Meeting.
Your vote is important--as is the vote of every stockholder--and the Board
of Directors of SLH appreciates the cooperation of stockholders in directing
proxies to vote at the meeting. It is important that your shares be represented
at the meeting by your signing and returning the enclosed proxy card in the
accompanying envelope as promptly as possible, whether or not you expect to be
present in person.
You may revoke your proxy at any time by following the procedures set forth
in the accompanying Joint Proxy Statement/Prospectus.
PLEASE DO NOT SEND IN ANY CERTIFICATES REPRESENTING YOUR COMMON STOCK.
By Order of the Board of Directors
--------------------------------------
Steven K. Fitzwater
SECRETARY
Shawnee Mission, Kansas
, 1998
<PAGE>
SYNTROLEUM CORPORATION
Syntroleum Plaza
1350 South Boulder
Suite 1100
Tulsa, Oklahoma 77119-3295
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 1998
To the Stockholders:
A Special Meeting of Stockholders of Syntroleum Corporation, an Oklahoma
corporation ("Syntroleum"), will be held at ,
, , on , , 1998 at
a.m., local time, to vote upon:
1. A proposal to approve and adopt the Agreement and Plan of Merger (the
"Merger Agreement"), dated as of March 30, 1998, by and between
Syntroleum and SLH Corporation ("SLH"), which is described in the
attached Joint Proxy Statement/Prospectus, and the transactions
contemplated thereby. Pursuant to the Merger Agreement, (a) Syntroleum
will merge (the "Merger") with and into SLH and each outstanding share of
Syntroleum common stock will be converted into shares of SLH common
stock, (b) SLH's name will be changed to "Syntroleum Corporation," (c)
the officers of SLH will be replaced by the current officers of
Syntroleum, (d) six of the eight SLH directors will be replaced by
current Syntroleum directors and (e) SLH's Articles of Incorporation will
be amended to increase its number of authorized shares of common stock
and preferred stock.
2. Such other business as may properly come before the Special Meeting or
any adjournment or postponement thereof.
The Merger and related matters are described more fully in the accompanying
Joint Proxy Statement/ Prospectus. A copy of the Merger Agreement is attached to
the Joint Proxy Statement/Prospectus as Appendix A.
Only Syntroleum stockholders of record at the close of business on
, 1998 are entitled to notice of and to vote at the Special Meeting.
Your vote is important--as is the vote of every stockholder--and the Board
of Directors of Syntroleum appreciates the cooperation of stockholders in
directing proxies to vote at the meeting. It is important that your shares be
represented at the meeting by your signing and returning the enclosed proxy card
in the accompanying envelope as promptly as possible, whether or not you expect
to be present in person.
You may revoke your proxy at any time by following the procedures set forth
in the accompanying Joint Proxy Statement/Prospectus.
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR COMMON STOCK AT THIS TIME.
By Order of the Board of Directors
--------------------------------------
Eric Grimshaw
SECRETARY
Tulsa, Oklahoma
, 1998
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 16, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS JOINT PROXY STATEMENT/PROSPECTUS SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH JURISDICTION.
<PAGE>
SLH CORPORATION
SYNTROLEUM CORPORATION
JOINT PROXY STATEMENT/PROSPECTUS
This Joint Proxy Statement/Prospectus relates to an Agreement and Plan of
Merger, dated as of March 30, 1998 (the "Merger Agreement"), by and between SLH
Corporation ("SLH") and Syntroleum Corporation ("Syntroleum"). Pursuant to the
Merger Agreement, Syntroleum will merge (the "Merger") with and into SLH and the
outstanding shares of common stock of Syntroleum, par value $0.001 per share
("Syntroleum Common Stock"), will be converted into a number of shares of SLH's
common stock, par value $0.01 per share, and associated preferred share purchase
rights ("SLH Common Stock") equal to the ratio of the implied market value of
the Syntroleum Common Stock divided by the market value of the SLH Common Stock.
The market value of the SLH Common Stock will be the average closing price of
the SLH Common Stock during the five trading days ending on the business day
immediately preceding the date of the SLH 1998 Annual Meeting. The implied
market value of the Syntroleum Common Stock will be equal to (i) the difference
between the market capitalization of the SLH Common Stock and SLH's total
stockholders' equity (excluding the book value of the shares of Syntroleum
Common Stock that SLH owns) divided by (ii) the number of shares of Syntroleum
Common Stock that SLH owns. For example, based on the average closing price of
the SLH Common Stock during the five trading days preceding April 8, 1998
($29.275 per share), each share of Syntroleum Common Stock would be converted
into 1.47484 shares of SLH Common Stock in the Merger. The actual exchange ratio
will be determined on the day of SLH's 1998 Annual Meeting based on the average
closing price of the SLH Common Stock during the five preceding trading days.
See "The Merger" and "Certain Provisions of the Merger Agreement-- Merger
Consideration." Also in connection with the Merger, SLH's name will be changed
to "Syntroleum Corporation," the officers of SLH will be replaced by the current
officers of Syntroleum, six of the eight SLH directors will be replaced by
current Syntroleum directors and SLH's Articles of Incorporation will be amended
to increase its number of authorized shares of SLH Common Stock and SLH's
preferred stock, par value $0.01 per share ("SLH Preferred Stock").
In addition, at the SLH 1998 Annual Meeting the stockholders of SLH will
consider and vote upon the following additional proposals (the "Additional
Proposals"): (i) the election of W.D. Grant, W.T. Grant II and David W. Kemper
as class B directors, to serve until the earlier of the 2001 Annual Meeting of
Stockholders of SLH or the effective time of the Merger, (ii) the approval and
adoption, conditioned on the approval of the Merger, of the Syntroleum 1993
Stock Option and Incentive Plan and the Syntroleum Stock Option Plan for Outside
Directors (collectively, the "Syntroleum Stock Option Plans"), and (iii) the
ratification of the appointment of SLH's independent public accountants for the
1998 fiscal year.
SLH has filed a registration statement on Form S-4 pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), covering the shares
of SLH Common Stock issuable in connection with the Merger. This Joint Proxy
Statement/Prospectus constitutes the Prospectus filed as a part of the
registration statement and is being furnished to stockholders of SLH and
Syntroleum in connection with the solicitation of proxies by the respective
Boards of Directors of SLH and Syntroleum for use at their respective meetings
of stockholders (or any adjournment or postponement thereof), both scheduled to
be held on , 1998 (the "SLH Annual Meeting" and the "Syntroleum
Special Meeting" and, collectively, the "Meetings").
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN EVALUATING THE SECURITIES OFFERED HEREBY.
THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of SLH and Syntroleum on or about
, 1998.
------------------------
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS , 1998.
<PAGE>
[Photograph of Syntroleum Pilot Plant in Tulsa, Oklahoma.]
[Block flow diagram illustrating the Syntroleum Process.]
[Graphic depicting synthetic crude oil as clear and clean.]
[World gas overview map depicting location of 1996
proven reserves in various locations around the world.]
[Graphic detailing the world's gas fields outside North America by size.]
[Graphic depicting market size in barrels of oil
equivalent for alternative markets for natural gas.]
<PAGE>
AVAILABLE INFORMATION
SLH is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith,
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "SEC"). Such reports and other information may be
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the following Regional Offices of the SEC: Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can also
be obtained from the Public Reference Section of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. The SEC maintains a Web site
that contains reports, proxy and information statements and other information
filed electronically by SLH with the SEC which can be accessed over the Internet
at http://www.sec.gov. In addition, reports, proxy statements and other
information filed by SLH can be inspected at the offices of the NASDAQ Stock
Market, Inc., 1735 K Street, N.W., Washington, D.C. 20549.
SLH has filed with the SEC a registration statement on Form S-4 (together
with all amendments, supplements and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the SLH Common Stock
issuable in connection with the Merger. The information contained herein with
respect to SLH has been provided by SLH, and the information with respect to
Syntroleum has been provided by Syntroleum. This Joint Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. The
Registration Statement and any amendments thereto, including exhibits filed as a
part thereof, are available for inspection and copying as set forth above.
Statements contained in this Joint Proxy Statement/Prospectus or in any document
incorporated in this Joint Proxy Statement/Prospectus by reference as to the
contents of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement or
such other document, each such statement being qualified in all respects by such
reference.
Syntroleum is not subject to the informational requirements of the Exchange
Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES CERTAIN DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
(OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE) ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL
OWNER, TO WHOM A COPY OF THIS JOINT PROXY STATEMENT/PROSPECTUS HAS BEEN
DELIVERED, UPON REQUEST FROM, STEVEN K. FITZWATER, SLH CORPORATION, 5000 W. 95TH
ST., SUITE 260, SHAWNEE MISSION, KANSAS 66207, TELEPHONE NUMBER (913) 652-1000.
IN ORDER TO ENSURE TIMELY DELIVERY OF THESE DOCUMENTS, ANY REQUEST SHOULD BE
MADE BY , 1998.
SLH hereby undertakes to provide, without charge, to each person, including
any beneficial owner of SLH Common Stock or Syntroleum Common Stock, to whom a
copy of this Joint Proxy Statement/ Prospectus has been delivered, upon the
written or oral request of any such person, a copy of any and all of the
documents referred to below which have been or may be incorporated herein by
reference, other than exhibits to such documents, unless such exhibits are
specifically incorporated herein by reference. Requests for such documents
should be directed to the person indicated in the immediately preceding
paragraph.
The following documents, which have been previously filed by SLH (File No.
0-21911) with the SEC pursuant to the Exchange Act, are hereby incorporated
herein by reference:
(1) SLH's Annual Report on Form 10-K for the fiscal year ended December
31, 1997, as amended on April 13, 1998 (the "1997 Form 10-K");
(2) SLH's Current Reports on Form 8-K dated January 27, 1998 and March
30, 1998; and
(3) The description of the SLH Common Stock and associated preferred
share purchase rights included in SLH's Registration Statement on Form 10
filed on December 24, 1996, as amended on February 4, 1997 and February 12,
1997.
All documents and reports filed by SLH pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the date that the Merger is
ii
<PAGE>
consummated shall be deemed to be incorporated by reference herein and to be a
part hereof from the respective dates of filing of such documents or reports.
All information appearing in this Joint Proxy Statement/Prospectus or in any
document incorporated herein by reference is not necessarily complete and is
qualified in its entirety by the information and financial statements (including
notes thereto) appearing in the documents incorporated herein by reference and
should be read together with such information and documents.
Any statement contained herein or in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Joint Proxy Statement/Prospectus
to the extent that a statement contained herein (or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein)
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed to constitute a part of this Joint Proxy
Statement/Prospectus except as so modified or superseded.
No person is authorized to give any information or to make any
representation not contained in this Joint Proxy Statement/Prospectus, and, if
given or made, such information or representation must not be relied upon as
having been authorized. This Joint Proxy Statement/Prospectus does not
constitute an offer to sell, or a solicitation of an offer to purchase, any of
the securities offered by this Joint Proxy Statement/ Prospectus, or the
solicitation of a proxy, in any jurisdiction in which, or to any person to whom,
it is unlawful to make such offer or solicitation of an offer or proxy
solicitation. Neither the delivery of this Joint Proxy Statement/Prospectus nor
any distribution of the securities offered hereby shall, under any
circumstances, create any implication that the information contained herein is
correct as of any time subsequent to the date hereof or that there has been no
change in the affairs of SLH or Syntroleum since the date hereof.
FORWARD-LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus includes, or incorporates by
reference, forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act that are intended to be
covered by the safe harbors created thereby. These forward-looking statements
include, but are not limited to, statements relating to the Syntroleum Process
and related technologies, gas-to-liquids plants based on the Syntroleum Process,
anticipated capital and operating costs of such plants, the timing of
commencement and completion of construction of such plants, obtaining required
financing for such plants, the continued development of the Syntroleum Process
(alone or with partners) and the economic use of GTL plants. When used in this
document, the words "anticipate," "estimate," "expect," "may," "project,"
"believe" and similar expressions are intended to be among the statements that
identify forward-looking statements. Although SLH and Syntroleum believe their
expectations are based on reasonable assumptions, such statements involve risks
and uncertainties and no assurance can be given that actual results will be
consistent with these forward-looking statements. In particular, actual results
may differ from these statements for reasons described in "Risk Factors" or
discussed elsewhere in or incorporated by reference into this Joint Proxy
Statement/Prospectus.
CERTAIN INDUSTRY TERMS
As used herein, the following terms have the following specified meanings:
"API" means a relative measure of the weight of a barrel of crude oil where
lower numbers represent heavier materials; "BBL" means one stock tank barrel, or
42 United States gallons liquid volume, used herein in reference to crude oil,
synthetic crude oil or other liquid hydrocarbons; "BBLS/D" means stock tank
barrels per day; "BTU" or "BRITISH THERMAL UNIT" means the quantity of heat
required to raise the temperature of one pound of water by one degree
Fahrenheit; "FIELD" means an area consisting of a single reservoir or multiple
reservoirs all grouped on or related to the same individual geological
structural feature and/or stratigraphic condition; "GTL" means the process of
converting natural gas into synthetic hydrocarbons through a catalytic process;
"GTL PLANTS" means plants that convert natural gas into synthetic hydrocarbons
through the GTL process; "LNG" means natural gas that has been cooled by
cryogenic means to a temperature low enough to condense the natural gas to a
liquid; "MCF" means thousand cubic feet; and "TCF" means one trillion cubic
feet.
------------------------
Syntroleum is both a service mark and a trademark of Syntroleum Corporation.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AVAILABLE INFORMATION...................................................................................... ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ ii
FORWARD-LOOKING STATEMENTS................................................................................. iii
CERTAIN INDUSTRY TERMS..................................................................................... iii
SUMMARY.................................................................................................... 1
The Companies............................................................................................ 1
The Meetings............................................................................................. 4
The Merger............................................................................................... 5
Price Range of SLH Common Stock.......................................................................... 10
Summary Historical Financial Information for SLH......................................................... 11
Summary Historical Financial Information for Syntroleum.................................................. 12
Summary Pro Forma Combined Financial Information (Unaudited)............................................. 13
Comparative Per Share Data............................................................................... 14
RISK FACTORS............................................................................................... 15
THE MEETINGS............................................................................................... 27
SLH Annual Meeting....................................................................................... 27
Syntroleum Special Meeting............................................................................... 27
Quorum................................................................................................... 28
Vote Required............................................................................................ 28
Record Date; Stock Entitled to Vote...................................................................... 28
Voting of Proxies........................................................................................ 28
Revocation of Proxies.................................................................................... 29
Solicitation of Proxies.................................................................................. 29
Security Ownership of Certain Persons.................................................................... 29
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS.......................................................... 30
THE MERGER................................................................................................. 34
General.................................................................................................. 34
The Merger............................................................................................... 34
Background of the Merger................................................................................. 34
Syntroleum's Reasons for the Merger...................................................................... 36
SLH's Reasons for the Merger............................................................................. 38
Recommendations of the Boards of Directors............................................................... 39
Opinion of SLH's Financial Advisor....................................................................... 39
Opinion of Syntroleum's Financial Advisor................................................................ 43
Accounting Treatment..................................................................................... 46
Certain Federal Income Tax Consequences.................................................................. 46
Interests of Certain Persons in the Merger............................................................... 47
Dissenters' Appraisal Rights............................................................................. 48
Resales of SLH Common Stock.............................................................................. 51
Increased Authorized Shares.............................................................................. 51
Certain Regulatory Matters............................................................................... 52
CERTAIN PROVISIONS OF THE MERGER AGREEMENT................................................................. 53
Merger Consideration..................................................................................... 53
Conversion of Shares; Fractional Shares.................................................................. 54
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Appraisal Rights......................................................................................... 54
Treatment of Syntroleum Options.......................................................................... 54
Adjustments to SLH Options............................................................................... 54
Conditions to the Merger................................................................................. 55
Representations and Warranties........................................................................... 56
Certain Covenants; Conduct of Business................................................................... 57
Amendment of Articles of Incorporation................................................................... 58
NASDAQ Listing of Common Stock........................................................................... 58
Additional Agreements.................................................................................... 58
Expenses................................................................................................. 58
Indemnification.......................................................................................... 59
Amendment, Waiver and Termination........................................................................ 59
INFORMATION REGARDING SYNTROLEUM........................................................................... 61
Overview................................................................................................. 61
Industry Overview........................................................................................ 63
The Syntroleum Solution.................................................................................. 66
Business Strategy........................................................................................ 69
Implementation of Syntroleum's Business Strategy......................................................... 71
Strategic Relationships.................................................................................. 77
Sales and Marketing...................................................................................... 81
Historical Development of the Technology................................................................. 81
The Syntroleum Process................................................................................... 83
Intellectual Property.................................................................................... 86
Employees................................................................................................ 87
Property................................................................................................. 87
Competition.............................................................................................. 87
Government Regulation.................................................................................... 88
Legal Proceedings........................................................................................ 89
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SYNTROLEUM........ 90
MANAGEMENT AFTER THE MERGER................................................................................ 97
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF SYNTROLEUM............................... 104
INFORMATION REGARDING SLH.................................................................................. 106
Overview................................................................................................. 106
Management and Disposition of Real Estate and Miscellaneous Assets....................................... 107
Miscellaneous Contingent Interests and Liabilities....................................................... 109
Company Employees........................................................................................ 109
Properties............................................................................................... 109
Regulation--Potential Future Application of the Investment Company Act of 1940........................... 110
Legal Proceedings........................................................................................ 110
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SLH............... 112
MANAGEMENT OF SLH.......................................................................................... 117
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF SLH...................................... 124
DESCRIPTION OF SLH CAPITAL STOCK........................................................................... 126
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
COMPARATIVE RIGHTS OF STOCKHOLDERS......................................................................... 137
PROPOSAL TO ELECT SLH DIRECTORS............................................................................ 140
PROPOSAL TO APPROVE THE SYNTROLEUM STOCK OPTION PLANS...................................................... 142
PROPOSAL TO APPROVE AND RATIFY SLH'S APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS......................... 146
EXPERTS.................................................................................................... 146
LEGAL MATTERS.............................................................................................. 147
STOCKHOLDER PROPOSALS...................................................................................... 147
INDEX TO SYNTROLEUM CORPORATION FINANCIAL STATEMENTS....................................................... F-1
APPENDIX A--Agreement and Plan of Merger
APPENDIX B--Opinion of Salomon Smith Barney
APPENDIX C--Opinion of J. P. Morgan Securities Inc.
APPENDIX D--Section 1091 of the Oklahoma General Corporation Act
APPENDIX E--Syntroleum 1993 Stock Option and Incentive Plan
APPENDIX F--Syntroleum Stock Option Plan for Outside Directors
</TABLE>
vi
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS JOINT PROXY STATEMENT/ PROSPECTUS AND DOES NOT PURPORT TO BE COMPLETE.
STOCKHOLDERS ARE URGED TO CAREFULLY READ THIS JOINT PROXY STATEMENT/PROSPECTUS
AND THE APPENDICES HERETO IN THEIR ENTIRETY. REFERENCES HEREIN TO "SYNTROLEUM"
MEAN SYNTROLEUM CORPORATION PRIOR TO THE MERGER AND THE COMBINED COMPANY
FOLLOWING THE MERGER, AS APPLICABLE.
THE COMPANIES
SLH CORPORATION
SLH was incorporated in Kansas on December 5, 1996 and is primarily engaged
in supporting the development of Syntroleum. As of the date of this Joint Proxy
Statement/Prospectus, SLH owned approximately 31% of Syntroleum. SLH is also in
the business of managing, developing and disposing of real estate and certain
miscellaneous assets. These assets, together with the stock of Syntroleum, were
acquired from Lab Holdings, Inc. ("Lab Holdings" formerly Seafield Capital
Corporation). As of December 31, 1997, SLH had approximately $50 million in
assets, consisting of approximately $37 million of cash, short-term investments
and net receivables and approximately $13 million of other assets being
liquidated. Concurrent with that acquisition, Lab Holdings distributed to its
stockholders on March 3, 1997 all of the outstanding shares of SLH's Common
Stock and certain preferred share purchase rights in a transaction commonly
referred to as a "spin-off" or "distribution" (the "Distribution"). The
Distribution is more particularly described in the Information Statement that
was furnished to SLH stockholders on February 13, 1997 and SLH's related
Registration Statement on Form 10.
The principal executive office of SLH is located at 5000 W. 95th St., Suite
260, Shawnee Mission, Kansas 66207. SLH's telephone number is (913) 652-1000.
See "Information Regarding SLH."
SYNTROLEUM CORPORATION
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"). The Syntroleum
Process is a simplification of traditional GTL technologies aimed at
substantially reducing both the capital cost and the minimum economical size of
a GTL plant, as well as plant operating costs. 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 experienced during recent years), and can be competitive with other GTL
processes at any plant size. Due to their relatively small footprint, Syntroleum
believes that GTL plants based on the Syntroleum Process can be placed on skids,
barges and ocean-going vessels ("mobile GTL plants"), allowing these plants to
be used at a variety of locations, including isolated and offshore areas.
Although no commercial-scale GTL plant based on the Syntroleum Process has yet
been built, Syntroleum owns and operates a nominal two Bbl/d pilot plant in
Tulsa, Oklahoma where it has successfully demonstrated certain elements and
variations of the Syntroleum Process.
GTL plants can be designed to refine the synthetic liquid hydrocarbons (also
known as "synthetic crude oil") produced by the Syntroleum Process into higher
margin liquid fuels such as diesel, kerosene and naphtha, or specialty products
such as synthetic lubricants, synthetic drilling fluid, waxes, liquid normal
paraffins and certain chemical feedstocks. Synthetic crude oil produced by the
Syntroleum Process has certain performance and environmental benefits and is
virtually free of contaminants normally found in crude oil, such as sulphur,
aromatics and heavy metals.
Syntroleum believes that a significant opportunity exists for the use of
cost-effective GTL plants due to the large resource base of natural gas
worldwide and the large volume of natural gas that is currently stranded.
Stranded gas exists in reservoirs that have been discovered but for which no
economical market
1
<PAGE>
has been found. In the August 11, 1997 edition of the Oil & Gas Journal, Enron
Corp. estimated that the total worldwide recoverable natural gas resource base
is approximately 15,000 Tcf, of which 5,011 Tcf is proven gas reserves. Wood
MacKenzie Consultants Limited ("Wood MacKenzie") and others have estimated that
of the 5,011 Tcf of proven gas reserves worldwide, approximately one-half, or
2,500 Tcf, are stranded. Approximately 250 billion barrels of synthetic crude
oil could be produced if only the estimated 2,500 Tcf of stranded proven
reserves were converted into synthetic crude oil using GTL technology (assuming
all of the gas could be converted at anticipated conversion rates). According to
industry sources, approximately 15.5 Tcf of stranded natural gas was flared,
vented or reinjected in 1996. Approximately 1.5 billion barrels of synthetic
crude oil per year (4.1 million barrels per day) could be produced if this gas
were converted into synthetic crude oil using GTL technology (assuming all of
the gas could be converted at anticipated conversion rates).
Syntroleum's objective is to be a leading GTL technology provider to the oil
and gas industry. Its business 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 Inc.
("Texaco"), Atlantic Richfield Company ("ARCO"), Marathon Oil Company
("Marathon"), YPF International, Ltd., an affiliate of Argentina-based
Yacimientos Petroliferos Fiscales, S.A. ("YPF"), Enron Capital & Trade
Resources Corp. ("Enron") and Kerr-McGee Corporation ("Kerr-McGee"), and
is currently in discussions with several other oil and gas companies with
respect to additional license agreements. Syntroleum believes that
substantial long-term revenues can be derived from license fees and
resulting catalyst sales to licensees. Under its license agreements,
Syntroleum obtains royalty free license rights, including sublicense
rights, to all inventions or improvements relating to the Syntroleum
Process that are commercially used by its licensees.
To support its licensing efforts, Syntroleum intends to continue to
establish relationships with engineering companies and manufacturers of
critical components to facilitate the design and construction of GTL
plants by licensees. Syntroleum has established strategic relationships
with the engineering firms of Bateman Engineering, Inc. ("Bateman"), Brown
& Root, Inc. ("Brown & Root") and AMEC Process and Energy Limited
("AMEC"). In addition, Syntroleum has established strategic relationships
with critical component and process vendors, including Criterion Catalyst
Company, L.P. ("Criterion") (a catalyst manufacturer whose owners are
Royal Dutch Shell Petroleum Company ("Shell") and Cytec Industries),
Catalytica Combustion Systems, Inc. ("Catalytica Combustion Systems"), ABB
Power Generation Ltd. and ABB STAL AB (collectively, "ABB") and Lyondell
Petrochemical Company ("Lyondell"). Syntroleum is actively pursuing
similar relationships with other engineering companies and component
vendors as potential providers of engineering services and components for
the design and construction of GTL plants based on the Syntroleum Process.
Syntroleum generally obtains title or exclusive rights to inventions or
improvements that result from its joint development activities with
others.
- 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's license agreements do
not permit licensees to use the Syntroleum Process for the production of
specialty products due to Syntroleum's desire to retain these markets for
its own commercial development. Syntroleum has formed a joint venture with
Enron with respect to the design and construction of a proposed 8,000
Bbl/d GTL plant in Sweetwater County, Wyoming (the "Sweetwater Plant"),
and 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
design and construction of a 2,500 Bbl/d or larger GTL plant.
2
<PAGE>
- PROVIDE MOBILE GTL PLANTS ON A CONTRACT BASIS. Syntroleum intends to make
available mobile GTL plants 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 in areas with stringent
flaring regulations; (ii) conversion of small associated gas fields that
are not large enough to justify the capital investment of a permanent GTL
plant; and (iii) short-term use of a GTL plant on large fields in order to
generate cash flow while a permanent GTL plant is being built or while
awaiting pipeline hookup. Syntroleum is currently in discussions with
Brown & Root regarding development of a contract GTL business plan.
- FURTHER REDUCE 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 conducts its
research and development activities utilizing its own resources and
through joint development arrangements with its licensees and other
industry partners. Texaco, ARCO, Marathon, Brown & Root, Bateman, ABB and
AGC Manufacturing Services, Inc. ("AGC") are currently participating in
specific joint development projects with Syntroleum. In addition,
Syntroleum has ongoing research and development relationships with
Catalytica Combustion Systems and Catalytica Advanced Technologies, Inc.
("Catalytica Advanced Technologies"). Syntroleum is actively pursuing
similar relationships with other oil and gas companies, engineering
companies and other technology providers as potential joint development
partners or providers of complementary technologies that might enhance or
improve the Syntroleum Process.
Syntroleum also reviews technological advances made by others and actively
seeks to acquire technologies that enhance the Syntroleum Process. Through
its license and joint development agreements, Syntroleum has acquired
various proprietary technologies, patents and patent applications relating
to several improvements to the Syntroleum Process.
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 Syntroleum to more rapidly
commercialize and improve the Syntroleum Process, thereby providing Syntroleum
and its licensees with an important competitive advantage and enhancing
Syntroleum's ability to attract additional licensees and joint development
partners.
Syntroleum's major customers for licensing and contract GTL plants are
expected to be energy companies worldwide with significant stranded natural gas
reserves that cannot be economically marketed and are therefore generally
shut-in, flared or reinjected. Syntroleum believes that these energy companies
could significantly enhance the value of their reserves by using the Syntroleum
Process to convert such natural gas into liquids that could be economically
marketed. Syntroleum's major customers for specialty products are expected to
include many of these energy companies, as well as a variety of manufacturing,
chemical, refining and oil field service companies.
The principal executive office of Syntroleum is located at Syntroleum Plaza,
1350 South Boulder, Suite 1100, Tulsa, Oklahoma 74119-3295, and its telephone
number is (918) 592-7900. See "Information Regarding Syntroleum."
3
<PAGE>
THE MEETINGS
<TABLE>
<S> <C>
MEETINGS OF STOCKHOLDERS.......... The SLH Annual Meeting will be held on ,
1998 at a.m.,,local time, at . ,
The Syntroleum Special Meeting will be held on
, 1998 at a.m., local time, at
, ,
.
MATTERS TO BE CONSIDERED AT THE
MEETINGS........................ At the SLH Annual Meeting, Stockholders will be asked
to:
- approve and adopt the Merger Agreement and the
transactions contemplated thereby;
- elect three class B directors to serve until the
earlier of the 2001 Annual Meeting of Stockholders of
SLH or the effective time of the Merger;
- approve and adopt the Syntroleum Stock Option Plans,
effective only upon the consummation of the Merger;
and
- approve and ratify the appointment of SLH's
independent public accountants for the 1998 fiscal year.
At the Syntroleum Special Meeting, stockholders will be
asked to approve and adopt the Merger Agreement and the
transactions contemplated thereby.
VOTE REQUIRED..................... Approval of the Merger Agreement requires the
affirmative vote of the holders of a majority of the
outstanding shares of SLH Common Stock then entitled to
vote thereon. The favorable vote of a plurality of the
shares of SLH Common Stock present at the SLH Annual
Meeting, either in person or by properly executed
proxies, and entitled to vote is required to elect
members of the SLH Board of Directors. The affirmative
vote of the holders of a majority of the shares present
at the SLH Annual Meeting, either in person or by
properly executed proxies, is necessary for the approval
and adoption of the Syntroleum Stock Option Plans and
the approval and ratification of the appointment of
SLH's independent public accountants for the 1998 fiscal
year.
Approval of the Merger Agreement requires the
affirmative vote of the holders of a majority of the
outstanding shares of Syntroleum Common Stock then
entitled to vote thereon.
RECORD DATE....................... Only stockholders of record of SLH Common Stock at the
close of business on , 1998 (the "SLH Record
Date") are entitled to notice of and to vote at the SLH
Annual Meeting. On that date, there were shares
of SLH Common Stock outstanding. Holders of SLH Common
Stock are entitled to one vote for each share held.
Only stockholders of record of Syntroleum Common Stock
at the close of business on , 1998 (the
"Syntroleum Record Date") are entitled to notice of and
to vote at the Syntroleum Special Meeting. On that date,
there were
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
shares of Syntroleum Common Stock outstanding. Holders
of Syntroleum Common Stock are entitled to one vote for
each share held.
SECURITY OWNERSHIP OF SIGNIFICANT
STOCKHOLDERS AND MANAGEMENT..... As of the SLH Record Date, the executive officers and
directors of SLH beneficially owned approximately %
of the outstanding shares of SLH Common Stock. SLH's
executive officers and directors have informed SLH that
they intend to vote in favor of the Merger Agreement and
the transactions contemplated thereby.
As of the Syntroleum Record Date, the executive officers
and directors of Syntroleum beneficially owned
approximately % of the outstanding shares of
Syntroleum Common Stock (excluding shares held by SLH
and deemed to be beneficially owned by certain directors
and executive officers of SLH who are also directors of
Syntroleum). As of the Syntroleum Record Date, SLH owned
approximately 31% of the outstanding shares of
Syntroleum Common Stock. Syntroleum's executive officers
and directors and SLH have informed Syntroleum that they
intend to vote in favor of the Merger Agreement and the
transactions contemplated thereby.
THE MERGER
EFFECT OF THE MERGER.............. In the Merger, Syntroleum will merge into SLH, and SLH
will be the surviving corporation and change its name to
"Syntroleum Corporation."
TREATMENT OF SYNTROLEUM COMMON
STOCK........................... In the Merger, each share of Syntroleum Common Stock
outstanding immediately prior to the effective time of
the Merger (the "Effective Time") (other than dissenting
shares) will be converted into a number of shares of
SLH's Common Stock equal to the ratio (the "Exchange
Ratio") of the implied market value of the Syntroleum
Common Stock divided by the market value of the SLH
Common Stock. The market value of the SLH Common Stock
will be the average closing price of the SLH Common
Stock during the five trading days ending on the
business day immediately preceding the date of the SLH
Annual Meeting. The implied market value of Syntroleum's
Common Stock will be equal to (i) the difference between
the market capitalization of the SLH Common Stock and
SLH's total stockholders' equity as of March 31, 1998
(excluding the book value of the shares of Syntroleum
Common Stock that SLH owns, which was zero as of
December 31, 1997) divided by (ii) 5,950,000 (the number
of shares of Syntroleum Common Stock that SLH owns). The
market capitalization of the SLH Common Stock is
determined by multiplying the market value of the SLH
Common Stock by 10,519,121 shares, which reflects the
sum of the number of shares of SLH Common Stock
outstanding plus the number of shares issuable pursuant
to vested stock options plus 250,000 shares (which
represent a
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
portion of the shares issuable pursuant to unvested
stock options). SLH's stockholders' equity as of
December 31, 1997 was $51,051,000.
For example, based on the average closing price during
the five trading days preceding April 8, 1998 ($29.275
per share), the Exchange Ratio would be 1.47484. The
actual Exchange Ratio will be determined on the day of
the SLH Annual Meeting based on the average closing
price of the SLH Common Stock during the five preceding
trading days. Based on an Exchange Ratio of 1.47484, the
current holders of outstanding shares of SLH Common
Stock would own approximately 34% of the SLH Common
Stock to be outstanding following the Merger and the
current holders of outstanding shares of Syntroleum
Common Stock would own approximately 66% of the SLH
Common Stock to be outstanding following the Merger. For
an illustration of the determination of the Exchange
Ratio, see "Certain Provisions of the Merger
Agreement--Merger Consideration."
SLH MANAGEMENT FOLLOWING THE
MERGER.......................... In connection with the Merger, Kenneth L. Agee, Mark A.
Agee, Alvin R. Albe, Jr., Frank M. Bumstead, Robert
Rosene, Jr., and J. Edward Sheridan, who are currently
directors of Syntroleum, will be elected as directors of
SLH effective as of the Effective Time. James R. Seward,
the President, Chief Executive Officer and a director of
SLH, and P. Anthony Jacobs, the Chairman and a director
of SLH, will continue as directors of SLH following the
Merger. In addition, the current officers of Syntroleum
will become the officers of SLH effective as of the
Effective Time. See "Management After the Merger."
RECOMMENDATIONS OF THE BOARDS OF
DIRECTORS....................... The Boards of Directors of SLH and Syntroleum believe
that the terms of the Merger are fair to and in the best
interests of their respective stockholders and have
approved the Merger Agreement and the transactions
contemplated thereby. THE BOARD OF DIRECTORS OF SLH
RECOMMENDS THAT SLH STOCKHOLDERS APPROVE AND ADOPT THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY. THE BOARD OF DIRECTORS OF SYNTROLEUM RECOMMENDS
THAT SYNTROLEUM STOCKHOLDERS APPROVE AND ADOPT THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
SLH'S REASONS FOR THE MERGER...... Consistent with SLH's stated objective to support
Syntroleum, the SLH Board of Directors believes that the
Merger is in the best interests of the SLH stockholders
because it will enhance SLH's principal asset, which
consists of Syntroleum Common Stock. Initially, the
Merger will provide Syntroleum with approximately $50
million in assets, consisting of approximately $37
million of cash, short-term investments and net
receivables and approximately $13 million of other
assets being liquidated, in each case as of December 31,
1997. These assets may be used in Syntroleum's projects
to design and construct two GTL plants
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
as well as for continued research and development of
process improvements and for general working capital
purposes. The Merger will also provide Syntroleum with a
public market for its common stock and enhanced investor
recognition that should facilitate future debt and
equity financings needed for its planned growth. The
increased number of shares outstanding should also
improve the existing market for SLH Common Stock and
attract greater market interest. In addition, the
consolidation of management and assets will reduce
redundant administrative costs and should sharpen
investor focus. Developments at both companies also
support the timing of the Merger. Finally, the Merger is
consistent with SLH's strategy to avoid becoming subject
to regulation as an investment company.
SYNTROLEUM'S REASONS FOR THE
MERGER.......................... The Syntroleum Board of Directors believes that the
Merger will accelerate Syntroleum's commercial
development by enhancing its ability to obtain the
capital necessary to fund its planned commercial-scale
GTL plants. In the Merger, SLH will contribute
approximately $50 million in assets, consisting of
approximately $37 million of cash, short-term
investments and net receivables and approximately $13
million of other assets being liquidated, in each case
as of December 31, 1997. These assets should enable
Syntroleum to meet its short-term commitments to fund
the proposed Sweetwater Plant and the plant under
development through its joint venture with Texaco and
Brown & Root, as well as provide funds for continued
research and development of process improvements and for
general working capital purposes. Further, as a public
company, Syntroleum should have more ready access to the
public debt and equity markets for future financings.
Other benefits of the Merger include the increased
visibility of Syntroleum as a public company and the
increased liquidity for Syntroleum stockholders.
OPINIONS OF FINANCIAL ADVISORS.... Salomon Smith Barney has delivered its written opinion
dated March 30, 1998 to the Board of Directors of SLH
that, as of the date of such opinion, the exchange ratio
was fair from a financial point of view to SLH.
J.P. Morgan Securities Inc. ("J.P. Morgan") has
delivered its written opinion dated March 30, 1998 to
the Board of Directors of Syntroleum that, as of the
date of such opinion, the consideration to be paid to
holders of Syntroleum Common Stock in the Merger was
fair from a financial point of view to the holders of
Syntroleum Common Stock.
For information on the assumptions made, matters
considered and limits of the reviews by Salomon Smith
Barney and J.P. Morgan, see "The Merger--Opinion of
SLH's Financial Advisor" and "--Opinion of Syntroleum's
Financial Advisor." Stockholders are urged to read in
their entirety the opinions of Salomon Smith Barney and
J.P. Morgan, attached as
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Appendices B and C, respectively, to this Joint Proxy
Statement/ Prospectus.
EFFECTIVE TIME OF THE MERGER...... The closing of the Merger (the "Closing") will occur on
the first business day after all of the conditions to
the Merger contained in the Merger Agreement have been
satisfied or waived or on such other date as to which
SLH and Syntroleum mutually agree. The Closing is
expected to be the first business day following the
Meetings. The Merger will be effective upon the filing
of a certificate of merger (the "Certificate of
Merger"), prepared and executed in accordance with the
relevant provisions of the Oklahoma General Corporation
Act (the "OGCA") and the Kansas General Corporation Code
(the "KGCC"). Such filings will be made upon, or as soon
as practicable after, the Closing.
CONDITIONS TO THE MERGER.......... The obligations of SLH and Syntroleum to consummate the
Merger are subject to the satisfaction of certain
conditions, including, among others, (i) obtaining
requisite SLH and Syntroleum stockholder approvals and
any requisite regulatory approvals, (ii) the
Registration Statement being declared effective by the
SEC and the receipt by SLH of all necessary approvals
under applicable state securities laws, (iii) the
authorization for trading on NASDAQ of the additional
shares of SLH Common Stock to be issued in the Merger,
(iv) the absence of any injunction prohibiting
consummation of the Merger, (v) the receipt of certain
legal opinions with respect to the tax consequences of
the Merger and certain other legal matters, (vi) the
receipt of consents required under the Merger Agreement,
(vii) no greater than 2.5% of the outstanding shares of
Syntroleum Common Stock exercise appraisal rights in
connection with the Merger, and (viii) the historical
and pro forma financial statements included in the
Registration Statement as declared effective by the SEC
do not reflect fundamental and material variances from
those included in the initial filing of the Registration
Statement that are not satisfactory to the Board of
Directors of both SLH and Syntroleum. See "Certain
Provisions of the Merger Agreement--Conditions to the
Merger."
CERTAIN REGULATORY MATTERS........ Neither the Merger nor any other transaction
contemplated by the Merger Agreement is subject to any
material regulatory review or approval.
AMENDMENT AND WAIVER.............. The Merger Agreement may be amended at any time before
or after stockholder approval. After stockholder
approval has been obtained, no amendment may be made
which by law requires further approval by such
stockholders without such further approval.
Either SLH or Syntroleum may extend the time for
performance of any of the obligations of the other party
or may waive compliance with any of the agreements or
conditions contained in the Merger Agreement.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
TERMINATION....................... The Merger Agreement may be terminated at any time prior
to the Effective Time by mutual consent of SLH and
Syntroleum.
The Merger Agreement is subject to termination by either
SLH or Syntroleum if the Merger is not consummated by
September 30, 1998. In addition, the Merger Agreement
may be terminated under certain circumstances by either
SLH or Syntroleum. See "Certain Provisions of the Merger
Agreement--Amendment, Waiver and Termination."
APPRAISAL RIGHTS.................. Under Kansas law, SLH stockholders will not be entitled
to any dissenter's rights in connection with the Merger.
Under Oklahoma law, Syntroleum stockholders will be
entitled to appraisal rights in connection with the
Merger. A copy of the Oklahoma statutory provisions
regarding appraisal rights is attached hereto as
Appendix D and those provisions are described under "The
Merger--Dissenters' Appraisal Rights."
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES.................... SLH and Syntroleum have received an opinion of counsel
that the Merger will be a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), a holder of Syntroleum
Common Stock who exchanges such stock for SLH Common
Stock pursuant to the Merger will recognize gain only in
respect of cash received in lieu of a fractional share,
and no gain or loss will be recognized by SLH or
Syntroleum as a result of the Merger.
ACCOUNTING TREATMENT.............. The Merger will be accounted for as a reverse
acquisition using the purchase method of accounting,
with Syntroleum being treated as the acquirer for
accounting purposes. For purposes of preparing its
consolidated financial statements, the combined company
will establish a new accounting basis for SLH's assets
and liabilities using the fair values thereof, based
upon the consideration paid in the Merger and the costs
of the Merger. See "Unaudited Pro Forma Combined
Financial Statements" and "The Merger--Accounting
Treatment."
INTERESTS OF CERTAIN PERSONS IN
THE MERGER...................... In considering the recommendation of the Board of
Directors of SLH and Syntroleum with respect to the
Merger, stockholders of SLH and Syntroleum should be
aware that certain members of the Board of Directors of
SLH and Syntroleum and certain executive officers of SLH
and Syntroleum have interests in the Merger separate
from their interests as SLH and Syntroleum stockholders.
See "The Merger--Interests of Certain Persons in the
Merger."
COMPARISON OF STOCKHOLDER
RIGHTS.......................... As a result of the Merger, holders of Syntroleum Common
Stock will become stockholders of SLH and will have
certain different rights as stockholders of SLH than
they had as stockholders of Syntroleum. For example,
SLH's Articles of Incorporation and Bylaws include
certain provisions, and SLH has adopted a stockholder
rights plan, that might have the effect of delaying or
preventing a change of control.
</TABLE>
9
<PAGE>
PRICE RANGE OF SLH COMMON STOCK
SLH Common Stock has been traded on the National Market System of the NASDAQ
Stock Market under the symbol "SLHO" since July 29, 1997. Prior to that time,
SLH Common Stock traded over-the-counter through the OTC Bulletin Board and NQB
Pink Sheets. Following the Merger, the symbol is expected to be changed to
"SYNM."
The table below reflects the high and low sales prices of SLH Common Stock
for each quarter during the year ended December 31, 1997 and through April 7,
1998. Trading in the first quarter of 1997 did not commence until February 24,
1997. Cash dividends have not been paid since inception. The information has
been adjusted for a three-for-one stock split on July 21, 1997 and a two-for-one
stock split on February 9, 1998.
<TABLE>
<CAPTION>
SALES PRICE
---------------------
HIGH LOW
--------- ----------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
First Quarter.......................................................... $ 5.16 $ 2.66*
Second Quarter......................................................... 13.29 5.00
Third Quarter.......................................................... 29.87 12.08
Fourth Quarter......................................................... 36.50 23.87
YEAR ENDING DECEMBER 31, 1998:
First Quarter.......................................................... 36.00 25.50
Second Quarter (through April 7, 1998)................................. 33.00 27.00
</TABLE>
- ------------------------
* Reflects when issued trading prior to the March 3, 1997 Distribution Date.
The last reported sales price per share of SLH Common Stock on March 30,
1998, the last trading date preceding public announcement of the Merger, was
$28.00. On April 7, 1998, the closing sales price per share of SLH Common Stock
was $27.625.
STOCKHOLDERS ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR SLH COMMON
STOCK.
There is no established trading market for shares of Syntroleum Common
Stock.
10
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION FOR SLH
The following table sets forth a summary of selected historical financial
data for SLH. The historical financial information presented for the periods
1993 through 1996 reflects periods during which SLH did not exist but rather
reflects the financial information of Lab Holdings' businesses and assets
transferred to SLH on February 28, 1997 as well as related liabilities assumed
by SLH. Such historical financial information presented may not necessarily be
indicative of the results of operations or financial condition that would have
been obtained if SLH had been a separate, independent company during such
periods. Neither should such information be deemed to be indicative of SLH's
future performances as an independent company. The financial information should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations of SLH" and the financial statements and the
related notes incorporated by reference herein. See "Incorporation of Certain
Documents by Reference."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- ---------- --------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................. $ 17,343 $ 16,365 $ 11,486 $ 11,991 $ 17,470
Cost of sales............................................. 16,566 15,250 10,984 10,897 16,133
Other operating expenses.................................. 5,071 5,383 12,682 10,002 5,018
Investment and other income (expense), net................ 8,356 126 (316) 926 (2,962)
Provision (benefit) for income taxes...................... (5,027) 56 (1,264) (1,437) (2,477)
Net income (loss)......................................... 9,093 (5,598) (11,232) (6,545) (4,166)
Net income per share--basic............................... 0.92
Net income per share--diluted............................. 0.84
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- ---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 37,478 $ 3,364 $ 4,067 $ 3,468 $ 3,856
Cash and short-term investments........................... 32,046 3,925 -- -- --
Income taxes receivable................................... 5,109 -- -- -- --
Real estate held for sale and development................. 9,058 24,202 35,073 40,998 39,047
Investments............................................... 1,530 8,244 10,391 12,864 15,167
Total assets.............................................. 53,169 38,474 51,638 64,627 70,155
Current liabilities....................................... 2,039 2,165 365 239 2,150
Combined equity........................................... -- 35,813 49,686 61,147 66,438
Stockholders' equity...................................... 51,051 -- -- -- --
</TABLE>
11
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION FOR SYNTROLEUM
Syntroleum's historical operations have primarily related to the development
of the Syntroleum Process. Syntroleum only recently began to focus on
commercializing its GTL technology. Accordingly, Syntroleum's historical
operating results are not necessarily indicative of future operating results.
The financial information of Syntroleum set forth below for the five years ended
December 31, 1997 has been derived from the audited financial statements of
Syntroleum. The information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Syntroleum" and the financial statements of Syntroleum and the related notes
thereto included elsewhere in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues............................................. $ 2,007 $ 616 $ 45 $ 60 $ --
--------- --------- --------- --------- ---------
Costs and expenses:
Pilot plant.................................................. 2,847 1,120 671 -- --
Catalyst services............................................ 4,800 -- -- -- --
General and administrative................................... 4,249 1,402 568 384 263
Depreciation and amortization................................ 76 19 12 13 12
--------- --------- --------- --------- ---------
Total operating expenses................................... 11,972 2,541 1,251 397 275
--------- --------- --------- --------- ---------
Operating income (loss)........................................ (9,965) (1,925) (1,206) (337) (275)
Other income (expense)......................................... 353 (12) 60 18 3
--------- --------- --------- --------- ---------
Income (loss) before taxes..................................... (9,612) (1,937) (1,146) (319) (272)
Provision for income taxes..................................... -- -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss).............................................. $ (9,612) $ (1,937) $ (1,146) $ (319) $ (272)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share--basic and diluted................. $ (0.52) $ (0.11) $ (0.07) $ (0.02) $ (0.02)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................................ $ 9,846 $ 601 $ (410) $ (65) $ 65
Property and equipment, net.................................... 1,245 521 507 89 23
Total assets................................................... 12,091 1,552 873 188 152
Deferred revenue............................................... 11,000 -- -- -- --
Long-term debt................................................. -- 1,000 -- -- --
Stockholders' equity........................................... (1,242) 266 203 102 132
</TABLE>
12
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL INFORMATION (UNAUDITED)
The following summary pro forma financial information presents (i) summary
unaudited pro forma operating data for the year ended December 31, 1997 after
giving effect to the Merger as if the Merger had been consummated on January 1,
1997 and (ii) summary unaudited pro forma balance sheet data at December 31,
1997, giving effect to the Merger as if the Merger had been consummated on that
date. The Merger will be accounted for as a reverse acquisition using the
purchase method of accounting, with Syntroleum being treated as the acquirer for
accounting purposes. The following summary pro forma financial information is
provided for informational purposes only and should be read in conjunction with
the separate audited consolidated financial statements and related notes of
Syntroleum (which are included elsewhere in this Joint Proxy
Statement/Prospectus) and SLH (which are incorporated herein by reference). The
following summary is based on certain assumptions and does not purport to be
indicative of the results which actually would have occurred if the Merger had
been consummated on the dates indicated or which may be obtained in the future.
See "Unaudited Pro Forma Combined Financial Statements" and "The
Merger--Accounting Treatment."
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
(IN THOUSANDS,
EXCEPT FOR PER
SHARE DATA)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Real estate sales............................................................................ $ 16,557
Other........................................................................................ 2,793
--------
Total revenues............................................................................. 19,350
--------
Cost and expenses:
Cost of real estate sold..................................................................... 16,566
Pilot plant, research and development and other.............................................. 5,981
Catalyst services............................................................................ 4,800
General and administrative................................................................... 6,262
--------
Total costs and expenses................................................................... 33,609
--------
Loss from operations......................................................................... (14,259)
Investment, interest and other income, net................................................... 8,964
--------
Loss before income taxes..................................................................... (5,295)
Income tax benefit........................................................................... 5,027
--------
Net loss....................................................................................... $ (268)
--------
--------
Net loss per share-basic and diluted........................................................... $ (0.01)
--------
--------
<CAPTION>
AS OF
DECEMBER 31, 1997
-----------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Working capital................................................................................ $ 47,324
Cash and cash equivalents...................................................................... 30,212
Short-term investments......................................................................... 11,992
Income taxes receivable........................................................................ 5,109
Total current assets........................................................................... 50,139
Property and equipment, net.................................................................... 1,328
Other noncurrent assets........................................................................ 12,296
Total assets................................................................................... 63,763
Deferred revenue............................................................................... 11,000
Total liabilities.............................................................................. 13,908
Stockholders' equity........................................................................... 49,809
</TABLE>
13
<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents comparative per share information for SLH and
Syntroleum on a historical basis and on a pro forma basis assuming that the
Merger had occurred at the beginning of the period presented for earnings per
common share and for book value per common share. Neither SLH nor Syntroleum
paid cash dividends during 1997. The tables should be read in conjunction with
the financial statements and notes thereto of SLH incorporated by reference in
this Joint Proxy Statement/Prospectus, the financial statements and notes
thereto of Syntroleum included elsewhere in this Joint Proxy Statement/
Prospectus and the unaudited pro forma combined financial statements and related
notes thereto included elsewhere herein. See "Unaudited Pro Forma Combined
Financial Statements."
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
SLH--HISTORICAL(1)
Book value per common share................................................ $ 5.16
Basic earnings per common share............................................ $ 0.92
Diluted earnings per common share.......................................... $ 0.84
SLH--PRO FORMA (UNAUDITED)(1)
Book value per common share................................................ $ 1.71
Basic earnings (loss) per common share..................................... $ (0.01)
Diluted earnings (loss) per common share................................... $ (0.01)
SYNTROLEUM--HISTORICAL
Book value per common share................................................ $ (0.07)
Basic earnings (loss) per common share..................................... $ (0.52)
Diluted earnings (loss) per common share................................... $ (0.52)
SYNTROLEUM--EQUIVALENT PRO FORMA (UNAUDITED)(2)
Book value per equivalent common share..................................... $ 2.52
Basic earnings (loss) per equivalent common share.......................... $ (0.01)
Diluted earnings (loss) per common share................................... $ (0.01)
</TABLE>
- ------------------------
(1) Adjusted for a three-for-one stock split on July 21, 1997 and for a
two-for-one stock split on February 9, 1998.
(2) The Syntroleum equivalent pro forma per share amounts were calculated by
multiplying the SLH pro forma per share amounts by 1.47484. The 1.47484
represents the number of shares that a holder of Syntroleum Common Stock
would receive in the Merger per Syntroleum share assuming a five-trading-day
average closing price of SLH Common Stock of $29.275 (based on such average
during the five trading days preceding April 8, 1998).
14
<PAGE>
RISK FACTORS
THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY BY THE STOCKHOLDERS OF
SLH AND SYNTROLEUM IN CONNECTION WITH VOTING UPON THE MERGER AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
COMMERCIAL OPERATION OF GTL PLANTS BASED ON THE SYNTROLEUM PROCESS
Syntroleum's future results of operations and financial condition are highly
dependent on its ability, and the ability of its licensees, to economically
design, construct and operate GTL plants based on the Syntroleum Process on a
commercial scale. The successful commercial construction and operation of a GTL
plant based on the Syntroleum Process will be dependent on a variety of factors,
many of which are outside Syntroleum's control. To date, no commercial-scale GTL
plant based on the Syntroleum Process has been constructed. Although Syntroleum
has successfully constructed and operated a nominal two barrel per day pilot
plant demonstrating certain elements and variations of the Syntroleum Process,
there can be no assurance that the Syntroleum Process can be utilized in a
full-scale commercial plant with the same economics and results as those
demonstrated on a pilot basis. In addition, certain improvements to the
Syntroleum Process are under development and may not prove to be commercially
applicable or technically feasible. These improvements include, but are not
limited to, Syntroleum's chain limiting catalyst, a horizontal reactor, and
certain heat integration/power recovery designs. In addition, Syntroleum has
recently pilot tested a hybrid multi-phase (HMX) reactor and associated catalyst
developed under Syntroleum's joint development agreement with Texaco. Syntroleum
also intends to pilot test during 1998 and 1999 a new auto thermal reforming
reactor design and a slurry reactor and associated catalyst under a proposed
joint development program with ARCO. There can be no assurance that any of these
improvements will prove commercially applicable or technically feasible. The
failure of any of these improvements to become commercially viable on a timely
basis could detrimentally affect Syntroleum's ability to continue to lower the
cost of constructing GTL plants and delay the schedule for completing the
construction of GTL plants contemplated by Syntroleum and its partners and by
Syntroleum's licensees.
A variety of results necessary for successful operation of the Syntroleum
Process could fail to occur at a commercial plant, and it is possible that any
number of operations and reactions successfully tested in Syntroleum's
laboratory and pilot plant will fail to produce comparable results in a
commercial-size plant due to a variety of factors. Results that could cause
commercial GTL plants to be unsuccessful include, but are not limited to, (i)
lower reaction activity than demonstrated in laboratory and pilot plant
operations, which would increase the amount of catalyst or number of reactors
required to convert synthesis gas into liquid hydrocarbons and thereby increase
capital and operating costs, (ii) shorter than anticipated catalyst life, which
would require more frequent catalyst purchases, (iii) excessive production of
gaseous light hydrocarbons from the Fisher-Tropsch reaction compared to design
conditions, which would lower the anticipated amount of liquid hydrocarbons
produced and thereby lower revenues and margins from plant operations and (iv)
inability of the gas turbine integrated into the Syntroleum Process to burn the
low Btu tail gas that is produced by the process, which would result in the need
to incorporate other methods to generate horsepower for the compression process
that may increase capital and operating costs. Other factors may also impact
commercial plants, including the size of the equipment, the amount and quality
of natural gas feedstock, local construction conditions, operating conditions
and other conditions that Syntroleum may not be able to anticipate. In addition,
the plants could experience mechanical difficulties, either related or unrelated
to elements of the Syntroleum Process.
There can be no assurance that GTL plants based on the Syntroleum Process
will ever be successfully built either by Syntroleum or by any of its licensees
or that if built these plants will operate as currently anticipated. In
addition, Syntroleum's license agreements require Syntroleum to indemnify the
licensee against certain losses relating to, among other things, acts or
omissions by Syntroleum in connection with process design packages for plants
and performance guarantees that may be provided by Syntroleum.
15
<PAGE>
Syntroleum's indemnification obligations could result in substantial expenses
and liabilities to Syntroleum in the event that GTL plants based on the
Syntroleum Process do not operate as currently anticipated.
EFFECT OF ENERGY AND PRODUCT PRICES ON THE ECONOMIC APPLICATION OF GTL PLANTS
BASED ON THE SYNTROLEUM PROCESS
Syntroleum's belief that the Syntroleum Process can be cost effective at GTL
plants with throughput levels as low as 2,000 barrels per day and can be more
economic than existing competitive GTL processes at any plant size is based on
numerous assumptions, including the assumption that long-term oil prices in the
range of $15 to $20 per barrel and natural gas prices in the range of $.50 per
MMBtu or less for stranded gas in remote locations will prevail. However, the
markets for oil and natural gas have historically been very volatile and are
likely to continue to be very volatile in the future. Although GTL plants
designed to produce specialty products, and GTL plants that are used to convert
natural gas that is associated with oil reserves, may continue to be economic at
price levels below the $15 per barrel level, GTL plants that are used to convert
natural gas that is not associated with oil reserves and are designed to produce
fuels (such as those Syntroleum's licensees are entitled to construct) are
generally not likely to be economic at these price levels.
Because the synthetic crude oil, liquid fuels and specialty products that
GTL plants are expected to produce will compete in markets with oil and refined
petroleum products and because natural gas will be used as the feedstock at GTL
plants based on the Syntroleum Process, an increase in natural gas prices
relative to prices for oil and refined products, or a decrease in prices for oil
and refined products, could adversely affect the operating results of such
plants. Factors that could cause changes in the prices and availability of oil,
natural gas and refined products include the level of consumer product demand,
weather conditions, domestic and foreign government regulation, the actions of
the Organization of Petroleum Exporting Countries, political conditions in oil
and natural gas producing countries, the supply of foreign crude oil and natural
gas, the location of GTL plants vis-a-vis natural gas reserves and pipelines,
the capacities of such pipelines, fluctuations in seasonal demand, governmental
regulations, the price and availability of alternative fuels and overall
economic conditions. Syntroleum cannot predict the future markets and prices for
oil, natural gas or refined products. Adverse operating results at GTL plants
will adversely affect Syntroleum's business, operating results and financial
condition directly by impacting operating results at the GTL plants in which
Syntroleum retains equity interests and indirectly by reducing licensing fees
for both new license agreements and new plant construction.
EFFECT OF OPERATING CONDITIONS ON THE ECONOMIC APPLICATION OF GTL PLANTS BASED
ON THE SYNTROLEUM PROCESS
The economic application of GTL technology is highly dependent on a number
of factors, including site location, infrastructure, adverse weather and a
variety of other operating conditions. Syntroleum's belief in the economic
application of GTL plants based on the Syntroleum Process is based on certain
assumptions relating to the operating conditions of the plant and assumptions
regarding the capabilities of the Syntroleum Process based on data collected in
connection with the operation of Syntroleum's laboratory and pilot plant.
Numerous events could occur that would be inconsistent with these assumptions.
For example, the plants could be located in areas that require more
infrastructure than assumed by Syntroleum. In addition, the plant construction
cost estimates prepared for Syntroleum could be understated, necessary permits
may not be issued by regulatory authorities or may not be issued within the
expected time frames, the plants could take longer to construct than anticipated
and the demand for the products produced by the plants may not materialize or
may materialize at lower price levels than Syntroleum currently anticipates. The
materialization of risks relating to the commercial operation of GTL plants
based on the Syntroleum Process would also impact the economic application of
such plants by increasing capital or operating costs. The occurrence of any
material event that is inconsistent with the assumptions on which Syntroleum has
based its belief in the economic use of GTL plants based on the
16
<PAGE>
Syntroleum Process could materially adversely affect the economic application of
commercial GTL plants based on the Syntroleum Process which, in turn, would
materially adversely affect Syntroleum's business, operating results and
financial condition. See "--Commercial Operation of GTL Plants Based on the
Syntroleum Process."
COMPETITION
The development of GTL technology is highly competitive. The Syntroleum
Process is based on chemistry that has been used by several companies in
synthetic fuel projects during the past 60 years. Historic experience has
indicated that these projects were not economic alternatives for conversion of
natural gas to liquids; and given the volumes of stranded natural gas reserves
around the world, a significant opportunity exists for anyone who can develop
economic GTL technology. Syntroleum's competitors include major integrated oil
companies which have developed or are developing competing GTL technologies,
including Exxon Corporation ("Exxon"), Shell and Sasol Ltd. ("Sasol"). Each of
these companies has significantly more financial and other resources than
Syntroleum to spend on research and development of its technology and on funding
construction and operation of commercial GTL plants. These competitors also have
a greater ability to bear the economic risks inherent in the development of GTL
technology. In addition, several small companies have developed or are
developing competing GTL technologies. The Department of Energy has also
sponsored a number of research programs relating to GTL technology, including a
recent program relating to the development of a ceramic membrane technology that
could potentially lower the cost of producing oxygen that is used to produce
synthetic gas in competitive processes. There can be no assurance that these
companies, the Department of Energy or others will not develop technologies that
will be more commercially successful or accepted than Syntroleum's technology or
that will render the Syntroleum Process obsolete. See "--Reliance on
Technological Development and Possible Technological Obsolescence" and
"Information Regarding Syntroleum-- Historical Development of the Technology."
RELIANCE ON LICENSEES
The agreements under which Syntroleum has granted licenses to construct
plants based on the Syntroleum Process to produce synthetic crude oil and liquid
fuels provide for Syntroleum to issue a site license for each GTL plant based on
the Syntroleum Process to be constructed by the licensee and receive license
fees based on the maximum design capacity of each such plant. However, there can
be no assurance that any plants will be constructed under these license
agreements or that if constructed these plants will be commercially successful.
Whether any site licenses are issued and the obligation to pay additional
license fees under these agreements is triggered will be solely under the
control of the licensee and will depend upon the efforts of the licensee, which
may include performance of feasibility studies, obtaining regulatory approvals
and permits, designing and constructing plants and marketing of any products
produced at such plants. The amount and timing of resources devoted to these
activities will be controlled by the licensee. Whether licensees are willing to
expend the resources necessary to construct GTL plants will depend on a variety
of factors outside the control of Syntroleum, including the prevailing view of
prices for oil and natural gas, which have historically been volatile and are
likely to continue to be volatile in the future. Should licensees fail to
construct plants under the agreements, Syntroleum's business, operating results
and financial condition would be adversely affected. Syntroleum intends to
continue licensing its technology to other companies. However, if Syntroleum is
unable to enter into additional license arrangements, Syntroleum's business,
operating results and financial condition may be adversely affected. If
Syntroleum does not receive payments under its license agreements, it may not
have sufficient resources to implement its business strategy. In addition, there
can be no assurance that any of Syntroleum's licensees will not pursue
alternative GTL technologies on their own or in collaboration with others,
including Syntroleum's competitors. See "--Competition."
17
<PAGE>
LICENSES, PATENTS AND TRADE SECRETS
The success of Syntroleum may depend on its ability to establish, protect
and enforce intellectual property rights, such as patent rights and trade
secrets, with respect to its technologies and to successfully defend against any
alleged infringement or related claims. Syntroleum's ability to protect and
enforce its intellectual property position involves complex legal, scientific
and factual questions and uncertainties.
Commercialization of Syntroleum's GTL technologies may give rise to claims
that the technology infringes upon the patents or other intellectual property
rights of others. Although Syntroleum regularly reviews patents that may have
applicability in the GTL industry, Syntroleum may not become aware of patents or
rights of others that are claimed to be infringed until after it has made a
substantial investment in the development and commercialization of those
technologies. Legal actions could be brought against Syntroleum, its partners or
licensees claiming damages and seeking an injunction that would prevent
Syntroleum, its partners or licensees from testing, marketing or commercializing
the affected technologies. Major oil and gas companies seeking to gain a
competitive advantage may have an interest in bringing such an action. If such
actions were successful, in addition to potential liability for damages,
Syntroleum, its partners or licensees could be required to obtain a license in
order to continue to test, market or commercialize the affected technology.
There can be no assurance that any such required license would be made available
or, if available, would be available on acceptable terms. In such cases,
Syntroleum may be prevented entirely from testing, marketing or commercializing
the affected technology. Syntroleum may have to expend substantial resources in
litigation, either in enforcing its patents, defending against the infringement
claims of others, or both. Many possible claimants, such as the major oil and
gas companies that have or may be developing proprietary GTL technologies
competitive with the Syntroleum Process, have significantly more resources to
spend on such litigation.
A United States patent related to Syntroleum's technology was issued to
Syntroleum during 1989, and a second United States patent was issued during
1990. Seven Syntroleum United States patent applications and 15 foreign
applications based on one or more of the United States patent applications are
pending, but there can be no assurance that any other patents will be granted
with respect to any of the patent applications filed by Syntroleum or its
licensors. Further, there can be no assurance that any patents issued or
licensed to Syntroleum will provide commercial benefit to Syntroleum or will not
be infringed, invalidated or circumvented by others. The United States Patent
and Trademark Office currently has a significant backlog of patent applications,
and the approval or rejection of patents may take several years. Syntroleum has
conducted a review of approximately 600 existing patents applicable to the GTL
field and believes that it is not infringing the patents of others. However,
Syntroleum has not conducted an exhaustive patent search.
The availability of patents in foreign markets, and the nature of any
protection against competition that may be afforded by such patents, is often
difficult to predict, and varies significantly from country to country.
Moreover, Syntroleum or its licensors may choose not to seek, or may for a
variety of reasons be unable to obtain, patent protection in a country that
might become an important market for Syntroleum's GTL technology.
In addition to patent protection, Syntroleum seeks to protect its
proprietary information, including trade secrets, know-how and technological
advances, in part, through confidentiality agreements with its partners,
licensees, employees and consultants. There can be no assurance that these
agreements will not be breached, that Syntroleum will have adequate remedies for
any breach, or that Syntroleum's trade secrets and know-how will not otherwise
become known or be independently discovered by others. Such an occurrence could
have a material adverse effect on Syntroleum's business, operating results and
financial condition. See "Information Regarding Syntroleum--Intellectual
Property."
In any potential intellectual property dispute involving Syntroleum,
Syntroleum's licensees could also become the target of litigation. The license
agreements require Syntroleum to indemnify the licensees against certain losses,
including the losses resulting from patent and trade secret infringement claims,
18
<PAGE>
subject to a cap of 50% of the license fees received. Syntroleum's
indemnification and support obligations could result in substantial expenses and
liabilities to Syntroleum. Such expenses or liabilities could have a material
adverse effect on Syntroleum's business, operating results and financial
condition.
ADDITIONAL FINANCING REQUIREMENTS AND ACCESS TO CAPITAL FUNDING
Syntroleum has expended and will continue to expend a substantial amount of
funds to continue the research and development of its technologies, market the
Syntroleum Process and construct GTL plants. Syntroleum intends to obtain
additional funds primarily through equity and debt project financing and
collaborative or other arrangements with strategic partners and others. In
addition, Syntroleum may seek additional debt and equity financing in the
capital markets. If additional funds are raised by issuing equity securities,
dilution to stockholders may occur. The Board of Directors of SLH is currently,
and following the Merger will be empowered, without stockholder approval, to
issue preferred stock with dividend, liquidation, conversion, voting and other
rights that could adversely affect the voting power or other rights of the
holders of the SLH Common Stock.
Assuming the commercial success of the plants based on the Syntroleum
Process, Syntroleum expects that license fees, revenues from providing GTL
plants on a contract basis, catalyst sales and sales of specialty products will
be a source of funds for operations. However, there can be no assurance that
there will be any such revenues, that such revenues will be sufficient for
capital expenditures or operations or that such revenues will be received within
the expected time frame. In such event, Syntroleum would be required to seek
additional funds. There can be no assurance that additional financing, when
required, will be available when needed or on terms acceptable to Syntroleum. If
adequate funds are not available, Syntroleum may be required to delay or to
eliminate expenditures for certain of its capital projects or to license to
third parties the rights to commercialize additional products or technologies
that Syntroleum would otherwise seek to develop itself. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Syntroleum--Liquidity and Capital Resources."
NO ASSURANCE OF INDUSTRY ACCEPTANCE OF THE SYNTROLEUM PROCESS
As is typical in the case of a new and rapidly evolving technology, demand
and industry acceptance for Syntroleum's technology is subject to a high level
of uncertainty. If the industry fails to accept Syntroleum's technology due to
its novelty and continuous evolution or acceptance develops more slowly than
expected, Syntroleum's business, operating results and financial condition will
be materially adversely affected. Should a high profile industry participant
adopt the Syntroleum Process and fail to achieve success or should any
commercial GTL plant based on the Syntroleum Process fail to achieve success,
other industry participants' perception of the Syntroleum Process could be
adversely affected. Any such event could reduce future license fees or revenues
from GTL plants on a contract basis, and could make it more difficult or
impossible for Syntroleum to construct specialty product GTL plants. Likewise,
were a major oil and gas company to either successfully develop or adopt a GTL
technology competing with the Syntroleum Process or should industry participants
adopt a strategy of disparaging the Syntroleum Process, Syntroleum's reputation
could be adversely affected. In addition, certain oil and gas companies may be
motivated to seek to prevent industry acceptance of GTL technology based on
their belief that widespread adoption of such technology might negatively impact
the competitive position of such companies without access to GTL technology.
Failure of Syntroleum's technology to achieve industry acceptance could have a
material adverse effect on Syntroleum's business, operating results and
financial condition. See "--Competition," "--Reliance on Licensees" and
"--Additional Financing Requirements and Access to Capital Funding."
DEPENDENCE ON KEY PERSONNEL
Syntroleum's performance is substantially dependent on the performance of
its executive officers and key employees, including Kenneth L. Agee
(Syntroleum's founder, Chief Executive Officer and Chairman
19
<PAGE>
of the Board and inventor with respect to many of Syntroleum's patents and
patent applications) and Mark A. Agee (Syntroleum's President and Chief
Operating Officer). Given Syntroleum's early stage of development, Syntroleum is
dependent on its ability to retain and motivate high quality personnel,
especially its management, scientific and technical personnel. Syntroleum does
not plan to maintain "key person" life insurance policies on any of its
employees. The loss of the services of any of its executive officers or other
key employees could have a material adverse effect on the business, operating
results and financial condition of Syntroleum.
DEPENDENCE ON STRATEGIC RELATIONSHIPS WITH MANUFACTURING AND ENGINEERING
COMPANIES
Syntroleum intends to, and believes its licensees will, utilize third party
engineering contractors and component manufacturers in the design and
construction of GTL plants based on the Syntroleum Process. Syntroleum has no
experience in manufacturing and does not have any manufacturing facilities.
Consequently, Syntroleum will be dependent on third parties for the manufacture
of components of GTL plants based on the Syntroleum Process. Moreover,
Syntroleum has conducted development activities with third parties relating to
Syntroleum's proprietary catalysts and turbines that may be used in the
Syntroleum Process, and there can be no assurance that other manufacturing
companies would have the same expertise as these companies. In addition,
Syntroleum has entered into an agreement with Criterion which provides that
Syntroleum will purchase any catalysts for its own use from Criterion. If
Criterion or any other catalyst manufacturer is unable to manufacture
Syntroleum's proprietary catalysts, if AGC, ABB or any other turbine
manufacturer is unable to manufacture turbines used in the Syntroleum Process,
or if any other third party manufacturer of components of GTL plants based on
the Syntroleum Process is unable to manufacture such components, in commercial
quantities, in a timely manner and within specifications, Syntroleum or
Syntroleum's licensees could experience material delays, or construction plans
could be canceled, while alternative manufacturers are identified and prepare
for production. There can be no assurance that such manufacturers will be able
to provide such catalysts, reactors, turbines or other components in commercial
quantities, in a timely manner or within specifications, and their failure to do
so could have a material adverse effect on Syntroleum's business, operating
results and financial condition.
Syntroleum also intends to utilize third parties to provide engineering
services in connection with Syntroleum's efforts to commercialize the Syntroleum
Process. Syntroleum has no experience in providing engineering services and has
a limited engineering staff. Consequently, Syntroleum will be dependent on third
parties to provide engineering services, and such firms may be asked by
licensees or financial participants in plants to provide performance guarantees
in connection with the design and construction of GTL plants based on the
Syntroleum Process. In addition, Syntroleum has entered into an agreement with
Bateman which provides that Syntroleum will utilize Bateman to assist in the
development of Syntroleum-owned GTL plants in North and South America producing
specialty products, and pursuant to a proposed agreement with Brown & Root,
Syntroleum agrees to utilize Brown & Root to assist in the development of
Syntroleum-owned GTL plants outside North and South America. If such engineering
firms are unable to provide requisite services or performance guarantees,
Syntroleum or Syntroleum's licensees could experience material delays, or
construction plans could be cancelled, while alternative engineering firms are
identified and become familiar with the Syntroleum Process. There can be no
assurance that such engineering firms will be able to provide such services in
an adequate manner or that such firms will provide such performance guarantees,
and their failure to do so could have a material adverse effect on Syntroleum's
business, operating results and financial condition.
ABILITY TO MANAGE GROWTH AND ACHIEVE BUSINESS STRATEGY
Syntroleum is currently experiencing significant growth as it commercializes
the Syntroleum Process. Syntroleum's rapid growth is placing a significant
strain on Syntroleum's scientific, technical, operational and administrative
resources. As Syntroleum implements its strategy to commercially develop its
technology, demands on Syntroleum's scientific, technical, operational and
administrative resources will continue
20
<PAGE>
to increase. Syntroleum's ability to implement its business strategy may be
constrained, and the timing of such implementation may be impacted, due to
insufficient resources. At April 1, 1998, Syntroleum had 47 full-time employees.
Although Syntroleum intends to expand its staff resources in all areas following
the Merger, competition for such personnel is intense, and there can be no
assurance that Syntroleum will be able to attract, assimilate or retain such
personnel. The failure of Syntroleum to continue to expand its resources or the
occurrence of expansion difficulties could have a material adverse effect on
Syntroleum's business, operating results and financial condition. In addition,
Syntroleum does not have any experience managing the design, construction or
operation of commercial GTL plants or any commercial plants, and there can be no
assurance that Syntroleum will be successful in doing so. No GTL plant based on
the Syntroleum Process on a commercial scale has been constructed, and,
therefore, there can be no assurance that Syntroleum will be successful in
achieving any aspect of its business strategy.
RELIANCE ON TECHNOLOGICAL DEVELOPMENT AND POSSIBLE TECHNOLOGICAL OBSOLESCENCE
Syntroleum's business is dependent upon utilization of evolving technology.
As a result, Syntroleum's ability to create and maintain technological
advantages will be important to its future success. Syntroleum believes that its
ability to utilize or develop its proprietary technologies currently gives it an
advantage over many of its competitors. However, Syntroleum may not be able to
maintain this advantage. As new technologies develop, Syntroleum may be placed
at a competitive disadvantage, and competitive pressures may force Syntroleum to
implement such new technologies at substantial cost or render the Syntroleum
Process obsolete. There can be no assurance that Syntroleum will be able to
successfully utilize, or expend the financial resources necessary to acquire or
develop new technology, that others will not either achieve technological
expertise comparable to or exceeding that of Syntroleum or that others will not
implement new technologies before Syntroleum. One or more of the technologies
currently utilized by Syntroleum or implemented in the future may become
obsolete. In such case, Syntroleum's business, operating results and financial
condition could be materially adversely affected.
In addition to technologies that Syntroleum currently intends to
commercialize, Syntroleum has a number of GTL technologies or improvements to
the Syntroleum Process in various early stages of development. These
technologies will require substantial additional investment, development and
testing prior to their commercialization. There can be no assurance that
Syntroleum will be successful in developing such existing or future
technologies, or that such technologies, if developed, will be capable of being
utilized on a commercial basis. There can be no assurance that Syntroleum will
not encounter substantial delays in the development and testing of its
technologies.
COMPETING USES FOR NATURAL GAS
The market for natural gas is highly competitive in many areas of the world
and may affect Syntroleum's business, operating results and financial condition.
The cryogenic conversion of natural gas to liquefied natural gas (or LNG) may
compete with GTL plants for use of natural gas as feedstocks in many locations.
Local markets, power generation, ammonia, methanol and petrochemicals are
alternative markets for natural gas which will also be competitive uses. Unlike
Syntroleum, many of its competitors also produce or have access to large volumes
of natural gas, which may be used in connection with their GTL operations. The
availability of natural gas at economic prices for use as feedstocks for GTL
plants may also depend on whether natural gas pipelines are located in the areas
where such plants may be located. New pipelines may be built in, or existing
pipelines may be expanded into, areas where GTL plants have been built, and this
may affect the operating margins of such plants. The United States and Western
Europe have well developed natural gas markets. In these markets, the
relationship between natural gas prices and liquid hydrocarbon prices is such
that investments in GTL plants that produce fuels are unlikely to be economic in
most circumstances. Other areas around the world that have developed local
markets for natural gas may also have higher valued uses than as feedstocks for
GTL plants. In addition, the commercialization of the GTL technologies may have
an adverse effect on the availability of natural gas at
21
<PAGE>
economic prices. The oil and gas industry also competes with other industries
that supply the energy and fuel requirements of industrial, commercial,
individual and other consumers.
LIMITED OPERATING HISTORY
Syntroleum was founded in 1984 and began efforts to commercialize the
Syntroleum Process in 1993. Prior to the receipt of license fees in late 1996
and 1997, Syntroleum's only significant revenues were from joint development
activities. Syntroleum does not have any experience managing the design,
construction or operation of commercial GTL plants or any commercial plants, and
there can be no assurance that Syntroleum will be successful in doing so.
Accordingly, Syntroleum does not have an operating history upon which an
evaluation of Syntroleum's prospects can be based. Syntroleum's prospects must
be considered in light of the risks, expenses and difficulties frequently
encountered by companies seeking to develop new and rapidly evolving
technologies. To address these risks, Syntroleum must, among other things,
respond to competitive factors, continue to attract, retain and motivate
qualified personnel and commercialize and continue to upgrade its GTL
technologies. There can be no assurance that Syntroleum will be successful in
addressing such risks. Syntroleum has incurred net losses from inception through
1997. Although Syntroleum received significant license fees in 1997, such fees
may not be sustainable and are not indicative of future operating results. There
can be no assurance that Syntroleum will achieve or sustain profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Syntroleum."
Syntroleum's anticipated expense levels are based in part on its
expectations as to future operating activities and are not based on historical
financial data. Syntroleum plans to increase its capital expenditures to fund
the design and construction of GTL plants, increase its operating expenses to
fund greater levels of research and development and increase its marketing and
operational capabilities. To the extent that such expenses precede or are not
subsequently followed by increased revenues, Syntroleum's business, operating
results and financial condition will be materially adversely affected.
VOLATILITY OF STOCK PRICE
Historically, the market prices for securities of companies without a
significant commercial operating history have been very volatile. The trading
price of the SLH Common Stock after the Merger could be subject to substantial
volatility in response to numerous factors, including, but not limited to,
publicity regarding actual or potential results with respect to development of
the Syntroleum Process and construction and commercial operation of plants using
this process, announcements of technological innovations by others with
competing GTL processes, developments concerning proprietary rights, annual and
quarterly variances in operating results, competition, changes in financial
estimations by securities analysts, any differences in actual results and
results expected by investors and analysts, investor perception of Syntroleum
and other events or factors. In addition, the stock market has experienced
significant price and volume volatility that has affected the market price of
equity securities of many companies and that has often been unrelated to the
operating performance of those companies. These broad market fluctuations may
adversely affect the market price of the SLH Common Stock. See "Summary--Price
Range of SLH Common Stock."
POTENTIAL FLUCTUATIONS IN ANNUAL AND QUARTERLY RESULTS
Syntroleum expects to experience significant fluctuations in future annual
and quarterly operating results that will be caused by unpredictability of many
additional factors, including ability to construct and operate GTL plants based
on the Syntroleum Process at economic levels, construction of plants by
licensees, demand for licenses to the Syntroleum Process and receipt and revenue
recognition of license fees, oil and gas prices, timing of the construction of
its GTL plants, timing and amount of research and development expenditures,
demand for specialty products, introduction or enhancement of GTL technologies
by Syntroleum and its competitors, market acceptance of new technologies and
general economic
22
<PAGE>
conditions. As a result, Syntroleum believes that period-to-period comparisons
of its results of operations are not meaningful and should not be relied upon as
any indication of future performance. Due to all of the foregoing factors, it
may be that in some future year or quarter Syntroleum's operating results will
be below the expectations of public market analysts and investors. In such
event, the price of SLH's Common Stock would likely be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Syntroleum."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of SLH Common Stock in the public market
following the Merger could adversely affect the market price for the SLH Common
Stock. The approximately 19,237,739 shares to be issued in connection with the
Merger (assuming an Exchange Ratio of 1.47484 based on the average closing price
of the SLH Common Stock during the five trading days preceding April 8, 1998 of
$29.275) are being registered under the Securities Act of 1933, as amended (the
"Securities Act"), and, therefore, will be freely tradable. However, a total of
approximately 9,445,000 of these shares are expected to be held by affiliates of
Syntroleum, who will be subject to certain restrictions on resale, as discussed
under "The Merger--Resales of SLH Common Stock." In addition, approximately
2,073,795 shares of SLH Common Stock will be issuable pursuant to outstanding
options held by directors, officers, employees and others following the Merger
(based on such Exchange Ratio), and it is anticipated that shares of SLH Common
Stock issuable upon exercise of such options will become available for future
sale in the public market pursuant to a registration statement on Form S-8.
LIMITATIONS OF THE FAIRNESS OPINIONS OF FINANCIAL ADVISORS
The fairness opinions rendered by Salomon Smith Barney to SLH's Board of
Directors and by J.P. Morgan to Syntroleum's Board of Directors are qualified
by, and are dependent on, a number of assumptions which may not prove to be
accurate. Included in these assumptions is a reliance by Salomon Smith Barney
and J.P. Morgan on forecasted financial information prepared by SLH and
Syntroleum without independent verification. Any estimates contained in such
forecasts are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less favorable than
as set forth therein. Moreover, neither Salomon Smith Barney nor J.P. Morgan
made or received, or assumed any responsibility for making or receiving, an
independent evaluation or appraisal of the assets or liabilities or of the
historical information it was provided pertaining to SLH or Syntroleum. Salomon
Smith Barney's and J.P. Morgan's fairness opinions are based upon market,
economic and other conditions as they existed on, and could be evaluated as of,
the date of such opinions. Future market, economic and other conditions may vary
from those assumed in the fairness opinions, and such variances may materially
impact the analysis employed, and the conclusions reached, in such opinions.
ENVIRONMENTAL REGULATIONS AND LIABILITIES
Syntroleum and its licensees will be subject to extensive federal, state and
local laws and regulations, and the laws of foreign countries in which GTL
plants based on the Syntroleum Process are to be located, relating to the
protection of the environment, including those relating to releases, emissions,
use, storage, handling, cleanup, transportation and disposal of hazardous
materials and employee health and safety. The risk of environmental liability
(including obligations relating to disposal of spent catalysts and process
water) is inherent in the current and future operations of Syntroleum and its
licensees and compliance with such laws and regulations may require the
installation of pollution control equipment, mandate costly operational or
design changes, lead to the curtailing of operations or require the cleanup of
environmental contamination. The future costs of complying with such
environmental laws and regulations and containing or remediating contamination
cannot be predicted with certainty and there can be no assurance that material
liabilities or costs (including fines or other sanctions) related to
environmental matters will not be incurred in the future or that such
environmental liabilities or costs would not have a material adverse
23
<PAGE>
effect on Syntroleum's business, operating results and financial condition. See
"Information Regarding Syntroleum--Government Regulation."
FOREIGN OPERATIONS
Syntroleum plans to construct GTL plants in foreign countries, where
Syntroleum would be subject to risks of a political nature and other risks
inherent in foreign operations. These risks include changes in domestic and
foreign taxation, labor disputes, civil disturbances and uncertain political and
economic environments as well as risks of war and civil disturbances or other
risks that may limit or disrupt production and markets or result in the
deprivation of contract rights or the taking of property by nationalization or
appropriation without fair compensation. International operations and
investments may also be adversely affected by laws and policies of the United
States affecting foreign trade, investment and taxation, which could affect the
conduct or profitability of these operations. Any such events could adversely
affect Syntroleum's business, operating results and financial condition.
OPERATING HAZARDS
Syntroleum's operations at its GTL plants will involve a high risk of
incidents involving personal injury and property damage due to the operation of
machinery in close proximity to individuals and the highly flammable nature of
natural gas and the materials produced at these plants. The frequency and
severity of personal injury and property damage incidents will affect
Syntroleum's operating costs, insurability and relationships with customers,
employees and regulators. Any significant frequency or severity of such
incidents, or the general level of compensation awards with respect thereto,
could affect the ability of Syntroleum to obtain insurance and could have a
material adverse effect on Syntroleum's business, operating results and
financial condition.
CONTROL BY CERTAIN STOCKHOLDERS
Upon completion of the Merger, the current directors and officers of
Syntroleum will beneficially own approximately 32% of the outstanding shares of
SLH Common Stock (assuming an Exchange Ratio of 1.47484 based on the average
closing price of the SLH Common Stock during the five trading days preceding
April 8, 1998 of $29.275). As a result, such directors and officers, to the
extent they act together, will be in a position to significantly influence the
outcome of certain matters requiring a stockholder vote, including the election
of directors, the adoption or amendment of provisions in SLH's Articles of
Incorporation or Bylaws and the approval of mergers and other significant
corporate transactions. Such concentrated ownership of SLH Common Stock may have
the effect of delaying, deferring or preventing a change of control of SLH and
may adversely affect the voting and other rights of other stockholders. See
"Security Ownership of Certain Beneficial Owners and Management of Syntroleum."
INTERESTS OF CERTAIN PERSONS IN THE MERGER; POSSIBLE CONFLICTS OF INTEREST
Certain directors and officers of SLH and Syntroleum have interests in
connection with the Merger that are in addition to those of the stockholders of
SLH and Syntroleum generally. See "The Merger-- Interests of Certain Persons in
the Merger."
POTENTIAL REQUIREMENT TO PAY PERSONAL HOLDING COMPANY TAXES
In the United States, a company is classified as a personal holding company
in a taxable year if (i) five or fewer individuals own, directly or under
certain constructive ownership rules, more than 50% of its outstanding stock at
any time during the last half of such taxable year and (ii) at least 60% of its
adjusted ordinary gross income (as defined in Section 543(b)(2) of the Internal
Revenue Code of 1986, as amended) consists of interest, dividends, royalties or
other items of personal holding company income. A personal holding company is
subject not only to the regular federal income tax but is also subject to an
additional
24
<PAGE>
tax of 39.6% of its undistributed personal holding company income. Although
Syntroleum does not believe that deposits or other payments under its license
agreements should constitute an item of personal holding company income, the
Internal Revenue Service may contest such position. While it is possible that
Syntroleum could be considered a personal holding company in 1997, Syntroleum
believes it was not a personal holding company under Internal Revenue Service
regulations and, further, even if it was classified as a personal holding
company, it is unlikely that any personal holding company tax would result in
1997 because of its level of taxable losses and resulting income tax loss
carryforwards. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Syntroleum" for a discussion of the effect thereof.
Based on current levels of stock ownership, immediately following the Merger
more than 50% in value of SLH's stock is expected to be owned (actually or under
such constructive ownership rules) by five or fewer individuals so that it will
then satisfy the stock ownership test for classification as a personal holding
company. In such event, or if at any time an individual acquires a sufficient
number of shares of SLH Common Stock so that SLH then satisfies the stock
ownership test for classification as a personal holding company, and if SLH then
satisfies the personal holding income test for classification as a personal
holding company, SLH could be subject to additional taxation as a personal
holding company.
POTENTIAL APPLICABILITY OF THE INVESTMENT COMPANY ACT
The Investment Company Act of 1940, as amended (the "1940 Act"), requires
the registration of, and imposes various substantive restrictions on, certain
companies that engage primarily, or propose to engage primarily, in the business
of investing, reinvesting or trading in securities, or that fail certain
statistical tests regarding the composition of assets and sources of income, and
are not primarily engaged in businesses other than investing, holding, owning or
trading securities. Syntroleum and SLH believe that under the provisions of the
1940 Act, they are, and they intend to remain, primarily engaged in businesses
other than investing, reinvesting, owning, holding or trading in securities.
Syntroleum and SLH have sought to temporarily invest their assets, pending their
use, so as to avoid becoming subject to the registration requirements of the
1940 Act. In addition, Syntroleum and SLH have and will continue to seek
temporarily to invest cash flow from operations, pending its use, and to apply
such cash flow, so as to avoid becoming subject to the registration requirements
of the 1940 Act. Such investment is likely to result in obtaining lower yields
on the funds invested than might be available in the securities market
generally. However, there can be no assurance that such investments and
utilization can be made, or that any other exemption would be available, so as
to enable the companies to avoid the registration requirements of the 1940 Act.
If either of the companies were required to register as an investment company
under the 1940 Act, it would become subject to substantial regulations with
respect to its capital structure, management, operations, transactions with
affiliated persons (as defined in the 1940 Act) and other matters. Application
of the provisions of the 1940 Act would have a material adverse effect on such
company's business, operating results and financial condition.
25
<PAGE>
ABSENCE OF DIVIDENDS ON COMMON STOCK
Syntroleum currently intends to retain any earnings for the future operation
and development of its business and does not currently anticipate paying any
dividends in the foreseeable future. Any future dividends also may be restricted
by Syntroleum's then-existing financing arrangements. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Syntroleum-- Liquidity and Capital Resources."
CERTAIN ANTI-TAKEOVER PROVISIONS
SLH's Articles of Incorporation and Bylaws, among other things, provide for
a classified Board of Directors with staggered terms, impose certain
supermajority voting requirements and authorize the Board of Directors to set
the terms of Preferred Stock. In addition, the KGCC contains provisions that
restrict the ability of stockholders to take action by written consent, impose
restrictions on business combinations with interested parties, restrict the
voting rights of stockholders holding shares in excess of certain thresholds and
provide certain disclosure requirements with respect to takeover offers. SLH has
also adopted a stockholders rights plan. The stockholders rights plan, the
provisions of SLH's Articles of Incorporation and Bylaws and the KGCC may have
the effect of delaying or preventing a change of control of SLH. See
"Description of SLH Capital Stock."
26
<PAGE>
THE MEETINGS
SLH ANNUAL MEETING
The SLH Annual Meeting will be held on , 1998 at a.m. local
time, at , , , .
At the SLH Annual Meeting, the stockholders of SLH will be asked to consider
and vote upon:
1. A proposal to approve and adopt the Merger Agreement which is described
in this Joint Proxy Statement/Prospectus, and the transactions
contemplated thereby. Pursuant to the Merger Agreement, (a) Syntroleum
will merge with and into SLH and each outstanding share of Syntroleum
Common Stock will be converted into shares of SLH Common Stock, (b) SLH's
name will be changed to "Syntroleum Corporation," (c) the officers of SLH
will be replaced by the current officers of Syntroleum, (d) six of the
eight SLH directors will be replaced by current Syntroleum directors and
(e) the Articles of Incorporation of SLH will be amended to increase its
number of authorized shares of common stock and preferred stock.
2. A proposal to elect three class B directors, to serve until the earlier
of the 2001 Annual Meeting of Stockholders or the effective time of the
Merger.
3. A proposal to approve and adopt the Syntroleum Stock Option Plans,
effective only upon the consummation of the Merger.
4. A proposal to approve and ratify the appointment of SLH's independent
public accountants for the 1998 fiscal year.
5. Such other business as may properly come before the Special Meeting or
any adjournment or postponement thereof.
These proposals and related matters are described more fully in this Joint
Proxy Statement/Prospectus. A copy of the Merger Agreement is attached to the
Joint Proxy Statement/Prospectus as Appendix A.
THE BOARD OF DIRECTORS OF SLH HAS APPROVED THE MERGER AGREEMENT AND
RECOMMENDS A VOTE FOR ADOPTION AND APPROVAL OF THE MERGER AGREEMENT. THE BOARD
OF DIRECTORS OF SLH ALSO RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF EACH
NOMINEE TO THE BOARD OF DIRECTORS, FOR THE APPROVAL AND ADOPTION OF THE
SYNTROLEUM STOCK OPTION PLANS AND FOR THE APPROVAL AND RATIFICATION OF SLH'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE 1998 FISCAL YEAR.
SYNTROLEUM SPECIAL MEETING
The Syntroleum Special Meeting will be held on , 1998 at
a.m., local time at , , , .
At the Syntroleum Special Meeting, the stockholders of Syntroleum will be
asked to consider and vote upon the approval and adoption of the Merger
Agreement. Pursuant to the Merger Agreement, (a) Syntroleum will merge with and
into SLH and each outstanding share of Syntroleum Common Stock will be converted
into shares of SLH Common Stock, (b) SLH's name will be changed to "Syntroleum
Corporation," (c) the officers of SLH will be replaced by the current officers
of Syntroleum, (d) six of the eight SLH directors will be replaced by current
Syntroleum directors and (e) the Articles of Incorporation of SLH will be
amended to increase its number of authorized shares of common stock and
preferred stock.
THE BOARD OF DIRECTORS OF SYNTROLEUM HAS APPROVED THE MERGER AGREEMENT AND
RECOMMENDS A VOTE FOR ADOPTION AND APPROVAL OF THE MERGER AGREEMENT.
27
<PAGE>
QUORUM
The presence, in person or by proxy, of the holders of a majority of the
shares of SLH Common Stock is necessary to constitute a quorum at the SLH
Special Meeting. Similarly, the presence, in person or by proxy, of the holders
of a majority of the outstanding shares of Syntroleum Common Stock is necessary
to constitute a quorum at the Syntroleum Special Meeting.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding SLH
Common Stock is required to approve and adopt the Merger Agreement and the
transactions contemplated thereby. Approval of the Merger Agreement constitutes
approval of the transactions contemplated by the Merger Agreement. Each of the
three directors to serve as members of the Board of Directors will be elected by
a plurality of the votes cast by the holders of SLH Common Stock. There will be
no cumulative voting for directors. The affirmative vote of the holders of a
majority of the shares present, in person or by proxy, at the SLH Annual Meeting
is necessary for the approval and adoption of the Syntroleum Stock Option Plans
and to approve and ratify the appointment of SLH's independent public
accountants for the 1998 fiscal year.
The affirmative vote of the holders of a majority of the outstanding
Syntroleum Common Stock is required to approve and adopt the Merger Agreement
and the transactions contemplated thereby. Approval of the Merger Agreement
constitutes approval of the transactions contemplated by the Merger Agreement.
RECORD DATE; STOCK ENTITLED TO VOTE
The SLH Board of Directors has established , 1998 as the date
to determine those record holders of SLH Common Stock entitled to notice of and
to vote at the SLH Annual Meeting. On that date, there were shares of
SLH Common Stock outstanding and holders of record of such shares. Holders
of SLH Common Stock are entitled to one vote for each share held.
The Syntroleum Board of Directors has established , 1998 as the
date to determine those record holders of Syntroleum Common Stock entitled to
notice of and to vote at the Syntroleum Special Meeting. On that date, there
were shares of Syntroleum Common Stock outstanding and holders of
record of such shares. Holders of Syntroleum Common Stock are entitled to one
vote for each share held.
VOTING OF PROXIES
Shares represented by all properly executed proxies received in time for
each of the respective Meetings will be voted at such meeting in the manner
specified by the holders thereof. Proxies that do not contain voting
instructions will be voted FOR adoption and approval of the Merger Agreement at
the respective Meetings and, in the case of SLH, will be voted FOR the election
as a director of each nominee listed herein, FOR approval and adoption of the
Syntroleum Stock Option Plans and FOR adoption and ratification of the
appointment of SLH's independent public accountants for the 1998 fiscal year. It
is not expected that any matter other than those referred to herein will be
brought before either of the Meetings. If, however, other matters are properly
presented, the persons named as proxies will vote in accordance with their
judgment with respect to such matters.
If a holder of SLH Common Stock or Syntroleum Common Stock does not return a
signed proxy card, his or her shares will not be voted and this will have the
effect of a vote against the Merger Agreement at the respective Meetings and, in
the case of SLH, the effect of a vote against the approval and adoption of the
Syntroleum Stock Option Plans and the approval and ratification of the
appointment of SLH's independent public accountants for the 1998 fiscal year.
Abstentions and broker non-votes (shares held by brokers and other nominees or
fiduciaries that are present at either Meeting but not voted on a particular
28
<PAGE>
matter) will have the effect of a vote against the Merger Agreement at the
respective Meetings. In the case of SLH, abstentions and non-votes will not be
included in the tabulation of votes cast with respect to the election of
directors, the proposal to approve and adopt the Syntroleum Stock Option Plans
and the proposal to approve and ratify the appointment of SLH's independent
public accountants for the 1998 fiscal year.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
REVOCATION OF PROXIES
Any holder of SLH Common Stock has the unconditional right to revoke his or
her proxy at any time prior to the voting thereof at the SLH Annual Meeting by
(i) filing a written revocation with the Secretary of SLH prior to the voting of
such proxy, (ii) giving a duly executed proxy bearing a later date or (iii)
attending the SLH Annual Meeting and voting in person. Attendance by a
stockholder at the SLH Annual Meeting will not by itself revoke his or her
proxy.
Any holder of Syntroleum Common Stock has the unconditional right to revoke
his or her proxy at any time prior to the voting thereof at the Syntroleum
Special Meeting by (i) filing a written revocation with the Secretary of
Syntroleum prior to the voting of such proxy, (ii) giving a duly executed proxy
bearing a later date or (iii) attending the Syntroleum Special Meeting and
voting in person. Attendance by a stockholder at the Syntroleum Special Meeting
will not by itself revoke his or her proxy.
SOLICITATION OF PROXIES
Solicitation of proxies for use at the SLH Annual Meeting and the Syntroleum
Special Meeting may be made in person or by mail, telephone, telecopy or
telegram. Each of SLH and Syntroleum will bear the cost of the solicitation of
proxies from its own stockholders. In addition to solicitation by mail, the
directors, officers and regular employees of each company and its subsidiaries
may solicit proxies from stockholders of such company by telephone, telecopy or
telegram or in person. SLH and Syntroleum have requested banking institutions,
brokerage firms, custodians, trustees, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of SLH Common Stock and
Syntroleum Common Stock held of record by such entities, and SLH and Syntroleum
will, upon the request of such record holders, reimburse reasonable forwarding
expenses. In addition, SLH and Syntroleum may engage third parties to assist in
the solicitation of proxies, and in that event would incur additional costs.
SECURITY OWNERSHIP OF CERTAIN PERSONS
As of the SLH Record Date and the Syntroleum Record Date, the directors and
executive officers of SLH as a group and the directors and executive officers of
Syntroleum as a group (which include certain directors and executive officers of
SLH who are deemed to beneficially own the shares of Syntroleum Common Stock
held by SLH) beneficially owned (excluding shares purchasable upon exercise of
stock options) % of the outstanding shares of SLH Common Stock and % of
the outstanding shares of Syntroleum Common Stock, respectively. As of the
Syntroleum Record Date, SLH beneficially owned % of the outstanding shares of
Syntroleum Common Stock. In addition, (i) as of the Syntroleum Record Date,
certain officers and directors of SLH who are not officers and directors of
Syntroleum beneficially owned % of the outstanding shares of Syntroleum
Common Stock and (ii) as of the SLH Record Date, certain officers and directors
of Syntroleum who are not officers and directors of SLH beneficially owned %
of the outstanding shares of SLH Common Stock. All of such officers and
directors of both SLH and Syntroleum, and SLH, have indicated that they intend
to vote in favor of the proposal to approve and adopt the Merger Agreement.
29
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements present (i)
unaudited pro forma balance sheet data at December 31, 1997, giving effect to
the Merger as if the Merger had been consummated on that date and (ii) unaudited
pro forma operating data for the year ended December 31, 1997, giving effect to
the Merger as if the Merger had been consummated on January 1, 1997. The
unaudited pro forma combined statement of operations for the year ended December
31, 1997 combines the results of operations for Syntroleum's fiscal year ended
December 31, 1997 with the results of operations for SLH's fiscal year ended
December 31, 1997, after giving effect to pro forma adjustments.
The Merger will be accounted for as a reverse acquisition using the purchase
method of accounting in accordance with Accounting Principles Board Opinion No.
16. Although SLH is the surviving corporation in the Merger for legal purposes,
Syntroleum will be the acquirer for accounting purposes. For purposes of
preparing its consolidated financial statements, the combined company will
establish a new accounting basis for SLH's assets and liabilities using the fair
values thereof, based upon the consideration paid in the Merger and the costs of
the Merger. A final determination of required purchase accounting adjustments,
including the allocation of the purchase price to the assets acquired and
liabilities assumed based on their respective fair values, has not yet been
made; however, management does not believe the adjustments to the SLH assets, if
any, will be material. Accordingly, the purchase accounting adjustments made in
connection with the development of the following summary pro forma combined
financial statements are preliminary and have been made solely for purposes of
developing such pro forma combined financial statements.
The following unaudited pro forma combined financial statements are provided
for informational purposes only and should be read in conjunction with the
separate audited consolidated financial statements and related notes of
Syntroleum (which are included elsewhere in this Joint Proxy Statement/
Prospectus) and SLH (which are incorporated herein by reference). The following
unaudited pro forma combined financial statements are based on certain
assumptions and do not purport to be indicative of the results which actually
would have occurred if the Merger had been consummated on the dates indicated or
which may be obtained in the future.
30
<PAGE>
SLH CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
SYNTROLEUM SLH ADJUSTMENTS PRO FORMA
CORPORATION CORPORATION FOR THE FINANCIAL
HISTORICAL HISTORICAL MERGER STATEMENTS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................. $ 10,158 $ 20,054 $ -- $ 30,212
Short-term investments..................................... -- 11,992 -- 11,992
Accounts and notes receivable.............................. 429 146 -- 575
Real estate under contract................................. -- 1,973 -- 1,973
Income taxes receivable.................................... -- 5,109 -- 5,109
Other current assets....................................... 35 243 -- 278
----------- ----------- ----------- -----------
Total current assets..................................... 10,622 39,517 -- 50,139
REAL ESTATE HELD FOR SALE.................................... -- 6,791 -- 6,791
REAL ESTATE UNDER DEVELOPMENT................................ -- 2,267 -- 2,267
INVESTMENT SECURITIES........................................ -- 1,530 -- 1,530
INVESTMENT IN AFFILIATES..................................... -- 1,280 (1,497)(1) (217)
PROPERTY, PLANT AND EQUIPMENT................................ 1,245 83 -- 1,328
OTHER ASSETS................................................. 224 1,701 -- 1,925
----------- ----------- ----------- -----------
$ 12,091 $ 53,169 $ (1,497) $ 63,763
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................... $ 677 $ 150 $ -- $ 827
Other liabilities.......................................... 159 1,922 -- 2,081
----------- ----------- ----------- -----------
Total current liabilities................................ 836 2,072 -- 2,908
DEFERRED REVENUE............................................. 11,000 -- -- 11,000
----------- ----------- ----------- -----------
Total liabilities........................................ 11,836 2,072 -- 13,908
----------- ----------- ----------- -----------
MINORITY INTERESTS........................................... 1,497 46 (1,497)(1) 46
----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock............................................ -- -- -- --
Common stock............................................... 19 99 (19)(2) 291
192(3)
Paid-in capital............................................ 14,254 45,438 5,433(4) 64,941
19(2)
(192)(3)
(11)(5)
Notes receivable from sale of common stock................. (699) -- -- (699)
Net unrealized gains on marketable equity securities....... -- 81 -- 81
Retained earnings (deficit)................................ (14,805) 5,433 (5,433)(4) (14,805)
----------- ----------- ----------- -----------
(1,231) 51,051 (11) 49,809
Less-treasury stock........................................ (11) -- 11(5) --
----------- ----------- ----------- -----------
Total stockholders' equity............................... (1,242) 51,051 -- 49,809
----------- ----------- ----------- -----------
$ 12,091 $ 53,169 $ (1,497) $ 63,763
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See notes to unaudited pro forma combined financial statements.
31
<PAGE>
SLH CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
SYNTROLEUM SLH ADJUSTMENTS PRO FORMA
CORPORATION CORPORATION FOR THE FINANCIAL
HISTORICAL HISTORICAL MERGER STATEMENTS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Real estate sales......................................... $ -- $ 16,557 $ -- $ 16,557
Other..................................................... 2,007 786 -- 2,793
----------- ----------- ----------- -----------
Total revenues.......................................... 2,007 17,343 -- 19,350
COSTS AND EXPENSES:
Cost of real estate sold.................................. -- 16,566 -- 16,566
Operating expense......................................... -- 2,428 -- 2,428
Provision for loss on real estate held for sale, net...... -- 706 -- 706
Pilot plant and research and development.................. 2,847 -- -- 2,847
Catalyst services......................................... 4,800 -- -- 4,800
General and administrative................................ 4,325 1,937 -- 6,262
----------- ----------- ----------- -----------
Loss from operations.................................... (9,965) (4,294) -- (14,259)
INVESTMENT AND INTEREST INCOME--net......................... 372 6,642 -- 7,014
EQUITY IN NET LOSS OF AFFILIATES............................ -- (350) 3(6) (96)
251(7)
EQUITY IN NET EARNINGS OF VENTURE CAPITAL INVESTMENT
FUNDS..................................................... -- 207 -- 207
INTEREST EXPENSE............................................ (22) (570) -- (592)
OTHER INCOME................................................ -- 2,427 -- 2,427
----------- ----------- ----------- -----------
Income (loss) before income taxes......................... (9,615) 4,062 254 (5,299)
PROVISION (BENEFIT) FOR INCOME TAXES:
Current................................................... -- (5,100) -- (5,100)
Deferred.................................................. -- 73 -- 73
----------- ----------- ----------- -----------
-- (5,027) -- (5,027)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY INTERESTS..................... (9,615) 9,089 254 (272)
MINORITY INTERESTS.......................................... (3) (4) 3(6) (4)
----------- ----------- ----------- -----------
NET INCOME (LOSS)........................................... $ (9,612) $ 9,093 $ 251 $ (268)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET INCOME (LOSS) PER SHARE--BASIC AND DILUTED.............. $ (0.01)
-----------
-----------
</TABLE>
See notes to unaudited pro forma combined financial statements.
32
<PAGE>
SLH CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. Reflects the elimination of SLH's minority interest investment in
Syntroleum/Sweetwater Company, L.L.C. ("Sweetwater LLC").
2. Reflects the elimination of the Syntroleum Common Stock.
3. Reflects the issuance of 19,237,739 shares of $.01 par value SLH Common
Stock in exchange for the outstanding shares of Syntroleum Common Stock
(other than the shares of Syntroleum Common Stock held by SLH) assuming an
Exchange Ratio of 1.47484 (based on the average closing price of the SLH
Common Stock during the five trading days preceding April 8, 1998 of
$29.275).
4. Reflects the elimination of SLH's retained earnings.
5. Reflects the retirement of Syntroleum's treasury stock.
6. Reflects the elimination of SLH's minority interest share of losses in
Sweetwater LLC.
7. Reflects the elimination of SLH's equity losses in Syntroleum's operations.
33
<PAGE>
THE MERGER
GENERAL
SLH and Syntroleum have entered into the Merger Agreement, which provides
that, subject to the satisfaction of certain conditions, Syntroleum will merge
with and into SLH and the outstanding shares of Syntroleum Common Stock will be
converted into the right to receive SLH Common Stock. SLH will be the surviving
corporation in the Merger and will change its name to "Syntroleum." THE
DESCRIPTION OF THE MERGER AGREEMENT CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER
AGREEMENT, A COPY OF WHICH IS INCLUDED AS APPENDIX A TO THIS JOINT PROXY
STATEMENT/ PROSPECTUS AND IS INCORPORATED IN ITS ENTIRETY HEREIN BY REFERENCE.
THE MERGER
The Merger Agreement provides for the merger of Syntroleum into SLH. SLH
will be the surviving corporation. In the Merger, each share of Syntroleum
Common Stock outstanding immediately prior to the Effective Time (other than
dissenting shares) will be automatically converted into the right to receive a
number of shares of SLH Common Stock equal to the Exchange Ratio. See "Certain
Provisions of the Merger Agreement--Merger Consideration."
The Closing will occur on the first business day after all of the conditions
to the Merger contained in the Merger Agreement have been satisfied or waived
unless another date is agreed to by SLH and Syntroleum. As soon as practicable
after the Closing, the Certificate of Merger relating to the Merger will be
filed with the Secretary of State of the States of Oklahoma and Kansas, and the
time of such filing will be the Effective Time unless otherwise provided in the
Certificate of Merger.
In connection with the Merger, the officers of Syntroleum at the Effective
Time will be the officers of SLH following the Merger and six of the eight SLH
directors will be replaced by current Syntroleum directors. See "Management
After the Merger." Upon consummation of the Merger, the Articles of
Incorporation of SLH will be amended by the Certificate of Merger to (i) change
the name of "SLH Corporation" to "Syntroleum Corporation" and (ii) increase the
number of authorized shares of SLH Common Stock from 30,000,000 shares to
150,000,000 shares and increase the number of authorized shares of SLH Preferred
Stock from 1,000,000 shares to 5,000,000 shares.
BACKGROUND OF THE MERGER
In 1988, SLH's predecessor acquired its initial interest in Syntroleum by
purchasing 2,250,000 shares of Syntroleum Common Stock from Syntroleum.
Subsequent purchases of shares by SLH from Syntroleum from 1990 through 1995
increased SLH's interest to its current level of approximately 31% of the
outstanding shares of Syntroleum Common Stock. Syntroleum used the proceeds of
these transactions, which were an aggregate of approximately $2.0 million, to
fund expenses relating to the development of the Syntroleum Process, including
the construction of Syntroleum's first pilot plant in 1990, and extensive
modifications to the plant in 1995 related to the testing of new catalysts.
In March 1997, Lab Holdings distributed to its stockholders all of the
outstanding shares of SLH Common Stock. SLH's assets at this time consisted of
its shares of Syntroleum Common Stock, as well as real estate and certain
miscellaneous assets. SLH's objective was to liquidate its non-Syntroleum
assets, settle certain outstanding claims and litigation and promote the
management, growth and development of Syntroleum. Shares of SLH Common Stock
were initially traded over-the-counter and in July 1997 began trading on the
National Market System of the NASDAQ Stock Market.
Following the distribution of SLH Common Stock, management of SLH and
Syntroleum from time to time informally discussed the feasibility of a business
combination of the two companies. During these discussions, the parties
recognized that significant uncertainties existed with respect to SLH's
contingent assets and liabilities. For example, the Internal Revenue Service
(the "IRS") had proposed a tax
34
<PAGE>
adjustment that would have resulted in additional taxes due from SLH of
approximately $13.9 million plus accrued interest and SLH claimed that it was
owed a federal income tax refund of approximately $7.5 million. In addition, at
the time of the distribution of SLH Common Stock, Syntroleum was still in an
early stage of its development, had not obtained a commitment for the
development of any commercial plant that would prove the commercial feasibility
of its technology, had a negative net worth and had entered into only one
license agreement. Moreover, uncertainties existed as to the amount of proceeds
that would be derived from the liquidation of SLH's real estate and other
miscellaneous assets. The parties recognized that these uncertainties would
create obstacles to reaching agreement on the terms of any business combination.
During 1997, Syntroleum further developed its technology and was proceeding
with the commercialization of the Syntroleum Process. By the end of 1997,
Syntroleum's licensing efforts had led to the execution of license agreements
with Marathon, ARCO and YPF, and in early 1998, additional license agreements
were entered into with Kerr-McGee and Enron. In addition to its licensing
activities, Syntroleum was pursuing the development of GTL plants in which it
would own an equity interest. In November 1997, Syntroleum, Texaco and Brown &
Root entered into a project development agreement to develop a 2,500 Bbl/d or
larger GTL plant. In January 1998, Enron committed to participate in the
development of the planned 8,000 Bbl/d GTL plant in Sweetwater County, Wyoming.
Syntroleum had also substantially increased its joint development activities
with major oil and gas companies and other industry participants, including the
announcement by Syntroleum and ARCO of plans to construct a 70 Bbl/d pilot plant
at ARCO's Cherry Point Refinery.
Throughout 1997 and early 1998, Syntroleum explored opportunities to obtain
the capital necessary to maintain substantial equity interests in its
commercial-scale GTL plants. Syntroleum had numerous discussions with various
investment banks regarding available financing alternatives, including the
possibility of an initial public offering by Syntroleum. During these
discussions, concerns were expressed regarding the potential for market
confusion and inefficiencies in the event of an initial public offering by
Syntroleum due to the existence of two publicly traded securities (SLH Common
Stock and Syntroleum Common Stock) that would reflect a common equity investment
in Syntroleum's business.
By the end of 1997, SLH had successfully disposed of a significant portion
of its real estate and other miscellaneous assets and settled all of its claims
with the IRS (resulting in a net refund due to SLH of $5.5 million). Due
primarily to these efforts, SLH held approximately $37 million of cash,
government securities and net current receivables as of December 31, 1997.
Management of both SLH and Syntroleum realized that developments at both
companies eliminated significant obstacles to a business combination involving
the parties. In addition, management recognized that with these developments SLH
held funds that could be utilized by the combined company to meet a substantial
portion of Syntroleum's short-term capital needs. A business combination would
also eliminate concerns associated with the existence of two publicly traded
securities reflecting a common equity interest in Syntroleum's business.
In December 1997, Mr. James R. Seward, President and Chief Executive Officer
of SLH, Mr. Mark A. Agee, President and Chief Operating Officer of Syntroleum,
and Mr. Randall M. Thompson, Vice President and Chief Financial Officer of
Syntroleum, held initial discussions regarding a possible business combination
involving SLH and Syntroleum and possible structures of such transaction. Prior
to these discussions, neither SLH nor Syntroleum had been seeking to enter into
a merger or similar transaction with another company. Additional discussions
between management of SLH and Syntroleum regarding a business combination
continued throughout January and early February 1998. At meetings of the board
of directors of SLH and Syntroleum held on February 10, 1998 and February 12,
1998, respectively, management discussed with the respective boards the
preliminary discussions between the companies. Each of the boards authorized
management to continue to pursue a potential business combination. SLH and
Syntroleum subsequently engaged Salomon Smith Barney and J.P. Morgan,
respectively, to provide financial advisory services with respect to various
matters relating to the potential business combination
35
<PAGE>
and to review the fairness from a financial point of view of any business
combination proposal presented to the companies' board of directors.
Discussions ensued between representatives of SLH and Syntroleum after the
February 10th and February 12th board meetings concerning the structure and
other terms of a possible business combination. In early March 1998, several
meetings were held at which representatives from Syntroleum and SLH discussed
the terms of the proposed transaction. The principal issues discussed were the
mechanism for determining the exchange ratio and the treatment of employee stock
options. On March 9, 1998, Syntroleum's outside counsel delivered an initial
draft of the Merger Agreement to outside counsel to SLH. This draft of the
Merger Agreement was discussed by representatives of Syntroleum and SLH at
meetings on March 13 and 20, 1998.
At a special meeting held on March 25, 1998, the Syntroleum Board received
detailed reports of the negotiations with SLH and the terms and provisions of
the Merger Agreement. Representatives of J.P. Morgan presented certain financial
and other analyses and delivered to the Syntroleum Board J.P. Morgan's oral
opinion (which opinion was subsequently confirmed by delivery of a written
opinion dated March 30, 1998) to the effect that, as of March 30, 1998, and
based upon and subject to certain factors, assumptions, qualifications and
limitations stated in such opinion, the consideration to be received in the
Merger was fair from a financial point of view to the holders of Syntroleum
Common Stock. The Syntroleum Board then determined that the terms of the Merger
Agreement and the transactions contemplated thereby were fair to, and in the
best interests of, Syntroleum and its stockholders, and accordingly, the
Syntroleum Board approved, by a unanimous vote of all directors voting (with
Messrs. Seward and Jacobs abstaining due to their status as directors and
executive officers of SLH), the Merger Agreement and resolved to recommend that
the Syntroleum stockholders vote for the approval and adoption of the Merger
Agreement at the Syntroleum Special Meeting. See "--Syntroleum's Reasons for the
Merger" and "--Recommendations of the Boards of Directors."
At a special meeting held on March 30, 1998, the SLH Board received detailed
reports of the negotiations with Syntroleum and the terms and provisions of the
Merger Agreement. Representatives of Salomon Smith Barney presented certain
financial and other analyses and delivered to the SLH Board Salomon Smith
Barney's oral opinion (which opinion was subsequently confirmed by delivery of a
written opinion dated March 30, 1998) to the effect that, as of March 30, 1998,
and based upon and subject to certain factors, assumptions, qualifications and
limitations stated in such opinion, the Exchange Ratio was fair from a financial
point of view to SLH. The SLH Board then determined that the terms of the Merger
Agreement and the transactions contemplated thereby were fair to, and in the
best interests of, SLH and its stockholders, and accordingly, the SLH Board
approved, by a unanimous vote of all directors voting, the Merger Agreement and
resolved to recommend that the SLH stockholders vote for the approval and
adoption of the Merger Agreement at the SLH Annual Meeting. See "--SLH's Reasons
for the Merger" and "--Recommendations of the Boards of Directors."
Later that day, after the SLH Board's special meeting, the Merger Agreement
was executed. Before the commencement of trading on March 31, 1998, SLH and
Syntroleum each issued a press release announcing the execution of the Merger
Agreement.
SYNTROLEUM'S REASONS FOR THE MERGER
In reaching its determination to approve the Merger Agreement and to
recommend that Syntroleum stockholders approve the Merger Agreement, the
Syntroleum Board of Directors consulted with Syntroleum management, as well as
its legal counsel, accountants and financial advisor. The Syntroleum Board of
Directors considered a number of factors in reaching its conclusion, including,
among others, the following:
- THE MERGER WILL PROVIDE SYNTROLEUM WITH CAPITAL TO FUND THE DEVELOPMENT OF
TWO COMMERCIAL-SCALE GTL PLANTS. The Merger will provide Syntroleum with
approximately $50 million in assets, consisting
36
<PAGE>
of approximately $37 million of cash, short-term investments and net
receivables and approximately $13 million of other assets being
liquidated, in each case as of December 31, 1997. These assets should
enable Syntroleum to meet its short-term commitments to make capital
contributions in Sweetwater LLC and the proposed joint venture with Texaco
and Brown & Root. Although additional equity and debt financing will be
required for these projects, Syntroleum believes that these funds will
enable it to retain substantial equity ownership positions in each.
Syntroleum also believes that the Merger provides these funds on
attractive terms, as compared to other available financing alternatives.
In considering the terms of the Merger, the Syntroleum Board of Directors
viewed the economic terms of the Merger as effectively equivalent to
Syntroleum selling shares at market prices in exchange for SLH's
non-Syntroleum assets. On these terms, Syntroleum would avoid pricing
discounts associated with other financing techniques.
- THE MERGER WILL ENHANCE SYNTROLEUM'S ABILITY TO RAISE ADDITIONAL CAPITAL.
In order to achieve its business strategy, Syntroleum will need to have
access to substantial amounts of additional capital. These additional
funds are necessary to enable Syntroleum to retain significant equity
ownership positions in the GTL plants it plans to develop. Additional
funds will also be needed to finance continued research and development
activities to further improve Syntroleum's GTL technology, as well as to
fund general and administrative expense associated with Syntroleum's
commercial development activities. As a public company following the
Merger, the Syntroleum Board of Directors believes Syntroleum will have
more ready access to the public debt and equity markets, as well as other
means of financing.
- THE MERGER WILL ENHANCE SYNTROLEUM'S ABILITY TO DISSEMINATE INFORMATION
REGARDING THE SYNTROLEUM PROCESS. Part of Syntroleum's business strategy
is to broadly license the Syntroleum Process. Syntroleum believes that the
increased visibility as a public company, as well as the associated
publicly available information regarding Syntroleum's business, will
promote its licensing efforts. Moreover, Syntroleum believes that, as
potential licensees see the benefits of joining a growing network of
companies all working towards improving the technology (which in turn
becomes available to all of Syntroleum's licensees), these potential
licensees will be motivated to obtain licenses in order to have access to
the technology.
- THE MERGER WILL PROVIDE A SOURCE OF LIQUIDITY FOR SYNTROLEUM STOCKHOLDERS.
The Syntroleum Board of Directors believes that following the Merger
Syntroleum stockholders will have a source of liquidity for their
investment in Syntroleum Common Stock through the public market for the
combined company's stock not previously available to them.
In view of the variety of factors considered in connection with its
evaluation of the Merger Agreement, the Syntroleum Board of Directors did not
quantify or otherwise attempt to assign relative weights to the specific factors
considered in reaching its determination. Moreover, in relying on the
presentation and opinion of J.P. Morgan, the Syntroleum Board of Directors
considered the J.P. Morgan financial analyses as a whole and did not attempt to
select portions of the analyses, whether favorable or unfavorable, for special
weight in reaching its determination that the Merger is fair to Syntroleum and
its stockholders. The factors described above constitute all of the material
factors considered by the Syntroleum Board of Directors in connection with its
evaluation of the Merger Agreement, but the foregoing summary is not intended to
be exhaustive.
37
<PAGE>
SLH'S REASONS FOR THE MERGER
In reaching its determination to approve the Merger Agreement and to
recommend that SLH stockholders approve the Merger Agreement, the SLH Board of
Directors consulted with SLH management, as well as its legal counsel,
accountants and financial advisor. The SLH Board of Directors considered a
number of factors in reaching its conclusion, including, among others, the
following:
- THE MERGER IS CONSISTENT WITH SLH'S STATED OBJECTIVES. When shares of SLH
Common Stock were distributed in 1997, SLH's Information Statement stated
that SLH's objectives were to support Syntroleum, settle pending IRS
claims and liquidate non-Syntroleum assets. The SLH Board of Directors
believes that the proposed merger and SLH's operations since the
distribution fulfill this narrow charter.
- THE MERGER WILL PROVIDE SYNTROLEUM WITH CAPITAL TO FUND THE DEVELOPMENT OF
TWO COMMERCIAL-SCALE GTL PLANTS. The Merger will provide Syntroleum with
approximately $50 million of assets, consisting of approximately $37
million of cash, short-term investments and net receivables and
approximately $13 million of other assets being liquidated, in each case
as of December 31, 1997. These funds will enable Syntroleum to make
capital contributions in Sweetwater LLC and the proposed joint venture
with Texaco and Brown & Root. Although additional equity and debt
financing will be required for these projects, SLH believes that these
funds will enable Syntroleum to retain substantial equity ownership
positions in each.
- THE MERGER WILL ENHANCE SYNTROLEUM'S ABILITY TO RAISE ADDITIONAL CAPITAL.
In order to achieve its planned growth, Syntroleum will need to have
access to substantial amounts of additional capital. These additional
funds are necessary to enable Syntroleum to retain significant equity
ownership positions in the GTL plants it plans to develop. Additional
funds will also be needed to finance continued research and development
activities to further improve Syntroleum's GTL technology, as well as to
fund general and administrative expense associated with Syntroleum's
commercial development activities. The SLH Board also concluded that as a
public company following the Merger, Syntroleum would have more ready
access to public debt and equity markets, as well as other means of
financing.
- THE MERGER WILL IMPROVE THE MARKET FOR SLH'S COMMON STOCK. SLH believes
that the Merger will improve the existing market for SLH Common Stock. An
efficient and liquid market in common stock is considered necessary to
attract broad participation by both institutional and individual
investors. The Merger will increase total shares outstanding by
approximately 200%. It is expected that this increase will facilitate a
more liquid and efficient market and increased market interest.
- THE MERGER WILL CONSOLIDATE MANAGEMENT AND SHARPEN INVESTOR FOCUS. The
Merger will convert indirect common equity investments in Syntroleum
(through the ownership of SLH Common Stock) into DIRECT common stock
investments in Syntroleum. This will eliminate a number of costs
associated with indirect investments in holding company structures,
including duplicate management and administrative costs. Perhaps more
importantly, the combination of management and assets should improve
stockholder understanding about the nature, results and objectives of
Syntroleum's core business. The sharper focus provided by direct
participation or a "pure play" in a specific enterprise should provide SLH
stockholders and potential investors with a better and more accurate
understanding of the value of their investment.
- THE MERGER IS OCCURRING AT AN OPTIMUM TIME. Developments at both
Syntroleum and SLH support the timing of the Merger. SLH has converted a
significant amount of its assets to cash equivalents and has favorably
resolved tax issues assumed from Lab Holdings. This has resulted in a
relatively uncomplicated and liquid SLH corporate structure. At the same
time, Syntroleum is entering into the more capital intensive phase of
design construction and operation of commercial-scale GTL plants utilizing
the Syntroleum Process.
38
<PAGE>
- THE MERGER IS CONSISTENT WITH SLH'S STRATEGY TO AVOID BECOMING SUBJECT TO
REGULATION AS AN INVESTMENT COMPANY. The Merger will eliminate SLH's
concern about possibly becoming subject to regulation as an investment
company in the future as a stand-alone entity.
In view of the variety of factors considered in connection with its
evaluation of the Merger Agreement, the SLH Board of Directors did not quantify
or otherwise attempt to assign relative weights to the specific factors
considered in reaching its determination. Moreover, in relying on the
presentation and opinion of Salomon Smith Barney, the SLH Board of Directors
considered the Salomon Smith Barney financial analyses as a whole and did not
attempt to select portions of the analyses, whether favorable or unfavorable,
for special weight in reaching its determination that the Merger is fair to SLH
and its stockholders. The factors described above constitute all of the material
factors considered by the SLH Board of Directors in connection with its
evaluation of the Merger Agreement, but the foregoing summary is not intended to
be exhaustive.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
For the reasons described above under "--SLH's Reasons for the Merger" and
"--Syntroleum's Reasons for the Merger," the SLH Board of Directors has approved
the Merger Agreement and the transactions contemplated thereby and RECOMMENDS
THAT SLH STOCKHOLDERS VOTE FOR ADOPTION AND APPROVAL OF THE MERGER AGREEMENT and
the Syntroleum Board of Directors has approved the Merger Agreement and the
transactions contemplated thereby and RECOMMENDS THAT SYNTROLEUM STOCKHOLDERS
VOTE FOR ADOPTION AND APPROVAL OF THE MERGER AGREEMENT.
OPINION OF SLH'S FINANCIAL ADVISOR
Salomon Smith Barney has acted as financial advisor to the Board of
Directors of SLH in connection with the Merger. Salomon Smith Barney delivered
to the Board of Directors of SLH its written opinion dated March 30, 1998 (the
"Salomon Smith Barney Opinion") to the effect that, based on and subject to
various considerations set forth in the Salomon Smith Barney Opinion, as of the
date of the Salomon Smith Barney Opinion, the Exchange Ratio was fair, from a
financial point of view, to SLH.
THE FULL TEXT OF THE SALOMON SMITH BARNEY OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN BY SALOMON SMITH BARNEY, IS ATTACHED HERETO
AS APPENDIX B. THE SALOMON SMITH BARNEY OPINION SHOULD BE READ CAREFULLY AND IN
ITS ENTIRETY BY THE HOLDERS OF SLH COMMON STOCK. THE SALOMON SMITH BARNEY
OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE
EXCHANGE RATIO TO SLH AND DOES NOT ADDRESS SLH'S UNDERLYING BUSINESS DECISION TO
EFFECT THE MERGER OR CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF SLH COMMON
STOCK AS TO HOW SUCH HOLDER SHOULD VOTE WITH RESPECT TO THE TRANSACTION
CONTEMPLATED BY THE MERGER AGREEMENT. THE SUMMARY OF THE SALOMON SMITH BARNEY
OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE SALOMON SMITH BARNEY OPINION
ATTACHED HERETO AS APPENDIX B.
In connection with rendering the Salomon Smith Barney Opinion, Salomon Smith
Barney, among other things: (i) reviewed the March 26, 1998 draft of the Merger
Agreement in the form provided to it and assumed that the final form of such
agreement would not vary from such draft in any regard that would be material to
its analysis; (ii) reviewed certain publicly available business and financial
information that it deemed relevant relating to SLH and Syntroleum and the
industries in which they operate (it is noted, however, that Syntroleum does not
file informational reports with the SEC); (iii) reviewed and analyzed certain
financial forecasts and other non-public financial and operating data concerning
the business and operations of SLH and Syntroleum that were provided to or
reviewed for it by the managements of SLH and Syntroleum; (iv) discussed with
members of SLH's and Syntroleum's managements SLH's and Syntroleum's past and
current operations, historical financial statements, financial condition and
future prospects, before and after giving effect to the Merger, including
potential benefits of
39
<PAGE>
the Merger to the stockholders of SLH; (v) reviewed and analyzed certain
publicly available and other information concerning the trading of, and the
trading market for, the SLH Common Stock; and (vi) considered such other
information, financial studies, analyses, investigations and financial,
economic, market and trading criteria as it deemed relevant to its inquiry.
Salomon Smith Barney has also discussed the foregoing with certain officers,
employees and advisors of SLH and Syntroleum. The Salomon Smith Barney Opinion
necessarily was based on market, economic and other conditions as they existed
and could be evaluated as of the date of the Salomon Smith Barney Opinion, and
Salomon Smith Barney has assumed no responsibility to update or revise the
Salomon Smith Barney Opinion based upon circumstances or events occurring after
the date of the Salomon Smith Barney Opinion.
In connection with rendering the Salomon Smith Barney Opinion, Salomon Smith
Barney assumed and relied upon, without assuming any responsibility for
verification, the accuracy and completeness of all of the financial and other
information provided to, discussed with, or reviewed by or for Salomon Smith
Barney, or publicly available, for purposes of the Salomon Smith Barney Opinion.
Salomon Smith Barney has not assumed any responsibility for making or obtaining
any independent evaluations or appraisals of the assets or liabilities of SLH or
Syntroleum nor has Salomon Smith Barney assumed any responsibility for
conducting or conducted a physical inspection of the properties and facilities
of SLH or Syntroleum. Furthermore, Salomon Smith Barney has not assumed any
responsibility for independently verifying nor has it independently verified
Syntroleum's technology. Salomon Smith Barney has been informed by the
managements of SLH and Syntroleum that the financial forecast and projection
information provided to Salomon Smith Barney by the managements of SLH and
Syntroleum have been reasonably determined on bases reflecting the best
currently available estimates and judgments of the managements of SLH and
Syntroleum as to the future financial performance of SLH and Syntroleum. Salomon
Smith Barney expresses no view as to such projections or the information or the
assumptions on which they were based. Salomon Smith Barney has relied as to all
legal matters with respect to the Merger Agreement and the transactions
contemplated thereby on the advice of counsel to SLH.
For purposes of rendering the Salomon Smith Barney Opinion, Salomon Smith
Barney has assumed, in all respects material to its analysis, that the
representations and warranties of each party contained in the Merger Agreement
are true and correct, that each party will perform all of the covenants and
agreements required to be performed by it under the Merger Agreement and that
all conditions to the consummation of the Merger will be satisfied without
waiver thereof. Salomon Smith Barney has also assumed that all material
governmental, regulatory or other consents and approvals will be obtained and
that in the course of obtaining any necessary governmental, regulatory or other
consents and approvals, or any amendments, modifications or waivers to any
documents to which either SLH or Syntroleum is a party, no restrictions will be
imposed or amendments, modifications or waivers made that would have any
material adverse effect on the contemplated benefits to SLH of the Merger.
The Salomon Smith Barney Opinion does not imply any conclusion as to the
likely trading range for SLH Common Stock following the consummation of the
Merger, which may vary depending upon, among other factors, changes in interest
rates, dividend rates, market conditions, general economic conditions and other
factors that generally influence the price of securities.
In connection with rendering the Salomon Smith Barney Opinion to the Board
of Directors of SLH, Salomon Smith Barney performed a variety of financial
analyses, the material portions of which are summarized below. The summary of
such analyses set forth below does not purport to be a complete description of
the analyses underlying the Salomon Smith Barney Opinion or of Salomon Smith
Barney's presentation to the Board of Directors of SLH. In addition, Salomon
Smith Barney believes that its analyses must be considered as a whole and that
selecting portions of such analyses and the factors considered therein, without
considering all such analyses and factors, could create an incomplete view of
the analyses and the processes underlying the Salomon Smith Barney Opinion. The
preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis or summary
description. Analyses and estimates of the values of companies do not purport
40
<PAGE>
to be appraisals or necessarily reflect the prices at which companies or their
securities actually may be sold. The range of valuation for any particular
analysis should not be taken to be the view of Salomon Smith Barney of the
actual value of SLH.
The projections furnished to Salomon Smith Barney and used in formulating
the Salomon Smith Barney Opinion were provided to or reviewed for Salomon Smith
Barney by the management of SLH. SLH does not publicly disclose internal
management projections of the type provided to Salomon Smith Barney in
connection with the review of the Merger and, accordingly, such projections were
not prepared with a view toward public disclosure. The projections were based on
numerous variables and assumptions which are inherently uncertain, including,
without limitation, factors related to general economic and competitive
conditions. Accordingly, actual results could vary significantly from those set
forth in such projections.
FINANCIAL OVERVIEW. Salomon Smith Barney reviewed historical financial
information of SLH and certain estimates of projected financial information for
SLH provided by the management of SLH. In addition, Salomon Smith Barney
discussed with SLH management the potential realizable value (the "Market
Value") of SLH's assets (including its contingent assets) and liabilities based
on the SLH pro forma balance sheet of March 12, 1998. For purposes of its
analysis, Salomon Smith Barney evaluated the Exchange Ratio using the
fully-diluted number of shares outstanding of SLH and Syntroleum as calculated
according to the treasury stock method (defined as (i) shares outstanding, plus
options outstanding, less (ii) option exercise proceeds divided by the current
market price of the shares) and the Market Value of the SLH assets.
DISCOUNTED CASH FLOW ANALYSIS. Salomon Smith Barney performed two separate
discounted cash flow ("DCF") analyses of Syntroleum using management's
projections for the fiscal years ending December 31, 1998 through December 31,
2006. The DCF analyses are methods of estimating the present value of the
stand-alone unlevered cash flows that Syntroleum would be expected to generate
if it performed in accordance with certain projections.
Management of Syntroleum furnished Salomon Smith Barney with two sets of
projections for use in the DCF analyses. Under management's "Conservative Case,"
Syntroleum is projected to generate revenues and profits through its partial
ownership in the Sweetwater LLC plant and several additional land-based and
floating plants, as well as license arrangements with existing licensees.
Under management's "Market Penetration Case," Syntroleum is projecting
increased revenues and profits from the Conservative Case through its partial
ownership in the Sweetwater LLC plant and an increased number of land-based and
floating plants, and from a broader base of licensing arrangements and catalyst
sales.
The DCF values for both the Conservative Case and the Market Penetration
Case were calculated assuming weighted average cost of capital ("WACC") rates
ranging from 20% to 30% and were comprised of the sum of the net present values
of (1) the projected unlevered free cash flows for Syntroleum for the years 1998
through 2006 plus (2) the terminal value in year 2006 based upon multiples of
earnings before interest, income taxes, depreciation and amortization ("EBITDA")
ranging from 7.0x to 9.0x. Under the Conservative Case, the Syntroleum Equity
Value (as defined below) ranged from $583 million to $1,864 million and the
Implied Exchange Ratio (as defined below) ranged from 1.37x to 1.67x. Under the
Market Penetration Case, the Syntroleum Equity Value ranged from $738 million to
$3,758 million and the Implied Exchange Ratio ranged from 1.45x to 1.76x.
"Syntroleum Equity Value" means the sum of the firm value (defined as the net
present value of future unleveraged Syntroleum cash flows after tax), plus cash,
plus assumed option exercise proceeds, less debt. "Implied Exchange Ratio" means
the Syntroleum Per Share Equity Value (as defined below) divided by the Implied
SLH Per Share Equity Value (as defined below). "Syntroleum Per Share Equity
Value" means Syntroleum Equity Value divided by the sum of the outstanding
shares of Syntroleum plus the Syntroleum options outstanding. "Implied SLH Per
Share Equity Value" means the Implied SLH Equity Value divided by the sum of the
outstanding shares of SLH
41
<PAGE>
plus the outstanding options of SLH. "Implied SLH Equity Value" means the
Syntroleum Per Share Equity Value multiplied by the sum of the number of shares
of Syntroleum Common Stock owned by SLH, plus the market value of SLH's assets,
plus assumed option exercise proceeds.
DCF SENSITIVITY ANALYSIS. Salomon Smith Barney also performed sensitivity
analyses based upon average product prices, capital cost and timing of plant
operations for both the Conservative Case and the Market Penetration Case using
the DCF valuation derived with a 25% WACC and terminal multiples of 2006 EBITDA
ranging from 7.5x to 8.5x. For purposes of these sensitivity analyses, in both
the Conservative Case and the Market Penetration Case, average product prices
were increased and decreased in each case by 10% and 20%, capital cost was
increased by 10% and 20% and timing of plants was delayed by one year and two
years.
Using these data, Salomon Smith Barney determined Syntroleum Equity Values
ranging from $1,196 million to $1,359 million in the Conservative Case and
$2,188 million to $2,622 million in the Market Penetration Case if average
product prices increased by 10% and from $802 million to $930 million in the
Conservative Case and $1,162 million to $1,503 million in the Market Penetration
Case if average product prices decreased by 10%. Salomon Smith Barney also
determined Syntroleum Equity Values ranging from $1,393 million to $1,574
million in the Conservative Case and $2,701 million to $3,181 million if average
product prices increased by 20% and from $605 million to $716 million in the
Conservative Case and $650 million to $944 million in the Market Penetration
Case if average product prices decreased by 20%.
Salomon Smith Barney also determined Syntroleum Equity Values ranging from
$929 million to $1,075 million in the Conservative Case and $1,403 million to
$1,790 million in the Market Penetration Case if capital cost increased by 10%
and from $860 million to $1,005 million in the Conservative Case and $1,131
million to $1,517 million in the Market Penetration Case if capital cost
increased by 20%. Salomon Smith Barney also determined Syntroleum Equity Values
ranging from $686 million to $793 million in the Conservative Case and $1,389
million to $1,708 million in the Market Penetration Case if plant operations are
delayed by one year and from $630 million to $735 million in the Conservative
Case and $1,197 million to $1,467 million in the Market Penetration Case if
plant operations are delayed by two years.
Based on the Syntroleum Equity Values determined in the DCF sensitivity
analyses, Salomon Smith Barney determined Implied Exchange Ratios ranging from
1.58x to 1.61x in the Conservative Case and 1.69x to 1.72x in the Market
Penetration Case if average product prices increased by 10% and from 1.47x to
1.52x in the Conservative Case and 1.57x to 1.63x in the Market Penetration Case
if average product prices decreased by 10%. Salomon Smith Barney also determined
Implied Exchange Ratios ranging from 1.62x to 1.64x in the Conservative Case and
1.72x to 1.74x in the Market Penetration Case if average product prices
increased by 20% and from 1.38x to 1.44x in the Conservative Case and 1.41x to
1.52x in the Market Penetration Case if average product prices decreased by 20%.
Salomon Smith Barney also determined Implied Exchange Ratios ranging from
1.52x to 1.56x in the Conservative Case and 1.62x to 1.66x in the Market
Penetration Case if capital cost increased by 10% and from 1.50x to 1.54x in the
Conservative Case and 1.57x to 1.63x in the Market Penetration Case if capital
cost increased by 20%. Salomon Smith Barney also determined Implied Exchange
Ratios ranging from 1.43x to 1.47x in the Conservative Case and 1.61x to 1.65x
in the Market Penetration Case if plant operations are delayed by one year and
from 1.40x to 1.45x in the Conservative Case and 1.58x to 1.63x in the Market
Penetration Case if plant operations are delayed by two years.
TRADING ANALYSIS. Salomon Smith Barney reviewed the daily closing market
price per share and trading volume of SLH Common Stock for the period beginning
May 1, 1997 and ending March 26, 1998. Assuming SLH's stock price of $26.75 at
March 26, 1998, Salomon Smith Barney determined the implied equity value of
Syntroleum and the implied Exchange Ratio of $753 million and 1.44x,
respectively. Assuming SLH's stock price of $35.25 at February 24, 1998
(representing SLH's high stock price during such period), Salomon Smith Barney
also determined the implied equity value of Syntroleum and the
42
<PAGE>
implied Exchange Ratio of $1,064 million and 1.54x, respectively. Assuming SLH's
stock price of $7.33 at May 2, 1997 (representing SLH's low stock price during
such period), Salomon Smith Barney also determined the implied equity value of
Syntroleum and the implied Exchange Ratio of $50 million and 0.36x,
respectively. Assuming SLH's mean stock price of $22.65 over such period,
Salomon Smith Barney also determined the implied equity value of Syntroleum and
the implied Exchange Ratio of $603 million and 1.37x, respectively.
PRO FORMA ANALYSES. Based on ownership and balance sheet information
provided by the management of SLH, Salomon Smith Barney prepared pro forma
ownership and pro forma balance sheet information based on an assumed Exchange
Ratio of 1.46 SLH shares per Syntroleum share. Based on ownership calculated on
a fully diluted basis, former shareholders of Syntroleum would own 64.3% of the
combined companies after the Merger and existing shareholders of SLH would own
35.7% of the combined companies after the Merger.
Salomon Smith Barney is an internationally recognized investment banking
firm that regularly engages in the valuation of companies and their securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive bids, secondary distributions of listed and unlisted securities and
corporate, estate and other purposes. Salomon Smith Barney was retained as a
financial advisor because of its reputation, expertise in the valuation of
companies and substantial experience in transactions such as the Merger.
Salomon Smith Barney has rendered certain investment banking and financial
advisory services to SLH in the past for which Salomon Smith Barney has been
paid fees. In addition, in the ordinary course of Salomon Smith Barney's
business, Salomon Smith Barney or its affiliates may actively trade the
securities of SLH for its own accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
In addition, Salomon Smith Barney and its affiliates (including Travelers Group
Inc. and its affiliates) may maintain business relationships with SLH and/or
Syntroleum.
SLH and Salomon Smith Barney have entered into a letter agreement dated
March 12, 1998 (the "Salomon Smith Barney Engagement Letter") relating to the
services to be provided by Salomon Smith Barney in connection with the Merger.
Pursuant to the Salomon Smith Barney Engagement Letter, SLH has agreed to pay
Salomon Smith Barney a total fee of $1,000,000, a portion of which is contingent
upon the delivery of the Salomon Smith Barney Opinion and the consummation of
the Merger. In a separate letter agreement dated March 12, 1998, SLH also agreed
to reimburse Salomon Smith Barney for the reasonable fees and disbursements of
Salomon Smith Barney's counsel and Salomon Smith Barney's reasonable travel and
other out-of-pocket expenses and to indemnify Salomon Smith Barney against
certain liabilities, including liabilities under the federal securities law,
relating to or arising out of its engagement.
OPINION OF SYNTROLEUM'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated March 6, 1998, Syntroleum retained
J.P. Morgan as its financial advisor and to deliver a fairness opinion in
connection with the proposed Merger.
At the meeting of the Board of Directors of Syntroleum on March 25, 1998,
J.P. Morgan rendered its oral opinion to the Board of Directors of Syntroleum
that, as of such date, the consideration proposed to be paid to Syntroleum's
stockholders in connection with the proposed Merger was fair, from a financial
point of view, to such stockholders. J.P. Morgan has confirmed its March 25,
1998 oral opinion by delivering its written opinion to the Board of Directors of
Syntroleum, dated March 30, 1998, that, as of such date, the consideration
proposed to be paid to Syntroleum's stockholders in connection with the proposed
Merger was fair, from a financial point of view, to such stockholders. No
limitations were imposed by Syntroleum's Board of Directors upon J.P. Morgan
with respect to the investigations made or procedures followed by it in
rendering its opinions.
43
<PAGE>
The full text of the written opinion of J.P. Morgan dated March 30, 1998,
which sets forth the assumptions made, matters considered and limits on the
review undertaken, is attached as Appendix C to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. Syntroleum's
stockholders are urged to read the opinion in its entirety. J.P. Morgan's
written opinion is addressed to the Board of Directors of Syntroleum, is
directed only to the consideration proposed to be paid to Syntroleum's
stockholders in connection with the proposed Merger, and does not constitute a
recommendation to any stockholder of Syntroleum as to how such stockholder
should vote at the Syntroleum Special Meeting. The summary of the opinion of
J.P. Morgan set forth in this Joint Proxy Statement/Prospectus is qualified in
its entirety by reference to the full text of such opinion.
In arriving at its opinions, J.P. Morgan reviewed, among other things, the
Merger Agreement; the audited financial statements of Syntroleum and SLH for the
fiscal year ended December 31, 1997, and the unaudited financial statements of
Syntroleum and SLH for the period ended February 28, 1998; current and
historical market prices of SLH Common Stock; certain publicly available
information concerning the business of SLH; and certain internal financial
analyses and forecasts prepared by Syntroleum and SLH and their respective
managements. J.P. Morgan also held discussions with certain members of the
management of Syntroleum and SLH with respect to certain aspects of the Merger,
the past and current business operations of Syntroleum and SLH, the financial
condition and future prospects and operations of Syntroleum and SLH, the effects
of the Merger on the financial condition and future prospects and operations of
Syntroleum and SLH, and certain other matters believed necessary or appropriate
to J.P. Morgan's inquiry. In addition, J.P. Morgan visited certain
representative facilities of Syntroleum and SLH, and reviewed such other
financial studies and analyses and considered such other information as it
deemed appropriate for the purposes of its opinion.
J.P. Morgan relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or that
was furnished to it by Syntroleum and SLH or otherwise reviewed by J.P. Morgan,
and J.P. Morgan has not assumed any responsibility or liability therefor. J.P.
Morgan has not conducted any valuation or appraisal of any assets or
liabilities, nor have any valuations or appraisals been provided to J.P. Morgan.
In relying on financial analyses and forecasts provided to J.P. Morgan, J.P.
Morgan has assumed that they have been reasonably prepared based on assumptions
reflecting the best currently available estimates and judgments by management as
to the expected future results of operations and financial condition of
Syntroleum and SLH to which such analyses or forecasts relate. J.P. Morgan has
also assumed that the Merger will have the tax consequences described in
discussions with, and materials furnished to J.P. Morgan by, representatives of
Syntroleum, and that the other transactions contemplated by the Merger Agreement
will be consummated as described in the Merger Agreement.
The projections furnished to J.P. Morgan for Syntroleum and SLH were
prepared by the respective managements of each company. Neither Syntroleum nor
SLH publicly discloses internal management projections of the type provided to
J.P. Morgan in connection with J.P. Morgan's analysis of the Merger, and such
projections were not prepared with a view toward public disclosure. These
projections were based on numerous variables and assumptions that are inherently
uncertain and may be beyond the control of management, including, without
limitation, factors related to general economic and competitive conditions and
prevailing interest rates. Accordingly, actual results could vary significantly
from those set forth in such projections.
J.P. Morgan's opinions are based on economic, market and other conditions as
in effect on, and the information made available to J.P. Morgan as of, the date
of such opinions. Subsequent developments may affect the written opinion dated
March 30, 1998, and J.P. Morgan does not have any obligation to update, revise,
or reaffirm such opinion. J.P. Morgan expressed no opinion as to the price at
which the SLH Common Stock will trade at any future time.
44
<PAGE>
In accordance with customary investment banking practice, J.P. Morgan
employed generally accepted valuation methods in reaching its opinion. The
following is a summary of the material financial analyses utilized by J.P.
Morgan in connection with providing its opinion.
DISCOUNTED CASH FLOW ANALYSIS. J.P. Morgan conducted a discounted cash flow
analysis for the purpose of determining the equity value per share for the
Syntroleum Common Stock. J.P. Morgan calculated the unlevered free cash flows
that Syntroleum is expected to generate during fiscal years 1998 through 2006
based upon financial projections prepared by management of Syntroleum through
the years ended 2006. J.P. Morgan also calculated a range of terminal equity
values of Syntroleum at the end of the 9-year period ending 2006. For
calculation of the terminal equity value, J.P. Morgan adjusted the projections
prepared by management by reducing the profit margin by 50% in year 2006 from
40% to 20% to reflect a more mature growth stage of the business and lower
margins from potentially increased competition in the future (the
"Adjustments"). A price-to-earnings multiple ranging from 12.5x to 17.5x,
reflective of average price-to-earnings multiples for mature integrated
petroleum companies, was applied to the earnings of Syntroleum after the
Adjustments during the final year of the 9-year period. The unlevered free cash
flows and the range of terminal asset values were then discounted to present
values using a range of discount rates from 11.6% to 19.6%, which were chosen by
J.P. Morgan based upon an analysis of the weighted average cost of capital of
Syntroleum. The present value of the unlevered free cash flows and the range of
terminal asset values were then adjusted for Syntroleum's estimated 1998 fiscal
year-end excess cash and total debt. Based on the adjusted management
projections, a discount rate range of 11.6-19.6%, and a price-to-earnings
multiple range of 12.5-17.5x, the discounted cash flow analysis indicated a
range of equity values of between $18.11 and $64.91 per primary share of
Syntroleum Common Stock.
ALTERNATIVE PUBLIC MARKET VALUATION. J.P. Morgan performed an Alternative
Public Market Valuation for the purposes of determining the equity value of
Syntroleum. Under this valuation methodology, Syntroleum projected earnings in
the years 2002 and 2003 were capitalized at price-to-earnings multiples of
25.0-30.0x based on a trading multiple range consistent with companies in a high
growth stage and discounted to the present at equity discount rates ranging from
25.0-30.0%. An additional 15.0% discount was then applied to the resulting
values to reflect the standard pricing discount associated with initial public
offerings. This valuation methodology yielded values of $38.06 to $59.54 per
primary share of Syntroleum Common Stock.
The valuation methodologies described above yielded a combined value range
of $18.11 to $64.91 per share of Syntroleum. This compares with an implied value
of $46.60 per share of Syntroleum Common Stock using the proposed exchange ratio
methodology, based on a 30-day average of the closing price of SLH Common Stock
prior to the date of the announcement of the Merger.
The summary set forth above does not purport to be a complete description of
the analyses or data presented by J.P. Morgan. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. J.P. Morgan believes that the summary set forth
above and their analyses must be considered as a whole and that selecting
portions thereof, without considering all of its analyses, could create an
incomplete view of the processes underlying its analyses and opinion. J.P.
Morgan based its analyses on assumptions that it deemed reasonable, including
assumptions concerning general business and economic conditions and
industry-specific factors. The other principal assumptions upon which J.P.
Morgan based its analyses are set forth above under the description of each such
analysis. J.P. Morgan's analyses are not necessarily indicative of actual values
or actual future results that might be achieved, which values may be higher or
lower than those indicated. Moreover, J.P. Morgan's analyses are not and do not
purport to be appraisals or otherwise reflective of the prices at which
businesses actually could be bought or sold.
As a part of its investment banking business, J.P. Morgan and its affiliates
are continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, investments
45
<PAGE>
for passive and control purposes, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements, and
valuations for estate, corporate and other purposes. J.P. Morgan was selected to
deliver an opinion to Syntroleum's Board of Directors with respect to the Merger
on the basis of such experience and its familiarity with Syntroleum.
For services rendered in connection with the delivery of its opinion,
Syntroleum has agreed to pay J.P. Morgan a fee of $750,000. In addition,
Syntroleum has agreed to reimburse J.P. Morgan for its expenses incurred in
connection with its services, including the fees and disbursements of counsel,
and will indemnify J.P. Morgan against certain liabilities, including
liabilities arising under the Federal securities laws.
J.P. Morgan has participated in discussions regarding the capital structure
of Syntroleum and capital raising alternatives. In the ordinary course of their
businesses, affiliates of J.P. Morgan may actively trade the debt and equity
securities of SLH for their own accounts or for the accounts of customers and,
accordingly, they may at any time hold long or short positions in such
securities.
ACCOUNTING TREATMENT
The Merger will be accounted for as a reverse acquisition using the purchase
method of accounting in accordance with Accounting Principles Board Opinion No.
16. Although SLH is the surviving corporation in the Merger for legal purposes,
Syntroleum will be the acquirer for accounting purposes. For purposes of
preparing its consolidated financial statements, the combined company will
establish a new accounting basis for SLH's assets and liabilities using the fair
values thereof, based upon the consideration paid in the Merger and the costs of
the Merger. A final determination of required purchase accounting adjustments,
including the allocation of the purchase price to the assets acquired and
liabilities assumed based on their respective fair values, has not yet been
made; however, management does not believe the adjustments to the SLH assets, if
any, will be material. Accordingly, the purchase accounting adjustments made in
connection with the development of the pro forma combined financial statements
appearing elsewhere in this Joint Proxy Statement/Prospectus are preliminary and
have been made solely for purposes of developing such pro forma combined
financial statements. For financial reporting purposes, the results of
operations of SLH will be included in the combined company's consolidated
statement of operations following the effective date of the Merger. As a result
of the Merger, the financial statements for prior periods will include the
results of operations for Syntroleum. See "Unaudited Pro Forma Combined
Financial Statements."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Each of SLH and Syntroleum has received an opinion from Baker & Botts,
L.L.P. that the United States federal income tax consequences of the Merger
include the following:
(a) The Merger is a reorganization within the meaning of Section 368(a) of
the Code, and each of SLH and Syntroleum is a party to the reorganization
within the meaning of Section 368(b) of the Code.
(b) No gain or loss will be recognized for United States federal income tax
purposes by SLH or Syntroleum as a result of the Merger.
(c) Gain or loss will be recognized by a holder of Syntroleum Common Stock
who exchanges all of his shares of Syntroleum Common Stock for shares of
SLH Common Stock and cash in lieu of a fractional share only in respect
of the cash. Such cash will be treated as if it were received in
redemption of a fractional share of SLH Common Stock which was received
in the Merger. Any such redemption should be treated as a distribution in
exchange for the fractional share.
(d) The aggregate basis of the shares of SLH Common Stock received by a
holder of Syntroleum Common Stock in the Merger (including any fractional
share in respect of which cash is received)
46
<PAGE>
will be the same as the aggregate basis of the shares of Syntroleum
Common Stock surrendered in exchange therefor.
(e) The holding period of the shares of SLH Common Stock received by a
holder of Syntroleum Common Stock in the Merger (including any fractional
share in respect of which cash is received) will include the holding
period of the shares of Syntroleum Common Stock surrendered in exchange
therefor, provided that such shares of Syntroleum Common Stock are held
as capital assets when the Merger occurs.
Such opinion is based upon generally applicable current provisions of the
Code, applicable Treasury Regulations promulgated thereunder, judicial decisions
and current administrative rulings, all of which are subject to change with
retroactive effect. In addition, the opinion is conditioned upon the accuracy of
certain matters as to which one or both of SLH and Syntroleum have made
representations.
An opinion of counsel is not binding on the Internal Revenue Service ("IRS")
or the courts. Therefore, there can be no assurance that the federal income tax
consequences of the Merger that are described herein will be available.
Because the tax consequences to any particular holder of Syntroleum Common
Stock may be affected by his or her particular circumstances and by the
applicability to him or her of one or more special rules such as those which
apply to dealers in securities, foreign persons, mutual funds, insurance
companies and persons who do not hold their shares as capital assets, each
person should consult his or her own tax advisor concerning the effect of the
Merger upon him or her including the effect of any other state, local or other
tax to which he or she may be subject.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Syntroleum Board of Directors and
the SLH Board of Directors with respect to the Merger, stockholders should be
aware that certain members of the Board of Directors of Syntroleum and certain
executive officers of Syntroleum and certain members of the Board of Directors
of SLH and certain executive officers of SLH have the following interests in the
Merger separate from their interests as Syntroleum stockholders and SLH
stockholders, respectively.
COMPOSITION OF THE SLH BOARD. In connection with the Merger, Kenneth L.
Agee, Mark A. Agee, Alvin R. Albe, Jr., Frank M. Bumstead, Robert Rosene, Jr.,
and J. Edward Sheridan, who are currently directors of Syntroleum, will be
elected as directors of SLH effective as of the Effective Time. P. Anthony
Jacobs and James R. Seward, who are currently directors of SLH, will continue as
directors of SLH following the Effective Time. See "Management After the
Merger."
ADJUSTMENTS TO STOCK OPTIONS. SLH officers and directors hold options to
purchase a total of 948,900 shares of SLH Common Stock, of which 194,400 are
currently exercisable and 754,500 will become exercisable on the earlier of
death, a change of control or March 3, 1999 as to 50% of such shares and March
3, 2000 as to the balance. Under SLH's 1997 Stock Incentive Plan (the "SLH Stock
Option Plan") and the option agreements as in effect on the date of the Merger
Agreement, the Merger would have effected a change in control so as to cause all
of such options to become immediately vested. However, in order to avoid the
exercisability as to these options as a result of the Merger, the Merger
Agreement provides that, with the consent of the optionee, the Merger will not
be deemed to effect a change in control so as to accelerate the exercisability
of the option. The Merger Agreement also provides for the exercisability of
these options to be adjusted so that the options will generally be exercisable
on the earlier of within one year after death or the fifth anniversary of the
Effective Time, except that options held by persons that continue as directors
following the Merger will remain exercisable for so long as such person
continues as a director (provided that the option will cease to be exercisable
on March 3, 2007). The Merger Agreement also provides that the obligation of
Syntroleum to close the Merger is conditioned
47
<PAGE>
upon the delivery of written consents by each of the optionees to these
adjustments. See "Certain Provisions of the Merger Agreement-Adjustments to SLH
Options."
PAYMENTS UPON TERMINATION OF EMPLOYMENT AGREEMENTS. The obligation of
Syntroleum to close the Merger is also conditioned upon the delivery at the
closing of the written resignations of Messrs. Seward, Jacobs and Fitzwater as
officers of SLH. These resignations will effect a termination of their
employment agreements with SLH. The Merger Agreement further provides that such
resignations will be deemed to effect a termination of each of the agreements
"without cause" so as to trigger a requirement of SLH to pay each of the
officers their base salaries for the remainder of the term of each of the
agreements, all of which expire on March 3, 2000. The annual base salary of
Messrs. Seward and Jacobs under their agreements is $75,000 each and the base
salary under Mr. Fitzwater's is $60,000.
INDEMNIFICATION. From and after the Effective Time, SLH has agreed to
indemnify, defend and hold harmless each person who is now, or has been at any
time prior to the date of the Merger Agreement or who becomes prior to the
Effective Time, an officer or director of SLH or Syntroleum or any of their
subsidiaries or an employee of SLH or Syntroleum or any of their subsidiaries
who acts as a fiduciary under any of the SLH benefit programs or plans or the
Syntroleum benefit programs or plans, against all losses, claims, damages,
costs, expenses (including attorneys' fees), liabilities or judgments or amounts
that are paid in settlement with the approval of the indemnifying party of or in
connection with any threatened or actual claim, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or in part out of
the fact that such person is or was a director, officer, or such employee of SLH
or Syntroleum or any of their subsidiaries, whether pertaining to any matter
existing or occurring at or prior to the Effective Time and whether asserted or
claimed prior to, or at or after, the Effective Time.
DISSENTERS' APPRAISAL RIGHTS
Record holders of SLH Common Stock are not entitled to appraisal rights
under Section 17-6712 of the KGCC.
Record holders of Syntroleum Common Stock are entitled to appraisal rights
under Section 1091 of the OGCA. A holder of an option to purchase shares of
Syntroleum Common Stock must exercise such options in order to obtain Syntroleum
Common Stock before such holder will be entitled to appraisal rights as a
stockholder of Syntroleum. A holder of an option to purchase shares of
Syntroleum Common Stock is not otherwise entitled to appraisal rights.
THIS DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING TO
APPRAISAL RIGHTS UNDER THE OGCA AND IS QUALIFIED IN ITS ENTIRETY BY THE FULL
TEXT OF SECTION 1091 OF THE OGCA ("SECTION 1091"), WHICH IS REPRINTED IN ITS
ENTIRETY AS APPENDIX D TO THIS JOINT PROXY STATEMENT/PROSPECTUS. ALL REFERENCES
IN SECTION 1091 AND IN THIS SUMMARY TO A "STOCKHOLDER" OR "HOLDER" ARE TO THE
RECORD HOLDER OF THE SHARES OF SYNTROLEUM COMMON STOCK AS TO WHICH APPRAISAL
RIGHTS ARE ASSERTED.
Under the OGCA, record holders of Syntroleum Common Stock who follow the
procedures set forth in Section 1091 and who do not vote in favor of the Merger
Agreement will be entitled to have their shares of Syntroleum Common Stock
appraised by the Oklahoma District Court and to receive payment of the "fair
value" of such shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, as determined by such court. A PERSON HAVING A BENEFICIAL
INTEREST IN SHARES OF SYNTROLEUM COMMON STOCK HELD OF RECORD IN THE NAME OF
ANOTHER PERSON MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW THE STEPS
SUMMARIZED BELOW PROPERLY AND IN A TIMELY MANNER TO PERFECT THE APPRAISAL RIGHTS
PROVIDED UNDER SECTION 1091.
Under Section 1091, where a proposed merger is to be submitted for approval
at a meeting of stockholders, as in the case of the Syntroleum Special Meeting,
not less than 20 days prior to the meeting, the corporation must notify each of
its stockholders who was such on the record date for such meeting with
48
<PAGE>
respect to shares for which appraisal rights are available that appraisal rights
are available and include in each such notice a copy of Section 1091.
This Joint Proxy Statement/Prospectus constitutes such notice to the record
holders of Syntroleum Common Stock and the applicable provisions of the OGCA are
attached to this Joint Proxy Statement/ Prospectus as Appendix D. Any such
stockholder who wishes to exercise such appraisal rights should review the
following discussion and Appendix D carefully, because failure to timely and
properly comply with the procedures specified will result in the loss of
appraisal rights under the OGCA.
A holder of shares of Syntroleum Common Stock wishing to exercise his or her
appraisal rights (a) must deliver to the Secretary of Syntroleum, before the
vote on the Merger Agreement at the Syntroleum Special Meeting to be held on
, 1998, a written demand for appraisal of his or her shares of Syntroleum
Common Stock and (b) must not vote in favor of the Merger. A proxy or vote
against the Merger shall not constitute a demand. A holder of Syntroleum Common
Stock electing to demand appraisal must do so before the taking of a vote on the
Merger Agreement by a separate written demand that reasonably informs Syntroleum
of the identity of the record holder of Syntroleum Common Stock and of such
holder's intention thereby to demand the appraisal of such holder's Syntroleum
Common Stock. ALL WRITTEN DEMANDS FOR APPRAISAL SHOULD BE SENT OR DELIVERED TO
SYNTROLEUM AT SYNTROLEUM PLAZA, 1350 SOUTH BOULDER, SUITE 1100, TULSA, OKLAHOMA
74119-3295, ATTENTION: SECRETARY.
A holder of shares of Syntroleum Common Stock wishing to exercise his or her
appraisal rights must hold his or her shares of record on the date the written
demand for appraisal is made and must hold his or her shares continuously
through the Effective Time. Accordingly, a record holder of Syntroleum Common
Stock who is the record holder of Syntroleum Common Stock on the date the
written demand for appraisal is made, but who thereafter transfers such stock
prior to the consummation of the Merger, will lose any right to appraisal in
respect of such shares.
Only a holder of record of shares of Syntroleum Common Stock is entitled to
assert appraisal rights for the shares of Syntroleum Common Stock registered in
that holder's name. A demand for appraisal should be executed by or on behalf of
the holder of record, fully and correctly, as such holder's name appears on such
holder's stock certificates. If the shares of Syntroleum Common Stock are owned
of record in a fiduciary capacity, such as by a trustee, guardian or custodian,
execution of the demand should be made in that capacity, and if the shares of
Syntroleum Common Stock are owned of record by more than one person as in a
joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all joint owners. An authorized agent, including one or more joint
owners, may execute a demand for appraisal on behalf of a holder of record;
however, the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, the agent is agent for such
owner or owners. A record holder who holds shares of Syntroleum Common Stock as
nominee for several beneficial owners may exercise appraisal rights with respect
to the shares of Syntroleum Common Stock held for one or more beneficial owners
while not exercising such rights with respect to the shares of Syntroleum Common
Stock held for other beneficial owners; in such case, the written demand should
set forth the number of shares of Syntroleum Common Stock as to which appraisal
is sought. When no number of shares of Syntroleum Common Stock is expressly
mentioned, the demand will be presumed to cover all shares of Syntroleum Common
Stock held in the name of the record owner.
Stockholders who hold their shares of Syntroleum Common Stock in nominee
form and who wish to exercise appraisal rights must take all necessary steps in
order that a demand for appraisal is made by the record holder of those shares
and are urged to consult with their brokers to determine the appropriate
procedures for the making of a demand for appraisal by the record holder.
Within ten days after the Effective Time, the surviving corporation must
send a notice as to the effectiveness of the Merger to each person who has
properly asserted appraisal rights under Section 1091 and has not voted in favor
of or consented to the Merger. Within 120 days after the Effective Time, but not
thereafter, the surviving corporation, or any holder of shares of Syntroleum
Common Stock who has
49
<PAGE>
complied with the procedures under Section 1091 and who is entitled to appraisal
rights under Section 1091, may file a petition in the Oklahoma District Court
demanding a determination of the value of the stock of all such stockholders.
The surviving corporation is not under any obligation and has no present
intention, to file a petition with respect to the appraisal of the "fair value"
of the shares of Syntroleum Common Stock. Accordingly, it is the obligation of a
stockholder to initiate all necessary action to perfect his appraisal rights
within the time prescribed in Section 1091.
Within 120 days after the Effective Time, any stockholder who has complied
with the requirements for exercise of appraisal rights will be entitled, upon
written request, to receive from the surviving corporation a statement setting
forth the aggregate number of shares of Syntroleum Common Stock not voted in
favor of adoption of the Merger Agreement and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares
of Syntroleum Common Stock. Such statements must be mailed within 10 days after
a written request therefor has been received by the surviving corporation or
within 10 days after expiration of the period for delivery of demands for
appraisal under Section 1091, whichever is later.
A holder of shares of Syntroleum Common Stock will fail to perfect, and
effectively lose, his or her right to appraisal if, among other things, no
petition for appraisal of shares of Syntroleum Common Stock is filed within 120
days after the Effective Time, or if the stockholder delivers to Syntroleum a
written withdrawal of his or her demand for appraisal. If a petition for an
appraisal is timely filed, after a hearing on such petition, the Oklahoma
District Court will determine the stockholders entitled to appraisal rights and
will appraise the "fair value" of their shares of Syntroleum Common Stock,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. Stockholders considering seeking
appraisal should be aware that the fair value of their shares of Syntroleum
Common Stock as determined under Section 1091 could be more than, the same as or
less than the value of the consideration they would receive pursuant to the
Merger Agreement if they did not seek appraisal of their shares of Syntroleum
Common Stock and that investment banking opinions as to fairness from a
financial point of view are not necessarily opinions as to fair value under
Section 1091.
The Oklahoma District Court will determine the amount of interest, if any,
to be paid upon the amounts to be received by persons whose shares of Syntroleum
Common Stock have been appraised. The costs of the action may be determined by
the Oklahoma District Court and taxed upon the parties as the Oklahoma District
Court deems equitable. The Oklahoma District Court may also order that all or a
portion of the expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorneys' fees
and the fees and expenses of experts utilized in the appraisal proceeding, be
charged pro rata against the value of all of the shares of Syntroleum Common
Stock entitled to appraisal.
A holder may withdraw his demand for appraisal by delivering to the
surviving corporation a written withdrawal of his demand for appraisal and
acceptance of the Merger, except that any such attempt to withdraw made more
than 60 days after the Effective Time will require the written approval of the
surviving corporation. Failure to follow the steps required by Section 1091 of
the OGCA for perfecting appraisal rights may result in the loss of such rights
(in which event a stockholder will be entitled to receive the consideration
receivable with respect to such appraisal shares in accordance with the Merger
Agreement).
Any holder of shares of Syntroleum Common Stock who has duly demanded an
appraisal in compliance with Section 1091 will not, after the Effective Time, be
entitled to vote the shares of Syntroleum Common Stock subject to such demand
for any purpose or be entitled to the payment of dividends or other
distributions on those shares (except dividends or other distributions payable
to holders of record of shares of Syntroleum Common Stock as of a date prior to
the Effective Time).
50
<PAGE>
RESALES OF SLH COMMON STOCK
The shares of SLH Common Stock to be issued to the stockholders of
Syntroleum pursuant to the Merger Agreement are being registered under the
Securities Act pursuant to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part. However, because some stockholders of Syntroleum
are or may be affiliates of Syntroleum or SLH, such persons will not be able to
resell the SLH Common Stock received by them in the Merger unless the SLH Common
Stock is registered for resale under the Securities Act, is sold in compliance
with an exemption from the registration requirements of the Securities Act or is
sold in compliance with Rule 145 under the Securities Act.
Pursuant to Rule 145 under the Securities Act, the sale of SLH Common Stock
acquired by such former Syntroleum stockholders pursuant to the Merger will be
subject to certain restrictions. Such persons may sell SLH Common Stock under
Rule 145 only if (i) SLH has filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months, (ii) the SLH
Common Stock is sold in a "broker's transaction," which is defined in Rule 144
under the Securities Act as a sale in which (a) the seller does not solicit or
arrange for orders to buy the securities, (b) the seller does not make any
payment other than to the broker, (c) the broker does no more than execute the
order and receive a nominal commission and (d) the broker does not solicit
customer orders to buy the securities, and (iii) such sale and all other sales
made by such person within the preceding three months do not collectively exceed
the greater of (x) 1% of the outstanding shares of SLH Common Stock and (y) the
average weekly trading volume of SLH Common Stock on all national securities
exchanges during the four-week period preceding the sale.
Persons who may be deemed to be affiliates of Syntroleum generally include
individuals or entities which control, are controlled by, or are under common
control with, Syntroleum and may include certain officers and directors of
Syntroleum, as well as principal stockholders of Syntroleum. The Merger
Agreement requires Syntroleum to use its commercially reasonable efforts to
cause each of its affiliates to execute a written agreement pursuant to which
each such party acknowledges that it is subject to the provisions of Rule
145(d).
INCREASED AUTHORIZED SHARES
In connection with the Merger, the Articles of Incorporation of SLH will be
amended by the Certificate of Merger to increase the number of authorized shares
of SLH Common Stock from 30,000,000 shares to 150,000,000 shares and increase
the number of authorized shares of SLH Preferred Stock from 1,000,000 to
5,000,000 shares. As of the date of this Joint Proxy Statement/Prospectus
10,074,721 shares of SLH Common Stock and no shares of SLH Preferred Stock were
outstanding, 974,400 shares of SLH Common Stock were reserved for issuance under
SLH's 1997 Stock Incentive Plan (the "SLH Stock Option Plan") and 50,000 shares
of junior participating preferred stock, par value $0.01 per share ("SLH Junior
Preferred Stock"), of SLH were reserved pursuant to the preferred share purchase
rights associated with the SLH Common Stock.
If the Merger is consummated and the Syntroleum Stock Option Plans are
approved, SLH will have outstanding approximately 29,312,460 shares of SLH
Common Stock, and will have 4,204,210 shares of SLH Common Stock reserved for
issuance under stock options and employee benefit plans, assuming an Exchange
Ratio of 1.47484 and the number of shares outstanding as of April 8, 1998. As a
result, SLH needs to authorize additional SLH Common Stock in order to have
enough authorized shares to consummate the Merger and satisfy the requirements
of stock options and employee benefit plans. In addition, the SLH Board of
Directors believes that the additional authorized shares of SLH Common Stock and
SLH Preferred Stock contemplated by this amendment is desirable because it will
allow SLH to issue additional shares from time to time, without further action
or authorization by the stockholders (except as may be required by law or by any
stock exchange on which SLH securities may then be listed), for stock splits,
stock dividends or other distributions, financings, acquisitions, stock grants,
stock options
51
<PAGE>
and employee benefit plans and other corporate purposes. The NASDAQ National
Market, on which SLH Common Stock now trades, currently requires stockholder
approval of the issuance of shares in certain instances, including transactions
where the issuance could increase the number of outstanding shares by 20% or
more.
While SLH has no present plans, agreements or commitments for the issuance
of additional shares of SLH Common Stock or SLH Preferred Stock (except as
described herein), other than pursuant to its employee benefit plans and upon
the exercise of stock options, the SLH Board of Directors believes that the
availability of these shares would allow SLH to issue additional shares of SLH
Common Stock or SLH Preferred Stock if market or other conditions indicate that
such a course of action is advisable.
Although the SLH Board of Directors has no present intention of doing so,
the additional shares of SLH Common Stock and SLH Preferred Stock that will be
authorized for issuance if the Merger Agreement is approved, could be issued in
one or more transactions (within limitations imposed by applicable law) that
would make a takeover of SLH more difficult and, therefore, less likely, even
though such a takeover might be economically beneficial to SLH and its
stockholders. The SLH Board of Directors and management of SLH have no knowledge
of any person or entity that intends to seek a controlling interest in, or to
make a takeover proposal with respect to, SLH. See "Description of SLH Capital
Stock."
CERTAIN REGULATORY MATTERS
The parties to the Merger Agreement have agreed to cooperate and use their
commercially reasonable efforts to promptly prepare and file all necessary
documentation, to effect all necessary applications, notices, petitions, filings
and other documents, and to use all commercially reasonable efforts to obtain
(and will cooperate with each other in obtaining) any consent, authorization,
order or approval of, or any exemption or nonopposition by, any Governmental
Entity (as defined in the Merger Agreement) required to be obtained or made by
Syntroleum, SLH or any of their subsidiaries in connection with the Merger or
the taking of any action contemplated thereby or by the Merger Agreement.
Failure to obtain any necessary regulatory approval or any adverse conditions
that are imposed with respect to any necessary regulatory approval may affect
the consummation of the Merger.
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") and
the rules and regulations thereunder provide that certain transactions may not
be consummated until certain information has been submitted to the Antitrust
Division of the Department of Justice and the Federal Trade Commission and the
specified HSR Act waiting period requirements have been satisfied. Neither SLH
nor Syntroleum believes that the Merger will be subject to the HSR Act or
violate federal antitrust laws.
52
<PAGE>
CERTAIN PROVISIONS OF THE MERGER AGREEMENT
THE FOLLOWING DESCRIPTION OF THE MERGER AGREEMENT DOES NOT PURPORT TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT,
A COPY OF WHICH IS INCLUDED AS APPENDIX A TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED IN ITS ENTIRETY HEREIN BY REFERENCE.
MERGER CONSIDERATION
SYNTROLEUM COMMON STOCK. Except for shares as to which appraisal rights
have been perfected under Oklahoma law (the "Dissenting Shares"), each share of
Syntroleum Common Stock outstanding immediately prior to the Effective Time will
be converted at the Effective Time into the right to receive from SLH a number
of shares of SLH Common Stock equal to the Exchange Ratio. The "Exchange Ratio"
means the ratio of the Syntroleum Common Stock Market Value divided by the SLH
Common Stock Market Value. "SLH Common Stock Market Value" means the average
closing price of SLH Common Stock during the five trading days ending on the
business day immediately preceding the SLH Annual Meeting. The "Syntroleum
Common Stock Market Value" is equal to (i) the difference between the SLH Market
Capitalization and SLH's total stockholders' equity (excluding the book value of
the shares of Syntroleum Common Stock that SLH owns, which was zero as of
December 31, 1997) reflected in the unaudited financial statements of SLH as of
March 31, 1998 (which total shareholders' equity was $51,051,000 as of December
31, 1997) divided by (ii) 5,950,000 (the number of shares of Syntroleum's Common
Stock that SLH owns). The "SLH Market Capitalization" means the product of (A)
the average closing price of SLH's Common Stock during the five trading days
ending on the business day immediately preceding the SLH Annual Meeting and (B)
10,519,121 (the sum of the number of shares of SLH Common Stock outstanding, the
number of shares of SLH Common Stock issuable pursuant to vested options to
purchase such shares and 250,000 shares (which reflects a portion of the number
of shares of SLH Common Stock issuable pursuant to non-vested options)).
Set forth below is an illustration of the determination of the Exchange
Ratio. The amount used in this illustration (and to determine the other assumed
Exchange Ratios set forth herein) for SLH's total stockholders' equity is such
amount as of December 31, 1997, although the determination of the Exchange Ratio
will be based on such amount as of March 31, 1998.
<TABLE>
<CAPTION>
<S> <C> <C>
Syntroleum Common Stock Market Value
= ------------------------------------
Exchange Ratio SLH Common Stock Market Value
(SLH Stock Price x 10,519,121) - $51,051,000
Syntroleum Common Stock = ---------------------------------------
Market Value 5,950,000
</TABLE>
For example, if the average closing price of the SLH Common Stock during the
five trading days ending on the business day immediately preceding the SLH
Annual Meeting is $29.275 (which was the average closing price of the SLH Common
Stock during the five trading days immediately preceding April 8, 1998), the
Exchange Ratio would be 1.47484, calculated as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
(($29.275 x 10,519,121) - $51,051,000)/5,950,000
----------------------------------------- = 1.47484
$29.275
</TABLE>
SYNTROLEUM STOCK OPTIONS. Each holder of an unexpired option to purchase
Syntroleum Common Stock that is outstanding at the Effective Time (a "Syntroleum
Stock Option"), whether or not then exercisable, will have all of his or her
Syntroleum Stock Options assumed by SLH.
53
<PAGE>
CONVERSION OF SHARES; FRACTIONAL SHARES
The conversion of Syntroleum Common Stock into SLH Common Stock will occur
automatically at the Effective Time. As soon as practicable after the Effective
Time, American Stock Transfer & Trust Company, in its capacity as exchange agent
(the "Exchange Agent"), will send a transmittal form to each Syntroleum
stockholder. The transmittal form will contain instructions with respect to the
surrender of certificates representing Syntroleum Common Stock to be exchanged
for certificates representing SLH Common Stock.
All shares of SLH Common Stock issued upon conversion of shares of
Syntroleum Common Stock will be deemed to have been issued in full satisfaction
of all rights pertaining to such shares of Syntroleum Common Stock.
NO FRACTIONAL SHARES OF SLH COMMON STOCK WILL BE ISSUED TO ANY SYNTROLEUM
STOCKHOLDER UPON CONSUMMATION OF THE MERGER. FOR EACH FRACTIONAL SHARE THAT
WOULD OTHERWISE BE ISSUED, SLH WILL PAY AN AMOUNT IN CASH (WITHOUT INTEREST)
EQUAL TO THE VALUE OF SUCH FRACTION OF A SHARE BASED UPON THE CLOSING PRICE OF
SLH COMMON STOCK ON THE NASDAQ ON THE DATE ON WHICH THE EFFECTIVE TIME (AS
DEFINED IN THE MERGER AGREEMENT) SHALL OCCUR (OR IF THE SLH COMMON STOCK SHALL
NOT TRADE ON THE NASDAQ ON SUCH DATE, THE FIRST DAY THAT SLH COMMON STOCK SHALL
TRADE ON THE NASDAQ THEREAFTER).
APPRAISAL RIGHTS
If the Merger is consummated, dissenting holders of shares of Syntroleum
Common Stock are entitled to appraisal rights under Section 1091 of the OGCA,
provided that they comply with the conditions established thereunder. See "The
Merger--Dissenters' Appraisal Rights."
TREATMENT OF SYNTROLEUM OPTIONS
Pursuant to the Merger Agreement, at the Effective Time, all Syntroleum
Options then outstanding under the Syntroleum Stock Option Plans will remain
outstanding and will be assumed by SLH. Each Syntroleum Option assumed by SLH
will be exercisable into SLH Common Stock upon the same terms and conditions as
under the applicable Syntroleum Stock Option Plan and the applicable option
agreement issued thereunder, except that (i) the number of shares of SLH Common
Stock subject to each Syntroleum Option will be determined by multiplying the
number of shares of Syntroleum Common Stock subject to the Syntroleum Option
immediately prior to the Effective Time by the Exchange Ratio and (ii) the per
share price will be determined by dividing the per share exercise price in
effect immediately prior to the Effective Time under the Syntroleum Option by
the Exchange Ratio.
ADJUSTMENTS TO SLH OPTIONS
Pursuant to the Merger Agreement, with the consent of a holder of an
unexpired option to purchase SLH Common Stock that is outstanding at the
Effective Time (an "SLH Stock Option"), (i) such SLH Stock Options will not vest
as a result of the Merger; and (ii) the exercise provisions of all SLH Stock
Options held by such holder will be adjusted as follows: (A) with respect to a
holder who does not continue as a director of SLH following the Effective Time,
(1) if he dies prior to the fifth anniversary of the Effective Time, then the
SLH Stock Option may be exercised to the extent otherwise exercisable within one
year following the date of death; and (2) if he does not die prior to the fifth
anniversary of the Effective Time, then the SLH Stock Option may be exercised at
any time prior to the fifth anniversary of the Effective Time but may not be
exercised after the fifth anniversary of the Effective Time; and (B) with
respect to a holder who continues as a director of SLH following the Effective
Time, (1) if he dies prior to the fifth anniversary of the Effective Time or
prior to 90 days after he ceases to be a director of Syntroleum, whichever last
occurs, then the SLH Stock Option may be exercised to the extent otherwise
exercisable within one year following the date of death; and (2) if he does not
die prior to the fifth anniversary of the Effective Time, then the SLH Stock
Option may be exercised to the extent otherwise
54
<PAGE>
exercisable at any time prior to the later of (a) the fifth anniversary of the
Effective Time or (b) 90 days following the date the Optionee ceases to be a
director of SLH; provided, that in no event may the SLH Stock Option be
exercised after March 3, 2007.
CONDITIONS TO THE MERGER
CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER
The respective obligations of each party to effect the Merger are subject to
the satisfaction prior to the closing of the Merger (the "Closing") of the
following conditions:
SYNTROLEUM STOCKHOLDER APPROVAL. The Merger Agreement and the Merger shall
have been approved and adopted by the affirmative vote of the holders of a
majority of the outstanding shares of Syntroleum Common Stock entitled to vote
thereon.
SLH STOCKHOLDER APPROVAL. The Merger Agreement and the Merger shall have
been approved and adopted by the affirmative vote of the holders of a majority
of the outstanding shares of SLH Common Stock entitled to vote thereon.
LISTING OF SLH COMMON STOCK. The shares of SLH Common Stock issuable to
Syntroleum stockholders pursuant to the Merger and such other shares of SLH
Common Stock required to be reserved for issuance in connection with the Merger
and related transactions, if any, shall have been authorized for trading on the
National Market System of the NASDAQ Stock Market upon official notice of
issuance.
GOVERNMENTAL APPROVALS. All filings, consents, approvals, permits and
authorizations required to be obtained prior to the Effective Time from any
governmental entity in connection with the execution and delivery of the Merger
Agreement and the consummation of the transactions contemplated thereby by
Syntroleum and SLH must have been made or obtained and the Registration
Statement must have become effective under the Securities Act and must not be
the subject of any stop order or proceeding seeking a stop order. See "The
Merger--Certain Regulatory Matters."
OTHER APPROVALS. No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the Merger may be
in effect at the Effective Time. In addition, SLH and Syntroleum must have
obtained all necessary consents required under the Merger Agreement.
DISSENTERS. The total number of shares held by holders of Syntroleum Common
Stock who have made demands for appraisal shall not exceed 2.5% of the shares of
Syntroleum Common Stock outstanding.
ACCOUNTING TREATMENT. The historical or pro forma financial statements
included in the registration statement that is declared effective by the SEC and
the definitive preliminary proxy materials that are distributed to stockholders
of the parties shall not reflect fundamental and material variances from those
initially filed (which shall not be materially inconsistent with the accounting
treatment currently contemplated by the parties) that are not satisfactory to
the Board of Directors of both SLH and Syntroleum.
TAX OPINION. Syntroleum and SLH shall have received an opinion, reasonably
satisfactory to Syntroleum and SLH, to the effect that, if the Merger is
consummated in accordance with the terms of the Merger Agreement, the Merger
will be a reorganization within the meaning of Section 368(a) of the Code, each
of SLH and Syntroleum will be a party to that reorganization within the meaning
of Section 368(b) of the Code and no gain or loss will be recognized for United
States federal income tax purposes by SLH or Syntroleum or a stockholder of
Syntroleum as a result of the Merger and upon the conversion of shares of
Syntroleum Common Stock into shares of SLH Common Stock except with respect to
cash, if any, received in lieu of fractional shares of SLH Common Stock.
55
<PAGE>
ADDITIONAL CONDITIONS TO OBLIGATIONS OF SLH
The obligations of SLH to effect the Merger are subject to the satisfaction
of certain other conditions, including:
OPINION OF SLH'S FINANCIAL ADVISOR. SLH has received the opinion of Salomon
Smith Barney to the effect that, as of the date of the execution of the Merger
Agreement, the consideration to be paid by SLH in the Merger was fair to SLH
from a financial point of view. As a condition to SLH's obligations, such
opinion shall not have been withdrawn at Closing. See "The Merger--Opinion of
SLH's Financial Advisor."
LETTERS FROM SYNTROLEUM AFFILIATES. Syntroleum shall cause to be prepared
and delivered to SLH a list identifying all persons who, at the time of the
Syntroleum Special Meeting, may be deemed to be Syntroleum affiliates as that
term is used in paragraphs (c) and (d) of Rule 145 under the Securities Act. As
a condition to its obligations, SLH shall have received signed copies of
agreements from all parties deemed to be Syntroleum affiliates pursuant to which
each such party acknowledges that it is subject to the provisions of Rule
145(d).
NO VESTING OF SYNTROLEUM STOCK OPTIONS. Syntroleum Stock Options shall not
vest as a result of the Merger and will maintain the same vesting period as if
the Merger had not occurred.
OPINION OF COUNSEL OF SYNTROLEUM. Syntroleum shall have delivered an
opinion from the general counsel of Syntroleum setting forth (i) the total
number and type of shares validly authorized, issued and outstanding of
Syntroleum, (ii) the total number and type of options, warrants, convertible
debentures or other similar instruments of Syntroleum which are validly
authorized, issued and outstanding and (iii) such counsel's opinion as to the
binding nature and effect of the Merger Agreement.
ADDITIONAL CONDITIONS TO OBLIGATIONS OF SYNTROLEUM
The obligations of Syntroleum to effect the Merger are subject to the
satisfaction of certain other conditions, including:
OPINION OF SYNTROLEUM'S FINANCIAL ADVISOR. Syntroleum has received an
opinion of J.P. Morgan to the effect that, as of the date of execution of the
Merger Agreement, the consideration to be received by Syntroleum stockholders in
the Merger was fair to such holders from a financial point of view. As a
condition to Syntroleum's obligations, such opinion shall not have been
withdrawn at Closing. See "The Merger--Opinion of Syntroleum's Financial
Advisor."
OPINION OF COUNSEL OF SLH. SLH shall have delivered an opinion from counsel
to SLH setting forth (i) the total number and type of shares validly authorized,
issued and outstanding of SLH, (ii) the total number and type of options,
warrants, convertible debentures or other similar instruments of SLH which are
validly authorized, issued, and outstanding and (iii) such counsel's opinion as
to the binding nature and effect of the Merger Agreement.
BOARD OF DIRECTORS AND OFFICERS AT THE EFFECTIVE TIME. Syntroleum shall
have received irrevocable letters of resignation effective as of the Effective
Time from all of the current directors of SLH other than individuals identified
as continuing directors in the Merger Agreement and all current officers of SLH.
CONSENTS TO SLH STOCK OPTION ADJUSTMENTS. Syntroleum shall have received
the consents to the stock option adjustments described under "-Adjustments to
SLH Options."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties by each
of SLH and Syntroleum relating to, among other things, (i) the organization and
similar corporate matters of it and
56
<PAGE>
certain of its subsidiaries, (ii) its capital structure, (iii) the
authorization, execution, delivery, performance and enforceability of the Merger
Agreement and related matters, and the absence of conflicts, violations of or
defaults under its governing documents or any loan or credit agreement, note,
bond, mortgage, indenture or other agreement, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to it, any of its respective subsidiaries or any of their
respective properties or assets, (iv) the absence of undisclosed material
liabilities, (viii) the absence of defaults in any material agreements, (v)
compliance with certain laws, (vi) compliance with environmental laws and (vii)
title to real and personal property. The Merger Agreement also contains
representations and warranties of Syntroleum relating to its audited financial
statements, and representations and warranties of SLH regarding the documents
and reports that SLH has filed with the Commission.
CERTAIN COVENANTS; CONDUCT OF BUSINESS
During the period from the date of the Merger Agreement and continuing until
the Effective Time, each of SLH and Syntroleum has agreed as to itself and its
subsidiaries that it will: (i) carry on its businesses in the usual, regular and
ordinary course in substantially the same manner as previously conducted, (ii)
not declare or pay any dividends on or make other distributions in respect of
any of its capital stock, except for certain permitted intercompany
transactions, (iii) not split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock, (iv) not
repurchase, redeem or otherwise acquire, or permit any of its subsidiaries to
purchase, redeem or otherwise acquire, any shares of its capital stock, subject
to limited exceptions, (v) not deliver or sell, or authorize or propose to
issue, deliver or sell, any shares of its capital stock of any class, any
indebtedness having the right to vote or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, voting debt or
convertible securities, (vi) not amend or propose to amend its charter documents
(other than to increase the number of authorized shares of SLH Junior Preferred
Stock to 250,000), (vii) not acquire or agree to acquire any business or any
corporation, partnership, association or other business organization or division
thereof, (viii) not sell, lease, encumber or otherwise dispose of, or agree to
sell, lease (whether such lease is an operating or a capital lease), encumber or
otherwise dispose of, any of its assets to any associates, affiliates, or
holders of in excess of five percent of the equity securities of SLH or
Syntroleum, other than in the ordinary course of business on an arm's-length
basis and other than dispositions by SLH of specified assets, (ix) not
authorize, recommend, propose or announce an intention to adopt a plan of
complete or partial liquidation or dissolution of such party or any of its
significant subsidiaries, (x) not grant any increases in the compensation of any
of its directors, officers or employees, except increases in the ordinary course
of business and in accordance with past practice, (xi) not pay or agree to pay
any pension, retirement allowance or other employee benefit not required or
contemplated by any of the existing SLH or Syntroleum benefit programs or plans
to any director, officer or employee, whether past or present, (xii) not enter
into any new, or amend any existing, employment or severance or termination
agreement with any director, officer or key employee, (xiii) not become
obligated under any new benefit program or plan, which was not in existence or
approved by the SLH or Syntroleum Board of Directors prior to or on the date of
the Merger Agreement, or amend any such plan or arrangement in existence on the
date of the Merger Agreement if such amendment would have the effect of
materially enhancing any benefits thereunder, (xiv) not incur any indebtedness
for borrowed money (except with respect to SLH for working capital under
existing credit facilities, and refinancings of existing debt that permit
prepayment of such debt without penalty) or guarantee any such indebtedness or
issue or sell any debt securities or warrants or rights to acquire any debt
securities of such party or any of its subsidiaries or guarantee any debt
securities of others, (xv) not commit to aggregate capital expenditures in
excess of $100,000 outside such party's capital budget and (xvi) not, directly
or indirectly, solicit or initiate any prospective buyer or make any proposal
that constitutes, or may reasonably be expected to lead to, an Acquisition
Proposal (as defined below) except for certain unsolicited proposals which the
directors of either party may be required to respond to pursuant to their
fiduciary duties. An "Acquisition Proposal" means any proposal or offer, other
57
<PAGE>
than one by SLH, Syntroleum or their affiliates, as the case may be, for a
tender or exchange offer, a merger, consolidation or other business combination
involving SLH, Syntroleum or any of their subsidiaries or any proposal to
acquire in any manner a substantial equity interest in, or substantially all of
the assets of, SLH, Syntroleum or any of their subsidiaries, as the case may be.
AMENDMENT OF ARTICLES OF INCORPORATION
Pursuant to the Merger Agreement and in connection with the Merger, the
Articles of Incorporation of SLH will be amended by the Certificate of Merger
to, among other things, (i) change the name of SLH to "Syntroleum Corporation,"
(ii) change the authorized shares of SLH Common Stock from 30,000,000 shares to
150,000,000 shares and (iii) change the authorized shares of preferred stock,
par value $0.01 per share, of SLH (the "SLH Preferred Stock") from 1,000,000
shares to 5,000,000 shares. See "The Merger-- Increased Authorized Shares" and
"Description of SLH Capital Stock."
NASDAQ LISTING OF COMMON STOCK
It is a condition to the Merger that the shares of SLH Common Stock to be
issued in the Merger be authorized for listing on the NASDAQ, subject to
official notice of issuance. SLH Common Stock is traded on the National Market
System of the NASDAQ Stock Market under the symbol "SLHO." Following the Merger,
such symbol is expected to be changed to "SYNM."
ADDITIONAL AGREEMENTS
Pursuant to the Merger Agreement, SLH and Syntroleum have agreed that (i)
SLH will prepare and file this Registration Statement, and will use its
commercially reasonable efforts to (a) have the Registration Statement declared
effective as promptly as practicable and (b) obtain all necessary state
securities laws or "blue sky" permits, approvals and registrations, (ii) each
will use its commercially reasonable efforts to have timely delivered to the
other "comfort" letters from its independent public accountants, (iii) each will
afford to the other access to its respective officers, properties, books,
records and other information as the other party may reasonably request, (iv)
each will call a meeting of its stockholders to be held as promptly as
practicable, (v) each will comply with all legal requirements imposed on it with
respect to the Merger and furnish information to the other in connection with
such legal requirements, (vi) SLH will take all corporate action necessary to
permit it to issue shares of SLH Common Stock pursuant to the Merger and will
use all reasonable efforts to have approved for listing on the NASDAQ, subject
to official notice of issuance, the shares of SLH Common Stock to be issued in
the Merger and upon exercise of the Syntroleum Options, (vii) SLH will assume
the Syntroleum Options (except under certain limited circumstances), (viii) SLH
will, subject to certain limitations, maintain directors' and officers'
liability insurance for officers and directors of Syntroleum and its
subsidiaries (see "--Indemnification"), (ix) each will cooperate and consult
with the other regarding press releases and changes that may have a material
adverse effect on the business of SLH or Syntroleum and (x) neither will take or
omit to take any action that would affect the qualification of the Merger as a
reorganization described in Section 368(a) of the Code.
EXPENSES
Each party to the Merger Agreement shall pay its own expenses incident to
preparing for, entering into and carrying out the Merger Agreement and the
consummation of the transactions contemplated thereby, whether or not the Merger
is consummated.
If the Merger Agreement is terminated by SLH because either (i) Syntroleum
failed to comply in any material respect with any of the covenants or agreements
or (ii) any representation or warranty of Syntroleum is not true and correct in
all material respects, then if SLH is not in material breach of the Merger
Agreement at the time of such termination, then Syntroleum will pay the
reasonable out-of-pocket
58
<PAGE>
expenses incurred by SLH in connection with the Merger Agreement. Likewise, if
the Merger Agreement is terminated by Syntroleum because either (i) SLH failed
to comply in any material respect with any of the covenants or agreements or
(ii) any representation or warranty of SLH is not true and correct in all
material respects, then if Syntroleum is not in material breach of the Merger
Agreement at the time of such termination, then SLH will pay the reasonable
out-of-pocket expenses incurred by Syntroleum in connection with the Merger
Agreement.
INDEMNIFICATION
From and after the Effective Time, SLH has agreed to indemnify, defend and
hold harmless each person who is now, or has been at any time prior to the date
of the Merger Agreement or who becomes prior to the Effective Time, an officer
or director of SLH or Syntroleum or any of their subsidiaries or an employee of
SLH or Syntroleum or any of their subsidiaries who acts as a fiduciary under any
of the SLH benefit programs or plans or the Syntroleum benefit programs or
plans, against all losses, claims, damages, costs, expenses (including
attorneys' fees), liabilities or judgments or amounts that are paid in
settlement with the approval of the indemnifying party of or in connection with
any threatened or actual claim, action, suit, proceeding or investigation based
in whole or in part on or arising in whole or in part out of the fact that such
person is or was a director, officer, or such employee of SLH or Syntroleum or
any of their subsidiaries, whether pertaining to any matter existing or
occurring at or prior to the Effective Time and whether asserted or claimed
prior to, or at or after, the Effective Time.
AMENDMENT, WAIVER AND TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, whether before or after approval of the
matters presented in connection with the Merger by the stockholders of
Syntroleum or SLH:
(i) by mutual written consent of Syntroleum and SLH, or by mutual action
of their respective Boards of Directors;
(ii) by either Syntroleum or SLH if (a) the Merger shall not have been
consummated by September 30, 1998 (provided that the right to terminate the
Merger Agreement shall not be available to any party whose breach of any
representation or warranty or failure to fulfill any covenant or agreement
under the Merger Agreement has been the cause of or resulted in the failure
of the Merger to occur on or before such date); (b) any court of competent
jurisdiction, or other governmental body or regulatory authority shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable;
(c) the stockholders of SLH shall not have approved the Merger Agreement and
the Charter Amendment; (d) the stockholders of Syntroleum shall not have
approved the Merger Agreement and the Merger; (e) in the exercise of its
good faith judgment as to its fiduciary duties to its stockholders imposed
by law, as advised by outside counsel, the SLH Board of Directors determines
that such termination is required by reason of an Acquisition Proposal
having been made (subject to notice to, and an opportunity to respond by,
Syntroleum); or (f) in the exercise of its good faith judgment as to its
fiduciary duties to its stockholders imposed by law, as advised by outside
counsel, the Syntroleum Board of Directors determines that such termination
is required by reason of an Acquisition Proposal having been made (subject
to notice to, and an opportunity to respond by, SLH);
(iii) by SLH if (a) Syntroleum shall have failed to comply in any
material respect with any of its covenants or agreements contained in the
Merger Agreement to be complied with or performed by Syntroleum at or prior
to such date of termination (subject to notice and an opportunity to cure);
(b) subject to limited exceptions, any representation or warranty of
Syntroleum contained in the Merger Agreement shall not be true in all
material respects when made (subject to notice and an
59
<PAGE>
opportunity to cure) or on and as of the Effective Time as if made on and as
of the Effective Time (except to the extent it relates to a particular
date); or (c) the Syntroleum Board of Directors withdraws, modifies or
changes its recommendation of the Merger Agreement and the Merger in a
manner adverse to SLH or resolves to do any of the foregoing; or
(iv) by Syntroleum if (a) SLH shall have failed to comply in any
material respect with any of its covenants or agreements contained in the
Merger Agreement to be complied with or performed by it at or prior to such
date of termination (subject to notice and an opportunity to cure); (b)
subject to limited exceptions, any representation or warranty of SLH
contained in the Merger Agreement shall not be true in all material respects
when made (subject to notice and an opportunity to cure) or on and as of the
Effective Time as if made on and as of the Effective Time (except to the
extent it relates to a particular date); or (c) the SLH Board of Directors
withdraws, modifies or changes its recommendation of the Merger Agreement
and the Merger in a manner adverse to Syntroleum or resolves to do any of
the foregoing.
60
<PAGE>
INFORMATION REGARDING SYNTROLEUM
OVERVIEW
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"). The Syntroleum
Process is a simplification of traditional GTL technologies aimed at
substantially reducing both the capital cost and the minimum economical size of
a GTL plant, as well as plant operating costs. 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 experienced during recent years), and can be competitive with other GTL
processes at any plant size. Due to their relatively small footprint, Syntroleum
believes that GTL plants based on the Syntroleum Process can be placed on skids,
barges and ocean-going vessels ("mobile GTL plants"), allowing these plants to
be used at a variety of locations, including isolated and offshore areas.
Although no commercial-scale GTL plant based on the Syntroleum Process has yet
been built, Syntroleum owns and operates a nominal two Bbl/d pilot plant in
Tulsa, Oklahoma where it has successfully demonstrated certain elements and
variations of the Syntroleum Process.
GTL plants can be designed to refine the synthetic liquid hydrocarbons (also
known as "synthetic crude oil") produced by the Syntroleum Process into higher
margin liquid fuels such as diesel, kerosene and naphtha, or specialty products
such as synthetic lubricants, synthetic drilling fluid, waxes, liquid normal
paraffins and certain chemical feedstocks. Synthetic crude oil produced by the
Syntroleum Process has certain performance and environmental benefits and is
virtually free of contaminants normally found in crude oil, such as sulphur,
aromatics and heavy metals.
Syntroleum believes that a significant opportunity exists for the use of
cost-effective GTL plants due to the large resource base of natural gas
worldwide and the large volume of natural gas that is currently stranded.
Stranded gas exists in reservoirs that have been discovered but for which no
economical market has been found. In the August 11, 1997 edition of the Oil &
Gas Journal, Enron Corp. estimated that the total worldwide recoverable natural
gas resource base is approximately 15,000 Tcf of which 5,011 Tcf is proven gas
reserves. Wood MacKenzie and others have estimated that of the 5,011 Tcf of
proven gas reserves worldwide, approximately one-half, or 2,500 Tcf, are
stranded. Approximately 250 billion barrels of synthetic crude oil could be
produced if only the estimated 2,500 Tcf of stranded proved reserves were
converted into synthetic crude oil using GTL technology (assuming all of the gas
could be converted at anticipated conversion rates). According to industry
sources, approximately 15.5 Tcf of stranded natural gas was flared, vented or
reinjected in 1996. Approximately 1.5 billion barrels of synthetic crude oil per
year (4.1 million barrels per day) could be produced if this gas were converted
into synthetic crude oil using GTL technology (assuming all of the gas could be
converted at anticipated conversion rates).
Syntroleum's objective is to be a leading GTL technology provider to the oil
and gas industry. Its business 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. Syntroleum believes that substantial long-term revenues can be
derived from license fees and resulting catalyst sales to licensees. Under
its license agreements, Syntroleum obtains royalty free license rights to
use, including sublicense rights, all inventions or improvements relating
to the Syntroleum Process that are commercially used by its licensees.
61
<PAGE>
To support its licensing efforts, Syntroleum intends to continue to
establish relationships with engineering companies and manufacturers of
critical components to facilitate the design and construction of GTL
plants by licensees. Syntroleum has established strategic relationships
with the engineering firms of Bateman, Brown & Root and AMEC. In addition,
Syntroleum has established strategic relationships with critical component
and process vendors, including Criterion (a catalyst manufacturer whose
owners are Shell and Cytec Industries), Catalytica Combustion Systems, ABB
and Lyondell. Syntroleum is actively pursuing similar relationships with
other engineering companies and component vendors as potential providers
of engineering services and components for the design and construction of
GTL plants based on the Syntroleum Process. Syntroleum generally obtains
title or exclusive rights to inventions or improvements that result from
its joint development activities with others.
- 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's license agreements do
not permit licensees to use the Syntroleum Process for the production of
specialty products due to Syntroleum's desire to retain these markets for
its own commercial development. Syntroleum has formed a joint venture with
Enron with respect to the design and construction of a proposed 8,000
Bbl/d GTL plant in Sweetwater County, Wyoming (the "Sweetwater Plant"),
and 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
design and construction of a 2,500 Bbl/d or larger GTL plant.
- PROVIDE MOBILE GTL PLANTS ON A CONTRACT BASIS. Syntroleum intends to make
available mobile GTL plants 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 in areas with stringent
flaring regulations; (ii) conversion of small associated gas fields that
are not large enough to justify the capital investment of a permanent GTL
plant; and (iii) short-term use of a GTL plant on large fields in order to
generate cash flow while a permanent GTL plant is being built or while
awaiting pipeline hookup. Syntroleum is currently in discussions with
Brown & Root regarding development of a contract GTL business plan.
- FURTHER REDUCE 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 conducts its
research and development activities utilizing its own resources and
through joint development arrangements with its licensees and other
industry partners. Texaco, ARCO, Marathon, Brown & Root, Bateman, ABB and
AGC are currently participating in specific joint development projects
with Syntroleum. In addition, Syntroleum has ongoing research and
development relationships with Catalytica Combustion Systems and
Catalytica Advanced Technologies. Syntroleum is actively pursuing similar
relationships with other oil and gas companies, engineering companies and
other technology providers as potential joint development partners or
providers of complementary technologies that might enhance or improve the
Syntroleum Process.
Syntroleum also reviews technological advances made by others and actively
seeks to acquire technologies that enhance the Syntroleum Process. Through
its license and joint development agreements, Syntroleum has acquired
various proprietary technologies, patents and patent applications relating
to several improvements to the Syntroleum Process.
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
62
<PAGE>
Syntroleum to more rapidly commercialize and improve the Syntroleum Process,
thereby providing Syntroleum and its licensees with an important competitive
advantage and enhancing Syntroleum's ability to attract additional licensees and
joint development partners.
Syntroleum's major customers for licensing and contract GTL plants are
expected to be energy companies worldwide with significant stranded natural gas
reserves that cannot be economically marketed and are therefore generally
shut-in, flared or reinjected. Syntroleum believes that these energy companies
could significantly enhance the value of their reserves by using the Syntroleum
Process to convert such natural gas into liquids that could be economically
marketed. Syntroleum's major customers for specialty products are expected to
include many of these energy companies, as well as a variety of manufacturing,
chemical, refining and oil field service companies.
The principal executive office of Syntroleum is located at Syntroleum Plaza,
1350 South Boulder, Suite 1100, Tulsa, Oklahoma 74119-3295, and its telephone
number is (918) 592-7900. See "Information Regarding Syntroleum."
INDUSTRY OVERVIEW
Syntroleum believes that significant opportunity exists for the use of
cost-effective GTL plants due to (i) the large volume of natural gas that is
currently stranded and (ii) the significant liquid hydrocarbon markets available
to absorb the production from GTL plants.
NATURAL GAS RESOURCE BASE
The world's natural gas resource base is very large. In the August 11, 1997
edition of the Oil & Gas Journal, Enron Corp. estimated that the total worldwide
recoverable natural gas resource base is approximately 15,000 Tcf. This would
generally equate to 1,500 billion barrels of synthetic crude oil that could be
produced if the gas were converted into synthetic crude oil using GTL technology
(assuming all of the gas could be converted at anticipated conversion rates).
Currently, the world's proven crude oil reserves as reported by Cambridge Energy
Research Associates are 1,026 billion barrels.
PROVEN RESERVES OF NATURAL GAS
Of the 15,000 Tcf of reserves that Enron Corp. has estimated as the total
recoverable natural gas resource base, the United States Department of Energy
currently estimates that 5,011 Tcf are proven reserves. This would generally
equate to approximately 500 billion barrels of synthetic crude oil that could be
produced if the gas were converted into synthetic crude oil using GTL technology
(assuming all of the gas could be converted at anticipated conversion rates).
63
<PAGE>
The following table presents the 1996 worldwide proven natural gas reserves,
production and ratio of reserves to production (i.e., reserve life) by region.
1996 WORLDWIDE PROVEN NATURAL GAS RESERVES, PRODUCTION AND RESERVE LIFE
<TABLE>
<CAPTION>
REGION
- ----------------------------------------------------- PROVEN 1996 RESERVES TO
RESERVES PRODUCTION PRODUCTION RATIO
----------- ------------- (RESERVE LIFE)
(TCF) (TCF) -------------------
(YEARS)
<S> <C> <C> <C>
Central and South America............................ 214 2.8 76
Africa and the Middle East........................... 1,960 7.3 268
Asia................................................. 363 7.4 49
Europe............................................... 169 12.9 13
North America........................................ 299 27.2 11
Russia and other former Soviet Union regions......... 2,006 19.7 102
----- --- ---
Total.............................................. 5,011 77.3 65
----- --- ---
----- --- ---
</TABLE>
- ------------------------
Source: Oil & Gas Journal, August 11, 1997
Additionally, according to the August 11, 1997 edition of the Oil & Gas
Journal, proven natural gas reserves have been growing at a rapid rate, almost
doubling in size from 2,540 Tcf in 1976 to 5,011 Tcf in 1996. This has extended
the reserve life for worldwide proven reserves from 53 years in 1976 to 65 years
in 1996. This increase occurred despite the fact that, over the same time frame,
demand for natural gas increased 60%. Syntroleum believes that this demonstrates
the need for a cost-effective market for this growing resource.
NATURAL GAS FIELD SIZE DISTRIBUTION
The table below lists an estimate of the distribution by field size of
natural gas fields located outside North America. There are only 86 fields
larger than five Tcf, which is generally considered to be the minimum size
necessary to support the development of a full-scale LNG plant. Syntroleum
believes that fields with natural gas reserves as low as .01 Tcf will be able to
economically support a GTL plant based on the Syntroleum Process. As a result,
Syntroleum believes that, based on field size and portability, GTL plants based
on the Syntroleum Process can potentially access over 2,000 of these fields,
holding approximately 95% of the reserves held in such fields.
THE WORLD'S NATURAL GAS FIELDS
<TABLE>
<CAPTION>
RESERVES
- ----------------------------------------------------------------------------
(TCF) NUMBER OF FIELDS
-----------------
<S> <C>
Between 50 and 500.......................................................... 15
Between 5 and 50............................................................ 71
Between 1 and 5............................................................. 234
Between .5 and 1............................................................ 269
Between .25 and .5.......................................................... 276
Between .1 and .25.......................................................... 475
Between .01 and .1.......................................................... 1,195
Less than .01............................................................... 1,913
-----
4,448
-----
-----
</TABLE>
- ------------------------
Source: Oil & Gas Journal, February 15, 1993
STRANDED NATURAL GAS RESERVES
Wood MacKenzie and others have estimated that of the 5,011 Tcf of proven
reserves, approximately one-half, or 2,500 Tcf are stranded. This would equate
to approximately 250 billion barrels of synthetic
64
<PAGE>
crude oil that could be produced if the gas were converted into synthetic crude
oil using GTL technology (assuming all of the gas could be converted at
anticipated conversion rates).
Stranded gas is generally thought of as gas that exists in reservoirs that
have been discovered and no economical market can be found for the production or
production would be too prolific for the limited markets available. Natural gas
that is stranded can be managed in the following ways:
SHUT-IN NATURAL GAS. When stranded natural gas reserves have no associated
oil reserves, the natural gas is typically not produced. Based on a resource
study prepared for Syntroleum by Petroconsultants, Inc. ("Petroconsultants"),
there are at least 398 fields of at least .5 Tcf located outside North America
that are not associated with oil reserves and hold approximately 1,488 Tcf of
currently unmarketable natural gas reserves (generally equal to approximately
149 billion barrels of synthetic crude oil if converted using GTL technology
assuming all of the gas could be converted at anticipated conversion rates).
FLARED AND VENTED NATURAL GAS. When stranded natural gas reserves are
associated with oil reserves, the natural gas produced is typically flared or
vented if allowed by applicable law. According to industry sources, an aggregate
of approximately 4.1 Tcf of natural gas was flared or vented worldwide in 1996.
This would equate to approximately one million barrels per day of synthetic
crude oil that could be produced if this flared or vented gas were converted
into synthetic crude oil using GTL technology (assuming all of the gas could be
converted at anticipated conversion rates).
RE-INJECTED NATURAL GAS. When flaring is not permitted by law and the
nature of the geologic formation permits, stranded natural gas is often
reinjected when associated with oil reserves. According to industry sources,
approximately 11.4 Tcf of natural gas was reinjected worldwide in 1996. This
would equate to approximately three million barrels per day of synthetic crude
oil that could be produced if this re-injected gas were converted into synthetic
crude oil using GTL technology (assuming all of the gas could be converted at
anticipated conversion rates).
SHUT-IN OIL. The presence of natural gas in association with oil reserves
often results in the oil and gas not being produced if flaring is not permitted
by law and reinjection of the natural gas is not a practical alternative due to
the nature of the geologic formation or the economics of the project. Syntroleum
is not aware of any published estimates of shut-in oil reserves.
Stranded natural gas is caused by four primary factors: the overall size of
the gas resource base and the relatively small size of many fields (as discussed
above), the location of the gas relative to its markets, the cost to transport
the gas to those markets and the relatively small size of the markets for
products such as ammonia and methanol that can be made from gas.
LOCATION OF GAS RELATIVE TO MARKETS. Much of the world's stranded natural
gas is located in areas where there is no local market and the distance to large
consuming areas is great. This makes transportation costs high and often renders
development projects uneconomic. As shown in the foregoing table, the Africa and
the Middle East and Russia and other former Soviet Union regions have a large
percentage of the reserves, low levels of production and reserves that are long
distances from gas markets. This situation creates stranded gas which is
manifested in the high reserve to production ratios shown.
TRANSPORTATION COSTS. Even in circumstances where a transportation system
is available for natural gas, the cost of transporting natural gas in a gaseous
state is generally substantially higher, on a Btu equivalent basis, than that of
oil. For example, based on current market prices, the cost to transport natural
gas approximately 1,600 miles via pipeline from Houston to Boston is
approximately $.80 per million Btus, equal to $4.80 per barrel of oil equivalent
(assuming 6 million Btus per barrel), while the cost to transport crude oil from
the Middle East via tanker to Boston, a distance of approximately 6,500 miles,
is less than $1.00 per Bbl.
Natural gas can also be transported as liquefied natural gas or LNG. In an
article published in the July 3, 1995 edition of the Oil & Gas Journal, Mobil
estimated that a 5 million ton per year LNG plant would incur capital costs of
between $5 and $8 billion (including conversion plant, dedicated LNG tankers and
regasification facilities). On the other hand, Syntroleum estimates that a GTL
plant producing the
65
<PAGE>
same energy output would cost substantially less than this amount and would not
require dedicated shipping or unloading facilities.
SMALL ALTERNATIVE NATURAL GAS MARKETS. Syntroleum estimates that the
worldwide LNG market is approximately 1.2 million equivalent barrels per day,
which is relatively small compared to the approximately 35 million barrels per
day transportation fuels markets. Natural gas can also be converted to products
such as ammonia and methanol. Syntroleum currently estimates that the market for
ammonia on a barrel of oil equivalent basis is approximately 780,000 barrels per
day and the market for methanol on a barrel of oil equivalent basis is
approximately 280,000 barrels per day. These markets are small relative to the
size of the worldwide natural gas resource base and relative to the
approximately 70 million barrels per day market for crude oil and related
products.
MARKETS FOR SYNTHETIC CRUDE OIL PRODUCTS
The markets for many of the products that can be produced using the
Syntroleum Process and conventional refining techniques are very large. As a
result, Syntroleum believes that even if substantial volumes of synthetic crude
oil created from natural gas were to flow into these markets, there would be no
significant degradation of price. The following table presents the worldwide
consumption of refined petroleum products for the years 1986, 1991 and 1996.
WORLDWIDE CONSUMPTION OF REFINED PETROLEUM PRODUCTS
<TABLE>
<CAPTION>
PRODUCT 1986 1991 1996
- ----------------------------------------------------------------- --------- --------- ---------
(MILLIONS OF BARRELS)
<S> <C> <C> <C>
Gasolines(1)..................................................... 9,326 10,214 11,412
Middle Distillates(2)............................................ 8,852 9,870 11,840
Others(3)........................................................ 9,842 10,674 11,423
--------- --------- ---------
Total.......................................................... 28,020 30,758 34,675
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Consists of aviation and motor gasolines and light distillate feedstock.
(2) Consists of jet and heating kerosenes and gas and diesel oils.
(3) Consists of fuel oil, refinery gas, propane (LPG), solvents, petroleum coke,
lubricants, bitumen, wax and refinery fuel and loss.
Source: The British Petroleum Company p.1.c. Statistical Review of World Energy,
1997.
THE SYNTROLEUM SOLUTION
Syntroleum's GTL process essentially involves two catalytic reactions. In
the first reaction, natural gas is combined at specified temperature, pressure
and ratio with air (consisting primarily of oxygen and nitrogen) and a small
amount of steam, in a proprietary reactor utilizing a nickel-based catalyst to
form synthesis gas. The resulting synthesis gas consists primarily of carbon
monoxide and hydrogen that is "diluted" with nitrogen. In the second reaction
(which is commonly referred to as the Fischer-Tropsch reaction), the synthesis
gas flows into a reactor containing a proprietary catalyst developed by
Syntroleum. As the synthesis gas passes over the catalyst, it is converted into
hydrocarbons of various molecular weights, with by-product water and carbon
dioxide also being produced. The hydrocarbons and water drain from the reactor
vessel and are subsequently separated.
Syntroleum believes that the method by which it uses air directly from the
atmosphere is a unique characteristic and primary advantage of the Syntroleum
Process over competitive processes, which utilize pure oxygen to create a
synthesis gas that is free of nitrogen. This difference significantly reduces
capital and operating costs to produce synthesis gas in the Syntroleum Process.
Energy integration is also a key component of the capital efficiency of the
Syntroleum Process. The Syntroleum Process has been designed to use the nitrogen
to assist in controlling the excess heat released from the catalytic reactions.
In addition, the Syntroleum Process utilizes a portion of the excess energy to
drive the compression necessary for the
66
<PAGE>
synthesis gas and Fischer-Tropsch reactions, with any remaining surplus heat
energy being dissipated or converted to electricity for commercial sale if
circumstances permit. Syntroleum believes that these advantages, as well as a
variety of other proprietary processes, differentiate the Syntroleum Process
from competitive processes developed or under development by a number of other
companies.
ADVANTAGES OF THE SYNTROLEUM PROCESS
Syntroleum expects that the Syntroleum Process will be an attractive
solution for oil and gas companies with stranded natural gas reserves based on
its belief that the Syntroleum Process can be:
- a relatively LOW COST process
- used in relatively SMALL FORMATS
- ADAPTABLE to feedstock quality, the location of the reserves and the
desired end products
- made PORTABLE in sizes up to 10,000 Bbls/d
LOW COST. Historically, the most significant obstacle to widespread
commercial use of GTL technology has been cost. Because the Syntroleum Process
is less complex than traditional GTL technologies, Syntroleum believes that GTL
plants based on the Syntroleum Process will have lower capital and operating
costs than comparable-sized GTL plants based on traditional technology.
SMALL FORMATS. Given the large number of small fields containing
unmarketable natural gas, GTL plants that are economic only at high levels of
throughput have limited application. For example, as shown in the table under
"Industry Overview--Natural Gas Field Size Distribution," of the 4,448 natural
gas fields located outside North America (i) approximately 86 contain sufficient
reserves to support a 50,000 Bbl/d plant, (ii) approximately 234 contain
sufficient reserves to support a 10,000 to 50,000 Bbl/d plant, (iii)
approximately 269 contain sufficient reserves to support a 5,000 to 10,000 Bbl/d
plant and (iv) approximately 275 contain sufficient reserves to support a 2,500
to 5,000 Bbl/d plant, in each case for a typical 30-year plant life. In
addition, approximately 1,670 of these 4,448 fields contain sufficient reserves
to support a 2,000 Bbl/d plant for less than a 30-year plant life. Syntroleum
believes that GTL plants based on the Syntroleum Process can be cost-effective
at throughput levels as low as 2,000 Bbls/d and consequently could potentially
be used at over 50% of these 4,448 fields, representing over 95% of the total
reserves held in such fields.
ADAPTABLE. Syntroleum also believes that GTL plants based on the Syntroleum
Process can be adapted to use lower quality feedstock and can be located in
isolated and remote locations. For example, while any sulfur compounds or trace
metals must be removed from natural gas prior to processing, Syntroleum believes
that GTL plants based on the Syntroleum Process will not need to completely
remove impurities such as nitrogen and carbon dioxide in order for natural gas
to be used as a feedstock. In addition, due to their relatively small footprint,
Syntroleum believes GTL plants based on the Syntroleum Process can be placed on
skids, barges and ocean-going vessels, allowing these plants to be used at a
variety of locations, including isolated and offshore areas where Syntroleum
believes a majority of natural gas fields are located. Moreover, because the
Syntroleum Process is a net energy generator, Syntroleum believes that these
plants can be located in remote areas without the need for additional power
supply.
PORTABLE. Because of their high capital costs, gas pipelines and other
traditional methods for commercialization of natural gas resources require
significant reserves and established local markets to be economically feasible.
However, due to the potential portability of smaller-sized GTL plants based on
the Syntroleum Process, Syntroleum believes that these plants may in some
circumstances be used to convert smaller quantities of in-place reserves than
would be necessary to support a traditional project and that this portability,
together with the global nature of the markets for liquid hydrocarbons, will
reduce the risk involved in GTL projects as compared to traditional methods of
commercialization.
67
<PAGE>
FEEDSTOCKS
The Syntroleum Process is designed to produce approximately one 6 MMBtu
barrel of liquid hydrocarbons from approximately 10 MMBtu of natural gas
feedstock, although conversion efficiency may vary depending on gas composition
and process conditions selected for each plant. In general, for pipeline quality
natural gas, 10 Mcf of natural gas is expected to produce one barrel of liquid
hydrocarbons. Syntroleum believes that production will decline when lower
quality feedstocks are used, and larger volumes of natural gas will be required
to maintain equivalent production levels. An additional benefit of the
Syntroleum Process is its ability to utilize natural gas containing nitrogen and
carbon dioxide, up to certain levels, without removing these impurities prior to
consumption by the plant. However, natural gas that contains sulphur, metals and
certain other materials that poison catalysts must be processed in order to
remove these contaminants prior to use of the natural gas in the ATR.
PRODUCTS: SYNTHETIC CRUDE OIL, NAPHTHA AND DISTILLATES
The synthetic crude oil produced from GTL plants is widely compatible with
the existing crude oil-based energy infrastructure and can be either sold as is
or further refined to produce fuels, such as diesel, kerosene or naphtha.
Syntroleum believes that these products have certain environmental and
performance benefits when compared to similar products produced from
conventional crude oil.
SYNTHETIC CRUDE OIL. Synthetic crude oil is high quality and has a
consistent composition, water-white color (clear) and high paraffin content.
Impurities commonly associated with crude oil, such as sulfur, metals, basic
sediment and water (BSandW) and salt, are not present in synthetic crude oil.
These properties make synthetic crude oil easier to refine into finished
products with superior environmental characteristics. Total worldwide demand for
crude oil is approximately 70 million barrels per day.
NAPHTHA. Naphtha is a light product generally in the molecular range of
five to nine carbon atoms. Naphtha is a common feedstock for the production of
ethylene. Refiners can also use naphtha as a component in gasoline. It is often
upgraded via catalytic reforming to improve its octane for the production of
gasoline. Historically, prices have averaged between $20 and $25 per barrel.
DISTILLATE. Distillate is a range of fuels from ten to 20 carbon atoms and
includes jet fuel, kerosene and diesel fuel. The diesel product stream has
significant benefits over conventional refinery products because it is free of
sulfur and, due to its high percentage of straight chain molecules, has a very
high cetane number. In California, current regulatory requirements call for a
cetane number of at least 48 while the cetane number of distillate produced from
synthetic crude oil is between 70 and 75. As such, this product makes a superior
blending stock for upgrading conventional fuels. Historically, prices have
averaged between $25 and $30 per barrel.
ENVIRONMENTAL BENEFITS. Southwest Research Corporation recently tested
diesel fuels produced from three sources of Fischer-Tropsch fuels to obtain
environmental performance data. The study, published in 1996, found that engines
which were run using Fischer-Tropsch diesel emitted 46% less carbon monoxide,
38% fewer hydrocarbons, 30% fewer particulates and 8% less NOX when compared to
emissions from currently available diesel that satisfies United States
government specifications. Although diesel fuels produced using the Syntroleum
Process were not tested, Syntroleum believes that testing of its diesel fuels
will produce similar results.
PRODUCTS: SPECIALTY PRODUCTS
Syntroleum intends to design, construct and own significant equity interests
in GTL plants designed to produce specialty products. These plants will be
designed to use Syntroleum's proprietary high alpha catalyst to produce
synthetic crude oil, which will then be further refined using conventional
refining equipment and, in the case of lube oil, a proprietary process licensed
from Lyondell to convert a portion of the synthetic crude oil into lubricants
and drilling fluid. Syntroleum has retained the exclusive right to
68
<PAGE>
manufacture these products using the Syntroleum Process under its license
agreements. The targeted specialty products include the following:
SYNTHETIC LUBE BASE OIL. Specifications for motor oil are anticipated to
become more stringent in the future as automobile manufacturers respond to
tightening emissions requirements. This could result in increased demand for
high quality base oils as blending stock. Syntroleum has licensed from Lyondell
a proprietary process and catalyst used in the production of a high quality lube
oil blending stock that could be blended with conventional lubricants to
increase overall quality of the finished product. According to industry
publications, worldwide demand for all lubricants is approximately 800,000
Bbls/d. Historically, lube oil prices have varied from approximately $40 per
barrel for the lowest quality grades to over $200 per barrel for the highest
quality synthetic grades.
SYNTHETIC DRILLING FLUID. Drilling fluids are used in the drilling of oil
and gas wells as a coolant and lubricant for the drill bit and to enhance safety
during offshore drilling operations by maintaining well pressure. Drilling fluid
can accumulate under platforms mixed with well cuttings. Oil based fluids, which
have been used historically, degrade slowly and can suffocate aquatic plant and
animal life. In response to increased environmental pressures, synthetic
drilling fluids have been developed and used in the Gulf of Mexico and other
offshore locations, where prices have generally ranged between $250 and $300 per
Bbl. In response to this market opportunity, Syntroleum, in conjunction with
Amoco Production Company, has developed a synthetic drilling fluid product that
it expects to meet all current applicable environmental requirements.
WAXES. Waxes are longer linear chain hydrocarbon molecules that are solids
at room temperature and have a variety of applications including as adhesives,
candles and coatings. According to industry publications, United States demand
for waxes in 1995 was approximately 21,000 Bbls/d. Historically, these markets
have primarily been supplied with petroleum derived waxes. Historically, prices
have varied between $30 per barrel for the lowest quality wax to over $150 per
barrel for high melting point synthetic wax.
NORMAL PARAFFINS. Normal paraffins are saturated linear hydrocarbons with
molecular ranges between ten and 15 carbon atoms. These products must be 98%
pure, low odor and of water clear quality. They are primarily used in the
production of laundry detergent, cosmetics and pharmaceuticals, paints, stains,
ink oils, aluminum rolling oils and lamp oils. Historically, prices for normal
paraffins have averaged between $60 and $85 per Bbl.
BYPRODUCTS AND EMISSIONS
A byproduct of the Syntroleum Process is synthesized water that, with
treatment to remove organic materials, could be sold commercially as industrial
or irrigation water in areas where sufficient demand exists. Based on pilot
plant tests, Syntroleum believes that approximately 1.3 Bbls of synthesized
water can be produced per Bbl of synthetic crude oil.
Depending on the process configuration, emissions from the Syntroleum
Process are expected to include nitrous oxide, carbon monoxide, carbon dioxide
and light hydrocarbons, which Syntroleum believes will generally be within
applicable emissions standards. In addition, spent catalysts are expected to be
processed by a catalyst reclaimer who will recover useful metals and be
responsible for disposal of the non-reclaimed portion of the catalyst.
BUSINESS STRATEGY
Syntroleum's objective is to be a leading GTL technology provider to the oil
and gas industry. Its business 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
69
<PAGE>
crude oil and liquid fuels primarily outside of North America. Syntroleum
intends to continue to establish relationships with engineering companies and
manufacturers of critical components to facilitate the design and construction
of GTL plants by licensees. Syntroleum believes that substantial long-term
revenues can be derived from license fees and resulting catalyst sales to
licensees. Syntroleum generally obtains title or exclusive rights to inventions
or improvements that result from its joint development activities with others
and under its license agreements obtains license rights to use, including
sublicense rights, all inventions or improvements relating to the Syntroleum
Process that are commercially used by its licensees. As a result, Syntroleum
believes that widespread licensing, combined with Syntroleum's research and
development activities aimed at further improving the Syntroleum Process, will
enhance Syntroleum's ability to gain an advantage over competing technologies,
thereby allowing it to continue to foster relationships with existing licensees
and attract new licensees.
OWN SPECIALTY PRODUCT GTL PLANTS. Syntroleum intends to form a series of
joint ventures with its licensees and other oil and gas industry partners and/or
financial partners to design, construct and operate both domestically and
internationally GTL plants that produce specialty products such as liquid normal
paraffins, synthetic drilling fluids, synthetic lubricants, waxes and certain
chemical feedstocks. Such products have historically been sold at premium prices
and consequently have had relatively high margins compared to synthetic crude
oil and liquid fuels. Syntroleum anticipates that it will own significant equity
interests in any joint ventures formed to construct, own and operate these
plants. Syntroleum's license agreements do not permit licensees to use the
Syntroleum Process for the production of specialty products due to Syntroleum's
desire to retain these markets for its own commercial development. Specialty
product plants would enable Syntroleum to gain experience with the commercial
operation of plants based on the Syntroleum Process and, if successful, would
provide more consistent revenues than license fees. Syntroleum's plans for
international plants will focus on partnering with companies that have low cost
natural gas reserves and/or have distribution networks in place for the
specialty products to be produced by such plants.
PROVIDE MOBILE GTL PLANTS ON A CONTRACT BASIS. Through joint efforts with
industry partners and others, Syntroleum intends to make mobile GTL plants
available to customers on a contract basis. Syntroleum believes that there will
be a significant market potential for mobile GTL plants in various applications,
including:
- extended well testing in areas with stringent flaring regulations
- conversion of small associated gas fields that are not large enough to
justify the capital investment of a permanent GTL plant
- short-term use of a GTL plant on large fields in order to generate cash
flow while a permanent GTL plant is being built or while awaiting pipeline
hookup
Syntroleum anticipates that standardized sizes and configurations for GTL
plants would be developed for lease or sale to industry customers with the
objective of lowering the price for such plants.
FURTHER REDUCE COSTS THROUGH RESEARCH AND DEVELOPMENT ACTIVITIES AND
ACQUISITIONS. Through its research and development activities, Syntroleum
continually focuses on reducing the capital and operating costs of GTL plants
based on the Syntroleum Process. To enhance its research and development
efforts, upon consummation of the Merger, Syntroleum intends to use a portion of
available funds following the Merger to expand its research and development and
pilot plant facilities. Syntroleum conducts its research and development
activities primarily through two initiatives: (i) independent development
utilizing its own resources and (ii) formal joint development arrangements with
its licensees and other partners. Syntroleum will also continue to review
technological advances made by others and will actively seek to acquire
technologies that enhance the Syntroleum Process.
Syntroleum believes that the combination of its license agreements and joint
development agreements, along with its strategic alliances with engineering
companies and critical components vendors, will
70
<PAGE>
allow Syntroleum to more rapidly commercialize and improve the Syntroleum
Process, thereby providing Syntroleum with an important competitive advantage
and enhancing Syntroleum's ability to attract additional licensees and joint
development partners.
IMPLEMENTATION OF SYNTROLEUM'S BUSINESS STRATEGY
The following sets forth Syntroleum's progress to date in implementing its
business strategy. Although, Syntroleum has made significant progress towards
commercializing the Syntroleum Process, there can be no assurance that licensees
will construct any plants under their license agreements, that financing for
mobile and specialty product GTL plants will be obtained by Syntroleum, that
construction of any of these plants will be successfully completed, that any of
these plants will be commercially successful or that these plants will be
constructed or utilized on a cost-effective basis. See "Risk Factors--
Commercial Operation of GTL Plants Based on the Syntroleum Process," "--Effect
of Energy and Product Prices on the Economic Application of GTL Plants Based on
the Syntroleum Process," "--Effect of Operating Conditions on the Economic
Application of GTL Plants Based on the Syntroleum Process," "--Reliance on
Licensees" and "--Additional Financing Requirements and Access to Capital
Funding."
LICENSING ARRANGEMENTS
Syntroleum currently markets four types of license agreements: (i) master
license agreements, (ii) volume license agreements, (iii) regional license
agreements and (iv) site license agreements. Syntroleum's first license
agreement was a master license agreement entered into with Texaco in September
1996. To date, Syntroleum has also entered into master license agreements with
ARCO and Marathon, and has entered into volume license agreements with YPF,
Enron and Kerr-McGee. Syntroleum has received an aggregate of $11 million as
initial deposits and option fees under its existing license agreements. In some
cases, Syntroleum has acquired technologies or commitments to provide funding
for future development in lieu of these deposits in cases where Syntroleum
viewed these technologies or commitments as being more valuable than the initial
deposit. Syntroleum intends to continue to market the Syntroleum Process for
license primarily to major oil and gas companies with significant stranded
natural gas reserves and is currently in negotiations with several companies.
By entering into a master, volume or regional license agreement, a licensee
obtains the right to use the Syntroleum Process and to acquire catalysts from
Syntroleum, secures pricing terms for site licenses and obtains rights to future
improvements in Syntroleum's GTL technology. Generally, the amount of the
license fee for site licenses under Syntroleum's master, volume and regional
license agreements is determined pursuant to a formula based on the discounted
present value of the product of (i) the annual maximum design capacity of the
plant, (ii) an assumed life of the plant and (iii) Syntroleum's per barrel rate,
which currently is approximately $.50 per barrel of daily capacity. Initial
deposits under Syntroleum's master, volume or regional license agreements are
credited against future site license fees. Rights of a licensee to acquire site
licenses under Syntroleum's master, volume and regional license agreements would
survive a change of control of Syntroleum.
Syntroleum believes that support of its licensees both before and after they
have executed a license agreement is critical to facilitate the development and
construction of multiple GTL plants based on the Syntroleum Process. Syntroleum
intends to provide this support directly through its internal engineering
department and through its relationships with Bateman, Brown & Root, AMEC and
other engineering companies and component manufacturers. Syntroleum intends that
its engineers and business development managers will establish relationships
with its licensees as they move through the process of developing and
constructing plants. Syntroleum has held and intends to continue to hold
educational seminars for its licensees and prospective licensees that cover a
variety of GTL topics, such as project evaluation, data requirements for
feasibility studies and different process designs.
The following description summarizes the principal terms and conditions of
the forms of Syntroleum's license agreements, does not purport to be complete
and is qualified in its entirety by reference to the form
71
<PAGE>
of Syntroleum's master license agreement, a copy of which has been filed as an
exhibit to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part. Agreements entered into with specific licensees
may differ in material respects from the current forms of Syntroleum's license
agreements.
MASTER LICENSE AGREEMENTS. Master license agreements generally grant the
licensee the non-exclusive right to enter into an unlimited number of site
license agreements to construct GTL plants based on the Syntroleum Process
worldwide to produce fuels, except for North America (due to Syntroleum's desire
to retain this region for its own commercial development) and China and India
(in each case due to intellectual property protection concerns). Under master
license agreements, the licensee is not subject to any production capacity
limits. At the inception of a master license agreement, the licensee is
generally required to make an initial deposit to Syntroleum, the amount of which
is credited against future site-specific license fees. The term of a master
license agreement is generally the later of 15 years following its effective
date or five years following the effective date of the last site license issued
under the agreement.
To date, Syntroleum has entered into three master license agreements. Under
certain of these agreements, licensees have provided non-cash consideration in
lieu of the initial payment, including certain intellectual property rights and
joint development funding commitments, which Syntroleum believes were more
valuable than the initial deposit.
VOLUME LICENSE AGREEMENTS. Volume license agreements grant the licensee the
non-exclusive right to enter into an unlimited number of site license agreements
to construct GTL plants based on the Syntroleum Process in areas outside of
North America, China and India, subject to specified aggregate production
capacity limits. At inception of each volume license agreement, the licensee is
required to make an initial deposit to Syntroleum, the amount of which is credit
against future site-specific license fees. The amount of the initial deposit is
expected to depend on the volume limitation and market conditions. The term of a
volume license agreement is generally the later of 15 years following its
effective date or five years following the effective date of the last site
license issued under the agreement.
To date, Syntroleum has entered into three volume license agreements. Under
certain of these agreements, licensees have provided non-cash consideration in
lieu of the initial payment, including certain intellectual property rights,
which Syntroleum believes were more valuable than the initial deposit.
REGIONAL LICENSE AGREEMENTS. Regional license agreements generally grant
the licensee the non-exclusive right to enter into an unlimited number of site
license agreements to construct GTL plants based on the Syntroleum Process
within a designated region. These agreements are generally not expected to
include North America, China or India, although Syntroleum may grant rights to
use the Syntroleum Process in those areas to specific licensees. Under regional
license agreements, the licensee is not subject to any production capacity
limits within the licensed region. At inception of each regional license
agreement, the licensee is required to make an initial deposit to Syntroleum,
the amount of which is credited against future site-specific license fees. The
amount of the initial deposit is expected to depend on the size and location of
the region covered by the agreement and market conditions. The term of a
regional license agreement is expected to be the later of 15 years following its
effective date or five years following the effective date of the last site
license agreement under the agreement. To date, Syntroleum has not entered into
any regional license agreements.
SITE LICENSE AGREEMENTS. Site license agreements grant the licensee the
non-exclusive right to use the Syntroleum Process in a GTL plant at a single
specified location for the life of the plant. Site license agreements may be
granted under Syntroleum's master, regional or volume license agreements or may
be granted to licensees for a specific site who have not otherwise entered into
a master, regional or volume license agreement. Generally, the amount of the
license fee for site licenses under Syntroleum's master, volume and regional
license agreements is determined pursuant to a formula based on the discounted
present value of the product of (i) the annual maximum design capacity of the
plant, (ii) an assumed life of the plant and (iii) Syntroleum's per barrel rate,
which currently is approximately $.50 per barrel of daily capacity. Syntroleum's
license fees for new plants may change from time to time based on the size of
the
72
<PAGE>
plant, improvements that reduce plant capital cost and competitive market
conditions. Syntroleum's existing master and volume license agreements allow for
the adjustment of fees for new site licenses under certain circumstances.
Syntroleum expects that license fees under existing agreements will be paid in
increments when certain milestones during the plant design and construction
process are achieved. To date, Syntroleum has entered into a site license
agreement with respect to the Sweetwater Plant and, under the terms of its
project development agreement with Texaco and Brown & Root described below,
Syntroleum will enter into a site license agreement for the plant to be
constructed pursuant to that agreement.
CATALYST SALES AND PROCESS DESIGN PACKAGES. Syntroleum's license agreements
grant the licensee the right to acquire from Syntroleum or vendors designated by
Syntroleum any proprietary catalyst used in the synthesis gas reaction and any
proprietary catalyst used in the Fischer-Tropsch reaction, in each case at
prices based on Syntroleum's cost plus a margin. Syntroleum's license agreements
require Syntroleum's catalyst to be used in the initial fill for the licensee to
receive Syntroleum's process guarantee. After the initial fill, the licensee may
use other catalyst vendors if appropriate catalysts are available. Syntroleum
estimates that these catalysts will be required to be replaced every three to
five years. Licensees also have the right to acquire proprietary reactors used
in the Syntroleum Process from vendors approved by Syntroleum. In addition,
under Syntroleum's license agreements, licensees are required to purchase a
process design package for plants covered by the license from Syntroleum at a
fee based on Syntroleum's costs plus a specified margin. Syntroleum may,
however, develop the process design package with the assistance of a third
party. Syntroleum is also required to provide certain technical support to a
licensee under a technical services agreement at specified fees.
GENERAL. License agreements generally also provide that Syntroleum is
required to indemnify the licensee against certain losses arising out of (i) the
use of patent rights and technical information relating to the Syntroleum
Process and (ii) acts or omissions in the preparation and content of the process
design packages and certain other matters. Syntroleum anticipates that licensees
may require Syntroleum or an engineering firm to provide a process guarantee
with respect to certain elements of the Syntroleum Process as a condition to
entering into site license agreements. Under its existing license agreements,
Syntroleum's obligations under these indemnity provisions and any separate
process guarantees are, however, limited to 50% of the total fees received with
respect to each license.
Under its license agreements, Syntroleum acquires a royalty free license to
any invention or improvement to the Syntroleum Process that is developed by the
licensee (together with the right to grant corresponding sublicenses to certain
of its other licensees), and licensees acquire the right to use subsequent
inventions or improvements to the Syntroleum Process that have been placed in
commercial use or are suitable for commercial use for which Syntroleum has
royalty-free licensing rights and is offering to license to others. Due to
Syntroleum's desire to retain the rights to produce specialty products for its
own commercial development, each license agreement with non-affiliates of
Syntroleum currently provides that the licensee is entitled only to produce
synthetic crude oil and liquid fuels at plants based on the Syntroleum Process
and is not entitled to produce specialty products.
SPECIALTY PRODUCT GTL PLANTS
Syntroleum intends to design and construct GTL plants that produce specialty
products, such as synthetic lubricants, synthetic drilling fluids, waxes, liquid
normal paraffins and certain chemical feedstocks. Syntroleum intends to own
these plants through joint ventures and may retain significant equity interests
in these joint ventures. In most cases, these specialty plants will require
additional refining technologies and expertise to convert and separate synthetic
crude oil into the desired products. Syntroleum has collaborated with Lyondell
in connection with the development of a proprietary process for producing high
quality synthetic lubricants from synthetic crude oil produced by the Syntroleum
Process. Syntroleum's agreement with Lyondell provides for exclusive rights to
license this technology from Lyondell for applications based on synthetic crude
oil feedstock. Syntroleum has also collaborated with
73
<PAGE>
Amoco Production Company ("Amoco") to develop a synthetic drilling fluid from
synthetic crude oil. Syntroleum retained all rights to make and sell this
product, with an obligation to sell limited volumes to Amoco if Syntroleum goes
forward with production of the product.
THE SWEETWATER GTL PLANT. In May 1997, Syntroleum formed Sweetwater LLC,
through which Syntroleum intends to design and construct an 8,000 Bbl/d
specialty product plant in Sweetwater County, Wyoming. Total estimated capital
costs for the plant are approximately $230 million, of which approximately $70
million relate to estimated costs for a full refining unit for specialty
products, electrical generation equipment, interest during construction, offsite
facilities, construction contingencies and spares. However actual costs may vary
from this estimate for a variety of reasons, including those described under
"Risk Factors," and such variance may be material. The current capital structure
anticipates the project will require equity contributions of approximately $45
million and subordinated and senior debt of approximately $185 million.
Ownership percentages are currently anticipated to be as follows:
Syntroleum--74%, Enron--11%, an additional equity partner--11% and a project
development company which will contribute land, transportation and water
contracts and other services--4%; however actual ownership percentages may vary
from these estimates based on the terms of subsequent financings. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Syntroleum--Liquidity and Capital Resources--The Sweetwater GTL
Plant." Syntroleum has issued a site license and contributed $500,000 to
Sweetwater LLC, which Syntroleum formed to own and operate the plant. Upon
consummation of the Merger, Syntroleum intends to contribute an additional $15
million and, based on current plans would retain an approximately 74% interest
in Sweetwater LLC. However, if Syntroleum obtains additional capital, it may
increase such contribution and retain an additional interest. The plant is
currently being designed by Bateman, and Syntroleum expects that Bateman will
also construct the plant. If financing is obtained, construction of the plant is
scheduled to commence in early 1999, and the plant is scheduled to be
operational in 2001. Syntroleum is the managing member of Sweetwater LLC, but it
may subcontract with a third party that would manage the operations of the
plant. Syntroleum currently anticipates that this plant will produce lube oil,
normal paraffins, drilling fluid, naphtha and electricity.
THE JOINT VENTURE GTL PLANT. In November 1997, Syntroleum, Texaco and Brown
& Root entered into a project development agreement that provides for the
development of a 2,500 Bbl/d or larger GTL plant based on the Syntroleum Process
incorporating the hybrid, multi-phase (HMX) reactor currently under development
by Syntroleum and Texaco. The first phase of this development project involves a
feasibility study, which is currently being conducted. Based on the results of
this study, the parties will determine whether to pursue definitive design and
construction plans for the plant. The parties currently anticipate that the
plant would be designed to produce slack wax and/or synthetic crude oil. It is
anticipated that Syntroleum, Texaco and Brown & Root would each initially own a
33 1/3% interest in a joint venture to be formed to own the plant and that
Texaco would be the designated operator of the plant. However, the parties
contemplate that additional interests in this joint venture may be sold to third
parties, including existing or future licensees of Syntroleum, which would
dilute such interests.
The project development agreement provides that Syntroleum, Texaco and Brown
& Root will initially contribute $1.5 million to the project in the form of cash
or services, and that additional contributions may be made by the parties at or
after the formation of the joint venture. The project development agreement
provides for the joint venture to enter into a site license with Syntroleum with
respect to this plant, and for Brown & Root to prepare a feasibility study with
cost estimates for the design, construction and startup of the plant. The plant
is scheduled to be operational by the end of 1999 or early 2000. The project
development agreement provides that, in the event the joint venture determines
to cease operation of the plant or after three years following startup,
Syntroleum would have the right to purchase the plant at a price equal to the
remaining undepreciated tax book value of the plant. If Syntroleum subsequently
sells the plant within one year from the date of such purchase, the proceeds
above undepreciated tax book value will be distributed to the owners of the
joint venture. Pursuant to the project development agreement, a
74
<PAGE>
management committee has been formed consisting of six persons (two persons
appointed by each party to the agreement). Decisions of this management
committee, including approval of shared expenses, site selection and additional
equity participants, require unanimous approval. Although the agreement
terminates on July 15, 1998, Syntroleum anticipates that the parties will, if
necessary, extend this term of the project development agreement to allow
sufficient time to execute definitive documents.
ADDITIONAL SPECIALTY PRODUCT GTL PLANTS. Pursuant to an agreement with
Texaco, Syntroleum granted to Texaco the right to participate with Syntroleum in
up to three specialty product GTL plants. Syntroleum is also in discussions with
several oil and gas companies and anticipates forming additional joint ventures
in order to finance and operate additional specialty product GTL plants
worldwide. Syntroleum's plans for these plants will focus on partnering with
companies who have low-cost gas reserves in strategic locations and/or have
distribution networks in place for the specialty products to be produced in
these plants.
CONTRACT GTL PLANTS
Through efforts with industry partners and others, Syntroleum intends to
make available mobile GTL plants for use by oil and gas companies on a contract
basis. Syntroleum plans to make available contract services to customers that do
not desire to enter into a license agreement and build a licensed plant because
(i) the customer needs to conduct extended well testing in areas with stringent
flaring regulations, (ii) the customer needs to use a GTL plant in small
associated gas fields that are not large enough to justify the capital
investment of a permanent GTL plant, (iii) the customer needs to use a GTL plant
on a short-term basis on a large field in order to generate cash flow while a
permanent GTL plant is being built or while awaiting pipeline hookup, or (iv)
for other reasons. Syntroleum anticipates that these plants would be designed so
that they would be operational at a variety of locations, which would enable the
plants to be relocated to new fields with minimal modifications. These plants
would likely be barge or ship mounted, but land-based, skid-mounted units may
also be developed.
In November 1997, Syntroleum entered into a letter agreement with Brown &
Root under which the parties agreed to cooperate in the development of the
contract GTL plant business and to jointly market the concept of such plants to
potential customers. Under this arrangement, Syntroleum would provide Brown &
Root with a 50,000 Bbl/d volume license agreement for contract GTL plants, and
Syntroleum would have the right to invest in such plants on the same (or no less
favorable) terms as Brown & Root. The license agreement would provide for a
running royalty based on the amount of synthetic crude oil produced.
RESEARCH AND DEVELOPMENT
One of Syntroleum's key strategies is to continue to lower the cost of its
GTL technology through research and development. Syntroleum's current laboratory
has 16 fixed tubular reactors, three HMX reactors and three slurry reactors in
which automated tests are run and catalyst systems are evaluated and developed.
Syntroleum has entered into an agreement to purchase a laboratory which contains
approximately 16,500 square feet and is located on approximately 100 acres of
land, and plans to expand its research and pilot plant capabilities further at
this facility. As of April 1, 1998, Syntroleum had 25 employees in its
laboratory, pilot plant and engineering departments, 16 of which are chemists,
engineers or other degreed professionals (five with a masters or Ph.D degree)
devoted to research and development activities. A number of other chemists,
engineers and professionals that are employed by Syntroleum's licensees and
joint development partners are also contributing efforts to the further
development of the Syntroleum Process.
Syntroleum also has access to laboratory and test facilities through its
joint development partners. For example, both Texaco and ARCO have performed
catalyst tests at their own or contract facilities, and testing with Catalytica
and Marathon regarding low Btu combustion has been conducted at Catalytica's and
AGC's test facilities. Additionally, Syntroleum has its own technical experts as
well as access to the technical experts of its joint development partners. Each
of Syntroleum's joint development partners has
75
<PAGE>
several employees working on research and development activities related to
improving the Syntroleum Process.
Syntroleum's research and development efforts will take place in four
primary areas: process design, catalyst development, reactor design and heat
integration/power recovery.
PROCESS DESIGN. Syntroleum has developed and continues to develop
variations of its basic process design in an effort to further lower costs and
increase the adaptability of the Syntroleum Process to a wide variety of
potential applications. Syntroleum participates with Bateman and Brown & Root in
developing and evaluating process designs. Syntroleum also retains experts on a
consulting basis from time to time to assist in process development and
evaluation, including two consultants who have agreed to provide exclusive
services to Syntroleum in the field of Fischer-Tropsch technology. Both of these
consultants have Ph.D's and extensive experience in this field.
CATALYST DEVELOPMENT. Based upon pilot tests of catalysts manufactured by
Syntroleum, Syntroleum believes that it has a number of proprietary catalyst
systems that meet or exceed the activity and selectivity targets necessary for
commercial application in certain current Syntroleum Process designs, including
the catalysts associated with the hybrid multi-phase (HMX) reactor under
development with Texaco and the slurry reactor to be pilot tested with ARCO at
their Cherry Point Facility. As discussed under "--The Syntroleum Process,"
Syntroleum's chain limiting catalyst will require further development before it
can be considered commercial. Syntroleum plans to conduct additional development
activities in this area during 1998. Additionally, Syntroleum will continue to
work on different formulations to improve hydrocarbon yields and increase
conversion efficiency.
Under Syntroleum's agreement with Criterion, Criterion has manufactured in
its commercial facilities batches of catalyst in quantities sufficient to
confirm that catalyst performance is comparable to the same catalyst produced by
Syntroleum and the ability to produce such catalysts in commercial quantities at
targeted cost levels.
Syntroleum plans to refine existing catalysts and continue to develop
additional catalyst formulations for use in the Syntroleum Process. Catalyst
development is a complex process requiring significant scientific skill and
resources. Syntroleum has in the past and intends to continue to devote
substantial resources to research and development activities to produce
Fischer-Tropsch catalysts with improved activity rates, selectivity, and active
life, all at reasonable manufacturing cost. In addition, Syntroleum intends to
enhance its catalyst development activities through catalyst joint development
programs with Texaco, ARCO, Catalytica Advanced Technologies and, when
appropriate, other joint development partners. From time to time, Syntroleum
also retains catalysis experts on a consulting basis to assist in catalyst
development.
REACTOR DESIGNS. Syntroleum has tested three different Fischer-Tropsch
reactor designs for use in the Syntroleum Process at its pilot plant and may
test additional designs in the future. These include a fixed bed vertical
tubular reactor, a fluidized bed reactor for use with Syntroleum's
chain-limiting catalyst and a proprietary hybrid multi-phase reactor, labeled
"HMX," developed under Syntroleum's agreement with Texaco. In addition,
Syntroleum has tested a large bench scale slurry bubble column reactor developed
under Syntroleum's agreement with ARCO. ARCO and Syntroleum are currently
designing a 70 Bbl/d pilot plant that will further test the slurry bubble column
reactor on a larger scale. Syntroleum believes that the HMX reactor may be the
most commonly selected reactor in the near term because of its high capacity,
lower capital cost and simpler operation. A horizontal reactor design is also
being developed by Syntroleum and may be preferred in GTL plants on ships
operating in rough water conditions, where its low center of gravity may be an
important feature. Syntroleum has several patents pending related to its
Fischer-Tropsch reactors.
HEAT INTEGRATION/POWER RECOVERY. The Syntroleum Process produces excess
energy in its synthesis gas and Fischer-Tropsch reactions that can be useful in
other areas of the process or in offsite applications.
76
<PAGE>
Syntroleum has developed several heat integration/power recovery configurations
that can be used depending on site-specific circumstances, a number of which are
the subject of existing United States patents or patent applications. The
designs for two of these configurations include the incorporation of a gas
turbine fueled by low Btu tail gas generated by the process. A third
configuration will require considerable pilot plant testing and is part of the
contemplated joint development activities with ABB. Syntroleum believes that, if
successful, this third design will significantly further reduce plant capital
costs. Syntroleum expects that complete development will take several years.
STRATEGIC RELATIONSHIPS
In order to carry out Syntroleum's aggressive strategy to rapidly improve
and commercialize the Syntroleum Process, Syntroleum has sought to enter into
relationships with certain engineering companies, component manufacturers and
other companies in order to benefit from the expertise and technologies of such
companies. Syntroleum believes that these relationships have resulted in
significant contributions toward the development of the Syntroleum Process and
that these relationships will continue to improve upon existing technologies and
contribute to technologies currently under development and to Syntroleum's
marketing program. Syntroleum believes that these relationships will facilitate
GTL market growth. Syntroleum also believes that these relationships with
financially strong partners will reduce competitive risks that smaller companies
often face. Syntroleum intends to continue to seek additional strategic partners
with expertise and technologies from which Syntroleum could benefit.
BATEMAN
Bateman has been an important strategic partner of Syntroleum. Since 1993,
Bateman has provided engineering services in connection with Syntroleum's pilot
plant and other aspects of Syntroleum's development of its GTL technology.
Pursuant to a project development agreement entered into between Bateman and
Syntroleum in March 1997, Syntroleum has agreed to utilize Bateman to assist in
the development of Company-owned specialty product GTL plants in North and South
America. Bateman is entitled to provide all process design packages, as well as
engineering, procurement, construction and project management services for the
construction of such plants, provided that Bateman satisfies the financial or
performance criteria required by the parties providing equity and debt financing
for the plant. Syntroleum has agreed to enter into an additional agreement with
Bateman under which Bateman would be entitled to market the Syntroleum Process
to third parties, subject to Syntroleum's prior approval with respect to
proposed licenses. The agreement will also designate Bateman as an approved
process design provider and an approved engineering contractor for Syntroleum
and its licensees. An approved engineering contractor provides project,
technical and economic evaluations, feasibility studies and engineering,
procurement and construction services. An approved process design provider
provides the same services as an engineering contractor as well as process
design packages to Syntroleum upon its request. Under its agreements with
Bateman, Syntroleum acquires title to all inventions and improvements to the
Syntroleum Process that result from the collaborative efforts of Bateman and
Syntroleum.
BROWN & ROOT
Brown & Root has also been an important strategic partner of Syntroleum.
Since 1996, Brown & Root has provided engineering services in connection with
Syntroleum's pilot plant and other aspects of Syntroleum's development of its
GTL technology. In November 1997, Syntroleum entered into a technical
cooperation and representation agreement with Brown & Root. Under the agreement,
Brown & Root is designated as an approved process design provider and
engineering contractor for Syntroleum and its licensees. Under the agreement,
Brown & Root is entitled to market the Syntroleum Process and certain related
services to certain third parties, subject to Syntroleum's prior approval with
respect to proposed licenses. Under an intellectual property agreement with
Brown & Root, Syntroleum acquires title to all inventions and improvements to
the Syntroleum Process created by Brown & Root that result from the
collaborative efforts of the parties.
77
<PAGE>
Under the project development agreement between Syntroleum, Texaco and Brown
& Root, Brown & Root is to act as engineering, procurement and construction
contractor with respect to the plant to be developed pursuant to that agreement.
Syntroleum and Brown & Root have also entered into a letter agreement with
respect to the development of a business plan providing for mobile GTL plants to
be made available to customers on a contract basis. Finally, subject to certain
performance criteria, Syntroleum will agree to utilize Brown & Root to assist in
the development of all Syntroleum-owned GTL plants outside North and South
America. See "--Contract GTL Plants."
TEXACO
Syntroleum first began discussions with Texaco in 1993 to evaluate
Syntroleum's GTL technologies. In February 1995, Syntroleum entered into a
research and development agreement with Texaco to support the initial
development of Syntroleum's chain limiting catalyst. Texaco provided
approximately $265,000 for development activities under this agreement over a
two year period. Under this agreement, Syntroleum also acquired from Texaco
certain data relating to the Hydrocol plant formerly located in Brownsville,
Texas and operated by Texaco in the early 1950s.
In connection with entering into a master license agreement with Syntroleum
in September 1996, Texaco entered into a joint development agreement with
Syntroleum pursuant to which Texaco agreed to fund additional joint research and
development activities. Under this agreement, Texaco contributed certain reactor
technology and agreed to fund all activities of the parties under the agreement.
Based on this technology, the parties have engaged in the joint development of
the HMX reactor and related catalyst system. To date, Texaco has spent
approximately $2.6 million for joint development activities under this
agreement. Joint development activities of the parties are continuing under this
agreement. Under its joint development agreement with Texaco, Syntroleum retains
title to all inventions and improvements to the Syntroleum Process that result
from collaborative activities. In addition, for its commitment of research and
development funds, Texaco receives a limited discount on future license fees
which may be otherwise due under its master license agreement.
ARCO
ARCO has worked with Syntroleum since 1993 in the evaluation of certain
variations on the Syntroleum Process for designs applicable to certain of ARCO's
natural gas properties. In March 1994, ARCO and Syntroleum entered into two
research and development agreements relating to Syntroleum Process design and
Syntroleum's chain limiting catalyst, respectively. ARCO provided approximately
$75,000 for activities under these agreements over a two year period.
Pursuant to the terms of its joint development agreement entered into with
Syntroleum in April 1997, Syntroleum also has acquired from ARCO certain patent
applications relating to gas turbine integration and Fischer-Tropsch reactor
designs. In addition, ARCO and Syntroleum are currently designing a 70 Bbl/d
pilot plant at ARCO's Cherry Point Refinery near Bellingham, Washington. This
pilot plant will test a slurry reactor configuration and associated catalyst and
a high pressure autothermal reformer design and construction is expected to be
completed during the fourth quarter of 1998. Under its joint development
agreement with ARCO, Syntroleum retains title to all inventions and improvements
to the Syntroleum Process that result from collaborative activities. In
addition, for its commitment of research and development funds, ARCO receives a
limited discount on future license fees which may be otherwise due under its
master license agreement.
MARATHON
Syntroleum first began discussions with Marathon in 1994 to evaluate
Syntroleum's GTL technologies. In January 1996, Marathon purchased a convertible
debenture from Syntroleum in the principal amount of $1,000,000, bearing
interest at the prime rate and convertible into shares of Syntroleum Common
Stock. The proceeds from this debenture were used by Syntroleum primarily to
fund continuing research and
78
<PAGE>
development activities. In March 1997, Marathon converted the principal and
accrued interest of the debenture into shares of Syntroleum Common Stock at a
conversion rate of $12.00 per share for a total of 93,059 shares of Syntroleum
Common Stock. In connection with this investment, Marathon agreed that it will
not, for a period of ten years, acquire shares that, when aggregated, exceed 10%
of the outstanding Syntroleum Common Stock or sell its shares to any person who
would then own more than 10% of the outstanding Syntroleum Common Stock.
In connection with Syntroleum's master license agreement with Marathon,
Syntroleum entered into a separate agreement with Marathon pursuant to which
Syntroleum acquired certain exclusive rights (including the right to sublicense)
in the GTL field under a newly issued United States patent and a pending United
States patent application relating to gas turbine technology and non-exclusive
rights to use such technology outside the GTL field. Under its agreement with
Marathon, Syntroleum retains title to all inventions and improvements to the
Syntroleum Process that result from collaborative activities.
Marathon is also participating in and partially funding a joint testing and
development program conducted by Syntroleum and AGC described below.
CRITERION
One of Syntroleum's principal strategic relationships is with Criterion, a
catalyst company jointly owned by Shell and Cytec Industries. In August 1996,
Syntroleum entered into an agreement with Criterion that provides Criterion with
the non-exclusive right to manufacture Syntroleum's proprietary high alpha
catalyst for sale by Criterion to Syntroleum for its own use and for resale to
others and with approval of Syntroleum, directly to approved licensees of the
Syntroleum Process. The agreement provides for a fixed margin to be paid to
Syntroleum for any sales of catalyst to approved licensees and that any ideas,
developments or improvements related to such catalyst other than manufacturing
techniques are the property of Syntroleum. In addition, under the agreement
Syntroleum has agreed to purchase all such catalysts for its own use from
Criterion, subject to certain price and delivery requirements. Criterion also
agrees to provide Syntroleum with other catalysts made by Criterion, including
the catalyst used in the lube oil isomerization and dewaxing process licensed by
Syntroleum from Lyondell.
In 1996 and 1997 Criterion acquired a total of 301,771 shares of Syntroleum
Common Stock for an aggregate cash purchase price of $3,004,000. In addition, in
1997 Criterion acquired 400,000 shares of Syntroleum Common Stock in
consideration for catalyst services and cancellation of certain options to
acquire shares of Syntroleum Common Stock. See "Management After the
Merger--Certain Transactions." In connection with this investment, Criterion has
agreed that it will not for a period of ten years acquire shares that, when
aggregated, exceed 10% of the outstanding Syntroleum Common Stock or sell its
shares to any person who would then own more than 10% of the outstanding
Syntroleum Common Stock.
CATALYTICA COMBUSTION SYSTEMS
In July 1997, Syntroleum entered into a joint testing agreement with
Catalytica Combustion Systems, a manufacturer of low emission catalytic
combustion products, relating to the development of a catalytic combustion
system for use in the Syntroleum Process. Catalytica Combustion Systems has
developed a proprietary combustion system for the catalytic combustion of
gaseous and liquid hydrocarbons which significantly reduces emission of nitrous
oxide compounds. Under the agreement, the parties have conducted tests to
determine whether Catalytica Combustion Systems's combustion system design can
be adapted to efficiently combust low Btu fuel with low emissions. The
combustion systems being tested include those that are fueled only by low Btu
fuel and those that are initially fueled by natural gas and later fueled by low
Btu fuel. The agreement calls for additional development to create a special
combustor that can be fitted for use on a wide variety of available gas turbines
allowing them to utilize the low Btu residue gases created by the Syntroleum
Process. Syntroleum will have the exclusive right to utilize such combustors
supplied by Catalytica Combustion Systems in GTL applications.
79
<PAGE>
CATALYTICA ADVANCED TECHNOLOGIES
In January 1998, Syntroleum entered into a development agreement with
Catalytica Advanced Technologies, Petro-Canada and Techmocisco, Inc., a wholly
owned subsidiary of Mitsubishi Oil Company Ltd. Under this agreement, the
parties will cooperate in the development and commercialization of certain
technologies related to a single step catalytic conversion of natural gas to
methanol or a transportable liquid suitable for use as a fuel. The agreement
contemplates that if the process is determined to be commercial, Syntroleum will
assume responsibility for all marketing and sales activity relative to licensing
the technology. Pursuant to the agreement, Catalytica Advanced Technologies
agrees to contribute the time of certain personnel to assist in the development
and commercialization of the technology. Catalytica Advanced Technologies also
agrees to fund certain of the costs of developing the technology through grants
from the United States Department of Commerce and, subject to the project
achieving certain milestones, Syntroleum agrees to contribute $400,000 per year
for three years toward the cost of the Catalytica Advanced Technologies
personnel and certain associated costs with respect to the development and
commercialization of the technology. The agreement also grants Syntroleum a
royalty-free, world-wide, non-exclusive license (with rights to sublicense) to
unpatented technology developed under the agreement by the other parties for
use, if applicable, in the Syntroleum Process. Catalytica Advanced Technologies
is granted the right to be the exclusive supplier of any catalyst used in
conjunction with the technology. The agreement provides that revenues resulting
from the commercial application of the technology will be shared by the parties,
with Syntroleum receiving a majority of such revenues.
AGC
In July 1997, Syntroleum entered into a joint testing agreement with AGC,
which is a packager of gas turbines and systems incorporating gas turbines.
Under the agreement, the parties agree to conduct tests to determine whether
AGC's gas turbine and related combustion systems can be modified to use low Btu
gas as fuel based on technology acquired by Syntroleum from Marathon. Depending
on the outcome of these tests, Syntroleum and AGC may elect to conduct
additional joint development work or proceed to commercial design and production
of the technology for use in plants based on the Syntroleum Process.
AMEC
In September 1997, Syntroleum entered into an engineering representation and
intellectual property agreement with AMEC, one of Europe's leading engineering
and construction contractors. The agreement designates AMEC as an approved
engineering contractor for Syntroleum and its licensees. In addition, the
agreement entitles AMEC to market the Syntroleum Process to certain third
parties, subject to Syntroleum's prior approval with respect to proposed
licensees. The agreement provides for AMEC to complete at its expense a
reference design and associated design support systems for one type and size of
GTL plant identified by Syntroleum and AMEC. Under the agreement, Syntroleum
retains title to all inventions and improvements to the Syntroleum Process that
result from the collaborative efforts of the parties.
ABB
In November 1997, Syntroleum entered into a technical cooperation and
representation agreement with ABB, a Swiss-Swedish industrial manufacturing
company and one of the world's leading gas turbine manufacturers. The agreement
designates ABB as an approved engineering contractor for Syntroleum and its
licensees. The agreement entitles ABB to market ABB's gas turbines and power
generation equipment for integrated application with the Syntroleum Process to
certain licensees and approved licensee prospects and to market the Syntroleum
Process as an integrated fuel-power-water facility as well as provide certain
services to licensees and approved licensee prospects relating to facilities
based on the Syntroleum Process. The agreement also provides for ABB to
undertake, subject to certain conditions, certain development activities
relating to the migration of ABB's low Btu combustion technology to a variety of
ABB's turbines for use in the Syntroleum Process. The agreement contains certain
restrictions on ABB's
80
<PAGE>
ability to engage in similar development activities with others or marketing and
selling ABB's low Btu gas turbines other than to licensees of the Syntroleum
Process. Under the agreement, Syntroleum retains title to all inventions and
improvements to the Syntroleum Process that result from the collaborative
efforts of the parties, while ABB retains title to all turbine improvements.
LYONDELL
In October 1996, Syntroleum entered into an agreement with Lyondell, a major
petrochemical company, whereby Syntroleum acquired an exclusive, royalty-bearing
license to utilize Lyondell's wax isomerization process in the Syntroleum
Process to produce certain synthetic lubricants through at least the year 2000
and thereafter, provided that Syntroleum meets certain performance criteria. The
process, which is based on Lyondell's catalytic dewaxing process, was developed
to make synthetic lube basestocks from the waxy synthetic crude oil produced by
the high alpha catalyst in the Syntroleum Process. Under this agreement,
Lyondell has agreed to provide Syntroleum with certain technical information and
assistance (including training) related to its wax isomerization process.
SALES AND MARKETING
Syntroleum intends to maintain an active marketing and sales effort to
develop and promote the Syntroleum Process through several channels. Syntroleum
has been and will continue to be an active participant at industry conferences
relating to GTL processes. During 1997, representatives of Syntroleum spoke at
ten different conferences on four continents. Syntroleum also intends to
continue to write and publish papers on topics regarding the implications of GTL
technology to the industry. Additionally, Syntroleum will continue to educate
and inform its customers through the use of multi-media and print presentations.
Syntroleum also intends to establish brand recognition for specialty products to
be produced by its specialty plants. Syntroleum has received trademark and
servicemark rights to the name Syntroleum in the United States and has
applications pending to register the trademark in various foreign countries.
In addition, Bateman, Brown & Root, AMEC and ABB and other engineering
companies are familiar with Syntroleum's GTL technology and have been marketing
the Syntroleum Process to their customers. Syntroleum's agreements with
engineering firms generally provide such firms with the right to market the
Syntroleum Process. Syntroleum believes that these relationships will expand its
marketing effort in a cost-effective manner. Syntroleum currently has ten
employees in its business development and marketing departments, three of which
hold advanced degrees, and retains a full time sales representative in London,
England.
HISTORICAL DEVELOPMENT OF THE TECHNOLOGY
THE CHEMISTRY
The basis for most GTL technologies, including the Syntroleum Process,
originated in 1923 when two German chemists, Franz Fischer and Hans Tropsch,
discovered the catalytic conversion of synthesis gas (carbon monoxide and
hydrogen) into synthetic hydrocarbons using a precipitated cobalt catalyst. In
the Fischer-Tropsch reaction, the synthesis gas in contact with the catalyst
surface at certain temperatures and pressures causes a chemical reaction that
produces hydrocarbons and the byproducts, water and carbon dioxide.
The length and distribution of the hydrocarbon molecules produced by the
reaction varies significantly depending on the choice of catalysts, reactors and
other operating conditions of the process, but ranges from methane (CH(4)) to
hydrocarbons containing as many as 100 carbon atoms that tend to be very linear
or parrafinic. Hydrocarbons with one to four carbon atoms tend to be gaseous at
room temperature and atmospheric pressure. Hydrocarbons with a molecular range
of 5 to 20 carbon atoms tend to be liquid at the same conditions. Above 20
carbons atoms, these molecules tend to form solids (wax) at room temperature.
81
<PAGE>
INITIAL DEVELOPMENT IN GERMANY, THE UNITED STATES AND SOUTH AFRICA
Prior to and during World War II, development of the Fischer-Tropsch process
occurred primarily in Germany. Due to Germany's significant coal resources and
limited oil and gas resources, these development activities focused exclusively
on the conversion of coal into fuels and chemicals. Between 1934 and 1945, nine
government-funded plants were built in Germany using coal as the feedstock. The
synthesis gas was generated by high-temperature gasification of coal with oxygen
and steam. An iron-based catalyst was used to manufacture synthetic
hydrocarbons, primarily motor fuels. Maximum combined production from these nine
plants reached approximately 16,000 Bbls/d in 1944.
Between 1943 and 1950, the United States Bureau of Mines, prompted by fears
of an oil shortage, extensively researched the coal-to-oil processes. However,
no commercial plants were built in the United States during that period. In
1950, Texaco participated in the Hydrocol plant, which was an 8,000 Bbl/d
synthetic fuel plant that was built in Brownsville, Texas that used natural gas
as the feedstock. The plant's design was based, in part, on the work done by the
United States Bureau of Mines. Although the plant was a technical success, it
was not economic to operate because a new pipeline and changes in the price of
oil created a more economic market for the natural gas, which resulted in the
shutdown of the plant in 1953.
In 1950, the South African government formed a predecessor of Sasol (which
was later privatized) to develop synthetic fuels using coal as the feedstock.
Their first plant, a 2,500 Bbl/d facility located in Sasolburg, South Africa,
became operational in 1955 and is still in operation today. This plant, known as
Sasol One, produces liquid fuels, pipeline gas, waxes and chemicals. Following
the Middle East oil crisis of 1973, an approximately 50,000 Bbl/d
Fischer-Tropsch plant, Sasol Two, was built in Secunda, South Africa, and has
been operating since 1980. Sasol Three, which was designed to be identical to
Sasol Two, has been operating since 1982. In 1989, the South African government
established Mossgas (Pty) Limited, a separate government-supported company, to
build a natural gas-based plant. A 23,000 Bbl/d plant utilizing Sasol technology
began production in 1993.
MODERN DEVELOPMENT BY MAJOR OIL COMPANIES
Following the oil embargo of 1973, further development efforts focused on
utilizing both coal and natural gas to produce synthesis gas for the
Fischer-Tropsch process. Several major oil companies and several governments
funded research into synthetic fuels. The worldwide recession of 1982 and the
related drop in oil prices resulted in the termination of most coal-related
development activities. However, development activities related to the
conversion of natural gas continued.
In 1985, Mobil commissioned a 14,500 Bbd/d plant located in Montuni, New
Zealand. The plant, which was not based on Fischer-Tropsch chemistry, was
designed to convert natural gas to methanol and then to gasoline. In 1990, the
plant was sold and was later converted into a methanol only facility. In 1993,
Shell commissioned a 12,500 Bbl/d plant located in Bintulu, Malaysia. The plant
is based on Shell's version of GTL technology, known as SMDS (Shell Middle
Distillate Synthesis) and is not currently operational. In October 1996, Exxon
reported that it was in discussions with the government of Qatar to construct a
GTL plant utilizing its GTL process (which Exxon calls the AGC-21 process).
Reports on Exxon's technology have suggested that costs associated with its
technology are lower than historic levels and that a plant based on Exxon
technology would be economical at a size of between 50,000 and 100,000 Bbls/day.
Exxon currently has a 200 Bbl/d pilot plant located in Baton Rouge, Louisiana.
The generally accepted capital cost target for a GTL plant to be cost
effective for the production of transportation fuel given energy prices
experienced in recent years is $30,000 per barrel of daily plant capacity or
less. Syntroleum believes that to date no company has built a commercial-scale
GTL plant that has broken this cost barrier. In addition, Syntroleum believes
that each of the current competitive GTL technologies has taken in excess of ten
years to develop.
82
<PAGE>
THE SYNTROLEUM PROCESS
The Syntroleum Process involves two catalytic reactions. The first reaction
converts natural gas into synthesis gas, and the second reaction converts the
synthesis gas into hydrocarbons through the Fischer-Tropsch reaction over a
proprietary catalyst. Syntroleum's goal in developing this process has been to
substantially reduce both the capital cost and the minimum economical size of a
GTL plant, as well as plant operating costs. Syntroleum believes that by
reducing the complexity of the process it has achieved this goal and that plants
based on the Syntroleum Process will be economic at relatively low levels of
throughput (2,000 Bbl/day and higher) based on energy prices of between $15 to
$20 per Bbl for oil and $.50 per MMBtu for stranded natural gas in remote
locations. Due to their relatively small footprint, Syntroleum believes that GTL
plants based on the Syntroleum Process can be built stand alone or placed on
skids, barges and ocean-going vessels, allowing these plants to be used at a
variety of locations, including isolated and offshore areas.
Syntroleum completed construction of its first pilot plant in 1990, and the
plant was successfully operated in 1990 and 1991. Between 1991 and 1995,
Syntroleum focused the majority of its research and development efforts on
catalyst development for the Fischer-Tropsch reaction. The pilot plant was
extensively modified in 1995 to test new catalysts and again in 1997 to test new
reactor designs. Syntroleum's nominal two Bbl/d pilot plant has successfully
demonstrated certain elements and variations of the Syntroleum Process. However,
no commercial-scale GTL plant based on the Syntroleum Process has yet been
constructed.
Although Syntroleum believes that the Syntroleum Process can be utilized in
commercial-scale GTL plants, there can be no assurance that such
commercial-scale GTL plants will be successfully constructed and operated or
that such plants will yield the same economics and results as those demonstrated
on a pilot plant basis. In addition, certain improvements to the Syntroleum
Process are under development and may not prove to be commercially applicable.
See "Risk Factors--Commercial Operation of GTL Plants Based on the Syntroleum
Process," "--Effect of Energy and Product Prices on the Economic Application of
GTL Plants Based on the Syntroleum Process" and "Effect of Operating Conditions
on the Economic Application of GTL Plants Based on the Syntroleum Process."
THE SYNTHESIS GAS REACTION
The first reaction in the Syntroleum Process--converting natural gas into
synthesis gas--involves the use of Syntroleum's proprietary Auto Thermal
Reformer (the "ATR") reactor. In this reactor, natural gas (consisting primarily
of methane), compressed air (consisting primarily of oxygen and nitrogen) and
minor amounts of steam are combined in the ATR at a specified temperature,
pressure and ratio to produce synthesis gas (which consists of hydrogen and
carbon monoxide) diluted with nitrogen. The ATR reactor is a refractory-lined
carbon steel vessel utilizing a nickel-based catalyst and is similar to the
secondary reformer in an ammonia plant. The production of synthesis gas in the
ATR reactor is a combination of exothermic and endothermic reactions that
generate a large amount of heat, a portion of which may be captured as steam for
other uses.
The following diagram illustrates the net reaction in the ATR:
FORMULA FOR STEP 1
CONVERSION OF NATURAL GAS TO SYNTHESIS
Natural Gas Air Steam Synthesis Gas (diluted with Nitrogen) Water
Catalyst
CH4 + O2 + N2 + H2O CO + H2 + N2 + H2O
83
<PAGE>
THE FISCHER-TROPSCH REACTION
The second reaction in the Syntroleum Process is the Fischer-Tropsch
synthesis reaction. In a one-pass process, synthesis gas diluted with nitrogen
flows into one or more reactors containing Syntroleum's proprietary catalyst. As
the synthesis gas passes over the catalyst, it is converted into hydrocarbons of
various molecular weights, with the byproducts, water and minor amounts of
carbon dioxide, also being produced. This reaction is also very exothermic. The
synthetic liquid hydrocarbons and water drain from the reactor vessel and are
subsequently separated. The nitrogen, carbon dioxide and gaseous hydrocarbons
also leave the reactor vessel and are subsequently burned in a heater to
generate steam or process heat or in a turbine to generate horsepower or
electricity.
The following diagram illustrates the Fischer-Tropsch reaction:
FORMULA FOR STEP 2
FISCHER - TROPSCH SYNTHESIS
Synthesis Gas (diluted with Nitrogen) Hydrocarbons Nitrogen Water
Catalyst
H2 + CO + N2 CnH(2n+2) + N2 + H2O
Syntroleum has developed several different proprietary catalysts systems for
use in the Fischer-Tropsch reaction in order to allow for matching a catalyst
system to a particular reactor design and provide more flexibility in matching
the Syntroleum Process to licensee applications. Most Fischer-Tropsch catalysts
produce a very waxy synthetic crude oil. Typically, more than 50% of a barrel of
synthetic crude oil is solid at room temperature due to the high wax content.
These waxy hydrocarbons are typically processed through a hydrocracker to
convert them into liquid hydrocarbons at room temperature that can be further
processed into transportation fuels. Syntroleum's proprietary "high alpha"
catalyst produces a very waxy synthetic crude oil which can also be further
processed through hydrocracking to make liquid fuels, or with other refining
processes, the waxy portion can be converted into higher value specialty
products such as synthetic lubricants. Syntroleum's proprietary "chain-limiting"
catalyst currently under development is designed to produce hydrocarbons
primarily in the liquid fuels range, without producing wax. Use of this catalyst
should further lower the capital cost of a plant by permitting the use of
high-capacity fluidized-bed reactors and eliminating the need for hydrocracking
equipment. Further development of Syntroleum's chain limiting catalyst is
required before it will be available for commercial use. Syntroleum has
developed and continues to develop catalysts associated with the hybrid,
multi-phase (HMX) reactor and slurry reactor described below. Syntroleum
estimates that the useful life of its Fischer-Tropsch catalysts will be three to
five years under normal operating conditions.
FISCHER-TROPSCH REACTOR DESIGNS
Syntroleum has tested three different proprietary Fischer-Tropsch reactor
designs and associated catalysts for use in the Syntroleum Process at its pilot
plant. These include a fixed bed vertical tubular reactor, a fluidized bed
reactor for use with Syntroleum's chain-limiting catalyst and a proprietary
hybrid multi-phase reactor, labeled "HMX," developed under Syntroleum's joint
development agreement with Texaco. In addition, Syntroleum has tested a large
bench scale slurry bubble column reactor developed under Syntroleum's agreement
with ARCO. ARCO and Syntroleum are currently designing a 70 Bbl/d pilot plant
that will further test the slurry bubble column reactor on a larger scale.
Syntroleum believes that the HMX reactor will be the most commonly selected
reactor in the near term because of its high capacity and simpler operation. A
horizontal reactor design is also being developed by Syntroleum and may be
preferred in GTL plants on ships operating in rough water conditions, where its
low center of gravity may be an important feature. Syntroleum has several
pending United States and foreign patent applications related to its
Fischer-Tropsch reactors.
84
<PAGE>
HEAT INTEGRATION AND POWER RECOVERY
Compression energy is the primary energy consumer in the Syntroleum Process.
Engineering studies conducted by Bateman and Brown & Root have demonstrated that
the heat generated by the two reactions in the process can be captured in the
form of mechanical and electrical energy sufficient to supply all of the plant's
needs plus a surplus for other uses if desired. Syntroleum has developed several
heat integration and power recovery schemes to broaden the flexibility of the
Syntroleum Process and, in some cases, lower the capital cost as well as the
number of pieces of major equipment in a plant.
Different configurations of GTL plants based on the Syntroleum Process can
also change the energy sources within the plant and the excess energy produced.
For example, a steam turbine can be incorporated into the process and utilize
the steam produced by the ATR and Fischer-Tropsch reactions to produce energy
for compression, electrical power and commercial sale. In addition, Syntroleum
has developed a configuration that utilizes the low btu residue stream from the
process as feedstock for a specially designed gas turbine that can utilize very
low btu gas. Several of these heat integration and power recovery schemes are
the subject of United States patents and patents pending and foreign patent
applications and are a part of Syntroleum's joint development efforts with
others.
ADVANTAGES OVER COMPETING PROCESSES
Syntroleum believes that the method by which it uses air is a unique
characteristic and a primary competitive advantage of the Syntroleum Process.
Competitive processes for the conversion of natural gas into synthetic
hydrocarbons generally utilize either steam reforming or a combination of steam
reforming and partial oxidation with pure oxygen in the conversion of natural
gas to synthesis gas. Steam reformers react steam with natural gas to produce
synthesis gas. A steam reformer is a relatively complex unit that consists of a
large fired heater with catalyst-filled tubes. Because the reaction operates at
high temperature and pressure, the tubes are made of exotic alloys and are
expensive. Operating costs are increased due to the endothermic nature of the
process, which requires a continuous input of heat. Processes that utilize a
combination of steam reforming and partial oxidation with pure oxygen also
require an air separation plant to produce pure oxygen. The air separation plant
must be constructed with expensive metals and materials, because its operation
involves cryogenic temperatures and requires significant energy input, as well
as operating risks inherent in handling pure oxygen. Moreover, the use of pure
oxygen generates synthesis gas that is free of nitrogen. While the
Fischer-Tropsch reaction in competitive processes is designed to occur without
the presence of nitrogen, the Syntroleum Process is designed to utilize the
nitrogen in the Fischer-Tropsch process to remove a portion of the heat
generated by the process. Use of the ATR in the Syntroleum Process also provides
advantages over competitive processes because of its relatively low capital and
operating costs. In addition to lowering the capital cost, the elimination of an
air separation plant and steam reformer has the additional advantage of reducing
the size and complexity and lowering the energy requirement of GTL plants based
on the Syntroleum Process.
Syntroleum believes that another advantage of the Syntroleum Process is the
absence of recycle loops necessary in competitive processes, which also tends to
lower capital costs. In the Fischer-Tropsch stage of some competitive processes,
a recycle loop is utilized in order to maximize the output of hydrocarbons and
help control the heat generated by the reaction. As a result, these processes
are designed to avoid the introduction of inert gases (including nitrogen) into
the process, which would otherwise build up in the system and hinder the
reaction.
Syntroleum believes that the advantages of the Syntroleum Process over
competitive processes will enable GTL plants based on the Syntroleum Process to
be constructed at a relatively low cost per daily barrel of production capacity
compared to plants based on competing processes. As a result, these GTL plants
are expected to be able to be economically utilized at relatively lower levels
of throughput compared to plants based on competing processes. Due to their
relatively small footprint, Syntroleum believes that GTL plants based on the
Syntroleum Process can also be placed on skids, barges and ocean-going vessels,
85
<PAGE>
allowing these plants to be used at a variety of locations, including isolated
and offshore areas. Syntroleum believes that this mobility will further reduce
the amount of natural gas production necessary to support a GTL plant for an
acceptable period of time and will reduce the risk of GTL plant construction
projects.
INTELLECTUAL PROPERTY
Syntroleum pursues protection of the Syntroleum Process primarily through a
combination of trade secrets, patents and rights to the patents and trade
secrets of others relating to components critical to the Syntroleum Process.
Syntroleum's policy is to seek, when appropriate, protection for its proprietary
products and processes by filing patent applications in the United States and
certain foreign countries, and to encourage or further the efforts of others who
have licensed technology to Syntroleum to file such patent applications. It is
also Syntroleum's policy to seek, when appropriate, licenses under the patents
or trade secrets of others, so that it can sell the products or use the
processes covered by those patents in connection with its own technology.
Syntroleum currently owns or has licensed rights to over 43 patents or
patent applications. The following patents relating to the Syntroleum Process
have been issued to Syntroleum: United States Patent No. 4,833,170 which issued
May 23, 1989 entitled "Process and Apparatus for the Production of Heavier
Hydrocarbons from Gaseous Light Hydrocarbons" and United States Patent No.
4,973,453, which issued November 27, 1990 entitled "Apparatus for the Production
of Heavier Hydrocarbons from Gaseous Light Hydrocarbons." Subsequent patents
related to the Syntroleum Process have been granted in Argentina, Australia,
Canada, China, India, Malaysia, Mexico, Nigeria, Norway, Pakistan, the United
Kingdom and Venezuela and an application in The Netherlands is still pending. In
addition, Syntroleum has acquired United States Patent No. 5,593,569 which
issued January 14, 1997 entitled "Hydrocracking Processes Using a Homogenous
Catalysis System Comprising a Metal Halide Lewis Acid, a Bronsted Acid and an
Alkane," as well as royalty free license rights to one United States patent and
three United States patent applications from certain of its licensees.
Syntroleum also has seven additional patent applications filed in the United
States and approximately 16 foreign applications based on one or more of these
United States applications.
In general, the patent position of Syntroleum involves complex legal,
scientific and factual questions and involves uncertainties. There can be no
assurance that any other patents will be granted with respect to any of
Syntroleum's patent applications filed by Syntroleum or its licensors.
Furthermore, there can be no assurance that any patents issued or licensed to
Syntroleum will provide commercial benefit to Syntroleum or will not be
infringed, invalidated or circumvented by others.
In addition to patent protection, Syntroleum also relies significantly on
trade secrets, know-how and technological advances which it seeks to protect, in
part, by confidentiality agreements with its collaborators, licensees, employees
and consultants. This is particularly true in a number of foreign countries
where patent protection is uncertain and often difficult to predict. There can
be no assurance that these agreements will not be breached, that Syntroleum
would have adequate remedies for any breach or that Syntroleum's trade secrets
and proprietary know-how will not otherwise become known or be independently
discovered by others. See "Risk Factors--Licenses, Patents and Trade Secrets."
Syntroleum has received federal trademark and service mark registrations for
the name "Syntroleum" in the United States and has pending foreign trademark
applications for the name "Syntroleum." Syntroleum also has pending United
States trademark applications seeking protection for marks that will be used as
brand names for Syntroleum products.
With respect to Syntroleum's rights to use the technology covered by patents
and trade secrets of others in the Syntroleum Process, see "--Strategic
Relationships."
Commercialization of Syntroleum's GTL technologies may give rise to claims
that the technologies infringe upon the patents or other proprietary rights of
others. Although it is Syntroleum's policy to
86
<PAGE>
regularly review patents that may have applicability in the GTL industry,
Syntroleum may not become aware of such patents or rights until after it has
made a substantial investment in the development and commercialization of those
technologies. Legal actions could be brought against Syntroleum, its partners or
licensees, claiming damages and seeking an injunction that would prevent
Syntroleum, its partners or licensees, from testing, marketing or
commercializing the affected technologies. Major oil and gas companies seeking
to gain a competitive advantage may have an interest in bringing such an action.
If such action were successful, in addition to potential liability for damages,
Syntroleum, its partners or licensees could be required to obtain a license in
order to continue to test, market or commercialize the affected technologies.
There can be no assurance that any such required license would be made available
or, if available, would be available on acceptable terms, and Syntroleum may be
prevented entirely from testing, marketing or commercializing the affected
technology by a company that intends to maintain its competitive advantage.
Syntroleum may have to expend substantial resources in litigation, either in
enforcing its patents, defending against the infringement claims of others, or
both, and many possible claimants, such as major oil and gas companies, have
significantly more resources to spend on such litigation. Syntroleum intends to
vigorously enforce its patents and defend against the infringement claims of
others. Syntroleum has conducted a review of approximately 600 existing patents
applicable to the GTL field, and believes that it is not infringing on the
patents of others. However, Syntroleum has not conducted an exhaustive patent
search.
EMPLOYEES
Syntroleum had 47 employees at April 1, 1998, including 19 employees
involved in research and development and pilot plant operations, 10 employees in
business development and marketing, six employees in engineering and 12
employees in finance, legal and administration. None of Syntroleum's employees
is represented by a labor union. Syntroleum has experienced no work stoppages
and believes that its relations with its employees are excellent.
PROPERTY
Syntroleum owns and operates a nominal two barrel-per-day pilot plant
located on two leased acres in Tulsa, Oklahoma. Syntroleum also leases 4,500
square feet of laboratory and office space and approximately 37,000 square feet
of executive office space in Tulsa, Oklahoma. In addition, Syntroleum has
entered into an agreement to acquire a laboratory facility, including
approximately 16,500 square feet of laboratory space and approximately 100 acres
of property on which the laboratory is located. Syntroleum has also entered into
a letter of intent with respect to the acquisition of approximately 35 acres of
land in Sweetwater County, Wyoming on which the Sweetwater Plant is planned to
be constructed.
COMPETITION
The development of GTL technology is highly competitive. The Syntroleum
Process is based on chemistry that has been used by several companies in
synthetic fuel projects during the past 60 years. Historic experience has
indicated that these projects were not economic alternatives for conversion of
natural gas to liquids; and given the volumes of stranded natural gas reserves
around the world, a significant opportunity exists for anyone who can develop
economic GTL technology. Syntroleum's competitors include major integrated oil
companies, several of which have developed or are developing competing GTL
technology, including Exxon, Shell and Sasol. Each of these companies has
significantly more financial and other resources than Syntroleum to spend on
research and development of its technology and on funding construction and
operation of commercial GTL plants. These competitors also have a greater
ability to bear the economic risks inherent in the development of GTL
technology. In addition, several small companies have developed, and are
continuing to develop, competing GTL technologies. The Department of Energy has
also sponsored a number of research programs relating to GTL technology,
including a recent program relating to the development of a ceramic membrane
87
<PAGE>
technology that could potentially lower the cost of producing oxygen that is
used to produce synthesis gas in competitive processes. There can be no
assurance that these companies, the Department of Energy or others will not
develop technologies that will be more commercially successful or accepted than
Syntroleum's technology or that will render the Syntroleum Process obsolete. See
"Risk Factors--Reliance on Technological Development and Possible Technological
Obsolescence" and "Information Regarding Syntroleum--Historical Development of
the Technology."
The market for natural gas is highly competitive in many areas of the world
and may affect Syntroleum's business, operating results and financial condition.
The cryogenic conversion of natural gas to liquefied natural gas (LNG) may
compete with GTL plants for use of natural gas as feedstocks in many locations.
Local markets, power generation, ammonia, methanol and petrochemicals are
alternative markets for natural gas which will also be competitive uses. Unlike
Syntroleum, many of its competitors also produce or have access to large volumes
of natural gas, which may be used in connection with their GTL operations. The
availability of natural gas at economic prices for use as feedstocks for GTL
plants may also depend on whether natural gas pipelines are located in the areas
where such plants are located. New pipelines may need to be built in, or
existing pipelines may need to be expanded into, areas where GTL plants are
built, and this may affect the operating margins of such plants. The United
States and Western Europe have well developed natural gas markets. In these
markets, the relationship between natural gas prices and liquid hydrocarbon
prices is such that investments in GTL plants that produce fuels are unlikely to
be economic in most circumstances. Other areas around the world that have
developed local markets for gas may also have higher valued uses than GTL
technology. In addition, the commercialization of the GTL technologies may have
an adverse effect on the availability to GTL plants of natural gas at economic
prices. The oil and gas industry also competes with other industries that supply
the energy and fuel requirements of industrial, commercial, individual and other
consumers.
GOVERNMENT REGULATION
Syntroleum will be subject to extensive federal, state and local laws and
regulations relating to the protection of the environment, including laws and
regulations relating to the release, emission, use, storage, handling, cleanup,
transportation and disposal of hazardous materials and employee health and
safety. In addition, Syntroleum's GTL plants will be subject to the
environmental and health and safety laws and regulations of any foreign
countries in which such plants are to be located. Violators of such laws and
regulations may be subject to substantial fines, criminal sanctions or third
party lawsuits and may be required to install costly pollution control equipment
or, in certain extreme cases, curtail operations. Further, such laws and
regulations may limit or prohibit activities on certain lands lying within
wilderness areas, wetlands or other protected areas. Syntroleum's operations in
the United States are also subject to the federal "Superfund" law, and similar
state laws, which can impose joint and several liability for site cleanup,
regardless of fault, upon certain statutory categories of parties, including
Syntroleum, that sent wastes offsite for disposal and current owners and
operators of property.
Environmental laws and regulations often require the acquisition of a permit
or other authorization before certain activities may be conducted and compliance
with such laws and regulations, and any requisite permits, can increase the
costs of designing, installing and operating Syntroleum's GTL plants. In
connection with the construction of the Sweetwater Plant, Syntroleum will be
required to obtain various state permits relating to air and water discharges,
the final terms of which have not yet been determined.
Although Syntroleum does not believe that compliance with environmental and
health and safety laws in connection with current Company operations will have a
material adverse effect on Syntroleum, the future costs of complying with
environmental laws and regulations and containing or remediating contamination
cannot be predicted with certainty and there can be no assurance that material
liabilities or costs related to environmental matters will not be incurred in
the future or that such environmental liabilities or costs will not have a
material adverse effect on Syntroleum's business, operating results and
financial condition. Syntroleum does not currently carry environmental
impairment liability insurance to protect it
88
<PAGE>
against such contingencies but may, in the future, seek to obtain such insurance
in connection with its participation in the construction and execution of GTL
plants if such coverage is available at reasonable cost and without unreasonably
broad exclusions.
LEGAL PROCEEDINGS
Syntroleum is not a party to, nor is any of its property the subject of, any
pending legal proceedings which, in the opinion of management, are expected to
have a material adverse effect on Syntroleum's consolidated results of
operations or financial position.
89
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF SYNTROLEUM
The following information should be read in conjunction with Syntroleum's
financial statements and notes thereto presented elsewhere in this Joint Proxy
Statement/Prospectus.
OVERVIEW
Syntroleum was incorporated in 1984 to develop a lower-cost GTL process
based on classic Fischer-Tropsch chemistry. Over the next several years,
significant progress was made in the development of the Syntroleum Process and
Syntroleum's initial patents were issued in 1989 and 1990. Syntroleum completed
construction of its first pilot plant in 1990, which was successfully operated
in 1990 and 1991. Between 1991 and 1995, Syntroleum focused the majority of its
research and development efforts on catalyst development. The pilot plant was
extensively modified in 1995 to test new catalysts and again in 1997 to test new
reactor designs. These pilot runs successfully demonstrated certain elements and
variations to Syntroleum's GTL technology. Syntroleum believes that significant
opportunity exists for cost-effective GTL plants due to the large volumes of
natural gas reserves worldwide that are currently not marketable because
distance to market makes their utilization uneconomical.
Syntroleum's strategy for commercializing the Syntroleum Process involves
the following key elements: (i) entering into agreements with oil and gas
industry participants to license the Syntroleum Process for use in GTL plants
designed to produce synthetic crude oil and liquid fuels, (ii) establishing
joint ventures with oil and gas industry partners and/or financial partners to
design, construct and operate GTL plants designed to produce specialty products,
(iii) making available mobile GTL plants to customers on a contract basis
through efforts with industry partners and others, and (iv) continuing to reduce
costs and develop process improvements through research and development
activities and acquisitions. To date, Syntroleum has entered into master license
agreements with Texaco, ARCO and Marathon, and has entered into volume license
agreements with YPF, Enron and Kerr-McGee. Syntroleum received an aggregate of
$11 million and rights to certain technologies in connection with these license
agreements. Syntroleum is currently in discussions with several other oil and
gas companies with respect to additional license agreements and joint ventures
to develop specialty product GTL plants. To date, Syntroleum has entered into
joint development arrangements with ABB, AGC, AMEC, ARCO, Bateman, Brown & Root,
Catalytica Advanced Technologies, Catalytica Combustion Systems, Marathon and
Texaco. Syntroleum has formed a joint venture with Enron with respect to the
design and construction of a specialty products plant in Sweetwater County,
Wyoming, which is scheduled to be operational in 2001. Syntroleum has also
entered into a joint development agreement with Texaco and Brown & Root with
respect to the design and construction of a 2,500 Bbl/d or larger GTL plant that
is scheduled to be operational by the end of 1999 or early 2000.
Because Syntroleum expects to incur significant costs in connection with the
construction of its specialty product plants and plants constructed through its
efforts with industry partners and others and does not anticipate receiving any
revenues from such ventures in the near future, it may operate at a loss unless
and until revenues are recognized from these plants or additional license fees
are received from licensees.
OPERATING REVENUES
GENERAL. Syntroleum expects to receive revenue in the future from four
sources: licensing, catalyst sales, sales of products from specialty product GTL
plants in which Syntroleum owns an equity interest and revenues from providing
mobile GTL plants on a contract basis. Until the commencement of commercial
operation of GTL plants in which Syntroleum owns an interest, Syntroleum expects
that its cash flow will consist primarily of license fee deposits, site license
fees, catalysts sales and revenues associated with joint development activities.
However, upon the commercial operation of specialty product GTL plants or mobile
GTL plants, revenues from the sale of products or from customers utilizing such
plants on a contract basis, respectively, could exceed Syntroleum's license
revenues. Syntroleum's future operating
90
<PAGE>
revenues will depend on the successful commercial construction and operation of
GTL plants based on the Syntroleum Process, the success of competing GTL
technologies and other competing uses for natural gas. Syntroleum's results of
operations and cash flows are expected to be affected by changing oil prices. If
the price of oil increases (decreases), there could be a corresponding increase
(decrease) in operating revenues. See "Risk Factors--Commercial Operation of GTL
Plants Based on the Syntroleum Process," "--Effect of Energy and Product Prices
on the Economic Application of GTL Plants Based on the Syntroleum Process,"
"--Effect of Operating Conditions on the Economic Application of GTL Plants
Based on the Syntroleum Process," "--Competition," "--Reliance on Licensees" and
"--Competing Uses for Natural Gas."
LICENSE REVENUES. The revenue earned from licensing the Syntroleum Process
is expected to be generated through four types of contracts: master license
agreements, volume license agreements, regional license agreements and site
license agreements. Master, volume and regional license agreements provide the
licensee with the right to enter into site license agreements for GTL plants. A
master license agreement grants broad geographic and volume rights, while volume
license agreements limit the total production capacity of all GTL plants
constructed under the agreement to specified amounts and regional license
agreements limit the geographical rights of the licensee. Master, volume and
regional license agreements require an upfront deposit that may offset or
partially offset license fees for future plants payable under site licenses.
Syntroleum has acquired technology, commitment of funds for joint development
activities, services or other consideration in lieu of the initial deposit in
cases where Syntroleum believed such technologies or commitments had a greater
value. Although Syntroleum has received cash funds from the sale of its licenses
since commencement of licensing activities substantially in excess of its cash
expenses, because of its revenue recognition policies it has recorded losses for
accounting purposes.
Syntroleum's site license agreements require fees to be paid in increments
when certain milestones during the plant design and construction process are
achieved. The amount of the license fee under Syntroleum's existing master and
volume license agreements is determined pursuant to a formula based on the
present value of the product of (i) the yearly maximum design capacity of the
plant, (ii) an assumed life of the plant and (iii) Syntroleum's per barrel rate,
which currently is approximately $.50 per barrel of daily capacity, regardless
of plant capacity. Syntroleum's licensee fees may change from time to time based
on the size of the plant, improvements that reduce plant capital cost and
competitive market conditions. Syntroleum's accounting policy is to defer all
upfront deposits under master, volume and regional license agreements and
license fees under site license agreements and recognize 50% of such deposits
and fees as revenue in the period in which the process design package under the
agreement is delivered and recognize 50% of the deposits and fees when the plant
has passed certain performance tests. The amount of license revenue Syntroleum
earns will be dependent on the construction of plants by licensees, as well as
the number of licenses it sells in the future.
CATALYST REVENUES. Syntroleum expects to earn revenue from the sale of its
proprietary catalysts to its licensees. Syntroleum's license agreements require
Syntroleum's catalyst to be used in the initial fill for the licensee to receive
Syntroleum's process guarantee. After the initial fill, the licensee may use
other catalyst vendors if appropriate catalysts are available. The price for
catalysts purchased from Syntroleum pursuant to license agreements will be equal
to Syntroleum's cost plus a specified margin. Syntroleum will receive revenue
from catalyst sales if and when its licensees purchase catalysts. Syntroleum
expects that catalysts will need to be replaced every three to five years.
PROVIDE GTL PLANTS ON A CONTRACT BASIS. Through joint efforts with industry
partners and others, Syntroleum intends to make mobile GTL plants available to
customers on a contract basis. Syntroleum believes that there is a significant
market for users who need GTL plants for applications that do not justify the
capital investment of a dedicated GTL plant. Such applications include: extended
well testing in areas with stringent flaring regulations, conversion of small
associated gas fields that are not large enough to justify the capital
investment of a permanent GTL plant and short-term use of a GTL plant on large
fields to generate cash flow for the customer while a permanent GTL plant is
being built or while awaiting
91
<PAGE>
pipeline hookup. Syntroleum anticipates that in the future standardized sizes
and configurations would be developed for GTL plants for sale to industry
customers with the objective of lowering the purchase price. Syntroleum
anticipates that its revenues through these efforts will be generated by a
variety of sources, including lease payments, tolling arrangements, plant sales
and rent to own arrangements.
SPECIALTY PRODUCT GTL PLANT REVENUES. Syntroleum intends to develop several
specialty product GTL plants in which it intends to retain significant equity
interests. These plants will enable Syntroleum to gain experience with the
commercial operation of the Syntroleum Process and, if successful, are expected
to provide ongoing revenues. The anticipated specialty products of these plants
(I.E., synthetic lube base oils, synthetic drilling fluid, waxes and liquid
normal paraffins) have historically been sold at premium prices and are expected
to result in relatively high margins for these plants. Syntroleum anticipates
forming several joint ventures with oil and gas industry and financial partners
in order to finance and operate these plants, of which the Sweetwater Plant is
the first example. Syntroleum's plans for plants located outside of the United
States will focus on partnering with companies who have low cost gas reserves in
strategic locations and/or have distribution networks in place for the specialty
products to be made in each plant.
RESEARCH AND DEVELOPMENT REVENUE. Syntroleum continually conducts research
and development activities in order to reduce the capital and operating costs of
GTL plants based on the Syntroleum Process. Syntroleum conducts its research and
development activities primarily through two initiatives: (i) independent
development utilizing its own resources and (ii) formal joint development
arrangements with its licensee partners and others. Through these joint
development agreements, Syntroleum may receive revenue as reimbursement for
certain research and development expenses. Under certain agreements, the joint
development partner may receive credits against future license fees for monies
expended on joint research and development.
OPERATING EXPENSES
Syntroleum's operating expenses historically have consisted primarily of
pilot plant expenses, research and development expenses and general and
administrative expenses, which include costs associated with general corporate
overhead, compensation expenses, legal expenses and other related administrative
functions. Syntroleum's policy is to expense research and development costs as
incurred. All of these expenses were associated with Syntroleum's development of
the Syntroleum Process. Syntroleum has also recognized depreciation and
amortization expense primarily related to office and computer equipment. Upon
the commencement of commercial operations, Syntroleum will incur cost of sales
expense relating primarily to the cost of natural gas feedstocks for its
specialty plants and will incur operating expenses relating to such plants,
including labor, supplies and maintenance. Syntroleum also expects to incur
significant expenses in connection with the start-up of its GTL plants. For
example, Syntroleum expects that its expenses will increase at the time of the
currently planned start-up of the Sweetwater Plant in 2001. Due to the
substantial capital expenditures associated with the construction of GTL plants,
Syntroleum expects to incur significant depreciation and amortization expense in
the future. Syntroleum also expects that its general and administrative expenses
will increase substantially as it expands its commercial operations. Additional
expenses are expected to be incurred as each additional commercial project
commences. For example, Syntroleum expects to significantly increase the number
of employees, has entered into a lease for office facilities that will result in
increased expenses and has entered into an agreement to acquire a 16,500 square
foot laboratory located on approximately 100 acres on which it intends to
increase its laboratory and pilot plant operations. Syntroleum also expects to
continue to incur higher research and development expenses as it continues to
develop and improve its GTL technology, and it expects that pilot plant expenses
will increase over the next several years.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
OPERATING REVENUE. Revenues increased by $1,391,000 from $616,000 in 1996
to $2,007,000 in 1997. The increase resulted from increased joint development
activities with Texaco relating to the hybrid, multi-
92
<PAGE>
phase (HMX) reactor. During 1997, Syntroleum also received $11,000,000 in
deposits and option fees related to license agreements that have been recorded
as a deferred revenue until they are recognized as revenue.
PILOT PLANT EXPENSE. Expenses from pilot plant and research and development
activity increased by $1,727,000 from $1,120,000 in 1996 to $2,847,000 in 1997.
The increase resulted from increased activity at the pilot plant relating to the
hybrid, multi-phase (HMX) reactor development and higher laboratory costs
associated with more laboratory reactors.
CATALYST SERVICES. Catalyst services increased from $0 in 1996 to
$4,800,000 in 1997. The increase resulted from a transaction whereby (i)
Criterion exercised a portion of an option and purchased 167,000 shares of
Syntroleum Common Stock for $2,004,000, (ii) Syntroleum and Criterion modified
an agreement regarding future purchases of catalyst by Syntroleum and (iii)
Syntroleum and Criterion entered into an agreement pursuant to which Syntroleum
issued 400,000 shares of Syntroleum Common Stock (valued at $12.00 per share) to
Criterion in consideration for all prior services rendered to and catalyst
received by Syntroleum from Criterion and other consideration. Accordingly, this
$4,800,000 was expensed.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses
increased by $2,847,000 from $1,402,000 in 1996 to $4,249,000 in 1997. The
increase of $2,847,000 in general and administrative expense resulted from
higher compensation expense due to additional staff and increased travel and
professional services due to increased focus on commercializing the Syntroleum
Process.
OTHER INCOME (EXPENSE). Other income rose by $365,000 from $(12,000) in
1996 to $353,000 in 1997. The increase resulted from higher interest income due
to higher cash balances and lower interest expense due to the conversion of a
convertible debenture into shares of Syntroleum Common Stock. See "--Liquidity
and Capital Resources."
PROVISION FOR INCOME TAXES. Syntroleum incurred a loss in 1996 and in 1997
and did not recognize an income tax benefit on such loss.
NET INCOME (LOSS). Net loss increased by $7,675,000 from $(1,937,000) in
1996 to $(9,612,000) in 1997 as a result of the factors described above.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
OPERATING REVENUES. Operating revenues increased by $571,000 from $45,000
in 1995 to $616,000 in 1996. This increase was primarily due to increased
revenues from joint development activity associated with the development of the
multi-phase hybrid reactor.
PILOT PLANT EXPENSE. Pilot plant expense increased by $449,000 from
$671,000 in 1995 to $1,120,000 in 1996. This increase was also due to increased
joint development activity.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses
increased by $834,000 from $568,000 in 1995 to $1,402,000 in 1996. This increase
was primarily due to an increase in salaries and benefits expense of $409,000
from $166,000 in 1995 to $575,000 in 1996. The increase in salaries and benefits
was due to hiring additional personnel. In addition, general and administrative
expense increased as a result of an increase in legal expenses, travel and
general office expenses due to increased focus on commercializing the Syntroleum
Process.
OTHER INCOME (EXPENSE). Syntroleum had net other income of $60,000 in 1995
compared to net other expense of $(12,000) in 1996. This increased expense
resulted from an increase in interest expense due to the issuance of a $1
million convertible debenture in 1996 to Marathon. See "--Liquidity and Capital
Resources."
NET INCOME (LOSS). Net loss increased by $791,000, or 69%, from
$(1,146,000) in 1995 to $(1,937,000) in 1996 as a result of the factors
described above.
93
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The principal liquidity needs of Syntroleum have historically been to fund
expenditures relating to its pilot plant, to fund research and development
activities and to fund working capital. Syntroleum's primary sources of
liquidity have historically been equity capital contributions. Syntroleum
historically has not incurred significant amounts of indebtedness, although in
1996 it issued a $1 million principal amount convertible debenture to Marathon
Oil Company. In March 1997, the debenture and accrued interest was converted
into 93,059 shares of Syntroleum Common Stock at $12 per share.
Cash flows (used in) provided by operations were ($1,003,000), ($1,660,000)
and $6,748,000 in 1995, 1996 and 1997, respectively. The decrease in cash flows
provided by operations in 1996 as compared to 1995 was due primarily to higher
pilot plant expenses, salaries and legal and professional fees. The increase in
cash flows provided by operations in 1997 as compared to 1996 was primarily the
result of the receipt of deposits and options related to license agreements and
joint development fees. From January 1, 1995 to December 31, 1997, cash flows
used in investment activities were $1,334,000, which primarily related to office
equipment and leasehold improvements. Cash flows provided by financing
activities were $1,247,000, $2,500,000 and $3,643,000 during 1995, 1996 and
1997, respectively, and primarily consisted of equity contributions and receipt
of funds upon the exchange of options to purchase Syntroleum Common Stock by
Criterion. During 1997, Sweetwater LLC received $1,500,000 from SLH as discussed
below, which is included as a financing activity.
The construction of Syntroleum's specialty product GTL plants will require
significant capital expenditures. In addition, pursuant to a joint development
agreement with Catalytica Advanced Technologies, Petro-Canada and Technociso,
Inc., Syntroleum is obligated to contribute $400,000 per year for three years
toward the cost of the development of a single step natural gas conversion
process, subject to the project achieving certain milestones. See "Information
Regarding Syntroleum--Strategic Relationships--Catalytica Advanced
Technologies." In the Merger, SLH will contribute approximately $50 million in
assets, consisting of approximately $37 million of cash, short-term investments
and net receivables and approximately $13 million of other assets being
liquidated, in each case as of December 31, 1997. Following the Merger,
Syntroleum plans to use these assets to meet its short-term commitment to fund
its specialty product GTL plants, research and development and working capital.
Substantial additional funds will be required for the construction of currently
planned plants, as well as any additional plants. Following the Merger,
Syntroleum intends to obtain additional funding through joint ventures,
partnerships, license agreements and other strategic alliances, as well as
various other financing arrangements. In addition, Syntroleum may seek debt or
equity financing in the capital markets. In the event such capital resources are
not available to Syntroleum, its GTL plant development and other activities may
be curtailed. See "Risk Factors--Additional Financing Requirements and Access to
Capital Funding."
THE SWEETWATER GTL PLANT
The capital costs of the Sweetwater Plant are currently estimated to be
approximately $230 million, of which approximately $70 million relate to
estimated costs for a full refining unit for specialty products, electrical
generation equipment, interest during construction, offsite facilities,
construction contingencies and spares. However actual costs may vary from this
estimate for a variety of reasons, including those described under "Risk
Factors," and such variance may be material. The current capital structure
anticipates the project will require equity contributions of approximately $45
million and subordinated and senior debt of approximately $185 million.
Ownership percentages are currently anticipated to be as follows: Syntroleum -
74%, Enron - 11%, an additional equity partner - 11% and a project development
company which will contribute land, transportation, water contracts and other
services - 4%; however, actual ownership percentages may vary from these
estimates based on the terms of subsequent financings.
Syntroleum has issued a site license and contributed $500,000 to Sweetwater
LLC, which Syntroleum formed to own and operate the plant. Upon consummation of
the Merger, Syntroleum intends to contribute an additional $15 million and,
based on current plans would retain an approximately 74%
94
<PAGE>
interest in Sweetwater LLC. However, if Syntroleum obtains additional capital,
it may increase such contribution and retain an additional interest. In June
1997, SLH contributed $1.5 million in exchange for an interest in Sweetwater LLC
(which is expected to be approximately 1% following expected additional equity
contributions). In January 1998, Enron contributed $1 million in exchange for a
4% interest in Sweetwater LLC, and agreed to contribute an additional
approximately $14 million in exchange for an additional 7% interest in
Sweetwater LLC upon the satisfaction of certain conditions, including the
execution of agreements which provide for the remaining equity and debt
financing for the plant, the execution of fixed price engineering and
construction contracts with Bateman and the execution of acceptable agreements
for the sale of products produced at the plant. Under a letter of intent entered
into in April 1997, a 4% interest in Sweetwater LLC would be issued to the
current owner of the land on which the plant is scheduled to be constructed in
exchange for such land, the assignment of contracts primarily relating to
feedstock and product transportation and water supply and disposal, and certain
services.
In connection with Enron's contribution to Sweetwater LLC, Enron and
Syntroleum entered into an option agreement which provides that in the event of
the completion of an underwritten public offering and the repayment of at least
50% of the senior term loan financing for Sweetwater LLC, Enron may elect to
exchange its interest in Sweetwater LLC for a number of shares of Syntroleum
Common Stock equal to the quotient of the amount of Enron's contributions to
Sweetwater LLC and 130% of the average market price of the Syntroleum Common
Stock during the first 30 trading days following an underwritten public
offering. Such option terminates on the eighth anniversary of the date on which
the plant passes certain performance tests. In the event Syntroleum completes a
public offering and such repayment does not occur by such eighth anniversary,
Enron may elect to purchase such number of shares of Syntroleum Common Stock for
the amount of Enron's contributions to Sweetwater LLC. The option agreement also
provides that at any time following the ninth year after the plant passes
certain performance tests, Syntroleum may elect to purchase Enron's interest in
Sweetwater LLC for a price equal to three times the annual average cash
distributions made to Enron by Sweetwater LLC during the preceding three-year
period. SLH has entered into a substantially similar option agreement with
Syntroleum.
Syntroleum plans to fund the remaining estimated capital cost of the plant
through project equity and debt financing. Syntroleum has entered into term
sheets with respect to a portion of the debt financing, which term sheets are
subject to the execution of definitive documentation. The plant is currently
being designed by Bateman, and Syntroleum expects that Bateman will also
construct the plant. If financing is obtained, construction of the plant is
scheduled to commence in early 1999, and the plant is scheduled to be
operational in 2001.
THE JOINT VENTURE GTL PLANT
Syntroleum expects that the capital cost of the GTL plant that Syntroleum
intends to develop through its joint venture with Texaco and Brown & Root will
be funded through equity contributions by the existing or additional venturers.
It is anticipated that Syntroleum, Texaco and Brown & Root would each initially
own a 33 1/3% interest in a joint venture to be formed to own the plant and that
Texaco would be the designated operator of the plant. However, if additional
interests in this joint venture are sold to third parties, such interests would
be diluted. The project development agreement provides that Syntroleum, Texaco
and Brown & Root will initially contribute $1.5 million to the project in the
form of cash or services, and that additional contributions may be made by the
parties at or after the formation of the joint venture.
The project development agreement provides for the joint venture to enter
into a site license with Syntroleum with respect to this plant, and for Brown &
Root to prepare a feasibility study with cost estimates for the design,
construction and startup of the plant. The plant is scheduled to be operational
by the end of 1999 or early 2000. The project development agreement provides
that, in the event the joint venture determines to cease operation of the plant
or after three years following startup, Syntroleum would have the right to
purchase the plant at a price equal to the remaining undepreciated tax book
value
95
<PAGE>
of the plant. If Syntroleum subsequently sells the plant within one year from
the date of such purchase, the proceeds above undepreciated tax book value will
be distributed to the owners of the joint venture.
CURRENCY RISK
Syntroleum expects to conduct a portion of its business in currencies other
than the United States dollar. Syntroleum expects to attempt to minimize its
currency exchange risk by seeking international contracts payable in local
currency in amounts equal to Syntroleum's estimated operating costs payable in
local currency and in United States dollars for the balance of the contract and
by contractual purchase price adjustments based on an exchange rate formula
related to United States dollars. In the future, Syntroleum also may have
significant investments in countries other than the United States. The
functional currency of these foreign operations will be the local currency and,
accordingly, financial statement assets and liabilities will be translated at
current exchange rates. Resulting translation adjustments will be reflected as a
separate component of shareholders' equity and will have no current effect on
earnings or cash flow. See "Risk Factors--Foreign Operations."
YEAR 2000 COMPLIANCE
Syntroleum has evaluated its computer software programs and operating
systems to identify any as to which there may be a "Year 2000" issue. The
so-called "Year 2000" issue is the result of computer programs being written
using two digits (rather than four) to define the applicable year, resulting in
incorrect calculations for the year 2000 and beyond. Based on present
information, Syntroleum believes that it is presently year 2000 compliant.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share," which Syntroleum adopted in its fiscal 1997 financial statements.
This new standard establishes methods for computing and presenting earnings per
share ("EPS") and also simplifies the previous standards found in APB Opinion
No. 15, "Earnings Per Share." It requires dual presentation of basic and diluted
EPS on the Consolidated Statements of Operations. The adoption of this standard
did not have a significant impact on Syntroleum's earnings per share
calculations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective in fiscal year 1999. This new statement establishes
standards for reporting and displaying comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general-purpose
financial statements. The statement requires that an enterprise (i) classify
items of other comprehensive income by their nature in a financial statement and
(ii) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of a
statement of stockholders' equity. Syntroleum does not expect the impact of this
new statement to have a material impact on its consolidated financial
statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective in fiscal year 1999.
This new statement revises standards for public companies to report information
about segments of their business and also requires disclosure of selected
segment information in quarterly financial reports. The statement also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Syntroleum has not yet determined the
impact this new statement may have on disclosures in its consolidated financial
statements.
96
<PAGE>
MANAGEMENT AFTER THE MERGER
DIRECTORS AND OFFICERS AFTER THE MERGER
As provided in the Merger Agreement, the SLH Board of Directors must take
all actions necessary so that as of the Effective Time the directors and
officers of SLH will be as specified below. If prior to the Effective Time any
of these individuals is unable or unwilling to serve as a director or officer,
then the remaining individuals who are able and willing to serve as directors
will fill any vacancies, unless the individual that is unable or unwilling to
serve is Mr. Jacobs or Mr. Seward. If prior to the Effective Time or thereafter
at anytime prior to the 2001 Annual Meeting of Stockholders of SLH either Mr. P.
Anthony Jacobs or Mr. James R. Seward is unwilling or unable to serve as a
director of SLH, then either Mr. Jacobs or Mr. Seward (whichever continues to be
willing and able to serve as a director of SLH) will be entitled to recommend to
the Board of Directors of SLH an individual to fill the vacancy and SLH will
support such recommendation. SLH has received irrevocable letters of resignation
from all its current directors who will not be continuing as directors after the
Merger. All of the individuals specified below are currently a director or
officer of Syntroleum.
<TABLE>
<CAPTION>
SLH
DIRECTOR'S
NAME AGE POSITION TERM ENDING
- ------------------------------ --- ---------------------------------------------------------------- -----------
<S> <C> <C> <C>
Kenneth L. Agee............... 41 Chief Executive Officer and Chairman of the Board 2001
Mark A. Agee.................. 45 President, Chief Operating Officer and Director 2000
Charles A. Bayens............. 59 Vice President of Engineering and Vice President of Research and
Development
Eric Grimshaw................. 46 Vice President, General Counsel and Secretary
Peter V. Snyder, Jr........... 52 Vice President of Product Sales
Randall M. Thompson........... 39 Vice President and Chief Financial Officer
Larry J. Weick................ 50 Vice President of Licensing and Business Development
Alvin R. Albe, Jr............. 45 Director 1999
Frank M. Bumstead............. 56 Director 2000
P. Anthony Jacobs............. 56 Director 2001
Robert Rosene, Jr............. 44 Director 2000
James R. Seward............... 45 Director 2001
J. Edward Sheridan............ 63 Director 1999
</TABLE>
SLH's Board of Directors is divided into three classes with staggered terms
of office, which will initially end as set forth above. Thereafter, the term for
each class will expire on the date of the third annual stockholders' meeting for
the election of directors following the most recent election of directors for
such class. Each director holds office until the next annual meeting of
stockholders for the election of directors of his class and until his successor
has been duly elected and qualified. Officers serve at the discretion of the
Board of Directors.
Upon consummation of the Merger, the Board of Directors of SLH will have
three standing committees: the Audit Committee (which will consist of Messrs.
Albe, Bumstead, Jacobs, Rosene, Seward and Sheridan), the Compensation Committee
(which will consist of Messrs. Albe, Jacobs, Rosene and Seward) and the Finance
Committee (which will consist of Messrs. Mark A. Agee, Albe, Jacobs, Seward and
Sheridan).
KENNETH L. AGEE is the Chief Executive Officer and Chairman of the Board of
Syntroleum. Mr. Kenneth L. Agee is the founder of Syntroleum and has served as
the Chief Executive Officer of Syntroleum since February 1996 and Chairman of
the Board of Syntroleum since November 1995. Prior thereto, he served as
Syntroleum's President and as a director of Syntroleum. He is a graduate of
Oklahoma State University with a degree in Chemical Engineering and is a
licensed Professional Engineer
97
<PAGE>
in the State of Oklahoma. In addition, he has over 15 years of experience in the
oil and gas industry and is listed as Inventor on two United States Patents,
several foreign patents and several pending patent applications, all of which
have been assigned to Syntroleum.
MARK A. AGEE is President, Chief Operating Officer and a director of
Syntroleum. Mr. Mark A. Agee joined Syntroleum in January 1994 and has served as
President and Chief Operating Officer of Syntroleum since February 1996. He has
also served as a director of Syntroleum since March 1985. From 1989 to May 1993,
he served as President, Chief Executive Officer and Director of Convergent
Communications, a company which he founded in 1989 and sold in 1993. From 1981
to 1989, he served as President, Chief Executive Officer and a Director of XETA
Corp., a computer company which he founded in 1981 and which became public in
1987. He holds a Bachelor's degree in Chemical Engineering from the University
of Tulsa and is a licensed Professional Engineer in the State of Oklahoma.
CHARLES A. BAYENS joined Syntroleum in July 1997 as Business Development
Manager and became Vice President of Engineering in December 1997. Prior to
joining Syntroleum, Mr. Bayens was with Shell Oil Company from 1967-97 in
various technical and business assignments. From 1991-97 he was President of
Shell Synthetic Fuels, Inc. where he managed commercialization of Shell's suite
of synfuels technologies. Concurrently, from 1991-94, he was also Manager,
Technology Licensing, for Shell. Mr. Bayens holds a Ph.D. in Chemical
Engineering from Johns Hopkins University.
ERIC GRIMSHAW is Vice President, General Counsel and Secretary of
Syntroleum. Mr. Grimshaw joined Syntroleum in June 1997. Prior to joining
Syntroleum, Mr. Grimshaw was a partner with the law firm of Pray, Walker,
Jackman, Williamson & Marlar. Mr. Grimshaw received a B.A. degree from the
University of Colorado and received his law degree from the University of Tulsa.
PETER V. SNYDER, JR. is the Vice President of Product Sales for Syntroleum.
He joined Syntroleum in January 1996. From 1979 to 1984, he served as Product
Manager of Synthetic Waxes for Moore and Munger, Sasol's North American
distribution company. From 1984 until 1989, he served as Director of Specialty
Products for Moore and Munger and became Vice President and Director of
Marketing in 1989. He joined C&C Petroleum and Chemicals Group in January 1991
as President and Chief Executive Officer. Mr. Snyder has over 18 years of
experience in the lubes, chemicals and wax business and has been a member of the
board of the Adhesive and Sealants Council, one of the largest wax-consuming
industries in the world, since 1996. He is also a graduate of the Taft School
and the University of North Carolina.
RANDALL M. THOMPSON is the Vice President and Chief Financial Officer of
Syntroleum. Mr. Thompson joined Syntroleum in January 1997. From January 1994
through December 1996, he held various financial and marketing positions with
Tenneco Energy Corporation, as vice president of strategic planning, marketing
and business development. From 1983 through 1994, Mr. Thompson was employed by
Atlantic Richfield Company and held management/analyst positions. Mr. Thompson
holds a B.A. in Economics from the University of Colorado and an M.B.A. from The
Wharton School at the University of Pennsylvania.
LARRY J. WEICK is Vice President of Licensing and Business Development for
Syntroleum. Mr. Weick joined Syntroleum in 1996. From 1971 to 1982, he held
positions in engineering, planning and project development in the natural gas
and electric utility industry. From 1982 to 1994, he held several finance,
planning and business development positions with Atlantic Richfield Company.
From 1994 to 1996, Mr. Weick served as a consultant to Syntroleum. He holds a
B.S. in Electrical Engineering from the University of Nebraska at Lincoln and an
M.S. in Engineering-Economics from Stanford University. Mr. Weick is also a
Licensed Professional Engineer in both Nebraska and Texas.
98
<PAGE>
ALVIN R. ALBE, JR. has served as a director of Syntroleum since December
1988. Mr. Albe is currently Executive Vice President of the TCW Group, Inc.
("TCW"), a capital management firm. Prior to joining TCW in 1991, Mr. Albe was
President of Oakmont Corporation, a privately held corporation which administers
and manages assets for several families and individuals. Mr. Albe was associated
with Oakmont from 1982 to 1991. Before that, he was Manager of Accounting at
McMoRan Oil and Gas Co., and a Certified Public Accountant with Arthur Andersen
& Co. in New Orleans. Mr. Albe graduated from the University of New Orleans with
a B.S. in Accounting. Mr. Able also serves as a director of TCW Americas
Development, Inc.
FRANK M. BUMSTEAD has served as a director of Syntroleum since May 1993. He
has also served as the President of Flood, Bumstead, McCready & McCarthy, Inc.,
a financial and business management firm since 1990. Mr. Bumstead has served as
Vice Chairman of the Board of Response Oncology, Inc., a health care services
firm, since 1986. He has served as a director of First Union National Bank of
Tennessee since 1996. Mr. Bumstead has also served as a director of American
Retirement Corp. since 1995 and as a director of Imprint Records, Inc. since
1995, as a director of FBMS Financial, Inc. since 1993 and as a director of TBA
Entertainment, Inc. since 1991.
P. ANTHONY JACOBS has served as a director of Syntroleum since November
1995. Mr. Jacobs has served as the Chairman of the Board of SLH since December
1996. Mr. Jacobs also serves as President and Chief Executive Officer of Lab
Holdings, a company principally engaged in the laboratory testing business, a
position he has held since September 1997. From 1990 to 1993, he served as
Executive Vice President and Chief Operating Officer of Lab Holdings and from
May 1993 to September 1997, he also served as President and Chief Operating
Officer of Lab Holdings. Mr. Jacobs also serves on the board of directors for
Lab Holdings as well as the boards of directors for Trenwick Group, Inc. and
Response Oncology, Inc. Mr. Jacobs holds an M.B.A. from the University of Kansas
and also is a Chartered Financial Analyst.
ROBERT ROSENE, JR. has served as a director of Syntroleum since March 1985.
In 1984, Mr. Rosene co-founded Boyd Rosene and Associates, Inc., a natural gas
consulting and marketing firm. From 1976 to 1984, he was employed with Transok
Pipeline Company, where he served in various positions, including Manager of
Rates and Contract Administration and Director of Gas Acquisitions. In 1987, Mr.
Rosene co-founded MBR Resources, an oil and gas production company with
operations in Arkansas, New Mexico, Oklahoma and Texas. Mr. Rosene holds a B.A.
in Accounting from Oklahoma Baptist University.
JAMES R. SEWARD has served as a director of Syntroleum since November 1988.
Mr. Seward has served as the President and Chief Executive Officer and a
director of SLH since December 1996. From 1990 to September 1997, Mr. Seward
served as Chief Financial Officer and a director of Lab Holdings, and from 1990
to May 1993 also served as Senior Vice President and from May 1993 to September
1997 served as Executive Vice President of Lab Holdings. He also serves as a
Director of Response Oncology, Inc., LabONE, Inc. and Concorde Career Colleges.
Mr. Seward holds an M.B.A. in Finance and an M.P.A. from the University of
Kansas and is also a Chartered Financial Analyst.
J. EDWARD SHERIDAN has served as a director of Syntroleum since November
1995. In 1985, Mr. Sheridan founded and since that time has served as President
of Sheridan Management Corporation, a company whose purpose is to provide
support services to businesses in industries with global markets for their
products and services. From 1973 to 1975, he was Chief Financial Officer at
Fairchild Industries and from 1975 to 1985, he was Chief Financial Officer at
AMT, Inc. Mr. Sheridan is also a director of Bizwise Design, Inc. Mr. Sheridan
also holds an M.B.A. from Harvard University with an emphasis on Finance and
International Operations and a B.A from Dartmouth College.
There are no family relations, of first cousin or closer, among Syntroleum's
directors or executive officers, by blood, marriage or adoption, except that Mr.
Kenneth L. Agee and Mr. Mark A. Agee are brothers.
99
<PAGE>
EXECUTIVE COMPENSATION OF EXECUTIVE OFFICERS AFTER THE MERGER
The following table sets forth certain information regarding the annual and
long-term compensation for the calendar year ended December 31, 1997 of those
persons who will be either (i) the Chief Executive Officer, (ii) Chairman of the
Board or (iii) one of the four most highly compensated executive officers of SLH
after the Merger (collectively, the "Future Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL --------------------
COMPENSATION(1) SECURITIES
--------------------- UNDERLYING
NAME AND PRINCIPAL SALARY BONUS OPTIONS(2)
- -------------------------------------------------------------------- ---------- --------- --------------------
<S> <C> <C> <C>
Kenneth L. Agee..................................................... $ 140,092 $ 50,000 --
Chief Executive Officer and Chairman of the Board
Mark A. Agee........................................................ $ 128,333 $ 50,000 --
President and Chief Operating Officer
Peter V. Snyder, Jr................................................. $ 117,049 -- --
Vice President of Product Sales
Randall M. Thompson................................................. $ 114,583 -- 110,613
Vice President and Chief Financial Officer
Larry J. Weick...................................................... $ 123,162 $ 50,000 29,497
Vice President of Licensing and Business Development
</TABLE>
- ------------------------
(1) The Future Named Executive Officers did not receive any annual compensation
not properly categorized as salary or bonus, except for certain perquisites
and other personal benefits which are not shown because the aggregate amount
of such compensation, if any, for the Future Named Executive Officers during
the fiscal year did not exceed the lesser of $50,000 or 10% of total salary
and bonus reported for such executive officer.
(2) Gives effect to the assumption of Syntroleum options by SLH and the related
adjustments to the number of shares purchasable and the per-share exercise
price. See "Certain Provisions of the Merger Agreement--Treatment of
Syntroleum Options."
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning Options/SARs
granted during 1997 to the Future Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL
GRANTS POTENTIAL REALIZABLE
--------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/ SARS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)(3)
OPTIONS/SARS EMPLOYEES IN OR BASE PRICE EXPIRATION ----------------------
NAME GRANTED (#)(1) FISCAL YEAR(1) ($/SHARE)(1)(2) DATE 5%($) 10%($)
- ------------------------------ -------------- --------------- --------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kenneth L. Agee............... -- -- -- -- -- --
Mark A. Agee.................. -- -- -- -- -- --
Peter V. Snyder, Jr........... -- -- -- -- -- --
Randall M. Thompson........... 110,613 15% $ 5.03 2/10/07 $ 349,907 $ 886,732
Larry J. Weick................ 29,497 5% $ 5.03 2/10/07 $ 93,309 $ 236,463
</TABLE>
- ------------------------
(1) Gives effect to the assumption of Syntroleum options by SLH and the related
adjustments to the number of shares purchasable and the per-share exercise
price. See "Certain Provisions of the Merger Agreement--Treatment of
Syntroleum Options."
100
<PAGE>
(2) The exercise price of the options granted is equal to the market value of
Syntroleum's Common Stock on the date of grant.
(3) Potential realizable value of each grant assumes that the market prices of
the underlying security appreciates at annualized rates of 5% and 10% over
the term of the award. Actual gains, if any, on stock option exercises are
dependent on the future performance of such common stock and overall market
conditions. There can be no assurance that the amounts reflected on this
table will be achieved.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the unexercised
options held by the Future Named Executive Officers at December 31, 1997 and the
exercise by the Future Named Executive Officers of stock options during the year
ended December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED OPTIONS MONEY OPTIONS AT FISCAL YEAR-
SHARES VALUE AT FISCAL YEAR-END END ($)(3)
ACQUIRED ON REALIZED ------------------------------ ------------------------------
NAME EXERCISE(#)(1) ($)(1)(2) EXERCISABLE(1) UNEXERCISABLE(1) EXERCISABLE(1) UNEXERCISABLE(1)
- ------------------------------- ------------- ---------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth L. Agee................ -- -- -- -- -- --
Mark A. Agee................... -- -- -- -- -- --
Peter V. Snyder, Jr............ -- -- -- -- -- --
Randall M. Thompson............ 29,497 -- 14,748 66,368 $ 338,762 $ 1,524,473
Larry J. Weick................. -- -- 29,497 -- $ 677,546 --
</TABLE>
- ------------------------
(1) Gives effect to the assumption of Syntroleum options by SLH and the related
adjustments to the number of shares purchasable and the per-share exercise
price. See "Certain Provisions of the Merger Agreement--Treatment of
Syntroleum Options."
(2) Value realized is calculated based on the difference between the option
exercise price and the closing market price of SLH's Common Stock on the
date of exercise, multiplied by the number of shares underlying the options.
(3) Based on the closing price of SLH Common Stock of $28.00 on December 31,
1997, the last trading date of 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, the following persons served on Syntroleum's Compensation
Committee: Alvin R. Albe, Jr., P. Anthony Jacobs, Robert Rosene, Jr. and James
R. Seward. In June 1997, SLH, of which Mr. Jacobs is the Chairman of the Board
and Mr. Seward is the President and Chief Executive Officer and a director,
contributed $1.5 million to Sweetwater LLC in exchange for an equity interest
(which would be diluted to no less than approximately 1% upon completion of the
currently contemplated equity financing for the Sweetwater Plant). The purchase
price for the interest was determined through negotiations between management of
Syntroleum and SLH and was based on the anticipated price for interests planned
to be issued to additional equity investors in Sweetwater LLC. In connection
with a subsequent financing of Sweetwater LLC in January 1998, SLH and
Syntroleum entered into an option agreement which provides that in the event of
the completion of an underwritten public offering and the repayment of at least
50% of the senior term loan financing for Sweetwater LLC, SLH may elect to
exchange its interest in Sweetwater LLC for a number of shares of Common Stock
equal to the quotient of the amount of SLH's contributions to Sweetwater LLC and
130% of the average market price of the Syntroleum Common Stock during the first
30 trading days following an underwritten public offering. Such option
terminates on the eighth anniversary of the date on which the plant passes
certain performance tests. In the event Syntroleum completes an underwritten
public offering and such repayment does not occur by such eighth
101
<PAGE>
anniversary, SLH may elect to purchase such number of shares of Syntroleum
Common Stock for the amount of SLH's contributions to Sweetwater LLC. The option
agreement also provides that at any time following the ninth year after the
plant passes certain performance tests, Syntroleum may elect to purchase SLH's
interest in Sweetwater LLC for a price equal to three times the annual average
cash distributions made to SLH by Sweetwater LLC during the preceding three-year
period.
EMPLOYMENT AGREEMENTS
Syntroleum has entered into employment agreements with each of its executive
officers. During 1998, Syntroleum restructured the compensation arrangements
with its executive officers. The annual base salaries for Messrs. Kenneth L.
Agee, Mark A. Agee, Charles A. Bayens, Eric Grimshaw, Peter V. Snyder, Jr.,
Randall M. Thompson and Larry J. Weick are currently approximately $225,000,
$200,000, $140,000, $140,000, $150,000, $170,000 and $170,000, respectively.
Each employment agreement also entitles the employee to participate in employee
benefit plans that Syntroleum may from time to time offer to its employees.
Each agreement provides for an initial term of 12 months and is
automatically renewed for successive terms of 12 months unless sooner
terminated. Under each agreement, employment may be terminated (i) by Syntroleum
upon the employee's death, disability or retirement, (ii) by Syntroleum upon the
dissolution and liquidation of Syntroleum (unless the business of Syntroleum is
thereafter continued), (iii) by Syntroleum for just cause and (iv) by either
Syntroleum or the employee upon 60 days' written notice. If employment is
terminated by Syntroleum for any reason other than as noted in (ii) and (iii) of
the preceding sentence, the employee is entitled to receive his monthly salary
for a period ranging from six months to two years following the date of
termination. In addition, if there is a change in control of Syntroleum and, as
a result of such change in control, employment is terminated for any reason
other than the employee's death, disability or retirement or for just cause,
then Syntroleum or its successor is required to pay the employee's full base
salary in effect at the time of the notice of termination through the date of
termination and a severance amount equal to two times the employee's full base
salary in effect on the date of termination payable in equal installments over a
24 month period. The Merger will not constitute a change in control under the
Agreements.
Pursuant to each agreement, the employee is prohibited from disclosing to
third parties, directly or indirectly, certain trade secrets of Syntroleum,
either during or after the employee's employment with Syntroleum, other than as
required in the performance of the employee's duties. The agreement also
provides that the employee will not have or claim any right, title or interest
in any trademark, service mark or trade name owned or used by Syntroleum. The
employee also agrees to irrevocably assign to Syntroleum all of the employee's
right, title and interest in and to any and all inventions and works of
authorship made, generated or conceived by the employee during his or her period
of employment with Syntroleum and which relate to Syntroleum's business or which
were not developed on the employee's own time. Each employee further agrees that
during the period of employment with Syntroleum and for a period of two years
following the termination of employment, the employee will not engage in certain
activities related to Syntroleum's business.
CERTAIN TRANSACTIONS
In August 1996, Syntroleum entered into an agreement with Criterion that
provides Criterion with the non-exclusive right to manufacture Syntroleum's
proprietary high alpha catalyst for Syntroleum's own use and the use of its
licensees and provides that any developments or improvements to such catalyst
are the property of Syntroleum. Under the agreement, Syntroleum is required to
purchase all high-alpha catalysts for its own use from Criterion, provided
certain performance standards are met. Criterion also agreed to provide
Syntroleum with other catalysts made by Criterion, including the catalyst used
in the lube oil isomerization and dewaxing process licensed by Syntroleum from
Lyondell. Syntroleum's agreement with Criterion (which has been amended as
described in the following paragraph) provided that the first
102
<PAGE>
approximately $7.0 million of catalysts purchased by Syntroleum were to be paid
for with shares of Syntroleum Common Stock at $7.42 per share. In connection
with this agreement, Criterion also purchased 134,771 shares of Syntroleum
Common Stock at a price of $7.42 per share and acquired an option to purchase up
to 942,694 shares of Syntroleum Common Stock at an escalating exercise price
which as of October 1997 was $12.00. The number of shares subject to issuance
pursuant to the option are reduced, on a share-for-share basis, by the number of
shares issued to Criterion pursuant to the catalyst purchase agreement. The
purchase and option prices were determined through negotiations between
management of Syntroleum and Criterion and were based on the parties' agreement
as to the fair market value of the Syntroleum Common Stock. At the time of these
agreements, Criterion was the beneficial owner of over 5% of Syntroleum Common
Stock. In connection with these agreements, Criterion agreed that it will not
for a period of ten years acquire shares that when aggregated exceed 10% of the
outstanding Syntroleum Common Stock or sell its shares to any person who would
then own more than 10% of the outstanding Syntroleum Common Stock.
In October 1997, Syntroleum amended its agreements with Criterion pursuant
to which (i) Criterion exercised a portion of its stock option described in the
foregoing paragraph and purchased 167,000 shares at a price of $12.00 per share,
(ii) Syntroleum and Criterion modified the catalyst purchase agreement described
in the foregoing paragraph to provide that Syntroleum will pay in cash (instead
of Syntroleum Common Stock) for catalysts purchased from Criterion and (iii)
Syntroleum granted 400,000 additional shares of Syntroleum Common Stock to
Criterion in exchange for all prior services rendered to and catalysts purchased
by Syntroleum from Criterion and the cancellation of the remainder of
Criterion's options. The number of shares of Syntroleum Common Stock issued in
consideration for such services and catalysts and the termination of Criterion's
remaining stock option was determined through negotiations between management of
Syntroleum and Criterion and was based on the parties' agreement as to the fair
market value of the Syntroleum Common Stock.
In February 1994, Mr. Mark A. Agee, President and Chief Operating Officer of
Syntroleum, purchased 750,000 shares of Syntroleum Common Stock for a purchase
price of $0.50 per share, which was paid by delivery of a promissory note in the
amount of the aggregate purchase price. In June 1995, Messrs. Mark A. Agee,
Larry J. Weick, Vice President of Licensing and Business Development of
Syntroleum, and Peter V. Snyder, Jr., Vice President of Product Sales of
Syntroleum, purchased 250,000, 200,000 and 200,000 shares of Syntroleum Common
Stock, respectively, for a purchase price of $.50 per share, in each case paid
by delivery of promissory notes in the amount of each of the respective
aggregate purchase prices. In September 1997, Syntroleum loaned Messrs. Agee,
Weick and Snyder $594,856, $117,174 and $117,174, respectively, the proceeds of
which were used to repay their respective previously outstanding notes. The
currently outstanding notes bear interest at the rate of 6.1% per year and
mature in May 2004. Messrs. Agee, Weick and Snyder have each pledged to
Syntroleum their shares of Syntroleum Common Stock to secure their respective
notes.
For information regarding transactions with SLH, see "--Compensation
Committee Interlocks and Insider Participation."
103
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT OF SYNTROLEUM
The following table indicates the number of shares of Syntroleum Common
Stock owned beneficially as of March 31, 1998 and SLH Common Stock after giving
effect to the Merger by (i) all persons known to Syntroleum to be the beneficial
owners of 5% or more of the outstanding Syntroleum Common Stock; (ii) each
director of Syntroleum; (iii) each executive officer of Syntroleum; and (iv) all
officers and directors of Syntroleum, as a group.
<TABLE>
<CAPTION>
AMOUNT OF SHARES BENEFICIALLY OWNED(2)
-------------------------------------------------------
SYNTROLEUM SLH AFTER THE MERGER(3)
----------------------------- ------------------------
PERCENTAGE OF PERCENTAGE
NAME(1) SHARES CLASS SHARES OF CLASS
- ---------------------------------------------------------- ------------ --------------- ---------- ------------
<S> <C> <C> <C> <C>
Kenneth L. Agee (4)....................................... 3,887,000 20.5% 5,733,303 19.6%
Mark A. Agee (5).......................................... 1,118,000 5.9% 1,649,819 5.6%
Charles A. Bayens (6)..................................... -- * -- *
Eric Grimshaw (7)......................................... 10,000 * 14,746 *
Peter V. Snyder, Jr. (8).................................. 200,000 1.1% 296,768 1.0%
Randall M. Thompson (9)................................... 41,500 * 93,905 *
Larry Weick (10).......................................... 220,000 1.2% 336,484 1.1%
Alvin R. Albe, Jr. (11)................................... 77,239 * 126,023 *
Frank M. Bumstead (11).................................... 57,489 * 84,787 *
P. Anthony Jacobs (12).................................... 6,066,489 31.9% 394,408 1.3%
Robert Rosene, Jr. (13)................................... 216,989 1.1 321,223 1.1%
James R. Seward (14)...................................... 6,092,239 32.0% 400,979 1.4%
J. Edward Sheridan (11)................................... 22,239 * 32,976 *
All directors and executive officers as a group (13
persons) (15)........................................... 12,059,184 63.5% 9,445,437 32.2%
Robert A. Day (16)........................................ 2,786,250 14.7% 4,109,283 14.0%
SLH (17).................................................. 5,950,000 31.3% N/A N/A
</TABLE>
- ------------------------
* Represents ownership of less than 1%.
(1)
Except as otherwise noted and pursuant to applicable community property
laws, each shareholder has sole voting and investment power with respect to
the shares beneficially owned. The business address of each director and
executive officer is c/o Syntroleum Corporation, 1350 South Boulder, Suite
1160, Tulsa, Oklahoma 74119-3295.
(2)
Shares of Syntroleum Common Stock subject to options that are exercisable
as of the date of this Joint Proxy Statement/Prospectus or exercisable
within 60 days of the date of this Joint Proxy Statement/Prospectus are
deemed outstanding for purposes of computing the percentage ownership of
such person, but are not deemed outstanding for purposes of computing the
percentage ownership of any other person. Percentages for Syntroleum are
based on the 18,993,950 shares of Syntroleum Common Stock outstanding as of
March 31, 1998. Percentages for SLH after the Merger are based on an
assumed 29,312,460 shares of SLH Common Stock outstanding following the
Merger.
(3)
The shares of SLH beneficially owned after the Merger were calculated by
multiplying the number of shares of Syntroleum Common Stock beneficially
owned by the named party by 1.47484 and adding such number to the number of
shares of SLH Common Stock owned by the named party as of March 31, 1998.
The 1.47484 represents the number of shares that a holder of Syntroleum
Common Stock would receive in the Merger per Syntroleum share assuming a
five-trading-day average closing price of SLH Common Stock of $29.275
(based on such average during the five trading days preceding April 8,
1998).
104
<PAGE>
(4)
Shares shown exclude 25,000 shares of Syntroleum Common Stock that are
subject to issuance pursuant to stock options which are not exercisable
within 60 days of the date of this Joint Proxy Statement/Prospectus. Shares
shown include 45,000 shares of Syntroleum Common Stock owned by Mr. Kenneth
L. Agee's children, as to which Mr. Agee disclaims beneficial ownership. In
the case of shares of SLH after the Merger, shares shown include 600 shares
of SLH Common Stock owned by Mr. Kenneth Agee.
(5)
Shares shown exclude 20,000 shares of Syntroleum Common Stock that are
subject to issuance pursuant to stock options which are not exercisable
within 60 days of the date of this Joint Proxy Statement/Prospectus. Shares
shown include 45,000 shares of Syntroleum Common Stock owned by Mr. Mark A.
Agee's children, as to which Mr. Agee disclaims beneficial ownership. In
the case of shares of SLH after the Merger, shares shown include 948 shares
of SLH Common Stock owned by Mr. Mark Agee.
(6)
Excludes 50,000 shares of Syntroleum Common Stock that are subject to
issuance pursuant to stock options which are not exercisable within 60 days
of the date of this Joint Proxy Statement/Prospectus.
(7)
Shares shown (i) include 10,000 shares of Syntroleum Common Stock that are
subject to issuance pursuant to stock options which are exercisable as of
the date of this Joint Proxy Statement/ Prospectus and (ii) exclude 40,000
shares of Syntroleum Common Stock that are subject to issuance pursuant to
stock options which are not exercisable within 60 days of the date of this
Joint Proxy Statement/Prospectus.
(8)
In the case of shares of SLH after the Merger, shares shown include 1,800
shares of SLH Common Stock owned by Mr. Snyder.
(9)
Shares shown (i) include 20,000 shares of Syntroleum Common Stock that are
subject to issuance pursuant to stock options which are exercisable as of
the date of this Joint Proxy Statement/ Prospectus and (ii) exclude 60,000
shares of Syntroleum Common Stock that are subject to issuance pursuant to
stock options which are not exercisable within 60 days of the date of this
Joint Proxy Statement/Prospectus. In the case of shares of SLH after the
Merger, shares shown include 32,700 shares of SLH Common Stock owned by Mr.
Thompson.
(10)
Shares shown (i) include 20,000 shares of Syntroleum Common Stock that are
subject to issuance pursuant to stock options which are exercisable as of
the date of this Joint Proxy Statement/ Prospectus and (ii) exclude 20,000
shares of Syntroleum Common Stock that are subject to issuance pursuant to
stock options which are not exercisable within 60 days of this Joint Proxy
Statement/ Prospectus. In the case of shares of SLH after the Merger,
shares shown include 12,000 shares of SLH Common Stock owned by Mr. Weick.
(11)
Shares shown include 22,239 shares of Syntroleum Common Stock that are
subject to issuance pursuant to stock options which are exercisable as of
the date of this Joint Proxy Statement/ Prospectus. In the case of shares
of SLH after the Merger, shares shown for Mr. Albe include 12,108 shares of
SLH Common Stock owned by Mr. Albe and shares shown for Mr. Sheridan
include 178 shares of SLH Common Stock owned by Mr. Sheridan.
(12)
Shares shown include shares of Syntroleum Common Stock held by SLH, of
which Mr. Jacobs is the Chairman of the Board. Mr. Jacobs may therefore be
deemed a beneficial owner of such shares. Mr. Jacobs disclaims such
beneficial ownership. Shares shown also include 94,250 shares of Syntroleum
Common Stock owned by Mr. Jacobs and 22,239 shares of Syntroleum Common
Stock that are subject to issuance pursuant to stock options which are
exercisable as of the date of this Joint Proxy Statement/Prospectus. In the
case of shares of SLH after the Merger, shares shown (i) include 220,606
shares of SLH Common Stock owned by Mr. Jacobs and 22,239 shares of SLH
Common Stock that are subject to issuance pursuant to stock options that
are exercisable within 60 days of the
105
<PAGE>
date of this Joint Proxy Statement/Prospectus and (ii) exclude shares of
Syntroleum Common Stock held by SLH prior to the Merger.
(13)
Shares shown include 22,239 shares of Syntroleum Common Stock that are
subject to issuance pursuant to stock options that are exercisable as of
the date of this Joint Proxy Statement/Prospectus. Shares shown also
include 85,600 shares of Syntroleum Common Stock owned by trusts the
beneficiaries of which are Mr. Rosene's parents and children, as to which
Mr. Rosene disclaims beneficial ownership. In the case of shares of SLH
after the Merger, shares shown include 1,200 shares of SLH Common Stock
owned by Mr. Rosene.
(14)
Shares shown include shares of Syntroleum Common Stock held by SLH, of
which Mr. Seward is the President, Chief Executive Officer and a director.
Mr. Seward may therefore be deemed a beneficial owner of such shares. Mr.
Seward disclaims such beneficial ownership. Shares shown also include
120,000 shares of Syntroleum Common Stock owned by Mr. Seward and 22,239
shares of Syntroleum Common Stock that are subject to issuance pursuant to
stock options which are exercisable as of the date of this Joint Proxy
Statement/Prospectus. In the case of shares of SLH after the Merger, shares
shown (i) include 191,200 shares of SLH Common Stock owned by Mr. Seward
and 22,239 shares of SLH Common Stock that are subject to issuance pursuant
to stock options that are exercisable within 60 days of the date of this
Joint Proxy Statement/Prospectus and (ii) exclude shares of Syntroleum
Common Stock held by SLH prior to the Merger.
(15)
Shares shown include shares of Syntroleum Common Stock held by SLH, as
indicated in footnotes 11 and 13 above. Shares shown also include an
aggregate of 183,434 shares of Syntroleum Common Stock that are subject to
issuance pursuant to stock options held by directors and executive officers
of Syntroleum which are exercisable as of the date of this Joint Proxy
Statement/Prospectus.
(16)
Shares shown include 275,000 shares of Syntroleum Common Stock owned by
trusts the beneficiaries of which are Mr. Day's children, as to which Mr.
Day disclaims beneficial ownership. The business address of Mr. Day is
Trust Company of the West, 865 South Figueroa, Suite 1800, Los Angeles,
California 90017.
(17)
The address of SLH Corporation is 5000 W. 95th Street, Suite 260, Shawnee
Mission, Kansas 66207.
INFORMATION REGARDING SLH
OVERVIEW
SLH was incorporated in Kansas on December 5, 1996. SLH is primarily engaged
in supporting the development of Syntroleum which is 31% owned by SLH. SLH is
also in the business of managing, developing and disposing of real estate and
certain miscellaneous assets which, together with the stock of Syntroleum, were
acquired from Lab Holdings in connection with a distribution of all of the
outstanding shares of SLH Common Stock and certain Preferred Share Purchase
Rights to Lab Holdings shareholders on March 3, 1997. The Distribution was
effected pursuant to a Distribution Agreement (the "Distribution Agreement"), a
Blanket Bill of Sale and Assumption Agreement (the "Assignment Agreement"), a
Facilities Management and Interim Services Agreement (the "Interim Services
Agreement") and a Tax Sharing Agreement (the "Tax Sharing Agreement"), copies of
which are exhibits to SLH's 1997 Form 10-K and which are incorporated herein by
reference. The Distribution is more particularly described in the Information
Statement that was furnished to all stockholders on February 13, 1997 and SLH's
related Registration Statement on Form 10.
106
<PAGE>
SLH's real estate assets reflect the remaining assets of a real estate
development business that was conducted by Lab Holdings in association with a
previously owned life insurance company that was sold in 1990. Real estate
assets, as of December 31, 1997, consist of (i) the remaining inventory from a
condominium development located in Santa Fe, New Mexico (comprising 9 completed
homes that have been priced for sale between $375,000 and $600,000) ("Quail
Run"); (ii) a seven story parking garage in Reno, Nevada (the "Reno Parking
Garage"); (iii) a 49.9% interest in a community shopping center in Gillette,
Wyoming (the "Shopping Center Interest"); and (iv) undeveloped land in Houston,
Texas (370 acres comprising the "Houston Project"), Corinth, Texas (9 acres
comprising the "Corinth Tract") and the Kansas City metropolitan area (16 acres
at the intersection of I-35 and 119th Streets comprising the "Kansas City
Tracts"). The total real estate inventory had an aggregate carrying value at
December 31, 1997, of approximately $10.8 million. All of the real estate assets
are held for sale except for the Houston Project that is being developed.
SLH's miscellaneous assets at December 31, 1997 consisted of (i) a
convertible preferred stock interest in Norian Corporation, a privately owned
developer of a proprietary bone substitute technology, which had a carrying
value of approximately $1 million and (ii) $39 million of cash, government
securities and current receivables and (iii) an investment in a privately held
venture capital limited partnership which had a carrying value of $515,000.
SLH's majority owned significant subsidiaries consist of BMA Resources,
Inc., a wholly owned Missouri corporation ("BMA Resources"), Scout Development
Corporation, a wholly owned Missouri corporation ("Scout Development"), Scout
Development Corporation of New Mexico ("Scout New Mexico"), a Missouri
corporation wholly owned by Scout Development (Scout Development and Scout New
Mexico are referred to collectively as "Scout"), and 529 Partners, Ltd. ("529
Partners"), a Texas limited partnership in which Scout Development owns a 75%
equity interest. SLH's 31% interest in Syntroleum is held by BMA Resources.
MANAGEMENT AND DISPOSITION OF REAL ESTATE AND MISCELLANEOUS ASSETS
Real estate assets are owned and operated by Scout. Scout was initially
formed in 1990 to acquire, develop and manage improved and unimproved real
estate as a means of investing assets of Lab Holdings' insurance business, which
was then Lab Holdings' primary business. Scout has focused on the completion of
all of its development projects and the disposition of all of its real estate
assets in an orderly manner to maximize the value of each asset. By the end of
1997, the bulk of the undeveloped real estate assets had been disposed of and
all real estate development activities had been concluded other than the ongoing
development on the 370 acre Houston Project.
The following table shows the carrying value of the inventory of SLH's real
estate assets as of December 31, 1997:
REAL ESTATE INVENTORY
<TABLE>
<CAPTION>
CARRYING VALUE AS
OF
ASSET LOCATION DECEMBER 31, 1997
- --------------------------------------- ------------------------- ------------------
<S> <C> <C>
Quail Run Condominiums................. Santa Fe, New Mexico $ 3,177,000
Reno Parking Garage.................... Reno, Nevada 2,738,000
Houston Project........................ Houston, Texas 2,424,000
Corinth Tract.......................... Ft. Worth, Texas 33,000
Kansas City Tracts..................... Olathe, Kansas 2,659,000
Shopping Center Interest............... Gillette, Wyoming (220,000)
------------------
Total.............................. $ 10,811,000
------------------
------------------
</TABLE>
107
<PAGE>
Quail Run consists of inventory remaining from real estate development
projects commenced by Scout. The nine homes remaining at December 31, 1997 have
been listed for sale at prices ranging from $375,000 to $600,000 and two were
subject to contracts of sale at that date. SLH is actively involved in marketing
these properties and had reduced the inventory to seven homes by March 1, 1998,
with three homes subject to contracts of sale. SLH anticipates that the
remaining inventory should be liquidated by the end of 1998.
The Reno Parking Garage is a seven story, 850-space parking garage located
in downtown Reno, Nevada. Scout owns the building unencumbered except for a
ground lease which expires on February 28, 2023 and which requires annual lease
payments in the amount of $294,000. The Reno Parking Garage contains a total of
144,500 square feet of leasable parking space. Parking revenue totaled
approximately $591,000 or $695 per space or $4.09 per square foot in 1997. In
addition, 8,258 square feet located on the ground floor of the garage is leased
to a retail tenant under a 15-year lease. Revenue from the retail lease during
1997 was $149,000 or $18.08 per square foot. In addition to basic rent, the
retail tenant is responsible for its pro rata share of real estate taxes and
insurance. During 1997, approximately $5,400 was collected from the retail
tenant for taxes and insurance. Scout is presently actively marketing the
property for sale.
The Shopping Center Interest consists of a 49.9% joint venture interest in a
retail shopping center containing approximately 163,000 square feet of net
leasable area and 14 acres of undeveloped land in Gillette, Wyoming. At the end
of 1997, the center was 86% occupied. Rental revenue totaled $801,000 for 1997.
The average annual gross rental per occupied square foot was $5.62. In addition
to rental revenue, tenants are responsible for their share of common area
maintenance ("CAM"). During 1997, CAM collections from tenants totaled $112,000.
The property is subject to industrial revenue refunding bonds in the amount of
$6.1 million that are secured by a bank letter of credit and guaranteed by
Scout. The letter of credit is secured by a $3.1 million Treasury Note that is
pledged by SLH to the issuer of the letter of credit.
Undeveloped land consists of an aggregate of approximately 395 acres, with
370 acres in Houston, Texas comprising the Houston Project, 16 acres near the
intersection of 119th Street and Interstate 35 in the southern portion of the
Kansas City metropolitan area comprising the Kansas City Tracts and
approximately 9 acres in Corinth, Texas comprising the Corinth Tract. SLH has
conveyed the Houston Project to 529 Partners, in exchange for a $2.1 million
note and a 75% interest in the partnership. 529 Partners intends to develop the
property for residential and light commercial purposes. Recently, 529 Partners
entered into a contract to sell 17 acres of the Houston Project for retail use
for approximately $2.3 million. It is expected that the balance of the tract
will be developed by 529 Partners for residential use. The Corinth Tract is
zoned for commercial use and is being actively marketed.
The Kansas City Tracts consist of tracts aggregating approximately 16 acres
near the intersection of Interstate Highway 35 and 119th Street in the
southwestern section of the Kansas City metropolitan area. In January 1998,
approximately 3 acres were sold for $800,000. As of March 1, 1998, 4 acres were
under contract for sale for retail purposes for approximately $1.1 million. The
remaining 9 acres, which is also zoned for retail purposes, is being actively
marketed.
SLH believes that the real estate properties are adequately covered by
insurance with coverages for real and personal property, commercial general
liability, commercial crime, garage keepers legal liability, earthquake, flood,
windstorm and hail.
SLH also owns a convertible preferred stock interest in Norian Corporation,
a privately owned developer of proprietary bone substitute technology, which had
a carrying value of approximately $1.0 million at December 31, 1997 and an
investment in a privately held venture capital limited partnership having a
carrying value at December 31, 1997, of $515,000. SLH plans to liquidate all of
these investments in an orderly manner to maximize their value to stockholders.
108
<PAGE>
MISCELLANEOUS CONTINGENT INTERESTS AND LIABILITIES
SLH and Scout are subject to certain contingent liabilities and rights which
are mentioned below, none of which SLH believes to be materially adverse,
individually or in the aggregate, with respect to its financial condition.
SLH is the holder of a judgment against Skidmore, Owings & Merrill, et al in
the approximate amount of $5.6 million, including interest. An appeal of the
judgment is expected to be heard during the 2nd quarter of 1998. See
"Information Regarding SLH--Legal Proceedings."
Under the Distribution Agreement, SLH assumed from Lab Holdings all
contingent tax liabilities, and received all of Lab Holdings' rights to refunds
related to the 1986-1990 tax years of Lab Holdings, including any liabilities
and refunds related to any issues raised by the IRS for the years 1986-1990 and
whose resolution may extend to tax years beyond the 1990 tax year. SLH also
assumed all of Lab Holdings' potential tax liabilities arising out of an audit
by the state of California for the 1987-1989 taxable years. Although SLH has
settled potential liabilities to the IRS and California for the tax years in
question, the settlement will make it necessary for SLH to file amended tax
returns in certain states to reflect the results of the settlement. SLH believes
that it has established adequate accruals for any additional liability that
might arise from the filing of any amended state returns.
SLH and Scout are subject to contingent obligations under leases and other
instruments incurred in connection with real estate activities and other
operations. SLH believes that adequate accruals have been made for the
contingent liabilities on SLH's financial statements and that none of these are
deemed to be material, individually or in the aggregate.
Scout is subject to the following United States environmental laws: Clean
Air Act; Comprehensive Environmental Response, Compensation, and Liability Act;
Emergency Planning and Community Right-to-Know Act; Federal Water Pollution
Control Act; Oil Pollution Act of 1990; Resource Conservation and Recovery Act;
Safe Drinking Water Act; and Toxic Substances Control Act, all as amended. Scout
is subject to the United States environmental regulations promulgated under
these acts and is also subject to state and local environmental regulations
which have their foundation in the foregoing United States environmental laws.
As is the case with many companies, Scout may face exposure to actual or
potential claims and lawsuits involving environmental matters with respect to
its current inventory of real estate as well as previously owned real estate.
However, no such claims are presently pending, and Scout has not suffered, and
does not anticipate that it will suffer, a material adverse effect as a result
of any past action by any governmental agency or other party, or as a result of
compliance with such environmental laws and regulations.
COMPANY EMPLOYEES
SLH and Scout, but not including Syntroleum, employed nine full time and
four part time individuals as of March 1, 1998, none of whom are covered by
collective bargaining agreements. All of SLH's employees, other than three
property maintenance employees of Scout, provide management, financial,
accounting, tax, administrative and other services with respect to its assets.
SLH believes that relations with its employees are good.
PROPERTIES
SLH's headquarters occupy approximately 3,400 square feet of leased space in
a building at 5000 West 95th street, Shawnee Mission, Kansas. The term of this
lease expires on April 30, 2000. Other owned real estate is described under
"Information Regarding SLH--Management and Disposition of Real Estate and
Miscellaneous Assets."
109
<PAGE>
REGULATION--POTENTIAL FUTURE APPLICATION OF THE INVESTMENT COMPANY ACT OF 1940
Although SLH does not believe it is an investment company, it could become
one in the future if the Merger does not occur. See "Regulation--Potential
Future Application of the Investment Company Act of 1940" in the SLH Form 10-K
which is incorporated herein by reference.
LEGAL PROCEEDINGS
Under the Distribution Agreement and the Assignment Agreement, SLH has
assumed the rights and obligations of Lab Holdings with respect to the legal
matters described below.
CLAIM AGAINST SKIDMORE, OWINGS & MERRILL, ET AL. In 1986, a lawsuit was
initiated in the Circuit Court of Jackson County, Missouri by Lab Holdings'
former insurance subsidiary, Business Men's Assurance Company of America,
against Skidmore, Owings & Merrill, an architectural and engineering firm, and a
construction firm to recover costs incurred to remove and replace the facade on
the former home office building of SLH. Because the removal and replacement
costs had been incurred prior to the sale of the insurance subsidiary, Lab
Holdings negotiated with the buyer for an assignment of the cause of action from
the insurance subsidiary. Under the Distribution Agreement, Lab Holdings has
assigned to SLH all of its rights to any recoveries and SLH has assumed all
costs relating to the prosecution of the claims. Thus, any recovery will be for
the benefit of SLH and all costs incurred in connection with the litigation will
be paid by SLH. Any ultimate recovery will be recognized as income when
received. In September 1993, the Missouri Court of Appeals reversed a $5.7
million judgment which was granted in 1992 in favor of Lab Holdings and remanded
the case to the trial court for a retrial limited to the question of whether or
not the applicable statute of limitations barred the claim. The Missouri Court
of Appeals also set aside $1.7 million of the judgment originally granted in
1992. In July 1996, the case was retried to a judge. On January 21, 1997, the
judge entered a judgment in favor of Lab Holdings for the benefit of SLH. The
amount of that judgment, together with interest, is approximately $5.6 million
as of December 31, 1997. In 1997, the defendants appealed the judgment to the
Missouri Court of Appeals, Kansas City Division, and posted an appeal bond to
stay collection of the judgement pending the outcome of the appeal. SLH expects
the appeal to be heard during the second quarter of 1998, with a final decision
by the end of 1998.
INTERNAL REVENUE SERVICE AUDITS. Prior to the Distribution, Lab Holdings
had received notices of proposed adjustments (the "Revenue Agent's Reports")
from the Internal Revenue Service (the "IRS") with respect to its 1986-1990
federal income taxes. These notices claimed total federal income taxes due for
the entire five-year period in the approximate net amount of $13,867,000, plus
interest. However, Lab Holdings also had claims against the IRS for refunds
relating to a $27 million loss claimed for 1990 on a sale of a real estate
partnership interest in 1990 which the IRS claimed had not occurred in 1990. In
connection with the Distribution, SLH assumed from Lab Holdings all of its
contingent tax liabilities to the IRS and acquired all of its related rights to
refunds as well as any interest thereon related to the Lab Holdings' 1986-1990
tax years. During 1997, SLH settled all of the claims and disputes between Lab
Holdings and the IRS for the 1986-1990 years entitling SLH to a net refund of
$5.5 million. This refund, which is primarily due to SLH's real estate
operations, resulted in a $5.1 million increase in SLH's net income for 1997.
CALIFORNIA TAX ISSUES. SLH also assumed Lab Holdings' rights and
liabilities with respect to an audit being conducted by the State of California
for Lab Holdings' 1987-1989 taxable years which SLH settled in 1998.
Although SLH has settled potential liabilities to the IRS and California for
the tax years in question, the settlement will make it necessary for SLH to file
amended tax returns in certain states to reflect the results of the settlement.
SLH believes that it has established adequate accruals for any additional
liability that might arise from the filing of any amended state returns.
110
<PAGE>
CLAIMS AGAINST SCOUT. On January 30, 1997, Scout Development was served
with a complaint filed in the District Court of Tarrant County, Texas by the
parents of a 36-week-old fetus who did not survive an automobile accident at an
intersection in Fort Worth, Texas, the view of which is alleged to have been
obstructed by weeds growing on property that is alleged to have been owned by
Scout. The claim was settled in 1998 with payment of the settlement being made
by SLH's insurance carrier.
Scout has pending against it warranty claims by the purchasers of a home in
Florida and the purchasers of a home in the Quail Run development in Santa Fe,
New Mexico, neither of which are deemed material to the financial condition of
SLH. During 1997, SLH entered into a global settlement of claims by the
homeowners association of SLH's real estate development in Quail Run. Pursuant
to that settlement, SLH was released from future claims with respect to the
common elements and limited common elements of the development.
111
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SLH
The following information should be read in conjunction with SLH's Summary
Financial Information under "Summary--Summary Historical Financial Information
for SLH" and SLH's Consolidated Financial Statements and notes thereto that are
presented in the SLH 1997 Form 10-K for the year ending December 31, 1997, that
is incorporated herein by reference.
RESULTS OF OPERATIONS
INTRODUCTORY REMARKS ABOUT RESULTS OF OPERATIONS.
On March 3, 1997, Lab Holdings distributed to its shareholders all of the
outstanding shares of common stock of SLH, on the basis of one share of common
stock of SLH for each four shares of Lab Holdings common stock held. In
connection with this distribution and pursuant to the Distribution Agreement,
Lab Holdings transferred its real estate and energy businesses and miscellaneous
assets and liabilities, including two wholly-owned subsidiaries, Scout
Development and BMA Resources, to SLH. The net assets distributed to SLH totaled
approximately $48 million.
This Management's Discussion and Analysis of Financial Condition and Results
of Operations covers periods when SLH's assets were owned by Lab Holdings and
operated as part of Lab Holdings.
Prior to October 20, 1997, Lab Holdings was named Seafield Capital
Corporation ("Seafield"). Seafield changed its name to Lab Holdings for better
identification with its primary asset, an 82% ownership of LabONE, Inc.
1997 COMPARED TO 1996.
Real estate revenues in 1997 were $17.3 million compared with $16.4 million
in 1996. The real estate sales revenues in 1997 include the sale of 28
residential units and lots in Florida, New Mexico and Texas totaling $13.5
million, and 752 acres of land in Texas totaling $3.1 million. In 1996, the real
estate sales revenue included the sale of 40 residential units in Florida and
New Mexico totaling $14.8 million; 20 acres of land in Oklahoma for $275,000 and
1.5 acres of land in Kansas for $580,000. Real estate rental and other revenues
increased slightly from $759,000 in 1996 to $786,000 in 1997, primarily
reflecting easements and forfeited deposits on real estate property.
At the end of 1997, real estate holdings included residential land,
undeveloped land, single-family housing, and commercial structures (all of which
are listed for sale, except for the Houston Project which is being developed)
located in the following states: Kansas, Nevada, New Mexico, Texas and Wyoming.
The total acreage consisted of approximately 395 acres and approximately 40 lots
or units for sale. Real estate operations have been influenced from period to
period by several factors including seasonal sales cycles for projects in
Florida and New Mexico. The recent substantial reduction in inventory will
influence future period to period comparisons.
Cost of real estate sales in 1997 totaled $16.6 million, compared with a
cost of approximately $15.3 million in 1996, reflecting the mix of real estate
sold during each period as discussed above in the revenue analysis. Real estate
operating expenses totaled $2.4 million in 1997, compared with $2.7 million in
1996. The decrease is attributable to a reduction in expenses associated with
the completion of the residential projects and the inventory reductions.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," was implemented effective January 1, 1996.
Adoption of SFAS No. 121 resulted in an impairment loss on real estate held for
sale of $1.4 million, which is included in SLH's statement of operations for
1996 as the cumulative effect of a change in accounting principle. This
impairment loss
112
<PAGE>
resulted primarily from discounting expected future cash flows in estimating
fair values less cost to sell of certain real estate properties.
Net impairment losses of $706,000 in 1997 and $1.1 million in 1996 were
recorded on real estate held for sale. The impairment losses resulted from
changes in estimated expected future cash flows and sales prices on certain
properties based on appraisals and other current market conditions.
General and administrative expenses totaled $1.9 million in 1997 as compared
to $1.6 million in 1996. General and administrative expenses in 1997 included an
estimate of $250,000 for overhead operating costs in January and February of
1997, expenses of an executive stock performance based bonus program and other
expenses associated with the move of SLH's office in 1997. The 1996 general and
administrative expenses in the statements of operations included a $1.5 million
estimate of Lab Holdings' actual costs.
The above factors produced a loss from operations of $4.3 million in both
1997 and 1996.
Investment income totaled $6.6 million in 1997, as compared with $401,000 in
1996. Investment income for 1997 consists of the sales of Watson
Pharmaceuticals, Inc. ("Watson") common stock by Lab Holdings before the
Distribution and by SLH following the Distribution and the sale of other
marketable common stocks and interest earned on invested cash. The Watson common
stock was received as a result of a venture investment in Oclassen
Pharmaceuticals, Inc. which was acquired by Watson. The Watson sales resulted in
a gain of approximately $4.4 million during 1997. Investment income for 1996
primarily reflects cash received in excess of basis from two venture capital
funds. See Notes to Consolidated Financial Statements of SLH which are
incorporated herein by reference.
Interest expense increased to $570,000 in 1997 from $107,000 in 1996
primarily due to interest costs associated with tax issues.
Equity in affiliates' operations produced a loss of $350,000 in 1997,
compared with a loss of $1.2 million in 1996. During 1997, the oil and gas
partnership interests were sold. SLH's share of these partnerships' 1997 losses
prior to the sale totaled $143,000 while SLH's share of the partnerships' losses
for 1996 were $291,000. Equity in Syntroleum's operations resulted in a loss of
$251,000 in 1997 and a loss of $811,000 in 1996. The 1997 loss was limited as
SLH's investment in Syntroleum was reduced to zero. Syntroleum is expected to
incur losses until it demonstrates the commercial viability of its proprietary
technology. The real estate joint venture had earnings of $43,000 in 1997
compared to a loss of $115,000 in 1996. See Notes to Consolidated Financial
Statements of SLH which are incorporated herein by reference.
Equity in earnings of venture capital investment funds totaled $207,000 in
1997 and $890,000 in 1996. These funds invested in development stage companies
which caused earnings to be subject to significant variations.
The $1.8 million gain on the sale of affiliates in 1997 reflects SLH's sale
of its oil and gas partnership interests. The $632,000 of other income in 1997
consists of receipts on receivables from the formerly owned Tenenbaum &
Associates, Inc. ("Tenenbaum") net of costs associated with SLH's move to a new
location in 1997. The $159,000 of other income in 1996 consists of receipts on
Tenenbaum receivables. All future Tenenbaum receipts, if any, will be recognized
as earnings since all costs have been recovered on this asset that has been
accounted for on the costs recovery method.
Net tax benefits of $5 million were recorded in 1997 as compared with a tax
expense of $56,000 in 1996. The 1997 results reflect the resolution of certain
tax refund issues and SLH's negotiated tax settlement with the IRS relating to
the tax years 1986 through 1990, which refund has been approved by Congress'
Joint Committee on Taxation. SLH expects to receive a federal tax refund of
approximately $5.5 million, net of interest costs. The agreement with the IRS
will require the filing of amended state income tax returns during 1998 for the
tax years 1986 through 1990. A liability of $750,000 was established in the
financial statements for state payments that may result from the filing of the
amended state returns. The federal and state valuation allowances decreased by
approximately $2.7 million during 1997 and
113
<PAGE>
increased by approximately $2.6 million during 1996. See Note 8 to Consolidated
Financial Statements of SLH which are incorporated herein by reference for
additional information.
The net earnings in 1997 of $9.1 million and a net loss of $5.6 million in
1996 reflect the above results of operations.
1996 COMPARED TO 1995.
Real estate revenues in 1996 were $16.4 million compared with $11.5 million
in 1995. Real estate sales revenues in 1996 included the sale of 40 residential
units in Florida and New Mexico totaling $14.8 million; 20 acres of land in
Oklahoma for $275,000 and 1.5 acres of land in Kansas for $580,000. In 1995, the
real estate sales revenue included the sale of 29 residential units or lots in
Florida, Missouri, New Mexico and Texas totaling $7.9 million and 302 acres of
land in Kansas and Texas totaling $2.6 million. Real estate rental and other
revenues decreased from $1 million in 1995 to $759,000 in 1996, reflecting sales
of rental property and an approximate 15% decrease in rentals at the Reno
Parking Garage.
At the end of 1996, real estate holdings included residential land,
undeveloped land, single-family housing and commercial structures (all of which
were listed for sale) located in the following states: Florida, Kansas, Nevada,
New Mexico, Texas and Wyoming. The total acreage consisted of approximately
1,160 acres and approximately 68 lots or units for sale. Real estate operations
are influenced from period to period by several factors including seasonal sales
cycles for projects in Florida and New Mexico.
Costs of the real estate sales in 1996 totaled $15.3 million, compared with
a cost of approximately $10.9 million in 1995, reflecting the mix of real estate
sold during each period as discussed above in the revenue analysis. Real estate
operating expenses totaled $2.7 million in 1996, compared with $3.2 million in
1995. The decrease is attributable to a reduction in expenses associated with
the substantial completion of the residential projects and a reduction of
depreciation in 1996 as real estate available for sale is not depreciated under
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of," which was implemented effective January 1,
1996.
Adoption of SFAS No. 121 resulted in an impairment loss on real estate held
for sale of $1.4 million which is included in the statement of operations for
1996 as the cumulative effect of a change in accounting principle. This
impairment loss resulted primarily from discounting expected future cash flows
in estimating fair values less costs to sell certain real estate properties.
An additional $1.1 million net impairment loss on real estate held for sale
was recorded in 1996. This impairment loss resulted from changes in estimated
expected future cash flows based primarily on lower than expected future sales
prices on certain properties based on appraisals and other current market
conditions.
General and administrative expenses in the statements of operations include
a $1.5 million estimate in both 1996 and 1995 of Lab Holdings' actual costs.
Management of SLH estimated that SLH would incur approximately $1.5 million of
expenses annually when SLH operated on a stand alone basis.
The above factors produced a loss from operations of $4.3 million in 1996,
compared with $12.2 million in 1995.
Investment income in 1996 increased to $401,000 from $278,000 in 1995. The
1996 income primarily reflects cash received in excess of basis from two venture
capital funds while 1995 income consists of interest on notes receivable from
the sale of real estate.
Interest expense decreased to $107,000 in 1996 from $189,000 in 1995
reflecting retirement of a real estate note payable in 1995.
Equity in affiliates' operations produced a loss of $1.2 million in 1996,
compared with a loss of $267,000 in 1995. During 1996, the oil and gas
operations produced a loss of $291,000, as compared to a
114
<PAGE>
$70,000 loss in 1995, reflecting variances in operating results. Syntroleum's
operations resulted in a loss to SLH of $811,000 in 1996 and a loss of $139,000
in 1995. A real estate joint venture had a loss of $115,000 in 1996 compared to
a loss of $58,000 in 1995.
Equity in earnings of venture capital investment funds totaled $890,000 in
1996 while 1995 produced a loss of $249,000. These funds invested in development
stage companies which cause earnings to be subject to significant variations.
The $159,000 of other income in 1996 consists of cash received during the
fourth quarter in excess of the $800,000 of Tenenbaum assets at September 30,
1996. The 1995 gain on sale of affiliates reflects SLH's net gain of $111,000 on
the sale of a partnership interest in a commercial property in Colorado.
Tax expense of $56,000 was recorded in 1996 compared with tax benefits of
$1.3 million in 1995. Because SLH is a party to a tax sharing agreement with
other Lab Holdings entities, some tax benefits were recorded in 1995 for
utilization of SLH's losses by Lab Holdings. Valuation allowances of $2.6
million in 1996 and $3.7 million in 1995 were provided for the tax benefits
because utilization within the Lab Holdings group was not expected. See Note 8
to Consolidated Financial Statements of SLH which are incorporated herein by
reference for additional information.
The net loss in 1996 of $5.6 million and $11.2 million in 1995 reflect the
above results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Prior to September 30, 1996, SLH's liquidity was provided by Lab Holdings.
However, as provided in the Distribution Agreement, Lab Holdings transferred to
SLH on March 3, 1997, cash of $6.9 million and approximately $3.1 million of
short-term investments (consisting of a United States Treasury Note which is
pledged to a bank for a real estate letter of credit). Additionally, cash
generated from operations and the sale of SLH's assets from October 1, 1996 to
March 3, 1997 totaling $9.6 million, was transferred to SLH as provided in the
Distribution Agreement. The $3.9 million of cash and cash equivalents in the
December 31, 1996 balance sheet represents the net cash generated by SLH during
the fourth quarter of 1996 and was included in the transferred cash.
At December 31, 1997, SLH had available approximately $32 million in cash
and short-term investments. SLH expects to receive a federal income tax refund
of approximately $5.5 million in early 1998. Current assets totaled
approximately $39.5 million while current liabilities totaled $2 million.
Changes in assets and liabilities on the balance sheet resulted primarily from
reductions in the real estate portfolio, sale of SLH's oil and gas interests,
the IRS settlement agreement and the initial capitalization of SLH during 1997.
Cash provided by operations in 1997 totaled $11 million, as compared to $8.9
million in 1996. The increase in funds provided primarily reflects earnings
reported in 1997 of $9.1 million, a loss of $5.6 million in 1996 and changes in
tax assets resulting from the IRS settlement agreement. Cash provided by real
estate operations (sales less notes received, net of additions) was
approximately $12 million in 1997, as compared with $11.1 million in 1996.
Cash used by investing activities was $1.4 million in 1997, primarily
reflecting a $1.5 million equity investment in Sweetwater LLC, purchases of
investments available for sale exceeding sales of investments by $5.9 million
and $5.1 million from the sales of SLH's oil and gas partnership interests. The
$3.4 million of cash provided by investing activities in 1996 primarily reflects
distributions from venture capital investment funds and from affiliates.
Cash provided by financing activities was $6.3 million in 1997, primarily
representing SLH's capitalization by Lab Holdings, payment of long-term debt and
the net issuance of SLH Common Stock pursuant to SLH's stock option plan. In
1996, SLH's net cash used by financing activities of $8.4 million primarily
represented the net cash transferred to Lab Holdings from SLH's sale of real
estate assets.
115
<PAGE>
Debt associated with real estate totaled $21,000 at December 31, 1997, down
from $1.2 million at December 31, 1996. A $1.2 million note payable was paid off
at maturity in December 1997. SLH is obligated under recourse debt (with an
unpaid balance of $6.2 million) of an affiliate which is accounted for on the
equity method. SLH's obligation on this recourse debt is secured by a $3.1
million United States Treasury Note transferred to SLH on the Distribution date.
See Notes to Consolidated Financial Statements of SLH which are incorporated by
reference for additional information.
The 1997 results reflect Congress' Joint Committee on Taxation's recent
approval of tax refund issues included in SLH's negotiated tax settlement with
the IRS relating to the tax years 1986 through 1990. SLH expects to receive a
federal refund of approximately $5.5 million net of an interest expense amount
which will be finalized in early 1998. The settlement will require the filing of
amended state income tax returns during 1998 for the tax years 1986 through
1990. A liability of $750,000 is reflected in SLH's 1997 financial statements
for state payments that may result from the filing of the amended state returns.
Management anticipates that future additions to property, plant and
equipment will be minimal. SLH estimates that construction and disposal costs to
complete real estate projects in development will be approximately $2 million.
SLH is actively addressing Year 2000 computer concerns and will upgrade one
computer system. Management of SLH expects that the total cost for Year 2000
compliance should be approximately $15,000.
SUBSEQUENT EVENTS
SLH's $1.5 million equity investment in the Sweetwater Plant allowed for the
commencement of certain engineering and permitting efforts on the plant. In
February 1998, Syntroleum announced the signing of definitive agreements with a
capital investor to fund an additional $1 million for detailed engineering, land
purchase and other development costs. Subject to certain conditions, the capital
investor committed an additional $14.5 million for a minority ownership interest
in the plant.
SLH's Board of Directors declared a two for one split of SLH Common Stock
effective February 9, 1998. As a result of the split, which was effected as a
stock dividend, each stockholder of record on February 2, 1998 received one
additional share of common stock for each share of common stock held of record
on that date.
On February 17, 1998, SLH announced that Syntroleum will participate in
funding Catalytica Advanced Technologies' research project to develop an
advanced process for directly converting natural gas into liquid fuels, such as
methanol and gasoline.
A contract has been signed for the sale of the commercial part of the
Houston project for approximately $2.3 million.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective December 31, 1997, SLH adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share." The adoption of this standard did not
have any significant impact on SLH's reported earnings per share.
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" has been implemented for the year ended
December 31, 1997. The adoption of this standard did not have any significant
impact on SLH's financial position or results of operations.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," is effective for fiscal years beginning after December
15, 1997. This standard requires companies to classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated
116
<PAGE>
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," is effective for fiscal
years beginning after December 15, 1997. Retroactive application will be
required. The adoption of this standard is not expected to have any significant
impact on SLH's financial position or results of operations.
No other recently issued accounting standards presently exist which will
require adoption in future periods.
MANAGEMENT OF SLH
SLH DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of SLH are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- ------------------------------------------------------------------------
<S> <C> <C>
James R. Seward, CFA........ 45 President, Chief Executive Officer and Class A Director
P. Anthony Jacobs, CFA...... 56 Chairman of the Board and Class A Director.
Steven K. Fitzwater......... 51 Vice President, Chief Accounting and Financial Officer, Treasurer and
Secretary and Class C Director
Lan C. Bentsen.............. 50 Class C Director
W. D. Grant................. 81 Class B Director
W. T. Grant II.............. 47 Class B Director
Michael E. Herman........... 56 Class A Director
David W. Kemper............. 47 Class B Director
</TABLE>
Mr. Seward has been the President, Chief Executive Officer and director of
SLH since its inception in December 1996. Previously he was the Executive Vice
President, Chief Financial Officer and a director of Lab Holdings from 1993
until September 1997 and Senior Vice President, Chief Financial Officer and
director of Lab Holdings from 1990 to 1993. Mr. Seward also is a director of
Syntroleum, Response Oncology, Inc., a publicly traded company that manages
oncology practices and clinics and that was a former subsidiary of Lab Holdings
("Response"), LabONE, Inc., a publicly traded subsidiary of Lab Holdings
("LabONE") and Concorde Career Colleges, Inc.
Mr. Jacobs has been the Chairman of the Board and a director of SLH since
inception. He has been the President, Chief Executive Officer and a director of
Lab Holdings since September 1997, and previously was the President, Chief
Operating Officer and a director of Lab Holdings from May 1993 to September
1997, and Chief Operating Officer and a director of Lab Holdings from May 1990
to May 1993. He is also a director of Response, Syntroleum, and Trenwick Group,
Inc.
Mr. Fitzwater has been the Vice President, Chief Accounting and Financial
Officer, Treasurer and Secretary and a director of SLH since inception. Mr.
Fitzwater has also been the Vice President, Chief Accounting and Financial
Officer, Secretary and director of Lab Holdings since September 1997. Previously
he was the Vice President, Chief Accounting Officer and Secretary of Lab
Holdings from 1990 to September 1997.
Mr. Bentsen has been a director of SLH since inception. Mr. Bentsen has been
the Executive Vice President of Frontera Resources since 1996 (oil and gas). He
has been Managing Partner of Remington Partners (investments) since 1995. Prior
to its sale in 1994, Mr. Bentsen was Chairman and Chief Executive Officer of
Sovereign National Management, Inc. (property management). Mr. Bentsen is also a
director of Lab Holdings.
117
<PAGE>
Mr. W. D. Grant has been a director of SLH since inception. He was a
consultant to Lab Holdings from August 1990 to December 1997 and Chairman of the
Board of Lab Holdings until May 1993. Mr. W. D. Grant also is a director of
LabONE and NationsBank, N.A.
Mr. W. T. Grant II has been a director of SLH since inception. He has been
Chairman, President and Chief Executive Officer of LabONE since October 1995.
Additionally, he was the Chairman and Chief Executive Officer of Lab Holdings
from May 1993 to September 1997, and President of Lab Holdings prior to May
1993. Mr. W. T. Grant also is a director of AMC Entertainment Inc., Commerce
Bancshares, Inc., Kansas City Power & Light Company, LabONE and Response.
Mr. Herman has been a director of SLH since inception. He has been engaged
in private investments since 1990 (partner of Herman Family Trading Company),
President of Kansas City Royals Baseball Team (major league baseball) since 1993
and Chairman of the Finance Committee of Ewing Marion Kauffman Foundation since
1990. Mr. Herman also is a director of SLH, NationsBank, N.A., Cerner
Corporation, Janus Capital Corporation and Agouron Pharmaceuticals, Inc.
Mr. Kemper has been a director of SLH since inception. He has been Chairman
of the Board, President and Chief Executive Officer of Commerce Bancshares, Inc.
(bank holding company) and Chairman and Chief Executive Officer and a director
of Commerce Bank, N.A. (St. Louis) for more than the past five years. Mr. Kemper
also is a director of Ralcorp Holdings, Inc., Wave Technologies International,
Inc. and Tower Properties Company.
EXECUTIVE COMPENSATION
The table below sets forth information concerning compensation for the year
ending December 31, 1997 awarded to, earned by, or paid to all persons who
served as executive officers of SLH during 1997 for services rendered during
that year ("Named Executive Officers"). Information for prior years is not
included since compensation arrangements were not placed in effect until the
Distribution which occurred on March 3, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
------------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND SALARY COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($)(1) BONUS($)(2) ($) (#)(3) ($)(4)
- ---------------------------------- --------- ---------- ----------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
JAMES R. SEWARD, CFA ............. 1997 $ 64,647 $ 450,000 -- 390,000 $ 854
President and Chief Executive
Officer
P. ANTHONY JACOBS, CFA ........... 1997 111,204 -- -- 390,000 980
Chairman of the Board
STEVEN K. FITZWATER .............. 1997 50,129 -- -- 243,000 1,302
Vice President, Chief Financial
Officer, Chief Accounting
Officer, Secretary and Treasurer
</TABLE>
- ------------------------
(1) From the date of the Distribution until June 1, 1997, the base salaries of
the Named Executive Officers were paid by Lab Holdings pursuant to the
Interim Services Agreement between SLH and Lab Holdings that is Exhibit
10(a) to SLH's 1997 Form 10-K. On that date the arrangement was terminated
and SLH commenced the payment of base compensation to Messrs. Seward and
Jacobs at
118
<PAGE>
the rate of $75,000 per annum and to Mr. Fitzwater at the rate of $60,000
per annum as contemplated by employment agreements between SLH and each
executive, the form of which is shown at Exhibit 10(d) to SLH's 1997 Form
10-K. The table reflects amounts paid to the Named Executive Officers by Lab
Holdings during 1997 less the share of such compensation that is properly
allocable to Lab Holdings plus all amounts paid to the executives by SLH.
(2) The bonus was paid to Mr. Seward pursuant to an action of the Compensation
Committee in June 1997, as described under "Report of the Compensation
Committee."
(3) The options reflect adjustments made for the 1997 and 1998 stock splits. All
options were granted pursuant to the Stock Option Plan concurrent with the
Distribution and are non-qualified stock options. The options were granted
at their fair market value on the March 3, 1997 Distribution Date. The SLH
Board of Directors determined the fair market value to be $19.15 per share
on that date ($3.19 after adjustment for 1997 and 1998 stock splits) based
on an appraisal rendered by George K. Baum & Company and over-the-counter
trading in SLH Common Stock on and immediately before that date. All options
have ten-year terms and become exercisable in equal installments as follows:
one fourth on March 3, 1997, and one-fourth on each of the first, second and
third anniversary dates of such date. The Stock Option Plan and form of
option agreements are shown at Exhibits 10(c) and (e) to SLH's 1997 Form
10-K.
(4) Reflects auto allowances.
EMPLOYMENT AGREEMENTS AND TERMINATION OF INTERIM SERVICES AGREEMENT
Each of the Named Executive Officers is a party to an Employment Agreement
with SLH. Each Employment Agreement provides for employment of the Executive
Officer for an initial term commencing on the date the Executive Officer ceases
to be employed by Lab Holdings under the Interim Services Agreement on behalf of
SLH and ending on the third anniversary of the Distribution Date. The three
Named Executive Officers ceased to be employees of Lab Holdings on May 31, 1997
so that the Employment Agreements were activated and became effective on June 1,
1997. The term of the Employment Agreements is automatically extended for
successive one-year periods unless a notice of non-extension is given by either
party at least twelve months prior to the end of the then current term.
The initial base compensation payable under the employment agreements is as
described in Note 3 to the Summary Compensation Table. It is subject to
adjustment annually by the SLH Board of Directors, provided that base salary may
not be decreased by more than five percent year to year. The Employment
Agreements provide that an executive officer's full time is not required and
that the executive officer is entitled to pursue other employment or business
opportunities simultaneously with his duties to SLH.
The employment of each of SLH's Named Executive Officers is subject to
termination for cause, which is defined as including willful misconduct with
respect to an executive officer's duties, or the perpetration of a fraud,
embezzlement, or other act of dishonesty, or a breach of trust or fiduciary duty
which materially adversely affects SLH or its stockholders or the other
employment or business activities of such executive officer conflicting with
SLH's business. The Employment Agreements provide that the Named Executive
Officers will not compete with SLH during the term of the Employment Agreements
and, if an executive officer is terminated with cause or voluntarily terminates
his employment, for a period of one year thereafter.
Effective with the termination of the Interim Service Agreement, SLH and Lab
Holdings entered into a similar arrangement pursuant to which SLH agreed to
provide Lab Holdings with administrative and accounting services as well as
space in SLH's offices for books and records in exchange for an annual fee of
$75,000. The arrangement is terminable by either party on 30 days' notice.
The Merger Agreement contemplates that the Named Executive Officers will
tender their resignations at the Effective Time and that such tender will be
deemed to effect a termination of the Employment
119
<PAGE>
Agreements not for cause so that each will be entitled to receive payments of
their base compensation for the remainder of the term of each of the contracts,
all of which expire on March 3, 2000.
STOCK OPTIONS
The table shown below contains information concerning the grant of stock
options under SLH's Stock Option Plan to the Named Executive Officers during
1997. All information has been adjusted to reflect the 1997 and 1998 stock
splits.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED ANNUAL
SECURITIES % OF TOTAL RATES OF STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR OPTION
OPTIONS GRANTED TO EXERCISE TERM
GRANTED EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME (#)(1) FISCAL YEAR ($/SH) DATE 5% ($) 10%($)
- ---------------------------------------- ----------- ------------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
James R. Seward, CFA.................... 390,000 36.3 3.19 3/3/07 $ 780,000 $ 1,981,200
P. Anthony Jacobs, CFA.................. 390,000 36.3 3.19 3/3/07 780,000 1,981,200
Steven K. Fitzwater..................... 243,000 22.6 3.19 3/3/07 486,000 1,234,440
</TABLE>
OPTION EXERCISES AND YEAR END HOLDINGS
The table shown below provides information, with respect to the Named
Executive Officers, concerning the exercise of options during the year ended
December 31, 1997, and unexercised options held as of the end of fiscal 1997.
All information has been adjusted to reflect the 1997 and 1998 stock splits.
AGGREGATED OPTION EXERCISES IN 1997
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END(#) FY-END($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------ --------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
James R. Seward, CFA............................ 97,500 $ 2,346,858 0/292,500 0/$ 7,256,428
P. Anthony Jacobs, CFA.......................... 97,500 2,391,463 0/292,500 0/ 7,256,428
Steven K. Fitzwater............................. 60,750 1,546,895 0/182,250 0/ 4,521,313
</TABLE>
120
<PAGE>
PERFORMANCE OF SLH COMMON STOCK
The following performance graph compares the performance of SLH Common Stock
during the period beginning from the Distribution Date on March 3, 1997, and
ending December 31, 1997, to the NASDAQ Stock Market index consisting of United
States companies (the "NASDAQ COMPOSITE") and a peer group index consisting of
114 publicly traded companies having a segment of business with SIC code 1321
for the same period. SIC code 1321 covers establishments primarily engaged in
producing hydrocarbons from oil and gas field gases. The graph assumes a $100
investment in SLH Common Stock and in each of the indexes at the beginning of
the period and a reinvestment of dividends paid on such investments throughout
the period.
VALUE OF $100 INVESTMENT
ASSUMING REINVESTMENT OF DIVIDENDS AT MARCH 3, 1997
AND AT THE END OF EVERY OTHER MONTH THROUGH DECEMBER 31, 1997
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SLH SIC CODE 1321 NASDAQ COMPOSITE
<S> <C> <C> <C>
Mar 3 $100 $100 $100
April 30 $220 $99 $96
June 30 $385 $107 $110
Aug 31 $702 $114 $121
Oct 31 $766 $123 $122
Dec 31 $841 $111 $120
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. Executive
compensation is based primarily upon (a) the structure created by Lab Holdings
as the organizer and sole shareholder of SLH in connection with the structuring
of the Distribution and the related agreements, including the Stock Option Plan
and Employment Agreements and (b) the recommendations made to the SLH Board of
Directors by the Compensation Committee (the "Committee"). The Committee for the
year ended December 31, 1997 consisted of Lan C. Bentsen (Chairman), Michael E.
Herman and David W. Kemper. All of the members of the Committee are non-employee
directors of SLH. Mr. Bentsen is also a director of Lab Holdings and Messrs.
Herman and Kemper were directors of Lab Holdings until September 1997. The
Committee administers the Stock Option Plan. Subject to the terms of the
Employment Agreements, the Committee
121
<PAGE>
also recommends to the SLH Board of Directors other compensation and
compensation plans for officers. Committee recommendations are acted upon by the
full board which includes Messrs. Seward, Jacobs and Fitzwater who are the Named
Executive Officers. Mr. Seward and Mr. Jacobs were also members of the Lab
Holdings Board of Directors which passed on the arrangements for the
Distribution.
This report is provided by the Committee to assist stockholders in
understanding the Committee's philosophy in establishing the compensation of the
Chief Executive Officer and all other Executive Officers of SLH for the year
ended December 31, 1997 ("the Year").
COMPENSATION PHILOSOPHY. The basic compensation structure for SLH
consisting of the Stock Option Plan, the employment agreements and the Interim
Services Agreement were developed by Lab Holdings as SLH's sole shareholder and
by the SLH Board of Directors in connection with the Lab Holdings' strategy to
create SLH and to cause SLH's stock to be distributed to Lab Holdings
shareholders in the Distribution. Accordingly, none of the compensation
arrangements implemented pursuant to the Distribution are the result of arm's
length negotiation between independent parties.
The intent of Lab Holdings and the SLH Board of Directors in developing the
initial compensation structure was to have compensation for executive officers
focus on two elements: (a) base salary and (b) long-term compensation in the
nature of non qualified stock options. It was believed that base compensation
should be kept relatively low and that superior performance should be rewarded
in relation to the growth in value of each stockholder's investment in SLH. The
low base compensation also reflected the fact that the Named Executive Officers
under the Employment Agreements are not required to devote full time to the
affairs of SLH. In connection with and following the Distribution it has been
the policy of the Compensation Committee during 1997 to follow this philosophy.
BASE SALARY. Following the Distribution (which occurred on March 3, 1997)
and until June 1, 1997, the Named Executives were compensated by Lab Holdings
under the Interim Services Agreement and as reflected in the Summary
Compensation Table. That agreement was terminated effective at the close of
business on May 31, 1997, and the Employment Agreements were activated. Under
the Employment Agreements, annual base salary for Messrs. Seward and Jacobs is
fixed at $75,000 each and $60,000 for Mr. Fitzwater. During 1997, no adjustments
were made to base salaries since the employment agreements generally contemplate
that adjustments, if any, be made annually.
STOCK OPTION PLAN. Grants under the Stock Option Plan were made to the
Named Executive Officers in connection with the Distribution as discussed under
the Summary Compensation Table. The intent of Lab Holdings and the Committee was
to structure the Stock Option Plan to provide for the grant of non-qualified
stock options at exercise prices equal to fair market value for the SLH Board of
Directors, all Executive Officers and other key employees for up to
approximately 15% of SLH's outstanding stock assuming the exercise of all
covered options. It was believed that this was consistent with option programs
adopted by many small cap companies in similar businesses. The option plan was
considered to be an appropriate vehicle to provide incentives for management to
take steps that would maximize the values of the assets being contributed to SLH
and therefore provide long-term benefits to stockholders. Also, by having stock
options granted at the market price at the Distribution Date, executive rewards
would accrue only with increases in the value of stockholder interests. In this
way it was believed that SLH's stock price would provide an appropriate
yardstick by which to measure and reward management performance.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER FOR 1997. All of the components
of the 1997 compensation of the Chief Executive Officer other than cash bonuses
were determined in accordance with the criteria described above for the other
Named Executive Officers. In connection with the termination of the Interim
Services Agreement and the implementation of the Employment Agreements, the
Committee concluded that in addition to the relatively low base compensation, a
performance based bonus be established for SLH's Chief Executive Officer. The
Committee decided to use the SLH Common Stock price as a measurement of both
performance and reward so that benefits would accrue only in proportion to
increases in the value of stockholder interests. Accordingly, under the program
that was adopted in
122
<PAGE>
June 1997, Mr. Seward was granted a cash bonus equal to one times his $75,000
base annual compensation at such time as (a) the thirty-day average trading
price of SLH Common Stock equaled or exceeded $10.00 per share (as adjusted for
the 1997 and 1998 stock splits) and (b) the thirty-day average trading price of
SLH Common Stock equaled or exceeded $3.34 more than the price for which the
then most recent bonus had been paid (as adjusted for the 1997 and 1998 stock
splits). Pursuant to this program, Mr. Seward's cash bonus for 1997 amounted to
$450,000. The cash bonus program terminates on June 1, 1998.
This report is being made over the names of Lan C. Bentsen, Michael E.
Herman and David W. Kemper who were the members of the Committee which passed on
executive compensation for the Year.
CERTAIN TRANSACTIONS
SLH and Lab Holdings have entered into certain agreements for the purpose of
effecting the Distribution and defining the ongoing relationship between them.
These agreements consist of the Distribution Agreement, the Assumption
Agreement, the Interim Services Agreement (which was terminated effective June
1, 1997) and the Tax Sharing Agreement. These agreements have been described in
SLH's registration statement on Form 10, as amended, and SLH's Form 10-K for the
year ended December 31, 1996. Copies of the Agreements are Exhibits to the SLH
1997 Form 10-K.
The above agreements were developed by Lab Holdings in connection with its
strategy to create SLH and to cause SLH's stock to be distributed to Lab
Holdings shareholders in the Distribution. Accordingly, none of the agreements
are the result of arm's length negotiation between independent parties.
P. Anthony Jacobs, CFA, and Steven K. Fitzwater, who are the President and
Chief Executive Officer and Vice President and Chief Financial and Accounting
Officer of Lab Holdings, respectively, are the Chairman and Vice President and
Chief Financial and Accounting Officer of SLH, respectively. All but one of the
directors of Lab Holdings are also directors of SLH. These officers and
directors of SLH will continue in such dual capacities with Lab Holdings and SLH
for an indefinite period of time if the Merger is not consummated. Because the
management of both Lab Holdings and SLH are essentially identical, conflicts may
arise with respect to the operation and effect of the agreements and
arrangements described above and also with respect to the negotiation of any
additional agreements which may well arise between Lab Holdings and SLH if the
Merger is not consummated. Although Lab Holdings and SLH plan to utilize
independent directors who have no affiliation with SLH to resolve any material
issue that may arise between Lab Holdings and SLH if the Merger is not
consummated, such resolutions may not reflect the results of actual arm's-length
negotiations. Accordingly, conflicts arising out of the management of both Lab
Holdings and SLH by the same persons could have an adverse affect on SLH and its
stockholders if not properly resolved.
COMPLIANCE WITH SECURITIES LAWS
Section 16(a) of the Exchange Act requires SLH's officers and directors, and
persons who own more than ten percent of a registered class of SLH's equity
securities (collectively, "Insiders"), to file with the Commission initial
reports of ownership and reports of changes in ownership of SLH Common Stock and
other equity securities of SLH. Insiders are required by regulation of the
Commission to furnish SLH with copies of all Section 16(a) forms they file.
To SLH's knowledge, based solely on review of the copies of such reports
furnished to SLH or written representations that no other reports were required,
during the year ended December 31, 1997, Insiders complied with all applicable
Section 16(a) filing requirements, except that Michael E. Herman failed to
include in his Form 4 for March of 1997 the acquisition of 700 shares in March
1997 (4,200 shares post-July 1997 and February 1998 stock splits) by the Herman
Family Trading Company of which Mr. Herman is a general partner, which
acquisition is being reported in an amendment to Mr. Herman's March 1997 Form 4.
123
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF SLH
The following table indicates the number of shares of SLH Common Stock owned
beneficially as of February 1, 1998 and after giving effect to the Merger by (i)
each person known to SLH to beneficially own more than 5% of the outstanding
shares of SLH Common Stock, (ii) each SLH director, (iii) the Chief Executive
Officer of SLH and the other four most highly compensated executive officers of
SLH and (iv) all directors and executive officers of SLH as a group. Except to
the extent indicated in the footnotes to the following table, each of the
persons or entities listed therein has sole voting and sole investment power
with respect to the shares which are deemed beneficially owned by such person or
entity. All holdings have been adjusted to reflect the 1997 and 1998 stock
splits.
<TABLE>
<CAPTION>
AMOUNT OF SHARES BENEFICIALLY OWNED(1)(2)
----------------------------------------------------
BEFORE THE MERGER AFTER THE MERGER(3)(4)
------------------------- -------------------------
PERCENTAGE OF PERCENTAGE OF
NAME SHARES CLASS(5) SHARES CLASS(6)
- ----------------------------------------------------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
James R. Seward(7)......................................... 191,200 1.9% 400,979 1.4%
P. Anthony Jacobs(8)....................................... 222,606 2.2% 394,408 1.3%
Steven K. Fitzwater........................................ 107,908 1.1% 107,908 --
Lan C. Bentsen(9).......................................... 60,372 -- 60,372 --
W. D. Grant(10)............................................ 904,884 9.1% 1,083,118 3.7%
W. T. Grant II(11)......................................... 128,526 1.3% 128,526 --
Michael E. Herman(12)...................................... 115,602 1.1% 218,840 --
David W. Kemper(13)........................................ 34,258 -- 34,258 --
All Directors and Officers as a group of eight(14)......... 1,764,316 17.0% 2,428,409 8.1%
Gotham Partners, L.P.(15) ................................. 746,750 7.46% 746,750 2.5%
110 East 42nd Street, 18th Floor
New York, New York 10017
UMB Bank, n.a.(16) ........................................ 1,473,594 14.9% 1,473,594 4.9%
1010 Grand Boulevard
Kansas City, Missouri 64106
</TABLE>
- ------------------------
(1) A beneficial owner of a security includes a person who, directly or
indirectly, has or shares voting or investment power with respect to such
security. Voting power is the power to vote or direct the voting of the
security and investment power is the power to dispose or direct the
disposition of the security. Each person listed has stated that he, either
alone or with his spouse, has sole voting power and sole investment power
with respect to the shares shown as beneficially owned, except as otherwise
indicated. The percentage of ownership before the Merger is based on
9,902,588 shares outstanding as of February 1, 1998.
(2) Shares of SLH Common Stock shown as beneficially owned include shares
issuable upon the exercise of stock options that were exercisable on
February 1, 1998, or that become exercisable within 60 days thereafter, as
follows: Lan C. Bentsen, 48,600 shares; W. D. Grant, 48,600 shares; W. T.
Grant II, 48,600 shares; Michael E. Herman, 48,600 shares; David W. Kemper,
24,300 shares; P. Anthony Jacobs, 97,500 shares; James R. Seward, 97,500
shares; Steven K. Fitzwater, 60,750 shares and all directors and executive
officers as a group, 474,450 shares.
(3) The shares of SLH beneficially owned after the Merger were calculated based
on the conversion of Syntroleum Common Stock pursuant to the Merger
Agreement on the basis of a five-trading-day
124
<PAGE>
average closing price of SLH Common Stock of $29.275 (based on such average
during the five trading days preceding April 8, 1998), which results in an
exchange ratio of 1.47484. This exchange ratio represents the number of
shares of SLH Common Stock that the holders of Syntroleum Common Stock or
options to acquire Syntroleum Common Stock will receive in the Merger per
share of Syntroleum Common Stock or option to acquire a share of Syntroleum
Common Stock. The percentage of ownership after the Merger is based on
29,312,460 shares outstanding at that time, which represents (i) 13,043,950
(the difference between 18,993,950 shares of Syntroleum Common Stock
outstanding as of March 31, 1998, less 5,950,000 shares of Syntroleum
Common Stock held by SLH), multiplied by the exchange ratio of 1.47484 and
(ii) 10,074,721 shares outstanding as of April 7, 1998.
(4) Shares of SLH Common Stock shown as beneficially owned after the Merger
also include (i) shares issuable upon the exercise of stock options under
the Syntroleum Stock Option Plans that were exercisable on February 1,
1998, or that became exercisable within 60 days thereafter as follows: P.
Anthony Jacobs, 22,239 shares; James R. Seward, 22,239 shares and all
directors and executive officers as a group, 44,478 shares and (ii) shares
of Syntroleum Common Stock held directly, as follows: W.D. Grant, 120,850;
Michael E. Herman, 70,000 shares; P. Anthony Jacobs, 94,250 shares; James
R. Seward, 120,000 shares and all directors and executive officers as a
group, 405,100 shares; all of which are multiplied by 1.47484.
(5) The percentages represent the total number of shares of SLH Common Stock
shown in the adjacent column divided by 9,902,588, the number of issued and
outstanding shares of SLH Common Stock on February 1, 1998, plus, in each
instance, all shares of SLH Common Stock issuable to the person or group
named upon the exercise of stock options granted under the SLH Corporation
Stock Option Plan for 1997 that were exercisable on February 1, 1998, or
that become exercisable within 60 days thereafter. Percentages of less than
one percent are omitted.
(6) The percentage represents the total number of shares of SLH Common Stock
shown in the adjacent column divided by the number of shares of SLH Common
Stock to be issued and outstanding after the Merger, calculated in
accordance with footnote (3) above, plus, in each instance, all shares of
SLH Common Stock issuable to the person or group named upon the exercise of
stock options granted (i) under the SLH Corporation Stock Option Plan for
1997 or (ii) under the Syntroleum Stock Option Plans that were exercisable
on February 1, 1998 or that became exercisable within 60 days thereafter.
Percentages of less than one percent are omitted.
(7) Includes 2,250 shares held in a family trust for which Mr. Seward serves as
a co-trustee with his mother, and in that capacity shares voting and
investment powers.
(8) Includes 1,500 shares owned by the wife of P. Anthony Jacobs as to which he
disclaims beneficial ownership.
(9) Includes 2,148 shares held by a family trust for the benefit of Mr.
Bentsen's children for which Mr. Bentsen serves as trustee with sole voting
and investment powers.
(10) Includes (i) 356,940 shares held by a family trust for which W. D. Grant
serves as a co-trustee and in that capacity shares voting and investment
powers with UMB Bank, Kansas City, N.A., as to which he disclaims
beneficial ownership; (ii) 170,124 shares in a trust for the benefit of W.
D. Grant for which W. D. Grant acts as co-trustee and in that capacity
shares voting and investment powers with UMB Bank, Kansas City, N.A.;
(iii) 60,648 shares held by a family trust for which W. D. Grant serves as
a co-trustee and in that capacity shares voting and investment powers with
UMB Bank, Kansas City, N.A., as to which he disclaims beneficial
ownership; and (iv) 10,176 shares owned by W. D. Grant's wife, as to which
he disclaims beneficial ownership. Does not include: (a) 746,802 shares
that are reported herein by UMB Bank, n.a., that were contributed by W.D.
Grant to a grantor remainder annuity trust ("GRAT"), in which UMB Bank,
n.a., is the trustee, that entitles W.D. Grant to receive a fixed annual
annuity payment from the GRAT and the beneficiaries of the GRAT to
125
<PAGE>
receive the remainder; and (b) 40,272 shares that are reported herein by
UMB Bank, n.a., that were contributed by W.D. Grant's wife to a GRAT, in
which UMB Bank, n.a., is the trustee, that entitles W.D. Grant's wife to
receive a fixed annual annuity payment from the GRAT and the beneficiaries
of the GRAT to receive the remainder.
(11) Includes 46,884 shares held by W. T. Grant II as custodian for his
children; also includes 17,802 shares owned by the wife of W. T. Grant II,
as to which he disclaims beneficial ownership.
(12) Includes 30,000 shares owned by the Herman Family Trading Company of which
Mr. Herman is a general partner and approximately 73% owner and 600 shares
owned by ARK Management.
(13) Includes 8,980 shares held in a family trust for which Mr. Kemper serves
as a trustee, and in that capacity shares voting power and has sole
investment power.
(14) Includes 474,450 shares of SLH Common Stock issuable upon the exercise of
stock options granted under the SLH 1997 Stock Incentive Plan that were
exercisable on February 1, 1998 or that become exercisable within 60 days
thereafter.
(15) The shares include 6,006 shares reported in the Gotham Partners, L.P.
Schedule 13D, filed on February 3, 1998, as being owned by Gotham Partners
II, L.P.
(16) The shares include: (i) 746,802 shares that were contributed by W.D. Grant
(as described above) to a grantor remainder annuity trust ("GRAT"), in
which UMB Bank, n.a., is the trustee, that entitles W.D. Grant to receive
a fixed annual annuity payment from the GRAT and the beneficiaries of the
GRAT to receive the remainder, (ii) 40,272 shares that were contributed by
W.D. Grant's wife (as described above) to a GRAT, in which UMB Bank, n.a.,
is the trustee, that entitles W.D. Grant's wife to receive a fixed annual
annuity payment from the GRAT and the beneficiaries of the GRAT to receive
the remainder and (iii) 126,924 shares reported as beneficially owned by
W.D. Grant above which are held in a family trust in which W.D. Grant's
sister Frances Peterson is the income beneficiary, UMB Bank, n.a., is the
trustee and W.D. Grant has investment and voting powers.
DESCRIPTION OF SLH CAPITAL STOCK
Upon consummation of the Merger and the filing of the Certificate of Merger,
the total number of shares of all classes of stock that SLH will have authority
to issue is 155,000,000 consisting of 150,000,000 shares of SLH Common Stock and
5,000,000 shares of SLH Preferred Stock. No shares of SLH Preferred Stock are
being issued in connection with the Merger. An aggregate of up to approximately
19,237,739 shares of SLH Common Stock is expected to be distributed in the
Merger, based on the average closing price of the SLH Common Stock during the
five trading days preceding April 8, 1998 of $29.275 (the actual number will
depend upon the Exchange Ratio). SLH plans to have authorized and reserved for
issuance 250,000 shares of SLH Junior Participating Preferred Stock (as defined
herein) in connection with certain Rights (as defined below) to be issued by SLH
in connection with the Merger.
The holders of SLH Common Stock are entitled to one vote per share on all
matters voted on by the stockholders, including the elections of directors, and,
except as otherwise required by law or provided in any resolution adopted by the
SLH Board of Directors with respect to any series of SLH Preferred Stock (a
"Preferred Stock Designation"), the holders of such shares exclusively possess
all voting power. The Articles of Incorporation do not provide for cumulative
voting in the election of directors. Subject to any preferential rights of any
outstanding series of SLH Preferred Stock, the holders of SLH Common Stock are
entitled to such dividends as may be declared from time to time by the SLH Board
of Directors from funds available therefor, and upon liquidation are entitled to
receive pro rata all assets of SLH available for distribution to such holders.
All shares of SLH Common Stock received in the Merger will be fully paid and
nonassessable and the holders thereof will not have any preemptive rights. See
"--Certain Anti-takeover Effects of Certain Provisions of the Articles of
Incorporation, the Bylaws, the Rights, and Kansas Law."
126
<PAGE>
The SLH Board of Directors is authorized to provide for the issuance of
shares of SLH Preferred Stock, in one or more series, to establish the number of
shares in each series and to fix the designation, powers, preferences and rights
of each such series and the qualifications, limitations or restrictions thereof.
See "--Certain Anti-takeover Effects of Certain Provisions of the Articles of
Incorporation, the Bylaws, the Rights, and Kansas Law."
CERTAIN ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE ARTICLES OF
INCORPORATION, THE BYLAWS, THE RIGHTS, AND KANSAS LAW
The Articles of Incorporation, the Bylaws and the Rights contain certain
provisions that could make more difficult the acquisition of SLH by means of a
tender offer, a proxy contest or otherwise. The description set forth below is
intended as a summary of the material terms of such provisions and is qualified
in its entirety by reference to the Articles of Incorporation and the Bylaws,
and the Rights Agreement, which are incorporated by reference herein.
CLASSIFIED BOARD OF DIRECTORS
The Articles of Incorporation and Bylaws of SLH provide that SLH Board of
Directors will be divided into three classes of directors, with the classes to
be as nearly equal in number as possible. The Articles of Incorporation and the
Bylaws provide that one-third of the initial directors will serve until the 1999
Annual Meeting of Stockholders (Class C), approximately one-third will continue
to serve until the 2000 Annual Meeting of Stockholders (Class A) and
approximately one-third will continue to serve until the 2001 Annual Meeting of
Stockholders (Class B). At each Annual Meeting of Stockholders, one class of
directors will be elected each year for a three-year term. Following the Merger,
the Class C directors will be Alvin R. Albe, Jr. and J. Edward Sheridan and will
serve until the 1999 Annual Meeting of Stockholders; the Class A directors will
be Mark A. Agee, Frank M. Bumstead and Robert Rosene, Jr. and will serve until
the 2000 Annual Meeting of Stockholders; and the Class B directors will be
Kenneth L. Agee, P. Anthony Jacobs and James R. Seward and will serve until the
2001 Annual Meeting of Stockholders.
The classification of directors has the effect of making it more difficult
for stockholders to change the composition of the SLH Board of Directors. At
least two annual meetings of stockholders, instead of one, will be required to
effect a change in a majority of the SLH Board of Directors. Such a delay may
help ensure that SLH's directors, if confronted by a holder attempting to force
a proxy contest, a tender or exchange offer, or an extraordinary corporate
transaction, would have sufficient time to review the proposal as well as any
available alternatives to the proposal and to act in what they believe to be the
best interests of the stockholders. The classification provisions apply to every
election of directors, however, regardless of whether a change in the
composition of the SLH Board of Directors would be beneficial to SLH and its
stockholders and whether or not a majority of SLH's stockholders believe that
such a change would be desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of SLH, even though such an attempt might be
beneficial to SLH and its stockholders. The classification of the SLH Board of
Directors could thus increase the likelihood that incumbent directors still
retain their positions. In addition, because the classification provisions may
discourage accumulations of large blocks of SLH's stock by purchasers whose
objective is to take control of SLH and remove a majority of the SLH Board of
Directors, the classification of the SLH Board of Directors could tend to reduce
the likelihood of fluctuations in the market price of SLH Common Stock that
might result from accumulations of large blocks. Accordingly, stockholders could
be deprived of certain opportunities to sell their shares of SLH Common Stock at
a higher market price than might otherwise be the case.
127
<PAGE>
NUMBER OF DIRECTORS, FILLING VACANCIES AND REMOVAL
The Articles of Incorporation provide that, subject to any rights of holders
of SLH Preferred Stock to elect additional directors under specified
circumstances, the number of directors will be fixed in the manner provided in
the Bylaws. The Bylaws provide that, subject to any rights of holders of SLH
Preferred Stock to elect directors under specified circumstances, the number of
directors will be fixed from time to time exclusively pursuant to a resolution
adopted by directors constituting a majority of the total number of directors
that SLH would have if there were no vacancies on the SLH Board of Directors
(the "Whole Board"), but must consist of not more than eleven nor less than
three directors. In addition, the Articles of Incorporation and Bylaws provide
that, subject to any rights of holders of SLH Preferred Stock, and unless the
SLH Board of Directors otherwise determines, any vacancies or newly created
directorships will be filled only by the affirmative vote of a majority of the
remaining directors, though less than a quorum. Accordingly, absent an amendment
to the Articles of Incorporation and Bylaws, the SLH Board of Directors could
prevent any stockholder from enlarging the SLH Board of Directors and filling
the new directorships with such stockholder's own nominees.
Under the KGCC, unless otherwise provided in the Articles of Incorporation,
directors serving on a classified board may only be removed by the stockholders
for cause. In addition, the Articles of Incorporation and the Bylaws provide
that directors may be removed only for cause and only upon the affirmative vote
of holders of at least 80% of the voting power of all the then outstanding
shares of stock entitled to vote generally in the election of directors ("Voting
Stock"), voting together as a single class.
STOCKHOLDER ACTION
The Articles of Incorporation and the Bylaws provide that, subject to the
rights of any holders of SLH Preferred Stock, stockholder action can be taken
only at an annual or special meeting of stockholders or by unanimous written
consent of all stockholders. The Bylaws provide that, subject to the rights of
holders of any series of SLH Preferred Stock, special meetings of stockholders
can be called only by the Chairman of the Board of the SLH Board of Directors or
by the SLH Board of Directors pursuant to a resolution adopted by a majority of
the Whole Board. Stockholders are not permitted to call a special meeting or to
require that the SLH Board of Directors call a special meeting of stockholders.
Moreover, the business permitted to be conducted at any special meeting of
stockholders is limited to the business brought before the meeting pursuant to
the notice of meeting given by SLH.
The provisions of the Articles of Incorporation and the Bylaws may have the
effect of delaying consideration of a stockholder proposal until the next annual
meeting unless a special meeting is called by the Chairman of the Board or at
the request of a majority of the Whole Board. Moreover, a stockholder could not
force stockholder consideration of a proposal over the opposition of the
Chairman of the Board and the SLH Board of Directors by calling a special
meeting of stockholders prior to the time the Chairman of the Board or a
majority of the Whole Board believes such consideration to be appropriate.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER
PROPOSALS
The Bylaws establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors, or bring other business
before an annual meeting of stockholders of SLH (the "Stockholder Notice
Procedure").
The Stockholder Notice Procedure provides that only individuals who are
nominated by, or at the direction of, the SLH Board of Directors, or by a
stockholder who has given timely written notice to the Secretary of SLH prior to
the meeting at which directors are to be elected, will be eligible for election
as directors of SLH. The Stockholder Notice Procedure provides that at an annual
meeting only such business may be conducted as has been brought before the
meeting by, or at the direction of, the Chairman of the Board or the SLH Board
of Directors, or by a stockholder who has given timely written notice to the
Secretary of SLH of such stockholder's intention to bring such business before
such meeting. Under the
128
<PAGE>
Stockholder Notice Procedure, for notice of stockholder nominations to be made
at an annual meeting to be timely, such notice must be received by SLH not less
than seventy days nor more than ninety days prior to the first anniversary of
the previous year's annual meeting (or, if the date of the annual meeting is
advanced by more than twenty days, or delayed by more than seventy days, from
such anniversary date, not earlier than the ninetieth day prior to such meeting
and not later than the later of (1) the seventieth day prior to such meeting and
(2) the tenth day after public announcement of the date of such meeting is first
made), provided that, with respect to the annual meeting to be held in 1998, the
anniversary date shall be deemed to be May 13, 1998. Notwithstanding the
foregoing, in the event that the number of directors to be elected is increased
and there is no public announcement naming all of the nominees for director or
specifying the size of the increased SLH Board of Directors made by SLH at least
eighty days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice will be timely, but only with respect to
nominees for any new positions created by such increase, if it is received by
SLH not later than the tenth day after such public announcement is first made by
SLH. Under the Stockholder Notice Procedure, for notice of a stockholder
nomination to be made at a special meeting at which directors are to be elected
to be timely, such notice must be received by SLH not earlier than the ninetieth
day before such meeting and not later than the later of (1) the seventieth day
prior to such meeting and (2) the tenth day after public announcement of the
date of such meeting is first made.
Under the Stockholder Notice Procedure, a stockholder's notice to SLH
proposing to nominate an individual for election as a director must contain
certain information, including, without limitation, the identity and address of
the nominating stockholder, the class and number of shares of stock of SLH which
are owned by such stockholder, and all information regarding the proposed
nominee that would be required to be included in a proxy statement soliciting
proxies for the proposed nominee. Under the Stockholder Notice Procedure, a
stockholder's notice relating to the conduct of business other than the
nomination of directors must contain certain information about such business and
about the proposing stockholders, including, without limitation, a brief
description of the business the stockholder proposes to bring before the
meeting, the reasons for conducting such business at such meeting, the name and
address of such stockholder, the class and number of shares of stock of SLH
beneficially owned by such stockholder, and any material interest of such
stockholder in the business so proposed. If the Chairman of the Board or other
officer presiding at a meeting determines that a person was not nominated, or
other business was not brought before the meeting, in accordance with the
Stockholder Notice Procedure, such person will not be eligible for election as a
director, or such business will not be conducted at such meeting, as the case
may be.
By requiring the advance notice of nominations by stockholders, the
Stockholder Notice Procedure will afford the SLH Board of Directors an
opportunity to consider the qualifications of the proposed nominees and, to the
extent deemed necessary or desirable by the SLH Board of Directors, to inform
stockholders about such qualifications. By requiring advance notice of other
proposed business, the Stockholder Notice Procedure will also provide a more
orderly procedure for conducting annual meetings of stockholders and, to the
extent deemed necessary or desirable by the SLH Board of Directors, will provide
the SLH Board of Directors with an opportunity to inform stockholders, prior to
such meetings, of any business proposed to be conducted at such meetings,
together with any recommendations as to the SLH Board of Directors' position
regarding action to be taken with respect to such business, so that stockholders
can better decide whether to attend such a meeting or to grant a proxy regarding
the disposition of any such business.
Although the Bylaws do not give the SLH Board of Directors any power to
approve or disapprove stockholder nominations for the election of directors or
proposals for action, they may have the effect of precluding a contest for the
election of directors or the consideration of stockholder proposals if the
proper procedures are not followed, and of discouraging or deterring a third
party from conducting a solicitation of proxies to elect its own slate of
directors or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
SLH and its stockholders.
129
<PAGE>
SLH PREFERRED STOCK
The Articles of Incorporation authorizes the SLH Board of Directors to
establish one or more series of SLH Preferred Stock and to determine, with
respect to any series of SLH Preferred Stock, the terms and rights of such
series, including (1) the designation of the series, (2) the number of shares of
the series, which number the SLH Board of Directors may thereafter (except where
otherwise provided in the Preferred Stock Designation) increase or decrease (but
not below the number of shares thereof then outstanding), (3) whether dividends,
if any, will be cumulative or noncumulative and the dividend rate and the
preferences, if any, of the series, (4) the dates at which dividends, if any,
will be payable, (5) the redemption rights and price or prices, if any, for
shares of the series, (6) the terms and amounts of any sinking fund provided for
the purchase or redemption of shares of the series, (7) the amounts payable on
shares of the series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of SLH, (8) whether the shares of the
series will be convertible into or exchangeable for shares of any other class or
series, or any other security, of SLH or any other corporation, and, if so, the
specification of such other class or series or such other security, the
conversion or exchange price or prices or rate or rates, any adjustments
thereof, the date or dates as of which such shares shall be convertible or
exchangeable and all other terms and conditions upon which such conversion or
exchange may be made, (9) restrictions on the issuance of shares of the same
series or of any other class or series and (10) the voting rights, if any, of
the holders of such series.
SLH believes that the ability of the SLH Board of Directors to issue one or
more series of SLH Preferred Stock will provide SLH with flexibility in
structuring possible future financings and acquisitions, and in meeting other
corporate needs which might arise. The authorized shares of SLH Preferred Stock,
as well as shares of SLH Common Stock, will be available for issuance without
further action by SLH's stockholders, unless such action is required by the
rules of any stock exchange or automated quotation system on which SLH's
securities are listed or traded. If the approval of SLH's stockholders is not
required for the issuance of shares of SLH Preferred Stock or SLH's Common
Stock, the SLH Board of Directors may determine not to seek stockholder
approval.
Although the SLH Board of Directors has no intention at the present time of
doing so, it could issue a series of SLH Preferred Stock that could, depending
on the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. The SLH Board of Directors will make any determination
to issue such shares based on its judgment as to the best interests of SLH and
its stockholders. The SLH Board of Directors, in so acting, could issue SLH
Preferred Stock having terms that could discourage an acquisition attempt
through which an acquiror may be able to change the composition of the SLH Board
of Directors, including a tender offer or other transaction that some, or a
majority of, SLH's stockholders might believe to be in their best interests or
in which stockholders might receive a premium for their stock over the then
current market price of such stock.
BUSINESS COMBINATIONS
The Articles of Incorporation provide that certain "business combinations"
(as defined in the Articles of Incorporation) must be approved by the holders of
at least 66 2/3% of the voting power of the shares not owned by an "interested
shareholder" (as defined in the Articles of Incorporation, the beneficial owner
of 10% or more of the outstanding Voting Stock: an "Interested Stockholder"),
unless the business combinations are approved by certain continuing directors
who were directors before an acquiror became an Interested Stockholder or meet
certain requirements regarding price and procedure.
Generally, a "business combination" is defined in the Articles of
Incorporation as (i) any merger or consolidation of SLH (which includes
subsidiaries) with any Interested Stockholder (which includes an affiliate of an
Interested Stockholder); or (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of transactions)
to or with any Interested Stockholder of any assets of SLH having an aggregate
Fair Market Value (as defined) of $10,000,000 or more; or (iii) the issuance or
transfer by SLH of any securities of SLH to any Interested Stockholder, in
exchange for
130
<PAGE>
property having an aggregate Fair Market Value of $10,000,000 or more; or (iv)
the adoption of any plan or proposal for the liquidation or dissolution of SLH
proposed by or on behalf of an Interested Stockholder; or (v) any
reclassification of securities, or recapitalization of SLH, or any merger or
consolidation of SLH with any of its subsidiaries or any other transaction which
has the effect, directly or indirectly, of increasing the proportionate share of
the outstanding shares of any class of equity or convertible securities of SLH
which are directly or indirectly owned by any Interested Stockholder.
An Interested Stockholder is generally defined as any person (other than
SLH) who or which: (i) itself, or along with its affiliates, is the beneficial
owner, directly or indirectly, of more than 10% of the then outstanding voting
stock of SLH; (ii) is an affiliate of SLH and at any time within the two-year
period immediately prior to the date in question was itself, or along with its
affiliates, the beneficial owner, directly or indirectly, of 10% or more of the
then outstanding voting stock of SLH; or (iii) is an assignee of or has
otherwise succeeded to any voting stock of SLH which was at any time within the
two-year period immediately prior to the date in question beneficially owned by
an Interested Stockholder, if such assignment or succession shall have occurred
in the course of a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
To satisfy the price and procedure requirements, the following criteria must
be satisfied: (i) the aggregate amount of the cash and the fair market value of
consideration other than cash, to be received per share by holders of SLH's
capital stock shall be at least equal to the highest of certain amounts paid by
the Interested Stockholder in certain transactions preceding the announcement of
the transaction; (ii) generally, the consideration to be received by holders of
a particular class of outstanding voting stock shall be in cash or in the same
form as the Interested Stockholder has previously paid for shares of such class
of voting stock; (iii) after such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of the business
combination, certain actions or omissions shall not have occurred with respect
to dividends and the Interested Stockholder shall not have become the beneficial
owner of any additional Voting Stock except as part of the transaction which
results in such Interested Stockholder becoming an Interested Stockholder; (iv)
after the Interested Stockholder has become an Interested Stockholder, the
Interested Stockholder shall not have received the benefit, directly or
indirectly (except proportionately as a shareholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or other
tax advantages provided by SLH, whether in anticipation of or in connection with
such business combination or otherwise; and (v) a proxy or information statement
describing the proposed business combination and complying with the requirements
of the Exchange Act and the rules and regulations thereunder shall be mailed to
stockholders of SLH at least thirty days prior to the consummation of such
business combination (whether or not such proxy or information statement is
required to be mailed pursuant to the Exchange Act or subsequent provisions
thereof).
AMENDMENT OF CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS
Under the KGCC, the stockholders have the right to adopt, amend or repeal
the bylaws and, with the approval of the board of directors, the articles of
incorporation of a corporation. In addition, if the articles of incorporation so
provide, the bylaws may be adopted, amended or repealed by the board of
directors. The SLH Articles of Incorporation provide that, in addition to
approval by the SLH Board of Directors, the affirmative vote of the holders of
at least 80% of the voting power of the outstanding shares of Voting Stock,
voting together as a single class, is required to amend provisions of the
Articles of Incorporation relating to the number, election and term of SLH's
directors, the filling of vacancies on the SLH Board of Directors, the removal
of directors and the amendment of the Bylaws. Approval by the SLH Board of
Directors, together with the vote of the holders of a majority of the voting
power of the outstanding shares of Voting Stock, is required to amend all other
provisions of the Articles of Incorporation. The Articles of Incorporation
further provides that the Bylaws may be amended by the SLH Board of Directors or
by the affirmative vote of the holders of a least 80% of the voting power of the
outstanding shares of Voting Stock, voting together as a single class. The
Articles of Incorporation also provides that, in addition to approval by the SLH
Board of Directors, the affirmative vote of the holders of at least 66 2/3% of
the voting
131
<PAGE>
power of the outstanding shares of Voting Stock, including the affirmative vote
of the holders of at least 66 2/3% of the voting power of the outstanding shares
of Voting Stock not owned directly or indirectly by an interested stockholder or
any affiliate thereof, is required to amend provisions of the Articles of
Incorporation regarding certain business combinations. These super-majority
voting requirements will have the effect of making more difficult any amendment
by stockholders of the Bylaws or of any of the provisions of the Articles of
Incorporation described above, even if a majority of SLH's stockholders believe
that such amendment would be in their best interests.
RIGHTS
The SLH Board of Directors declared a dividend of one preferred share
purchase right (each a "Right" and, collectively, the "Rights"), effective as of
and paid on March 3, 1997 (the "Distribution Date"), in respect of each share of
SLH Common Stock to the holder of record thereof as of the close of business on
the Distribution Date. Each Right entitles the registered holder to purchase
from SLH one-sixth of one one-hundredth of a share of junior participating
preferred stock, par value $0.01 per share ("SLH Junior Preferred Stock"), of
SLH at a price of $125.00 per one one-hundredth of a share (the "Purchase
Price"), subject to adjustment. The terms of the Rights are set forth in a
Rights Agreement (the "Rights Agreement") between SLH and American Stock
Transfer & Trust Company (the "Rights Agent").
Until the earlier to occur of (i) ten days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 25% or more of the then
outstanding shares of SLH Common Stock or (ii) ten business days (or such later
date as may be determined by action of the SLH Board of Directors prior to such
time as any person or group becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 25% or more of the outstanding shares of SLH
Common Stock (the earlier of such dates being called the "Rights Distribution
Date"), the Rights will be evidenced by the certificates representing shares of
Company Common Stock. In connection with the approval of the Merger Agreement,
SLH and the Rights Agent have amended the Rights Agreement so that Messrs.
Kenneth Agee and Mark Agee would not, for purposes of the proposed Merger, be
Acquiring Persons.
The Rights Agreement provides that until the Rights Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the shares of SLH Common Stock. Until the Rights Distribution
Date (or earlier redemption or expiration of the Rights), certificates
representing shares of SLH Common Stock will contain a notation incorporating
the terms of the Rights by reference. Until the Rights Distribution Date (or
earlier redemption or expiration of the Rights), the surrender for transfer of
any certificates representing shares of SLH Common Stock will also constitute
the transfer of the Rights associated with the shares of SLH Common Stock
represented by such certificate. As soon as practicable following the Rights
Distribution Date, separate certificates evidencing the Rights ("Rights
Certificates") will be mailed to holders of record of the shares of SLH Common
Stock as of the close of business on the Rights Distribution Date and such
separate Rights Certificates alone will evidence the Rights.
The Rights are not exercisable until the Rights Distribution Date. The
Rights will expire on August 15, 2006 (the "Final Expiration Date"), unless the
Final Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by SLH, in each case, as described below.
The Purchase Price payable, and the number of shares of SLH's Junior
Preferred Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the shares of SLH Junior Preferred Stock, (ii) upon the
grant to holders of the shares of SLH Junior Preferred Stock of certain rights
or warrants to subscribe for or purchase shares of SLH Junior Preferred Stock at
a price, or securities convertible into shares of SLH Junior Preferred Stock
with a conversion price, less than the then-current market price of the shares
of SLH Junior Preferred Stock or (iii) upon the
132
<PAGE>
distribution to holders of the shares of SLH Junior Preferred Stock of evidences
of indebtedness or assets (excluding regular periodic cash dividends paid out of
earnings or retained earnings or dividends payable in shares of SLH Junior
Preferred Stock) or of subscription rights or warrants (other than those
referred to above).
The number of outstanding Rights and the number of one-sixth of one
one-hundredth of a share of SLH Junior Preferred Stock issuable upon exercise of
each Right are also subject to adjustment in the event of a stock split of SLH
Common Stock or a stock dividend on SLH Common Stock payable in SLH Common Stock
or subdivisions, consolidations or combinations of SLH Common Stock occurring,
in any such case, prior to the Rights Distribution Date.
Shares of SLH Junior Preferred Stock purchasable upon exercise of the Rights
will not be redeemable. Each share of SLH Junior Preferred Stock will be
entitled to a minimum preferential quarterly dividend payment of $1.00 per share
but will be entitled to an aggregate dividend equal to 100 times the dividend
declared per share of SLH Common Stock. In the event of liquidation, the holders
of the SLH Preferred Stock will be entitled to a minimum preferential
liquidation payment of $100 per share but will be entitled to an aggregate
payment equal to 100 times the payment made per share of SLH Common Stock. Each
share of SLH Junior Preferred Stock will have 100 votes, together with SLH
Common Stock. Finally, in the event of any merger, consolidation or other
transaction in which SLH Common Stock is exchanged, each share of SLH Junior
Preferred Stock will be entitled to receive an amount equal to 100 times the
amount received per share of SLH Common Stock. These rights are protected by
customary antidilution provisions.
Because of the nature of the dividend, liquidation and voting rights of SLH
Junior Preferred Stock, the value of the one-sixth of one one-hundredth interest
in a share of SLH Junior Preferred Stock purchasable upon exercise of each Right
should approximate the value of one share of SLH Common Stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision will be made so that each holder
of a Right, other than Rights beneficially owned by the Acquiring Person (which
will thereafter be void), will thereafter have the right to receive upon
exercise thereof at the then current exercise price that number of shares of SLH
Common Stock having a market value of two times the exercise price of the Right
(such right being referred to as a "Flip-in Right"). In the event that, at any
time on or after the date that any person has become an Acquiring Person, SLH is
acquired in a merger or other business combination transaction or 50% or more of
its consolidated assets or earning power are sold, proper provision will be made
so that each holder of a Right will thereafter have the right to receive, upon
the exercise thereof at the then current exercise price of the Right, that
number of shares of common stock of the acquiring company which at the time of
such transaction will have a market value of two times the exercise price of the
Right.
At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person and prior to the acquisition by such person or group
of 50% or more of the outstanding shares of SLH Common Stock, the SLH Board of
Directors may exchange the Rights (other than Rights owned by such person or
group which will have become void), in whole or in part, at an exchange ratio of
one share of SLH Common Stock, or one-sixth of one one-hundredth of a share of
SLH Junior Preferred Stock, per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of SLH Junior Preferred Stock will be
issued (other than fractions which are integral multiples of one one-hundredth
of a share of SLH Junior Preferred Stock, which may, at the election of SLH, be
evidenced by depositary receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the shares of SLH Junior Preferred
Stock on the last trading day prior to the date of exercise.
133
<PAGE>
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 25% or more of the outstanding
shares of SLH Common Stock, the SLH Board of Directors may redeem the Rights in
whole, but not in part, at a price of $.01 per Right (the "Redemption Price").
The redemption of the Rights may be made effective at such time, on such basis
and with such conditions as the SLH Board of Directors in its sole discretion
may establish. Immediately upon any redemption of the Rights, the right to
exercise the Rights will terminate and the only right of the holders of Rights
will be to receive the Redemption Price.
The terms of the Rights may be amended by the SLH Board of Directors without
the consent of the holders of the Rights, including an amendment to lower (i)
the threshold at which a person becomes an Acquiring Person and (ii) the
percentage of SLH Common Stock proposed to be acquired in a tender or exchange
offer that would cause the Rights Distribution Date to occur, to not less than
the greater of (A) the sum of .001% and the largest percentage of the
outstanding SLH Common Stock then known to SLH to be beneficially owned by any
person or group of affiliated or associated persons and (B) 10%, except that,
from and after such time as any person or group of affiliated or associated
persons becomes an Acquiring Person, no such amendment may adversely affect the
interests of the holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of SLH, including, without limitation, the right to vote or to
receive dividends.
The Rights will have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire SLH and
thereby effect a change in the composition of the SLH Board of Directors on
terms not approved by the SLH Board of Directors, including by means of a tender
offer at a premium to the market price, other than an offer conditioned on a
substantial number of Rights being acquired. The Rights should not interfere
with any merger or business combination approved by the SLH Board of Directors
since the Rights may be redeemed by SLH at the Redemption Price prior to the
time that a person or group has become an Acquiring Person.
The foregoing summary of certain terms of the Rights is qualified in its
entirety by reference to the form of the Rights Agreement, a copy of which has
been incorporated by reference herein. In the event that the Rights become
exercisable, SLH will register the shares of SLH Junior Preferred Stock for
which the Rights may be exercised, in accordance with applicable law.
ANTI-TAKEOVER LEGISLATION
Section 17-12,101 of the KGCC provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any business combination
with any "interested stockholder" for a three-year period following the time
that such stockholder becomes an interested stockholder unless (1) prior to such
time, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder, (2) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain shares), or
(3) on or subsequent to such time, the business combination is approved by the
board of directors of the corporation and by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. Except as specified in Section 17-12,100 of the KGCC, an interested
stockholder is defined to include any person that is (a) the owner of 15% or
more of the outstanding voting stock of the corporation or (b) an affiliate or
associate of the corporation that was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within three years
immediately prior to the relevant date and the affiliates and associates of any
such person.
In addition, Section 1286 through Section 1298 of the KGCC (the "Control
Share Act") contain provisions which provide that "control shares" of an issuing
public corporation acquired in a control share acquisition (a) have voting
rights only to the extent approved by the stockholders under certain specified
134
<PAGE>
circumstances, (b) may be redeemed by the issuing public corporation under
certain circumstances and (c) provide, under certain specified circumstances,
shareholders who dissent from an action granting control shares voting rights
the right to have the dissenting holder's shares purchased by the corporation at
a "fair value" which may not be less than the highest price paid per share by
the acquiring person in the control share acquisition. A control share
acquisition is the acquisition of voting power of an issuing public corporation
within the following ranges of voting power: (a) one-fifth or more but less than
one-third of all voting power, (b) one-third or more but less than a majority of
all the voting power, or (c) a majority or more of all voting power. An issuing
public corporation is one having one hundred shareholders or more; its principal
place of business, its principal office or substantial assets within Kansas; and
either more than 10% of its shareholders resident in Kansas, 2,500 shareholders
resident in Kansas or more than 10% of its shares owned by Kansas residents. SLH
has located its principal place of business in Kansas. SLH believes that it is
an issuing public corporation.
Under certain circumstances, Section 17-12,101 of the KGCC makes it more
difficult for a person who would be an "interested stockholder" or an acquiring
person to effect various business combinations with a corporation for a
three-year period, although the stockholders may elect to exclude a corporation
from the restrictions imposed thereunder. In addition, the Control Share Act may
make it more difficult for a person to acquire a controlling interest in SLH.
The Articles of Incorporation do not exclude SLH from the restrictions imposed
under Section 17-12,101 of the KGCC or under the Control Share Act. It is
anticipated that the provisions of Section 17-12,101 and the Control Share Act
of the KGCC may encourage companies interested in acquiring SLH to negotiate in
advance with the SLH Board of Directors, because the stockholder approval
requirement would be avoided if a majority of the directors then in office
approve either the business combination or the transaction which results in the
stockholder becoming an interested stockholder.
LIMITATION OF LIABILITY OF DIRECTORS
The Articles of Incorporation provide that a director of SLH will not be
personally liable to SLH or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (1) for any breach of the
director's duty of loyalty to SLH or its stockholders, (2) for acts or omissions
not in good faith or which involve intentional misconduct or knowing violation
of law, (3) under Section 17-6424 of the KGCC, which concerns unlawful payments
of dividends, stock purchases or redemptions, or (4) for any transaction from
which the director derived an improper personal benefit.
While the Articles of Incorporation provides directors with protection from
awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, the Articles of Incorporation will have no
effect on the availability of equitable remedies such as an injunction or
rescission based on a director's breach of his or her duty of care. The
provisions of the Articles of Incorporation described above apply to an officer
of SLH only if he or she is a director of SLH and is acting in his or her
capacity as director, and do not apply to officers of SLH who are not directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation provide that each person who is or was or had
agreed to become a director or officer of SLH, or each such person who is or was
serving or who had agreed to serve at the request of SLH as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise (including the heirs, executors, administrators or estate of such
person), will be indemnified by SLH, in accordance with the Bylaws, to the
fullest extent permitted from time to time by the KGCC, as the same exists or
may hereafter be amended (but, if permitted by applicable law, in the case of
any such amendment, only to the extent that such amendment permits SLH to
provide broader indemnification rights than said law permitted SLH to provide
prior to such amendment) or any other applicable laws as presently or hereafter
in effect. SLH may, by action of the SLH Board of Directors, provide
indemnification to employees and agents of SLH, and to persons serving as
employees or agents of another
135
<PAGE>
corporation, partnership, joint venture, trust or other enterprise, at the
request of SLH, with the same scope and effect as the foregoing indemnification
of directors and officers. SLH may be required to indemnify any person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the SLH
Board of Directors or is a proceeding to enforce such person's claim to
indemnification pursuant to the rights granted by the Articles of Incorporation
or otherwise by SLH. In addition, SLH may enter into one or more agreements with
any person providing for indemnification greater or different than that provided
in the Articles of Incorporation.
The Bylaws provide that each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit, or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative is or was a director or officer of SLH or is or
was serving at the request of SLH as a director or officer of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director or
officer or in any other capacity while serving as a director or officer, will be
indemnified and held harmless by SLH to the fullest extent authorized by the
KGCC as the same exists or may in the future be amended (but, if permitted by
applicable law, in the case of any such amendment, only to the extent that such
amendment permits SLH to provide broader indemnification rights than said law
permitted SLH to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification will continue as to a person who has ceased to be a director or
officer and will inure to the benefit of his or her heirs, executors and
administrators; provided, however, except as described in the second following
paragraph with respect to proceedings to enforce rights to indemnification, SLH
will indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the SLH Board of Directors.
Pursuant to the Bylaws, to obtain indemnification, a claimant must submit to
SLH a written request for indemnification. Upon such written request by a
claimant, a determination, if required by applicable law, with respect to the
claimant's entitlement to indemnification will be made, if requested by the
claimant, by independent counsel, or if the claimant does not so request, by the
SLH Board of Directors by a majority vote of the disinterested directors even
though less than a quorum or, if there are no disinterested directors or the
disinterested directors so direct, by independent legal counsel in a written
opinion to the SLH Board of Directors, or if the disinterested directors so
direct, by the stockholders of SLH. In the event the determination of
entitlement to indemnification is to be made by independent legal counsel at the
request of the claimant, the independent legal counsel will be selected by the
SLH Board of Directors unless there shall have occurred within two years prior
to the date of the commencement of the action, suit or proceeding for which
indemnification is claimed a change of control, in which case the independent
legal counsel will be selected by the claimant unless the claimant requests that
such selection be made by the SLH Board of Directors.
Pursuant to the Bylaws, if a claim described in the preceding paragraph is
not paid in full by SLH within thirty days after a written claim pursuant to the
preceding paragraph has been received by SLH, the claimant may at any time
thereafter bring suit against SLH to recover the unpaid amount of the claim and,
if successful in whole or in part, the claimant will be entitled to be paid also
the expense of prosecuting such claim. The Bylaws provide that it will be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to SLH) that the claimant has not met the standard of conduct which
makes it permissible under the KGCC for SLH to indemnify the claimant for the
amount claimed, but the burden of proving such defense will be on SLH. Neither
the failure of SLH
136
<PAGE>
(including the disinterested directors, independent legal counsel or
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
KGCC, nor an actual determination by SLH (including the disinterested directors,
independent legal counsel or stockholders) that the claimant has not met such
applicable standard of conduct, will be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
However, SLH will be bound by a determination pursuant to the procedures set
forth in the Bylaws that the claimant is entitled to indemnification in any suit
brought by a claimant pursuant to the Bylaws.
The Bylaws provide that the right to indemnification and the payment of
expenses incurred in defending a proceeding in advance of its final disposition
conferred in the Bylaws will not be exclusive of any other right which any
person may have or may in the future acquire under any statute, provision of the
Articles of Incorporation, the Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise. The Bylaws permit SLH to maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of SLH or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not SLH
would have the power to indemnify such person against such expense, liability or
loss under the KGCC. SLH intends to obtain directors' and officers' liability
insurance providing coverage to its directors and officers. In addition, the
Bylaws authorize SLH, to the extent authorized from time to time by the SLH
Board of Directors, to grant rights to indemnification and rights to be paid by
SLH the expenses incurred in defending any proceeding in advance of its final
disposition, to any employee or agent of SLH to the fullest extent of the
provisions of the Bylaws with respect to the indemnification and advancement of
expenses of directors and officers of SLH.
The Bylaws provide that the right to indemnification conferred therein is a
contract right and includes the right to be paid by SLH the expenses incurred in
defending any proceeding in advance of its final disposition, except that if the
KGCC requires, the payment of such expenses incurred by a director or officer in
his or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, will be made only upon delivery to SLH
of an undertaking by or on behalf of such director or officer, to repay all
amounts so advanced if it is ultimately determined that such director or officer
is not entitled to be indemnified under the Bylaws or otherwise.
COMPARATIVE RIGHTS OF STOCKHOLDERS
GENERAL
As a result of the Merger, holders of Syntroleum Common Stock will become
holders of SLH Common Stock and the rights of all such former Syntroleum
stockholders will thereafter be governed by the SLH Articles of Incorporation,
SLH Bylaws and the KGCC. The rights of the holders of Syntroleum Common Stock
currently are governed by the Syntroleum Certificate of Incorporation, the
Syntroleum Bylaws and the OGCA. The following summary, which does not purport to
be a complete statement of the general differences among the rights of the
stockholders of SLH and Syntroleum, sets forth certain differences between the
SLH Articles of Incorporation and the Syntroleum Certificate of Incorporation,
the SLH Bylaws and the Syntroleum Bylaws and the KGCC and the OGCA. This summary
is qualified in its entirety by reference to the full text of each of such
documents, the KGCC and the OGCA.
MERGERS AND OTHER FUNDAMENTAL TRANSACTIONS
The KGCA generally requires that a merger, consolidation, sale of all or
substantially all of the assets or dissolution of a corporation be approved by
the holders of a majority of the outstanding shares entitled to vote, unless the
company's articles of incorporation provide otherwise. SLH's Articles of
Incorporation
137
<PAGE>
provide that, absent approval by the SLH Board of Directors or the fulfilment of
certain price and procedure requirements, certain of such transactions will
require the affirmative vote of the holders of at least 66 2/3% of the SLH stock
entitled to vote in the election of directors and not owned directly or
indirectly by certain interested stockholders or their affiliates. For a
complete discussion of these provisions, see "Description of SLH Capital
Stock--Certain Anti-takeover Effects of Certain Provisions of the Articles of
Incorporation, the Bylaws, the Rights, and Kansas Law."
The OGCA generally requires that a merger, consolidation, sale of all or
substantially all of the assets or dissolution of a corporation be approved by
the holders of a majority of the outstanding shares entitled to vote, unless the
company's articles of incorporation provide otherwise. The Articles of
Incorporation of Syntroleum do not provide otherwise.
APPRAISAL RIGHTS
The rights of a dissenting stockholder of a Kansas corporation, the capital
stock of which is listed on the NASDAQ Stock Market, to demand an appraisal of
their shares in the case of certain mergers and consolidations are substantially
similar to the rights of a dissenting stockholder of an Oklahoma corporation,
the capital stock of which is listed on the NASDAQ Stock Market to demand such
appraisal. For a description of appraisal rights of stockholders of SLH and
Syntroleum in connection with the Merger, see "The Merger--Dissenters' Appraisal
Rights."
AMENDMENTS TO CHARTER
Amendments to the SLH Articles of Incorporation requires the affirmative
vote of the holders of a majority of SLH shares who are present in person or
represented by proxy and who are entitled to vote; except that, in certain cases
involving the amendment, repeal or adoption of provisions which are inconsistent
with the SLH Articles of Incorporation regarding (i) certain powers of the SLH
Board of Directors with respect to the SLH Bylaws and the accounts and books of
SLH, (ii) the number, election and classification of directors of SLH and (iii)
votes required for certain business combinations, the Articles of Incorporation
requires (a) the approval of the SLH Board of Directors and the affirmative vote
of 80% of the SLH stock entitled to vote in the election of directors, (b) the
approval of the SLH Board of Directors and the affirmative vote of 80% of the
SLH stock entitled to vote in the election of directors and (c) the approval of
the SLH Board of Directors and the affirmative vote of 66 2/3% of the SLH stock
entitled to vote in the election of directors and not owned directly or
indirectly by certain interested stockholders or their affiliates, respectively.
Amendments to the Certificate of Incorporation of Syntroleum requires the
affirmative vote of the holders of a majority of the stock having voting power
present in person or represented by proxy.
SPECIAL MEETINGS OF STOCKHOLDERS
Subject to the rights of the holders of any class of SLH Preferred Stock,
special meetings of the shareholders of SLH may be called only by the Chairman
of the Board of SLH or by the SLH Board of Directors pursuant to a resolution
adopted by a majority of the total number of directors of SLH.
Special meetings of the shareholders of Syntroleum, for any purpose or
purposes, unless otherwise proscribed by statute or by the Syntroleum
Certificate of Incorporation, may be called (i) by the Chairman of the Board,
President or Secretary of Syntroleum, (ii) at the request in writing of a
majority of the Syntroleum Board of Directors, or (iii) at the request in
writing of Syntroleum shareholders owning at least one-third of the entire
capital stock of Syntroleum issued and outstanding and entitled to vote. Such
requests must state the purpose or purposes of the proposed meeting.
138
<PAGE>
NO CUMULATIVE VOTING
No holder of SLH Common Stock or Syntroleum Common Stock has the right to
vote cumulatively in the election of directors.
NO PREEMPTIVE RIGHTS
No holder of SLH Common Stock or Syntroleum Common Stock has a preemptive
right to subscribe to any or all additional issues of the stock of SLH or
Syntroleum.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Stockholders of SLH may take any action required or permitted to be taken at
any meeting of the stockholders without a meeting, prior notice or a vote if a
consent in writing, setting forth the action so taken, is signed (personally or
by a duly authorized attorney) by all persons who would be entitled to vote upon
such action at a meeting.
Stockholders of Syntroleum may take any action required to be taken or which
may be taken at any annual or special meeting of Syntroleum shareholders without
a meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action to be taken, is signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted.
NEWLY CREATED DIRECTORSHIPS
The SLH Bylaws provide that, subject to the rights of holders of any series
of SLH Preferred Stock or any other series or class of stock as set forth in the
SLH Articles of Incorporation to elect additional directors under specified
circumstances, unless the SLH Board of Directors otherwise determines, newly
created directorships resulting from any increase in the authorized number of
directors may be filled only by the affirmative vote of a majority of the
remaining directors, though less than a quorum.
The Syntroleum Bylaws provide that newly created directorships resulting
from any increase in the number of Syntroleum directors may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until the
next annual election or until their successors are duly elected and qualified,
unless sooner displaced.
CLASSIFICATION OF SLH DIRECTORS
The SLH Articles of Incorporation provides that the directors of SLH will be
divided into three classes serving staggered three-year terms such that
approximately one-third of the SLH Board of Directors is elected each year. The
SLH Articles of Incorporation also provides that, subject to the rights of the
holders of any series of SLH Preferred Stock or any other series or class of
stock as set forth in the SLH Articles of Incorporation to elect additional
directors under specified circumstances, the number of directors of SLH is fixed
in accordance with the SLH Bylaws. The SLH Bylaws provide that the number of
directors is to be fixed from time to time pursuant to a resolution adopted by a
majority of the whole SLH Board of Directors but will not consist of more than
11 nor less than three directors. As of March 31, 1998 the SLH Board of
Directors consisted of eight persons.
The Syntroleum Bylaws provide that the number of directors of Syntroleum
will not be less than one nor more than 13. The Syntroleum Board of Directors
currently consists of eight members, all of one class and has no staggered
terms.
139
<PAGE>
PROPOSAL TO ELECT SLH DIRECTORS
THE PROPOSAL TO ELECT THREE DIRECTORS IS INCLUDED ONLY TO SATISFY LEGAL
REQUIREMENTS IN CONNECTION WITH THE SLH ANNUAL MEETING AND TO PROVIDE DIRECTORS
IN THE EVENT THE MERGER IS NOT CONSUMMATED. UPON COMPLETION OF THE MERGER, THE
DIRECTORS AND EXECUTIVE OFFICERS OF SLH WILL BE AS DESCRIBED UNDER "MANAGEMENT
AFTER THE MERGER."
GENERAL
Three directors are to be elected at the Annual Meeting for terms expiring
on the earlier of the Effective Time of the Merger or until the annual meeting
of stockholders in 2001. Absent written instructions to the contrary, proxies
representing shares of SLH Common Stock will be voted FOR the election of each
of the persons listed below as directors of SLH for a term of three years and
until their successors are duly elected and qualified. However, if the Merger is
consummated, Steven K. Fitzwater, Lan C. Bentsen, W. D. Grant, W. T. Grant II,
Michael E. Herman and David W. Kemper will resign as members of the SLH Board of
Directors and, pursuant to the Merger Agreement, Kenneth L. Agee, Mark A. Agee,
Alvin Albe, Frank M. Bumstead, J. Edward Sheridan and Robert Rosene, Jr. will be
appointed to the SLH Board of Directors to hold office until their successors
are duly elected and qualified at the applicable Annual Meeting of Stockholders.
See "Management After the Merger--Directors and Officers After the Merger."
If any nominee for director should be unable or decline to serve, the
authority provided in the proxy to vote for the election of directors will be
exercised to vote for a substitute or substitutes. As of the date of this Joint
Proxy Statement/Prospectus, SLH has no knowledge that any of the nominees will
be unable or will decline to serve. None of the nominees has any family
relationship among themselves or with any executive officer of SLH.
INFORMATION CONCERNING NOMINEES TO THE SLH BOARD OF DIRECTORS
Set forth below are the names and descriptions of the backgrounds of the
nominees for election as directors of SLH. Each of SLH's three nominees for
election to the SLH Board of Directors is currently serving as a director of SLH
and each has agreed to serve if elected.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------------------------- --- -------------------
<S> <C> <C>
W. D. Grant........................................................ 81 Class B Director
W. T. Grant II..................................................... 47 Class B Director
David W. Kemper.................................................... 47 Class B Director
</TABLE>
W. D. GRANT has been a director of SLH since inception. He was a consultant
to Lab Holdings from August 1990 to December 1997 and Chairman of the Board of
Lab Holdings until May 1993. Mr. W. D. Grant also is a director of LabONE and
NationsBank, N.A.
W. T. GRANT II has been a director of SLH since inception. He has been
Chairman, President and Chief Executive Officer of LabONE since October 1995.
Additionally, he was the Chairman and Chief Executive Officer of Lab Holdings
from May 1993 to September 1997 and President of Lab Holdings prior to May 1993.
Mr. Grant also is a director of AMC Entertainment Inc., Commerce Bancshares,
Inc., Kansas City Power & Light Company, LabONE and Response.
DAVID W. KEMPER has been a director of SLH since inception. He has been
Chairman of the Board, President and Chief Executive Officer of Commerce
Bancshares, Inc. (bank holding company) and Chairman and Chief Executive Officer
and a director of Commerce Bank, N.A. (St. Louis) for more than the past five
years. Mr. Kemper also is a director of Ralcorp Holdings, Inc., Wave
Technologies International, Inc. and Tower Properties Company.
140
<PAGE>
There are no family relationships, of first cousin or closer, among SLH's
directors or executive officers, by blood, marriage or adoption, except that
W.D. Grant and W.T. Grant II are father and son.
VOTE
Directors will be elected by a favorable vote of a plurality of the shares
of voting stock present and entitled to vote, in person or by proxy, at the
Annual Meeting. Accordingly, abstentions or broker non-votes as to the election
of directors will not affect the election of the candidates receiving the
plurality of votes. Unless instructed to the contrary, the shares represented by
the proxies will be voted FOR the election of the three nominees named above as
directors.
SLH BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The SLH Board of Directors has established an Executive Committee consisting
of James R. Seward, P. Anthony Jacobs, Steven K. Fitzwater and W.T. Grant II, an
Audit Committee consisting of David W. Kemper, Lan C. Bentsen and W.D. Grant,
and a Nominating and Compensation Committee (the "Compensation Committee")
consisting of Lan C. Bentsen, David W. Kemper and Michael E. Herman.
During the year ended December 31, 1997, the SLH Board of Directors met five
times, the Compensation Committee met twice and the Executive Committee met
once. The attendance at Committee and SLH Board of Directors meetings by all
Directors in the aggregate was 80% and each Director attended more than 98% of
the meetings of the SLH Board of Directors and the Committees of which the
Director was a member.
The Audit Committee recommends to the SLH Board of Directors an independent
accountant to audit the books and records of SLH and its subsidiaries for the
year. It also reviews, to the extent it deems appropriate, SLH's Employee
Conduct Policy, litigation and pending claims, the scope, plan and findings of
the independent accountants' annual audit and internal audits, recommendations
of the auditor, the adequacy of internal accounting controls and audit
procedures, SLH's audited financial statements, non-audit services performed by
the independent auditor, and fees paid to the independent auditor for audit and
non-audit services.
The Compensation Committee recommends to the SLH Board of Directors the
compensation of all officers and administers SLH's Stock Incentive Plan. It also
recommends to the SLH Board of Directors the qualifications for new Director
nominees, candidates for nomination, and policies concerning director
compensation and length of service.
COMPENSATION OF DIRECTORS
Non-employee directors of SLH receive compensation consisting of annual cash
retainers, meeting fees and stock option awards.
CASH COMPENSATION. Directors who are not employees of SLH are paid an
annual retainer for SLH Board of Directors service of $1,000 per quarter and a
fee of $500 for each SLH Board of Directors meeting attended. Directors who are
employees of SLH, which presently consist of Messrs. Seward, Jacobs and
Fitzwater, are not paid any fee or additional remuneration for services as
members of the SLH Board of Directors or any committee thereof.
DIRECTORS' STOCK OPTIONS. Pursuant to the SLH Corporation 1997 Stock
Incentive Plan (the "Stock Option Plan"), all of the above named directors of
SLH other than Messrs. Seward, Jacobs and Fitzwater received options to purchase
16,200 shares of SLH Common Stock (97,200 shares after adjustment for the 1997
and 1998 stock splits) at the fair market value of such stock as of the close of
business on March 3, 1997. The SLH Board of Directors determined the fair market
value to be $19.15 per share on that date ($3.19 after adjustment for the 1997
and 1998 stock splits) based on an appraisal rendered by George K.
141
<PAGE>
Baum & Company and over-the-counter trading in SLH Common Stock on and
immediately before that date.
PROPOSAL TO APPROVE THE
SYNTROLEUM STOCK OPTION PLANS
In connection with the Merger Agreement, SLH has agreed to assume all of the
outstanding options which were issued pursuant to the Syntroleum Stock Option
Plans. The Syntroleum Stock Option Plans provide that a committee of the Board
of Directors may make equitable adjustments to the plans in certain events,
including the Merger. In the event the Merger Agreement is approved, the number
of shares reserved for issuance pursuant to the Syntroleum Stock Option Plans
and the number of shares issuable in connection with outstanding options granted
under the Syntroleum Stock Option Plans will be adjusted in proportion to the
Exchange Ratio. For example, assuming that the average closing price of SLH
Common Stock during the five trading days ending on the business day immediately
preceding the SLH Annual Meeting is $29.275 (which was the average closing price
of the SLH Common Stock during the five trading days immediately preceding April
8, 1998), then the number of shares reserved for issuance pursuant to the
Syntroleum Stock Option Plans will be increased from 2,189,939 to 3,229,809 and
the number of shares issuable in connection with outstanding options granted
under the Syntroleum Stock Option Plans will be increased from 727,434 to
1,072,848. In the event the Merger Agreement and the transactions contemplated
thereby are approved, the SLH Board of Directors believes it is in the interest
of SLH to adopt and approve the Syntroleum Stock Option Plans so that additional
awards may be granted pursuant to the Syntroleum Stock Option Plans. Thus, there
will be presented at the SLH Annual Meeting a proposal, conditioned upon the
approval of the Merger to approve and adopt the Syntroleum Stock Option Plans.
If the Merger is not approved by SLH Stockholders, the Syntroleum Stock Option
Plans will not be assumed by SLH and the proposal to approve and adopt such
plans will be of no force or effect.
The following description of the Syntroleum Stock Option Plans contained
herein is qualified in its entirety by reference to the full text of each of the
Syntroleum Stock Option Plans, copies of which are attached to this Joint Proxy
Statement/Prospectus as Appendix E and F.
1993 STOCK OPTION AND INCENTIVE PLAN
On May 10, 1993, the Board of Directors of Syntroleum adopted the 1993 Stock
Option and Incentive Plan (the "Employee Plan"). The objectives of the Employee
Plan are to (i) foster in the participants a strong incentive to exert maximum
effort for the continued success and growth of Syntroleum and the enhancement of
the shareholders' interest, (ii) aid in retaining individuals who exert such
efforts and (iii) assist in attracting the best available individuals in the
future. In accordance with these objectives, the Employee Plan is designed to
enable employees of Syntroleum to acquire or increase their ownership of
Syntroleum Common Stock on reasonable terms.
Syntroleum has reserved 2,000,000 shares for issuance in connection with the
Employee Plan. Awards may be made under the Employee Plan only to employees of
Syntroleum or a subsidiary of Syntroleum. Officers are considered employees
under the Employee Plan whether or not they are also directors. A director who
is not an employee is not eligible to receive an award under the Employee Plan.
Awards may be made to eligible employees whether or not they have received
previous awards under the Employee Plan or under any previously adopted plan,
and whether or not they are participants in other benefit plans of Syntroleum or
any subsidiary of Syntroleum.
The Employee Plan is administered by the Compensation Committee of the
Syntroleum Board of Directors. Among other things, the Committee has authority,
subject to the provisions of the Employee Plan, to determine when and to whom
awards shall be granted, the term of each award, the number of shares covered by
it, the participation by the grantee in other plans and any other terms or
conditions of each such award. The Committee also has sole responsibility for
construing and interpreting the Employee
142
<PAGE>
Plan, for establishing and amending such rules and regulations as it deems
necessary or advisable for the proper administration of the Employee Plan and
for resolving all questions arising under the Employee Plan.
The Syntroleum Board may terminate, suspend or modify the Employee Plan at
any time and in any manner, provided, however, that to the extent shareholder
approval is required by the Internal Revenue Code of 1986, as amended (the
"Code") (with respect to Incentive Stock Options), or is required by regulations
issued under the Securities Act or the Exchange Act, the Syntroleum Board may
not, without authorization of the shareholders, effect any change (other than
through adjustment for changes in capitalization) which (i) increases the
aggregate number of shares for which awards may be granted, (ii) lowers the
minimum option price, (iii) lengthens the maximum period during which an option
or Stock Appreciation Right ("SAR") may be exercised, (iv) increases the maximum
amount a grantee may be paid upon the exercise of an SAR, (v) renders any member
of the Committee eligible to receive an award while serving thereon, (vi)
materially modifies the requirements as to eligibility to participate in the
Employee Plan, (vii) extends the period of time during which awards may be
granted, (viii) materially increases the benefits of the Employee Plan accruing
to the grantees or (ix) removes the restriction which prohibits any member of
the Syntroleum Board who is an officer or employee of Syntroleum from voting on
any proposed amendment of the Employee Plan or on any other matter which might
affect that member's individual interest. Notwithstanding the foregoing, the
Syntroleum Board may amend the Employee Plan without shareholder authorization
to comply with certain provisions of the Exchange Act or the Securities Act. No
termination, suspension or modification of the Employee Plan may adversely
affect the right acquired by any grantee under an award granted before the date
of such termination, suspension or modification unless such grantee consents.
Awards under the Employee Plan may be in the form of (i) rights to purchase
a specified number of shares of Syntroleum Common Stock at a specified price
("Options"), (ii) rights to receive a payment, in cash or Syntroleum Common
Stock, as determined by the Committee, or (iii) rights to receive, at a time or
times fixed by the Committee in accordance with the Employee Plan, shares of
Syntroleum Common Stock for no cash consideration, provided that, such rights
are subject to forfeiture if the grantee's employment is terminated for any
reason other than death, disability or retirement, and to such other terms and
conditions as may be determined by the Committee. An Option may be either an
incentive stock option ("ISO") that qualifies, or a non-qualified stock option
("NSO") that does not qualify, with the requirements of Section 422 of the Code.
The purchase price of each share subject to an Option is fixed by the Committee,
provided that, the purchase price for ISOs may not be less than 100% of the fair
market value of the shares on the date the ISO is granted and the purchase price
of NSOs may not be less than the greater of the par value of the shares or 75%
of the fair market value of the shares on the date the NSO is granted, provided
further that, the minimum purchase price of an ISO must be 110% of the fair
market value of the shares on the date the ISO is granted with respect to
grantees who at the time of the award are deemed to own 10% or more of the
voting power of Syntroleum's outstanding shares.
As of the date of this Joint Proxy Statement/Prospectus, options to purchase
an aggregate of 572,000 shares of Syntroleum Common Stock (including vested
options for 60,001 shares) at a weighted average exercise price of $16.03 are
outstanding under the Employee Plan. All of such options have a term of ten
years and generally become exercisable in cumulative annual increments of
approximately one-third of the total number of shares of Syntroleum Common Stock
subject thereto, beginning on the first anniversary of the date of grant. Upon
consummation of the Merger, the Employee Plan will be assumed by SLH and such
options will be converted into the right to purchase 843,608 shares of SLH
Common Stock (including vested options for 88,491 shares) at a weighted average
exercise price of $10.87 (assuming an Exchange Ratio of 1.47484 based on the
average closing price of the SLH Common Stock during the five trading days
preceding April 8, 1998 of $29.275). See "Certain Provisions of the Merger
Agreement--Treatment of Syntroleum Options."
143
<PAGE>
STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
On April 28, 1997, Syntroleum adopted the Stock Option Plan for Outside
Directors ( the "Director Plan"). The purpose of the Director Plan is to (i)
obtain, motivate and retain experienced Non-employee Directors ("Outside
Directors") by offering them an opportunity to become owners of Syntroleum
Common Stock and (ii) promote the interests of Syntroleum and its shareholders
by encouraging Outside Directors of Syntroleum to have a direct and personal
stake in the performance of Syntroleum's Common Stock.
The aggregate number of shares which may be issued upon exercise of Options
issued pursuant to the Plan ("Options") may not exceed one percent of the number
of shares of the Syntroleum Common Stock outstanding on January 1st of the year
in question. Members of the Syntroleum Board of Directors who are not employees
of Syntroleum, a parent corporation or a subsidiary defined under Section 340(c)
of the Internal Revenue Code of 1986, as amended, and who are not legally or
contractually prohibited from personally receiving and holding an Option are
eligible for awards under the Director Plan.
Upon becoming eligible for an award under the Director Plan, such person is
initially granted an Option to purchase a number of shares of Syntroleum Common
Stock which is determined by dividing $18,000 by the fair market value of
Syntroleum Common Stock on the date of such grant. On January 1st of each year,
each eligible person who has received an initial award and who has served at
least one year as an Outside Director is granted an additional Option to
purchase a number of shares of Syntroleum Common Stock, determined by dividing
$18,000 by the per share fair market value of Syntroleum Common Stock on the
date of the grant. The exercise price of each Option granted is equal to the
greater of the fair market value of a share of Syntroleum Common Stock or the
par value per share of Syntroleum Common Stock on the date such Option is
granted.
The term of each granted Option is ten years from the date of the grant and
the amount of vested Options is determined by multiplying the total number of
shares covered by the Option by a percentage equal to the percentage of total
Board meetings attended by the Outside Director during the preceding year;
provided that the initial issuance granted under the Director Plan is 100%
vested. Except in the case of death, disability, retirement from the Board, or
an unsuccessful attempt to win reelection to the Board after nomination for
election at the recommendation of the Board, if an Outside Director's membership
on the Board terminates for any reason, an Option held at the date of such
termination may be exercised in whole or in part at any time within one month
after the date of such termination (but in no event after the term of the Option
expires) and thereafter terminates. In all other cases where an Outside
Director's membership on the Board terminates, an Option held at the date of
such termination may be exercised for up to 100% of the shares covered by such
Option at any time within three years after the date of such termination (but in
no event after the term of the Option expires) and thereafter terminates.
Among other things, the Chief Financial Officer of Syntroleum is responsible
for (i) conducting the general administration of the Director Plan, (ii)
interpreting the Director Plan, (iii) adopting rules for the administration,
interpretation and application of the Director Plan as are consistent therewith
and (iv) interpreting, amending or revoking such rules. The Director Plan may be
wholly or partially amended, modified, suspended or terminated at any time or
from time to time by the Board except that shareholder approval is required to
(a) increase the limitation on the number of shares which may be issued upon the
exercise of the Options in a given year (except for certain adjustments related
to changes in Syntroleum's shares), (b) materially modify the eligibility
requirements of the Director Plan, (c) reduce the minimum option price
requirements, (d) extend the limits imposed on the period during which Options
may be granted and (e) amend or modify the plan in a manner requiring
shareholder approval under Rule 16b-3 of the Securities and Exchange Commission.
144
<PAGE>
As of the date of this Joint Proxy Statement/Prospectus, options to purchase
an aggregate of 13,434 shares of Syntroleum Common Stock (all of which are
vested), at a weighted average exercise price of $16.08 per share, have been
granted under the Director Plan. Upon consummation of the Merger, the Director
Plan will be assumed by SLH and such options would be converted into the right
to purchase 19,813 shares of SLH Common Stock (all of which would be vested) at
a weighted average exercise price of $10.90 (assuming an Exchange Ratio of
1.47484 based on the average closing price of the SLH Common Stock during the
five trading days preceding April 8, 1998 of $29.275). See "Certain Provisions
of the Merger Agreement--Treatment of Syntroleum Options."
TAX CONSEQUENCES
The holder of a nonqualified stock option recognizes no taxable income as a
result of the grant of the stock option. Upon the exercise of the stock option,
however, the holder of a nonqualified stock option recognizes ordinary income in
an amount equal to the difference between the then fair market value of the
shares on the date of exercise and the exercise or purchase price (or, in the
case of relinquishment in an amount equal to the sum of the cash received and
the fair market value of the shares or award received determined on the date of
exercise) and, correspondingly, SLH will be entitled to an income tax deduction
for such amount.
Upon the exercise of an incentive stock option, the stock option holder
generally does not recognize taxable income by reason of the exercise (although
alternative minimum tax may apply), and SLH normally is not entitled to any
income tax deduction. If the stock option holder disposes of the shares acquired
upon the exercise of an incentive stock option after satisfaction of certain
minimum holding periods, any gain realized is capital gain. If a stock option
holder disposes of the shares acquired upon the exercise of an incentive stock
option within the minimum holding periods, the stock option holder would
recognize ordinary income, and SLH would be entitled to a commensurate income
tax deduction (except with respect to post-exercise appreciation).
The grant of a stock appreciation right produces no United States federal
income tax consequences for the participant or SLH. The exercise of a stock
appreciation right results in taxable income to the participant, equal to the
difference between the exercise price of the shares and the market price of the
shares on the date of exercise, and a corresponding tax deduction to SLH.
A participant under the Employee Plan who has been granted an award of
restricted shares does not realize taxable income at the time of the grant, and
SLH will not be entitled to a tax deduction at the time of the grant, unless the
participant makes an election to be taxed at the time of the award. When the
restrictions lapse, the participant will recognize taxable income in an amount
equal to the excess of the fair market value of the shares at such time over the
amount, if any, paid for such shares. SLH will be entitled to a corresponding
tax deduction. Dividends paid to the participant during the restriction period
will also be compensation income to the participant and deductible as such by
SLH. The holder of a restricted stock award may elect to be taxed at the time of
grant of the restricted stock award on the market value of the shares, in which
case (1) SLH will be entitled to a deduction at the same time and in the same
amount, (2) dividends paid to the participant during the restriction period will
be taxable as dividends to him and not deductible by SLH and (3) there will be
no further federal income tax consequences when the restrictions lapse. This tax
information is only a summary, does not purport to be complete and does not
cover, among other things, foreign, state and local tax treatment of
participation in the Employee Plan.
Approximately 42 employees and 9 directors of Syntroleum have outstanding
options under either the Employee Plan or the Director Plan.
145
<PAGE>
EMPLOYEE PLAN AND DIRECTOR PLAN
SUMMARY OF GRANTS FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
ADJUSTED FOR THE MERGER(3)
BEFORE THE MERGER ------------------------------
--------------------------------------- CUMULATIVE
CUMULATIVE OPTIONS AVERAGE PER SHARE OPTIONS AVERAGE PER SHARE
NAME GRANTED(1) EXERCISE PRICE(2) GRANTED EXERCISE PRICE
- ---------------------------------------------------- ------------------ ------------------- ----------- -----------------
<S> <C> <C> <C> <C>
Kenneth L. Agee..................................... 0 $ 0 0 0
Mark A. Agee........................................ 0 0 0 0
Peter Snyder........................................ 0 0 0 0
Randall M. Thompson................................. 55,000 7.42 81,116 5.03
Larry J. Weick...................................... 20,000 7.42 29,497 5.03
All current executive officers as a group (7)....... 145,000 10.37 213,852 7.03
All current nonexecutive directors
as a group (6).................................... 9,000 12.00 13,273 8.14
All other employees as a group...................... 220,000 13.11 324,465 8.89
</TABLE>
- ------------------------
(1) Reflects options granted during the year ended December 31, 1997 and which
are currently outstanding.
(2) The exercise price of all options was the fair market value at the date of
grant.
(3) The cumulative options granted as adjusted for the Merger were calculated by
multiplying the number of options granted in 1997 and currently outstanding
before the Merger by 1.47484. The average per share exercise price as
adjusted for the Merger was calculated by dividing the average per share
exercise price before the Merger by 1.47484. The 1.47484 represents the
number of shares that a holder of Syntroleum Common Stock would receive in
the Merger per Syntroleum share assuming a five-trading-day average closing
price of SLH Common Stock of $29.275 (based on such average during the five
trading days preceding April 8, 1998).
THE SLH BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF
THE SYNTROLEUM STOCK OPTION PLANS.
PROPOSAL TO APPROVE AND RATIFY SLH'S
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of SLH has appointed the firm of KPMG Peat Marwick
LLP as SLH's independent public accountants for 1998. KPMG Peat Marwick LLP has
been the SLH's independent public accountants since inception. A representative
of KPMG Peat Marwick LLP will be available at the Annual Meeting and will have
the opportunity to make a statement if he or she desires to do so and to respond
to appropriate questions. If the Merger is approved, management of the combined
company intends to review the selection of its independent public accountants
for the 1998 fiscal year.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL AND RATIFICATION
OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS SLH'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE 1998 FISCAL YEAR.
EXPERTS
The financial statements and the related financial statement schedules
included in the SLH Annual Report on Form 10-K for the year ended December 31,
1997, incorporated herein by reference, have been audited by KPMG Peat Marwick
LLP, independent public accountants, as stated in their reports included in such
Form 10-K, and have been incorporated by reference herein in reliance upon such
reports given upon the authority of that firm as experts in accounting and
auditing.
146
<PAGE>
The audited financial statements of Syntroleum Corporation included in this
Prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated by their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
LEGAL MATTERS
Lathrop & Gage L.C., Kansas City, Missouri, is acting as counsel for SLH and
will pass on certain legal matters in connection with the Merger, including the
validity of the shares of SLH Common Stock issued in connection with the Merger
on behalf of SLH. Baker & Botts, L.L.P., Houston, Texas, is acting as counsel
for Syntroleum in connection with certain legal matters relating to the Merger
and the other transactions contemplated by the Merger Agreement. Baker & Botts,
L.L.P. will also pass on certain United States federal income tax matters on
behalf of both SLH and Syntroleum.
STOCKHOLDER PROPOSALS
Stockholders of SLH may submit proposals to be included in SLH's proxy
materials and considered for stockholder action at the 1999 SLH Annual Meeting
of Stockholders if they do so in accordance with applicable regulations of the
SEC. Any such proposals must be submitted to the Secretary of SLH no later than
, 1999 in order to be considered for inclusion in SLH's 1999 proxy
materials.
147
<PAGE>
INDEX TO SYNTROLEUM CORPORATION FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Consolidated Balance Sheets--December 31, 1997 and 1996.................................................... F-3
Consolidated Statements of Operations--Years Ended December 31, 1997, 1996 and 1995........................ F-4
Consolidated Statements of Stockholders' Equity--Years Ended December 31, 1997, 1996 and 1995.............. F-5
Consolidated Statements of Cash Flows--Years Ended December 31, 1997, 1996 and 1995........................ F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Syntroleum Corporation:
We have audited the accompanying consolidated balance sheets of Syntroleum
Corporation (an Oklahoma corporation) and subsidiary as of December 31, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Syntroleum Corporation and
subsidiary as of December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
January 12, 1998
F-2
<PAGE>
SYNTROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................................... $ 10,157,924 $ 881,593
Accounts receivable............................................................... 429,238 --
Prepaids and other................................................................ 35,182 6,302
------------- -------------
Total current assets.......................................................... 10,622,344 887,895
PROPERTY AND EQUIPMENT, net (Note 1)................................................ 1,244,522 521,071
INTEREST RECEIVABLE FROM OFFICERS (Note 2).......................................... 8,430 91,884
OTHER ASSETS, net................................................................... 215,788 51,640
------------- -------------
$ 12,091,084 $ 1,552,490
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................................. $ 676,823 $ 191,971
Accrued liabilities............................................................... 99,209 95,000
------------- -------------
Total current liabilities..................................................... 776,032 286,971
CONVERTIBLE DEBENTURE (Note 5)...................................................... -- 1,000,000
OTHER NONCURRENT LIABILITIES........................................................ 59,701 --
DEFERRED REVENUE (Note 1)........................................................... 11,000,000 --
COMMITMENTS (Note 6)................................................................ -- --
------------- -------------
11,835,733 1,286,971
------------- -------------
MINORITY INTEREST (Note 1).......................................................... 1,497,070 --
------------- -------------
STOCKHOLDERS' EQUITY, per accompanying statements:
Preferred stock, $.01 par value, 1,000,000 authorized, no shares issued........... -- --
Common stock, $.001 par value, 50,000,000 shares authorized, 18,995,450 and
18,311,057 issued in 1997 and 1996, respectively................................ 18,996 18,311
Additional paid-in capital........................................................ 14,254,347 6,140,786
Notes receivable from sale of common stock........................................ (698,600) (700,000)
Accumulated deficit............................................................... (14,805,332) (5,193,578)
------------- -------------
(1,230,589) 265,519
Less-treasury stock, 1,500 shares at cost......................................... (11,130) --
------------- -------------
Total stockholders' equity.................................................... (1,241,719) 265,519
------------- -------------
$ 12,091,084 $ 1,552,490
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
SYNTROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
------------- -------------- -------------
<S> <C> <C> <C>
OPERATING REVENUES.................................................. $ 2,007,440 $ 615,857 $ 45,000
------------- -------------- -------------
OPERATING EXPENSES:
Pilot plant and research and development (Note 1)................. 2,846,558 1,120,178 670,823
Catalyst services (Note 6)........................................ 4,799,600 -- --
General and administrative........................................ 4,250,185 1,401,538 567,819
Depreciation and amortization..................................... 76,032 18,830 12,196
------------- -------------- -------------
Total operating expenses...................................... 11,972,375 2,540,546 1,250,838
------------- -------------- -------------
INCOME (LOSS) FROM OPERATIONS....................................... (9,964,935) (1,924,689) (1,205,838)
------------- -------------- -------------
INTEREST INCOME (EXPENSE):
Interest income................................................... 372,250 82,709 51,343
Interest expense.................................................. (21,999) (95,000) --
Other............................................................. -- (379) 8,713
------------- -------------- -------------
Net other income (expense).................................... 350,251 (12,670) 60,056
------------- -------------- -------------
INCOME (LOSS) BEFORE MINORITY INTEREST.............................. (9,614,684) (1,937,359) (1,145,782)
MINORITY INTEREST IN LOSS OF SUBSIDIARY............................. 2,930 -- --
------------- -------------- -------------
NET INCOME (LOSS)................................................... $ (9,611,754) $ (1,937,359) $ (1,145,782)
------------- -------------- -------------
------------- -------------- -------------
NET INCOME (LOSS) PER SHARE--Basic and diluted...................... $ (0.52) $ (0.11) $ (0.07)
------------- -------------- -------------
------------- -------------- -------------
WEIGHTED AVERAGE SHARES OUTSTANDING................................. 18,516,750 18,048,453 16,067,133
------------- -------------- -------------
------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
SYNTROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL NOTES RECEIVABLE TOTAL
NUMBER PAID-IN FROM SALE OF ACCUMULATED TREASURY STOCKHOLDERS'
OF SHARES AMOUNT CAPITAL COMMON STOCK DEFICIT STOCK EQUITY
----------- ------- ----------- ---------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995...... 1,446,525 $ 723 $ 2,586,545 $(375,000) $ (2,110,437) $ -- $ 101,831
STOCK SPLIT (10 for 1)........ 13,018,725 13,742 (13,742) -- -- -- --
SALE OF COMMON STOCK.......... 3,143,650 3,144 1,568,681 (325,000) -- -- 1,246,825
NET INCOME (LOSS)............. -- -- -- -- (1,145,782) -- (1,145,782)
----------- ------- ----------- ---------------- ------------- --------- -------------
BALANCE, December 31, 1995.... 17,608,900 17,609 4,141,484 (700,000) (3,256,219) -- 202,874
SALE OF COMMON STOCK.......... 702,157 702 1,999,302 -- -- -- 2,000,004
NET INCOME (LOSS)............. -- -- -- -- (1,937,359) -- (1,937,359)
----------- ------- ----------- ---------------- ------------- --------- -------------
BALANCE, December 31, 1996.... 18,311,057 18,311 6,140,786 (700,000) (5,193,578) -- 265,519
SALE OF COMMON STOCK.......... 21,500 22 159,508 -- -- -- 159,530
CONVERSION OF DEBENTURE....... 93,059 93 1,116,615 -- -- -- 1,116,708
SALE AND ISSUANCE OF STOCK
(Note 6).................... 567,000 567 6,803,433 -- -- -- 6,804,000
STOCK ISSUED FOR SERVICES..... 2,834 3 34,005 -- -- -- 34,008
PURCHASE OF 1,500 SHARES OF
TREASURY STOCK.............. -- -- -- -- -- (11,130) (11,130)
PROCEEDS ON NOTES
RECEIVABLE.................. -- -- -- 1,400 -- -- 1,400
NET INCOME (LOSS)............. -- -- -- -- (9,611,754) -- (9,611,754)
----------- ------- ----------- ---------------- ------------- --------- -------------
BALANCE, December 31, 1997.... 18,995,450 $18,996 $14,254,347 $(698,600) $(14,805,332) $(11,130) $ (1,241,719)
----------- ------- ----------- ---------------- ------------- --------- -------------
----------- ------- ----------- ---------------- ------------- --------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
SYNTROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTE 4)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (9,611,754) $ (1,937,359) $ (1,145,782)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities--
Stock issued for services........................................ 34,008 -- --
Stock issued for catalyst services (Note 6)...................... 4,799,600 -- --
Interest on conversion of debenture.............................. 21,708 -- --
Minority interest in loss of subsidiary.......................... (2,930) -- --
Depreciation and amortization.................................... 76,032 18,830 12,196
Writedown of property and equipment.............................. 414,170 199,104 --
Changes in assets and liabilities--
Accounts receivable............................................ (429,238) -- --
Prepaids and other............................................. (28,880) (1,091) (1,327)
Other assets................................................... (38,296) -- --
Interest receivable from officers.............................. (47,151) (42,223) (32,973)
Accounts payable............................................... 484,852 13,535 168,795
Accrued liabilities............................................ 75,693 89,681 3,502
Deferred revenue............................................... 11,000,000 -- (7,500)
------------- ------------- -------------
Net cash provided by (used in) operating activities.......... 6,747,814 (1,659,523) (1,003,089)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................................ (1,114,098) (213,875) (6,113)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under capital lease....................................... (11,585) -- --
Minority interest investment in subsidiary......................... 1,500,000 -- --
Proceeds from issuance of convertible debenture.................... -- 1,000,000 --
Proceeds from sale of common stock................................. 2,163,930 1,500,004 1,246,825
Proceeds from notes receivable..................................... 1,400 -- --
Treasury stock purchased........................................... (11,130) -- --
------------- ------------- -------------
Net cash provided by financing activities.................... 3,642,615 2,500,004 1,246,825
------------- ------------- -------------
NET INCREASE IN CASH................................................. 9,276,331 626,606 237,623
CASH AND CASH EQUIVALENTS, beginning of period....................... 881,593 254,987 17,364
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of period............................. $ 10,157,924 $ 881,593 $ 254,987
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
SYNTROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BUSINESS
Syntroleum Corporation (the Company) was incorporated in Oklahoma in
November 1984. The Company's primary operations to date have consisted of the
research and development of a proprietary process (the Syntroleum Process)
designed to convert natural gas into synthetic liquid hydrocarbons. Synthetic
crude oil produced by the Syntroleum Process can be further processed into
liquid fuels such as diesel, kerosene and naptha, or specialty products such as
synthetic lubricants, synthetic drilling fluid, waxes, liquid normal paraffins
and certain chemical feedstocks.
The Company's current focus is to further demonstrate the commercial
viability of its proprietary technology. The Company has sold license agreements
to four major oil companies and, in conjunction with a joint development
agreement with a major oil company, is modifying its existing pilot plant in
Tulsa, Oklahoma to conduct additional tests. The Company, through its
subsidiary, Syntroleum/Sweetwater Company, L.L.C., also plans to begin
construction of a commercial plant in Sweetwater County, Wyoming in early 1999.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiary, Syntroleum/Sweetwater Company, L.L.C.
(Sweetwater LLC), which was formed in 1997. All significant intercompany
accounts and transactions have been eliminated.
REVENUE RECOGNITION
The Company recognizes revenues from joint development activities as the
related expenses are incurred. Substantially all revenues for the years ended
December 31, 1997, 1996 and 1995 have been from joint development activities.
The Company recognizes revenue on the sale of license agreements by
recording 50% of the license fee deposit as revenue when: (1) the license
agreement has been formally executed, (2) the license fee deposit has been paid
in cash and (3) the Company has delivered to the licensee the process design
package for the licensee's initial site. Since 50% of the license fee deposit is
subject to the Company's indemnity obligation with respect to the performance
guarantee on the related plant, the remaining license fee deposit is recorded as
deferred revenue in the consolidated balance sheets and will be recognized as
revenue in the consolidated statements of operations after the related plant has
passed certain performance tests. Option fees, which provide licensees the right
to include additional geographic areas in its license agreement territory, are
deferred until the earlier of the option being exercised or lapsing. As of
December 31, 1997, the Company has deferred all amounts received related to
license and option agreements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments with
a maturity of three months or less when purchased. The carrying value of cash
and cash equivalents approximates fair value.
F-7
<PAGE>
SYNTROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. The cost and accumulated
depreciation related to assets sold or retired are removed from the accounts and
any gain or loss is credited or charged to income. Accelerated depreciation
methods are used for tax purposes. For financial reporting purposes,
depreciation of property and equipment is computed on the straight-line method
over estimated useful lives of five to seven years. Property and equipment at
December 31 consists of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Furniture and office equipment...................................... $ 954,834 $ 196,334
Leasehold improvements.............................................. 213,455 --
Construction in progress............................................ 223,417 400,642
------------ ----------
1,391,706 596,976
Less--accumulated depreciation...................................... 147,184 75,905
------------ ----------
$ 1,244,522 $ 521,071
------------ ----------
------------ ----------
</TABLE>
OTHER ASSETS
Other assets consist primarily of notes receivable and patents. The patents
are being amortized on a straight-line basis over estimated useful lives ranging
from 15-17 years. Other assets at December 31 consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Patents................................................................ $ 103,815 $ 71,699
Notes receivable from officers......................................... 130,604 --
Other.................................................................. 8,882 2,701
---------- ---------
243,301 74,400
Less--accumulated amortization......................................... 27,513 22,760
---------- ---------
$ 215,788 $ 51,640
---------- ---------
---------- ---------
</TABLE>
RESEARCH AND DEVELOPMENT
The Company incurs significant costs for research, development and
engineering programs. Such costs are charged to expense when incurred. Prior to
1997, substantially all costs were considered research and development costs.
INCOME TAXES
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," which
requires the use of an asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and of net operating loss carryforwards. Deferred tax assets and
liabilities are measured using the enacted tax rates and laws in effect or that
will be in effect when the differences are expected to reverse.
F-8
<PAGE>
SYNTROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
EARNINGS PER SHARE
The Company adopted SFAS No. 128, "Earnings Per Share," effective December
31, 1997, and all earnings per share amounts disclosed herein have been
calculated under the provisions of SFAS No. 128. Basic earnings (losses) per
common share were computed by dividing net income (loss) by the weighted average
number of shares of common stock outstanding during the reporting period.
Diluted earnings (losses) per share does not assume exercise of outstanding
options, as such exercise would be anti-dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. NOTES RECEIVABLE FROM SALE OF COMMON STOCK:
Notes receivable from sale of common stock at December 31 consists of the
following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Note receivable from officer, interest at 5.34%, secured by stock pledge agreement,
principal and interest due January 2003................................................. $ -- $ 375,000
Notes receivable from officers, interest at 6.83%, secured by stock pledge agreements,
principal and interest due May 2004..................................................... -- 325,000
Notes receivable from officers, interest at 6.10%, secured by stock pledge agreements,
principal and interest due May 2004..................................................... 698,600 --
---------- ----------
$ 698,600 $ 700,000
---------- ----------
---------- ----------
</TABLE>
3. INCOME TAXES:
The Company has federal income tax net operating loss (NOL) carryforwards of
approximately $10 million at December 31, 1997. These carryforwards generally
begin to expire in 2004.
SFAS No. 109 requires that the tax benefit of such NOL carryforwards be
recorded as an asset to the extent that management concludes that the
realization of the NOL carryforwards is "more likely than not." Realization of
the future tax benefits is dependent on the Company's ability to generate
taxable income within the carryforward period. The Company's management has
concluded that, based solely on the criteria of SFAS No. 109 and the historical
results of the Company, a valuation allowance should be provided for the entire
balance of the net deferred asset.
The Company has not recorded an income tax provision or benefit for the
years ended December 31, 1997, 1996 or 1995. This differs from the amount of
income tax benefit that would result from applying the 34% statutory federal
income tax rate to the pretax loss due to the increase in the valuation
allowance in each period. The valuation allowance increased by approximately
$3,609,000, $759,000 and $400,000 for each of the three years ended December 31,
1997, respectively.
F-9
<PAGE>
SYNTROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INCOME TAXES: (CONTINUED)
Deferred taxes arise primarily from NOL carryforwards and the recognition of
revenues and expenses in different periods for financial and tax purposes.
Deferred taxes at December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Deferred tax assets:
NOL carryforwards............................................. $ 3,800,000 $ 1,901,000
Accounts payable.............................................. 54,000 73,000
Accrued interest-debenture.................................... 27,000 36,000
Accrued vacation.............................................. 19,000 --
Deferred revenue.............................................. 1,710,000 --
------------- -------------
5,610,000 2,010,000
Deferred tax liability:
Interest receivable from officers............................. (26,000) (35,000)
------------- -------------
Net deferred tax asset before valuation allowance............... 5,584,000 1,975,000
Valuation allowance............................................. (5,584,000) (1,975,000)
------------- -------------
Net deferred tax................................................ $ -- $ --
------------- -------------
------------- -------------
</TABLE>
4. SUPPLEMENTAL CASH FLOW INFORMATION:
During 1995, the Company issued 650,000 shares of common stock to three
officers of the Company in exchange for notes receivable of $325,000. This
transaction is considered a noncash financing activity.
During 1995, the Company entered into an agreement with an engineering
company whereby the engineering company would receive 500,000 shares of common
stock in the Company in exchange for the first $500,000 in services for the
engineering, procurement and construction of a pilot plant. During 1996, the
$500,000 cap was met and the shares were issued. This transaction represents a
noncash investing activity.
During 1997, the convertible debenture was converted into 93,059 shares of
the Company's common stock (see Note 5). This transaction represents a noncash
financing activity.
During 1997, the Company acquired $94,802 in office equipment under a
capital lease obligation. This transaction was accounted for as a noncash
investing and financing activity.
During 1997, the Company issued 400,000 shares of its common stock to a
catalyst manufacturer (see Note 6). The stock issuance was accounted for as a
noncash operating activity.
5. CONVERTIBLE DEBENTURE:
During 1996, the Company entered into an agreement with an oil company
whereby the oil company purchased a convertible debenture from the Company in
the original principal amount of $1 million. The convertible debenture accrued
interest at a rate of 9.5%. During 1997, the oil company converted the debenture
with principal and interest amounts of $1,000,000 and $116,708, respectively,
into 93,059 shares of the Company's common stock, at a price of $12 per share.
F-10
<PAGE>
SYNTROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS:
During 1996, the Company entered into an agreement with a catalyst
manufacturing company to provide catalyst and services to the Company and its
licensees valued at $6,995,000 in exchange for 942,694 shares of the Company's
common stock, valued at $7.42 per share. The agreement expires January 1, 2002.
In addition, the Company issued options to the manufacturer to purchase up to
1,000,000 shares of the Company's common stock. In October 1997, the
manufacturer exercised options to purchase 167,000 of the 1,000,000 shares of
common stock at an exercise price of $12 per share for a total consideration of
$2,004,000. In connection with the exercise of that option and the termination
of the remaining options issued to the manufacturer, the Company and the
manufacturer entered into an agreement under which the Company issued 400,000
shares of its common stock to the manufacturer (valued at $12 per share) in
consideration for all prior services rendered to and catalyst received by the
Company from the manufacturer. Accordingly, this $4,800,000 was expensed.
Additionally, the original catalyst purchase agreement was modified such that
the Company will pay cash for any catalyst purchased from the manufacturer in
the future, but has no commitment for any minimum purchase amount. As of
December 31, 1997, the Company has not purchased any catalyst from the
manufacturer.
During 1997, the Company entered into a joint development agreement with a
major oil company and an engineering firm for the purpose of investigating the
technical and commercial feasibility of developing a full-scale, 2,500 barrel
per day plant. Under the agreement, the Company has committed to spend $1.5
million for the project. As of December 31, 1997, the Company has spent
approximately $16,000.
The Company has entered into operating lease agreements related to its
business offices and laboratory facilities. Future commitments under these
leases are approximately as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 470,000
1999.............................................................. 523,000
2000.............................................................. 507,000
2001.............................................................. 530,000
2002.............................................................. 405,000
Thereafter........................................................ --
</TABLE>
7. COMMON STOCK OPTIONS:
The Company maintains stock option and incentive plans for employees and
directors and has reserved 2,000,000 shares of common stock for issuance under
the employee plan and one percent of the outstanding shares of common stock of
the Company as of January 1 of each year (183,111 as of December 31, 1997) for
the director plan. Under the terms of the plans, incentive stock options may be
issued with an exercise price of not less than 100% of the fair market value at
the date of grant. All other options may be issued at an exercise price of not
less than 75% of the fair market value at the date of grant. Options granted
vest at a rate determined by the Compensation Committee of the Company's Board
of Directors and are exercisable for varying periods, not to exceed ten years.
At December 31, 1997, 1,639,111
F-11
<PAGE>
SYNTROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMON STOCK OPTIONS: (CONTINUED)
shares were available for granting future options. The options granted were
granted at the fair market value at the date of grant. The number and exercise
price of stock options granted are as follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
UNDER PRICE
OPTION PER SHARE
---------- -----------
<S> <C> <C>
OUTSTANDING AT DECEMBER 31, 1994....................................... 212,500 $ 0.43
Granted.............................................................. 140,000 0.50
---------- -----
OUTSTANDING AT DECEMBER 31, 1995....................................... 352,500 0.46
Granted.............................................................. 10,000 7.42
---------- -----
OUTSTANDING AT DECEMBER 31, 1996....................................... 362,500 0.65
Granted.............................................................. 414,000 11.80
Exercised............................................................ (20,000) 7.42
Expired.............................................................. (212,500) 0.43
---------- -----
OUTSTANDING AT DECEMBER 31, 1997....................................... 544,000 $ 8.97
---------- -----
---------- -----
</TABLE>
The following is a summary of stock options outstanding as of December 31,
1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------ ------------------------------
OPTION WEIGHTED AVERAGE WEIGHTED AVERAGE
OPTIONS EXERCISE REMAINING OPTIONS EXERCISE PRICE
OUTSTANDING PRICE CONTRACTUAL LIFE EXERCISABLE PER SHARE
- ----------- ----------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C>
140,000 $ 0.50 2.6 years 140,000 $ 0.50
105,000 7.42 8.3 33,333 7.42
259,000 12.00 9.4 19,000 12.00
40,000 23.08 9.9 -- 23.08
- ----------- -----------
544,000 192,333
- ----------- -----------
- ----------- -----------
</TABLE>
The Company adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the stock option plan. However, pursuant to the requirements
of SFAS No. 123, the following disclosures are presented to reflect the
Company's pro forma net income (loss) for the three years ended December 31,
1997, as if the fair value method of accounting prescribed by SFAS No. 123 had
been used. Had compensation cost for the Company's stock option plan been
determined consistent with the provisions of SFAS No. 123, the
F-12
<PAGE>
SYNTROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMON STOCK OPTIONS: (CONTINUED)
Company's net income (loss) and income (loss) per share would have increased to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
NET INCOME (LOSS):
As reported....................................................... $ (9,611,754) $ (1,937,359) $ (1,145,782)
Pro forma......................................................... (10,261,000) (1,955,000) (1,149,000)
BASIC AND DILUTED INCOME (LOSS) PER SHARE:
As reported....................................................... $ (0.52) $ (0.11) $ (0.07)
Pro forma......................................................... (0.55) (0.11) (0.07)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
The fair value of each option grant is estimated on the grant date using the
minimum value method with the following weighted average assumptions: dividend
yield of 0%, risk-free interest rate of 5.63% to 6.83%, and expected lives of 5
to 10 years.
Subsequent to December 31, 1997, the Company granted options to purchase
20,000 shares of common stock to two employees of the Company. The options are
exercisable at a cost of $23.25 per share. Additionally, the Company granted
options to purchase 4,434 shares of common stock to the six outside directors of
the Company at an exercise price of $24.35. All options were, in the opinion of
management, granted at the fair market value at the date of grant.
8. SIGNIFICANT CUSTOMERS:
Substantially all of the Company's operating revenues in the years ended
December 31, 1997, 1996 and 1995 were from a single major oil company. The
Company has signed 15-year license agreements with three different major oil
companies and one volume licensing agreement with an international oil company.
The license agreements allow the oil companies to use the Syntroleum Process in
their production of synthetic crude oil and fuels. The Company also received
from a licensee, a separate nonrefundable payment for options to add certain
geographic areas not covered by the applicable license agreement. Amounts
received under the license agreements and the amount received for options have
been recorded as deferred revenue at December 31, 1997.
9. SUBSEQUENT EVENTS:
Subsequent to December 31, 1997, the Company entered into an agreement to
purchase laboratory facilities and approximately 100 acres of land in Tulsa,
Oklahoma for $875,000 and sold an additional minority interest in Sweetwater LLC
to a major energy company for $1 million.
F-13
<PAGE>
APPENDIX A
[CONFORMED COPY]
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
SLH CORPORATION
AND
SYNTROLEUM CORPORATION
DATED AS OF MARCH 30, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ARTICLE I THE MERGER.................................................................... 1
1.1 The Merger; Effective Time of the Merger...................................... 1
1.2 Closing....................................................................... 1
1.3 Effects of the Merger......................................................... 1
(a) Surviving Corporation; Charter; Bylaws............................. 1
(b) Directors and Officers............................................. 2
(c) Other.............................................................. 2
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE.............................. 2
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 Effect of the Merger on Capital Stock......................................... 2
(a) Exchange Ratio for Syntroleum Common Stock......................... 2
(b) Assumption of Syntroleum Stock Options............................. 3
(c) Adjustment of SLH Stock Options.................................... 3
(d) Termination of Syntroleum Shareholder Agreements................... 3
2.2 Exchange of Certificates...................................................... 4
(a) Exchange Agent..................................................... 4
(b) Exchange Procedures................................................ 4
(c) Distributions with Respect to Unexchanged Shares................... 4
(d) No Further Ownership Rights in Syntroleum Common Stock............. 5
(e) No Fractional Shares............................................... 5
(f) Termination of Exchange Fund....................................... 5
(g) No Liability....................................................... 5
2.3 Dissenting Shares............................................................. 5
ARTICLE III REPRESENTATIONS AND WARRANTIES................................................ 6
3.1 Representations and Warranties of Syntroleum.................................. 6
(a) Organization, Standing and Power................................... 6
(b) Capital Structure.................................................. 6
(c) Non-Subsidiaries Equity Investment................................. 7
(d) Authority; No Violations; Consents and Approvals................... 7
(e) Financial Statements............................................... 8
(f) Information Supplied............................................... 9
(g) Absence of Certain Changes or Events............................... 9
(h) No Undisclosed Material Liabilities................................ 9
(i) Material Contracts; No Defaults.................................... 10
(j) Compliance with Applicable Laws.................................... 11
(k) Litigation......................................................... 11
(l) Taxes.............................................................. 11
(m) Pension and Benefit Plans; ERISA................................... 12
(n) Labor Matters...................................................... 14
(o) Intangible Property................................................ 14
(p) Environmental Matters.............................................. 15
(q) Opinion of Financial Advisor....................................... 17
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C> <C>
(r) Vote Required...................................................... 17
(s) Insurance.......................................................... 17
(t) Brokers............................................................ 17
(u) Tax Matters........................................................ 17
(v) Title.............................................................. 17
(w) Books and Records.................................................. 17
(x) Certain Payments................................................... 17
(y) Transactions with Related Parties.................................. 18
(z) State Takeover Laws................................................ 18
(aa) Year 2000.......................................................... 18
3.2 Representations and Warranties of SLH......................................... 18
(a) Organization, Standing and Power................................... 18
(b) Capital Structure.................................................. 18
(c) Non-Subsidiaries Equity Investment................................. 19
(d) Authority; No Violations; Consents and Approvals................... 19
(e) SEC Documents...................................................... 20
(f) Information Supplied............................................... 21
(g) Absence of Certain Changes or Events............................... 21
(h) No Undisclosed Material Liabilities................................ 22
(i) Material Contracts; No Defaults.................................... 22
(j) Compliance with Applicable Laws.................................... 22
(k) Litigation......................................................... 22
(l) Taxes.............................................................. 23
(m) Pension and Benefit Plans; ERISA................................... 24
(n) Labor Matters...................................................... 25
(o) Intangible Property................................................ 26
(p) Environmental Matters.............................................. 26
(q) Opinion of Financial Advisor....................................... 27
(r) Vote Required...................................................... 27
(s) Insurance.......................................................... 27
(t) Brokers............................................................ 27
(u) Tax Matters........................................................ 27
(v) Title.............................................................. 28
(w) Books and Records.................................................. 28
(x) Certain Payments................................................... 28
(y) Transactions with Related Parties.................................. 28
(z) State Takeover Laws and SLH Rights Plan............................ 28
(aa) Year 2000.......................................................... 28
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS..................................... 28
4.1 Conduct of Business by Syntroleum Pending the Merger.......................... 29
(a) Ordinary Course.................................................... 29
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C> <C>
(b) Dividends; Changes in Stock........................................ 29
</TABLE>
<TABLE>
<CAPTION>
(c) Issuance of Securities........................................... 29
<S> <C> <C> <C>
(d) Governing Documents.............................................. 29
(e) No Acquisitions.................................................. 29
(f) No Dispositions.................................................. 29
(g) No Dissolution, Etc.............................................. 29
(h) Certain Employee Matters......................................... 30
(i) Indebtedness; Leases; Capital Expenditures....................... 30
(j) No Solicitation.................................................. 30
4.2 Conduct of Business by SLH Pending the Merger............................... 31
(a) Ordinary Course.................................................. 31
(b) Dividends; Changes in Stock...................................... 31
(c) Issuance of Securities........................................... 31
(d) Governing Documents.............................................. 31
(e) No Acquisitions.................................................. 31
(f) No Dispositions.................................................. 31
(g) No Dissolution, Etc.............................................. 32
(h) Certain Employee Matters......................................... 32
(i) Indebtedness; Leases; Capital Expenditures....................... 32
(j) No Solicitation.................................................. 32
ARTICLE V ADDITIONAL AGREEMENTS....................................................... 33
5.1 Preparation of S-4 and the Proxy Statement.................................. 33
5.2 Letter of Syntroleum's Accountants.......................................... 33
5.3 Letter of SLH's Accountants................................................. 33
5.4 Access to Information....................................................... 33
5.5 Stockholders Meetings....................................................... 34
5.6 Legal Conditions to Merger.................................................. 34
5.7 Agreements of Others........................................................ 34
5.8 Listing..................................................................... 34
5.9 Board of Directors and Officers............................................. 34
5.10 Stock Options; Reservation and Registration of Shares....................... 35
5.11 Indemnification; Directors' and Officers' Insurance......................... 35
5.12 Public Announcements........................................................ 36
5.13 Other Actions............................................................... 36
5.14 Advice of Changes; SEC Filings.............................................. 36
5.15 Reorganization.............................................................. 37
5.16 Termination of Certain SLH Employees........................................ 37
ARTICLE VI CONDITIONS PRECEDENT........................................................ 37
6.1 Conditions to Each Party's Obligation to Effect the Merger.................. 37
(a) Stockholder Approval............................................. 37
(b) Listing.......................................................... 37
(c) Other Approvals.................................................. 37
(d) S-4.............................................................. 37
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C> <C>
(e) No Injunctions or Restraints..................................... 37
(f) Dissenters....................................................... 37
(g) Accounting Treatment............................................. 37
(h) Tax Opinion...................................................... 38
6.2 Conditions of Obligations of SLH............................................ 38
(a) Representations and Warranties................................... 38
(b) Performance of Obligations of Syntroleum......................... 38
(c) No Vesting of Syntroleum Stock Options........................... 38
(d) Fairness Opinion................................................. 38
(e) Officers' Certificate............................................ 38
(f) Letters from Affiliates.......................................... 38
(g) Opinion of Counsel to Syntroleum................................. 38
6.3 Conditions of Obligations of Syntroleum..................................... 39
(a) Representations and Warranties................................... 39
(b) Performance of Obligations of SLH................................ 39
(c) Fairness Opinion................................................. 39
(d) Officers' Certificate............................................ 39
(e) Board of Directors and Officers at the Effective Time............ 39
(f) Opinion of Counsel to SLH........................................ 39
(g) Consents of Optionees............................................ 39
ARTICLE VII TERMINATION AND AMENDMENT................................................... 39
7.1 Termination................................................................. 39
7.2 Effect of Termination....................................................... 41
7.3 Amendment................................................................... 41
7.4 Extension; Waiver........................................................... 41
ARTICLE VIII GENERAL PROVISIONS.......................................................... 41
8.1 Payment of Expenses......................................................... 41
8.2 Nonsurvival of Representations, Warranties and Agreements................... 41
8.3 Notices..................................................................... 41
8.4 Interpretation.............................................................. 42
8.5 Counterparts................................................................ 43
8.6 Entire Agreement; No Third Party Beneficiaries.............................. 43
8.7 Governing Law............................................................... 43
8.8 Severability................................................................ 43
8.9 Assignment.................................................................. 43
</TABLE>
EXHIBITS TO THE AGREEMENT AND PLAN OF MERGER
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
Exhibit A --Form of Certificate of Merger
Exhibit B --List of Directors and Officers of Surviving Corporation
Exhibit C --Tax Certificate
Exhibit D --Opinion of Counsel to Syntroleum
Exhibit E --Opinion of Counsel to SLH
</TABLE>
iv
<PAGE>
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM DEFINED IN SECTION
- --------------------------------------------------------------------------------------------- -------------------
<S> <C>
Affiliates................................................................................... 5.7
Agreement.................................................................................... Preamble
CERCLA....................................................................................... 3.1(p)(A)
Certificate of Merger........................................................................ 1.1
Certificates................................................................................. 2.2(b)
Closing...................................................................................... 1.1
Closing Date................................................................................. 1.2
Code......................................................................................... Recitals
Confidentiality Agreements................................................................... 5.4
Consultant Option............................................................................ 3.1(b)
Constituent Corporations..................................................................... 1.3(a)
Contracts.................................................................................... 3.1(i)(ii)
Dissenting Shares............................................................................ 2.3
Effective Time............................................................................... 1.1
Environmental Law............................................................................ 3.1(p)(A)
ERISA........................................................................................ 3.1(m)(i)(1)
Exchange Act................................................................................. 3.1(b)
Exchange Agent............................................................................... 2.2(a)
Exchange Fund................................................................................ 2.2(a)
Exchange Ratio............................................................................... 2.1(a)
GAAP......................................................................................... 3.1(e)
Governmental Entity.......................................................................... 3.1(d)(iii)
Hazardous Material........................................................................... 3.1(p)(B)
Indemnified Liabilities...................................................................... 5.11
Indemnified Parties.......................................................................... 5.11
Injunction................................................................................... 6.1(e)
IRS.......................................................................................... 3.1(l)(ii)
Kansas Code.................................................................................. 1.1
Merger....................................................................................... Recitals
OSHA......................................................................................... 3.1(p)(A)
Oklahoma Act................................................................................. 1.1
Optionee..................................................................................... 2.1(c)
PBGC......................................................................................... 3.1(m)(ii)(5)
Proxy Statement.............................................................................. 3.1(f)
Release...................................................................................... 3.1(p)(C)
Remedial Action.............................................................................. 3.1(p)(D)
Returns...................................................................................... 3.1(l)(i)
S-4.......................................................................................... 3.1(f)
SEC.......................................................................................... 3.1(f)
Securities Act............................................................................... 3.1(f)
Shares....................................................................................... 2.1(a)
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM DEFINED IN SECTION
- --------------------------------------------------------------------------------------------- -------------------
<S> <C>
SLH.......................................................................................... Preamble
SLH Acquisition Proposal..................................................................... 4.2(j)
SLH Benefit Programs......................................................................... 3.2(m)(i)(2)
SLH Common Stock............................................................................. 2.1(a)
SLH Common Stock Market Value................................................................ 2.1(a)
SLH Intangible Property...................................................................... 3.2(o)
SLH Junior Preferred Stock................................................................... 2.1(a)
SLH Letter................................................................................... 3.2(a)
SLH Litigation............................................................................... 3.2(k)
SLH Material Adverse Change.................................................................. 3.2(a)
SLH Material Adverse Effect.................................................................. 3.2(a)
SLH Order.................................................................................... 3.2(k)
SLH Permits.................................................................................. 3.2(j)
SLH Plans.................................................................................... 3.2(m)(i)(1)
SLH Preferred Stock.......................................................................... 3.2(b)
SLH Representatives.......................................................................... 4.2(j)
SLH Rights Agreement......................................................................... 2.1(a)
SLH SEC Documents............................................................................ 3.2(e)
SLH Stock Option............................................................................. 2.1(c)
SLH Stock Option Plan........................................................................ 2.1(c)
SLH Stock Purchase Rights.................................................................... 2.1(a)
SLH Stockholder Meeting...................................................................... 5.5
SLH Voting Debt.............................................................................. 3.2(b)
Stockholder Meetings......................................................................... 5.5
Subsidiary................................................................................... 3.1(a)
Surviving Corporation........................................................................ 1.3(a)
Syntroleum................................................................................... Preamble
Syntroleum Acquisition Proposal.............................................................. 4.1(j)
Syntroleum Benefit Programs.................................................................. 3.1(m)(i)(2)
Syntroleum Common Stock...................................................................... 2.1(a)
Syntroleum Common Stock Market Value......................................................... 2.1(a)
Syntroleum Commonly Controlled Entity........................................................ 3.1(m)(ii)(8)
Syntroleum Financial Statements.............................................................. 3.1(e)
Syntroleum Intangible Property............................................................... 3.1(o)
Syntroleum Letter............................................................................ 3.1(a)
Syntroleum Litigation........................................................................ 3.1(k)
Syntroleum Material Adverse Change........................................................... 3.1(a)
Syntroleum Material Adverse Effect........................................................... 3.1(a)
Syntroleum Order............................................................................. 3.1(k)
Syntroleum Permits........................................................................... 3.1(j)
Syntroleum Plans............................................................................. 3.1(m)(i)(1)
Syntroleum Preferred Stock................................................................... 3.1(b)
Syntroleum Representatives................................................................... 4.1(j)
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM DEFINED IN SECTION
- --------------------------------------------------------------------------------------------- -------------------
<S> <C>
Syntroleum Stock Option...................................................................... 5.10
Syntroleum Stock Option Plans................................................................ 3.1(b)
Syntroleum Stockholder Meeting............................................................... 5.5
Syntroleum Voting Debt....................................................................... 3.1(b)
Taxes........................................................................................ 3.1(l)
Trading Day.................................................................................. 2.1(a)
</TABLE>
vii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 30, 1998 (this "Agreement"),
by and between SLH Corporation, a Kansas corporation ("SLH"), and Syntroleum
Corporation, an Oklahoma corporation ("Syntroleum").
WHEREAS, the Boards of Directors of SLH and Syntroleum each have determined
that it is in furtherance of and consistent with their respective long-term
business strategies and is fair to and in the best interests of their respective
stockholders for Syntroleum to merge with and into SLH (the "Merger") upon the
terms and subject to the conditions of this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, SLH and Syntroleum desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties agree as
follows:
ARTICLE I
THE MERGER
1.1 THE MERGER; EFFECTIVE TIME OF THE MERGER. Upon the terms and
conditions of this Agreement and in accordance with the Oklahoma General
Corporation Act (the "Oklahoma Act") and the Kansas General Corporation Code
(the "Kansas Code"), Syntroleum shall be merged with and into SLH at the
Effective Time (as hereinafter defined). The Merger shall become effective as of
the date indicated in a certificate of merger (the "Certificate of Merger"),
prepared and executed in accordance with the relevant provisions of the Oklahoma
Act and the Kansas Code, that is filed with the Secretary of State of the States
of Oklahoma and Kansas pursuant to the Oklahoma Act and the Kansas Code (the
"Effective Time"). The filing of the Certificate of Merger shall be made upon,
or as soon as practicable after, the closing of the Merger (the "Closing"). The
Certificate of Merger shall be in substantially the form attached hereto as
Exhibit A.
1.2 CLOSING. The Closing shall take place at 10:00 a.m. on the first
business day after satisfaction (or waiver in accordance with this Agreement) of
the latest to occur of the conditions (other than deliveries of instruments to
be made at Closing) set forth in Article VI (the "Closing Date"), at the offices
of Baker & Botts, L.L.P., 910 Louisiana, Houston, Texas 77002 unless another
date or place is agreed to in writing by the parties.
1.3 EFFECTS OF THE MERGER.
(a) SURVIVING CORPORATION; CHARTER; BYLAWS. At the Effective Time: (i)
Syntroleum shall be merged with and into SLH, the separate existence of
Syntroleum shall cease and SLH shall continue as the surviving corporation (SLH
and Syntroleum are sometimes referred to herein as the "Constituent
Corporations" and the SLH is sometimes referred to herein as the "Surviving
Corporation"); (ii) the Articles of Incorporation of SLH as in effect
immediately prior to the Effective Time shall be the Articles of Incorporation
of the Surviving Corporation; provided that, the Articles of Incorporation of
SLH shall be amended by the Certificate of Merger to (a) change the name of the
Surviving Corporation to "Syntroleum Corporation" and (b) increase the number of
authorized shares of SLH Common Stock (as defined below) to 150,000,000 and to
increase the number of authorized shares of SLH Preferred Stock (as defined
below) to 5,000,000 and (iii) the Bylaws of SLH as in effect immediately prior
to the Effective Time shall be the Bylaws of the Surviving Corporation.
1
<PAGE>
(b) DIRECTORS AND OFFICERS. The individuals listed on Exhibit B hereto
shall, from and after the Effective Time, be the directors and officers of the
Surviving Corporation and shall serve until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Surviving Corporation's Articles of Incorporation
and Bylaws.
(c) OTHER. The Merger shall have such other effects as specified in the
Oklahoma Act and the Kansas Code.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 EFFECT OF THE MERGER ON CAPITAL STOCK. At the Effective Time, by
virtue of the Merger and without any action on the part of the Constituent
Corporations or their respective stockholders:
(a) EXCHANGE RATIO FOR SYNTROLEUM COMMON STOCK. Subject to the provisions
of Section 2.2(e) hereof, each share of common stock, par value $0.001 per
share, of Syntroleum ("Syntroleum Common Stock") issued and outstanding
immediately prior to the Effective Time (other than Dissenting Shares (as
hereinafter defined)) shall be converted into a number of shares of common
stock, par value $0.01 per share, of SLH ("SLH Common Stock") equal to the
Exchange Ratio (as hereinafter defined) (such shares issuable upon such
conversion are referred to herein as the "Shares"), together with the
corresponding number of associated rights (the "SLH Stock Purchase Rights") to
purchase one-sixth of one one-hundredth of a share of junior participating
preferred stock, par value $0.01 per share ("SLH Junior Preferred Stock"), of
SLH pursuant to the Rights Agreement (the "SLH Rights Agreement") dated January
31, 1997 between SLH and American Stock Transfer & Trust Company. All such
shares of Syntroleum Common Stock, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the shares
of SLH Common Stock and associated SLH Stock Purchase Rights and cash in lieu of
fractional shares of SLH Common Stock as contemplated by Section 2.2(e), to be
issued or paid in consideration therefor upon the surrender of such certificate
in accordance with Section 2.2, without interest. "Exchange Ratio" shall mean
the quotient (calculated to the nearest five decimal places) obtained by
dividing Syntroleum Common Stock Market Value (as hereinafter defined) by the
SLH Common Stock Market Value (as hereinafter defined). "Syntroleum Common Stock
Market Value" shall mean the quotient obtained by dividing (i) the excess of (A)
the product of (1) the SLH Common Stock Market Value multiplied by (2)
10,519,121 (which number reflects the sum of the number of shares of SLH Common
Stock issued and outstanding as of March 12, 1998 plus the number of shares of
SLH Common Stock issuable pursuant to SLH Stock Options (as hereinafter defined)
which were vested as of March 12, 1998 plus 250,000 shares of SLH Common Stock
(which reflects a portion of the number of shares of SLH Common Stock issuable
pursuant to SLH Stock Options which are not vested as of March 12, 1998)) over
(B) the total stockholders' equity of SLH reflected in the unaudited financial
statements of SLH as of March 31, 1998, minus the book value reflected therein
of the shares of Syntroleum Common Stock held by SLH by (ii) 5,950,000 (which
number reflects the number of shares of Syntroleum Common Stock held by SLH as
of the date hereof). "SLH Common Stock Market Value" shall mean the average
closing price of a share of SLH Common Stock during the five Trading Days (as
hereinafter defined) ending on the business day immediately preceding the date
of the SLH Stockholder Meeting (as hereinafter defined) or in case no such
reported sale takes place on such Trading Day the average of the reported
closing bid and asked prices of a share of SLH Common Stock on such Trading Day,
in either case on the Nasdaq National Market, or if the shares of SLH Common
Stock are not quoted on such Nasdaq National Market on such Trading Day, the
average of the closing bid and asked prices of a share of SLH Common Stock in
the over-the-counter market on such Trading Day as furnished by any New York
Stock Exchange member firm mutually selected by SLH and
2
<PAGE>
Syntroleum, or if such closing bid and asked prices are not made available by
any such New York Stock Exchange member firm on such Trading Day, the market
value of a share of SLH Common Stock as mutually determined by SLH and
Syntroleum. "Trading Day" shall mean each weekday other than any day on which
SLH Common Stock is not traded on the Nasdaq National Market System or in the
over-the-counter market.
(b) ASSUMPTION OF SYNTROLEUM STOCK OPTIONS. Each outstanding Syntroleum
Stock Option (as defined in Section 5.10) shall be assumed by SLH as provided in
Section 5.10. No Syntroleum Stock Options shall vest as a result of the Merger.
(c) ADJUSTMENT OF SLH STOCK OPTIONS. Each outstanding option ("SLH Stock
Option") to purchase shares of SLH Common Stock under the SLH's 1997 Stock
Incentive Plan (the "SLH Stock Option Plan") shall be adjusted at the Effective
Time in the following manner if such adjustment is consented to in writing by
the holder of the SLH Stock Option and the written consent is delivered to SLH
prior to the Effective Time (with any such consenting optionee hereinafter
referred to in this Section 2.1(b) as an "Optionee"):
(i) such SLH Stock Options shall not vest as a result of the Merger, and
the Merger shall not be deemed to involve any of the events described in
Section 9 of the SLH Stock Option Plan (so that the Merger shall not trigger
the immediate vesting of otherwise unvested SLH Stock Options outstanding at
the Effective Time as provided in such Section 9); and
(ii) the exercise provisions of all SLH Stock Options held by an
Optionee at the Effective Time shall be adjusted as follows:
(A) with respect to an Optionee who is a director of SLH as of the
date hereof and does not continue as a director of SLH following the
Effective Time and with respect to an Optionee who is an employee (and
not a director) of SLH as of the date hereof and does not continue as an
employee of SLH following the Effective Time, (1) if he dies prior to the
fifth anniversary of the Effective Time, then the SLH Stock Option may be
exercised to the extent otherwise exercisable within one year following
the date of death; and (2) if he does not die prior to the fifth
anniversary of the Effective Time, then the SLH Stock Option may be
exercised at any time prior to the fifth anniversary of the Effective
Time but may not be exercised after the fifth anniversary of the
Effective Time; and
(B) with respect to an Optionee who is a director of SLH as of the
date hereof and continues as a director of SLH following the Effective
Time, (1) if he dies prior to the fifth anniversary of the Effective Time
or prior to 90 days after he ceases to be a director of Syntroleum,
whichever last occurs, then the SLH Stock Option may be exercised to the
extent otherwise exercisable within one year following the date of death;
and (2) if he does not die prior to the fifth anniversary of the
Effective Time, then the SLH Stock Option may be exercised to the extent
otherwise exercisable at any time prior to the later of (a) the fifth
anniversary of the Effective Time or (b) 90 days following the date the
Optionee ceases to be a director of SLH; provided, that in no event may
the SLH Stock Option be exercised after March 3, 2007.
(iii) The foregoing shall be deemed to adjust and otherwise supersede any
conflicting provisions contained in the SLH Stock Option Plan or the option
agreements covering the SLH Stock Options, including the provisions of
Section 3 of each such option agreements.
(d) TERMINATION OF SYNTROLEUM SHAREHOLDER AGREEMENTS. Upon consummation of
the Merger (which will constitute a public offering of Syntroleum Common Stock
as contemplated by Syntroleum shareholder agreements), Syntroleum shareholder
agreements shall terminate and be of no further force or effect.
3
<PAGE>
2.2 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. As of the Effective Time, SLH shall deposit with
American Stock Transfer & Trust Company or such other bank or trust company
designated by SLH and reasonably acceptable to Syntroleum (the "Exchange
Agent"), for the benefit of the holders of shares of Syntroleum Common Stock,
for exchange in accordance with this Article II, through the Exchange Agent,
cash or SLH Common Stock (to be sold and converted into cash by the Exchange
Agent) in an amount sufficient to satisfy the obligations of SLH with respect to
payments for fractional shares pursuant to Section 2.2(e) hereof and
certificates representing the Shares (such cash and shares of SLH Common Stock,
together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund"). The Exchange Agent shall,
pursuant to irrevocable instructions, deliver the cash and Shares contemplated
to be issued pursuant to Sections 2.1 and 2.2(e) out of the Exchange Fund. The
Exchange Fund shall not be used for any other purpose.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which, immediately prior to the Effective Time,
represented outstanding shares of Syntroleum Common Stock (the "Certificates"),
which holder's shares of Syntroleum Common Stock were converted into the right
to receive shares of SLH Common Stock pursuant to Section 2.1: (i) a letter of
transmittal (which shall specify that delivery shall be effected and risk of
loss and title to the Certificates shall pass only upon delivery of the
Certificates to the Exchange Agent, and shall be in such form and have such
other provisions as SLH and Syntroleum may reasonably specify); and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of SLH Common Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by SLH, together with such letter of transmittal,
duly executed, and any other required documents, the holder of such Certificate
shall be entitled to receive in exchange therefor certificates representing that
number of whole Shares which such holder has the right to receive pursuant to
the provisions of this Article II and cash in lieu of fractional Shares as
contemplated by Section 2.2(e), and the Certificates so surrendered shall
forthwith be canceled. In the event of a transfer of ownership of Syntroleum
Common Stock which is not registered in the share transfer records of
Syntroleum, certificates representing the appropriate number of shares of SLH
Common Stock may be issued to a transferee if the Certificates representing such
Syntroleum Common Stock are presented to the Exchange Agent accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.2, each Certificate (other than Certificates
representing Dissenting Shares) shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the certificates
representing shares of SLH Common Stock and cash in lieu of any fractional
shares of SLH Common Stock as contemplated by this Section 2.2. The Exchange
Agent shall not be entitled to vote or exercise any rights of ownership with
respect to the SLH Common Stock held by it from time to time hereunder, except
that it shall receive and hold all dividends or other distributions paid or
distributed with respect thereto for the account of persons entitled thereto.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions with respect to SLH Common Stock declared or made before or
after the Effective Time with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the right to
receive shares of SLH Common Stock represented thereby and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to Section
2.2(e) until the holder of such Certificate shall surrender such Certificate.
Subject to the effect of applicable laws, following surrender of any such
Certificate (other than Certificates representing Dissenting Shares), there
shall be paid to the holder thereof, without interest (in addition to
certificates representing that number of whole Shares which such holder has the
right to receive pursuant to the provisions of this Article II): (i) at the time
of such surrender, the amount of any cash payable in lieu of any fractional
share of SLH Common Stock to which such holder is entitled pursuant to Section
2.2(e) and the amount of dividends or other distributions with a
4
<PAGE>
record date after the Effective Time theretofore paid with respect to such whole
shares of SLH Common Stock; and (ii) at the appropriate payment date, the amount
of dividends or other distributions with a record date after the Effective Time
but prior to surrender and a payment date subsequent to surrender payable with
respect to such whole shares of SLH Common Stock.
(d) NO FURTHER OWNERSHIP RIGHTS IN SYNTROLEUM COMMON STOCK. All shares of
SLH Common Stock issued upon the surrender for exchange of shares of Syntroleum
Common Stock in accordance with the terms hereof (including any cash paid
pursuant to Section 2.2(c) or 2.2(e)) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such shares of Syntroleum Common
Stock, subject, however, to the Surviving Corporation's obligation to pay any
dividends or make any other distributions with a record date prior to the
Effective Time that may have been declared or made by Syntroleum on such shares
of Syntroleum Common Stock in accordance with the terms of this Agreement or
prior to the date hereof and which remain unpaid at the Effective Time, and
after the Effective Time there shall be no further registration of transfers on
the share transfer books of the Surviving Corporation of the shares of
Syntroleum Common Stock that were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article II.
(e) NO FRACTIONAL SHARES. No certificates or scrip representing fractional
shares of SLH Common Stock shall be issued upon the surrender for exchange of
Certificates pursuant to this Article II, and, except as provided in this
Section 2.2(e), no dividend or other distribution, stock split or interest shall
relate to any such fractional security, and such fractional interests shall not
entitle the owner thereof to vote or to any rights of a security holder of SLH.
In lieu of any fractional share of SLH Common Stock, each holder of shares of
Syntroleum Common Stock who would otherwise have been entitled to a fraction of
a share of SLH Common Stock upon surrender of Certificates for exchange pursuant
to this Article II will be paid an amount in cash (without interest) equal to
the value of such fraction of a share based upon the closing price of SLH Common
Stock on the Nasdaq Stock Market on the date on which the Effective Time shall
occur (or if the SLH Common Stock shall not trade on the Nasdaq Stock Market on
such date, the first day of that SLH Common Stock shall trade on the Nasdaq
Stock Market thereafter). All shares of Syntroleum Common Stock held by a record
holder shall be aggregated for purposes of computing the number of shares of SLH
Common Stock to be issued pursuant to this Section 2.2(e).
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund and any
cash in lieu of fractional shares of SLH Common Stock made available to the
Exchange Agent that remain undistributed to the former stockholders of
Syntroleum on or after the one-hundred eightieth day following the Effective
Time shall be delivered to SLH, upon demand, and any stockholders of Syntroleum
who have not theretofore complied with this Article II shall thereafter look
only to SLH for payment of their claim for SLH Common Stock, any cash in lieu of
fractional shares of SLH Common Stock and any dividends or distributions with
respect to SLH Common Stock.
(g) NO LIABILITY. Neither SLH nor Syntroleum shall be liable to any holder
of shares of Syntroleum Common Stock or SLH Common Stock, as the case may be,
for such shares (or dividends or distributions with respect thereto) or cash in
lieu of fractional shares of SLH Common Stock delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. Any
amounts remaining unclaimed by holders of any such shares on the day immediately
preceding the day on which such amounts would otherwise escheat to or become
property of any governmental entity shall, to the extent permitted by applicable
law, become the property of SLH free and clear of any claims or interest of any
such holders or their successors, assigns or personal representatives previously
entitled thereto.
2.3 DISSENTING SHARES. Notwithstanding anything in this Agreement to the
contrary, shares of Syntroleum Common Stock that are issued and outstanding
immediately prior to the Effective Time and which are held by stockholders who
have properly exercised appraisal rights with respect thereto under the Oklahoma
Act (the "Dissenting Shares") shall not be converted into or represent the right
to receive
5
<PAGE>
shares of SLH Common Stock as provided in Section 2.1(a), but the holders of
Dissenting Shares shall be entitled to receive such payment of the appraised
value of such shares held by them from the Surviving Corporation as shall be
determined pursuant to the Oklahoma Act; provided, however, that if any such
holder shall have failed to perfect or shall withdraw or lose the right to
appraisal and payment under the Oklahoma Act, each such holder's shares shall
thereupon be deemed to have been converted as of the Effective Time into the
right to receive shares of SLH Common Stock, without any interest thereon, as
provided in Section 2.1(a), and upon surrender in the manner provided in Section
2.2 of the Certificate(s) representing such shares, such shares shall no longer
be Dissenting Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF SYNTROLEUM. Syntroleum represents
and warrants to SLH as follows:
(a) ORGANIZATION, STANDING AND POWER. Each of Syntroleum and its
Subsidiaries (as defined below) is a corporation, partnership or limited
liability company duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization, has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted, and is duly qualified and in good
standing to do business in each jurisdiction in which the business it is
conducting, or the operation, ownership or leasing of its properties, makes such
qualification necessary, other than in such jurisdictions where the failure to
qualify would not have a Syntroleum Material Adverse Effect (as defined below).
Syntroleum has heretofore delivered to SLH complete and correct copies of its
Certificate of Incorporation and Bylaws and the organizational documents of each
of its Subsidiaries. All Subsidiaries of Syntroleum, the percentage of
Syntroleum's ownership of such Subsidiaries, the identity and percentage
ownership of all other persons with equity interests in such Subsidiaries and
their respective jurisdictions of incorporation or organization are identified
on Schedule 3.1(a) of the letter dated and delivered to SLH on the date hereof
(the "Syntroleum Letter"), which relates to this Agreement and is designated
therein as being Syntroleum Letter. As used in this Agreement, a "Syntroleum
Material Adverse Effect" or "Syntroleum Material Adverse Change" shall mean any
effect or change that is, individually or in the aggregate, materially adverse
to the business, operations, assets, condition (financial or otherwise) or
results of operation of Syntroleum and its Subsidiaries taken as a whole except
for general economic changes and changes that may affect the industries of
Syntroleum or any of its Subsidiaries generally. As used in this Agreement,
"Subsidiary" or "Subsidiaries" means, with respect to any party, any corporation
or other organization, whether incorporated or unincorporated, of which: (i)
such party or any other Subsidiary of such party is a general partner (excluding
partnerships, the general partner interests of which are held by such party or
any Subsidiary of such party that do not have a majority of the voting interest
in such partnership); or (ii) at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
Board of Directors or others performing similar functions with respect to such
corporation or other organization is, directly or indirectly, owned or
controlled by such party or by any one or more of its Subsidiaries, or by such
party and any one or more of its Subsidiaries.
(b) CAPITAL STRUCTURE. As of the date hereof, the authorized capital stock
of Syntroleum consists of 50,000,000 shares of Syntroleum Common Stock and
1,000,000 shares of preferred stock, par value $0.01 per share ("Syntroleum
Preferred Stock"). At the close of business on the date hereof, (i) 18,993,950
shares of Syntroleum Common Stock are issued and outstanding, (ii) 2,000,000
shares of Syntroleum Common Stock are reserved for issuance pursuant to
Syntroleum's 1993 Stock Option and Incentive Plan and 189,939 shares of
Syntroleum Common Stock (one percent of the number of shares of Syntroleum
Common Stock outstanding on January 1, 1998) are reserved for issuance pursuant
to Syntroleum's Stock Option Plan for Outside Directors (Syntroleum's 1993 Stock
Option and Incentive Plan and Syntroleum's Stock Option Plan for Outside
Directors are collectively referred to as the
6
<PAGE>
"Syntroleum Stock Option Plans"), (iii) 527,433 shares of Syntroleum Common
Stock are issuable pursuant to outstanding and unvested stock options granted
pursuant to Syntroleum Stock Option Plans, 200,001 shares of Syntroleum Common
Stock are issuable pursuant to outstanding and vested stock options granted
pursuant to Syntroleum Stock Option Plans and 20,000 shares of Syntroleum Common
Stock are issuable pursuant to an outstanding and unvested stock option granted
to a consultant to Syntroleum (the "Consultant Option"); (iv) no shares of
Syntroleum Preferred Stock are issued and outstanding; and (v) no bonds,
debentures, notes or other indebtedness having the right to vote (or convertible
into securities having the right to vote) on any matters on which Syntroleum
stockholders may vote ("Syntroleum Voting Debt") are issued or outstanding. All
outstanding shares of Syntroleum Common Stock have been duly authorized, are
validly issued, fully paid and nonassessable and are not subject to preemptive
rights. Except as set forth on Schedule 3.1(b) of Syntroleum Letter, all
outstanding shares of capital stock of the Subsidiaries of Syntroleum are owned
by Syntroleum, or a direct or indirect wholly owned Subsidiary of Syntroleum,
free and clear of all liens, charges, encumbrances, claims and options of any
nature. Except as set forth in this Section 3.1(b) or on Schedule 3.1(b) of
Syntroleum Letter and except for changes resulting from the exercise of employee
stock options outstanding on the date hereof granted pursuant to Syntroleum
Stock Option Plans, or as contemplated by this Agreement, there are outstanding:
(i) no shares of capital stock, Syntroleum Voting Debt or other voting
securities of Syntroleum; (ii) no securities of Syntroleum or any Subsidiary of
Syntroleum convertible into or exchangeable for shares of capital stock,
Syntroleum Voting Debt or other voting securities of Syntroleum or any
Subsidiary of Syntroleum; and (iii) no options, warrants, calls, rights
(including preemptive rights), commitments or agreements to which Syntroleum or
any Subsidiary of Syntroleum is a party or by which it is bound in any case
obligating Syntroleum or any Subsidiary of Syntroleum to issue, deliver, sell,
purchase, redeem or acquire, or cause to be issued, delivered, sold, purchased,
redeemed or acquired, additional shares of capital stock or any Syntroleum
Voting Debt or other voting securities of Syntroleum or of any Subsidiary of
Syntroleum, or obligating Syntroleum or any Subsidiary of Syntroleum to grant,
extend or enter into any such option, warrant, call, right, commitment or
agreement. Except as set forth on Schedule 3.1(b) of Syntroleum Letter, there
are no stockholder agreements, registration rights, voting trusts or other
similar agreements or understandings to which Syntroleum is a party or by which
it is bound. Except as set forth on Schedule 3.1(b) of Syntroleum Letter, there
are no restrictions on Syntroleum's ability to vote the stock held by Syntroleum
of any of its Subsidiaries. To the knowledge of Syntroleum, as of the date of
this Agreement, no stockholder of Syntroleum or "group" within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), will be immediately after the Effective Time the beneficial
owner of more than 25% of the then outstanding SLH Common Stock.
(c) NON-SUBSIDIARIES EQUITY INVESTMENT. Schedule 3.1(c) of Syntroleum
Letter sets forth the book value of each investment by Syntroleum or any of its
Subsidiaries in the voting securities, partnership interests or other equity
interests of any corporation, partnership or other entity (other than a
Subsidiary of Syntroleum) and the nature and percentage of Syntroleum's or its
Subsidiaries' ownership interests in such investment. Except as set forth in
Schedule 3.1(c) of Syntroleum Letter, the voting securities, partnership
interests or other equity interests of Syntroleum or its Subsidiaries in such
investments are owned free and clear of all liens, charges and encumbrances.
(d) AUTHORITY; NO VIOLATIONS; CONSENTS AND APPROVALS.
(i) The Board of Directors of Syntroleum has approved the Merger and
this Agreement, by unanimous vote of the directors (except for those
directors who abstained), and declared the Merger and this Agreement to be
in the best interests of the stockholders of Syntroleum. Syntroleum has all
requisite corporate power and authority to enter into this Agreement and,
subject, with respect to consummation of the Merger, to approval of this
Agreement and the Merger by the stockholders of Syntroleum in accordance
with the Oklahoma Act, to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions
7
<PAGE>
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Syntroleum, subject, with respect to consummation of
the Merger, to approval of this Agreement and the Merger by the stockholders
of Syntroleum in accordance with the Oklahoma Act. This Agreement has been
duly executed and delivered by Syntroleum and, subject, with respect to
consummation of the Merger, to approval of this Agreement and the Merger by
the stockholders of Syntroleum in accordance with the Oklahoma Act, and
assuming this Agreement constitutes the valid and binding obligation of SLH,
constitutes a valid and binding obligation of Syntroleum enforceable in
accordance with its terms, subject, as to enforceability, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating
to or affecting creditors' rights and to general principles of equity.
(ii) Except as set forth on Schedule 3.1(d) of Syntroleum Letter, the
execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated hereby and compliance with the provisions
hereof will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to
the loss of a material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or
assets of Syntroleum or any of its Subsidiaries under, any provision of (i)
the Certificate of Incorporation or Bylaws of Syntroleum or any provision of
the comparable charter or organizational documents of any of its
Subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage, or
indenture applicable to Syntroleum or any of its Subsidiaries, (iii) any
other agreement, instrument, permit, concession, franchise or license
applicable to Syntroleum or any of its Subsidiaries or (iv) assuming the
consents, approvals, authorizations or permits and filings or notifications
referred to in Section 3.1(d)(iii) are duly and timely obtained or made and
the approval of the Merger and this Agreement by the stockholders of
Syntroleum has been obtained, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Syntroleum or any of its
Subsidiaries or any of their respective properties or assets, other than, in
the case of clause (iii), any such conflicts, violations, defaults, rights,
liens, security interests, charges or encumbrances that, individually or in
the aggregate, would not have a Syntroleum Material Adverse Effect,
materially impair the ability of Syntroleum to perform its obligations
hereunder or prevent the consummation of any of the transactions
contemplated hereby.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, or permit from any court, administrative agency
or commission or other governmental authority or instrumentality, domestic
or foreign (a "Governmental Entity"), is required by or with respect to
Syntroleum or any of its Subsidiaries in connection with the execution and
delivery of this Agreement by Syntroleum or the consummation by Syntroleum
of the transactions contemplated hereby, as to which the failure to obtain
or make would have a Syntroleum Material Adverse Effect, except for: (A) the
filing of the Certificate of Merger with the Secretary of States of the
State of Oklahoma and Kansas; and (B) such filings and approvals as may be
required by any applicable state securities, "blue sky" or takeover laws.
(e) FINANCIAL STATEMENTS. Syntroleum previously has delivered to SLH a
true and complete copy of the consolidated balance sheets of Syntroleum and its
consolidated Subsidiaries as of December 31, 1996 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the fiscal years then ended on such dates, together with the notes thereto, in
each case audited by and accompanied by the report of Arthur Andersen LLP,
independent accountants (all the foregoing financial statements, including the
notes thereto, being referred to herein collectively as the "Syntroleum
Financial Statements"). Syntroleum will deliver to SLH true and complete copies
of any quarterly financial statements (which will be prepared in the same manner
as Syntroleum Financial Statements) prepared after the date hereof. Syntroleum
Financial Statements are prepared in accordance with generally accepted
accounting principles in effect in the United States ("GAAP") applied on a
consistent basis during the periods involved (except (i) as may be indicated in
the notes thereto, (ii) in the case of the unaudited
8
<PAGE>
financial statements, such differences in presentation or omissions as permitted
by Rule 10-01 of Regulation S-X of the SEC and (iii) the unaudited financial
statements do not contain all notes required by GAAP) and fairly present in
accordance with applicable requirements of GAAP (subject, in the case of the
unaudited financial statements, to normal year-end adjustments on a basis
comparable with past periods) the consolidated financial position of Syntroleum
and its consolidated Subsidiaries as of their respective dates and the
consolidated results of operations and the consolidated cash flows of Syntroleum
and its consolidated Subsidiaries for the periods presented therein.
(f) INFORMATION SUPPLIED. None of the information supplied or to be
supplied by Syntroleum for inclusion or incorporation by reference in SLH's 1997
Form 10-K or the Registration Statement on Form S-4 to be filed with the
Securities and Exchange Commission (the "SEC") by SLH in connection with the
issuance of shares of SLH Common Stock in the Merger (the "S-4") will, at the
time the S-4 becomes effective under the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations thereunder or at the Effective
Time (or in the case of SLH's Form 10-K, upon filing thereof), contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
and none of the information supplied or to be supplied by Syntroleum and
included or incorporated by reference in the related proxy statement (the "Proxy
Statement") will, at the time of mailing thereof or at the time of the meetings
of the stockholders of SLH or Syntroleum to be held in connection with the
Merger or at the Effective Time, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. If at any time prior to the Effective Time any
event with respect to Syntroleum or any of its Subsidiaries, or with respect to
other information supplied by Syntroleum for inclusion in the Proxy Statement or
S-4, shall occur which is required to be described in an amendment of, or a
supplement to, the Proxy Statement or the S-4, such event shall be so described,
and such amendment or supplement shall be promptly filed with the SEC and, as
required by law, disseminated to the stockholders of SLH and Syntroleum. The S-4
and the Proxy Statement, insofar as they relate to Syntroleum or its
Subsidiaries or other information supplied by Syntroleum for inclusion therein,
will comply as to form in all material respects with the provisions of the
Securities Act and the Exchange Act, and the rules and regulations thereunder.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in Schedule
3.1(g) of Syntroleum Letter, or except as contemplated by this Agreement, since
December 31, 1997, Syntroleum has in all material respects conducted its
business only in the ordinary course and there has not been: (i) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of Syntroleum's capital
stock; (ii) any amendment of any material term of any outstanding equity
security of Syntroleum or any Subsidiary; (iii) any repurchase, redemption or
other acquisition by Syntroleum or any Subsidiary of any outstanding shares of
capital stock or other equity securities of, or other ownership interests in,
Syntroleum or any Subsidiary; (iv) any material change in any method of
accounting or accounting practice, or in any tax method, principle, election or
practice by Syntroleum or any Subsidiary; (v) if the covenants and agreements
with respect to Syntroleum and its Subsidiaries set forth in Section 4.1 had
been applicable to Syntroleum and its Subsidiaries during the period from
December 31, 1997 to the date of this Agreement, any action, transaction,
commitment or failure to act that would cause Syntroleum or any such Subsidiary
to fail to comply with such covenants and agreements; or (vi) any other action,
transaction, commitment, dispute or other event or condition (financial or
otherwise) of any character (whether or not in the ordinary course of business)
that has had, or may reasonably be expected to have, a Syntroleum Material
Adverse Effect.
(h) NO UNDISCLOSED MATERIAL LIABILITIES. Except as fully reflected or
reserved against in Syntroleum Financial Statements, or disclosed in the
footnotes thereto, or referred to in Schedule 3.1(h) or elsewhere in Syntroleum
Letter, as of the date hereof Syntroleum and its Subsidiaries have no
liabilities, absolute or contingent other than liabilities which, individually
or in the aggregate, are reasonably expected not to have
9
<PAGE>
a Syntroleum Material Adverse Effect. Except as so reflected, reserved or
disclosed, Syntroleum and its Subsidiaries have no commitments which,
individually or in the aggregate, are reasonably expected to have a Syntroleum
Material Adverse Effect.
(i) MATERIAL CONTRACTS; NO DEFAULTS.
(i) Set forth in Schedule 3.1(i)(i) of Syntroleum Letter is (A) a list
of all loan or credit agreements, notes, bonds, mortgages, indentures,
financing leases or other debt instruments or agreements pursuant to which,
as of a date within 30 days of the date hereof, any indebtedness (determined
in accordance with GAAP) of Syntroleum or any of its Subsidiaries in an
aggregate principal amount in excess of $1,000,000 is outstanding or may be
incurred and (B) the respective principal amounts outstanding thereunder as
of the date of this Agreement.
(ii) Schedule 3.1(i)(ii) of Syntroleum Letter contains a listing of all
other contracts, agreements, arrangements or understandings to which
Syntroleum or one of its Subsidiaries is a party or by which any of them or
any of their properties or assets is bound (exclusive of any contracts,
agreements, arrangements or understandings that are immaterial as to amount
and significance to the operations to which they relate and are routinely
entered into the ordinary course of business) described in (A) through (I)
below to which Syntroleum or any of its Subsidiaries is a party (the items
referred to in clauses (i) and (ii) of this Section 3.1(i) being
collectively referred to herein as "Contracts").
(A) Each Contract involving Syntroleum Intangible Property;
(B) Each Contract or guaranty of third party debt or obligations not
in the ordinary course of business involving expenditures, commitments or
receipts of Syntroleum or any of its Subsidiaries;
(C) Each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other
interest in, any real or personal property (except real or personal
property leases and installment and conditional sales agreements having a
value per property or item or aggregate payments of less than $50,000 and
with terms of less than one year);
(D) Each Contract to or with any employee providing for aggregate
payments in excess of $50,000 per year or with any labor union or other
employee representative of a group of employees relating to wages, hours
and other conditions of employment;
(E) Each joint venture contract, partnership arrangement or other
Contract (however named) involving a sharing of profits, losses, costs or
liabilities by Syntroleum or any of its Subsidiaries with any other
person;
(F) Each contract containing covenants which in any way purport to
limit the freedom of Syntroleum or any of its Subsidiaries to engage in
any line of business or engage in business in any geographic area or to
compete with any person;
(G) Each general power of attorney granting the recipient the power
to commit material resources of Syntroleum or its Subsidiaries which is
currently effective and outstanding;
(H) Each contract for capital expenditures in excess of $500,000; and
(I) Each amendment, supplement and modification (whether written or
oral) in respect of any of the foregoing.
(iii) Except as disclosed on Schedule 3.1(i)(iii) of Syntroleum Letter
(and, in the case of contracts and agreements arising after the date hereof
and prior to the Effective Time, which are not prohibited by Section 4.1 of
this Agreement and are disclosed in writing to SLH), there is no contract or
agreement that is material to the business, financial condition or results
of operations of Syntroleum
10
<PAGE>
and its Subsidiaries taken as a whole. Neither Syntroleum, nor any of its
Subsidiaries is in default or violation (and no event has occurred which,
with notice or the lapse of time or both, would constitute a default or
violation) of any term, condition or provision of (i) in the case of
Syntroleum and its Subsidiaries, their respective charter and bylaws or
comparable organizational documents, (ii) except as disclosed in Schedule
3.1(i) of Syntroleum Letter, any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which Syntroleum or any of
its Subsidiaries is now a party or by which Syntroleum or any of its
Subsidiaries or any of their respective properties or assets may be bound or
(iii) any order, writ, injunction, decree, statute, rule or regulation
applicable to Syntroleum or any of its Subsidiaries, except in the case of
(ii) and (iii) for defaults or violations which in the aggregate would not
have a Syntroleum Material Adverse Effect. Except as disclosed on Schedule
3.1(i)(iii) of Syntroleum Letter, to the knowledge of Syntroleum, none of
the other parties to the Contracts are in violation of or in default under
(nor does there exist any condition which upon the passage of time or the
giving of notice would cause such a violation of or default under) any
Contract, other than such violations or defaults as would not have a
Syntroleum Material Adverse Effect.
(j) COMPLIANCE WITH APPLICABLE LAWS. Syntroleum and its Subsidiaries hold
all permits, licenses, variances, exemptions, orders, franchises and approvals
of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the "Syntroleum Permits"), except where the failure so to
hold would not have a Syntroleum Material Adverse Effect. Syntroleum and its
Subsidiaries are in compliance with the terms of Syntroleum Permits, except
where the failure so to comply would not have a Syntroleum Material Adverse
Effect. Except as disclosed or as set forth on Schedule 3.1(j), 3.1(k), 3.1(l),
3.1(m), 3.1(n) or 3.1(o) of Syntroleum Letter, the businesses of Syntroleum and
its Subsidiaries are not being conducted in violation of any law, ordinance,
regulation, judgment or decree of any Governmental Entity, except for possible
violations which would not have a Syntroleum Material Adverse Effect. Except as
set forth on Schedule 3.1(j) of Syntroleum Letter, as of the date of this
Agreement, no investigation or review by any Governmental Entity with respect to
Syntroleum or any of its Subsidiaries is, to the best knowledge of Syntroleum,
pending or threatened, other than those the outcome of which would not have a
Syntroleum Material Adverse Effect.
(k) LITIGATION. Schedule 3.1(k) of Syntroleum Letter discloses all suits,
actions or proceedings pending, or, to, the best knowledge of Syntroleum,
threatened against Syntroleum or any Subsidiary of Syntroleum ("Syntroleum
Litigation") on the date of this Agreement and all judgments, decrees,
injunctions, rules or orders of any Governmental Entity or arbitrator
outstanding against Syntroleum or any Subsidiary of Syntroleum ("Syntroleum
Order") on the date of this Agreement, in each case in which the amount claimed
or that could be involved is in excess of $100,000. Except as disclosed on
Schedule 3.1(k) of Syntroleum Letter, there is no Syntroleum Litigation that,
individually or in the aggregate with all other Syntroleum Litigation, is
reasonably likely to have a Syntroleum Material Adverse Effect, nor is there any
Syntroleum Order that, individually or in the aggregate with all other
Syntroleum Litigation, is reasonably likely to have a Syntroleum Material
Adverse Effect or a material adverse effect on Syntroleum's ability to perform
its obligations hereunder or to consummate the transactions contemplated by this
Agreement.
(l) TAXES. Except as set forth on Schedule 3.1(l) of Syntroleum Letter and
except for exceptions to the following that would not, individually or in the
aggregate, have a Syntroleum Material Adverse Effect:
(i) Each of Syntroleum, each of its Subsidiaries and any affiliated,
consolidated, combined, unitary or similar group of which any such
corporation is or was a member has (A) duly and timely (taking into account
any extensions) filed all federal, state, local, foreign and other returns,
declarations, reports, estimates, information returns and statements
("Returns") required to be filed or sent by or with respect to it in respect
of any Taxes (as hereinafter defined), (B) duly paid or deposited on a
timely basis all Taxes (including estimated Taxes) that are due and payable
(except for audit adjustments not material in the aggregate or to the extent
that liability therefor is reserved for in Syntroleum's most recent audited
financial statements) for which Syntroleum or any of its Subsidiaries
11
<PAGE>
may be liable, (C) established reserves that are adequate for the payment of
all Taxes not yet due and payable with respect to the results of operations
of Syntroleum and its Subsidiaries through the date hereof, and (D) complied
in all material respects with all applicable laws, rules and regulations
relating to the payment and withholding of Taxes and has in all material
respects timely withheld from employee wages and paid over to the proper
governmental authorities all amounts required to be so withheld and paid
over.
(ii) Schedule 3.1(l) of Syntroleum Letter sets forth (i) the last
taxable period through which the United States federal income Tax Returns of
Syntroleum and any of its Subsidiaries have been examined by the Internal
Revenue Service ("IRS") or otherwise closed and (ii) any affiliated,
consolidated, combined, unitary or similar group Return in which Syntroleum
or any of its Subsidiaries is or has been a member or is or has joined in
the filing. Except to the extent being contested in good faith, all material
deficiencies asserted as a result of such examinations and any examination
by any applicable federal, state, local, foreign or other taxing authority
have been paid, fully settled or adequately provided for in Syntroleum's
most recent audited financial statements. Except as adequately provided for
in Syntroleum Financial Statements, no material tax audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes for which Syntroleum or any of its Subsidiaries would be
liable, and no material deficiency for any such Taxes has been proposed,
asserted or assessed pursuant to such examination against Syntroleum or any
of its Subsidiaries by any federal, state, local, foreign or other taxing
authority with respect to any period.
(iii) Neither Syntroleum nor any of its Subsidiaries has executed or
entered into with the IRS or any taxing authority (i) any agreement or other
document extending or having the effect of extending the period for
assessments or collection of any Taxes for which Syntroleum or any of its
Subsidiaries would be liable or (ii) a closing agreement pursuant to Section
7121 of the Code, or any predecessor provision thereof or any similar
provision of federal, state, local, foreign or other tax law that relates to
the assets or operations of Syntroleum or any of its Subsidiaries.
(iv) Neither Syntroleum nor any of its Subsidiaries is a party to an
agreement that provides for the payment of any amount that would constitute
a "parachute payment" within the meaning of Section 280G of the Code.
(v) Neither Syntroleum nor any of its Subsidiaries has made an election
under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the
Code apply to any disposition of a subsection (f) asset (as such term is
defined in Section 341(f)(4) of the Code) owned by Syntroleum or any of its
Subsidiaries.
(vi) Neither Syntroleum nor any of its Subsidiaries is a party to, is
bound by or has any obligation under any tax sharing or allocation agreement
or similar agreement or arrangement.
For purposes of this Agreement, "Taxes" means all federal, state, local,
foreign and other taxes, charges, fees, levies, imposts, duties, licenses or
other governmental assessments, together with any interest, penalties, additions
to tax or additional amounts imposed by any taxing authority with respect
thereto.
(m) PENSION AND BENEFIT PLANS; ERISA.
(i) Syntroleum has made available to SLH true, correct, and complete
copies of each of the following which is sponsored, maintained or
contributed to by Syntroleum or any of its Subsidiaries for the benefit of
the employees of Syntroleum or such Subsidiary:
(1) each "employee benefit plan," as such term is defined in Section
3(3) of the United States Employee Retirement Income Security Act of
1974, as amended ("ERISA") (including, but not limited to, employee
benefit plans, such as foreign plans, which are not subject to the
provisions of ERISA) ("Syntroleum Plans"); and
12
<PAGE>
(2) each personnel policy, stock option plan, collective bargaining
agreement, bonus plan or arrangement, incentive award plan or
arrangement, vacation policy, severance pay plan, policy or agreement,
deferred compensation agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement, employment
agreement and each other employee benefit plan, agreement, arrangement,
program, practice or understanding which is not described in Section
3.1(m)(i)(1) ("Syntroleum Benefit Programs").
(ii) Except as disclosed in Schedule 3.1(m)(ii) of Syntroleum Letter:
(1) Syntroleum and its Subsidiaries do not contribute to or have an
obligation to contribute to, and have not at any time within six years
prior to the Effective Time contributed to or had an obligation to
contribute to, a multiemployer plan within the meaning of Section 3(37)
of ERISA;
(2) Syntroleum and its Subsidiaries have substantially performed all
material obligations, whether arising by operation of law or by contract,
required to be performed by them in connection with Syntroleum Plans and
Syntroleum Benefit Programs, and to the knowledge of Syntroleum there
have been no material defaults or violations by any other party to
Syntroleum Plans or Syntroleum Benefit Programs;
(3) All reports and disclosures relating to Syntroleum Plans
required to be filed with or furnished to governmental agencies,
Syntroleum Plan participants or beneficiaries have been filed or
furnished substantially in accordance with applicable law in a timely
manner;
(4) Each Syntroleum Plan intended to be qualified under Section 401
of the Code satisfies the requirements of such Section and has received a
favorable determination letter from the Internal Revenue Service
regarding such qualified status and has not, since receipt of the most
recent favorable determination letter, been amended or, to the knowledge
of Syntroleum, operated in a way which would adversely affect such
qualified status. As to any Syntroleum Plan intended to be qualified
under Section 401 of the Code, there has been no termination or partial
termination of Syntroleum Plan within the meaning of Section 411(d)(3) of
the Code;
(5) There are no actions, suits or claims pending (other than
routine claims for benefits) or, to the knowledge of Syntroleum,
threatened against, or with respect to, any of Syntroleum Plans or
Syntroleum Benefit Programs or their assets. To the knowledge of
Syntroleum, there is no matter pending (other than routine qualification
determination filings) with respect to any of Syntroleum Plans before the
IRS, the United States Department of Labor or the Pension Benefit
Guaranty Corporation ("PBGC");
(6) As to any Syntroleum Plan subject to Title IV of ERISA, there
has been no event or condition which presents the material risk of a
Syntroleum Plan termination, no accumulated funding deficiency, whether
or not waived, within the meaning of Section 302 of ERISA or Section 412
of the Code has been incurred, no reportable event within the meaning of
Section 4043 of ERISA (for which the disclosure requirements of
Regulation 2615.3 promulgated by the PBGC have not been waived) has
occurred, no notice of intent to terminate Syntroleum Plan has been given
under Section 4041(c) of ERISA, no proceeding has been instituted under
Section 4042 of ERISA to terminate Syntroleum Plan, no liability to the
PBGC has been incurred;
(7) No act, omission or transaction has occurred which would result
in imposition on Syntroleum or any of its Subsidiaries of (A) liability
for a breach of fiduciary duty under Section 409 of ERISA, (B) a civil
penalty assessed pursuant to subsection (c), (i) or (1) of Section 502 of
ERISA or (C) a tax imposed pursuant to Chapter 43 of Subtitle D of the
Code;
13
<PAGE>
(8) With respect to any employee benefit plan, within the meaning of
Section 3(3) of ERISA, which is not a Syntroleum Plan but which is
sponsored, maintained or contributed to, or has been sponsored,
maintained or contributed to within six years prior to the Effective
Time, by any corporation, trade, business or entity under common control
with Syntroleum, within the meaning of Section 414(b), (c) or (m) of the
Code or Section 4001 of ERISA ("Syntroleum Commonly Controlled Entity"),
(A) no withdrawal liability, within the meaning of Section 4201 of ERISA,
has been incurred, which withdrawal liability has not been satisfied, (B)
no liability to the PBGC has been incurred by any Syntroleum Commonly
Controlled Entity, which liability has not been satisfied, (C) no
accumulated funding deficiency, whether or not waived, within the meaning
of Section 302 of ERISA or Section 412 of the Code has been incurred, and
(D) all contributions (including installments) to such plan required by
Section 302 of ERISA and Section 412 of the Code have been timely made;
and
(9) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not (A) require
Syntroleum or any of its Subsidiaries to make a larger contribution to,
or pay greater benefits under, any Syntroleum Plan or Syntroleum Benefit
Program than it otherwise would or (B) create or give rise to any
additional vested rights or service credits under any Syntroleum Plan or
Syntroleum Benefit Program.
(iii) Except as disclosed on Schedule 3.1(m)(iii) of Syntroleum Letter,
there are no severance agreements or employment agreements between
Syntroleum or any of its Subsidiaries and any employee of Syntroleum or such
Subsidiary. True and correct copies of all such severance and employment
agreements have been provided to SLH. Except as disclosed on Schedule
3.1(m)(iii) of Syntroleum Letter, (A) neither Syntroleum nor any of its
Subsidiaries has any consulting agreement or arrangement with any person
involving annual compensation in excess of $100,000, except as are
terminable without penalty upon one month's notice or less, and (B) no stock
or other security issued by Syntroleum or any of its Subsidiaries forms or
has formed a material part of the assets of any Syntroleum Plan or
Syntroleum Benefit Program.
(n) LABOR MATTERS.
(i) Except as set forth in Schedule 3.1(n)(i) of Syntroleum Letter, as
of the date of this Agreement, (1) no employees of Syntroleum or any of its
Subsidiaries are represented by any labor organization; (2) no labor
organization or group of employees of Syntroleum or any of its Subsidiaries
has made a pending demand for recognition or certification, and there are no
representation or certification proceedings or petitions seeking a
representation proceeding presently pending or threatened in writing to be
brought or filed with the National Labor Relations Board or any other labor
relations tribunal or authority; and (3) to the knowledge of Syntroleum,
there are no organizing activities involving Syntroleum or any of its
Subsidiaries pending with any labor organization or group of employees of
Syntroleum or any of its Subsidiaries.
(ii) Except as set forth on Schedule 3.1(n)(ii) of Syntroleum Letter,
Syntroleum and each of its Subsidiaries is in compliance with all laws and
orders relating to the employment of labor, including all such laws and
orders relating to wages, hours, collective bargaining, discrimination,
civil rights, safety and health workers' compensation and the collection and
payment of withholding and/or Social Security Taxes and similar Taxes,
except where the failure to comply would not have a Syntroleum Material
Adverse Effect.
(o) INTANGIBLE PROPERTY. To Syntroleum's knowledge, Syntroleum and its
Subsidiaries possess or have adequate rights to use all material trademarks,
trade names, patents, service marks, brand marks, brand names, computer
programs, database, industrial designs, trade secrets, technology, and
copyrights necessary for the operation of the businesses of each of Syntroleum
and its Subsidiaries (collectively, the "Syntroleum Intangible Property"),
except where the failure to possess or have adequate rights to use such
14
<PAGE>
properties would not reasonably be expected to have a Syntroleum Material
Adverse Effect. Schedule 3.1(o) of Syntroleum Letter lists all patents and
trademarks (and applications for patents and trademarks) or licensing agreements
with respect to any patent or trademark, which in each case is applicable to a
material portion of the business of Syntroleum or its Subsidiaries. To the
knowledge of Syntroleum, except as set forth on Schedule 3.1(o) of Syntroleum
Letter, all of Syntroleum Intangible Property is owned or used by Syntroleum or
its Subsidiaries free and clear of any and all liens, claims or encumbrances,
except those that are not reasonably likely to have a Syntroleum Material
Adverse Effect, and neither Syntroleum nor any such Subsidiary has forfeited or
otherwise relinquished any Syntroleum Intangible Property which forfeiture would
result in a Syntroleum Material Adverse Effect. To the knowledge of Syntroleum,
the use of Syntroleum Intangible Property by Syntroleum or its Subsidiaries does
not, in any material respect, conflict with, infringe upon, violate or interfere
with or constitute an appropriation of any valid right, title, interest or
goodwill, including, without limitation, any intellectual property right,
trademark, trade name, patent, service mark, brand mark, brand name, computer
program, database, industrial design, copyright or any pending application
therefor of any other person and there have been no claims made, and neither
Syntroleum nor any of its Subsidiaries has received any notice of any claim or
otherwise knows, that any of Syntroleum Intangible Property is invalid or
conflicts with the asserted rights of any other person or has not been used or
enforced or has been failed to be used or enforced in a manner that would result
in the abandonment, cancellation or unenforceability of any of Syntroleum
Intangible Property, except for any such conflict, infringement, violation,
interference, claim, invalidity, abandonment, cancellation or unenforceability
that would not reasonably be expected to have a Syntroleum Material Adverse
Effect.
(p) ENVIRONMENTAL MATTERS.
For purposes of this Agreement:
(A) "Environmental Law" means any applicable law regulating or
prohibiting Releases into any part of the natural environment, or pertaining
to the protection of natural resources, the Environment and public and
employee health and safety including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA") (42
U.S.C. Section 9601 ET SEQ.), the Hazardous Materials Transportation Act (49
U.S.C. Section 1801 ET SEQ.), the Resource Conservation and Recovery Act (42
U.S.C. Section 6901 ET SEQ.), the Clean Water Act (33 U.S.C. Section 1251 ET
SEQ.), the Clean Air Act (33 U.S.C. Section 7401 ET SEQ.), the Toxic
Substances Control Act (15 U.S.C. Section 7401 ET SEQ.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136 ET SEQ.),
and the Occupational Safety and Health Act (29 U.S.C. Section 651 ET SEQ.)
("OSHA") and the regulations promulgated pursuant thereto, and any such
applicable state or local statutes, and the regulations promulgated pursuant
thereto, as such laws have been and may be amended or supplemented through
the Closing Date.
(B) "Hazardous Material" means any substance, material or waste which is
regulated, or which could be the subject of Remedial Action, pursuant to any
Environmental Law by any public or governmental authority in the
jurisdictions in which the applicable party or its Subsidiaries conducts
business, or the United States, including, without limitation, any material
or substance which is defined as a "hazardous waste," "hazardous material,"
"hazardous substance," ("extremely hazardous waste" or "restricted hazardous
waste," "pollutant," "contaminants," "toxic waste" or "toxic substance"
under any provision of Environmental Law;
(C) "Release" means any release, spill, effluent, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment, or into or out of any
property owned, operated or leased by the applicable party or its
Subsidiaries; and
(D) "Remedial Action" means all actions, including, without limitation,
any capital expenditures, required by a governmental entity or required
under any Environmental Law, or voluntarily undertaken to (I) clean up,
remove, treat, or in any other way ameliorate the Release of any Hazardous
15
<PAGE>
Materials in the indoor or outdoor environment; (II) prevent the Release or
threat of Release, or minimize the further Release of any Hazardous Material
so it does not endanger or threaten to endanger the public health or welfare
of the indoor or outdoor environment; (III) perform pre-remedial studies and
investigations or post-remedial monitoring and care pertaining or relating
to a Release; or (IV) bring the applicable party into compliance with any
Environmental Law.
(i) Except as disclosed on Schedule 3.1(p) of Syntroleum Letter, the
operations of Syntroleum and its Subsidiaries have been and are currently
in compliance with all Environmental Laws, except where the failure to so
comply would not reasonably be expected to have a Syntroleum Material
Adverse Effect;
(ii) Except as disclosed on Schedule 3.1(p) of Syntroleum Letter,
Syntroleum and its Subsidiaries have obtained and maintained all permits
required under applicable Environmental Laws for the continued operations
of their respective businesses, except such permits the lack of which
would not reasonably be expected to lead to a Syntroleum Material Adverse
Effect;
(iii) Except as disclosed on Schedule 3.1(p) of Syntroleum Letter, as
of the date hereof Syntroleum and its Subsidiaries are not subject to any
material (individually or in the aggregate) outstanding written orders or
material contracts with any Governmental Entity or other person
respecting (A) Environmental Laws, (B) Remedial Action or (C) any Release
or threatened Release of a Hazardous Material;
(iv) Except as disclosed on Schedule 3.1(p) of Syntroleum Letter,
Syntroleum and its Subsidiaries have not received any written
communication alleging, with respect to any such party, and has no
knowledge of, or reasonable reason to suspect the existence of, the
violation of or liability under any Environmental Law, which violation or
liability would reasonably be expected to have a Syntroleum Material
Adverse Effect;
(v) Except as disclosed on Schedule 3.1(p) of Syntroleum Letter,
neither Syntroleum nor any of its Subsidiaries has any contingent
liability in connection with any Release of any Hazardous Material
including, without limitation, in connection with the exposure of any
person or property to Hazardous Material that would reasonably be
expected to lead to a Syntroleum Material Adverse Effect;
(vi) Except as disclosed on Schedule 3.1(p) of Syntroleum Letter,
the operations of Syntroleum or its Subsidiaries involving the
generation, transportation, treatment, storage or disposal of hazardous
waste, as defined and regulated under 40 C.F.R. Parts 260-270 (in effect
as of the date of this Agreement) or any state equivalent, or any other
Hazardous Material are in compliance with applicable Environmental Laws,
except where the failure to so comply would not reasonably be expected to
have a Syntroleum Material Adverse Effect; and
(vii) Except as disclosed on Schedule 3.1(p) of Syntroleum Letter, to
the knowledge of Syntroleum as of the date hereof, there is not now on or
in any property of Syntroleum or its Subsidiaries any of the following:
(A) any underground storage tanks or surface impoundments, (B) any
asbestos-containing materials, or (C) any polychlorinated biphenyls, any
of which ((A), (B) or (C) preceding) could reasonably be expected to have
a Syntroleum Material Adverse Effect. None of the properties owned or
operated by Syntroleum are restricted as to use or as to transfer of
title, or the subject of any special recorded notice, as a result of the
existence of Hazardous Substances thereon.
(viii) Syntroleum has made available to SLH for review all written
reports of environmental audits and assessments prepared for Syntroleum
or any of its Subsidiaries within the last three years by third party
consultants or internal environmental, safety or health personnel which
are in the possession or control of Syntroleum and which relate to the
assets or operations of Syntroleum or any of its Subsidiaries.
16
<PAGE>
(q) OPINION OF FINANCIAL ADVISOR. Syntroleum has received the opinion of
J.P. Morgan Securities Inc. (a copy of which has been delivered to SLH) to the
effect that, as of the date hereof, the consideration to be received by the
holders of Syntroleum Common Stock pursuant to this Agreement is fair from a
financial point of view to such holders.
(r) VOTE REQUIRED. The affirmative vote of the holders of a majority of
the shares of Syntroleum Common Stock outstanding is the only vote of the
holders of any class or series of Syntroleum capital stock necessary to approve
this Agreement and the transactions contemplated hereby.
(s) INSURANCE. Syntroleum has delivered to SLH an insurance schedule of
Syntroleum's and each of its Subsidiaries' directors' and officers' liability
insurance, primary and excess casualty insurance policies, providing coverage
for bodily injury and property damage to third parties, including products
liability and completed operations coverage, and worker's compensation, in
effect as of the date hereof. Syntroleum maintains insurance coverage reasonably
adequate for the operation of the business of Syntroleum and each of its
Subsidiaries (taking into account the cost and availability of such insurance),
and the transactions contemplated hereby will not materially adversely affect
such coverage.
(t) BROKERS. Except as disclosed on Schedule 3.1(t) of Syntroleum Letter,
no broker, investment banker, or other person is entitled to any broker's,
finder's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Syntroleum.
(u) TAX MATTERS. As of the date hereof, the representations which
Syntroleum is to make pursuant to Exhibit C attached hereto (other than any
representation which refers to the Proxy Statement) are true and correct,
assuming for purposes of this representation and warranty that the Merger
referred to in such Exhibit C had been consummated on the date hereof. In
addition, the representations which are made by Syntroleum in the form of
Exhibit C hereof (with such variations therein as may be made) in connection
with the rendering of the tax opinion for which provision is made in Section
6.1(h) hereof will be true and correct at the time that the Merger occurs. Such
representations are for the benefit of the holders of Syntroleum Common Stock.
(v) TITLE. Except as disclosed in Syntroleum Financial Statements or on
Schedule 3.1(v) of Syntroleum Letter, Syntroleum and each of its Subsidiaries
have good and marketable title to all real property and good title to all
personal property owned by them, in each case free and clear of all liens,
pledges or encumbrances securing money borrowed, the deferred purchase price of
property in excess of $300,000 or capital leases and free and clear of all other
liens, pledges, encumbrances or defects that could affect the value or use
thereof except for any such other liens, pledges, encumbrances or defects that
would not have a Syntroleum Material Adverse Effect.
(w) BOOKS AND RECORDS. Syntroleum and its Subsidiaries (i) make and keep
accurate books and records and (ii) maintain internal accounting controls which
provide reasonable assurance that (A) transactions are executed in accordance
with management's authorization, (B) transactions are recorded as necessary to
permit preparation of their financial statements and to maintain accountability
for their assets, (C) access to their assets is permitted only in accordance
with management's authorization and (D) the reported accountability for their
assets is compared with existing assets at reasonable intervals.
(x) CERTAIN PAYMENTS. Neither Syntroleum nor any of its Subsidiaries, nor
any director, officer, agent, employee or other person associated with or acting
on behalf of the Syntroleum or any of its Subsidiaries, has used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expense relating to political activity; made any direct or indirect unlawful
payment to any foreign or domestic governmental official or employee from
corporate funds; violated or is in violation of any provision of the United
States Foreign Corrupt Practices Act of 1977; nor made any illegal bribe,
rebate, payoff, influence payment, kickback or other unlawful payment.
17
<PAGE>
(y) TRANSACTIONS WITH RELATED PARTIES. Except as set forth in Schedule
3.1(y) of Syntroleum Letter, there are no agreements, contracts or other
arrangements between (i) Syntroleum or any of its Subsidiaries, on the one hand,
and (ii) any Related Person (as defined below) of Syntroleum, on the other hand.
Except as set forth in Schedule 3.1(y) of Syntroleum Letter and except for the
ownership of the SLH Common Stock issued hereunder, after the Closing Date no
Related Person of Syntroleum and no present officer or director of any Related
Person of Syntroleum has any interest in any property (real or personal,
tangible or intangible) or contract used in or pertaining to the business of
Syntroleum and its Subsidiaries (or the Surviving Corporation and its
Subsidiaries) and no Related Person of Syntroleum has any direct or indirect
ownership interest (excluding immaterial passive investments) in any person
(other than through Syntroleum or any of its Subsidiaries) with which Syntroleum
or any of its Subsidiaries competes in any material respect or has a material
business relationship. Schedule 3.1(y) of Syntroleum letter sets forth as of the
date of this Agreement a description of all services provided by any Related
Person of Syntroleum or Syntroleum and any of its Subsidiaries. A "Related
Person" of any person shall mean any holder of in excess of 5% of the equity
securities of such person and any affiliates or associates (as defined in Rule
12b-2 under the Exchange Act) of such holder (other than such original person or
its Subsidiaries).
(z) STATE TAKEOVER LAWS. Syntroleum has taken all necessary action to
exempt the transactions contemplated by this Agreement from the provisions of
Section 1090.3 of the Oklahoma Act, the Oklahoma Takeover Disclosure Act of 1985
and the Oklahoma Control Shares Acquisition Act.
(aa) YEAR 2000. Syntroleum has taken all necessary action to enable its
computer software to process data attributable to the year 2000 and thereafter.
Syntroleum's operating and financial systems will be able to process such data
by the year 2000.
3.2 REPRESENTATIONS AND WARRANTIES OF SLH. SLH represents and warrants to
Syntroleum as follows:
(a) ORGANIZATION, STANDING AND POWER. Each of SLH and SLH's Subsidiaries
is a corporation, partnership or limited liability company duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted, and is duly qualified and in good standing to do business in each
jurisdiction in which the business it is conducting, or the operation, ownership
or leasing of its properties, makes such qualification necessary, other than in
such jurisdictions where the failure to qualify would not have a SLH Material
Adverse Effect (as defined below). SLH has heretofore delivered to Syntroleum
complete and correct copies of SLH's Articles of Incorporation and Bylaws and
the organizational documents of each of SLH's Subsidiaries. All Subsidiaries of
SLH, the percentage of SLH's ownership of such Subsidiaries, the identity and
percentage ownership of all other persons with equity interests in such
Subsidiaries and their respective jurisdictions of incorporation or organization
are identified on Schedule 3.2(a) of the letter dated and delivered to
Syntroleum on the date hereof (the "SLH Letter"), which relates to this
Agreement and is designated therein as being the SLH Letter. As used in this
Agreement "SLH Material Adverse Effect" or "SLH Material Adverse Change" shall
mean any effect or change that is, individually or in the aggregate, materially
adverse to the business, operations, assets, condition (financial or otherwise)
or results of operation of SLH and its Subsidiaries taken as a whole except for
general economic changes and changes that may affect the industries of SLH or
any of its Subsidiaries generally.
(b) CAPITAL STRUCTURE. As of the date hereof, the authorized capital stock
of SLH consists of 30,000,000 shares of SLH Common Stock, par value $.01 per
share, and 1,000,000 shares of preferred stock, par value $.01 per share ("SLH
Preferred Stock"). At the close of business on March 12, 1998: (i) 10,074,721
shares of SLH Common Stock are issued and outstanding, an aggregate of 974,400
shares of SLH Common Stock are reserved for issuance pursuant to the SLH Stock
Option Plan, 780,000 shares of SLH Common Stock are issuable pursuant to
outstanding and unvested stock options granted pursuant to the SLH Stock Option
Plan and 194,400 shares of SLH Common Stock are issuable pursuant to outstanding
and vested stock options granted pursuant to the SLH Stock Option Plan; (ii) no
shares of
18
<PAGE>
SLH Preferred Stock are issued and outstanding and 50,000 shares of SLH Junior
Preferred Stock are reserved for issuance in connection with the SLH Stock
Purchase Rights; and (iii) no bonds, debentures, notes or other indebtedness
having the right to vote (or convertible into securities having the right to
vote) on any matters on which SLH stockholders may vote ("SLH Voting Debt") are
issued or outstanding. From March 12, 1998 until the Effective Time, no
additional shares, options or similar rights will be issued or authorized other
than shares issued in connection with options which were outstanding and vested
(or which vest in accordance with their original terms as in effect on the close
of business on March 12, 1998) pursuant to the SLH Stock Option Plan as in
effect on the close of business on March 12, 1998. Assuming the Effective Date
is prior to September 30, 1998, no options or similar rights that were not
vested at the close of business on March 12, 1998 will vest prior to the
Effective Time (other than in the case of the death of a holder of such option
or a change of control of SLH as provided in the SLH Stock Option Plan). All
outstanding shares of SLH Common Stock have been duly authorized, are validly
issued, fully paid and nonassessable and are not subject to preemptive rights,
and, subject to the approval of this Agreement and the Merger, all shares of SLH
Common Stock issuable in the Merger will be duly authorized and, when issued,
will be validly issued, fully paid and non-assessable and free of preemptive
rights. Except as set forth on Schedule 3.2(b) of the SLH Letter, all
outstanding shares of capital stock of the Subsidiaries of SLH are owned by SLH,
or a direct or indirect wholly owned Subsidiary of SLH, free and clear of all
liens, charges, encumbrances, claims and options of any nature. Except as set
forth in this Section 3.2(b) or on Schedule 3.2(b) of the SLH Letter and except
for changes resulting from the exercise of employee stock options outstanding on
the date hereof granted pursuant to the SLH Stock Option Plan, or as
contemplated by this Agreement there are outstanding: (i) no shares of capital
stock, SLH Voting Debt or other voting securities of SLH; (ii) no securities of
SLH or any Subsidiary of SLH convertible into or exchangeable for shares of
capital stock, SLH Voting Debt or other voting securities of SLH or any
Subsidiary of SLH; and (iii) no options, warrants, calls, rights (including
preemptive rights), commitments or agreements to which SLH or any Subsidiary of
SLH is a party or by which it is bound in any case obligating SLH or any
Subsidiary of SLH to issue, deliver, sell, purchase, redeem or acquire, or cause
to be issued, delivered, sold, purchased, redeemed or acquired, additional
shares of capital stock or any SLH Voting Debt or other voting securities of SLH
or of any Subsidiary of SLH, or obligating SLH or any Subsidiary of SLH to
grant, extend or enter into any such option, warrant, call, right, commitment or
agreement. Except as set forth on Schedule 3.2(b) of the SLH Letter, there are
no stockholder agreements, registration rights, voting trusts or other similar
agreements or understandings to which SLH is a party or by which it is bound.
Except as set forth on Schedule 3.2(b) of the SLH Letter, there are no
restrictions on SLH's ability to vote the stock held by SLH or any of its
Subsidiaries. To the knowledge of SLH, as of the date of this Agreement, no
stockholder of SLH or "group" within the meaning of Section 13(d)(3) of the
Exchange Act will be immediately after the Effective Time the beneficial owner
of more than 25% of the then outstanding SLH Common Stock.
(c) NON-SUBSIDIARIES EQUITY INVESTMENT. Schedule 3.2(c) of the SLH Letter
sets forth the book value of each investment by the SLH or any of its
Subsidiaries in the voting securities, partnership interests or other equity
interests of any corporation, partnership or other entity (other than a
Subsidiary of SLH) and the nature and percentage of SLH's or its Subsidiaries'
ownership interests in such investment. Except as set forth in Schedule 3.2(c)
of the SLH Letter, the voting securities, partnership interests or other equity
interests of SLH or its Subsidiaries in such investments are owned free and
clear of all liens, charges and encumbrances.
(d) AUTHORITY; NO VIOLATIONS; CONSENTS AND APPROVALS.
(i) The Board of Directors of SLH has, by unanimous vote of the
directors (except for those directors who abstained), approved and declared
to be in the best interests of the stockholders of SLH the Merger, this
Agreement and the amendments to the Articles of Incorporation of SLH
provided in the Certificate of Merger. SLH has all requisite corporate power
and authority to enter into this Agreement and, subject, with respect to
consummation of the Merger, to approval of this Agreement
19
<PAGE>
and the Merger by the stockholders of SLH in accordance with the Kansas
Code, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of SLH, subject, with respect to consummation of the
Merger, to approval of this Agreement and the Merger by the stockholders of
SLH in accordance with the Kansas Code. This Agreement has been duly
executed and delivered by SLH and, subject, with respect to consummation of
the Merger, to approval of this Agreement and the Merger by the stockholders
of SLH in accordance with the Kansas Code, and assuming this Agreement
constitutes the valid and binding obligation of Syntroleum, constitutes a
valid and binding obligation of SLH enforceable in accordance with its
terms, subject, as to enforceability, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general principles of equity.
(ii) Except as set forth on Schedule 3.2(d) of the SLH Letter, the
execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated hereby and compliance with the provisions
hereof will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to
the loss of a material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or
assets of SLH or any of its Subsidiaries under, any provision of (i) the
Articles of Incorporation or Bylaws of SLH or any provision of the
comparable charter or organizational documents of any of its Subsidiaries,
(ii) any loan or credit agreement, note, bond, mortgage, or indenture
applicable to SLH or any of its Subsidiaries, (iii) any other agreement,
instrument, permit, concession, franchise or license applicable to SLH or
any of its Subsidiaries or (iv) assuming the consents, approvals,
authorizations or permits and filings or notifications referred to in
Section 3.2(d)(iii) are duly and timely obtained or made and the approval of
this Agreement and the Merger by the stockholders of SLH has been obtained,
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to SLH or any of its Subsidiaries or any of their respective
properties or assets, other than, in the case of clause (iii), any such
conflicts, violations, defaults, rights, liens, security interests, charges
or encumbrances that, individually or in the aggregate, would not have a SLH
Material Adverse Effect, materially impair the ability of SLH to perform its
obligations hereunder or prevent the consummation of any of the transactions
contemplated hereby.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, or permit from any Governmental Entity is
required by or with respect to SLH or any of its Subsidiaries in connection
with the execution and delivery of this Agreement by SLH or the consummation
by SLH of the transactions contemplated hereby, as to which the failure to
obtain or make would have a SLH Material Adverse Effect, except for: (A) the
filing with the SEC of a proxy statement in preliminary and definitive form
relating to the meeting of SLH's stockholders to be held in connection with
the approval of this Agreement and the Merger by stockholders of SLH, the
S-4, such reports under Section 13(a) of the Exchange Act and such other
compliance with the Securities Act and the Exchange Act and the rules and
regulations thereunder as may be required in connection with this Agreement
and the transactions contemplated hereby, and the obtaining from the SEC of
such orders as may be so required; (B) filings with, and approval of, the
Nasdaq Stock Market; (C) such filings and approvals as may be required by
any applicable state securities, "blue sky" or takeover laws, or
environmental laws; and (D) the filing of the Certificate of Merger with the
Secretary of State of the States of Oklahoma and Kansas.
(e) SEC DOCUMENTS. SLH has made available to Syntroleum a true and
complete copy of each quarterly, annual or current report on Form 10-Q, 10-K or
8-K, registration statement and definitive proxy statement filed by SLH with the
SEC prior to the date of this Agreement, which are all the documents (other than
preliminary material) that SLH was required to file with the SEC prior to the
date of this Agreement. SLH will make available to Syntroleum, a true and
complete copy of each quarterly, annual or
20
<PAGE>
current report on Form 10-Q, 10-K or 8-K, registration statement and definitive
proxy statement filed by SLH with the SEC subsequent to the date of this
Agreement and prior to the Effective Time. All of such reports and statements
filed prior to the date of this Agreement and the Form 10-K of the SLH are
hereinafter referred to as the "SLH SEC Documents." As of their respective
filing dates, the SLH SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the SEC thereunder applicable to such SLH SEC
Documents, and, assuming the accuracy of information supplied by Syntroleum for
inclusion therein, none of the SLH SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their respective
filing dates, the financial statements of SLH included in the SLH SEC Documents
complied as to form in all material respects with the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
GAAP applied on a consistent basis during the periods involved (except (i) as
may be indicated in the notes thereto, (ii) in the case of the unaudited
statements, such differences in presentation or omissions as permitted by Rule
10-01 of Regulation S-X of the SEC and (iii) the unaudited financial statements
do not contain all notes required by GAAP) and fairly presented in accordance
with applicable requirements of GAAP (subject, in the case of the unaudited
statements, to normal year-end adjustments on a basis comparable with past
periods) the consolidated financial position of SLH and its consolidated
Subsidiaries as of their respective dates and the consolidated results of
operations and the consolidated cash flows of SLH and its consolidated
Subsidiaries for the periods presented therein.
(f) INFORMATION SUPPLIED. Assuming the accuracy of information supplied by
Syntroleum for inclusion therein, none of the information supplied or to be
supplied by SLH for inclusion or incorporation by reference in the S-4 will, at
the time the S-4 becomes effective under the Securities Act or at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and none of the information supplied or to be supplied
by SLH and included or incorporated by reference in the Proxy Statement will, at
the time of mailing thereof or at the time of the meetings of the stockholders
of SLH or Syntroleum to be held in connection with the Merger or at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. If at any time prior to the Effective Time any event with
respect to SLH or any of its Subsidiaries, or with respect to other information
supplied by SLH for inclusion in the Proxy Statement or S-4, shall occur which
is required to be described in an amendment of, or a supplement to, the Proxy
Statement or the S-4, such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of SLH and Syntroleum. The S-4 and the Proxy
Statement, insofar as they relate to SLH or its Subsidiaries or other
information supplied by SLH for inclusion therein, will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in, or
reflected in the financial statements included in the SLH SEC Documents or on
Schedule 3.2(g) of the SLH Letter, or except as contemplated by this Agreement,
since December 31, 1997, SLH has, in all material respects, conducted its
business only in the ordinary course and there has not been: (i) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of SLH's capital stock
(other than a two for one stock split effected on February 9, 1998); (ii) any
amendment of any material term of any outstanding equity security of SLH or any
Subsidiary; (iii) any repurchase, redemption or other acquisition by SLH or any
Subsidiary of any outstanding shares of capital stock or other equity securities
of, or other ownership interests in, SLH or any Subsidiary, except as
contemplated by SLH Benefit Programs (as hereinafter defined); (iv) any material
change in any method of accounting or accounting practice, or in any tax method,
principle, election or practice by SLH or any Subsidiary; (v) if the covenants
and agreements with respect to the SLH and its Subsidiaries set forth in Section
4.2 had
21
<PAGE>
been applicable to SLH and its Subsidiaries during the period from December 31,
1997 to the date of this Agreement, any action, transaction, commitment or
failure to act that would cause SLH or any such Subsidiary to fail to comply
with such covenants and agreements; or (vi) any other action, transaction,
commitment, dispute or other event or condition (financial or otherwise) of any
character (whether or not in the ordinary course of business) that has had, or
may reasonably be expected to have, a SLH Material Adverse Effect, except for
general economic changes and changes that may affect the industries of SLH or
any of its Subsidiaries generally.
(h) NO UNDISCLOSED MATERIAL LIABILITIES. Except as fully reflected or
reserved against in the financial statements included in the SLH SEC Documents,
or disclosed in the footnotes thereto, or referred to in Schedule 3.2(h) or
elsewhere in the SLH Letter, as of the date hereof SLH and its Subsidiaries have
no liabilities, absolute or contingent other than liabilities which,
individually or in the aggregate, are reasonably expected not to have a SLH
Material Adverse Effect. Except as so reflected, reserved or disclosed, SLH and
its Subsidiaries have no commitments which, individually or in the aggregate,
are reasonably expected to have a SLH Material Adverse Effect.
(i) MATERIAL CONTRACTS; NO DEFAULTS. All of the material contracts of SLH
and its Subsidiaries that are required to be described in the SLH SEC Documents
or to be filed as exhibits thereto, or that would be required to be described or
filed if a Form 10-K with respect to the SLH were required to be filed on the
date hereof, have been described or filed in the SLH SEC Documents except as
disclosed on Schedule 3.2(i) of the SLH Letter. Neither SLH nor any of its
Subsidiaries is in violation of or in default under (and no event has occurred
which, with notice or the lapse of time or both, would constitute a default or
violation) of any term, condition or provision of (i) in the case of SLH and its
Significant Subsidiaries, their respective charter and bylaws or comparable
organizational documents, (ii) except as disclosed in Schedule 3.2(i) of the SLH
Letter, any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which SLH or any of its Subsidiaries is now a party
or by which SLH or any of its Subsidiaries or any of their respective properties
or assets may be bound or (iii) any order, writ, injunction, decree, statute,
rule or regulation applicable to SLH or any of its Subsidiaries, except in the
case of (ii) and (iii) for defaults or violations which in the aggregate would
not have a SLH Material Adverse Effect. Schedule 3.2(i) of the SLH Letter lists
each contract containing covenants which in any way purport to limit the freedom
of SLH or any of its Subsidiaries to engage in any line of business or engage in
business in any geographic area or to compete with any person. Except as
disclosed on Schedule 3.2(i) of the SLH Letter, to the knowledge of SLH, none of
the other parties to material contracts of SLH or its Subsidiaries are in
violation of or in default under (nor does there exist any condition which upon
the passage of time or the giving of notice would cause such a violation of or
default under) any contract, other than such violations or defaults as would not
have a SLH Material Adverse Effect.
(j) COMPLIANCE WITH APPLICABLE LAWS. SLH and its Subsidiaries hold all
permits, licenses, variances, exemptions, orders, franchises and approvals of
all Governmental Entities necessary for the lawful conduct of their respective
businesses (the "SLH Permits"), except where the failure so to hold would not
have a SLH Material Adverse Effect. SLH and its Subsidiaries are in compliance
with the terms of the SLH Permits, except where the failure so to comply would
not have a SLH Material Adverse Effect. Except as disclosed or as set forth on
Schedule 3.2(j), 3.2(k), 3.2(l), 3.2(m), 3.2(n) or 3.2(p) of the SLH Letter the
businesses of SLH and its Subsidiaries are not being conducted in violation of
any law, ordinance, regulation, judgment or decree of any Governmental Entity,
except for possible violations which would not have a SLH Material Adverse
Effect. Except as set forth on Schedule 3.2(j) of the SLH Letter, as of the date
of this Agreement, no investigation or review by any Governmental Entity with
respect to SLH or any of its Subsidiaries is, to the best knowledge of SLH,
pending or threatened, other than those the outcome of which would not have a
SLH Material Adverse Effect.
(k) LITIGATION. Schedule 3.2(k) of the SLH Letter discloses all suits,
actions or proceedings pending, or, to, the best knowledge of SLH, threatened
against SLH or any Subsidiary of SLH ("SLH Litigation") on the date of this
Agreement and all judgments, decrees, injunctions, rules or orders of any
Governmental
22
<PAGE>
Entity or arbitrator outstanding against SLH or any Subsidiary of SLH ("SLH
Order") on the date of this Agreement, in each case in which the amount claimed
or that could be involved is in excess of $100,000. Except as disclosed on
Schedule 3.2(k) of the SLH Letter, there is no SLH Litigation that, individually
or in the aggregate with all other SLH Litigation, is reasonably likely to have
a SLH Material Adverse Effect, nor is there any SLH Order that, individually or
in the aggregate with all other SLH Litigation, is reasonably likely to have a
SLH Material Adverse Effect or a material adverse effect on SLH's ability to
perform its obligations hereunder or to consummate the transactions contemplated
by this Agreement.
(l) TAXES. Except as set forth on Schedule 3.2(1) of the SLH Letter and
except for exceptions to the following that would not, individually or in the
aggregate, have a SLH Material Adverse Effect:
(i) Each of SLH, each of its Subsidiaries and any affiliated,
consolidated, combined, unitary or similar group of which any such
corporation is or was a member has (A) duly and timely (taking into account
any extensions) filed all federal, state, local, foreign and other Returns
required to be filed or sent by or with respect to it in respect of any
Taxes, (B) duly paid or deposited on a timely basis all Taxes (including
estimated Taxes) that are due and payable (except for audit adjustments not
material in the aggregate or to the extent that liability therefor is
reserved for in SLH's most recent audited financial statements) for which
SLH or any of its Subsidiaries may be liable, (C) established reserves that
are adequate for the payment of all Taxes not yet due and payable with
respect to the results of operations of SLH and its Subsidiaries through the
date hereof, and (D) complied in all material respects with all applicable
laws, rules and regulations relating to the payment and withholding of Taxes
and has in all material respects timely withheld from employee wages and
paid over to the proper governmental authorities all amounts required to be
so withheld and paid over.
(ii) Schedule 3.2(l) of the SLH Letter sets forth (i) the last taxable
period through which the United States federal income Tax Returns of SLH and
any of its Subsidiaries have been examined by the IRS or otherwise closed
and (ii) any affiliated, consolidated, combined, unitary or similar group
Return in which the SLH or any of its Subsidiaries is or has been a member
or is or has joined in the filing. Except to the extent being contested in
good faith, all material deficiencies asserted as a result of such
examinations and any examination by any applicable federal, state, local,
foreign or other taxing authority have been paid, fully settled or
adequately provided for in SLH's most recent audited financial statements.
Except as adequately provided for in the financial statements included in
the SLH SEC Documents, no material tax audits or other administrative
proceedings or court proceedings are presently pending with regard to any
Taxes for which SLH or any of its Subsidiaries would be liable, and no
material deficiency for any such Taxes has been proposed, asserted or
assessed pursuant to such examination against SLH or any of its Subsidiaries
by any federal, state, local, foreign or other taxing authority with respect
to any period.
(iii) Neither SLH nor any of its Subsidiaries has executed or entered
into with the IRS or any taxing authority (i) any agreement or other
document extending or having the effect of extending the period for
assessments or collection of any Taxes for which SLH or any of its
Subsidiaries would be liable or (ii) a closing agreement pursuant to Section
7121 of the Code, or any predecessor provision thereof or any similar
provision of federal, state, local, foreign or other tax law that relates to
the assets or operations of SLH or any of its Subsidiaries.
(iv) Neither SLH nor any of its Subsidiaries is a party to an agreement
that provides for the payment of any amount that would constitute a
"parachute payment" within the meaning of Section 280G of the Code.
(v) Neither SLH nor any of its Subsidiaries has made an election under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as such term is defined
in Section 341(f)(4) of the Code) owned by SLH or any of its Subsidiaries.
23
<PAGE>
(vi) Neither SLH nor any of its Subsidiaries is a party to, is bound by
or has any obligation under any tax sharing or allocation agreement or
similar agreement or arrangement.
(m) PENSION AND BENEFIT PLANS; ERISA.
(i) SLH has made available to Syntroleum true, correct, and complete
copies of each of the following which is sponsored, maintained or
contributed to by SLH or any of its Subsidiaries for the benefit of the
employees of SLH or such Subsidiary:
(1) each "employee benefit plan," as such term is defined in Section
3(3) of ERISA, including, but not limited to, employee benefit plans,
such as foreign plans, which are not subject to the provisions of ERISA
("SLH Plans"); and
(2) each personnel policy, stock option plan, collective bargaining
agreement, bonus plan or arrangement, incentive award plan or
arrangement, vacation policy, severance pay plan, policy or agreement,
deferred compensation agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement, employment
agreement and each other employee benefit plan, agreement, arrangement,
program, practice or understanding which is not described in Section
3.2(m)(i)(l) ("SLH Benefit Programs").
(ii) Except as disclosed in Schedule 3.2(m)(ii) of the SLH Letter:
(1) SLH and its Subsidiaries do not contribute to or have an
obligation to contribute to, and have not at any time within six years
prior to the Effective Time contributed to or had an obligation to
contribute to, a multiemployer plan within the meaning of Section 3(37)
of ERISA;
(2) SLH and its Subsidiaries have substantially performed all
material obligations, whether arising by operation of law or by contract,
required to be performed by them in connection with the SLH Plans and the
SLH Benefit Programs, and to the knowledge of SLH there have been no
material defaults or violations by any other party to the SLH Plans or
SLH Benefit Programs;
(3) All reports and disclosures relating to the SLH Plans required
to be filed with or furnished to governmental agencies, SLH Plan
participants or beneficiaries have been filed or furnished substantially
in accordance with applicable law in a timely manner;
(4) Each SLH Plan intended to be qualified under Section 401 of the
Code satisfies the requirements of such Section and has received a
favorable determination letter from the Internal Revenue Service
regarding such qualified status and has not, since receipt of the most
recent favorable determination letter, been amended or, to the knowledge
of SLH, operated in a way which would adversely affect such qualified
status. As to any SLH Plan intended to be qualified under Section 401 of
the Code, there has been no termination or partial termination of the SLH
Plan within the meaning of Section 411(d)(3) of the Code;
(5) There are no actions, suits or claims pending (other than
routine claims for benefits) or, to the knowledge of SLH, threatened
against, or with respect to, any of the SLH Plans or SLH Benefit Programs
or their assets. To the knowledge of SLH, there is no matter pending
(other than routine qualification determination filings) with respect to
any of the SLH Plans before the IRS, the United States Department of
Labor or the PBGC;
(6) As to any SLH Plan subject to Title IV of ERISA, there has been
no event or condition which presents the material risk of a SLH Plan
termination, no accumulated funding deficiency, whether or not waived,
within the meaning of Section 302 of ERISA or Section 412 of the Code has
been incurred, no reportable event within the meaning of Section 4043 of
ERISA (for which the disclosure requirements of Regulation 2615.3
promulgated by the PBGC have not been waived) has occurred, no notice of
intent to terminate the SLH Plain has been given under
24
<PAGE>
Section 4041(c) of ERISA, no proceeding has been instituted under Section
4042 of ERISA to terminate the SLH Plan, no liability to the PBGC has
been incurred;
(7) No act, omission or transaction has occurred which would result
in imposition on SLH or any of its Subsidiaries of (A) liability for a
breach of fiduciary duty under Section 409 of ERISA, (B) a civil penalty
assessed pursuant to subsections (c), (i) or (1) of Section 502 of ERISA
or (C) a tax imposed pursuant to Chapter 43 of Subtitle D of the Code;
(8) With respect to any employee benefit plan, within the meaning of
Section 3(3) of ERISA, which is not a SLH Plan but which is sponsored,
maintained or contributed to, or has been sponsored, maintained or
contributed to within six years prior to the Effective Time, by any
corporation, trade, business or entity under common control with SLH,
within the meaning of Section 414(b), (c) or (m) of the Code or Section
4001 of ERISA ("SLH Commonly Controlled Entity"), (A) no withdrawal
liability, within the meaning of Section 4201 of ERISA, has been
incurred, which withdrawal liability has not been satisfied, (B) no
liability to the PBGC has been incurred by any SLH Commonly Controlled
Entity, which liability has not been satisfied, (C) no accumulated
funding deficiency, whether or not waived, within the meaning of Section
302 of ERISA or Section 412 of the Code has been incurred, and (D) all
contributions (including installments) to such plan required by Section
302 of ERISA and Section 412 of the Code have been timely made; and
(9) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not (A) require
SLH or any of its Subsidiaries to make a larger contribution to, or pay
greater benefits under, any SLH Plan or SLH Benefit Program than it
otherwise would or (B) create or give rise to any additional vested
rights or service credits under any SLH Plan or SLH Benefit Program.
(iii) Except as disclosed on Schedule 3.2(m)(iii) of the SLH Letter,
there are no severance agreements or employment agreements between SLH or
any of its Subsidiaries and any employee of SLH or such Subsidiary. True and
correct copies of all such severance and employment agreements have been
provided to Syntroleum. Except as disclosed on Schedule 3.2(m)(iii) of the
SLH Letter, (A) neither SLH nor any of its Subsidiaries has any consulting
agreement or arrangement with any person involving annual compensation in
excess of $100,000, except as are terminable without penalty upon one
month's notice or less, and (B) no stock or other security issued by SLH or
any of its Subsidiaries forms or has formed a material part of the assets of
any SLH Plan or SLH Benefit Program.
(n) LABOR MATTERS.
(i) Except as set forth in Schedule 3.2(n)(i) of the SLH Letter, as of
the date of this Agreement, (1) no employees of SLH or any of its
Subsidiaries are represented by any labor organization; (2) no labor
organization or group of employees of SLH or any of its Subsidiaries has
made a pending demand for recognition or certification, and there are no
representation or certification proceedings or petitions seeking a
representation proceeding presently pending or threatened in writing to be
brought or filed with the National Labor Relations Board or any other labor
relations tribunal or authority; and (3) to the knowledge of SLH, there are
no organizing activities involving SLH or any of its Subsidiaries pending
with any labor organization or group of employees of SLH or any of its
Subsidiaries.
(ii) Except as set forth on Schedule 3.2(n)(ii) of the SLH Letter, SLH
and each of its Subsidiaries is in compliance with all laws and orders
relating to the employment of labor, including all such laws and orders
relating to wages, hours, collective bargaining, discrimination, civil
rights, safety and health workers' compensation and the collection and
payment of withholding and/or Social
25
<PAGE>
Security Taxes and similar Taxes, except where the failure to comply would
not have a SLH Material Adverse Effect.
(o) INTANGIBLE PROPERTY. SLH and its Subsidiaries possess or have adequate
rights to use all material trademarks, trade names, patents, service marks,
brand marks, brand names, computer programs, database, industrial designs and
copyrights necessary for the operation of the businesses of each of SLH and its
Subsidiaries (collectively, the "SLH Intangible Property"), except where the
failure to possess or have adequate rights to use such properties would not
reasonably be expected to have a SLH Material Adverse Effect. Schedule 3.2(o)
lists all patents and trademarks or licensing agreements with respect to any
patent or trademark, which in each case is applicable to a material portion of
the business of SLH or its Subsidiaries and the failure to possess would not
reasonably be expected to have a SLH Material Adverse Effect. To the knowledge
of SLH, except as set forth on Schedule 3.2(o) of the SLH Letter, all of the SLH
Intangible Property is owned by SLH or its Subsidiaries free and clear of any
and all liens, claims or encumbrances, except those that are not reasonably
likely to have a SLH Material Adverse Effect, and neither SLH nor any such
Subsidiary has forfeited or otherwise relinquished any SLH Intangible Property
which forfeiture would result in a SLH Material Adverse Effect. To the knowledge
of SLH, the use of SLH Intangible Property by SLH or its Subsidiaries does not,
in any material respect, conflict with, infringe upon, violate or interfere with
or constitute an appropriation of any right, title, interest or goodwill,
including, without limitation, any intellectual property right, trademark, trade
name, patent, service mark, brand mark, brand name, computer program, database,
industrial design, copyright or any pending application therefor of any other
person and there have been no claims made and neither SLH nor any of its
Subsidiaries has received any notice of any claim or otherwise knows that any of
SLH Intangible Property is invalid or conflicts with the asserted rights of any
other person or has not been used or enforced or has been failed to be used or
enforced in a manner that would result in the abandonment, cancellation or
unenforceability of any of SLH Intangible Property, except for any such
conflict, infringement, violation, interference, claim, invalidity, abandonment,
cancellation or unenforceability that would not reasonably be expected to have a
SLH Material Adverse Effect.
(p) ENVIRONMENTAL MATTERS.
(i) Except as disclosed on Schedule 3.2(p) of the SLH Letter, the
operations of SLH and its Subsidiaries have been and are currently in
compliance with all Environmental Laws, except where the failure to so
comply would not reasonably be expected to have a SLH Material Adverse
Effect;
(ii) Except as disclosed on Schedule 3.2(p) of the SLH Letter, SLH
and its Subsidiaries have obtained and maintained all permits required
under applicable Environmental Laws for the continued operations of their
respective businesses, except such permits the lack of which would not
reasonably be expected to lead to a SLH Material Adverse Effect;
(iii) Except as disclosed on Schedule 3.2(p) of the SLH Letter, as of
the date hereof SLH and its Subsidiaries are not subject to any material
(individually or in the aggregate) outstanding written orders or material
contracts with any Governmental Entity or other person respecting (A)
Environmental Laws, (B) Remedial Action or (C) any Release or threatened
Release of a Hazardous Material;
(iv) Except as disclosed on Schedule 3.2(p) of the SLH Letter, SLH
and its Subsidiaries have not received any written communication
alleging, with respect to any such party, and has no knowledge of, or
reasonable reason to suspect the existence of, the violation of or
liability under any Environmental Law, which violation or liability would
reasonably be expected to have a SLH Material Adverse Effect;
(v) Except as disclosed on Schedule 3.2(p) of the SLH Letter,
neither SLH nor any of its Subsidiaries has any contingent liability in
connection with any Release of any Hazardous
26
<PAGE>
Material including, without limitation, in connection with the exposure
of any person or property to Hazardous Material that would reasonably be
expected to lead to a SLH Material Adverse Effect;
(vi) Except as disclosed on Schedule 3.2(p) of the SLH Letter, the
operations of SLH or its Subsidiaries involving the generation,
transportation, treatment, storage or disposal of hazardous waste, as
defined and regulated under 40 C.F.R. Parts 260-270 (in effect as of the
date of this Agreement) or any state equivalent, or any other Hazardous
Material are in compliance with applicable Environmental Laws, except
where the failure to so comply would not reasonably be expected to have a
SLH Material Adverse Effect; and
(vii) Except as disclosed on Schedule 3.2(p) of the SLH Letter, to
the knowledge of SLH as of the date hereof, there is not now on or in any
property of SLH or its Subsidiaries any of the following: (A) any
underground storage tanks or surface impoundments, (B) any asbestos-
containing materials, or (C) any polychlorinated biphenyls, any of which
((A), (B) or (C) preceding) could reasonably be expected to have a SLH
Material Adverse Effect. None of the properties owned or operated by SLH
are restricted as to use or as to transfer of title, or the subject of
any special recorded notice, as a result of the existence of Hazardous
Substances thereon.
(viii) SLH has made available to Syntroleum for review all written
reports of environmental audits and assessments prepared for SLH or any
of its Subsidiaries within the last three years by third party
consultants or internal environmental, safety or health personnel which
are in the possession or control of SLH and which relate to the assets or
operations of SLH or any of its Subsidiaries.
(q) OPINION OF FINANCIAL ADVISOR. SLH has received the opinion of Salomon
Smith Barney (a copy of which has been delivered to Syntroleum) to the effect
that, as of the date hereof, the Exchange Ratio is fair to SLH from a financial
point of view.
(r) VOTE REQUIRED. The affirmative vote of the holders of a majority of
the outstanding shares of SLH Common Stock is the only vote of the holders of
any class or series of SLH capital stock necessary to approve this Agreement and
the Merger and the transactions contemplated hereby.
(s) INSURANCE. SLH has delivered to Syntroleum an insurance schedule of
SLH's and each of its Subsidiaries' directors' and officers' liability
insurance, primary and excess casualty insurance policies, providing coverage
for bodily injury and property damage to third parties, including products
liability and completed operations coverage, and worker's compensation, in
effect as of the date hereof. SLH maintains insurance coverage reasonably
adequate for the operation of the business of SLH and each of its Subsidiaries
(taking into account the cost and availability of such insurance), and the
transactions contemplated hereby will not materially adversely affect such
coverage.
(t) BROKERS. Except as disclosed on Schedule 3.2(t) of the SLH Letter, no
broker, investment banker, or other person is entitled to any broker's, finder's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
SLH.
(u) TAX MATTERS. As of the date hereof, the representations which SLH is
to make pursuant to Exhibit C attached hereto (other than any representation
which refers to the Proxy Statement) are true and correct, assuming for purposes
of this representation and warranty that the Merger referred to in such Exhibit
C had been consummated on the date hereof. In addition, the representations
which are made by SLH in the form of Exhibit C hereof (with such variations
therein as may be made) in connection with the rendering of the tax opinion for
which provision is made in Section 6.1(h) hereof will be true and correct at the
time that the Merger occurs. Such representations are for the benefit of the
holders of Syntroleum Common Stock.
27
<PAGE>
(v) TITLE. Except as disclosed in the SLH Financial Statements or on
Schedule 3.2(v) of the SLH Letter, the SLH and each of its Subsidiaries have
good and marketable title to all real property and good title to all personal
property owned by them, in each case free and clear of all liens, pledges or
encumbrances securing money borrowed, the deferred purchase price of property in
excess of $300,000 or capital leases and free and clear of all other liens,
pledges, encumbrances or defects that could affect the value or use thereof
except for any such other liens, pledges, encumbrances or defects that would not
have a SLH Material Adverse Effect.
(w) BOOKS AND RECORDS. The SLH and its Subsidiaries (i) make and keep
accurate books and records and (ii) maintain internal accounting controls which
provide reasonable assurance that (A) transactions are executed in accordance
with management's authorization, (B) transactions are recorded as necessary to
permit preparation of their financial statements and to maintain accountability
for their assets, (C) access to their assets is permitted only in accordance
with management's authorization and (D) the reported accountability for their
assets is compared with existing assets at reasonable intervals.
(x) CERTAIN PAYMENTS. Neither the SLH nor any of its Subsidiaries, nor any
director, officer, agent, employee or other person associated with or acting on
behalf of the SLH or any of its Subsidiaries, has used any corporate funds for
any unlawful contribution, gift, entertainment or other unlawful expense
relating to political activity; made any direct or indirect unlawful payment to
any foreign or domestic governmental official or employee from corporate funds;
violated or is in violation of any provision of the Foreign Corrupt Practices
Act of 1977; nor made any illegal bribe, rebate, payoff, influence payment,
kickback or other unlawful payment.
(y) TRANSACTIONS WITH RELATED PARTIES. Except as set forth in Schedule
3.2(y) of the SLH Letter or in the SLH SEC Documents, there are no agreements,
contracts or other arrangements between (i) SLH or any of its Subsidiaries, on
the one hand, and (ii) any Related Person of SLH, on the other hand. Except as
set forth in Schedule 3.2(y) of the SLH Letter, after the Closing Date no
Related Person of SLH and no present officer or director of any Related Person
of SLH has any interest in any property (real or personal, tangible or
intangible) or contract used in or pertaining to the business of the SLH and its
Subsidiaries (or the Surviving Corporation and its Subsidiaries) and no Related
Person of SLH has any direct or indirect ownership interest (excluding
immaterial passive investments) in any person (other than through SLH or any of
its Subsidiaries) with which SLH or any of its Subsidiaries competes in any
material respect or has a material business relationship. Other than those
services described in the SLH SEC Documents, Schedule 3.2(y) of the SLH Letter
sets forth as of the date of this Agreement a description of all services
provided by any Related Person of SLH to SLH and any of its Subsidiaries.
(z) STATE TAKEOVER LAWS AND SLH RIGHTS PLAN. SLH has taken all necessary
action to exempt the transactions contemplated by this Agreement from the
provisions of Section 17.12.101 of the Kansas Code and Sections 1286 through
1298 of the Kansas Code. The transactions contemplated by this Agreement will
not cause the SLH Stock Purchase Rights to become exercisable.
(aa) YEAR 2000. SLH has taken all necessary action to enable its computer
software to process data attributable to the year 2000 and thereafter. SLH's
operating and financial systems will be able to process such data by the year
2000.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 CONDUCT OF BUSINESS BY SYNTROLEUM PENDING THE MERGER. During the
period from the date of this Agreement and continuing until the Effective Time,
Syntroleum agrees as to itself and its Subsidiaries that (except as expressly
contemplated or permitted by this Agreement, or to the extent that SLH shall
otherwise consent in writing):
28
<PAGE>
(a) ORDINARY COURSE. Except as provided on Schedule 4.1(a) of Syntroleum
Letter, each of Syntroleum and its Subsidiaries shall carry on its businesses
only in the usual, regular and ordinary course in substantially the same manner
as heretofore conducted and shall use all commercially reasonable efforts to
preserve intact its present business organizations, keep available the services
of its current officers and employees, and endeavor to preserve its
relationships with customers, suppliers and others having business dealings with
it to the end that its goodwill and ongoing business shall not be impaired in
any material respect at the Effective Time.
(b) DIVIDENDS; CHANGES IN STOCK. Except as provided on Schedule 4.1(b) of
Syntroleum Letter, Syntroleum shall not and it shall not permit any of its
Subsidiaries to: (i) declare or pay any dividends on or make other distributions
in respect of any of its capital stock, except for the declaration and payment
of dividends from a Subsidiary of Syntroleum to Syntroleum or another Subsidiary
of Syntroleum and except for cash dividends or distributions paid on or with
respect to the capital stock of a Subsidiary of Syntroleum; (ii) split, combine
or reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock; or (iii) repurchase, redeem or otherwise
acquire, or permit any of its Subsidiaries to purchase, redeem or otherwise
acquire, any shares of its capital stock, except as required by the terms of its
securities outstanding on the date hereof, as contemplated by any existing
employee benefit plan or program or pursuant to the terms of any existing
agreements with employees of Syntroleum and its Subsidiaries upon the
termination of employment of any such employee.
(c) ISSUANCE OF SECURITIES. Except as provided on Schedule 4.1(c) of
Syntroleum Letter, Syntroleum shall not and it shall not permit any of its
Subsidiaries to, issue, deliver or sell, or authorize or propose to issue,
deliver or sell, any shares of its capital stock of any class, any Voting Debt
or any securities convertible into, or any rights, warrants or options to
acquire, any such shares, Voting Debt or convertible securities, other than: (i)
the issuance of Syntroleum Common Stock upon the exercise of stock options
granted under Syntroleum Stock Option Plans that are outstanding on the date
hereof, or in satisfaction of stock grants or stock based awards made prior to
the date hereof pursuant to Syntroleum Stock Option Plans; and (ii) issuances by
a wholly owned Subsidiary of its capital stock to its parent.
(d) GOVERNING DOCUMENTS. Except as contemplated hereby or in connection
herewith, Syntroleum shall not amend or propose to amend its Certificate of
Incorporation or Bylaws.
(e) NO ACQUISITIONS. Other than acquisitions listed on Schedule 4.1(e) of
Syntroleum Letter, Syntroleum shall not and it shall not permit any of its
Subsidiaries to, acquire or agree to acquire by merging or, consolidating with,
or by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof.
(f) NO DISPOSITIONS. Other than: (i) dispositions or proposed dispositions
listed on Schedule 4.1(f) of Syntroleum Letter; (ii) as may be necessary or
required by law to consummate the transactions contemplated hereby; or (iii)
dispositions of other assets that are not material, individually or in the
aggregate, to Syntroleum and its Subsidiaries taken as a whole, Syntroleum shall
not and it shall not permit any of its Subsidiaries to sell, lease, encumber or
otherwise dispose of, or agree to sell, lease (whether such lease is an
operating or capital lease), encumber or otherwise dispose of, any of its
assets. Notwithstanding the foregoing, none of Syntroleum nor its Subsidiaries
shall sell, lease, encumber or otherwise dispose of, or agree to dispose of, any
of its assets to any Related Person other than in the ordinary course of
business on an arms length basis.
(g) NO DISSOLUTION, ETC. Except as otherwise permitted or contemplated by
this Agreement, Syntroleum shall not authorize, recommend, propose or announce
an intention to adopt a plan of complete or partial liquidation or dissolution
of Syntroleum or any of its Significant Subsidiaries.
29
<PAGE>
(h) CERTAIN EMPLOYEE MATTERS. Except as set forth on Schedule 4.1(h) of
Syntroleum Letter, Syntroleum shall not and it shall not permit any of its
Subsidiaries to: (i) grant any increases in the compensation of any of its
directors, officers or employees, except increases in the ordinary course of
business and in accordance with past practice; (ii) pay or agree to pay any
pension, retirement allowance or other employee benefit not required or
contemplated by any of the existing Syntroleum Benefit Programs or Syntroleum
Plans as in effect on the date hereof to any such director, officer or employee,
whether past or present; (iii) enter into any new, or amend any existing,
employment or severance or termination agreement with any such director, officer
or key employee; or (iv) become obligated under any new Syntroleum Benefit
Program or Syntroleum Plan, which was not in existence or approved by the Board
of Directors of Syntroleum prior to or on the date hereof, or amend any such
plan or arrangement in existence on the date hereof if such amendment would have
the effect of materially enhancing any benefits thereunder.
(i) INDEBTEDNESS; LEASES; CAPITAL EXPENDITURES. Except as set forth on
Schedule 4.1(i) of Syntroleum Letter, Syntroleum shall not, nor shall Syntroleum
permit any of its Subsidiaries to, (i) incur any indebtedness for borrowed money
or guarantee any such indebtedness or issue or sell any debt securities or
warrants or rights to acquire any debt securities of such party or any of its
Subsidiaries or guarantee any debt securities of others, (ii) except in the
ordinary course of business, enter into any lease (whether such lease is an
operating or capital lease) or create any mortgages, liens, security interests
or other encumbrances on the property of Syntroleum or any of its Subsidiaries
in connection with any indebtedness thereof, except for those securing purchase
money indebtedness or (iii) commit to aggregate capital expenditures in excess
of $100,000 outside the capital budget, as approved by Syntroleum prior to the
date hereof and set forth on Schedule 4.1(i) of Syntroleum Letter.
(j) NO SOLICITATION. From and after the date hereof, Syntroleum will not,
and will not authorize or permit any of its officers, directors, employees,
agents and other representatives or those of any of its Subsidiaries
(collectively, "Syntroleum Representatives") to, directly or indirectly, solicit
or initiate any prospective buyer or the making of any proposal that
constitutes, or may reasonably be expected to lead to, a Syntroleum Acquisition
Proposal (as defined herein) from any person; PROVIDED, HOWEVER, that,
notwithstanding any other provision of this Agreement, (i) Syntroleum may engage
in discussions or negotiations with a third party who (without any solicitation
or initiation, directly or indirectly, by or with Syntroleum or any Syntroleum
Representatives after the date of this Agreement) seeks to initiate such
discussions or negotiations and may furnish such third party information
concerning Syntroleum and its business, properties and assets, (ii) Syntroleum's
Board of Directors may take and disclose to Syntroleum's stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act and (iii)
following receipt of a Syntroleum Acquisition Proposal that is financially
superior to the Merger and reasonably capable of being financed (as determined
in each case in good faith by Syntroleum's Board of Directors after consultation
with Syntroleum's financial advisors), the Board of Directors of Syntroleum may
withdraw, modify or not make its recommendation referred to in Section 5.5 or
terminate this Agreement in accordance with Section 7.1(b), but in each case
referred to in the foregoing clauses (i) through (iii) only to the extent that
the Board of Directors of Syntroleum shall conclude in good faith that such
action is necessary in order for the Board of Directors of Syntroleum to act in
a manner that is consistent with its fiduciary obligations under applicable law.
Syntroleum shall immediately cease and cause to be terminated any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any parties conducted heretofore by Syntroleum or any Syntroleum
Representatives with respect to any Syntroleum Acquisition Proposal existing on
the date hereof. Syntroleum will promptly notify SLH of any such requests for
such information or the receipt of any Syntroleum Acquisition Proposal,
including the identity of the person or group engaging in such discussions or
negotiations, requesting such information or making such Syntroleum Acquisition
Proposal, and (unless the Board of Directors of Syntroleum concludes such
disclosure is inconsistent with its fiduciary obligations under applicable law)
the material terms and conditions of any Syntroleum Acquisition Proposal. As
used in this Agreement, "Syntroleum Acquisition Proposal" shall mean any
proposal or offer, other than a proposal or offer by
30
<PAGE>
SLH or any of its affiliates, for a tender or exchange offer, a merger,
consolidation or other business combination involving Syntroleum or any
Subsidiary of Syntroleum or any proposal to acquire in any manner a substantial
equity interest in, or substantially all of the assets of, Syntroleum or any of
its Subsidiaries.
4.2 CONDUCT OF BUSINESS BY SLH PENDING THE MERGER. During the period from
the date of this Agreement and continuing until the Effective Time, SLH agrees
as to itself and its Subsidiaries that (except as expressly contemplated or
permitted by this Agreement, or to the extent that Syntroleum shall otherwise
consent in writing):
(a) ORDINARY COURSE. Except as provided on Schedule 4.2(a) of the SLH
Letter, except as contemplated by Section 5.16 hereof and except for the
execution prior to the Closing Date of a consulting and sublease agreement
between SLH and Lab Holdings, Inc. in form and substance reasonably satisfactory
to Syntroleum, each of SLH and its Subsidiaries shall carry on its businesses
only in the usual, regular and ordinary course in substantially the same manner
as heretofore conducted and shall use all commercially reasonable efforts to
preserve intact its present business organizations, keep available the services
of its current officers and employees, and endeavor to preserve its
relationships with customers, suppliers and others having business dealings with
it to the end that its goodwill and ongoing business shall not be impaired in
any material respect at the Effective Time.
(b) DIVIDENDS; CHANGES IN STOCK. Except as provided on Schedule 4.2(b) of
the SLH Letter, SLH shall not and it shall not permit any of its Subsidiaries
to: (i) declare or pay any dividends on or make other distributions in respect
of any of its capital stock, except for the declaration and payment of dividends
from a Subsidiary of SLH to SLH or another Subsidiary of SLH and except for cash
dividends or distributions paid on or with respect to the capital stock of a
Subsidiary of SLH; (ii) split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock; or (iii)
repurchase, redeem or otherwise acquire, or permit any of its Subsidiaries to
purchase, redeem or otherwise acquire, any shares of its capital stock, except
as required by the terms of its securities outstanding on the date hereof, as
contemplated by any existing employee benefit plan or program or pursuant to the
terms of any existing agreements with employees of SLH and its Subsidiaries upon
the termination of employment of any such employee.
(c) ISSUANCE OF SECURITIES. Except as provided on Schedule 4.2(c) of the
SLH Letter, SLH shall not and it shall not permit any of its Subsidiaries to,
issue, deliver or sell, or authorize or propose to issue, deliver or sell, any
shares of its capital stock of any class, any Voting Debt or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, Voting Debt or convertible securities, other than: (i) the issuance of
SLH Common Stock upon the exercise of stock options granted under SLH Stock
Option Plans that are outstanding on the date hereof, or in satisfaction of
stock grants or stock based awards made prior to the date hereof pursuant to SLH
Stock Option Plans; and (ii) issuances by a wholly owned Subsidiary of its
capital stock to its parent.
(d) GOVERNING DOCUMENTS. Except as contemplated hereby or in connection
herewith, SLH shall not amend or propose to amend its Articles of Incorporation
or Bylaws; provided that prior to the Effective Time, SLH shall increase the
number of authorized shares of SLH Junior Preferred Stock to 250,000.
(e) NO ACQUISITIONS. Other than acquisitions listed on Schedule 4.2(e) of
the SLH Letter, SLH shall not and it shall not permit any of its Subsidiaries
to, acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof.
(f) NO DISPOSITIONS. Other than: (i) dispositions of real estate to
unaffiliated parties or dispositions of interests in entities, substantially all
of the assets of which consist of real estate, to unaffiliated parties or
31
<PAGE>
proposed dispositions listed on Schedule 4.2(f) of the SLH Letter; (ii) as may
be necessary or required by law to consummate the transactions contemplated
hereby; or (iii) dispositions of other assets that are not material,
individually or in the aggregate, to SLH and its Subsidiaries taken as a whole,
SLH shall not and it shall not permit any of its Subsidiaries to sell, lease,
encumber or otherwise dispose of, or agree to sell, lease (whether such lease is
an operating or capital lease), encumber or otherwise dispose of, any of its
assets. Notwithstanding the foregoing, none of SLH nor its Subsidiaries shall
sell, lease, encumber or otherwise dispose of, or agree to dispose of, (A) any
of its assets to any Related Person other than in the ordinary course of
business on an arms length basis or (B) any shares of Syntroleum Common Stock.
(g) NO DISSOLUTION, ETC. Except as otherwise permitted or contemplated by
this Agreement, SLH shall not authorize, recommend, propose or announce an
intention to adopt a plan of complete or partial liquidation or dissolution of
SLH or any of its Significant Subsidiaries.
(h) CERTAIN EMPLOYEE MATTERS. Except as set forth on Schedule 4.2(h) of
the SLH Letter, SLH shall not and it shall not permit any of its Subsidiaries
to: (i) grant any increases in the compensation of any of its directors,
officers or employees, except increases in the ordinary course of business and
in accordance with past practice; (ii) pay or agree to pay any pension,
retirement allowance or other employee benefit not required or contemplated by
any of the existing SLH Benefit Programs or SLH Plans as in effect on the date
hereof to any such director, officer or employee, whether past or present; (iii)
enter into any new, or amend any existing, employment or severance or
termination agreement with any such director, officer or key employee
(including, without limitation, with respect to the terminations contemplated by
Section 5.16 hereof); or (iv) become obligated under any new SLH Benefit Program
or SLH Plan, which was not in existence or approved by the Board of Directors of
SLH prior to or on the date hereof, or amend any such plan or arrangement in
existence on the date hereof if such amendment would have the effect of
materially enhancing any benefits thereunder.
(i) INDEBTEDNESS; LEASES; CAPITAL EXPENDITURES. Except as set forth on
Schedule 4.2(i) of the SLH Letter, SLH shall not, nor shall SLH permit any of
its Subsidiaries to, (i) incur any indebtedness for borrowed money (except for
working capital under SLH's existing credit facilities, and refinancings of
existing debt that permit prepayment of such debt without penalty) or guarantee
any such indebtedness or issue or sell any debt securities or warrants or rights
to acquire any debt securities of such party or any of its Subsidiaries or
guarantee any debt securities of others, (ii) except in the ordinary course of
business, enter into any lease (whether such lease is an operating or capital
lease) or create any mortgages, liens, security interests or other encumbrances
on the property of SLH or any of its Subsidiaries in connection with any
indebtedness thereof, except for those securing purchase money indebtedness or
(iii) commit to aggregate capital expenditures in excess of $100,000 outside the
capital budget, as approved by SLH prior to the date hereof and set forth on
Schedule 4.2(i) of the SLH Letter.
(j) NO SOLICITATION. From and after the date hereof, SLH will not, and
will not authorize or permit any of its officers, directors, employees, agents
and other representatives or those of any of its Subsidiaries (collectively,
"SLH Representatives") to, directly or indirectly, solicit or initiate any
prospective buyer or the making of any proposal that constitutes, or may
reasonably be expected to lead to, a SLH Acquisition Proposal (as defined
herein) from any person; PROVIDED, HOWEVER, that, notwithstanding any other
provision of this Agreement, (i) SLH may engage in discussions or negotiations
with a third party who (without any solicitation or initiation, directly or
indirectly, by or with SLH or any SLH Representatives after the date of this
Agreement) seeks to initiate such discussions or negotiations and may furnish
such third party information concerning SLH and its business, properties and
assets, (ii) SLH's Board of Directors may take and disclose to SLH's
stockholders a position contemplated by Rule 14e-2(a) promulgated under the
Exchange Act and (iii) following receipt of a SLH Acquisition Proposal that is
financially superior to the Merger and reasonably capable of being financed (as
determined in each case in good faith by SLH's Board of Directors after
consultation with SLH's financial advisors), the Board of Directors of SLH may
withdraw, modify or not make its recommendation referred to in Section 5.5 or
terminate this Agreement in accordance with Section 7.1(b), but in each case
referred to in the foregoing clauses (i) through (iii) only
32
<PAGE>
to the extent that the Board of Directors of SLH shall conclude in good faith
that such action is necessary in order for the Board of Directors of SLH to act
in a manner that is consistent with its fiduciary obligations under applicable
law. SLH shall immediately cease and cause to be terminated any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any parties conducted heretofore by SLH or any SLH representatives with
respect to any SLH Acquisition Proposal existing on the date hereof. SLH will
promptly notify Syntroleum of any such requests for such information or the
receipt of any SLH Acquisition Proposal, including the identity of the person or
group engaging in such discussions or negotiations, requesting such information
or making such SLH Acquisition Proposal, and (unless the Board of Directors of
SLH concludes such disclosure is inconsistent with its fiduciary obligations
under applicable law) the material terms and conditions of any SLH Acquisition
Proposal. As used in this Agreement, "SLH Acquisition Proposal" shall mean any
proposal or offer, other than a proposal or offer by Syntroleum or any of its
affiliates, for a tender or exchange offer, a merger, consolidation or other
business combination involving SLH or any Subsidiary of SLH or any proposal to
acquire in any manner a substantial equity interest in, or substantially all of
the assets of, SLH or any of its Subsidiaries.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 PREPARATION OF S-4 AND THE PROXY STATEMENT. SLH shall promptly prepare
and file with the SEC the Proxy Statement and the S-4, in which the Proxy
Statement will be included as a prospectus. SLH shall use its commercially
reasonable efforts to have the S-4 declared effective under the Securities Act
as promptly as practicable after such filing. SLH shall use its commercially
reasonable efforts to cause the Proxy Statement to be mailed to stockholders of
SLH at the earliest practicable date. Syntroleum shall use its commercially
reasonable efforts to cause the Proxy Statement to be mailed to stockholders of
Syntroleum at the earliest practicable date. SLH shall use its commercially
reasonable efforts to obtain all necessary state securities laws or "blue sky"
permits, approvals and registrations in connection with the issuance of SLH
Common Stock in the Merger and upon the exercise of Syntroleum Stock Options (as
defined herein). Syntroleum shall furnish all information concerning Syntroleum
and the holders of Syntroleum Common Stock, including financial statements
required by Form S-4 and the proxy rules under the Exchange Act as may be
reasonably requested in connection with obtaining such permits, approvals and
registrations.
5.2 LETTER OF SYNTROLEUM'S ACCOUNTANTS. Syntroleum shall use its
commercially reasonable efforts to cause to be delivered to SLH a letter of
Arthur Andersen LLP, Syntroleum's independent public accountants, dated a date
within two business days before the date on which the S-4 shall become effective
and addressed to SLH and the individuals listed on Exhibit B, in form and
substance reasonably satisfactory to SLH and customary in scope and substance
for letters delivered by independent public accountants in connection with
registration statements similar to the S-4.
5.3 LETTER OF SLH'S ACCOUNTANTS. SLH shall use its commercially reasonable
efforts to cause a letter of KPMG Peat Marwick LLP, SLH's independent public
accountants, dated a date within two business days before the date on which the
S-4 shall become effective and addressed to SLH and the individuals listed on
Exhibit B, in form and substance reasonably satisfactory to SLH and Syntroleum
and customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the S-4 to be
delivered and addressed to such persons and entities as is customary for similar
letters.
5.4 ACCESS TO INFORMATION. Upon reasonable notice, Syntroleum and SLH
shall each (and shall cause each of their respective Subsidiaries to) afford to
the officers, employees, accountants, counsel and other representatives of the
other, access, during normal business hours during the period prior to the
Effective Time, to all its properties, books, contracts, commitments and records
and, during such period,
33
<PAGE>
each of Syntroleum and SLH shall (and shall cause each of their respective
Subsidiaries to) furnish promptly to the other (a) a copy of each quarterly,
annual or current report on Form 10-Q, 10-K or 8-K, schedule, registration
statement and other document filed or received by it during such period pursuant
to SEC requirements and (b) all other information concerning its business,
properties and personnel as such other party may reasonably request, excluding,
however, information covered by confidentiality agreements with third parties.
Each of Syntroleum and SLH agrees that it will not, and will cause its
respective representatives not to, use any information obtained pursuant to this
Section 5.4 for any purpose unrelated to the consummation of the transactions
contemplated by this Agreement. The Confidentiality Agreements dated as of March
13, 1998 between SLH and Syntroleum (the "Confidentiality Agreements") shall
apply with respect to information furnished thereunder or hereunder and any
other activities contemplated thereby.
5.5 STOCKHOLDERS MEETINGS. Syntroleum and SLH shall each call a meeting of
its stockholders (respectively, the "Syntroleum Stockholder Meeting" and the
"SLH Stockholder Meeting" and, collectively, the "Stockholder Meetings") to be
held as promptly as practicable after the date hereof for the purpose of voting
upon this Agreement and the Merger. Subject only to the proviso of the first
sentence of Section 4.1(j), Syntroleum will, through its Board of Directors,
recommend to its stockholders approval of such matters and not rescind such
recommendation and shall use its commercially reasonable efforts to obtain
approval and adoption of this Agreement and the Merger by its stockholders.
Subject only to the proviso of the first sentence of Section 4.2(j), SLH will,
through its Board of Directors, recommend to its stockholders approval of such
matters and not rescind such recommendation and shall use its commercially
reasonable efforts to obtain approval and adoption of this Agreement and the
Merger by its stockholders. Syntroleum and SLH shall coordinate and cooperate
with respect to the timing of such meetings and shall use their commercially
reasonable efforts to hold such meetings on the same day.
5.6 LEGAL CONDITIONS TO MERGER. Syntroleum and SLH will take all
reasonable actions necessary to comply promptly with all legal requirements that
may be imposed on such party with respect to the Merger (including, without
limitation, furnishing all information in connection with approvals of or
filings with any Governmental Entity) and will promptly cooperate with and
furnish information to each other in connection with any such requirements
imposed upon any of them or any of their Subsidiaries in connection with the
Merger. Syntroleum and SLH will, and will cause its Subsidiaries to, take all
actions necessary to obtain (and will cooperate with each other in obtaining)
any consent, acquiescence, authorization, order or approval of, or any exemption
or nonopposition by, any Governmental Entity, court or other person or entity
required to be obtained or made by Syntroleum, SLH or any of their Subsidiaries
in connection with the Merger or the taking of any action contemplated thereby
or by this Agreement.
5.7 AGREEMENTS OF OTHERS. Prior to the Effective Time, Syntroleum shall
cause to be prepared and delivered to SLH a list identifying all persons who, at
the time of Syntroleum Stockholder Meeting may be deemed to be "affiliates" of
Syntroleum as that term is used in paragraphs (c) and (d) of Rule 145 under the
Securities Act (the "Affiliates"). Syntroleum shall use its commercially
reasonable efforts to cause each person who is identified as an Affiliate in
such list to deliver to SLH, at or prior to the Effective Time, a written
agreement, in a form mutually agreeable to Syntroleum and SLH whereby each such
person acknowledges that such person is subject to the provisions of Rule 145(d)
promulgated under the Securities Act.
5.8 LISTING. SLH shall use its commercially reasonable efforts to cause
the shares of SLH Common Stock to be issued in the Merger, the shares of SLH
Common Stock issuable upon exercise of Syntroleum Stock Options and issuable
under Syntroleum Stock Option Plans to be approved for trading on the Nasdaq
Stock Market, subject to official notice of issuance, prior to the Closing Date.
5.9 BOARD OF DIRECTORS AND OFFICERS. SLH shall take all necessary action
so that as of the Effective Time the directors and officers of SLH shall only be
those individuals identified as directors and officers, on Exhibit B hereto,
except to the extent any such individual is unwilling or unable to serve in such
34
<PAGE>
capacity. If prior to the Effective Time an individual identified on Exhibit B
hereto as a director or officer is unwilling or unable to serve in such
capacity, then unless such individual is Mr. P. Anthony Jacobs or Mr. James R.
Seward the directors of SLH specified on Exhibit B that are willing and able to
serve shall fill any vacancies promptly after the Effective Time. If prior to
the Effective Time or thereafter at anytime prior to the 2001 Annual Meeting of
Stockholders of SLH either Mr. P. Anthony Jacobs or Mr. James R. Seward is
unwilling or unable to serve as a director of SLH, then either Mr. Jacobs or Mr.
Seward (whichever continues to be willing and able to serve as a director of
SLH) shall be entitled to recommend to the Board of Directors of SLH an
individual to fill the vacancy and SLH shall support such recommendation.
5.10 STOCK OPTIONS; RESERVATION AND REGISTRATION OF SHARES. (a) At the
Effective Time, each outstanding option to purchase Syntroleum Common Stock and
any stock appreciation rights related thereto that have been granted pursuant to
Syntroleum Stock Option Plans and the Consultant Option (a "Syntroleum Stock
Option"), whether vested or unvested, shall be assumed by SLH. Each such option
shall be deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such Syntroleum Stock Option, a number of
shares of SLH Common Stock equal to the number of shares of Syntroleum Common
Stock purchasable pursuant to such Syntroleum Stock Option multiplied by the
Exchange Ratio, at a price per share of SLH Common Stock equal to the per- share
exercise price for the shares of Syntroleum Common Stock purchasable pursuant to
such Syntroleum Stock Option divided by the Exchange Ratio; PROVIDED, HOWEVER,
that in the case of any option to which Section 421 of the Code applies by
reason of its qualification under any of Sections 422-424 of the Code, the
option price, the number of shares purchasable pursuant to such option and the
terms and conditions of exercise of such option shall be determined in order to
comply with Section 424(a) of the Code; and PROVIDED FURTHER, that the number of
shares of SLH Common Stock that may be purchased upon exercise of such
Syntroleum Stock Option shall not include any fractional share and, upon
exercise of such Syntroleum Stock Option, a cash payment shall be made for any
fractional share based upon the closing price of a share of SLH Common Stock on
the Nasdaq Stock Market or, if then traded on an exchange, such exchange, on the
last trading day of the calendar month immediately preceding the date of
exercise.
(c) SLH shall take all corporate action necessary to reserve for issuance a
sufficient number of shares of SLH Common Stock for delivery upon exercise of
Syntroleum Stock Options. As soon as practicable after the Effective Time, SLH
shall file with the SEC a registration statement on Form S-8 (or any successor
form) or another appropriate form with respect to the shares of SLH Common Stock
subject to Syntroleum Stock Options and shall use its efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as Syntroleum Stock Options remain outstanding.
5.11 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. (a) From and
after the Effective Time, the Surviving Corporation shall indemnify, defend and
hold harmless each person who is now, or has been at any time prior to the date
hereof or who becomes prior to the Effective Time, an officer or director of the
SLH or Syntroleum or any of their Subsidiaries or an employee of the SLH or
Syntroleum or any of their Subsidiaries who acts as a fiduciary under any of the
SLH Benefit Programs, the SLH Plans, Syntroleum Benefit Programs or Syntroleum
Plans (the "Indemnified Parties") against all losses, claims, damages, costs,
expenses (including attorneys' fees), liabilities or judgments or amounts that
are paid in settlement with the approval of the indemnifying party (which
approval shall not be unreasonably withheld) of or in connection with any
threatened or actual claim, action, suit, proceeding or investigation based in
whole or in part on or arising in whole or in part out of the fact that such
person is or was a director, officer, or such employee of the SLH or Syntroleum
or any of their Subsidiaries whether pertaining to any matter existing or
occurring at or prior to the Effective Time and whether asserted or claimed
prior to, or at or after, the Effective Time ("Indemnified Liabilities"),
including all Indemnified Liabilities based in whole or in part on, or arising
in whole or in part out of, or pertaining to this Agreement or the transactions
contemplated hereby, in each case to the fullest extent permitted under
applicable law (and the Surviving Corporation
35
<PAGE>
will pay expenses in advance of the final disposition of any such action or
proceedings to each Indemnified Party to the fullest extent permitted by law).
Without limiting the foregoing, in the event any such claim, action, suit,
proceeding or investigation is brought against any Indemnified Parties (whether
arising before or after the Effective Time), (i) the Indemnified Parties may
retain counsel satisfactory to them and the Surviving Corporation, and the
Surviving Corporation shall pay all fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received; and (ii) the
Surviving Corporation will use all commercially reasonable efforts to assist in
the vigorous defense of any such matter, provided that the Surviving Corporation
shall not be liable for any settlement effected without its written consent,
which consent, however, shall not be unreasonably withheld. Any Indemnified
Party wishing to claim indemnification under this Section 5.11, upon learning of
any such claim, action, suit, proceeding or investigation, shall notify the
Surviving Corporation, but the failure so to notify shall not relieve a party
from any liability that it may have under this Section 5.11, except to the
extent such failure materially prejudices such party. The Indemnified Parties as
a group may retain only one law firm to represent them with respect to each such
matter unless there is, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of any two or more
Indemnified Parties. Syntroleum and SLH agree that all rights to
indemnification, including provisions relating to advances of expenses incurred
in defense of any action or suit, existing in favor of the Indemnified Parties
(including in the Articles of Incorporation or Bylaws or in the indemnification
agreements previously provided by SLH to Syntroleum) with respect to matters
occurring through the Effective Time, shall survive the Merger and shall
continue in full force and effect for a period of six years from the Effective
Time; PROVIDED, HOWEVER, that all rights to indemnification in respect of any
Indemnified Liabilities asserted or made within such period shall continue until
the disposition of such Indemnified Liabilities.
(b) After the Effective Time SLH shall cause to be maintained in effect the
current policies of directors' and officers' liability insurance maintained by
SLH and Syntroleum and its Subsidiaries or other policies of comparable coverage
and amounts with respect to matters arising before the Effective Time covering
Indemnified Parties who are directors or officers of SLH and who cease to be
employed as a director or officer of the SLH within three years after the
Effective Time, such that if a claim is made against any such Indemnified Person
during the six years following the Effective Time with respect to occurrences
arising prior to the Effective Time, the Indemnified Person would be covered as
if (a) the Indemnified Person has not ceased to be so employed and (b) such
insurance was still in effect.
5.12 PUBLIC ANNOUNCEMENTS. SLH and Syntroleum will consult with each other
before issuing any press release or otherwise making any public statements with
respect to the transactions contemplated by this Agreement, and shall not issue
any such press release or make any such public statement prior to such
consultation, except as may be required by applicable law or by obligations
pursuant to any listing agreement with any national securities exchange or
transaction reporting system.
5.13 OTHER ACTIONS. Except as contemplated by this Agreement, neither SLH
nor Syntroleum shall, and shall not permit any of its Subsidiaries to, take or
agree or commit to take any action that is reasonably likely to result in any of
its respective representations or warranties hereunder being untrue in any
material respect or in any of the conditions to the Merger set forth in Article
VI not being satisfied. Upon the terms and subject to the conditions set forth
in this Agreement, each of the parties hereto agrees to use its commercially
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable, to consummate and make effective, in
the most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement.
5.14 ADVICE OF CHANGES; SEC FILINGS. SLH and Syntroleum shall confer on a
regular basis with each other, report on operational matters and promptly advise
each other orally and in writing of any change or event having, or which,
insofar as can reasonably be foreseen, could have, a SLH Material Adverse Effect
or Syntroleum Material Adverse Effect. Syntroleum and SLH shall promptly provide
each other (or their
36
<PAGE>
respective counsel) copies of all filings made by such party with the SEC or any
other state or federal Governmental Entity in connection with this Agreement and
the transactions contemplated hereby.
5.15 REORGANIZATION. It is the intention of SLH and Syntroleum that the
Merger will qualify as a reorganization described in Section 368(a) of the Code
(and any comparable provisions of applicable state or local law). Neither SLH
nor Syntroleum (nor any of their respective Subsidiaries) will take or omit to
take any action (whether before, on or after the Closing Date) that would cause
the Merger not to be so treated. The parties will characterize the Merger as
such a reorganization for purposes of all Returns and other filings.
5.16 TERMINATION OF CERTAIN SLH EMPLOYEES. Prior to the Closing Date, SLH
shall terminate the employment of all of its employees other than those
identified on Schedule 5.16 of the SLH Letter.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and the Merger shall have been
approved and adopted by the affirmative vote of the holders of a majority of the
outstanding shares of Syntroleum Common Stock entitled to vote thereon at
Syntroleum Stockholder Meeting and shall have been approved and adopted by the
holders of a majority of the outstanding shares of SLH Common Stock entitled to
vote thereon at the SLH Stockholder Meeting.
(b) LISTING. The shares of SLH Common Stock issuable to Syntroleum
stockholders pursuant to this Agreement and such other shares of SLH Common
Stock required to be reserved for issuance in connection with the Merger shall
have been authorized for trading on the Nasdaq Stock Market, upon official
notice of issuance.
(c) OTHER APPROVALS. All filings required to be made prior to the
Effective Time with, and all consents, approvals, permits and authorizations
required to be obtained prior to the Effective Time from any Governmental Entity
in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by Syntroleum and SLH shall
have been made or obtained (as the case may be), except where the failure to
obtain such consents, approvals, permits, and authorizations would not be
reasonably likely to result in a material adverse effect to the business,
operations, assets, condition (financial or otherwise) or results of operation
of SLH and its Subsidiaries taken as a whole (assuming the Merger has taken
place) or to materially adversely affect the consummation of the Merger.
(d) S-4. The S-4 shall have become effective under the Securities Act and
shall not be the subject of any stop order or proceedings seeking a stop order.
(e) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an "Injunction")
preventing the consummation of the Merger shall be in effect.
(f) DISSENTERS. The aggregate number of shares held by holders of
Syntroleum Common Stock who have made demands for appraisal in accordance with
the Oklahoma Act shall not exceed 2.5% of the shares of Syntroleum Common Stock
outstanding and entitled to vote at Syntroleum Stockholders Meeting.
(g) ACCOUNTING TREATMENT. The historical or pro forma financial statements
included in the S-4 that is declared effective by the SEC and the definitive
preliminary proxy materials that are distributed to
37
<PAGE>
stockholders of the parties shall not reflect fundamental and material variances
from those initially filed (which shall not be materially inconsistent with the
accounting treatment currently contemplated by the parties) that are not
satisfactory to the Board of Directors of both SLH and Syntroleum.
(h) TAX OPINION. Syntroleum and SLH shall have received an opinion,
reasonably satisfactory to both Syntroleum and SLH, dated on or about the date
that is two days prior to the date the Proxy Statement is first mailed to
stockholders of the SLH, of Baker & Botts, L.L.P., counsel to Syntroleum, to the
effect that, if the Merger is consummated in accordance with the terms of this
Agreement, the Merger will be a reorganization within the meaning of Section
368(a) of the Code, SLH and Syntroleum will each be a party to that
reorganization within the meaning of Section 368(b) of the Code and no gain or
loss will be recognized for United States federal income tax purposes by SLH,
Syntroleum or a stockholder of Syntroleum as a result of the Merger or upon the
conversion of shares of Syntroleum Common Stock into shares of SLH Common Stock
except with respect to cash, if any, which is received in lieu of fractional
shares of SLH Common Stock. In rendering such opinion, such counsel may rely
upon representations of Syntroleum and SLH substantially in the form of Exhibit
C attached hereto.
6.2 CONDITIONS OF OBLIGATIONS OF SLH. The obligations of SLH to effect the
Merger are subject to the satisfaction of the following conditions, any or all
of which may be waived in whole or in part by SLH.
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of Syntroleum set forth in this Agreement shall be true and correct
as of the date of this Agreement and (except to the extent such representations
and warranties speak as of an earlier date) as of the Closing Date as though
made on and as of the Closing Date except for such failures to be so true and
correct (without giving effect to the individual materiality thresholds
otherwise contained in Section 3.1 hereof) which would not, individually or in
the aggregate, reasonably be expected to have a Syntroleum Material Adverse
Effect or which were provided by, or in accordance with, this Agreement.
(b) PERFORMANCE OF OBLIGATIONS OF SYNTROLEUM. Syntroleum shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date.
(c) NO VESTING OF SYNTROLEUM STOCK OPTIONS. Syntroleum Stock Options shall
not vest as a result of the Merger and will maintain the same vesting period as
if the Merger had not occurred.
(d) FAIRNESS OPINION. The opinion described in Section 3.2(q) shall not
have been withdrawn.
(e) OFFICERS' CERTIFICATE. SLH shall have received (i) a certificate dated
as of the Closing Date and signed on behalf of Syntroleum by its chief executive
officer or president and by its chief financial officer, to the effect that the
conditions set forth in Section 6.1 hereof as they relate to Syntroleum and in
Section 6.2(a) and (b) have been satisfied and (ii) certified copies of
resolutions duly adopted by Syntroleum's Board of Directors and stockholders
evidencing the taking of all corporate action necessary to authorize the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, all in such reasonable detail as SLH and
its counsel shall request.
(f) LETTERS FROM AFFILIATES. SLH shall have received from each person
named in the letter referred to in Section 5.7 an executed copy of an agreement
as provided in Section 5.7.
(g) OPINION OF COUNSEL TO SYNTROLEUM. Syntroleum shall deliver an opinion
from counsel to Syntroleum, in form and substance reasonably satisfactory to
SLH, covering the matters set forth on Exhibit D hereto.
38
<PAGE>
6.3 CONDITIONS OF OBLIGATIONS OF SYNTROLEUM. The obligation of Syntroleum
to effect the Merger is subject to the satisfaction of the following conditions,
any or all of which may be waived in whole or in part by Syntroleum:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of SLH set forth in this Agreement shall be true and correct as of
the date of this Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date as though made on
and as of the Closing Date except for such failures to be so true and correct
which (without giving effect to the individual materiality thresholds otherwise
contained in Section 3.2 hereof) would not, individually or in the aggregate,
reasonably be expected to have a SLH Material Adverse Effect or which were
provided by or in accordance with this Agreement.
(b) PERFORMANCE OF OBLIGATIONS OF SLH. SLH shall have performed in all
material respects all obligations required to be performed by them under this
Agreement at or prior to the Closing Date.
(c) FAIRNESS OPINION. The opinion described in Section 3.1(q) shall not
have been withdrawn.
(d) OFFICERS' CERTIFICATE. Syntroleum shall have received (i) a
certificate dated as of the Closing Date and signed on behalf of SLH by its
chief executive officer and by its chief financial officer, to the effect that
the conditions set forth in Section 6.1 hereof as they relate to SLH and in
Section 6.3(a) and (b) have been satisfied and (ii) certified copies of
resolutions duly adopted by SLH's Board of Directors and stockholders evidencing
the taking of all corporate action necessary to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby, all in such reasonable detail as Syntroleum
and its counsel shall request.
(e) BOARD OF DIRECTORS AND OFFICERS AT THE EFFECTIVE TIME. As of the
closing date, SLH shall have delivered to Syntroleum irrevocable letters of
resignation effective as of the Effective Time from all of the current directors
and officers of SLH other than individuals identified as directors on Exhibit B
hereto. The delivery of such resignations by officers of SLH shall be deemed to
be a termination without cause under their existing employment agreements.
(f) OPINION OF COUNSEL TO SLH. SLH shall deliver an opinion from counsel
to SLH in form and substance reasonably satisfactory to Syntroleum, covering the
matters set forth on Exhibit E hereto.
(g) CONSENTS OF OPTIONEES. All holders of SLH Stock Options shall have
delivered written consents to the adjustments set forth in Section 2.1(b)
hereof.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 TERMINATION. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval of the matters presented in connection with the Merger by the
stockholders of Syntroleum or SLH:
(a) by mutual written consent of Syntroleum and SLH, or by mutual action of
their respective Boards of Directors;
(b) by either Syntroleum or SLH if (i) the Merger shall not have been
consummated by September 30, 1998 (provided that the right to terminate this
Agreement under this clause (i) shall not be available to any party whose breach
of any representation or warranty or failure to fulfill any covenant or
agreement under this Agreement has been the cause of or resulted in the failure
of the Merger to occur on or before such date); (ii) any court of competent
jurisdiction, or some other governmental body or regulatory authority shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable; (iii)
the stockholders of the SLH shall not approve this
39
<PAGE>
Agreement and the Merger at the SLH Stockholder Meeting or at any adjournment
thereof; (iv) the stockholders of Syntroleum shall not approve this Agreement
and the Merger at Syntroleum Stockholders Meeting or at any adjournment thereof;
(v) in the exercise of its good faith judgment as to its fiduciary duties to its
stockholders imposed by law, as advised by outside counsel, the Board of
Directors of SLH determines that such termination is required by reason of a SLH
Acquisition Proposal having been made, provided that SLH may not terminate this
Agreement pursuant to this clause (v) unless five business days shall have
elapsed after delivery to Syntroleum of a written notification of SLH's
intention to terminate this Agreement and during such five business-day period
SLH shall have fully cooperated with Syntroleum; including, without limitation,
informing Syntroleum of the terms and conditions of such SLH Acquisition
Proposal and the identity of the person or group making such SLH Acquisition
Proposal, with the intent of enabling Syntroleum to agree to a modification of
the terms and conditions of this Agreement so that the transactions contemplated
hereby may be effected; or (vi) in the exercise of its good faith judgment as to
its fiduciary duties to its stockholders imposed by law, as advised by outside
counsel, the Board of Directors of Syntroleum determines that such termination
is required by reason of a Syntroleum Acquisition Proposal having been made,
provided that Syntroleum may not terminate this Agreement pursuant to this
clause (vi) unless five business days shall have elapsed after delivery to SLH
of a written notification of Syntroleum's intention to terminate this Agreement
and during such five business-day period Syntroleum shall have fully cooperated
with SLH; including, without limitation, informing SLH of the terms and
conditions of such Syntroleum Acquisition Proposal and the identity of the
person or group making such Syntroleum Acquisition Proposal, with the intent of
enabling SLH to agree to a modification of the terms and conditions of this
Agreement so that the transactions contemplated hereby may be effected;
(c) by SLH if (i) Syntroleum shall have failed to comply in any material
respect with any of the covenants or agreements contained in this Agreement to
be complied with or performed by Syntroleum at or prior to such date of
termination (provided such breach has not been cured within 30 days following
receipt by Syntroleum of written notice from SLH of such breach and is existing
at the time of termination of this Agreement); (ii) any representation or
warranty of Syntroleum contained in this Agreement shall not be true in all
material respects when made (provided such breach has not been cured within 30
days following receipt by Syntroleum of written notice from SLH of such breach
and is existing at the time of termination of this Agreement) or on and as of
the Effective Time as if made on and as of the Effective Time (except to the
extent it relates to a particular date), except for such failures to be so true
and correct (without giving effect to the individual materiality thresholds
otherwise contained in Section 3.1 hereof) which would not individually or in
the aggregate, reasonably be expected to have a Syntroleum Material Adverse
Effect or which were provided by, or in accordance with, this Agreement or (iii)
the Board of Directors of Syntroleum withdraws, modifies or changes its
recommendation of this Agreement or the Merger in a manner adverse to SLH or
shall have resolved to do any of the foregoing; or
(d) by Syntroleum if (i) SLH shall have failed to comply in any material
respect with any of the covenants or agreements contained in this Agreement to
be complied with or performed by it at or prior to such date of termination
(provided such breach has not been cured within 30 days following receipt by SLH
of written notice from Syntroleum of such breach and is existing at the time of
termination of this Agreement); (ii) any representation or warranty of SLH
contained in this Agreement shall not be true in all material respects when made
(provided such breach has not been cured within 30 days following receipt by SLH
of written notice from Syntroleum of such breach and is existing at the time of
termination of this Agreement) or on and as of the Effective Time as if made on
and as of the Effective Time (except to the extent it relates to a particular
date), except for such failures to be so true and correct (without giving effect
to the individual materiality thresholds otherwise contained in Section 3.2
hereof) which would not individually or in the aggregate, reasonably be expected
to have a SLH Material Adverse Effect or which were provided by, or in
accordance with, this Agreement or (iii) the Board of Directors of SLH
withdraws, modifies or changes its recommendation of this Agreement or the
Merger in a manner adverse to Syntroleum or shall have resolved to do any of the
foregoing.
40
<PAGE>
7.2 EFFECT OF TERMINATION. (a) In the event of termination of this
Agreement by either Syntroleum or SLH as provided in Section 7.1, this Agreement
shall forthwith become void and there shall be no liability or obligation on the
part of SLH or Syntroleum except (i) with respect to this Section 7.2, the
second and third sentences of Section 5.4 and Section 8.1, and (ii) and such
termination shall not relieve any party hereto for any intentional breach prior
to such termination by a party hereto of any of its representations or
warranties or of any of its covenants or agreements set forth in this Agreement.
(b) If this Agreement is terminated by SLH pursuant to Section 7.1 (c)(i) or
(ii), and if SLH is not in material breach of this Agreement at the time of such
termination, then Syntroleum shall pay the reasonable out-of-pocket expenses
incurred by SLH in connection with preparing for, entering into and carrying out
this Agreement and the consummation of the transactions contemplated hereby. If
this Agreement is terminated by Syntroleum pursuant to Section 7.1(d)(i) or (ii)
and if Syntroleum is not in material breach of this Agreement at the time of
such termination, then SLH shall pay the reasonable out-of-pocket expenses
incurred by Syntroleum in connection with preparing for, entering into and
carrying out this Agreement and the consummation of the transactions
contemplated hereby.
7.3 AMENDMENT. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the stockholders of Syntroleum or SLH, but, after any such approval, no
amendment shall be made which by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
7.4 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto;
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto; and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 PAYMENT OF EXPENSES. Except as provided in Section 7.2, each party
hereto shall pay its own expenses incident to preparing for, entering into and
carrying out this Agreement and the consummation of the transactions
contemplated hereby, whether or not the Merger shall be consummated.
8.2 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None of the
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective Time
and any liability for breach or violation thereof shall terminate absolutely and
be of no further force and effect at and as of the Effective Time, except for
the agreements contained in Article II, Sections 5.10 through 5.12 and Article
VIII, the agreements delivered pursuant to Section 5.7 and the representations,
covenants and agreements contained in Sections 3.1(u), 3.2(u) and 5.15. The
Confidentiality Agreements shall survive the execution and delivery of this
Agreement, and the provisions of the Confidentiality Agreements shall apply to
all information and material delivered hereunder.
8.3 NOTICES. Any notice or communication required or permitted hereunder
shall be in writing and either delivered personally, telegraphed or telecopied
or sent by certified or registered mail, postage prepaid, and shall be deemed to
be given, dated and received when so delivered personally, telegraphed or
telecopied or, if mailed, five business days after the date of mailing to the
following address or telecopy number, or to such other address or addresses as
such person may subsequently designate by notice given hereunder:
41
<PAGE>
(a) if to SLH:
James R. Seward
SLH Corporation
5000 West 95th Street
Suite 260, P.O. Box 7568
Shawnee Mission, Kansas 66207
Phone: (913) 652-1000
Fax: (913) 652-1025
with a copy to:
Lathrop & Gage, L.C.
2345 Grand Blvd., Suite 250
Kansas City, Missouri 64108
Attention: John H. Calvert
Phone: (816) 460-5807
Fax: (816) 292-2001
and (b) if to Syntroleum, to:
Mark A. Agee
Syntroleum Corporation
Syntroleum Plaza
1350 South Boulder, Suite 1100
Tulsa, Oklahoma 74119-3295
Phone: (918) 592-7900
Fax: (918) 592-7979
with a copy to:
Eric Grimshaw
Syntroleum Corporation
Syntroleum Plaza
1350 South Boulder, Suite 1100
Tulsa, Oklahoma 74119-3295
Phone: (918) 592-7900
Fax: (918) 592-7979
and with a copy to:
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana
Houston, Texas 77002
Attention: R. Joel Swanson
Phone: (713) 229-1234
Fax: (713) 229-1522
8.4 INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents, glossary of defined terms and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the word "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." The phrase
"made available" in this Agreement shall mean that the information referred to
has been made
42
<PAGE>
available if requested by the party to whom such information is to be made
available. Unless the context otherwise requires, "or" is disjunctive but not
necessarily exclusive, and words in the singular include the plural and in the
plural include the singular. Any representations and warranties of Syntroleum
that are qualified by the phrase "to the knowledge of Syntroleum" or phrases
with similar wording shall be interpreted to refer to the actual knowledge of
the individuals set forth on Schedule 8.4 of Syntroleum Letter. Any
representations and warranties of SLH that are qualified by the phrase "to the
knowledge of SLH" or phrases with similar wording shall be interpreted to refer
to the actual knowledge of the individuals set forth on Schedule 8.4 of the SLH
Letter.
8.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.6 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
(together with the Confidentiality Agreements and any other documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereto and (b) except as provided
in Sections 3.1(u), 3.2(u), 5.7, 5.11 and 5.15, is not intended to confer upon
any person other than the parties hereto any rights or remedies hereunder.
8.7 GOVERNING LAW. Except to the extent that the laws of the State of
Oklahoma are mandatorily applicable to the Merger or the internal affairs of any
of the parties, this Agreement shall be governed and construed in accordance
with the laws of the State of Kansas, without giving effect to the principles of
conflicts of law thereof.
8.8 SEVERABILITY. Each party agrees that, should any court or other
competent authority hold any provision of this Agreement or part hereof to be
null, void or unenforceable, or order any party to take any action inconsistent
herewith or not to take an action consistent herewith or required hereby, the
validity, legality and enforceability of the remaining provisions and
obligations contained or set forth herein shall not in any way be affected or
impaired thereby, unless the foregoing inconsistent action or the failure to
take an action constitutes a material breach of this Agreement or makes the
Agreement impossible to perform in which case this Agreement shall terminate as
if the parties mutually agreed under Section 7.1(a).
8.9 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
43
<PAGE>
IN WITNESS WHEREOF, each party has caused this Agreement to be signed by its
respective officers thereunto duly authorized, all as of the date first written
above.
<TABLE>
<S> <C> <C>
SLH CORPORATION
By: /s/ JAMES R. SEWARD
------------------------------------------
Name: James R. Seward
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
SYNTROLEUM CORPORATION
By: /s/ KENNETH L. AGEE
------------------------------------------
Name: Kenneth L. Agee
Title: CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
</TABLE>
44
<PAGE>
March 30, 1998 APPENDIX B
Board of Directors
SLH Corporation
5000 West 95th Street
Suite 260
Shawnee Mission, Kansas 66207
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to SLH Corporation ("SLH") of the Exchange Ratio
(as herein defined) contemplated by the Agreement and Plan of Merger (the
"Merger Agreement") between SLH and Syntroleum Corporation ("Syntroleum") in
connection with the proposed merger (the "Merger") of with and into SLH. In the
Merger, each share of common stock, par value of $.001 per share, of Syntroleum
("Syntroleum Common Stock") issued and outstanding immediately prior to the
effective time of the Merger, subject to certain exceptions specified in the
Merger Agreement, will be converted into the right to receive a number of shares
of common stock, par value of $.01 per share, of SLH ("SLH Common Stock")
determined by dividing the Syntroleum Common Stock Market Value (as defined
herein) by the SLH Common Stock Market Value (as defined herein) (the "Exchange
Ratio"), together with the corresponding number of associated rights.
"Syntroleum Common Stock Market Value" means the quotient obtained by dividing
(i) the excess of (A) the product of (1) the SLH Common Stock Market Value
multiplied by (2) 10,527,683 (which number reflects the sum of the number of
shares of SLH Common Stock issued and outstanding as of March 9, 1998 plus the
number of shares of SLH Common Stock issuable pursuant to SLH Stock Options (as
defined in the Merger Agreement) which were vested as of March 9, 1998 plus
250,000 shares of SLH Common Stock (which reflects a portion of the number of
shares of SLH Common Stock issuable pursuant to SLH Stock Options which are not
vested as of March 9, 1998)) over (B) the total shareholders' equity of SLH
reflected in the unaudited financial statements of SLH as of March 31, 1998,
minus the book value reflected therein of the shares of Syntroleum Common Stock
held by SLH by (ii) 5,950,000 (which number reflects the number of shares of
Syntroleum Common Stock held by SLH as of March 9, 1998). "SLH Common Stock
Market Value" means the average closing price of a share of SLH Common Stock
during the five Trading Days (as defined in the Merger Agreement) ending on the
business day immediately preceding the date of the SLH Stockholder Meeting (as
defined in the Merger Agreement) at which such stockholders vote upon the Merger
Agreement and Merger or in case no such reported sale takes place on any such
Trading Day the average of the reported closing bid and asked prices of a share
of SLH Common Stock on such Trading Day, in either case on the Nasdaq National
Market, or if the shares of SLH Common Stock are not quoted on such Nasdaq
National Market on such Trading Day, the average of the closing bid and asked
prices of a share of SLH Common Stock in the over-the-counter market on such
Trading Day as furnished by any New York Stock Exchange member firm mutually
selected by SLH and Syntroleum, or if such closing bid and asked prices are not
made available by any such New York Stock Exchange member firm on such Trading
Day, the market value of a share of SLH Common Stock as mutually determined by
SLH and Syntroleum. We understand that the Merger is intended to qualify as a
tax-free reorganization under the Internal Revenue Code of 1986, as amended.
In arriving at the opinion set forth below, we have, among other things: (i)
reviewed a draft of the Merger Agreement in the form provided to us and have
assumed that the final form of such agreement will not vary from such draft in
any regard that is material to our analysis; (ii) reviewed certain publicly
available business and financial information that we deemed relevant relating to
SLH and Syntroleum and the industries in which they operate (we note, however,
that Syntroleum does not file informational reports with the Securities and
Exchange Commission); (iii) reviewed and analyzed certain financial forecasts
and
B-1
<PAGE>
other non-public financial and operating data concerning the business and
operations of SLH and Syntroleum that were provided to or reviewed for us by the
managements of SLH and Syntroleum; (iv) discussed with members of SLH's and
Syntroleum's managements SLH's and Syntroleum's past and current operations,
historical financial statements, financial condition and future prospects,
before and after giving effect to the Merger, including potential benefits of
the Merger to the stockholders of SLH; (v) reviewed and analyzed certain
publicly available and other information concerning the trading of, and the
trading market for, SLH Common Stock; and (vi) considered such other
information, financial studies, analyses, investigations and financial,
economic, market and trading criteria as we deemed relevant to our inquiry. We
have also discussed the foregoing with certain officers, employees and advisors
of SLH and Syntroleum.
We have assumed and relied upon, without assuming any responsibility for
verification, the accuracy and completeness of all of the financial and other
information provided to, discussed with, or reviewed by or for us, or publicly
available, for purposes of this opinion. We have not assumed any responsibility
for making or obtaining any independent evaluations or appraisals of the assets
or liabilities of SLH or Syntroleum nor have we assumed any responsibility for
conducting or conducted a physical inspection of the properties and facilities
of SLH or Syntroleum. Furthermore, we have not assumed any responsibility for
independently verifying nor have we independently verified Syntroleum's
technology. We have been informed by the managements of SLH and Syntroleum that
the financial forecast and projection information provided to us by the
managements of SLH and Syntroleum have been reasonably determined on bases
reflecting the best currently available estimates and judgments of the
managements of SLH and Syntroleum as to the future financial performance of SLH
and Syntroleum. We express no view as to such projections or the information or
the assumptions on which they were based. We have relied as to all legal matters
with respect to the Merger Agreement and the transactions contemplated thereby
on the advice of counsel to SLH.
For purposes of rendering our opinion we have assumed, in all respects
material to our analysis, that the representations and warranties of each party
contained in the Merger Agreement are true and correct, that each party will
perform all of the covenants and agreements required to be performed by it under
the Merger Agreement and that all conditions to the consummation of the Merger
will be satisfied without waiver thereof. We have also assumed that all material
governmental, regulatory or other consents and approvals will be obtained and
that in the course of obtaining any necessary governmental, regulatory or other
consents and approvals, or any amendments, modifications or waivers to any
documents to which either SLH or Syntroleum is a party, no restrictions will be
imposed or amendments, modifications or waivers made that would have any
material adverse effect on the contemplated benefits to SLH of the Merger.
Our opinion necessarily is based on market, economic and other conditions as
they exist and can be evaluated on the date hereof, and we assume no
responsibility to update or revise our opinion based upon circumstances or
events occurring after the date hereof. Our opinion does not imply any
conclusion as to the likely trading range for SLH Common Stock following the
consummation of the Merger, which may vary depending upon, among other factors,
changes in interest rates, dividend rates, market conditions, general economic
conditions and other factors that generally influence the price of securities.
Our opinion is limited to the fairness, from a financial point of view, to SLH
of the Exchange Ratio in connection with the Merger and does not constitute a
recommendation concerning how stockholders should vote with respect to the
transactions contemplated by the Merger Agreement. In addition, we express no
opinion as to the merits of the underlying decision by SLH to effect the Merger.
As you are aware, we have been retained by SLH to render an opinion to the
Board of Directors of SLH as to the fairness, from a financial point of view, to
SLH of the Exchange Ratio and will receive a fee from SLH for our services,
including for rendering this opinion. In addition, SLH has agreed to indemnify
us for certain liabilities arising out of our engagement. We, in the ordinary
course of business, have, from time to time, provided, and in the future may
continue to provide, investment banking and other related
B-2
<PAGE>
services to SLH. In the ordinary course of business, we or our affiliates may
trade in the equity securities of SLH for our own accounts and for the accounts
of our customers and, accordingly, may at any time hold a long or short position
in such securities. In addition, we and our affiliates (including Travelers
Group Inc. and its affiliates) may maintain business relationships with SLH
and/or Syntroleum.
Based upon and subject to the foregoing, we are of the opinion, as of the
date hereof, that the Exchange Ratio is fair, from a financial point of view, to
SLH.
Very truly yours,
/s/ Salomon Smith Barney
SALOMON SMITH BARNEY
B-3
<PAGE>
APPENDIX C
March 30, 1998
The Board of Directors
Syntroleum Corporation
1350 South Boulder, Suite 1100
Tulsa, Oklahoma 74119
Attention: Randall M. Thompson
Chief Financial Officer
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of Syntroleum Corporation (the "Company") of the
consideration proposed to be paid to them in connection with the proposed merger
(the "Merger") of the Company with SLH Corporation (the "Buyer"). Pursuant to
the Agreement and Plan of Merger, dated as of March 30, 1998 (the "Agreement"),
by and between the Company and the Buyer, the Company will be merged with and
into the Buyer and each share of common stock, par value $0.001 per share, of
the Company issued and outstanding immediately prior to the effective time of
the Merger (other than dissenting shares) shall be converted into a number of
shares of common stock, par value $0.01 per share, of the Buyer pursuant to a
formula contained in the Agreement.
In arriving at our opinion, we have reviewed (i) the Agreement; (ii) certain
publicly available information concerning the business of the Buyer; (iii)
current and historical market prices of the common stock of the Buyer; (iv) the
audited financial statements of the Company and the Buyer for the fiscal year
ended December 31, 1997, and the unaudited financial statements of the Company
and the Buyer for the period ended February 28, 1998; and (v) certain internal
financial analyses and forecasts prepared by the Company and the Buyer and their
respective managements.
In addition, we have held discussions with certain members of the management
of the Company and the Buyer with respect to certain aspects of the Merger, the
past and current business operations of the Company and the Buyer, the financial
condition and future prospects and operations of the Company and the Buyer, the
effects of the Merger on the financial condition and future prospects of the
Company and the Buyer, and certain other matters we believed necessary or
appropriate to our inquiry. We have visited certain representative facilities of
the Company and the Buyer, and reviewed such other financial studies and
analyses and considered such other information as we deemed appropriate for the
purposes of this opinion.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the Company and the Buyer or otherwise
reviewed by us, and we have not assumed any responsibility or liability
therefor. We have not conducted any valuation or appraisal of any assets or
liabilities, nor have any such valuations or appraisals been provided to us. In
relying on financial analyses and forecasts provided to us, we have assumed that
they have been reasonably prepared based on assumptions reflecting the best
currently available estimates and judgments by management as to the expected
future results of operations and financial condition of the Company and the
Buyer to which such analyses or forecasts relate. We have also assumed that the
Merger will have the tax consequences described in discussions with, and
materials furnished to us by, representatives of the Company, and that the other
transactions contemplated by the Agreement will be consummated as described in
the Agreement. We have relied as to all legal matters relevant to rendering our
opinion upon the advice of counsel.
C-1
<PAGE>
Our opinion is necessarily based on economic, market and other conditions as
in effect on, and the information made available to us as of, the date hereof.
It should be understood that subsequent developments may affect this opinion and
that we do not have any obligation to update, revise, or reaffirm this opinion.
We are expressing no opinion herein as to the price at which the Buyer's common
stock will trade at any future time.
In addition, we were not requested to and did not provide advice concerning
the structure, the specific amount of the consideration, or any other aspects of
the Merger, or to provide services other than the delivery of this opinion. We
were not authorized to and did not solicit any expressions of interest from any
other parties with respect to the sale of all or any part of the Company or any
other alternative transaction. We did not participate in negotiations with
respect to the terms of the Merger and related transactions. Consequently, we
have assumed that such terms are the most beneficial terms from the Company's
perspective that could under the circumstances be negotiated among the parties
to such transactions, and no opinion is expressed whether any alternative
transaction might produce consideration for the Company's stockholders in an
amount in excess of that contemplated in the Merger.
We will receive a fee from the Company for the delivery of this opinion. In
addition, J.P. Morgan has participated in discussions regarding the capital
structure of the Company and capital raising alternatives. In the ordinary
course of their businesses, our affiliates may actively trade the debt and
equity securities of the Buyer for their own account or for the accounts of
customers and, accordingly, they may at any time hold long or short positions in
such securities.
On the basis of and subject to the foregoing, it is our opinion as of the
date hereof that the consideration to be paid to the Company's stockholders in
the proposed Merger is fair, from a financial point of view, to such
stockholders.
This letter is provided to the Board of Directors of the Company in
connection with and for the purposes of its evaluation of the Merger. This
opinion does not constitute a recommendation to any stockholder of the Company
as to how such stockholder should vote with respect to the Merger. This opinion
may be reproduced in full in any proxy or information statement mailed to
stockholders of the Company.
Very truly yours,
/s/ J.P. Morgan Securities Inc.
J.P. MORGAN SECURITIES INC.
C-2
<PAGE>
APPENDIX D
SECTION 1092 OF THE OKLAHOMA GENERAL CORPORATION ACT
1092 APPRAISAL RIGHTS.--A. Any shareholder of a corporation of this state who
holds shares of stock on the date of the making of a demand pursuant to the
provisions of subsection D of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with the provisions of subsection D of
this section and who has neither voted in favor of the merger or consolidation
nor consented thereto in writing pursuant to the provisions of Section 1073 of
this title shall be entitled to an appraisal by the district court of the fair
value of his shares of stock under the circumstances described in subsections B
and C of this section. As used in this section, the word "shareholder" means a
holder of record of stock in a stock corporation and also a member of record of
a non-stock corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest of a
member of a nonstock corporation. The provisions of this subsection shall be
effective only with respect to mergers or consolidations consummated pursuant to
an agreement of merger or consolidation entered into after November 1, 1988.
B.1. Except as otherwise provided for in this subsection, appraisal rights
shall be available for the shares of any class or series of stock of a
constituent corporation in a merger or consolidation OR OF THE ACQUIRED
CORPORATION IN A SHARE ACQUISITION, to be effected pursuant to the provisions of
Sections 1081, 1082, 1086, 1087, or 1091.1 of this title OR SECTION 12 OF THIS
ACT.
2.a. No appraisal rights under this section shall be available for the
shares of any class or series of stock which, at the record date fixed to
determine the shareholders entitled to receive notice of and to vote at the
meeting of shareholders to act upon the agreement of merger or
consolidation, were either:
(1) listed on a national securities exchange; or
(2) held of record by more than two thousand shareholders.
b. In addition, no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger
did not require for its approval the vote of the shareholders of the
surviving corporation as provided for in subsection F of Section 1081 of
this title.
3. Notwithstanding the provisions of paragraph 2 of this subsection,
appraisal rights provided for in this section shall be available for the
shares of any class or series of stock of a constituent corporation if the
holders thereof are required by the terms of an agreement of merger or
consolidation to the provisions of Sections 1081, 1082, 1086 or 1087 of this
title to accept for such stock anything except:
a. shares of stock of the corporation surviving or resulting from
such merger or consolidation; or
b. shares of stock of any corporation which at the effective date of
the merger or consolidation will be either listed on a national
securities exchange or held of record by more than two thousand
shareholders; or
c. cash in lieu of fractional shares of the corporations described in
subparagraphs a and b of this paragraph; or
d. any combination of the shares of stock and cash in lieu of
fractional shares described in subparagraphs a, b and c of this
paragraph.
D-1
<PAGE>
4. In the event all of the stock of a subsidiary Oklahoma corporation
party to a merger effected pursuant to the provisions of Section 1083 of
this title is not owned by the parent corporation immediately prior to the
merger, appraisal rights shall be available for the shares of the subsidiary
Oklahoma corporation.
C. Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections D and E
of this section, shall apply as nearly as is practicable.
D. Appraisal rights shall be perfected as follows:
1. If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
shareholders, the corporation, not less than twenty (20) days prior to the
meeting, shall notify each of its shareholders entitled to such appraisal
rights that appraisal rights are available for any or all of the shares of
the constituent corporations, and shall include in such notice a copy of
this section. Each shareholder electing to demand the appraisal of the
shares of the shareholder shall deliver to the corporation, before the
taking of the vote on the merger or consolidation, a written demand for
appraisal of the shares of the shareholder. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the shareholder
and that the shareholder intends thereby to demand the appraisal of the
shares of the shareholder. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A shareholder electing to
take such action must do so by a separate written demand as herein provided.
Within ten (10) days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
shareholder of each constituent corporation who has complied with the
provisions of this subsection and has not voted in favor of or consented to
the merger or consolidation as of the date that the merger or consolidation
has become effective; or
2. If the merger or consolidation was approved pursuant to the
provisions of Section 1073 or 1083 of this title, the surviving or resulting
corporation, either before the effective date of the merger or consolidation
or within ten (10) days thereafter, shall notify each of the shareholders
entitled to appraisals rights of the effective date of the merger or
consolidation and that appraisal rights are available for any or all of the
shares of the constituent corporation, and shall include in such notice a
copy of this section. The notice shall be sent by certified or registered
mail, return receipt requested, addressed to the shareholder at the address
of the shareholder as it appears on the records of the corporation. Any
shareholder entitled to appraisal rights may, within twenty (20) days after
the date of mailing of the notice, demand in writing from the surviving or
resulting corporation the appraisal of the shares of the shareholder. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the shareholder and that the shareholder intends to demand the
appraisal of the shares of the shareholder.
E. Within one hundred twenty (120) days after the effective date of the
merger or consolidation, the surviving or resulting corporation or any
shareholder who has complied with the provisions of subsections A and D of this
section and who is otherwise entitled to appraisal rights, may file a petition
in district court demanding a determination of the value of the stock of all
such shareholders. Provided, however, at any time within sixty (60) days after
the effective date of the merger or consolidation, any shareholder shall have
the right to withdraw the demand of the shareholder for appraisal and to accept
the terms offered upon the merger or consolidation. Within one hundred twenty
(120) days after the effective date of the merger or consolidation, any
shareholder who has complied with the requirements of subsections A and D of
this section, upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the consolidation a statement
setting forth the aggregate number of shares not voted in
D-2
<PAGE>
favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the shareholder within ten (10) days
after the shareholder's written request for such a statement is received by the
surviving or resulting corporation or within ten (10) days after expiration of
the period for delivery of demands for appraisal pursuant to the provisions of
subsection D of this section, whichever is later.
F. Upon the filing of any such petition by a shareholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which, within
twenty (20) days after such service, shall file in the office of the court clerk
of the district court in which the petition was filed a duly verified list
containing the names and addresses of all shareholders who have demanded payment
for their shares and with whom agreements as to the value of their shares have
not been reached by the surviving or resulting corporation. If the petition
shall be filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The court clerk, if so ordered by the
court, shall give notice of the time and place fixed for the hearing of such
petition by registered or certified mail to the surviving or resulting
corporation and to the shareholders shown on the list of the addresses therein
stated. Such notice shall also be given by one or more publications at least one
(1) week before the day of the hearing, in a newspaper of general circulation
published in the City of Oklahoma, Oklahoma, or such publication as the court
deems advisable. The forms of the notices by mail and by publication shall be
approved by the court, and the costs thereof shall be borne by the surviving or
resulting corporation.
G. At the hearing on such petition, the court shall determine the
shareholders who have complied with the provisions of this section and who have
become entitled to appraisal rights. The court may require the shareholders who
have demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the court clerk for
notation thereon of the pendency of the appraisal proceedings; and if any
shareholder fails to comply with such direction, the court may dismiss the
proceedings as to such shareholder.
H. After determining the shareholders entitled to an appraisal, the court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
court shall take into account all relevant factors. In determining the fair rate
of interest, the court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any shareholder entitled to participate
in the appraisal proceeding, the court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the shareholder entitled to an appraisal. Any
shareholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to the provisions of subsection F of this section and who
has submitted the certificates of stock of the shareholder to the court clerk,
if such is required, may participate fully in all proceedings until it is
finally determined that the shareholder is not entitled to appraisal rights
pursuant to the provisions of this section.
I. The court shall direct the payment of the fair market value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the shareholders entitled thereto. Interest may be simple or
compound, as the court may direct. Payment shall be so made to each such
shareholder, in the case of holders of uncertificated stock immediately, and in
the case of holders of shares represented by certificates upon the surrender to
the corporation of the certificates representing such stock. The court's decree
may be enforced as other decrees in the district court may be enforced, whether
such surviving or resulting corporation be a corporation of this state or any
other state.
J. The costs of the proceeding may be determined by the court and taxed upon
the parties as the court deems equitable in the circumstances. Upon application
of a shareholder, the court may order all or a portion of the expenses incurred
by any shareholder in connection with the appraisal proceeding,
D-3
<PAGE>
including, without limitation, reasonable attorney's fees and the fees and
expenses of experts, to be charged pro rata against the value of all of the
shares entitled to an appraisal.
K. From and after the effective date of the merger or consolidation, no
shareholder who has demanded the appraisal rights of the shareholder as provided
for in subsection D of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the stock,
except dividends or other distributions payable to shareholders of record at a
date which is prior to the effective date of the merger or consolidation;
provided, however, that if no petition for an appraisal shall be filed within
the time provided for in subsection E of this section, or if such shareholder
shall deliver to the surviving or resulting corporation a written withdrawal of
the shareholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within sixty (60) days after the effective date of the
merger or consolidation as provided for in subsection E of this section or
thereafter with the written approval of the corporation, then the right of such
shareholder to an appraisal shall cease. Provided, however, no appraisal
proceeding in the district court shall be dismissed as to any shareholder
without the approval of the court, and such approval may be conditioned upon
such terms as the court deems just.
L. The shares of the surviving or resulting corporation into which the
shares of such objecting shareholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
328, L. '90, eff. 9-1-90.)
D-4
<PAGE>
APPENDIX E
GTG, INC.
1993 STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE
The GTG, Inc. 1993 Stock Option and Incentive Plan is designed to enable
qualified executive, managerial, supervisory and professional employees of the
Company to acquire or increase their ownership of the $1.00 par value common
stock of the Company on reasonable terms. The opportunity so provided is
intended to foster in participants a strong incentive to exert maximum effort
for the continued success and growth of the Company and the enhancement of
shareholder's interests, to aid in retaining individuals who exert such efforts
and to assist in attracting the best available individuals in the future.
2. DEFINITIONS
When used herein, the following terms shall have the meaning set forth
below:
2.1 "Award" means an Option, an SAR or a Restricted Stock Award.
2.2 "Board" means the Board of Directors of GTG, Inc.
2.3 "Code" means the Internal Revenue Code of 1986 as amended from time
to time.
2.4 "Committee" means the Compensation Committee of the Board as it is
constituted from time to time, or, if none exists at any point in
time, "Committee" shall mean the members of the Board who are not
eligible, and who have not at any time during the twelve-month
period prior to commencing service on the Board, been eligible, to
receive any Award under this Plan or under any other benefit plan
of the Company or any of its affiliates entitling the participants
therein to acquire stock, stock options or SARs of the Company or
any of its affiliates. Each Committee member shall be, at all
times, a "disinterested person" within the meaning of Rule 16b-3
under the Exchange Act or any successor rule of similar import.
2.5 "Company" means GTG, Inc.
2.6 "Director" means a member of the Board.
2.7 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.8 "Fair Market Value" means: (i) if the Company's shares are listed on
a national securities exchange or admitted to unlisted trading
privileges on such exchange or listed for trading on the NASDAQ
system, the last reported sale price of the Shares on such exchange
on the last business
<PAGE>
day prior to the date on which the value is to be determined, or if
no such sale is made on such day, the average closing bid and asked
prices for such day on such exchange; or (ii) if the Company's Shares
are not so listed or admitted to unlisted trading privileges, the
mean of the last reported bid and asked prices reported by the
National Quotation Bureau, Inc. on the last business day prior to the
date for which the value is to be determined; or (iii) if the
Company's Shares are not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, not less
than book value, determined in such reasonable manner as may be
prescibed by the Board, which determination shall be final and
binding upon the Grantee.
2.9 "Grantee" means a person to whom an Award is made.
2.10 "Incentive Stock Option" or "ISO" means an Option awarded under the
Plan which meets the terms and conditions established by Code Section
422A and applicable regulations thereunder for such an Option.
2.11 "Non-Qualified Stock Option" or "NQSO" means an Option awarded under
the Plan which by its terms and conditions is not an ISO.
2.12 "Option" means the right to purchase, at a price, for a term, under
conditions, and for cash or other considerations fixed by the
Committee in accordance with such restrictions as the Plan and the
Committee impose, a number of Shares specified by the Committee. An
Option can be either an ISO or NQSO or a combination thereof.
2.13 "Plan" means the Company's 1993 Stock Option and Incentive Plan.
2.14 "Restricted Stock Award" means the grant of a right to receive, at a
time or times fixed by the Committee in accordance with the Plan and
subject to such other limitations and restrictions as the Plan and
the Committee impose, the number of Shares specified by the
Committee.
2.15 "Right of First Refusal" means the right of the Company to repurchase
Shares awarded under the Plan at their then Fair Market Value prior
to such Shares being offered for sale to any other party. This right
shall apply to all Grantees or their guardians, legal
representatives, joint tenants, tenants in common, heirs or
successors. This right shall not apply to any Shares which are
subject to a right of first refusal contained in any agreement
between and among the Company and its Shareholders.
2.16 "SAR" means a right to surrender to the Company all or a portion of
an Option and to be paid therefor an amount, in cash or Shares, as
determined by the Committee, provided that the amount of cash or the
fair Market Value
2
<PAGE>
of Shares, as the case may be, shall be no greater than the excess,
if any, of (i) the Fair Market Value, on the date such right is
exercised, of the Shares to which the Option or portion thereof
relates, over (ii) the aggregate option price of those Shares.
2.17 "Securities Act" means the Securities of 1933, as amended.
2.18 "Shares" means shares of the Company's $1.00 par value common stock
or, if by reason of the adjustment provisions hereof any rights under
an Award under the Plan pertain to any other security, such other
security.
2.19 "Subsidiary" means any business, whether or not incorporated, in
which the Company, at the time an Award is granted or in other cases
at the time of reference, owns directly or indirectly not less than
50% of the equity interest.
2.20 "Successor" means the legal representative of the estate of a
deceased Grantee or the person or persons who shall acquire the right
to exercise an Option or an SAR, or to receive Shares issuable in
satisfaction of a Restricted Stock Award, by bequest or inheritance
or by reason of the death of the Grantee, as provided in accordance
with Section 10 hereof.
2.21 "Tax Date" means the date on which the amount of Tax to be withheld
with respect to an Award is determined.
2.22 "Term" means the period during which a particular Option or SAR
may be exercised or the period during which the restrictions
placed on a Restricted Stock Award are in effect.
3. ADMINISTRATION OF THE PLAN
3.1 The Plan shall be administered by the Committee, comprised from time
to time of not fewer than three members.
3.2 The Committee shall have plenary authority, subject to provisions of
the Plan, to determine when and to whom Awards shall be granted, the
Term of each Award, the number of Shares covered by it, the
participation by Grantee in other plans, and any other terms or
conditions of each such Award. The number of Shares, the Term and
other terms and conditions of a particular kind of Award need not be
the same, even as to similarly situated Grantees. The Committee's
actions in making Awards and fixing their size, Term, and other terms
and conditions shall be final and conclusive on all persons.
3
<PAGE>
3.3 The Committee shall have the sole responsibility for construing and
interpreting the Plan, for establishing and amending such rules and
regulations as it deems necessary or desirable for the proper
administration of the Plan, and for resolving all questions arising
under the Plan. Any decision or action taken by the Committee arising
out of or in connection with the construction, administration,
interpretation and effect of the Plan and of its rules and
regulations shall, to the extent permitted by law, be within its
absolute discretion, except as otherwise specifically provided
herein, and shall be conclusive and binding upon all Grantees, all
Successors, and any other person, whether that person is claiming
under or through any Grantee or otherwise.
3.4 The Committee shall designate one of its members as Chairman. It
shall hold its meetings at such times and places as it may determine.
A majority of its members shall constitute a quorum, and all
determinations of the Committee shall be made by a majority of its
members. Any determination reduced to writing and signed by all
members shall be fully as effective as if it had been made by a
majority vote at a meeting duly called and held. The Committee may
appoint a Secretary, who need not be a member of the Committee. The
Committee may make such rules and regulations for the conduct of its
business as it shall deem advisable.
3.5 Service on the Committee shall constitute service as a Director of
the Company, so that the members of the Committee shall be entitled
to indemnification and reimbursement as Directors of the Company
pursuant to its Bylaws and to any agreements between the Company and
its Directors providing for indemnification.
3.6 The Committee shall regularly inform the Board as to its actions with
respect to all Awards under the Plan and the Terms and conditions of
such Awards in a manner, at such times, and in such form as the Board
may reasonably request.
4. ELIGIBILITY
Awards may be made under the Plan only to employees of the Company or a
Subsidiary who have executive, managerial, supervisory or professional
responsibilities. Officers shall be employees for this purpose, whether or
not they are also Directors. A Director who is not an employee shall not be
eligible to receive an Award. Awards may be made to eligible employees
whether or not they have received prior Awards under the Plan or under any
previously adopted plan, and whether or not they are participants in other
benefit plans of the Company or any Subsidiary.
4
<PAGE>
5. SHARES SUBJECT TO PLAN
The Company hereby reserves 50,000 Shares for issuance in connection with
Awards under the Plan, subject to adjustment under Section 19. The shares so
issued may be unreserved Shares held in the treasury, however acquired, or
Shares which are authorized but unissued. Any Shares subject to issuance upon
exercise of Options or upon the lapsing of restrictions imposed in connection
with the making of Restricted Stock Awards but which are not issued because of a
surrender, lapse, expiration or termination of any such Option or Restricted
Stock Award prior to issuance of the Shares shall once again be available for
issuance in satisfaction of Awards. Shares withheld by the Company as payment of
the exercise price pursuant to Section 13.4 or pursuant to a tax withholding
election permitted under Section 21.2 hereof and Shares owned by a Grantee which
are used in the exercise of an option under Section 13.3 hereof shall be deemed
issued under the Plan. In the event of the exercise of an SAR, the number of
Shares reserved for issuance hereunder shall be reduced by the number of Shares
covered by the SAR.
6. GRANTING OF OPTIONS
6.1 Subject to the terms of the Plan, the Committee may from time to time
grant Options to persons eligible under Section 4 above.
6.2 Pursuant to Code Section 422A and applicable regulations, an Option
shall not be deemed to be an ISO to the extent that the aggregate
Fair Market Value, as determined on the date or dates of grant, of
Shares with respect to which such ISOs are exercisable for the first
time by any individual during any calendar year (under all Stock
option incentive plans of the Company or a Subsidiary) exceeds
$100,000. ISOs which first become exercisable during a calendar year
shall be taken into account in the order granted. Options that exceed
the $100,000 limit shall be treated as NQSOs.
6.3 The purchase price of each Share subject to Option shall be fixed by
the Committee provided the purchase price for ISOs shall not be less
than 100% of the Fair Market Value of the Shares on the date the ISO
is granted and the purchase price for NQSOs shall not be less than
the greater of the par value of the Shares or 75% of the Fair Market
Value of the shares on the date the NQSO is granted.
6.4 Notwithstanding Section 6.3 above, pursuant to Code Section 422A and
applicable regulations, the minimum purchase price of an ISO shall be
110% of the Fair Market Value of the shares on the date the ISO is
granted with respect to Grantees who at the time of Award are deemed
to own 10% or more of the voting power of the Company's outstanding
Shares.
5
<PAGE>
6.5 Each Option shall expire and all rights to purchase Shares thereunder
shall cease on the date fixed by the Committee.
6.6 Not withstanding Section 6.5 above, pursuant to Code Section 422A and
applicable regulations, ISO Options shall expire and all rights to
purchase Shares thereunder shall cease no later than the fifth
anniversary of the date on which the Option was granted with respect
to Grantees who at the time of Award are deemed to own 10% or more of
the voting power of the Company, and no later than the tenth
anniversary of the date on which the Option was granted with respect
to other Grantees.
6.7 Each Option shall become exercisable at the time, and for the number
of Shares, fixed by the Committee.
6.8 Subject to the terms of the Plan, the Committee may make all or any
portion of option Shares subject to a Right of First Refusal for any
period of time set by the Committee at the time of Award.
7. STOCK APPRECIATION RIGHTS
7.1 The Committee may, in its discretion, grant an SAR to the holder of
an Option, either at the time the Option is granted or by amending
the instrument evidencing the grant of the Option at any time after
the Option is granted, so long as the grant is made during the period
in which grants of SARs may be made under the Plan and, if made to a
person subject to Section 16(b) of the Exchange Act, is made more
than six months before the end of the Term of the Option.
7.2 Each SAR shall be for such Term, and shall be subject to such other
terms and conditions, as the Committee shall impose. The terms and
conditions may include Committee approval of the exercise of the SAR,
limitations on the amount of appreciation which may be recognized
with regard to such SAR, and specification of what portion, if any,
of the amount payable to the Grantee upon his exercise of an SAR
shall be paid in cash and what portion, if any, shall be payable in
Shares. If the Committee does not determine the form in which payment
of an SAR will be made, each Award made to a person subject to
Section 16(b) of the Exchange Act which may be payable in cash shall
reserve to the Committee the right to withhold its consent to the
Grantee's election to receive cash in settlement of the SAR. If and
to the extent that Shares are issued in satisfaction of amounts
payable on exercise of an SAR, the Shares shall be valued at their
Fair Market Value on the date of exercise.
6
<PAGE>
7.3 Except in the event of death or disability in which case Section 10
shall govern, no SAR granted to a person subject to Section 16(b) of
the Exchange Act shall be exercisable during the first six months
after its date of grant.
7.4 Upon exercise of an SAR, the Option or portion thereof with respect
to which such right is exercised shall be surrendered and shall not
thereafter be exercisable. Upon exercise of an Option, any SAR or
portion thereof granted with respect to such Option shall expire and
shall not thereafter be exercisable.
8. RESTRICTED STOCK AWARDS
8.1 Subject to the terms of the Plan, the Committee may grant eligible
employees Restricted Stock Awards which shall entitle Grantees to
receive Shares in the future for no cash consideration and which
shall be subject to forfeiture if the Grantee's employment is
terminated for any reason other than death, disability or retirement,
and to such other terms and conditions (including attainment of
performance objectives) as may be determined by the Committee.
8.2 The terms and conditions of any such Award, including restrictions on
transfer or on the ability of the Grantee to make elections with
respect to the taxation of the Award without the consent of the
Committee, shall be determined by the Committee. Except as provided
in or pursuant to Sections 10, 11 and 19, no forfeitability
restrictions shall lapse earlier than the first, or later than the
tenth, anniversary of the date of the Awards.
8.3 At the time of grant of a Restricted Stock Award, the Grantee shall
receive written evidence of the Award in such form as may be approved
by the Committee but shall not be entitled to issuance or delivery of
a stock certificate evidencing the Shares covered by the Award until
the lapse of the restrictions, pursuant to the Award. Upon the lapse
of the restrictions, a certificate or certificates representing the
number of Shares covered by the award, free and clear of all
restrictions (except for those of the nature described in section
6.8), shall be issued and registered in the name of, and delivered
to, the Grantee.
8.4 The Committee may establish terms and conditions under which the
Grantee of a Restricted Stock Award shall be entitled to receive a
credit equivalent to any dividend payable with respect to the
number of Shares which, as of the record date for such dividends,
shall be paid to the Grantee of the Restricted Stock Award at such
time or times during the Restricted Stock Award, or at the time
the Shares to which the dividend equivalents apply are delivered
to the Grantee, as the Committee shall determine. Any arrangement
for the payment of dividend
7
<PAGE>
equivalents shall be terminated if, under the terms and conditions
established by the Committee, the right to be issued Shares pursuant
to the terms of the Restricted Stock Award shall terminate.
9. NON-TRANSFERABILITY OF RIGHTS
No Award and no rights under any Award shall be assignable or transferable
otherwise than by will or the laws of descent and distribution and, except to
the extent otherwise provided in Section 13, the rights and the benefits of any
such Award may be exercised and received, respectively, during the lifetime of
the Grantee only by him or by his guardian or legal representative.
10. DEATH, DISABILITY, RETIREMENT AND OTHER TERMINATION OF EMPLOYMENT
10.1 Subject to the terms of the Plan, the Committee may make such
provisions concerning exercise or lapse of Options or SARs upon the
Grantee's death, disability, retirement, or other termination of
employment as it shall in its discretion determine, provided:
(i) no provision shall extend the Term of an Option or SAR,
(ii) except upon a Grantee's death or disability no provision shall
permit an ISO to be exercised after the date of the Grantee's
termination of employment,
(iii) no provision shall permit an Option or SAR to be exercised
after the date which is twelve months following a Grantee's
death or disability,
(iv) no provision shall permit a NQSO or SAR to be exercised after
the date which is three years following the Grantee's
retirement from the Company or a Subsidiary, and
(v) except upon a Grantee's death, disability or retirement, no
provision shall permit a NQSO or SAR to be exercised after the
date of a Grantee's termination of employment.
For purposes of this Section 10, the term "disability" shall mean the
commencement of payments to the Grantee under any disability
insurance provided by the Company to the Grantee or, if there is no
such insurance, the inability of the Grantee to engage in any
substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in
death or to last for a continuous period of not less than twelve
months, as determined by the Committee, based on the opinion of a
qualified physician (or other medical certificate) and other evidence
acceptable to the Committee, and the term "retirement" shall mean
normal retirement.
8
<PAGE>
10.2 Subject to the provisions of the Plan, the Committee may make such
provisions regarding the lapse of restrictions on Restricted Stock
Awards as it shall in its discretion determine, provided:
(i) except as provided in paragraph (ii) below, all Restricted
Stock Awards shall be cancelled and forfeited if a Grantee's
employment is terminated, and
(ii) in the event of the Grantee's death, disability or retirement,
the Grantee (or his beneficiary in the event of his death)
shall be entitled immediately to be issued a certificate or
certificates for all of the shares represented by his
Restricted Stock Award(s), free and clear of all restrictions
except as described in Section 6.8 hereof.
10.3 Unless the Committee determines otherwise, Options and SARs which
pursuant to their terms are exercisable following termination of a
Grantee's employment:
(i) may be exercised only to the extent exercisable upon the date
such employment terminates, if such termination is other than
by reason of the grantee's death, disability or retirement,
and
(ii) shall be accelerated if not yet vested or if granted over time
and shall be exercisable in full, free and clear of all
restrictions except as described in Section 6.8 hereof, if
such termination is by reason of the grantee's death,
disability or retirement.
10.4 Each Grantee may name, from time to time, any beneficiary or
beneficiaries (who may be named contingently or successively) to whom
any benefit or rights under the Plan is to be paid or transferred in
case of his death before he receives any or all of such benefit or
exercises such rights. Each designation will revoke all prior
designations by the same Grantee, shall be in a form prescribed by
the Committee, and will be effective only when filed by the Grantee
in writing with the Committee during his lifetime. In the absence of
any such designation, benefits or rights remaining unpaid or
unexercised at the Grantee's death shall be paid to or shall be
exercisable by his estate, subject to the terms hereof.
10.5 Transfers of employment between the Company and a Subsidiary, or
between Subsidiaries, shall not constitute termination of employment
for purposes of any Award. The Committee may specify in the terms and
conditions of an Award whether any authorized leave of absence or
absence for military or governmental service or for any other reason
shall constitute a termination of employment for purposes of the
Award and the Plan.
9
<PAGE>
11. PROVISIONS RELATING TO CHANGE IN CONTROL
Notwithstanding any provision in this Plan to the contrary, (i) the
restrictions on all Restricted Stock Awards shall lapse immediately and (ii) all
outstanding Options, together with any related SARs (except those held by
persons subject to Section 16(b) of the Exchange Act which have not been
outstanding for at least six months), shall become exercisable immediately if
either of the following events occur, unless otherwise determined by the
Committee:
(1) Any "person" (as defined in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing twenty-five percent (25%) or more of the combined
voting power of the Company's then outstanding securities.
(2) At any time (not including any period prior to the adoption of
this Plan) there shall cease to be a majority of the Board comprised as
follows: individuals who at the beginning of such period constitute the
Board and any new Director(s) whose election by the Board or nomination for
election by the Company's shareholders was approved by a vote of at least
two-thirds (2/3) of the Directors then still in office who either were
Directors at the beginning of the period or whose election or nomination
for election was previously so approved.
12. WRITING EVIDENCING AWARDS
Each Award granted under the Plan shall be evidenced by a writing which
may, but need not, be in the form of an agreement to be signed by the
Grantee. The writing shall set forth the nature and size of the Award, its
Term, the other terms and conditions thereof, other than those set forth in
the Plan, and such other information as the Committee directs. Acceptance of,
or receipt of the benefits of, an Award by the Grantee shall be conclusively
presumed to be assent to the terms and conditions set forth therein, whether
or not the writing is in the form of an agreement to be signed by the Grantee.
13. EXERCISE OF RIGHTS UNDER AWARDS
13.1 A person entitled to exercise an Option or SAR may do so by delivery
of a written notice to that effect specifying the number of Shares
with respect to which the Option or SAR is being exercised and any
other information the Committee may prescribe.
13.2 The notice of exercise shall be accompanied by payment in full of the
purchase price for any Shares to be purchased, with such payment
being made in cash or in Shares having a Fair Market Value equivalent
to the purchase price of such Shares to be purchased, or a
combination thereof.
10
<PAGE>
13.3 In lieu of delivery of a Stock certificate or certificates evidencing
Shares tendered by the Grantee in payment of the purchase price in
exercising a NQSO, the Grantee may, if authorized and pursuant to
rules adopted by the Committee, furnish a notarized statement
executed by the Grantee, in such form as prescribed by the Committee,
as payment for all or a portion of the purchase price for such
Shares. The statement shall recite the number of Shares being
purchased by the Grantee pursuant to the Option and the number of
Shares owned by the Grantee which otherwise could be freely delivered
as payment of the purchase price by the Grantee based on their Fair
Market Value. The Grantee will then be issued a certificate for new
Shares equal to the number of Shares acquired by the Grantee and
described in the notarized statement. No Shares shall be issued upon
exercise of an Option until full payment has been made therefor.
13.4 In lieu of payment by the Grantee in cash or in Shares or by delivery
of a notarized statement of ownership pursuant to Sections 13.2 and
13.3 respectively, the Grantee may, pursuant to rules adopted by and
with the consent of the Committee, elect to pay all or part of the
purchase price for Shares pursuant to an exercise of a NQSO by
requesting the Company to reduce the number of Shares otherwise
issuable to the Grantee upon the exercise of the Option by the number
of Shares with a Fair Market Value sufficient to pay the exercise
price. Any such election shall be made by delivering written notice
thereof to the Company, together with such information and documents
as the Committee may prescribe, and shall be subject to approval by
the Committee.
13.5 The notice of exercise of an SAR shall be in writing. For Grantees
subject to the "insider trading" provisions of Section 16(b) of the
Exchange Act, an SAR exercisable for cash may be exercised only
during a period beginning on the third business day following the
date of release for publication of the Company's quarterly or annual
summary statements of sales and earnings and ending on the twelfth
business day following such date.
13.6 Upon exercise of an Option or SAR, or after grant of a Restricted
Stock Award but before a distribution of Shares in satisfaction
thereof, the Grantee may request in writing that the shares to be
issued in satisfaction of the Award be issued in the name of the
Grantee and another person as joint tenants with right of
survivorship or as tenants in common.
13.7 All notices or requests to the Company provided for herein shall be
delivered to the Secretary of the Company.
11
<PAGE>
14. EFFECTIVE DATE OF THE PLAN AND DURATION
14.1 The Plan shall become effective on November ____, 1993.
14.2 The Plan shall remain in effect until all Awards have been exercised
or satisfied in accordance herewith, but no Awards may be granted
under the Plan after ____, _____. The terms of any Award may be
amended at any time prior to the end of its Term in accordance with
the Plan.
15. DATE OF AWARD
The date of an Award shall be the date on which the Committee's
determination to grant the same is final, or such later date as shall be
specified by the Committee in connection with its determination.
16. SHAREHOLDER STATUS
No person shall have any rights as a shareholder by virtue of the grant of
an Award under the Plan, except with respect to Shares actually issued to that
person.
17. POSTPONEMENT OR NON-EXERCISE
The Company shall not be required to issue any certificate or
certificates for Shares upon the exercise of an Option or SAR or upon the
vesting of a Restricted Stock Award granted under the Plan prior to (i) the
obtaining of any approval from any governmental agency which the Company
shall, in its sole discretion, determine to be necessary or advisable, (ii)
the taking of any action in order to comply with restrictions or regulations
incident to the maintenance of a public market for its Shares; and (iii) the
completion of any registration or other qualification of such Shares under
any state or Federal law or rulings or regulations of any governmental body
which the Company shall, in its sole discretion, determine to be necessary or
advisable. The Company shall not be obligated by virtue of any terms and
conditions of any Award or any provisions of the Plan to recognize the
exercise of an Option or an SAR or to sell or issue shares in violation of
the Securities Act or the laws of any government having jurisdiction thereof.
Any postponement or delay by the Company in recognizing the exercise of any
Option or SAR or in issuing any Shares under a Restricted Stock Award or
otherwise hereunder shall not extend the Term of an Option or SAR nor shorten
the Term of any restriction attached to any Restricted Stock Award and
neither the Company nor its directors or officers shall have any obligation
or liability to the Grantee of an Award, to a Successor or to any other
person with respect to any Shares as to which the Option or SAR shall lapse
because of such postponement or as to which issuance under a Restricted Stock
Award was delayed.
12
<PAGE>
18. TERMINATION, SUSPENSION OR MODIFICATION OF PLAN
The Board may terminate, suspend or modify the Plan at any time and in any
manner, provided, however, that to the extent shareholder approval is required
by the Code (with respect to ISOs) or is required by regulations issued under
the Securities Act or the Exchange Act, the Board shall not, without
authorization of the shareholders, effect any change (other than through
adjustment for changes in capitalization or as otherwise herein provided) which:
(i) increases the aggregate number of Shares for which Awards may
be granted;
(ii) lowers the minimum option price;
(iii) lengthens the maximum period during which an Option or SAR may
be exercised;
(iv) increases the maximum amount a Grantee may be paid upon the
exercise of an SAR;
(v) renders any member of the Committee eligible to receive an
Award while serving thereon;
(vi) materially modifies the requirements as to eligibility to
participate in the Plan;
(vii) extends the period of time during which Awards may be granted;
(viii) materially increases the benefits of the Plan accruing to
Grantees; or
(ix) removes the restrictions set forth in the last sentence of
this Section.
Notwithstanding the foregoing, (i) the Board may amend the Plan, without
shareholder authorization, to comply with Section 16(b) of the Exchange Act
or regulations issued thereunder, to effect registration of the Plan or
securities issuable thereunder under the Securities Act or the laws of any
state or to obtain any required regulatory approval and (ii) if amendments to
the Code or to the Securities Act or Exchange Act, or regulations issued
thereunder, are adopted after the date of adoption of the Plan, which
amendments permit termination, suspension or modification of the Plan,
including but not limited to the changes referred to above, without
shareholder approval, no authorization by the Company's shareholders of any
Board action hereunder shall be required.
No termination, suspension or modification of the Plan shall adversely
affect any right acquired by any Grantee or any Successor under an Award granted
before the date of such termination, suspension or modification unless such
Grantee or Successor shall consent but it shall be conclusively presumed that
any adjustment for changes in capitalization as provided for herein does not
adversely affect any such right. Any member of the Board who is an officer or
employee of the Company or a Subsidiary shall be
13
<PAGE>
without vote on any proposed amendment of the Plan, or on another matter, which
might affect that member's individual interest under the Plan.
19. ADJUSTMENTS FOR CORPORATE CHANGES
19.1 In the event of a recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation, rights
offering, reorganization or liquidation, or any other change in the
corporate structure or shares of the Company, the Committee shall (i)
make such equitable adjustments, when appropriate, designed to
protect against dilution or enlargement, in the number and kind of
Shares authorized by the Plan and, with respect to outstanding
Awards, in the number and kind of Shares covered thereby and in the
Option price, and (ii) make such arrangements, which shall be binding
upon the holders of unexpired Option and SARs and outstanding
Restricted Stock Awards, for the substitution of new Options, SARs or
Restricted Stock Awards, for any unexpired Options, SARs or
Restricted Stock Awards then outstanding under the Plan or for the
assumption of any such unexpired Options and SARs and outstanding
Restricted Stock Awards.
19.2 In the event that the Company agrees (i) to sell or otherwise dispose
of all or substantially all of the Company's assets, or (ii) to be
wholly or partially liquidated, or (iii) to participate in a merger,
consolidation or reorganization, or (iv) to sell or otherwise dispose
of substantially all the assets of, or a majority interest in, a
Subsidiary, then the Committee may determine that any and all Options
granted under the Plan, in situations involving an event described in
clauses (i) through (iii), and any and all Options granted to
employees of the affected Subsidiary, in situations described in
clause (iv), together with any related SARs (except those held by
persons subject to Section 16(b) of the Exchange Act which have not
been outstanding for at least six months), shall be immediately
exercisable in full, and any and all Shares issuable pursuant to
Restricted Stock Awards made under the Plan, in situations involving
an event described in clauses (i) through (iii), and any and all
Shares issuable pursuant to Restricted Stock Awards granted to
employees of the affected Subsidiary, in situations described in
clause (iv), shall be immediately issuable in full, free and clear of
all restrictions except as described in Section 6.8 hereof. The
Committee may also determine that any Options (and related SARs) not
exercised, and any Restricted Stock Awards with respect to which
restrictions shall not have lapsed, prior to any such event, or
within such period of time thereafter (not to exceed 30 days) as the
Committee shall determine, shall terminate.
19.3 The grant of any Award pursuant to the Plan shall not affect in any
way the right or power of the Company to
14
<PAGE>
make adjustments, reclassifications, reorganizations or changes of
its capital or business structure or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or any part of its
business or assets or the business, assets or stock of a Subsidiary.
20. NON-UNIFORM DETERMINATION
The Committee's determination under the Plan including, without limitation,
determination of the persons to receive Awards, the form, amount and type of
Awards (i.e., ISOs, NQSOs, SARs, Restricted Stock Awards), the terms and
provisions of Awards and the written material evidencing such Awards, any
amendments to the terms and provisions of any Awards, and the granting or
rejecting of applications for delivery of Shares or affidavits of ownership in
lieu of cash payments, need not be uniform and may be made selectively among
otherwise eligible employees whether or not such employees are similarly
situated.
21. TAXES
21.1 The Company may pay, withhold or require a Grantee to remit to it
amounts sufficient to satisfy the Company's federal, state, local or
other tax withholding obligations attributable to any Awards after
giving notice to the person entitled to receive such amount, and the
Company may defer making payment of any Award if any such tax, charge
or assessment may be pending until indemnified to its satisfaction.
21.2 Subject to the consent of the Committee, in connection with (i)
the exercise of a Non-Qualified Stock Option, (ii) lapse of
restrictions on a Restricted Stock Award, or (iii) the issuance of
any other Stock award under the Plan, a Grantee may make an
irrevocable election to (a) have Shares otherwise issuable under
(i) withheld, or (b) tender back to the Company Shares received
pursuant to (i), (ii) or (iii), or (c) deliver back to the Company
pursuant to (i), (ii) or (iii) previously-acquired Shares, having
a Fair Market Value sufficient to satisfy all or part of the
Company's total federal, state, local and other tax withholding
obligations associated with the transaction. Any such election
shall be irrevocable and must be made by a Grantee, prior to the
Tax Date, by delivering written notice to the Secretary of the
Company together with such information and documents as the
Committee may prescribe. The Committee may disapprove of any
election, may suspend or terminate the right to make elections, or
may provide with respect to any Award under this Plan that the
right to make elections shall not apply to such Awards.
21.3 If a Grantee is an officer of the Company and is subject to the
provisions of Section 16(b) of the Exchange Act, then an election is
subject to the following additional restrictions:
15
<PAGE>
(i) No election shall be made within six months of the grant of an
Award, except that this limitation shall not apply in the
event death or disability of the Grantee occurs prior to the
expiration of the six-month period.
(ii) The election must be made either six months prior to the Tax
Date or must be made during a period beginning on the third
business day following the date of release for publication of
the Company's quarterly or annual summary statements of sales
and earnings and ending on the twelfth business day following
such date.
21.4 If, pursuant to the provisions of the Code, the Tax Date of an Award
is deferred and a Grantee elects to have Shares withheld, the full
number of Option Shares or Restricted Stock Award Shares may be
issued but the Grantee shall enter into an agreement unconditionally
obligating the Grantee to tender back to the Company the proper
number of Shares on the Tax Date.
22. TENURE
Nothing in the Plan or in any agreement entered into pursuant to the Plan
shall confer upon any participant the right to continue in the employment of the
Company or any Subsidiary or affect any right which the Company or Subsidiary
has to terminate the employment of such participant. An employee terminated
for cause, as determined by the Company, shall forfeit all of his rights under
the Plan, except as to Options or SARs already exercised and Restricted Stock
Awards on which restrictions have already lapsed.
23. APPLICATION OF PROCEEDS
The proceeds received by the Company from the sale of its shares under the
Plan shall be used for general corporate purposes of the Company and its
Subsidiaries.
24. OTHER ACTIONS
Nothing in the Plan shall be construed to limit the authority of the
Company to exercise its corporate rights and powers, including, by way of
illustration and not by way of limitation, the right to grant options for proper
corporate purposes otherwise than under the Plan to any employee or any other
person, firm, corporation, association or other entity, or to grant options to,
or assume options of, any person in connection with the acquisition by purchase,
lease, merger, consolidation or otherwise, of all or any part of the business
and assets of any person, firm, corporation, association or other entity.
25. GENDER AND NUMBER
Except when otherwise indicated by the context, words in the masculine
gender when used in the Plan shall include the feminine
16
<PAGE>
gender, the singular shall include the plural, and the plural shall include the
singular.
26. REQUIREMENTS OF LAW, GOVERNING LAW
The granting of Awards and the issuance of shares of Stock shall be subject
to all applicable laws, rules and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required. The
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Oklahoma.
27. EFFECT ON OTHER PLANS
Participation in this Plan shall not affect an employee's eligibility to
participate in any other benefit or incentive plan of the Company or a
Subsidiary. Any Awards made pursuant hereto shall not be used in determining the
benefits provided under any other plan of the Company or a Subsidiary unless
specifically provided therein.
17
<PAGE>
APPENDIX F
SYNTROLEUM CORPORATION
STOCK OPTION PLAN
FOR OUTSIDE DIRECTORS
Syntroleum Corporation, an Oklahoma corporation (the "Company"), hereby
adopts this Syntroleum Corporation Stock Option Plan for Outside Directors. The
purpose of the Plan is to obtain, motivate and retain experienced Outside
Directors by offering them an opportunity to become owners of the Common Stock
of the Company and to promote the interests of the Company and its shareholders
by encouraging Outside Directors of the Company to have a direct and personal
stake in the performance of the Company's Common Stock.
1. DEFINITIONS
1.1 "Board" means the Board of Directors of the Company.
1.2 "Chief Financial Officer" means the chief financial officer of the
Company.
1.3 "Code" means the Internal Revenue Code of 1986, as amended.
1.4 "Common Stock" means the Company's common stock, $0.005 par value.
1.5 "Company" means Syntroleum Corporation, an Oklahoma corporation.
1.6 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
1.7 "Fair Market Value" of a share of the Company's stock as of a given
date shall be: (i) the closing price of a share of the Company's stock on the
principal exchange on which shares of the Company's stock are then trading, if
any, on such date, or, if shares were not traded on such date, then on the next
preceding trading day during which a sale occurred; or (ii) if such stock is
not traded on an exchange but is quoted on NASDAQ or a successor quotation
system, (1) the last sales price (if the stock is then listed as a National
Market Issue under the NASDAQ National Market System) or (2) the mean between
the closing representative bid and asked prices (in all other cases) for the
stock on such date as reported by NASDAQ or such successor quotation system; or
(iii) if such stock is not publicly traded on an exchange and not quoted on
NASDAQ or a successor quotation system, the mean between the closing bid and
asked prices for the stock, on such date, as determined in good faith by the
Chief Financial Officer; or (iv) if the Company's stock is not publicly traded,
the fair market value established by the Chief Financial Officer acting in good
faith.
1.8 "Option" means a non-qualified option to purchase Common Stock of
the Company, granted under the Plan.
<PAGE>
1.9 "Optionee" means an Outside Director to whom an Option is granted
under the Plan.
1.10 "Outside Director" means a member of the Board who is not an
employee of the Company, a Parent Corporation or a Subsidiary under Section
340(c) of the Code and who is not legally or contractually prohibited from
receiving and holding personally an Option.
1.11 "Parent Corporation" means any corporation in an unbroken chain of
corporations ending with the Company if each of the corporations other than the
Company then owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
1.12 "Plan" means this Syntroleum Corporation Stock Option Plan for
Outside Directors.
1.13 "Retirement" means acceptance by the Board of an Outside Director's
resignation from the Board by reason of retirement as determined by the Chief
Financial Officer.
1.14 "Rule 16b-3" means that certain Rule 16b-3 under the Exchange Act,
as such Rule may be amended in the future.
1.15 "Secretary" means the Secretary of the Company.
1.16 "Securities Act" means the Securities Act of 1933, as amended.
1.17 "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. "Subsidiary" shall also mean any partnership
in which the Company and/or any Subsidiary owns more than 50% of the capital or
profits interests.
2. SHARES SUBJECT TO PLAN
2.1 SHARES SUBJECT TO PLAN. The shares of stock subject to Options shall
be shares of the Common Stock. The aggregate number of such shares which may be
issued upon exercise of Options shall not exceed one percent of the number of
shares of the Common Stock outstanding, on January 1st of the year in question.
2.2 UNEXERCISED OPTIONS. If any Option expires or is canceled without
having been fully exercised, the number of shares subject to such Option but as
to which such Option was not exercised prior to its expiration or cancellation
may again be granted hereunder, subject
2
<PAGE>
to the limitations of SECTION 2.1.
2.3 CHANGES IN COMPANY'S SHARES. In the event that the outstanding
shares of Common Stock of the Company are hereafter changed into or exchanged
for a different number or kind of shares or other securities of the Company, or
of another corporation, by reason of reorganization, merger, consolidation,
recapitalization, reclassification, or the number of shares is increased or
decreased by reason of a stock split-up, stock dividend, combination of shares
or any other increase or decrease in the number of such shares of Common Stock
effected without receipt of consideration by the Company (provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been effected without receipt of consideration), the Chief Financial
Officer acting in good faith shall make appropriate adjustments in the number
and kind of shares for the purchase of which Options may be granted, including
adjustments of the limitations in SECTION 2.1 on the maximum number and kind of
shares which may be issued on exercise of Option.
3. GRANT OF OPTIONS
3.1 ELIGIBILITY. Any Outside Director of the Company shall be eligible
to be granted Options.
3.2 INITIAL GRANT. Each person who is an Outside Director shall, at the
time the Plan is approved by the shareholders of the Company, immediately upon
such approval be granted an Option to purchase that number of shares of Common
Stock determined by dividing $18,000 by the per share Fair Market Value of the
Common Stock on the date of such approval. Any person who is not an Outside
Director at such time, but who later becomes an Outside Director, shall be
granted on the date of his election or appointment as an Outside Director an
option to purchase that number of shares of Common Stock determined by dividing
$18,000 by the per share Fair Market Value of the Common Stock on the date of
grant.
3.3 YEARLY GRANT. Each Outside Director who has received a grant
pursuant to SECTION 3.2 and who has served at least one year as an Outside
Director (or in the case of persons who are Outside Directors at the time of
approval of the Plan by the shareholders, persons who serve until the next
January 1) shall automatically be granted on January 1 of each year (so long as
he is an Outside Director at the close of business on such date) an Option to
purchase that number of shares of Common Stock determined by dividing $18,000 by
the per share Fair Market Value of the Common Stock on the date of grant.
3.4 NO OPTION GRANT WHERE PROHIBITED. No person shall be granted an
Option under this Plan if at the time of such grant, the grant is prohibited by
applicable law or by the policies of the employer of such person or of any other
company of which such person is a member of the board of directors or a general
partner.
3
<PAGE>
4. TERMS OF OPTIONS
4.1 OPTION AGREEMENT. As soon as practicable under an Outside Director
becomes entitled to the grant of an Option under SECTION 3.2 above, the Chief
Financial Officer shall cause to be executed a written Stock Option Agreement,
which shall be executed by the Outside Director and an authorized officer of the
Company and which shall contain such terms and conditions as approved by the
Chief Financial Officer consistent with the Plan.
4.2 OPTION PRICE. The exercise price per share subject to each Option
granted pursuant to SECTION 3.2 shall be equal to the greater of the Fair Market
Value of a share of Common Stock or the par value per share of Common Stock on
the date such Option is granted.
4.3 TERM. The term of each Option shall be ten years from date of grant
subject to earlier termination in accordance with SECTIONS 6.5 or 6.6.
4.4 VESTING AND EXERCISE SCHEDULE. The amount of vested Options shall be
determined by multiplying the total number of shares covered by the Option by a
percentage equal to the percentage of total Board meetings attended by the
Outside Director during the preceding year. Those Options which have not vested
at the time of such determination shall terminate and again become available for
issuance in accordance with the Plan. Beginning on the first anniversary of the
date of grant, that number of shares covered by vested Options shall be
exercisable for the full term of such Options unless terminated in accordance
with the Plan.
4.5 TERMINATION OF MEMBERSHIP ON THE BOARD. Except in the case of death,
disability, Retirement from the Board, or an unsuccessful attempt to win
reelection to the Board after nomination for election at the recommendation of
the board, if an Outside Director's membership on the Board terminates for any
reason, an Option held at the date of termination (but only to the extent
exercisable at the time of such termination in accordance with SECTION 4.4) may
be exercised in whole or in part at any time within one month after the date of
such termination (but in no event after the term of the Option expires) and
shall thereafter terminate. If an Outside Director's membership terminates
because of death, disability, Retirement from the Board, or an unsuccessful
attempt to win reelection to the Board after nomination for election at the
recommendation of the Board, an Option held at the date of such termination may
be exercised for up to 100% of the shares covered by such Options at any time
within three years after the date of such termination (but in no event after the
term of the Option expires) and shall thereafter terminate.
4.6 CHANGE OF CONTROL. In the event of (a) a dissolution or liquidation
of the Company, (b) a merger or consolidation in which the Company is not the
surviving corporation, or (c) any other capital reorganization in which more
than fifty percent (50%) of the shares the Company entitled to vote are
exchanged, the Company shall give to the
4
<PAGE>
Outside Director, at the time of adoption of the plan for liquidation,
dissolution, merger, consolidation or reorganization either (i) a reasonable
time thereafter within which to exercise each Option, prior to the
effectiveness of such liquidation, dissolution, merger, consolidation or
reorganization, at the end of which time such Option shall terminate, or (ii)
the right to exercise such Option as to an equivalent number of shares of
stock of the corporation succeeding the Company or acquiring its business by
reason of such liquidation, dissolution, merger, consolidation or
reorganization.
4.7 ADJUSTMENTS IN OUTSTANDING OPTIONS. In the event that the
outstanding shares of Common Stock subject to Options are changed into or
exchanged for a different number or kind of shares of the Company or other
securities of the Company by reason of merger, consolidation, recapitalization,
reclassification, or the number of shares is increased or decreased by reason of
a stock split-up, stock dividend, combination of shares or any other increase or
decrease in the number of such shares of Common Stock effected without receipt
of consideration by the Company (provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been effected
without receipt of consideration), the Chief Financial Officer acting in good
faith shall make appropriate adjustments in the number and kind of shares as to
which all outstanding Options, or portions thereof then exercised, shall be
exercisable, to the end that after such event the Optionee's proportionate
interest shall be maintained as before the occurrence of such event. Such
adjustments in an outstanding Option shall be made without change in the total
price applicable to the Option or the unexercised portion of the Option (except
for any change in the aggregate price resulting from rounding off of share
quantities or prices) and with any necessary corresponding adjustment in Option
price per share. Any such adjustment made by the Chief Financial Officer shall
be final and binding upon all Optionees, the Company and all other interested
persons. This SECTION 4.7 shall be subject to SECTION 4.6.
5. EXERCISE OF OPTIONS
5.1 PERSON ELIGIBLE TO EXERCISE. During the lifetime of the Optionee,
only the Optionee may exercise an Option (or any portion thereof) granted to the
Optionee. After the death of the Optionee, any exercisable portion of an Option
may, prior to the time when such portion becomes unexercisable under the Plan or
the applicable Stock Option Agreement, be exercised by the Optionee's personal
representative or by any person empowered to do so under the deceased Optionee's
will or under the then applicable laws of descent and distribution.
5.2 PARTIAL EXERCISE. At any time and from time to time prior to the
time when any exercisable Option or exercisable portion thereof becomes
unexercisable under the Plan or the applicable Stock Option Agreement, such
Option or portion thereof may be exercised in whole or in part; provided,
however, that the Company shall not be required to issue fractional shares
any partial exercise of the Option shall be with respect to no less than 100
shares (or such lesser remaining number of shares subject to the Option).
5
<PAGE>
5.3 MANNER OF EXERCISE. An exercisable Option, or any exercisable
portion thereof, may be exercised solely by delivery to the Secretary of all of
the following prior to the time which such Option or such portion becomes
unexercisable under the Plan or the applicable Stock Option Agreement.
5.3.1 NOTICE. Notice in writing signed by the Optionee or other
person then entitled to exercise such Option or portion, stating that such
Option or portion is exercised, such notice complying with all applicable rules
established by the Chief Financial Officer.
5.3.2 PAYMENT.
(a) Full payment (in cash or by check) for the shares with
respect to which such Option or portion is thereby exercised; or
(b) With the consent of the Chief Financial Officer, (i)
shares of the Company's Common Stock owned by the Optionee duly endorsed for
transfer to the Company, or (ii) subject to the timing requirements of SECTION
5.4, shares of the Company's Common Stock issuable to the Optionee upon exercise
of the Option, with a Fair Market Value on the date of Option exercise equal to
the aggregate Option price of the shares with respect to which such Option or
portion is thereby exercised; or
(c) With the consent of the Chief Financial Officer, a
full recourse promissory note bearing interest (at least such rate as shall
then preclude the imputation of interest under the Code or any successor
provision) and payable upon such terms as may be prescribed by the Chief
Financial Officer. The Chief Financial Officer may also prescribe the form of
such note and the security to be given for such note. No Option may, however,
be exercised by delivery of a promissory note or by a loan from the Company
when or where such plan or other extension of credit is prohibited by law; or
(d) With the consent of the Chief Financial Officer, any
combination of the consideration provided in the foregoing subsections (a), (b)
and (c).
5.3.3 TAX WITHHOLDING. The payment to the Company of all amounts,
if any, which it is required to withhold under federal, state or local law in
connection with the exercise of the Option; with the consent of the Chief
Financial Officer, (i) shares of the Company's Common Stock owned by the
Optionee duly endorsed for transfer, or (ii) subject to the timing requirements
of SECTION 5.4, shares of the Company's Common Stock issuable to the Optionee
upon exercise of the Option, valued at Fair Market Value as of the date of
Option exercise, may be used to make all or part of such payment.
5.3.4 SECURITIES REPRESENTATIONS. Such representations and
documents as the Chief Financial Officer deems necessary or advisable to effect
compliance with all applicable provisions of the Securities Act and any other
federal or state securities laws or regulations. The Chief Financial Officer may
also take whatever additional actions he deems appropriate
6
<PAGE>
to effect such compliance including, without limitation, placing legends on
share certificates and issuing stop-transfer orders to transfer agents and
registrars; and
5.3.5 PROOF OF THIRD PARTY RIGHT TO EXERCISE. In the event that the
Option or portion thereof shall be exercised pursuant to SECTION 5.1 by any
person or persons other than the Optionee, appropriate proof of the right of
such person or persons to exercise the Option or portion thereof.
5.4 CERTAIN TIMING REQUIREMENTS. Shares of the Company's Common Stock
issuable to the Optionee upon exercise of the Option may be used to satisfy
the Option price or the tax withholding consequences of such exercise only
(i) during the period beginning on the third business day following the date
of release of the quarterly or annual summary statement of sales and earnings
of the Company and ending on the twelfth business day following such date or
(ii) pursuant to an irrevocable written election by the Optionee to use
shares of the Company's Common Stock issuable to the Optionee upon exercise
of the Option to pay all or part of the Option price or the withholding taxes
(subject to the approval of the Chief Financial Officer) made at least six
months prior to the payment of such Option price or withholding taxes.
5.5 CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The shares of Common
Stock issuable and deliverable upon the exercise of an Option, or any portion
thereof, may be either previously authorized but unissued shares or issued
shares of Common Stock which have then been reacquired by the Company. The
Company shall not be required to issue or deliver any certificate or
certificates for shares of Common Stock purchased upon the exercise of any
Option or portion thereof prior to fulfillment of all of the following
conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification of
such shares under any state or federal law or under the filings or regulations
of the Securities and Exchange Commission or any other governmental regulatory
body, which the Chief Financial Officer shall deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Chief Financial Officer shall
determine to be necessary or advisable;
(d) The payment to the Company (or other employer corporation) of
all amounts which it is required to withhold under federal, state or local law
in connection with the exercise of the Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Chief Financial Officer may establish from time to
time for reasons of
7
<PAGE>
administrative convenience.
5.6 RIGHTS AS SHAREHOLDERS. The holders of Options shall not be, nor
have any of the rights or privileges of, shareholders of the Company in respect
to any shares of Common Stock purchasable upon the exercise of any part of an
Option unless and until certificates representing such shares of Common Stock
have been issued by the Company to such holders.
5.7 TRANSFER RESTRICTIONS. Unless otherwise approved in writing by the
Board, no shares of Common Stock acquired upon exercise of any Option by any
Outside Director may be sold, assigned, pledged, encumbered or otherwise
transferred until at least six months have elapsed from (but excluding) the
date that such Option was granted.
6. ADMINISTRATION
6.1 DUTIES AND POWERS OF THE CHIEF FINANCIAL OFFICER. It shall be the
duty of the Chief Financial Officer to conduct the general administration of the
Plan in accordance with its provisions. The Chief Financial Officer shall have
the power to interpret the Plan and the Options and to adopt such rules for the
administration, interpretation and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules.
6.2 COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS. All
expenses and liabilities incurred by the Chief Financial Officer in connection
with the administration of the Plan shall be borne by the Company. The Chief
Financial Officer may employ attorneys, consultants, accountants, appraisers,
brokers or other persons. The Chief Financial Officer, the Company and its
officers and directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all interpretations and
determinations made by the Chief Financial Officer in good faith shall be final
and binding upon all Optionees, the Company and all other interested persons.
The Chief Financial Officer shall not be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan
or the Options, and the Chief Financial Officer shall be fully protected by
the Company in respect to any such action, determination or interpretation.
7. OTHER PROVISIONS
7.1 OPTIONS NOT TRANSFERABLE. No Option or interest or right therein or
part thereof shall be liable for the debts, contracts or engagements of the
Optionee or his successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any other
means whether such disposition be voluntary or involuntary or by operation of
law by judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition
8
<PAGE>
thereof shall be null and void and of no effect; provided, however, that
nothing in this SECTION 7.1 shall prevent transfers by will or by the applicable
laws of descent and distribution.
7.2 AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN. The Plan may be
wholly or partially amended or otherwise modified (generally not more frequently
than once every six months), suspended or terminated at any time or from time to
time by the Board. However, without approval of the Company's shareholders given
within twelve months before or after the action by the Board, no action of the
Board may: (i) except as provided in SECTION 2.3, increase any limit imposed in
SECTION 2.1 on the maximum number of shares which may be issued on exercise of
Options; (ii) materially modify the eligibility requirements of SECTION 3.1;
(iii) reduce the minimum Option price requirements of SECTION 4.2; (iv) extend
the limit imposed in this SECTION 7.2 on the period during which Options may be
granted; or (v) amend or modify the Plan in a manner requiring shareholder
approval under Rule 16b-3. Notwithstanding anything to the contrary contained
herein, the Board with respect to the Plan or any Option, shall not (y) amend or
modify any provision concerning the amount, price and timing of any Option
(including, without limitation, the provisions of SECTIONS 3.2 and 4.2 of the
Plan) more than once every six months, other than to comport with changes in the
Code, the Employee Retirement Income Security Act of 1974, as amended, or the
rules thereunder; or (z) otherwise amend or modify the Plan or any Option in any
manner inconsistent with the requirements of Rule 16b-3(c). Neither the
amendment, suspension nor termination of the Plan shall, without the consent of
the holder of the Option, alter or impair any rights or obligations under any
Option theretofore granted. No Option may be granted during any period of
suspension nor after termination of the Plan, and in no event may any Option be
granted under this Plan after the expiration of ten years from the date the Plan
is adopted by the Board.
7.3 APPROVAL OF PLAN BY SHAREHOLDERS. This Plan will be submitted for
the approval of the Company's shareholders within 12 months after the date of
the Board's initial adoption of the Plan. Options may not be Granted prior to
such shareholder approval. The Company shall take such action with respect to
the Plan as may be necessary to satisfy the requirements of Rule 16b-3(b).
7.4 EFFECT OF PLAN UPON OTHER OPTION AND COMPENSATION PLANS. The
adoption of this Plan shall not affect any other compensation or incentive plans
in effect for the Company, any parent Corporation or any Subsidiary. Nothing in
this Plan shall be construed to limit the right of the Company, any Parent
Corporation or any Subsidiary (a) to establish any other forms of incentives or
compensation for directors of the company or (b) to grant or assume options
otherwise than under this Plan in connection with any proper corporate purpose,
including, but not by way of limitation, the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, firm or
association.
7.5 NO RIGHT TO CONTINUED MEMBERSHIP ON THE BOARD. Nothing in this Plan
or
9
<PAGE>
in any Stock Option Agreement shall confer upon any outside Director any right
to continue as a director of the Company or shall interfere with or restrict in
any way the rights of this company and its shareholders, which are hereby
expressly reserved, to remove any Outside Director at any time for any reason
whatsoever, with or without case.
7.6 TITLES. Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of the Plan.
7.7 CONFORMITY TO SECURITIES LAWS. The Plan is intended to conform to
the extent necessary with all provisions of the Securities Act and the
Exchange Act and any and all regulations and rules promulgated by the
Securities and Exchange Commission thereunder, including without limitation
Rule 16b-3. Without limiting the generality of the foregoing, this Plan is
intended to comply with the formula award plan provisions set forth in Rule
16b-3(c)(2)(ii). Notwithstanding anything herein to the contrary, the Plan
shall be administered, and Options shall be granted and may be exercised,
only in such a manner as to conform to such laws, rules and regulations. To
the extent permitted by applicable law, the Plan and Options granted
hereunder shall be deemed amended to the extent necessary to conform to such
laws, rules and regulations.
10
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
LIMITATION OF LIABILITY OF DIRECTORS.
The SLH Articles of Incorporation provide that a director of SLH will not be
personally liable to SLH or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (1) for any breach of the
director's duty of loyalty to SLH or its stockholders, (2) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (3) under Section 17-6424 of the KGCC, which concerns unlawful payments
of dividends, stock purchases or redemptions, or (4) for any transaction from
which the director derived an improper personal benefit.
While the SLH Articles of Incorporation provides directors with protection
from awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, the SLH Articles of Incorporation will have no
effect on the availability of equitable remedies such as an injunction or
rescission based on a director's breach of his or her duty of care. The
provisions of the SLH Articles of Incorporation described above apply to an
officer of SLH only if he or she is a director of SLH and is acting in his or
her capacity as director, and do not apply to officers of SLH who are not
directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The SLH Articles of Incorporation provides that each person who is or was or
had agreed to become a director or officer of SLH, or each such person who is or
was serving or who had agreed to serve at the request of SLH as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise (including the heirs, executors, administrators or estate of such
person), will be indemnified by SLH, in accordance with the SLH Bylaws, to the
fullest extent permitted from time to time by the KGCC, as the same exists or
may hereafter be amended (but, if permitted by applicable law, in the case of
any such amendment, only to the extent that such amendment permits SLH to
provide broader indemnification rights than said law permitted SLH to provide
prior to such amendment) or any other applicable laws as presently or hereafter
in effect. SLH may, by action of the SLH Board of Directors, provide
indemnification to employees and agents of SLH, and to persons serving as
employees or agents of another corporation, partnership, joint venture, trust or
other enterprise, at the request of SLH, with the same scope and effect as the
foregoing indemnification of directors and officers. SLH may be required to
indemnify any person seeking indemnification in connection with a proceeding (or
part thereof) initiated by such person only if such proceeding (or part thereof)
was authorized by the SLH Board of Directors or is a proceeding to enforce such
person's claim to indemnification pursuant to the rights granted by the SLH
Articles of Incorporation or otherwise by SLH. In addition, SLH may enter into
one or more agreements with any person providing for indemnification greater or
different than that provided in the SLH Articles of Incorporation.
The SLH Bylaws provide that each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit, or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative is or was a director or officer of SLH or is or
was serving at the request of SLH as a director or officer of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such Proceeding is alleged action in an official capacity as a director or
officer or in any other capacity while serving as a director or officer, will be
indemnified and held harmless by SLH to the fullest extent authorized by the
KGCC as the same exists or may in the future be amended (but, if permitted by
applicable law, in the case of any such amendment, only to the extent that such
amendment permits SLH to provide broader indemnification rights than said law
permitted SLH to provide prior to such amendment), against all expense,
liability and
II-1
<PAGE>
loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith and such indemnification will
continue as to a person who has ceased to be a director or officer and will
inure to the benefit of his or her heirs, executors and administrators;
provided, however, except as described in the second following paragraph with
respect to Proceedings to enforce rights to indemnification, SLH will indemnify
any such person seeking indemnification in connection with a Proceeding (or part
thereof) initiated by such person only if such Proceeding (or part thereof) was
authorized by the SLH Board of Directors.
Pursuant to the SLH Bylaws, to obtain indemnification, a claimant is to
submit to SLH a written request for indemnification. Upon such written request
by a claimant, a determination, if required by applicable law, with respect to
the claimant's entitlement to indemnification will be made, if requested by the
claimant, by independent legal counsel, or if the claimant does not so request,
by the SLH Board of Directors by a majority vote of the disinterested directors
even though less than a quorum or, if there are no disinterested directors or
the disinterested directors so direct, by independent legal counsel in a written
opinion to the SLH Board of Directors, or if the disinterested directors so
direct, by the stockholders of SLH. In the event the determination of
entitlement to indemnification is to be made by independent legal counsel at the
request of the claimant, the independent legal counsel will be selected by the
SLH Board of Directors unless there shall have occurred within two years prior
to the date of the commencement of the action, suit or proceeding for which
indemnification is claimed a Change of Control, in which case the independent
legal counsel will be selected by the claimant unless the claimant requests that
such selection be made by the SLH Board of Directors.
Pursuant to the SLH Bylaws, if a claim described in the preceding paragraph
is not paid in full by SLH within thirty days after a written claim pursuant to
the preceding paragraph has been received by SLH, the claimant may at any time
thereafter bring suit against SLH to recover the unpaid amount of the claim and,
if successful in whole or in part, the claimant will be entitled to be paid also
the expense of prosecuting such claim. The SLH Bylaws provide that it will be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any Proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to SLH) that the claimant has not met the standard of conduct which
makes it permissible under the KGCC for SLH to indemnify the claimant for the
amount claimed, but the burden of proving such defense will be on SLH. Neither
the failure of SLH (including the disinterested directors, independent legal
counsel or stockholders) to have made a determination prior to the commencement
of such action that indemnification of the claimant is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in the KGCC, nor an actual determination by SLH (including the
disinterested directors, independent legal counsel or stockholders) that the
claimant has not met such applicable standard of conduct, will be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct. However, SLH will be bound by a determination pursuant to
the procedures set forth in the SLH Bylaws that the claimant is entitled to
indemnification in any suit brought by a claimant pursuant to the SLH Bylaws.
The SLH Bylaws provide that the right to indemnification and the payment of
expenses incurred in defending a Proceeding in advance of its final disposition
conferred in the SLH Bylaws will not be exclusive of any other right which any
person may have or may in the future acquire under any statute, provision of the
SLH Articles of Incorporation, the SLH Bylaws, agreement, vote of stockholders
or disinterested directors or otherwise. The SLH Bylaws permit SLH to maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of SLH or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not SLH
would have the power to indemnify such person against such expense, liability or
loss under the KGCC. SLH intends to obtain directors' and officers' liability
insurance providing coverage to its directors and officers. In addition, the SLH
Bylaws authorize SLH, to the extent authorized from time to time by the SLH
Board of Directors, to
II-2
<PAGE>
grant rights to indemnification and rights to be paid by SLH the expenses
incurred in defending any Proceeding in advance of its final disposition to any
employee or agent of SLH to the fullest extent of the Provisions of the SLH
Bylaws with respect to the indemnification and advancement of expenses of
directors and officers of SLH.
The SLH Bylaws provide that the right to indemnification conferred therein
is a contract right and includes the right to be paid by SLH the expenses
incurred in defending any Proceeding in advance of its final disposition, except
that if the KGCC requires, the payment of such expenses incurred by a director
or officer in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a Proceeding, will be made only upon
delivery to SLH of an undertaking by or on behalf of such director or officer,
to repay all amounts so advanced if it is ultimately determined that such
director of officer is not entitled to be indemnified under the SLH Bylaws or
otherwise.
The Merger Agreement provides for certain indemnification for officers and
directors as well as former officers and directors of SLH as described under
"Certain Provisions of the Merger Agreement" in the Joint Proxy
Statement/Prospectus.
SLH currently has directors and officers insurance that insures directors
and officers of SLH with respect to claims made for alleged "wrongful acts" in
their roles as directors or officers of SLH and its subsidiaries. The insurance
also insures SLH for claims against SLH's directors or officers in situations in
which SLH has an obligation to define and/or indemnify its directors and
officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits are listed on the Exhibit Index on the page following the
signatures.
(b) Financial Statement Schedules.
Syntroleum Corporation--Not Applicable.
SLH Corporation--Schedule 3 to SLH's financial statement incorporated by
reference herein.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(c) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective
II-3
<PAGE>
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted directors, officers and controlling persons of the
Registrant pursuant to provisions described in this Registration Statement or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference herein pursuant to Items 4, 10(b),
11, or 13 of Form S-4, within one business day of receipt of such request, and
to send the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding to
the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning the Merger and Syntroleum
that was not the subject of and included in the registration statement when it
became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kansas City, State of
Missouri, on this 14th day of April, 1998.
<TABLE>
<S> <C> <C>
SLH CORPORATION
By /s/ JAMES R. SEWARD
-----------------------------------------
James R. Seward,
PRESIDENT
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James R. Seward, P. Anthony Jacobs and Steven K.
Fitzwater, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and re-substitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------------------ --------------------------------- ----------------------
<C> <S> <C>
/s/ JAMES R. SEWARD
------------------------------------------- President (Principal Executive April 14, 1998
James R. Seward Officer) and Director
/s/ P. ANTHONY JACOBS
------------------------------------------- Chairman of the Board and April 14, 1998
P. Anthony Jacobs Director
Vice President, Treasurer,
/s/ STEVEN K. FITZWATER Secretary and Chief Financial
------------------------------------------- and Accounting Officer and April 14, 1998
Steven K. Fitzwater Director (Principal Financial
and Accounting Officer)
/s/ LAN C. BENTSEN
------------------------------------------- Director April 9, 1998
Lan C. Bentsen
/s/ W. D. GRANT
------------------------------------------- Director April 14, 1998
W. D. Grant
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------------------ --------------------------------- ----------------------
<C> <S> <C>
/s/ W. T. GRANT II
------------------------------------------- Director April 14, 1998
W. T. Grant II
/s/ MICHAEL E. HERMAN
------------------------------------------- Director April 14, 1998
Michael E. Herman
/s/ DAVID W. KEMPER
------------------------------------------- Director April 9, 1998
David W. Kemper
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
*2.1 Distribution Agreement (incorporated by reference to Exhibit 2(a) to Form 10/A of SLH dated February 3,
1997).
*2.2 Agreement and Plan of Merger by and between SLH Corporation and Syntroleum Corporation, dated as of
March 30, 1998 (incorporated by reference to Exhibit 2 to SLH's Current Report on Form 8-K dated March
30, 1998).
*2.3 Copy of Blanket Assignment, Bill of Sale, Deed and Assumption Agreement (incorporated by reference to
Exhibit 2(b) to SLH's Annual Report on Form 10-K for the year ended December 31, 1996).
*3.1 Articles of Incorporation of SLH Corporation (incorporated by reference to Exhibit 3(a) to the Form 10
of SLH filed December 24, 1996).
*3.2 Bylaws of SLH Corporation (incorporated by reference to Exhibit 3(b) to the Form 10 of SLH filed
December 24, 1996).
*4.1 Rights Agreement dated as of January 31, 1997 (incorporated by reference to Exhibit 4 to the Form 10/A
of SLH filed February 12, 1997).
4.2 Amendment to Rights Agreement dated as of March 30, 1998.
Each of SLH and Syntroleum are a party to debt instruments under which the total amount of securities
authorized does not exceed 10% of the total assets of SLH or Syntroleum, respectively, and its
subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)(A) of Item 601(b) of Regulation S-K,
SLH agrees to furnish a copy of such instruments to the Commission upon request.
5.1 Form of opinion of Lathrop & Gage L.C. concerning the legality of the securities being registered.
8.1 Form of opinion of Baker & Botts, L.L.P. concerning the tax consequences of the Merger.
*10.1 Copy of Facilities Management and Interim Services Agreement (incorporated by reference to Exhibit 10(a)
to SLH's Annual Report on Form 10-K for the year ended December 31, 1996).
*10.2 Copy of Tax Sharing Agreement (incorporated by reference to Exhibit 10(b) to SLH's Annual Report on Form
10-K for the year ended December 31, 1996).
*10.3 Copy of SLH Corporation 1997 Stock Incentive Plan (incorporated by reference to Exhibit 10(c) to the
Form 10/A of SLH filed February 12, 1997).
*10.4 Form of Employment Agreements with certain executive officers of SLH (incorporated by reference to
Exhibit B to Exhibit 2(a) to Form 10/A of SLH filed February 3, 1997).
*10.5 Form of Option Agreement under the Stock Option Plan (incorporated by reference to Exhibit 10(e) to
SLH's Annual Report on Form 10-K for the year ended December 31, 1997).
*10.6 Form of Option Agreement with certain Directors under the Stock Option Plan (incorporated by reference
to Exhibit 10(f) to SLH's Annual Report on Form 10-K for the year ended December 31, 1997).
*10.7 Certified copy of resolutions approving a certain bonus arrangement for James R. Seward (incorporated by
reference to Exhibit 10(g) to SLH's Annual Report on Form 10-K for the year ended December 31, 1997).
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
10.8 Form of consent to adjustment to option agreements called for by Section 2.1(c) of the Agreement and
Plan of Merger by and between SLH Corporation and Syntroleum Corporation dated as of March 30, 1998.
<C> <S>
10.9 Form of Master License Agreement of Syntroleum.
10.10 Form of Indemnification between Syntroleum and each of its directors.
*10.11 1993 Stock Option and Incentive Plan of Syntroleum (incorporated by reference to Appendix E to the Joint
Proxy Statement/Prospectus included in this Registration Statement).
*10.12 Stock Option Plan for Outside Directors of Syntroleum (incorporated by reference to Appendix F to the
Joint Proxy Statement/Prospectus included in this Registration Statement).
10.13 First Amended and Restated Operating Agreement of Syntroleum/Sweetwater Company, L.L.C. dated January
12, 1998 by and among Syntroleum, SLH and such other persons who may be admitted as members of
Syntroleum/Sweetwater Company, L.L.C. as provided therein.
10.14 Purchase Agreement dated January 12, 1998 by and between Syntroleum and Enron Capital Trade Resources
Corp.
+10.15 Employment Agreement between Syntroleum and Kenneth L. Agee.
+10.16 Employment Agreement between Syntroleum and Mark A. Agee.
+10.17 Employment Agreement between Syntroleum and Charles A. Bayens.
+10.18 Employment Agreement between Syntroleum and Eric Grimshaw.
+10.19 Employment Agreement between Syntroleum and Peter Snyder.
+10.20 Employment Agreement between Syntroleum and Randall M. Thompson.
+10.21 Employment Agreement between Syntroleum and Larry Weick.
21.1 Significant Subsidiaries of SLH Corporation
Scout Development Corporation (a Missouri corporation)
Scout Development Corporation of New Mexico (a Missouri corporation)
BMA Resources, Inc. (a Missouri corporation)
529 Partners Ltd (a Texas limited partnership)
Lot Development, Inc. (a Texas corporation)
21.2 Significant Subsidiaries of Syntroleum
Syntroleum/Sweetwater Company, L.L.C. (a Delaware limited liability company)
23.1 Consent of Lathrop & Gage L.C. (see Exhibit 5.1).
23.2 Consent of Baker & Botts, L.L.P. (see Exhibit 8.1).
23.3 Consent of KPMG Peat Marwick LLP with respect to their report on Financial Statements of SLH
Corporation.
23.4 Consent of Arthur Andersen LLP with respect to their report on Financial Statements of Syntroleum
Corporation.
+23.5 Consent of Kenneth L. Agee as person to become a director.
+23.6 Consent of Mark A. Agee as person to become a director.
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
+23.7 Consent of Alvin R. Albe, Jr. as person to become a director.
<C> <S>
+23.8 Consent of Frank M. Bumstead as person to become a director.
+23.9 Consent of Robert Rosene, Jr. as person to become a director.
+23.10 Consent of J. Edward Sheridan as person to become a director.
24.1 Powers of Attorney executed by all officers and directors of Registrant who have signed the Registration
Statement (included on signature page).
27.1 Financial Data Schedule.
99.1 Form of proxy card of SLH Corporation.
99.2 Form of proxy card of Syntroleum Corporation.
</TABLE>
- ------------------------
* Incorporated by reference as indicated.
+ To be filed by amendment.
II-9
<PAGE>
Exhibit 4.2
FIRST AMENDMENT TO
THE RIGHTS AGREEMENT
BETWEEN
SLH CORPORATION
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY
THIS FIRST AMENDMENT TO THE RIGHTS AGREEMENT is made and entered into as of
the 30th day of March, 1998, by and between SLH Corporation, a Kansas
corporation "SLH") and American Stock Transfer & Trust Company (the "Rights
Agent").
W I T N E S S E T H:
WHEREAS, SLH and the Rights Agent entered into that certain Rights
Agreement dated January 31, 1997 (the "Rights Agreement"); and
WHEREAS, in connection with the proposed merger between SLH and Syntroleum
Corporation, SLH and the Rights Agent deem it desirable to 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 upon
execution of the Agreement and Plan of Merger Agreement by and between SLH and
Syntroleum Corporation, pursuant to Section 27 of the Rights Agreement by 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, Mark A. Agee
nor members of their immediate families, individually or collectively,
shall be deemed an Acquiring Person in connection with the announcement,
performance or consummation of the Agreement and Plan of Merger between SLH
Corporation and Syntroleum Corporation, dated as of March 30, 1998 and any
amendment or modification thereof."
2. Except as expressly amended hereby, the Rights Agreement shall remain
in full force and effect in accordance with the provisions thereof.
3. This First 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.
<PAGE>
4. This First 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 Agreement to be
duly executed and attested, all as of the day and year first above written.
SLH CORPORATION
By: /s/ James R. Seward
-------------------------------------
James R. Seward, President
ATTEST:
By: /s/ Steven K. Fitzwater
-------------------------------
Steven K. Fitzwater, Secretary
AMERICAN STOCK TRANSFER & TRUST COMPANY
By: /s/ Herbert L. Lemmer
-------------------------------------
Print Name: Herbert L. Lemmer
-----------------------------
Title: Vice President
----------------------------------
ATTEST:
By: /s/ Geraldine M. Zarbo
-----------------------------
Print Name: Geraldine M. Zarbo
---------------------
Title: Vice President
--------------------------
-2-
<PAGE>
Exhibit 5.1
LATHROP & GAGE L.C.
LAW OFFICES
2345 Grand Boulevard 1050/40 Corporate Woods
Suite 2800 9401 Indian Creek Parkway
Kansas City, Missouri 64108-2684 Overland Park, Kansas 66210-2007
816-292-2000, Fax 816-292-2001 816-292-2000, Fax 913-451-0875
JOHN H. CALVERT
816-460-5807
[email protected] or [email protected]
_________, 1998
Board of Directors
SLH Corporation
5000 West 95th Street, Suite 260
P.O. Box 7568
Shawnee Mission, Kansas 66207
Re: Offering by SLH Corporation (the "Company") of shares of SLH
Corporation Common Stock, $0.01 par value and associated
preferred share purchase rights (the "Common Stock") pursuant to
that certain Agreement and Plan of Merger by and between SLH
Corporation and Syntroleum Corporation, a copy of which has been
filed with the Commission as Exhibit 2 to the Company's Current
Report on Form 8-K dated March 30, 1998 (the "Merger Agreement")
and a registration statement of the Company on Form S-4 that has
been filed with the Securities and Exchange Commission (the
"Registration Statement").
Gentlemen,
We have acted as counsel to the Company in connection with the above
referenced Offering pursuant to which the Company proposes to issue shares
of its Common Stock to the holders of Common Stock of Syntroleum Corporation
in accordance with the terms of the Merger Agreement.
We have examined the Merger Agreement, the Articles of Incorporation and
Bylaws of the Company, as amended, the proceedings of the Board of Directors
of the Company in connection with the authorization, execution and delivery
of the Merger Agreement and the filing of the Registration Statement,
certificates of officers of the Company and of state officials and such other
documents as we have deemed necessary in order to express the opinion set out
herein. As to certain questions of fact material to our opinion we have,
without independent investigation, relied upon the representations and
warranties of the parties as set forth in the Merger Agreement and
certificates of officers of the Company. We have also assumed the
genuineness of all signatures on original documents and certificates examined
by us.
<PAGE>
_____________, 1998
Page 2
Our opinion is limited to the matters expressly set forth herein, and no
opinion is to be implied or may be inferred beyond the matters expressly so
stated. Our opinion is also limited to the effect of the laws of the state of
Kansas and the Federal laws of the United States. We express no opinion with
respect to the effect of the laws of any other jurisdiction on the matters
referred to herein. We further disclaim any obligation to update this opinion
letter for events occurring after the date of this opinion letter.
Based upon the foregoing, and assuming that (i) the Merger Agreement is
approved by the holders of the requisite number of shares of capital stock of
the parties thereto, (ii) that all conditions to the Merger Agreement are
either satisfied or properly waived, and (iii) that the Merger Agreement is
properly filed with and certificates of merger with respect thereto are duly
issued by the Secretaries of State of Kansas and Oklahoma, all as
contemplated by the Merger Agreement, we are of the opinion that the Common
Stock, when issued to the stockholders of Syntroleum pursuant to the Merger
Agreement, will be duly authorized, legally issued, fully paid and
non-assessable.
We consent to the use of this opinion in the Registration Statement and
in pre-effective and post-effective amendments thereto. We also consent to
the use of this opinion and to the reference to our firm under the caption
("Legal Opinions") in the Prospectus and Proxy Statement of the Registration
Statement and amendments thereto.
Very truly yours,
LATHROP & GAGE L.C.
By:
John H. Calvert
<PAGE>
BAKER & BOTTS
L.L.P.
ONE SHELL PLAZA
AUSTIN 910 LOUISIANA TELEPHONE: (713) 229-1234
DALLAS HOUSTON, TEXAS 77002-4995 FACSIMILE: (713) 229-1522
MOSCOW
NEW YORK
WASHINGTON, D.C.
GRAY JENNINGS E-MAIL ADDRESS:
(713) 229-1640 GRAY [email protected]
___________, 1998
SLH Corporation
Shawnee Mission, Kansas
Syntroleum Corporation
Tulsa, Oklahoma
We have represented Syntroleum Corporation, an Oklahoma corporation
("Syntroleum"), in connection with the merger of Syntroleum with and into SLH
Corporation, a Kansas corporation ("SLH"), pursuant to that certain Agreement
and Plan of Merger dated as of March 30, 1998 (the "Agreement and Plan of
Merger"). This letter (1) is being delivered pursuant to Section 6.1(h) of the
Agreement and Plan of Merger.
In the Merger, each holder of a share of common stock, par value
$0.001 per share, of Syntroleum ("Syntroleum Common Stock") will receive a
number (which is determined pursuant to a formula) of shares of common stock,
par value $0.01 per share of SLH ("SLH Common Stock (2) and cash in lieu of a
fractional share of SLH Common Stock. Under applicable local law, a holder of
Syntroleum Common Stock has the right to dissent from the Merger and to
receive cash in lieu of SLH Common Stock in exchange for his or her
Syntroleum Common Stock.
Assuming that the statements which SLH or Syntroleum represent to be
true in the Tax Certificate which is attached hereto are true and that the
Merger is effected pursuant to the Agreement and Plan of Merger, we are of the
opinion that the United States federal income tax consequences of the Merger
include the following:
- ------------------
(1) Capitalized terms to which no meaning is assigned herein have the meaning
assigned thereto in the Agreement and Plan of Merger. Section numbers herein
refer to the Internal Revenue Code of 1986, as amended and the regulations
issued thereunder except as indicated to the contrary.
(2) Each share of SLH Common Stock has attached to it the right to purchase
in certain events shares of junior participating preferred stock of SLH.
References herein to shares of SLH Common Stock are to shares of SLH Common
Stock and to the associated rights.
<PAGE>
BAKER & BOTTS
L.L.P.
SLH Corporation -2- April 14, 1998
Syntroleum Corporation
(a) The merger of Syntroleum with and into SLH will be a
reorganization, within the meaning of Section 368(a), and Syntroleum and
SLH will each be a party to the reorganization, within the meaning of
Section 368(b).
(b) No gain or loss will be recognized for United States federal
income tax purposes by SLH or Syntroleum as a result of the Merger.
(c) Gain or loss will be recognized by a holder of Syntroleum Common
Stock who exchanges all of his shares of Syntroleum Common Stock for shares
of SLH Common Stock and cash in lieu of a fractional share only in respect
of the cash. Such cash will be treated as if it were received in
redemption of a fractional share of SLH Common Stock which was received in
the Merger. Any such redemption should be treated as a distribution in
exchange for the fractional share.
(d) The aggregate basis of the shares of SLH Common Stock received by
a holder of Syntroleum Common Stock in the Merger (including any fractional
share in respect of which cash is received) will be the same as the
aggregate basis of the shares of Syntroleum Common Stock surrendered in
exchange therefor.
(e) The holding period of the shares of SLH Common Stock received by
a holder of Syntroleum Common Stock in the Merger (including any fractional
share in respect of which cash is received) will include the holding period
of the shares of Syntroleum Common Stock surrendered in exchange therefor,
provided that such shares of Syntroleum Common Stock are held as capital
assets when the Merger occurs.
The foregoing opinions are based upon the current provisions of the Internal
Revenue Code of 1986, as amended (the "Code") and upon certain Treasury
regulations, court decisions and certain rulings of the Internal Revenue Service
which have appeared in the Internal Revenue Cumulative Bulletin. The authorities
upon which our opinions are based are subject to change possibly with
retroactive effect.
The federal income tax consequences of a transfer at a later time to
SLH by BMA Resources, Inc. of any portion of the SLH Common Stock which it will
receive in the Merger is not discussed herein. Notwithstanding clause (c) above,
income will be recognized by a recipient of SLH Common Stock in the Merger if
any SLH Common Stock is received other than in exchange for the Syntroleum
Common Stock (such as for compensation), and income will be recognized by a
holder of SLH stock or of Syntroleum stock if either corporation were to pay,
directly or indirectly, any expenses incurred by any person in connection with
the Merger.
<PAGE>
We express no opinion as to the federal income tax consequences of the
Merger if any of the assumptions to our opinion are incorrect or as to the
federal income tax consequences of the receipt of cash in the Merger by a person
who dissents from the Merger, we provide herein no advice as to the accuracy of
any of such assumptions, and we express no opinion as to any other matter such
as, for example, the effect under any state, local, foreign or other federal tax
law of the Merger.
Our opinion is not binding upon the Internal Revenue Service or upon
any court. If the Internal Revenue Service challenges any of the conclusions
which are expressed herein, substantial expense may be incurred in dealing
therewith.
This opinion may not be relied upon by any person other than the
persons to whom it is addressed; nor may it be filed with any governmental
agency or be used for any other purpose without our prior written consent.
Sincerely,
BAKER & BOTTS, L.L.P.
By:
--------------------------------
Gray Jennings
<PAGE>
EXHIBIT C
TAX CERTIFICATE
Merger of Syntroleum Corporation into SLH Corporation
In connection with the merger (the "Merger") of Syntroleum
Corporation, an Oklahoma corporation ("Syntroleum"), with and into SLH
Corporation, a Kansas corporation ("SLH"), which is to occur pursuant to the
Agreement and Plan of Merger dated as of March 30, 1998 (the "Agreement and Plan
of Merger"), and which is described in the joint proxy statement of SLH and
Syntroleum with respect to the Merger (the "Proxy Statement"), each of the
undersigned hereby represents as of the Effective Time as provided herein.
Terms such as "stock", "distribution" or "regulated investment
company" which have meaning in the Internal Revenue Code of 1986, as amended
(the "Code"), are used herein with such meaning. Section numbers herein refer to
the Code and the regulations issued thereunder except as indicated to the
contrary. Capitalized terms to which no meaning is assigned herein have the
meaning assigned thereto in the Agreement and Plan of Merger.
This Tax Certificate contains the representations to which reference
is made in Section 3.1(u) of the Agreement and Plan of Merger and in Section
3.2(u) of the Agreement and Plan of Merger, is for the benefit of Syntroleum,
SLH, the holders of Syntroleum Common Stock, and the holders of SLH Common
Stock, and is entitled to the provisions of Section 8.6 of the Agreement and
Plan of Merger.
A. SLH and Syntroleum represent as follows:
1. The Agreement and Plan of Merger and the instruments and
other agreements which are described in the Agreement and Plan of
Merger are the entire understanding of SLH, Syntroleum, and any other
person with respect to the Merger. The consideration to be received
in the Merger by the holders of Syntroleum Common Stock was determined
by arm's length negotiations.
2. There is no intercorporate indebtedness between SLH and
Syntroleum that was issued, acquired or will be settled at a discount.
3. The number of shares of common stock, par value $0.001 per
share, of Syntroleum ("Syntroleum Common Stock") in respect of which
cash will be paid by reason of the exercise of dissenters' right is
less than 2.5 percent of the number of shares of Syntroleum Common
Stock which are outstanding immediately before the Merger.
4. The payment of cash in lieu of issuing fractional shares of
common stock, par value $0.01 per share, of SLH ("SLH Common Stock")
in the Merger is
<PAGE>
solely for the purpose of avoiding the expense and inconvenience to
SLH of issuing fractional shares and does not represent separately
bargained for consideration.
B. SLH represents as follows:
1. SLH's reasons for effecting the Merger are stated in "The
Merger - SLH's Reasons for the Merger" section of the Proxy Statement.
2. Neither SLH nor any person related thereto (within the
meaning of Treas. Reg. Section 1.368-1(e)(2)(i)) will (i) acquire
before the Merger but in connection with the Merger any Syntroleum
stock or (ii) acquire after the Merger but in connection with the
Merger any of the SLH Common Stock which is issued in the Merger from
a person to whom such SLH Common Stock was so issued in the Merger.
Each of the phrases "related" and "in connection with" has the meaning
which is assigned thereto in Treas. Reg. Section 1.368-1(e)(2).
3. SLH and the members of the Treas. Reg. Section 1.368-1(d)(4)(ii)
"qualified group" of which SLH is a member will, following the Merger,
continue the historic business of Syntroleum or use a significant portion
of Syntroleum's historic business assets in a business.
4. SLH will have no plan or intention to transfer any of the
assets which SLH acquires from Syntroleum in the Merger other than in
the ordinary course of business or as permitted by Section
368(a)(2)(C) or Treas. Reg. Section 1.368-2(k).
5. SLH will not be at the time of the Merger and will not have
been at any time during the five year period which precedes the Merger
the owner, for federal income tax purposes, of any shares of
Syntroleum Common Stock. BMA Resources, Inc., a wholly owned
subsidiary of SLH, will at the time of the Merger own certain shares
of Syntroleum Common Stock all of which were acquired by the end of
1995. Such shares will at the time of the Merger represent
approximately 31.3 percent of the shares of Syntroleum Common Stock
outstanding. BMA Resources, Inc. has no plan or intention to transfer
to SLH any of the shares of SLH Common Stock which it will receive in
the Merger, and SLH has no plan or intention to transfer or otherwise
dispose of any stock of or to liquidate BMA Resources, Inc.
6. No person who is related to SLH within the meaning of
Section 267(b) or Section 707(b)(1) will have acquired indebtedness of
Syntroleum in anticipation of the Merger.
7. The rights to purchase shares of junior participating
preferred stock of SLH which are associated with the SLH Common Stock
will at the time of the Merger not be exercisable.
-2-
<PAGE>
C. Syntroleum represents as follows:
1. Syntroleums's reasons for effecting the Merger are stated in
"The Merger - Syntroleum's Reasons for the Merger" of the Proxy
Statement.
2. The liabilities of Syntroleum and the liabilities to which
the assets of Syntroleum are subject were incurred by Syntroleum in
the ordinary course of its business. The adjusted basis of the assets
of Syntroleum for federal income tax purposes are, in the aggregate,
equal to or in excess of the sum of the liabilities of Syntroleum and
the liabilities to which the assets of Syntroleum are subject.
3. Syntroleum did not make prior to the Merger any distribution
(including a distribution in redemption of its stock) to its
stockholders as part of the plan of, or otherwise in connection with,
the Merger. Nor did a person related (as defined in Treas. Rep.
Section 1.368-1(c)(3) determined without regard to Treas. Reg. Section
1.368-1(e)(3)(i)(A)) to Syntroleum acquire before, but in connection
with, the Merger stock of Syntroleum.
4. No assets of Syntroleum were sold or otherwise transferred
prior to the Merger and in connection with the Merger which would
prevent SLH from continuing the historic business of Syntroleum or
from using a significant portion of Syntroleum's historic assets in a
business following the Merger. Syntroleum has no plan or intention
for SLH to transfer or otherwise dispose of any stock of or to
liquidate BMA Resources, Inc.
5. Syntroleum is not a regulated investment company, a real
estate investment trust, or a corporation 50 percent or more of the
value of whose assets are stock and securities and 80 percent or more
of the value of whose total assets are assets held for investment. In
making the "50 percent" and "80 percent" determinations under the
preceding sentence, (i) stock and securities in any subsidiary
corporation is disregarded and the parent corporation is deemed to own
its ratable share of the subsidiary's assets, (ii) a corporation is a
subsidiary if the parent owns 50 percent or more of the combined
voting power of all classes of stock entitled to vote or 50 percent or
more of the total value of all classes of stock outstanding,
(iii) cash and cash items (including receivables), Government
securities, and under regulations assets acquired for the purpose of
ceasing to be an investment company are disregarded, and
(iv) securities include obligations of State and local governments,
commodity futures contracts, shares of regulated investment companies
and real estate investment trusts and other investments constituting a
security within the meaning of the Investment Company Act of 1940.
6. Syntroleum is not a United States real property holding
company, within the meaning of Section 897(c) of the Code.
-3-
<PAGE>
7. Syntroleum is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of
the Code.
SLH Corporation, a Kansas corporation
By:
-------------------------------------------
Title:
----------------------------------------
Syntroleum Corporation, an Oklahoma corporation
By:
-------------------------------------------
Title:
----------------------------------------
-4-
<PAGE>
ACTION OF THE COMPENSATION COMMITTEE
OF SLH CORPORATION
Dated as of March 30, 1998
The undersigned being all of the members of the Nominating and
Compensation Committee (the "Committee") of SLH CORPORATION, a Kansas
corporation (the "Company"), do hereby take the following action in the name
of and on behalf of the Company:
BE IT RESOLVED, that pursuant to Section 17 of the SLH CORPORATION 1997
STOCK INCENTIVE PLAN (the "Plan"), and subject to approval by the
Stockholders of the Company of that certain AGREEMENT AND PLAN OF MERGER by
and between SLH Corporation and Syntroleum Corporation, dated as of March 30,
1998 (the "Merger Agreement") (which agreement details the adjustments herein
specified), at the Effective Time of the merger of Syntroleum Corporation
into SLH Corporation (the "Merger") as defined in the Merger Agreement, all
outstanding options issued under the Plan that are held by option holders who
consent to the adjustments herein enumerated ("Optionees") will be adjusted
such that as to each such option ("Option"):
1. the Merger shall not be deemed to involve any of the events
described in Section 9 of the Plan so that the Merger shall not trigger the
immediate vesting of otherwise unvested options outstanding at the Effective
Time; and
2. all Optionees who cease to be employees of the Company and all
Non-Employee Directors who cease to be Directors of the Company by virtue of
the Merger Agreement, shall be entitled to exercise any such Options held by
such Optionee at the Effective Time as follows:
a. FOR AN OPTIONEE WHO DOES NOT CONTINUE AS A DIRECTOR of
the Company following the Effective Time,
(1) IF HE DIES prior to the fifth anniversary of the
Effective Time, then the Option may be exercised to
the extent otherwise exercisable within one year
following the date of death; and
(2) IF HE DOES NOT DIE prior to the fifth anniversary of
the Effective Time, then the Option may be exercised
at any time prior to the anniversary of the
Effective Time but may not be exercised after the
fifth anniversary of the Effective Time;
b. FOR AN OPTIONEE WHO CONTINUES AS A DIRECTOR of the
Company following the Effective Time,
(1) IF HE DIES prior to the fifth anniversary of the
Effective Time or on a date 90 days after he ceases
to be a director of the Company, which ever last
occurs, then the Option may be
<PAGE>
exercised to the extent otherwise exercisable within
one year following the date of death; and
(2) IF HE DOES NOT DIE prior to the fifth anniversary of
the Effective Time, then the Option may be exercised
to the extent otherwise exercisable at any time
prior to the later of (a) the fifth anniversary of
the Effective Time or (b) 90 days following the date
the Option holder ceases to be a director of the
Company; provided, that in no event may the Option
be exercised after March 3, 2007.
3. The foregoing shall be deemed to adjust and otherwise supersede
any conflicting provisions contained in the Plan or the Option Agreements
covering the options, including the provisions of Section 3 of each Option
Agreement.
BE IT FURTHER RESOLVED, that consents to the foregoing adjustments may
be in the form attached hereto and may be executed on behalf of the Company
by any member of the Committee or by the President, Chairman or any Vice
President of the Company.
NOW, THEREFORE, the undersigned have executed this instrument as of this
30th day of March, 1998.
/s/ David W. Kemper
--------------------------
David W. Kemper
/s/ Lan Bentsen
--------------------------
Lan Bentsen
/s/ Michael E. Herman
--------------------------
Michael E. Herman
<PAGE>
CONSENT TO ADJUSTMENT IN STOCK OPTION
The undersigned holder of options granted under the SLH Corporation 1997
Stock Incentive Plan (the "Options"), as amended (the "Plan") hereby consents
to the adjustments to be made in unexercised Options held by the undersigned
that have been granted pursuant to the Plan and an Option Agreement dated
March 3, 1998 as set forth in the ACTION OF THE COMPENSATION COMMITTEE OF SLH
CORPORATION, dated as of March 30, 1998.
----------------------------------
Name:
-----------------------------
Date:
-----------------------------
Agreed to and Accepted this ____ day of ________, 1998
SLH Corporation
By
--------------------------------
James R. Seward, President
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
CONFIDENTIAL
MASTER LICENSE AGREEMENT
BETWEEN
SYNTROLEUM CORPORATION
AND
---------------
CONFIDENTIAL INFORMATION:
Use and distribution of this document is limited to the terms and conditions of
the confidentiality agreement dated _________ ____, 1997 between Syntroleum
Corporation and ________________.
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
MASTER LICENSE AGREEMENT
THIS LICENSE AGREEMENT is made and entered into as of this ___ day of
_____, 1997 by and between Syntroleum Corporation, an Oklahoma corporation
("Licensor"), and [________________], a [____delaware______] [___corporation___]
("Licensee").
RECITALS
A. WHEREAS, Licensor has developed and owns certain patent rights and
technical information relating to the Conversion Process; and
B. WHEREAS, Licensee desires to enter into a non-exclusive limited
license with Licensor to use Licensor Patent Rights and Licensor Technical
Information in practicing the Conversion Process in Licensed Facilities in the
Licensed Territory.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the Parties agree as follows:
1. DEFINITIONS
The following terms (whether or not underscored) when used in this
Agreement, including its preamble and recitals, shall, except where the context
otherwise requires, have the following meanings (such meanings to be equally
applicable to the singular and plural forms thereof).
1.01 "AFFILIATE" means, with respect to each Party, any person in which the
Party or its parent company(ies) (one or more parent companies in an upward
series) shall at the time
Initial___and___
1
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
in question directly or indirectly own a fifty percent (50%) or more interest in
such person. It is understood that: (i) a Party or its parent company(ies)
directly owns a fifty percent (50%) or more interest in a person if that Party
or its parent company(ies) individually or collectively hold(s) shares carrying
fifty percent (50%) or more of the voting power to elect directors or other
managers of such person, and (ii) a Party or its parent company(ies) indirectly
owns a fifty percent (50%) or more interest in a person if a series of companies
can be specified beginning with a Party or its parent company(ies), individually
or collectively, and ending with such person so related that each company of the
series, except such person, directly owns a fifty percent (50%) or more interest
in a later company in the series.
1.02 "AGREEMENT" means this Master License Agreement.
1.03 "BARREL" means forty-two (42) gallons of two hundred thirty-one (231)
cubic inches each, measured at sixty degrees Fahrenheit (60 DEG. F) and one (1)
atmosphere pressure.
1.04 "CHAIN-LIMITING CATALYST" means a type of catalyst for use in a
Fischer-Tropsch Reaction the primary products of which are predominately
hydrocarbon molecules of twenty (20) or fewer carbon atoms which remain liquid
at ambient temperature and pressure.
1.05 "CONFIDENTIAL INFORMATION" means information of Licensor or Licensee
disclosed to the other Party under this Agreement, including any formula,
pattern, compilation, program, apparatus, device, drawing, schematic, method,
technique, know-how, process or pilot plant data, and other non-public
information such as business plans or other technology that: (a) derives
economic value, actual or potential, from not being generally known to, and not
being readily ascertainable by proper means by, other persons who can obtain
economic value from its disclosure or use, and (b) is the subject
Initial___and___
2
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
of efforts that are reasonable under the circumstances to maintain its secrecy,
which information shall be disclosed in writing and labeled as "Confidential" or
the equivalent, or if disclosed verbally or in other non-written form,
identified as such at the time of disclosure and thereafter summarized in
writing by the disclosing Party within thirty (30) days of such initial
disclosure. Confidential Information includes, without limit, Licensor Catalyst
Information, Licensor Technical Information, and Licensee Technical Information.
1.06 "CONFIDENTIALITY AGREEMENT" means the agreement between _____________
and Licensor, dated ______________ __, 19__.
1.07 "CONVERSION PROCESS" means any process for the conversion of normally
gaseous hydrocarbons into a mixture of hydrocarbons which may be a combination
of normally gaseous, liquid, or solid hydrocarbons at ambient temperatures and
pressures and comprised of (a) autothermal reforming of a feed stream consisting
substantially of gaseous hydrocarbons in the presence of air, or oxygen-enriched
air to create an intermediate feed stream containing carbon monoxide and
molecular hydrogen, and (b) reacting the intermediate stream in the presence of
a Fischer-Tropsch catalyst to produce a product stream consisting of any
combination of gaseous, liquid or solid hydrocarbons at ambient temperature and
pressure. The Conversion Process includes all associated internal processes and
technologies such as heat integration, separation, or the recycle, use, or
consumption of hydrocarbons or other products. The Conversion Process does not
include any technology related to (i) pre-treatment of the natural gas feedstock
or (ii) post-processing the Fischer-Tropsch product stream for a purpose other
than that defined above.
1.08 "EFFECTIVE DATE" means the date set forth in the first paragraph of this
Agreement.
Initial___and___
3
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
1.09 "FISCHER-TROPSCH CATALYST" means any catalyst for use in a
Fischer-Tropsch Reaction including, but not limited to, Chain Limiting Catalyst
and High Alpha Catalyst.
1.10 "FISCHER-TROPSCH REACTION" means the catalytic reaction of carbon
monoxide and hydrogen, the primary products of which are hydrocarbons.
1.11 "HIGH ALPHA CATALYST" means a type of Fischer-Tropsch Catalyst, whose
alpha number, as calculated by the Schulz-Flory distribution equation, is 0.85
or higher.
1.12 "INVENTIONS OR IMPROVEMENTS" means any process, formula, composition,
device, catalyst (including both autothermal reforming catalysts and
Fischer-Tropsch Catalysts), apparatus, technology, know-how, operating
technique, improvement, modification, or enhancement relating to the use,
operation, or commercialization of the Conversion Process, which is discovered,
made, designed, developed or acquired by Licensee, solely or with others, since
the date of the Confidentiality Agreement, or used in a Licensed Plant, in each
instance whether patentable or not, including, without limitation, patents,
copyrights, and Confidential Information and further including the full scope
and content of the intellectual and tangible property included therein and
produced therefrom, e.g., drawings, prints, chemical formulae, prototypes, data,
computer programs and software, and the like. Inventions or Improvements shall
not include any information relating to methods of manufacturing catalysts for
use in the Conversion Process.
1.13 "LICENSE FEE" means the fee paid by Licensee to Licensor, as
consideration for granting a license pursuant to a Site License Agreement to use
Licensor Technology at a Licensed Plant, as calculated in accordance with
ATTACHMENT 3 of this Agreement, and does not include fees related to the
purchase of the associated Process Design Package for such Licensed Plant, any
catalyst or any catalyst markup.
Initial___and___
4
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
1.14 "LICENSED FACILITIES" means one or more Licensed Plants.
1.15 "LICENSED PLANT" means a plant (including modification, expansion or
replacement thereof) licensed to operate pursuant to a Site License Agreement
issued under the terms of this Agreement, at a site within the Licensed
Territory with a design production capacity measured in Barrels of Synthetic
Product per day, using or designed to use Licensor Technology to practice the
Conversion Process to produce Marketable Products.
1.16 "LICENSED TERRITORY" means all the countries of the world and their
respective territorial waters, except for United States of America, Canada,
Mexico, the People's Republic of China, India, and any country that, at the time
the applicable Site License is executed, may be prohibited or restricted by the
United States government from receiving Licensor Technology or the products
thereof.
1.17 "LICENSEE PATENT RIGHTS" means all rights with respect to patents and
patent applications of all relevant countries to the extent that the claims
cover features or aspects of Inventions or Improvements practiced in a Licensed
Plant, in each case to the extent that, and subject to the terms and conditions
under which, Licensee has the right to grant licenses, immunities or licensing
rights without having to make payment to others.
1.18 "LICENSEE TECHNICAL INFORMATION" means all unpatented Inventions or
Improvements practiced in a Licensed Plant, in each case to the extent that, and
subject to the terms and conditions under which, Licensee has the right to grant
licenses, immunities or licensing rights without having to make payment to
others.
1.19 "LICENSOR CATALYST INFORMATION" means, without limit, information
relating to any catalyst, catalyst formulation, conditioning procedure, start-up
procedure, regeneration procedure, or performance considered to be proprietary
by and to Licensor
Initial___and___
5
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
or acquired by Licensor which is useful in the practice of the Conversion
Process and which has been used commercially or is ready for commercial use.
Licensor Catalyst Information shall not include any information relating to
methods for manufacturing catalysts for use in the Conversion Process.
1.20 "LICENSOR CATALYST PATENT RIGHTS" means all rights with respect to
patents and patent applications of all relevant countries to the extent that the
claims cover features or aspects of catalysts useable in the Conversion Process
(including, without limitation, autothermal reforming catalysts and
Fischer-Tropsch Catalysts) and expressly excluding any process operating
techniques or apparatus or methods for manufacturing such catalysts, which are
acquired by Licensor (with right to sublicense) or are based on inventions
conceived by Licensor prior to termination of this Agreement; in each case to
the extent that, and subject to the terms and conditions, including the
obligation to account to and/or make payments to others, under which Licensor
has the right to grant licenses, sublicenses, immunities or licensing rights.
1.21 "LICENSOR PATENT RIGHTS" means all rights with respect to patents and
patent applications of all relevant countries to the extent that the claims
cover features or aspects of the Conversion Process (including, without
limitation, any operating techniques and apparatus and expressly excluding
Licensor Catalyst Patent Rights) which are acquired by Licensor (with right to
sublicense) or are based on inventions conceived by Licensor prior to
termination of this Agreement; in each case to the extent that, and subject to
the terms and conditions, including the obligation to account to and/or make
payments to others, Licensor has the right to grant licenses, sublicenses,
immunities or licensing rights.
1.22 "LICENSOR TECHNICAL INFORMATION" means all unpatented information
relating to the Conversion Process (including, without limitation, operating
techniques and apparatus for carrying out the Conversion Process and expressly
excluding Licensor Catalyst
Initial___and___
6
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
Information and Reactor Information) which (a) either (i) has been commercially
used or (ii) is in a stage of development suitable for commercial use, and
(b) has been made or acquired by Licensor (with right to sublicense) prior to
the termination of this Agreement; in each case to the extent that, and subject
to, the terms and conditions, including the obligation to account to and/or make
payments to others, under which Licensor has the right to disclose and grant
rights to others.
1.23 "LICENSOR TECHNOLOGY" includes Licensor Technical Information and
Licensor Patent Rights related to the practice of the Conversion Process and
Licensor Catalyst Information and Licensor Catalyst Patent Rights related to the
use of Licensor catalysts in the practice of the Conversion Process but
expressly excluding the right to make, have made, or sell Licensor Catalysts.
1.24 "LUBRICANTS" means hydrocarbon base oils which can be made into, or
blended with other base oils to be made into, without limit (a) automotive
lubricating oils such as PCMO, HDD, transmission and hydraulic fluids, and gear
oils; (b) industrial lubricants such as metalworking lubricants, process oils,
white oils, agricultural spray oils, de-foamers, cutting and quenching oils, and
rubber processing oils; (c) greases; (d) drilling fluids; or (e) any other
specialty product agreed to by the Parties which is not a Marketable Product.
1.25 "MARKETABLE PRODUCTS" means finished hydrocarbon fuels, hydrocarbons
consumed as fuel, or fuel blending stocks including, but not limited to, diesel,
kerosene, gasoline, and naphtha processed from Synthetic Product and expressly
excluding waxes, chemicals, Lubricants, or any other specialty hydrocarbon
products and subject to the express condition that Marketable Products shall be
produced from Synthetic Product at the Licensed Plant or produced from Synthetic
Product at a separate facility operated by the Licensee, its Affiliates, or
third Persons who are contractually committed to Licensee or its Affiliate to
produce only Marketable Products from such Synthetic Product.
Initial___and___
7
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
Notwithstanding the foregoing, Marketable Products shall be deemed to include
any products:
(a) produced at any location by any Person from a blended stream of
Synthetic Product and at least 15 % by volume of produced crude
oil or condensate, in which the Synthetic Product, before any
blending,
(i) remains a liquid at sixty degrees Fahrenheit (60 DEG. F)
and one (1) atmosphere pressure or,
(ii) has a chemical composition consisting of molecules having
at least 85 % by volume of which contain no more than 20 carbon
atoms each and no more than 1 % by volume of which contains more
than 40 carbon atoms each; or
(b) produced at any location by any Person from a blended stream of
Synthetic Product and at least 40 % by volume produced crude oil or
condensate such that after blending the mixture is a transportable
liquid, expressly excluding slurries; or
(c) produced by blending individual fractions distilled from Synthetic
Product with at least 50 % by volume of like distilled fractions
from produced crude oil or condensate, in which each distilled
fraction from Synthetic Product, before any blending, has a
chemical composition consisting of molecules having at least 85 %
by volume of which contain no more than 20 carbon atoms each and no
more than 1 % by volume of which contains more than 40 carbon atoms
each, wherein the blending is performed at any location by the
Licensee, its Affiliates, or third Persons who are contractually
committed to Licensee or its Affiliate to produce only Marketable
Products from such Synthetic Product.
Initial___and___
8
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
Notwithstanding the above language in this SECTION 1.25 hydrocarbons consumed
as fuel by Licensee or its Affiliates at locations which satisfy the conditions
of this SECTION 1.25 are Marketable Products, regardless of whether or not they
happen to be waxes, chemicals, Lubricants, or any other specialty hydrocarbon
products.
1.26 "PARTICIPATING INTEREST" means at least a ten percent (10%) working, net
profits, equity, or other economic interest, owned directly or indirectly
through another entity, in a Licensed Plant or Person owning or controlling a
Licensed Plant, but excluding a contract for operation of such Licensed Plant.
1.27 "PARTIES" means Licensor and Licensee.
1.28 "PARTY" means Licensor or Licensee.
1.29 "PERSON" means any natural person, corporation, partnership, limited
liability company, firm, association, trust, government, governmental agency or
any other entity, other than the Parties.
1.30 "REACTOR INFORMATION" means all information, including but not limited
to data, processes, plans, specifications, flow sheets, designs, and drawings,
relating to the internal design or functions, including, without limitation,
tube count, tube size and configuration and catalyst volume, relating to any
Licensor autothermal reformer or Fischer-Tropsch reactor, which, at any time
during the term of this Agreement, Licensor discloses to Licensee.
1.31 "REACTOR VENDOR" shall mean those fabricators approved by Licensor to
perform the fabrication and/or maintenance and repair of autothermal reformer or
Fischer-Tropsch
Initial___and___
9
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
reactors for installation and use in Licensed Facilities. Licensor may, from
time to time, add or remove any vendor from being a Reactor Vendor.
1.32 "PROCESS DESIGN PACKAGE" means a compilation of text, figures, drawings
and documentation, relating to the design and construction of a Licensed Plant,
in the form as attached to the Site License Agreement and which may be modified
from time to time by mutual consent of the Parties.
1.33 "SITE LICENSE AGREEMENT" means an agreement between the Parties, in the
form attached to this Agreement as ATTACHMENT 4 and which may be modified from
time to time by mutual written consent of the Parties, granting the right to
build and operate a single Licensed Plant, specifying in each case the site and
the nominal design capacity, in Barrels of Synthetic Product produced per day.
1.34 "START-UP DATE" means the first full calendar day following a five (5)
day period, after completion of catalyst pre-treatment and other preliminary
operations, during which the applicable Licensed Plant produces quantities of
Synthetic Product in an amount equal to at least 75% of the per-day design
production capacity of such Licensed Plant averaged over such 5 day period.
1.35 "SYNTHETIC PRODUCT" means those hydrocarbons, having a chemical
composition substantially consisting of molecules with five (5) or more carbon
atoms each, produced using Licensor Technology in the practice of the Conversion
Process at a Licensed Plant.
2. LICENSE GRANTS TO LICENSEE
2.01 Subject to the terms and conditions of this Agreement, Licensor grants
to Licensee a limited, non-exclusive, non-transferable (except as provided in
SECTION 2.06 and ARTICLE 8)
Initial___and___
10
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
right and license to use Licensor Patent Rights and Licensor Technical
Information to design, construct, operate and maintain (including modify, expand
and replace) Licensed Facilities under a separate Site License Agreement for
each Licensed Plant, to practice the Conversion Process to manufacture Synthetic
Product solely for the purpose of producing, using, and selling Marketable
Products anywhere in the world.
2.02 Subject to the terms and conditions of this Agreement, Licensor grants
to Licensee a limited, non-exclusive, non-transferable (except as provided in
SECTION 2.06 and ARTICLE 8) right to purchase from Reactor Vendors the
appropriate Fischer-Tropsch and autothermal reforming reactors for use in
the practice of the Conversion Process at a Licensed Plant. Licensee shall
have no right to make, have made, or sell any reactor based on Reactor
Information except as expressly provided in this SECTION 2.02.
2.03 Subject to the terms and conditions of this Agreement, Licensor grants
to Licensee (a) the right to purchase from Licensor the appropriate
Fischer-Tropsch Catalyst and, from either Licensor or a catalyst vendor
designated by Licensor, the appropriate autothermal reforming catalyst for use
in the practice of the Conversion Process at a Licensed Plant to manufacture
Synthetic Product solely for the purpose of producing, using, and selling
Marketable Products anywhere in the world and (b) a limited non-exclusive,
non-transferable (except as provided in SECTION 2.06 and ARTICLE 8) right and
license under Licensor Catalyst Patent Rights and Licensor Catalyst Information
to use such catalysts in the practice of the Conversion Process at a Licensed
Plant to manufacture Synthetic Product solely for the purpose of producing,
using, and selling Marketable Products anywhere in the world. The purchase price
for any catalyst purchased by Licensee from Licensor shall be equal to the
lowest of (a) Licensor's cost to produce or have produced such catalysts, plus a
markup of twenty five percent (25%), or (b) if, during the twelve (12) month
period prior to a catalyst purchase by Licensee, the same catalyst (at
comparable quantities) was sold by Licensor to a third party at a markup less
Initial___and___
11
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
than twenty five percent (25%), Licensee shall be entitled to the lower markup
for its current catalyst purchase. Licensor will, no more than once per year,
provide Licensee reasonable access to the relevant books of Licensor to verify
the lowest markup for such catalyst. Licensee shall have no rights to make,
have made, or sell any Licensor Fischer-Tropsch Catalyst or autothermal
reforming catalyst, which is proprietary to Licensor. Beyond the initial
catalyst fill, for a Licensed Plant, Licensee will have the right to buy
replacement catalyst from other catalyst suppliers. If Licensor specifies in
the Process Design Package an autothermal reforming catalyst commercially
available from a third party, Licensee shall have the right to purchase such
catalyst directly from a third party.
2.04 In the event Licensor for any reason is unable to supply Licensee with
such amounts of Fischer-Tropsch Catalyst as may be reasonably necessary for the
operation of a specific Licensed Plant, Licensor shall provide to one or more
catalyst vendors designated by Licensor the necessary catalyst recipe, together
with a non-exclusive limited license to make and sell such Fischer-Tropsch
Catalyst to Licensee for use in such Licensed Plant, and Licensee shall have the
right to purchase such Fischer-Tropsch Catalyst from such vendor for use in such
Licensed Plant on the same terms (including price) as set forth in SECTION 2.03.
2.05 Upon Licensee's written request, Licensor will execute a Site License
Agreement with respect to a specific proposed Licensed Plant if:
(a) Licensee has a Participating Interest in the proposed Licensed Plant
as represented in a Request for Site License Agreement (ATTACHMENT 1);
(b) Licensee is current on all payments due under prior Site License
Agreements for all Licensed Facilities under this Agreement in
accordance with their respective terms;
(c) there is not a material default under this Agreement for which
Licensee is responsible resulting from or affecting more than one
Licensed Plant; and
Initial___and___
12
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
(d) no Person having a Participating Interest in the proposed Licensed
Plant is in material default under any agreement relating to Licensor
Technology.
Until such time as the above conditions are satisfied, Licensee shall have no
right or license to use Licensor Technology at the proposed Licensed Plant.
2.06 During the term of this Agreement, Licensee may extend this Agreement to
any Affiliate, provided that Licensee shall first notify Licensor in writing of
any such extension and the acceptance of such extension by such Affiliate
pursuant to this SECTION 2.06. The Affiliate to which this Agreement may be
extended by Licensee shall be subject to and shall accept in writing (in the
form set forth in ATTACHMENT 2) the same obligations to which Licensee is
subjected under this Agreement and all terms and conditions of this Agreement
shall apply to such Affiliate with respect to its obligations and its rights
(except the right of extension as set forth in this SECTION 2.06) as if such
Affiliate had entered into this Agreement with Licensor effective as of the date
of such extension. Licensee warrants to Licensor the full performance by such
Affiliate of the obligations which are imposed upon such Affiliate as a result
of such extension of this Agreement and, notwithstanding any such extension,
Licensee shall still be liable to Licensor for all sums which become due from
such Affiliate to Licensor and for any default by such Affiliate in the
performance of its obligations under this Agreement.
2.07 Each Licensed Plant shall remain at the initial plant site for a minimum
of seven (7) years from Start-Up Date. Thereafter, Licensee may relocate a
Licensed Plant to a new plant site within the Licensed Territory without
obtaining a new Site License Agreement provided (i) request is made by Licensee
to Licensor in the form of EXHIBIT G of the Site License Agreement in which
Licensee agrees that the Licensed Plant will remain at the new site for minimum
of seven (7) years and (ii) the Licensee is not in default under the Site
License Agreement for the Licensed Plant. Notwithstanding the foregoing,
Licensed Plants
Initial___and___
13
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
utilizing gas from leases, concessions, or similar production sharing
arrangements in which Licensee or its Affiliates own at least a ten percent
(10%) working, net profits, equity, or other economic interest (excluding any
interest owned by a governmental entity) may, at any time, be relocated within
the geographic boundaries of any such leases, concessions, or similar production
sharing arrangements. Nothing in this Agreement shall prohibit Licensee or its
Affiliates from purchasing gas from other parties to manufacture Synthetic
Product at any Licensed Plant pursuant to this Agreement.
3. TECHNICAL ASSISTANCE
3.01 Licensee shall purchase and Licensor agrees to furnish to Licensee, or
to a contractor designated by Licensee, a Process Design Package for each
Licensed Plant according to the terms specified in SECTION 5.03 of this
Agreement.
3.02 Reactor Information necessary for each Licensed Plant shall be excluded
from the Process Design Package. However, those elements of Reactor Information
which are necessary to fabricate such reactors will be provided by Licensor
directly to one or more Reactor Vendors selected by Licensee to manufacture the
autothermal reformer and Fischer-Tropsch reactors from Licensor's then current
list of Reactor Vendors. Licensor may, from time to time, add or remove any
Reactor Vendor.
3.03 Except as may be set forth in a Process Design Package, the obligations
of Licensor under this Agreement do not include the performing of any basic or
detailed design, engineering, training, consulting, start-up, operating or
maintenance services with respect to any Licensed Plant. Licensor's
responsibilities for any such services in the design, construction and operation
(including maintenance) of any Licensed Plant shall be as set
Initial___and___
14
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
forth in one or more separate written engineering services agreement(s) (if any)
between Licensor and Licensee specifically applicable to each Licensed Plant.
3.04 Licensor agrees to disclose to Licensee, upon reasonable request but at
least once a year, (a) additions to Licensor Technology and (b) improvements or
inventions developed by Licensor or its Affiliates relating to Licensor
Technology which have been commercially used or which Licensor determines are in
a stage of development suitable for commercial use. Licensor shall permit
Licensee to reasonably inspect, at mutually convenient times, the operating
procedures, process conditions, material balances, energy consumption, catalyst
performance, and analyses of internal streams and/or Synthetic Product at
Licensor's pilot plant which are applicable to such improvements or inventions.
3.05 Licensee shall provide Licensor 90 days advance written notice of the
anticipated Start-up Date for each Licensed Plant. Licensee agrees to permit
Licensor and/or its representatives access to Licensee's Licensed Plants at
reasonable and convenient times, for inspection and if requested by Licensee,
training, by representatives of Licensor. Licensor shall have the right to
charge Licensee a reasonable fee for any training as may be agreed with the
Licensee on a case by case basis.
4. LICENSEE GRANTS TO LICENSOR
4.01 Licensor may, no more than one (1) time per year, request and Licensee
agrees to disclose to Licensor in writing any Inventions or Improvements related
to the Conversion Process provided that information disclosed to Licensee by
third parties under a written confidentiality agreement, without the Licensee
acquiring the right to use or otherwise exploit such information in any way,
need not be disclosed to Licensor pursuant to this SECTION 4.01 if such
disclosure would result in a violation of such confidentiality agreement.
Initial___and___
15
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
4.02 Subject to the terms and conditions of this Agreement, Licensee grants
to Licensor a limited, non-exclusive, irrevocable, royalty free, worldwide (i)
right and license under Licensee Patent Rights and (ii) right and license to use
Licensee Technical Information for the design, construction, operation and
maintenance (including modify, expand and replace) of facilities practicing the
Conversion Process, together with the right to grant corresponding sublicenses
of the Licensee Patent Rights and Licensee Technical Information to other
licensees of Licensor Technology for use at a licensed plant practicing the
Conversion Process, provided that any such licensee to whom a sublicense is to
be granted shall have granted reciprocal rights to Licensor to use and grant
sublicenses under such licensee's patent rights and technical information for
the benefit of Licensee. Licensee shall have the right to charge Licensor a
reasonable fee for any training with respect to Licensee Patent Rights and
Licensee Technical Information as may be agreed with the Licensor on a case by
case basis.
4.03 Should Licensee, during the term of this Agreement, make any patentable
Inventions or Improvements, Licensee may, at its sole discretion, file patent
applications with respect to such Inventions or Improvements in its own name and
at its own expense, and take such other steps as are necessary, in the sole
judgment of Licensee, to protect its rights in such Inventions or Improvements.
In the event Licensee declines to file any patent application with respect to
any Inventions or Improvements, it shall promptly notify Licensor in a timely
manner to allow Licensor, at its sole discretion, to file such patent
application at its sole expense, and to take such other steps as are necessary,
in its judgment, to protect the Parties' rights in such Inventions or
Improvements, subject to Licensee's obligation to account to third parties
therefore and provided that title to such Inventions or Improvements shall
remain in Licensee.
Initial___and___
16
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
4.04 Licensor and Licensee each agree that they will take all actions and
execute all documents and shall cause their employees, agents and contractors to
take all actions and execute all documents as are necessary or appropriate to
carry out the provisions of this ARTICLE 4 or to assist each other in the
preparation, filing and prosecution of patent applications or securing such
protection referenced in this ARTICLE 4 when so requested.
4.05 Licensee shall permit Licensor and/or its representatives to reasonably
inspect, at mutually convenient times, the operating procedures, process
conditions, material balances, energy consumption, catalyst performance, and
analyses of internal streams and/or Synthetic Product which are applicable to
Licensee's Inventions or Improvements at any Licensed Plant incorporating such
Inventions or Improvements.
4.06 Licensee agrees to provide, from time to time and upon request by
Licensor, samples of Marketable Products as they are produced by any of
Licensee's Licensed Plants to verify compliance with this Agreement. Licensor
agrees to limit its analysis of samples of Marketable Products to those analyses
necessary to determine compliance with the definition of Marketable Products.
5. LICENSE AND OTHER FEES
5.01 In consideration for the rights granted to Licensee by Licensor under
this Agreement, Licensee shall pay Licensor a non-refundable amount of
$ U.S. dollars upon execution of this Agreement. This amount shall be
fully credited against the first $ U.S. dollars in License Fees
payable by Licensee to Licensor under this Agreement.
5.02 Licensee agrees to pay fees to Licensor in accordance with ATTACHMENT 3
for each Licensed Plant.
Initial___and___
17
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
5.03 In addition to the amounts to be paid by Licensee to Licensor under
SECTIONS 5.01 AND 5.02, Licensee agrees to pay Licensor for each Process Design
Package, a fee equal to the costs actually incurred by Licensor in preparing the
Process Design Package, plus 10% of the total of such actual cost. Such fee
shall be invoiced by Licensor to Licensee after delivery of a Process Design
Package and payment shall be due within 30 days from receipt of invoice by
Licensee.
5.04 All amounts payable under this Agreement shall be paid by Licensee to
Licensor at Licensor's address specified in SECTION 10.07, or to an account at a
bank specified by Licensor, in dollars of the United States of America.
5.05 In the event Licensee is required to withhold any taxes from amounts
payable to Licensor under this Agreement, Licensee agrees to provide Licensor at
the time of such withholding with a receipt or other evidence reflecting the
deposit of such taxes with the appropriate governmental agency.
6. WARRANTIES AND INDEMNITIES
6.01 Licensor represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Oklahoma, United States of America, and has full power and authority to enter
into and perform its obligations under this Agreement. The execution, delivery
and performance of this Agreement and all documents relating hereto by Licensor
have been duly and validly authorized by all requisite corporation action and
constitute valid and binding obligations of Licensor enforceable in accordance
with their respective terms.
Initial___and___
18
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
6.02 Licensee represents and warrants that it is a [____corporation____] duly
organized, validly existing, and in good standing under the laws of
[______delaware______], and has full power and authority to enter into and
perform its obligations under this Agreement including the right to grant the
rights and licenses as set forth in ARTICLE 4. The execution, delivery and
performance of this Agreement and all documents relating hereto by Licensee have
been duly and validly authorized by all requisite corporate action and
constitute valid and binding obligations of Licensee enforceable in accordance
with their respective terms.
6.03 Except as otherwise expressly set forth in this Agreement or other
written agreement between the Parties, LICENSOR MAKES NO AND HEREBY DISCLAIMS
ANY EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS OF ANY KIND, INCLUDING ANY
WARRENTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR ANY OTHER
WARRANTIES OR REPRESENTATIONS OF ANY KIND TO LICENSEE, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY OR REPRESENTATION WITH RESPECT TO USE OF LICENSOR
TECHNOLOGY AS AUTHORIZED HEREUNDER.
6.04 EXCEPT FOR UNAUTHORIZED DISCLOSURE OR USE OF CONFIDENTIAL INFORMATION OR
UNAUTHORIZED USE OF PATENT RIGHTS UNDER THIS AGREEMENT, IN NO EVENT SHALL A
PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE, OR
EXEMPLARY DAMAGES, INCLUDING WITHOUT LIMITATION, LOST PROFITS OR SAVINGS,
REGARDLESS OF THE FORM OF ACTION GIVING RISE TO SUCH A CLAIM FOR SUCH DAMAGES,
WHETHER IN CONTRACT OR TORT INCLUDING NEGLIGENCE, EVEN IF LICENSOR OR LICENSEE
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. BUT IF A PARTY IS FOUND
LIABLE, DESPITE THE ABOVE LANGUAGE, TO THE OTHER PARTY FOR SPECIAL, INDIRECT,
Initial___and___
19
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
CONSEQUENTIAL, INCIDENTAL, PUNITIVE, OR EXEMPLARY DAMAGES THEN THE MAXIMUM LIMIT
OF SUCH DAMAGES IS AGREED TO BE $5,000.
6.05 A Party will promptly advise the other Party in writing of any claim
made or lawsuit alleging infringement of any patent or copyright or
misappropriation of Confidential Information based on the design, construction
and/or operation of Licensed Facilities (including Synthetic Product or
marketable products produced from Licensed Facilities).
(a) If Licensee has made a modification to the Process Design Package,
with respect to a Licensed Plant, and infringement or misappropriation by such
Licensed Plant would not exist in the absence of Licensee's modification,
Licensee will be solely responsible for any claim or lawsuit. Licensee will (i)
promptly undertake at its own expense the defense of the claim or lawsuit, and
(ii) hold Licensor, its Affiliates, and their officers, directors, and employees
harmless from any liability, damages and other sums that may be assessed in or
become payable under any decree or judgment by any court or other tribunal which
results from such claim or lawsuit.
(b) If the design, construction and/or operation of a Licensed Plant
which is the basis for alleged infringement or misappropriation, is in
accordance with the designs, specifications and operating conditions (including,
but not limited to, catalysts) embodied in the Process Design Package for such
Licensed Plant, Licensor will (i) promptly undertake at its own expense the
defense of the claim or lawsuit, and (ii) hold Licensee, its Affiliates, and
their officers, directors, and employees harmless from any liability, damages
and other sums that may be assessed in or become payable under any decree or
judgment by any court or other tribunal which results from such claim or
lawsuit.
Initial___and___
20
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
(c) A Party will render all reasonable assistance that may be required
by the other Party in the defense of claim or lawsuit alleging infringement or
misappropriation and such Party shall have the right to be represented therein
by advisory counsel of its selection and at its expense.
(d) In the event a court or other tribunal finds that infringement
and/or misappropriation has occurred not as a result of Licensee's
modifications, Licensor shall have the option, at its sole expense, to either
(i) provide designs, specifications and/or operating conditions (including, but
not limited to, catalysts) and make modifications to the Licensed Plant which
avoid such infringement and/or misappropriation without degrading the economics
or performance of the Licensed Facilities, or (ii) acquire the right to continue
using the design, construction and operating conditions (including, but not
limited to, catalysts), which were the subject of such infringement and/or
misappropriation.
(e) Except as provided in (d) above, a Party shall not settle or
compromise any claim or lawsuit alleging infringement or misappropriation
without the written consent of the other Party if such settlement or compromise
obligates the other Party to make any payment or part with any property, to
assume any obligation or grant any licenses or other rights, or to be subject to
any injunction by reason of such settlement or compromise.
6.07 Licensor agrees to indemnify and hold harmless Licensee, its Affiliates,
and their officers, directors, and employees from and against the full amount of
any and all claims, demands, actions, damages, losses, costs, expenses, or
liability whatsoever (including without limitation the costs of litigation,
including reasonable attorneys' fees), for patent infringement, property (real
and personal) damage, personal injury or death, fines, or penalties arising in
whole or in part out of the use of Licensee Patent Rights and Licensee Technical
Information in a plant operated by Licensor or Person under license from
Licensor.
Initial___and___
21
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
6.08 Licensor agrees to indemnify and hold harmless Licensee, its Affiliates,
their officers, directors, and employees from and against the full amount of any
and all claims, demands, actions, damages, losses, costs, expenses, or liability
whatsoever (including without limitation the costs of litigation, including
reasonable attorneys' fees), for property (real and personal) damage, personal
injury or death, fines, or penalties arising in whole or in part out of acts or
omissions in the preparation and content (including design, engineering, and
specifications) of the Process Design Package for the Licensed Facilities.
6.09 Licensee agrees to indemnify and hold harmless Licensor, its Affiliates,
their officers, directors, and employees from and against the full amount of any
and all claims, demands, actions, damages, losses, costs, expenses, or liability
whatsoever (including without limitation the costs of litigation, including
reasonable attorneys' fees), for property (real and personal) damage, personal
injury or death, fines, or penalties arising in whole or in part out of acts or
omissions outside the scope of or any modification to the content (including
design, engineering, and specifications) of the Process Design Package for the
Licensed Facilities.
6.10 Licensor's total obligation and liability to indemnify and hold Licensee
harmless for any and all claims (i) under this ARTICLE 6, including but not
limited to all expenses incurred by Licensor in assuming Licensee's defense,
making modifications to the Licensed Plant and for paying any judgments or
settlements on Licensee's behalf, or for any other reason contemplated by this
ARTICLE 6, (ii) for failure to meet any process guarantees that may have been
provided under a separate agreement, or (iii) for any other indemnification made
by Licensor pursuant to this Agreement, shall in no event exceed 50% of the
total License Fees received from the Licensee for any Licensed Plant that is
subject to the above claims.
Initial___and___
22
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
6.11 Licensee's total obligation and liability to indemnify and hold Licensor
harmless for any and all claims (i) under this ARTICLE 6 including but not
limited to all expenses incurred by Licensee in assuming Licensor's defense and
for paying any judgments or settlements on Licensor's behalf, or for any other
reason contemplated by this ARTICLE 6, or (ii) for any other indemnification
made by Licensee pursuant to this Agreement, shall in no event exceed 50% of the
total License Fees received by Licensor from Licensee for any Licensed Plant
that is subject to the above claims.
7. CONFIDENTIALITY AND LIMITATIONS
7.01 Licensee agrees that any Confidential Information disclosed by Licensor
or an Affiliate directly or indirectly to Licensee during the period from the
date of Licensee's execution of the Confidentiality Agreement through the term
of this Agreement, will be kept confidential by Licensee for a period of fifteen
(15) years after the date of each disclosure, but not to exceed five (5) years
after the termination of this Agreement or fifteen (15) years from the Effective
Date, whichever last occurs, with the same standard of care Licensee uses to
protect its own similar confidential information and, except as otherwise
provided in this Agreement, will not be disclosed to others or copied or
duplicated (except for internal use), and will be used by Licensee solely as it
relates to this Agreement, and for no other purpose, including Licensee's
research, development or commercial activities related to the Conversion Process
for its own account. To the extent reasonably necessary to carry out the
purposes of this Agreement, Licensee may disclose any of the foregoing
information to an Affiliate, provided that the Affiliate has agreed in writing
to be bound by this Agreement.
7.02 Licensor agrees that any Confidential Information disclosed by Licensee
or an Affiliate directly or indirectly to Licensor during the term of this
Agreement will be kept confidential by Licensor for a period of fifteen (15)
years after the date of each disclosure,
Initial___and___
23
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
but not to exceed five (5) years after the termination of this Agreement or
fifteen (15) years from the Effective Date, whichever last occurs, with the same
standard of care Licensor uses to protect its own similar confidential
information, and except as otherwise provided in this Agreement, will not be
disclosed to others or copied or duplicated, and will be used by Licensor solely
in the development, marketing and licensing of the Conversion Process, and for
no other purpose. Licensor may disclose such Confidential Information to third
parties who have executed a secrecy agreement with confidentiality terms similar
to the confidentiality provisions of this Agreement. To the extent reasonably
necessary to carry out the purposes of this Agreement, Licensor may disclose any
of the foregoing information to an Affiliate, provided that the Affiliate has
agreed in writing to be bound by the relevant provisions of this Agreement.
7.03 A Party shall not be subject to the restrictions set forth in SECTIONS
7.01 AND 7.02 as to the disclosure, duplication or use of disclosed Confidential
Information, which the receiving Party can prove by competent evidence (a) was
already known to the receiving Party or an Affiliate prior to the disclosure
thereof by the disclosing Party; (b) is or becomes part of the public knowledge
or literature without breach of this Agreement by the receiving Party but only
after it becomes part of the public knowledge or literature; (c) shall otherwise
lawfully become available to the receiving Party or an Affiliate from a third
party but only after it becomes so available and provided the third party is not
under obligation of confidentiality to disclosing Party; or (d) is developed by
the receiving Party or an Affiliate independently of any disclosure by the
disclosing Party to the receiving Party or an Affiliate under this Agreement or
independently of any joint research and development activities of Licensee and
Licensor which may occur under a separate agreement. Any Confidential
Information disclosed shall not be deemed to fall within the confidentiality
exceptions of this SECTION 7.03 merely because it is embraced by more general
information. In any such case set forth in SECTION 7.03(a), (b), (c), AND (d),
the receiving Party shall not disclose to any third party that any such
information was also
Initial___and___
24
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
made available to or acquired by the receiving Party or an Affiliate from the
disclosing Party, and such release from the secrecy obligation shall not be
considered as a license to make, sell, use or operate under any of the
disclosing Party's proprietary rights.
7.04 The receiving Party shall limit access to the Confidential Information
disclosed to it to those employees of the receiving Party or an Affiliate who
reasonably require the same and who are under a legal obligation of
confidentiality on the terms set forth in SECTION 7.01 and SECTION 7.03. The
receiving Party shall be responsible to the disclosing Party for the performance
by its employees of their confidentiality obligations. The receiving Party
shall keep a record of any Confidential Information marked "Limited Access" and
the identity of each employee who has access to Confidential Information so
marked. The receiving Party shall inform the other Party of the identity of
each such employee within 30 days of disclosure.
7.05 The Parties agree that they will each take all actions and execute all
documents, and shall cause their employees, agents and contractors to take all
actions and execute all documents as are necessary or appropriate to carry out
the provisions of this ARTICLE 7 or to assist each other in securing protection
of intellectual property and Confidential Information referenced in this
ARTICLE 7.
7.06 With respect to any catalyst furnished by Licensor to Licensee for use
by Licensee at the Licensed Facilities, Licensee will not, and Licensee will not
allow any other person to, analyze, break down, reverse engineer or otherwise
seek to determine the chemical composition, except for loss on ignition and bulk
density, of any such catalyst, except that Licensee shall be entitled to (a)
perform analyses that Licensor may from time to time specifically authorize in
writing, to the extent required for monitoring the performance of the Licensed
Facilities and for regeneration, reclamation or disposal of spent catalysts,
such authorization not to be unreasonably withheld, and (b) provide
Initial___and___
25
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
results of the aforementioned analyses to other parties to the extent required
for regeneration, reclamation or disposal of spent catalysts, but only after
such other parties have entered into an agreement with Licensor in a form
attached hereto as EXHIBIT E of the attached Site License Agreement. Licensor
will be provided with a copy of all such analyses which has been approved in
writing prior to release to other parties.
8. ASSIGNMENT AND TRANSFERS
8.01 Except for assignment to an Affiliate or the successor in interest, by
purchase or otherwise, of Licensee (but specifically excluding Exxon
Corporation, Royal Dutch Shell, Sasol Limited or any entity in which they have
an equity interest), which may be made without written consent of Licensor, this
Agreement shall not be assignable by Licensee without the prior written consent
of the Licensor, which consent will not be unreasonably withheld. Licensee will
promptly notify Licensor in writing of any assignment to an Affiliate, or such
successor in interest. Except for assignment to an Affiliate, or such successor
in interest, any attempted assignment of this Agreement by Licensee without
consent of Licensor shall be void.
8.02 In the event of the transfer of Licensee's Participating Interest in any
Licensed Plant to another Person other than an Affiliate, Licensee shall obtain
such Person's unconditional execution of the Site License Transfer Letter set
forth in EXHIBIT F of the Site License Agreement, and submit such Letter to
Licensor, whereupon if Licensor gives its written consent, such consent not to
be unreasonably withheld, then such Person to whom such Site License Agreement
shall have been transferred shall be substituted for Licensee for all purposes
in connection with such Licensed Plant. Licensor's refusal to consent may be
justified by Licensor's reasonable concern that assignee will not comply with
the terms of this Agreement. A transfer of Licensee's Participating Interest
does not relieve Licensee of its confidentiality obligations under this
Agreement with respect to Confidential
Initial___and___
26
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
Information associated with such transferred Participating Interest.
9. TERM AND TERMINATION
9.01 This Agreement shall extend for a period of fifteen (15) years following
the Effective Date, or five (5) years following the effective date of the last
Site License Agreement issued under this Agreement, whichever last occurs.
9.02 Upon the written notice from Licensor to Licensee of any material
default under this Agreement (including any material default under a Site
License Agreement), other than as noted in SECTION 2.05 (C), all rights of
Licensee under SECTION 2.05 of this Agreement, shall be suspended until such
default is cured by Licensee. Licensee's or an Affiliate's right to operate any
Licensed Plant which is in compliance with its Site License Agreement shall not
be affected by either a default under this Agreement or a default under another
Site License Agreement for another Licensed Plant. If a material default under
this Agreement shall continue for a period of one year following written notice
of such default to Licensee from Licensor without being cured by Licensee, then
Licensor shall have the right to (a) suspend all rights of Licensee under this
Agreement, or (b) terminate this Agreement upon written notice to Licensee. The
actions by Licensor under this SECTION 9.02 shall not prejudice Licensor from
enforcing any claim which it may have for damages or otherwise on account of the
default.
9.03 Termination of this Agreement shall not:
(a) relieve Licensee of its obligations to account for and pay all
amounts due Licensor under this Agreement and all Site License
Agreements executed by Licensee under this Agreement;
(b) affect any rights granted Licensee under Site License Agreements in
effect on the date of termination;
Initial___and___
27
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
(c) affect any rights granted under ARTICLE 4 with respect to Licensee
Patent Rights and Licensee Technical Information, which shall survive
termination in accordance with its terms; or
(d) affect the obligations of Licensor and Licensee under ARTICLES 6
AND 7 and SECTIONS 8.02 AND 10.02, which shall survive termination in
accordance with their terms.
9.04 No Party to this Agreement shall be in default in performing its
obligations under this Agreement to the extent that performing such obligations,
or any of them, is delayed or prevented by revolution, civil unrest, strike,
labor disturbances, epidemic, accident, fire, lightening, flood, storm,
earthquake, explosion, blockage or embargo, or any law, proclamation, regulation
or ordinance, or any other cause that is beyond the control and without the
fault or negligence of the Party asserting the benefit of this SECTION 9.04.
Each Party shall do all things reasonably possible to remove the cause of such
default.
9.05 Licensee shall have the right to terminate this Agreement in its sole
discretion, with or without cause, upon the delivery of written notice of
termination to Licensor no less than 90 days prior to the date of such
termination.
10. MISCELLANEOUS
10.01 This Agreement embodies the entire intent of the Parties and merges all
prior oral and written agreements between the Parties hereto with respect to
subject matter hereof, except for the Confidentiality Agreement. No stipulation,
agreement, representation or understanding of the Parties hereto shall be valid
or enforceable unless contained in this Agreement or in a subsequent written
agreement signed by the Parties hereto. In the event of a conflict between this
Agreement and a Site License Agreement executed pursuant to this Agreement, this
Agreement will govern.
Initial___and___
28
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
10.02 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA, WITHOUT REGARD TO
CONFLICT OF LAW PROVISIONS THEREOF. The Parties expressly and irrevocably
consent and submit to the jurisdiction of any federal court sitting in the state
of Oklahoma and agree that, to the fullest extent allowed by law, only such
Oklahoma federal courts, to the exclusion of all others, shall have jurisdiction
over any action, suit or proceeding arising out of or relating to this
Agreement. Provided, however, that in the event that no federal court in the
State of Oklahoma has jurisdiction over the Parties and the subject matter of
any action, suit, or proceeding, the Parties expressly and irrevocably consent
and submit to the jurisdiction of any state court sitting in the state of
Oklahoma and agree that, to the fullest extent allowed by law, only such
Oklahoma state courts, to the exclusion of all others, shall have jurisdiction
over any such action, suit or proceeding arising out of or relating to this
Agreement. The Parties each irrevocably waive, to the fullest extent allowed by
law, any objection either of them may have to the laying of venue of any such
suit, action or proceeding brought in any state or federal court sitting in, the
state of Oklahoma based upon a claim that such court is inconvenient or
otherwise an objectionable forum. Any process in any action, suit or proceeding
arising out of or relating to this Agreement may, among other methods, be served
upon any Party by delivering it or mailing it to their respective addresses set
forth herein. Any such delivery or mail service shall be deemed to have the
same force and effect as personal service in the State of Oklahoma.
10.03 This Agreement does not grant and shall not be construed as granting any
license, authorization or consent, to either Party by the other Party hereto, to
use any name, trademark, service mark or slogan of the other Party. A Party
shall not use the other Party's name without written consent, except for the
identification of the other Party as a Licensee or Licensor of Licensor
Technology. The terms of this Agreement will be maintained in
Initial___and___
29
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
confidence by each Party subject to the same standard of care each Party uses to
protect its confidential information, except as required by law. A press
release which includes the name of the other Party must have prior written
approval of the other Party, except as required by law.
10.04 Failure of either Licensor or Licensee at any time or from time to time
to exercise any of its rights under this Agreement or to insist upon strict
performance of the other Party's obligations hereunder shall not be deemed a
waiver of or to limit any of such rights or obligations with respect to such
rights or obligations or any subsequent occurrence.
10.05 Licensee may publish the existence of this Agreement but agrees not to
disclose, without the written consent of the Licensor, any of the terms of this
Agreement or any portion thereof, or any amendment concerning the same, except
to Persons directly involved with design, financing, construction, or operation
of a Licensed Plant on a need-to-know basis or as required by law.
10.06 Licensee agrees that all Licensor information, technology, patents, and
the product produced directly by the use thereof, when used outside the United
States of America, shall be used by Licensee subject to and in accordance with
regulations of any department or agency of the United States of America and
shall not be re-exported or trans-shipped to any destination requiring the
approval of the United States government for such re-exportation or
trans-shipment until a request to do so has been submitted to and approved by
the United States government and Licensor.
10.07 Should any part or provision of this Agreement be held unenforceable or
in conflict with the law of any state or of the United States of America or of
any foreign country, the validity of the remaining parts or provisions shall not
be affected by such holding.
Initial___and___
30
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
10.08 All notices hereunder shall be addressed to the Parties as follows:
(a) If to Licensor:
Syntroleum Corporation
400 S. Boston, Ste. 1000
Tulsa, Oklahoma 74103
Fax No.: (918) 592-7979
Phone No.: (918) 592-7900
ATTN: Kenneth L. Agee
with copy to:
Eric Grimshaw, Esq.
General Counsel
400 S. Boston, Ste. 1000
Tulsa, Oklahoma 74103
Fax No.: (918) 592-7979
Phone No.: (918) 592-7900
(b) If to Licensee:
---------------------
---------------------
---------------------
ATTN:
---------------
with copy to:
---------------------
---------------------
---------------------
ATTN:
---------------
Any notice required or permitted to be given under this Agreement by one of the
Parties to the other shall be deemed to have been sufficiently given for all
purposes hereof if mailed by registered or certified mail, postage prepaid,
addressed to such Party at its address
Initial___and___
31
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
indicated above, electronically transmitted and acknowledged by the other Party
or by actual delivery of written notice to the other Party.
Initial___and___
32
<PAGE>
COPY ____OF__6___
SYNTROLEUM MASTER LICENSE AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL - DO NOT COPY
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date set forth above.
Licensor
SYNTROLEUM CORP.
By:
--------------------------------
Kenneth L. Agee, CEO
Date:
------------------------------
Licensee
company
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Date:
------------------------------
Initial___and___
33
<PAGE>
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement"), made and entered into as
of the 1st day of September, 1997 by and between Syntroleum Corporation, an
Oklahoma corporation (the "Corporation"), and __________________________________
("Indemnitee"),
W I T N E S S E T H:
WHEREAS, Indemnitee is currently serving or is about to begin serving as a
director and/or officer of the Corporation and/or in another Corporate Status,
and Indemnitee is willing, subject to, among other things, the Corporation's
execution and performance of this Agreement, to continue in or assume such
capacity or capacities; and
WHEREAS, the Bylaws of the Corporation provide that the Corporation shall
indemnify directors and officers of the Corporation in the manner set forth
therein; and
WHEREAS, in order to induce Indemnitee to provide services as contemplated
hereby, the Corporation has deemed it to be in its best interest to enter into
this Agreement with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's agreement to provide
services to the Corporation and/or certain of its affiliates as contemplated by
this Agreement, the mutual agreements contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows.
1. CERTAIN DEFINITIONS
As used herein, the following words and terms shall have the following
respective meanings (whether singular or plural):
"CHANGE OF CONTROL" means a change in control of the Corporation after both
the date of the closing of the initial public offering (the "IPO") of the
Corporation's Common Stock to the public for cash that has been registered on a
registration statement that has been filed with and declared effective by the
Securities and Exchange Commission and after the date Indemnitee acquired his
Corporate Status, which shall be deemed to have occurred in any one of the
following circumstances occurring after such date: (i) there shall have occurred
an event required to be reported with respect to the Corporation in response to
Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item
or any similar schedule or form) promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), whether or not the Corporation is then
subject to such reporting requirement; (ii) any "person" (as such term is used
in Sections 13(d) and 14(d) of the Exchange Act) shall have become the
"beneficial owner" (as
<PAGE>
Syntroleum Indemnification Agreement
- --------------------------------------------------------------------------------
CONFIDENTIAL
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Corporation representing 40% or more of the combined voting
power of the Corporation's then outstanding voting securities without prior
approval of at least two-thirds of the members of the Board of Directors in
office immediately prior to such person attaining such percentage interest;
(iii) the Corporation is a party to a merger, consolidation, sale of assets or
other reorganization, or a proxy contest, as a consequence of which members of
the Board of Directors in office immediately prior to such transaction or event
constitute less than a majority of the Board of Directors thereafter; or
(iv) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (including, for this
purpose, any new director whose election or nomination for election by the
Corporation's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board of
Directors.
"CORPORATE STATUS" describes the status of Indemnitee as a director,
officer, employee, agent or fiduciary of the Corporation or of any other
corporation, partnership, limited liability company, association, joint venture,
trust, employee benefit plan or other enterprise that Indemnitee is or was
serving at the request of the Corporation.
"COURT" means the District Court of Tulsa County of the State of Oklahoma
or any other court of competent jurisdiction.
"OGCA" means the Oklahoma General Corporation Act, as amended from time to
time.
"EXPENSES" shall include all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, or being or preparing to be a witness in a
Proceeding.
"INDEPENDENT COUNSEL" means a law firm, or a member of a law firm, that is
experienced in matters of corporation law and neither presently is, nor in the
five years previous to his selection or appointment has been, retained to
represent: (i) the Corporation or Indemnitee in any matter material to either
such party or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder.
"MATTER" is a claim, a material issue or a substantial request for relief.
"PROCEEDING" includes any action, suit, arbitration, alternate dispute
resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, except one
initiated by Indemnitee pursuant to SECTION 6.01 of this Agreement to enforce
his rights under this Agreement.
2
<PAGE>
Syntroleum Indemnification Agreement
- --------------------------------------------------------------------------------
CONFIDENTIAL
2. SERVICES BY INDEMNITEE
2.01 SERVICES BY INDEMNITEE. Indemnitee agrees to serve or continue to serve
in his current capacity or capacities as a director, officer, employee,
agent or fiduciary of the Corporation. Indemnitee also agrees to serve,
as the Corporation may request from time to time, as a director,
officer, employee, agent or fiduciary of any other corporation,
partnership, limited liability company, association, joint venture,
trust or other enterprise in which the Corporation has an interest.
Indemnitee and the Corporation each acknowledge that they have entered
into this Agreement as a means of inducing Indemnitee to serve the
Corporation in such capacities.
2.02 TERMINATION OF SERVICES. Indemnitee may at any time and for any reason
resign from such position or positions (subject to any other contractual
obligation or any obligation imposed by operation of law). The
Corporation shall have no obligation under this Agreement to continue
Indemnitee in any such position for any period of time and shall not be
precluded by the provisions of this Agreement from removing or
terminating Indemnitee from any such position at any time.
3. INDEMNIFICATION
3.01 GENERAL. The Corporation shall, to the fullest extent permitted by
applicable law in effect on the date hereof, and to such greater extent
as applicable law may thereafter permit, indemnify and hold Indemnitee
harmless from and against any and all losses, liabilities, claims,
damages and, subject to SECTION 3.02, Expenses (as this and all other
capitalized words are defined in ARTICLE 1. of this Agreement),
whatsoever arising out of any event or occurrence related to the fact
that Indemnitee is or was a director or officer of the Corporation or is
or was serving in another Corporate Status.
3.02 EXPENSES. If Indemnitee is, by reason of his Corporate Status, a party
to and is successful, on the merits or otherwise, in any Proceeding, he
shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith. If Indemnitee
is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to any Matter in such Proceeding, the
Corporation shall indemnify Indemnitee against all Expenses actually and
reasonably incurred by him or on his behalf relating to such Matter.
The termination of any Matter in such a Proceeding by dismissal, with or
without prejudice, shall be deemed to be a successful result as to such
Matter. To the extent that the Indemnitee is, by reason of his
Corporate Status, a witness in any Proceeding, he shall be indemnified
against all Expenses actually and reasonably incurred by him or on his
behalf in connection therewith.
3
<PAGE>
Syntroleum Indemnification Agreement
- --------------------------------------------------------------------------------
CONFIDENTIAL
4. ADVANCEMENT OF EXPENSES
4.01 ADVANCES. In the event of any threatened or pending action, suit or
proceeding in which Indemnitee is a party or is involved and that may
give rise to a right of indemnification under this Agreement, following
written request to the Corporation by Indemnitee, the Corporation shall
promptly pay to Indemnitee amounts to cover expenses reasonably incurred
by Indemnitee in such proceeding in advance of its final disposition
upon the receipt by the Corporation of (i) a written undertaking
executed by or on behalf of Indemnitee providing that Indemnitee will
repay the advance if it shall ultimately be determined that Indemnitee
is not entitled to be indemnified by the Corporation as provided in this
Agreement and (ii) satisfactory evidence as to the amount of such
expenses.
4.02 REPAYMENT OF ADVANCES OR OTHER EXPENSES. Indemnitee agrees that
Indemnitee shall reimburse the Corporation for all expenses paid by the
Corporation in defending any civil, criminal, administrative or
investigative action, suit or proceeding against Indemnitee in the event
and only to the extent that it shall be determined pursuant to the
provisions of this Agreement or by final judgment or other final
adjudication under the provisions of any applicable law that Indemnitee
is not entitled to be indemnified by the Corporation for such expenses.
5. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION
5.01 REQUEST FOR INDEMNIFICATION. To obtain indemnification, Indemnitee
shall submit to the Secretary of the Corporation a written claim or
request. Such written claim or request shall contain sufficient
information to reasonably inform the Corporation about the nature and
extent of the indemnification or advance sought by Indemnitee. The
Secretary of the Corporation shall promptly advise the Board of
Directors of such request.
5.02 DETERMINATION OF ENTITLEMENT; NO CHANGE OF CONTROL. If there has been
no Change of Control at the time the request for indemnification is
submitted, Indemnitee's entitlement to indemnification shall be
determined in accordance with Section 1031 D of the OGCA. If
entitlement to indemnification is to be determined by Independent
Counsel, the Corporation shall furnish notice to Indemnitee within
10 days after receipt of the request for indemnification, specifying the
identity and address of Independent Counsel. The Indemnitee may, within
14 days after receipt of such written notice of selection, deliver to
the Corporation a written objection to such selection. Such objection
may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of Independent Counsel and the
objection shall set forth with particularity the factual basis for such
assertion. If there is an objection to the selection of Independent
Counsel, either the Corporation or Indemnitee may petition the Court for
a determination that the objection is without a reasonable basis and/or
for the appointment of Independent Counsel selected by the Court.
4
<PAGE>
Syntroleum Indemnification Agreement
- --------------------------------------------------------------------------------
CONFIDENTIAL
5.03 DETERMINATION OF ENTITLEMENT; CHANGE OF CONTROL. If there has been a
Change of Control at the time the request for indemnification is
submitted, Indemnitee's entitlement to indemnification shall be
determined in a written opinion by Independent Counsel selected by
Indemnitee. Indemnitee shall give the Corporation written notice
advising of the identity and address of the Independent Counsel so
selected. The Corporation may, within seven days after receipt of such
written notice of selection, deliver to the Indemnitee a written
objection to such selection. Indemnitee may, within five days after the
receipt of such objection from the Corporation, submit the name of
another Independent Counsel and the Corporation may, within seven days
after receipt of such written notice of selection, deliver to the
Indemnitee a written objection to such selection. Any objections
referred to in this SECTION 5.03 may be asserted only on the ground that
the Independent Counsel so selected does not meet the requirements of
Independent Counsel and such objection shall set forth with
particularity the factual basis for such assertion. Indemnitee may
petition the Court for a determination that the Corporation's objection
to the first and/or second selection of Independent Counsel is without a
reasonable basis and/or for the appointment as Independent Counsel of a
person selected by the Court.
5.04 PROCEDURES OF INDEPENDENT COUNSEL. If a Change of Control shall have
occurred before the request for indemnification is sent by Indemnitee,
Indemnitee shall be presumed (except as otherwise expressly provided in
this Agreement) to be entitled to indemnification upon submission of a
request for indemnification in accordance with SECTION 5.01 of this
Agreement, and thereafter the Corporation shall have the burden of proof
to overcome the presumption in reaching a determination contrary to the
presumption. The presumption shall be used by Independent Counsel as a
basis for a determination of entitlement to indemnification unless the
Corporation provides information sufficient to overcome such presumption
by clear and convincing evidence or the investigation, review and
analysis of Independent Counsel convinces him by clear and convincing
evidence that the presumption should not apply.
Except in the event that the determination of entitlement to
indemnification is to be made by Independent Counsel, if the person or
persons empowered under SECTION 5.02 or 5.03 of this Agreement to
determine entitlement to indemnification shall not have made and
furnished to Indemnitee in writing a determination within 60 days after
receipt by the Corporation of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have
been made and Indemnitee shall be entitled to such indemnification
unless Indemnitee knowingly misrepresented a material fact in connection
with the request for indemnification or such indemnification is
prohibited by applicable law. The termination of any Proceeding or of
any Matter therein, by judgment, order, settlement or conviction, or
upon a plea of NOLO CONTENDERE or its equivalent, shall not (except as
otherwise expressly provided in this Agreement) of itself adversely
affect the right of Indemnitee to indemnification or create a
presumption that Indemnitee did not act in good faith and in a manner
that he reasonably believed to be in or not opposed to the best
interests of the Corporation, or with respect to any criminal
Proceeding, that Indemnitee had reasonable cause to believe that his
conduct was
5
<PAGE>
Syntroleum Indemnification Agreement
- --------------------------------------------------------------------------------
CONFIDENTIAL
unlawful. A person who acted in good faith and in a manner he reasonably
believed to be in the interest of the participants and beneficiaries of
an employee benefit plan of the Corporation shall be deemed to have
acted in a manner not opposed to the best interests of the Corporation.
For purposes of any determination hereunder, a person shall be deemed to
have acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation, or, with
respect to any criminal action or Proceeding, to have had no reasonable
cause to believe his conduct was unlawful, if his action is based on the
records or books of account of the Corporation or another enterprise or
on information supplied to him by the officers of the Corporation or
another enterprise in the course of their duties or on the advice of
legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or
another enterprise by an independent certified public accountant or by
an appraiser or other expert selected with reasonable care by the
Corporation or another enterprise. The term "another enterprise" as
used in this Section shall mean any other corporation or any
partnership, limited liability company, association, joint venture,
trust, employee benefit plan or other enterprise of which such person is
or was serving at the request of the Corporation as a director, officer,
employee or agent. The provisions of this paragraph shall not be deemed
to be exclusive or to limit in any way the circumstances in which an
Indemnitee may be deemed to have met the applicable standards of conduct
for determining entitlement to rights under this Agreement.
5.05 INDEPENDENT COUNSEL EXPENSES. The Corporation shall pay any and all
reasonable fees and expenses of Independent Counsel incurred acting
pursuant to this ARTICLE 5. and in any proceeding to which it is a party
or witness in respect of its investigation and written report and shall
pay all reasonable fees and expenses incident to the procedures in which
such Independent Counsel was selected or appointed. No Independent
Counsel may serve if a timely objection has been made to his selection
until a Court has determined that such objection is without a reasonable
basis.
6. CERTAIN REMEDIES OF INDEMNITEE
6.01 ADJUDICATION. In the event that (i) a determination is made pursuant to
SECTION 5.02 or 5.03 hereof that Indemnitee is not entitled to
indemnification under this Agreement; (ii) advancement of Expenses is
not timely made pursuant to SECTION 4.01 of this Agreement;
(iii) Independent Counsel has not made and delivered a written opinion
determining the request for indemnification (a) within 90 days after
being appointed by the Court, or (b) within 90 days after objections to
his selection have been overruled by the Court or (c) within 90 days
after the time for the Corporation or Indemnitee to object to his
selection; or (iv) payment of indemnification is not made within five
days after a determination of entitlement to indemnification has been
made or deemed to have been made pursuant to SECTION 5.02, 5.03 or 5.04
of this Agreement, Indemnitee shall be entitled to an adjudication in an
appropriate court of the State of Oklahoma, or in any
6
<PAGE>
Syntroleum Indemnification Agreement
- --------------------------------------------------------------------------------
CONFIDENTIAL
other court of competent jurisdiction, of his entitlement to such
indemnification or advancement of Expenses. In the event that a
determination shall have been made that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced
pursuant to this SECTION 6.01 shall be conducted in all respects as a DE
NOVO trial on the merits and Indemnitee shall not be prejudiced by
reason of that adverse determination. If a Change of Control shall have
occurred, in any judicial proceeding commenced pursuant to this
SECTION 6.01, the Corporation shall have the burden of proving that
Indemnitee is not entitled to indemnification or advancement of
Expenses, as the case may be. If a determination shall have been made
or deemed to have been made that Indemnitee is entitled to
indemnification, the Corporation shall be bound by such determination in
any judicial proceeding commenced pursuant to this SECTION 6.01, or
otherwise, unless Indemnitee knowingly misrepresented a material fact in
connection with the request for indemnification, or such indemnification
is prohibited by law.
The Corporation shall be precluded from asserting in any judicial
proceeding commenced pursuant to this SECTION 6.01 that the procedures
and presumptions of this Agreement are not valid, binding and
enforceable, and shall stipulate in any such proceeding that the
Corporation is bound by all provisions of this Agreement. In the event
that Indemnitee, pursuant to this SECTION 6.01, seeks a judicial
adjudication to enforce his rights under, or to recover damages for
breach of, this Agreement, Indemnitee shall be entitled to recover from
the Corporation, and shall be indemnified by the Corporation against,
any and all Expenses actually and reasonably incurred by him in such
judicial adjudication, but only if he prevails therein. If it shall be
determined in such judicial adjudication that Indemnitee is entitled to
receive part but not all of the indemnification or advancement of
Expenses sought, the Expenses incurred by Indemnitee in connection with
such judicial adjudication or arbitration shall be appropriately
prorated.
7. PARTICIPATION BY THE CORPORATION
7.01 PARTICIPATION BY THE CORPORATION. With respect to any such claim,
action, suit, proceeding or investigation as to which Indemnitee
notifies the Corporation of the commencement thereof: (a) the
Corporation will be entitled to participate therein at its own expense;
(b) except as otherwise provided below, to the extent that it may wish,
the Corporation (jointly with any other indemnifying party similarly
notified) will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to Indemnitee. After receipt of notice from the
Corporation to Indemnitee of the Corporation's election so to assume the
defense thereof, the Corporation will not be liable to Indemnitee under
this Agreement for any legal or other expenses subsequently incurred by
Indemnitee in connection with the defense thereof other than reasonable
costs of investigation or as otherwise provided below. Indemnitee shall
have the right to employ his own counsel in such action, suit,
proceeding or investigation but the fees and expenses of such counsel
incurred after notice from the Corporation of its assumption of the
defense thereof shall be at the expense of Indemnitee unless (i) the
employment of counsel by Indemnitee has been authorized by the
Corporation, (ii) Indemnitee shall have reasonably concluded that
7
<PAGE>
Syntroleum Indemnification Agreement
- --------------------------------------------------------------------------------
CONFIDENTIAL
there is a conflict of interest between the Corporation and Indemnitee
in the conduct of the defense of such action or (iii) the Corporation
shall not in fact have employed counsel to assume the defense of such
action, in each of which cases the fees and expenses of counsel employed
by Indemnitee shall be subject to indemnification pursuant to the terms
of this Agreement (the Corporation shall not be entitled to assume the
defense of any action, suit, proceeding or investigation brought in the
name of or on behalf of the Corporation or as to which Indemnitee shall
have made the conclusion provided for in (ii) above); and (c) the
Corporation shall not be liable to indemnify Indemnitee under this
Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which consent shall not be
unreasonably withheld. The Corporation shall not settle any action or
claim in any manner that would impose any limitation or unindemnified
penalty on Indemnitee without Indemnitee's written consent, which
consent shall not be unreasonably withheld.
8. MISCELLANEOUS
8.01 NONEXCLUSIVITY OF RIGHTS. The rights of indemnification and advancement
of Expenses as provided by this Agreement shall not be deemed exclusive
of any other rights to which Indemnitee may at any time be entitled to
under applicable law, the Corporation's Certificate of Incorporation,
the Corporation's Bylaws, any agreement, a vote of shareholders or a
resolution of directors, or otherwise. No amendment, alteration or
repeal of this Agreement or any provision hereof shall be effective as
to Indemnitee for acts, events and circumstances that occurred, in whole
or in part, before such amendment, alteration or repeal. The provisions
of this Agreement shall continue as to Indemnitee whose Corporate Status
has ceased for any reason and shall inure to the benefit of his heirs,
executors and administrators.
8.02 INSURANCE AND SUBROGATION. The Corporation shall not be liable under
this Agreement to make any payment of amounts otherwise indemnifiable
hereunder if, but only to the extent that, Indemnitee has otherwise
actually received such payment under any insurance policy, contract,
agreement or otherwise. In the event of any payment hereunder, the
Corporation shall be subrogated to the extent of such payment to all the
rights of recovery of Indemnitee, who shall execute all papers required
and take all action reasonably requested by the Corporation to secure
such rights, including execution of such documents as are necessary to
enable the Corporation to bring suit to enforce such rights.
8.03 ACKNOWLEDGMENT OF CERTAIN MATTERS. Both the Corporation and Indemnitee
acknowledge that in certain instances, applicable law or public policy
may prohibit indemnification of Indemnitee by the Corporation under this
Agreement or otherwise. Indemnitee understands and acknowledges that
the Corporation has undertaken or may be required in the future to
undertake, by the Securities and Exchange Commission, to submit the
question of indemnification to a court in certain circumstances for a
determination of the Corporation's right under public policy to
indemnify Indemnitee.
8
<PAGE>
Syntroleum Indemnification Agreement
- --------------------------------------------------------------------------------
CONFIDENTIAL
8.04 AMENDMENT. This Agreement may not be modified or amended except by a
written instrument executed by or on behalf of each of the parties
hereto.
8.05 WAIVERS. The observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively
or prospectively) by the party entitled to enforce such term only by a
writing signed by the party against which such waiver is to be asserted.
Unless otherwise expressly provided herein, no delay on the part of any
party hereto in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of any
party hereto of any right, power or privilege hereunder operate as a
waiver of any other right, power or privilege hereunder nor shall any
single or partial exercise of any right, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder.
8.06 ENTIRE AGREEMENT. This Agreement and the documents referred to herein
constitute the entire agreement between the parties hereto with respect
to the matters covered hereby, and any other prior or contemporaneous
oral or written understandings or agreements with respect to the matters
covered hereby are superseded by this Agreement.
8.07 SEVERABILITY. If any provision or provisions of this Agreement shall be
held to be invalid, illegal or unenforceable for any reason whatsoever,
the validity, legality and enforceability of the remaining provisions
shall not in any way be affected or impaired thereby; and, to the
fullest extent possible, the provisions of this Agreement shall be
construed so as to give effect to the intent manifested by the provision
held invalid, illegal or unenforceable.
8.08 CERTAIN ACTIONS FOR WHICH INDEMNIFICATION IS NOT PROVIDED.
Notwithstanding any other provision of this Agreement, Indemnitee shall
not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any Proceeding, or any Matter therein, brought
or made by Indemnitee against the Corporation.
8.09 NOTICES. Promptly after receipt by Indemnitee of notice of the
commencement of any action, suit or proceeding, Indemnitee shall, if he
anticipates or contemplates making a claim for expenses or an advance
pursuant to the terms of this Agreement, notify the Corporation of the
commencement of such action, suit or proceeding; provided, however, that
any delay in so notifying the Corporation shall not constitute a waiver
or release by Indemnitee of rights hereunder and that any omission by
Indemnitee to so notify the Corporation shall not relieve the
Corporation from any liability that it may have to Indemnitee otherwise
than under this Agreement. Any communication required or permitted to
the Corporation shall be addressed to the Secretary of the Corporation
and any such communication to Indemnitee shall be addressed to the
Indemnitee's address as shown on the Corporation's records unless the
Indemnitee specifies otherwise and shall be personally delivered or
delivered by overnight mail delivery. Any such notice shall be
effective upon receipt.
9
<PAGE>
Syntroleum Indemnification Agreement
- --------------------------------------------------------------------------------
CONFIDENTIAL
8.10 GOVERNING LAW. This Agreement shall be construed in accordance with and
governed by the laws of the State of Oklahoma without regard to any
principles of conflict of laws that, if applied, might permit or require
the application of the laws of a different jurisdiction.
8.11 HEADINGS. The Article and Section headings in this Agreement are for
convenience of reference only, and shall not be deemed to alter or
affect the meaning or interpretation of any provisions hereof.
8.12 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original and all of which together shall
be deemed to be one and the same instrument.
8.13 USE OF CERTAIN TERMS. As used in this Agreement, the words "herein,"
"hereof," and "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular paragraph,
subparagraph, section, subsection, or other subdivision. Whenever the
context may require, any pronoun used in this Agreement shall include
the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice
versa.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
to be effective as of the date first above written.
SYNTROLEUM CORPORATION
By:
--------------------------------
Mark A. Agee, President
INDEMNITEE
By:
--------------------------------
Name:
Title:
10
<PAGE>
- ------------------------------------------------------------------------------
FIRST AMENDED AND RESTATED
COMPANY AGREEMENT
OF
SYNTROLEUM/SWEETWATER COMPANY, L.L.C.
A DELAWARE LIMITED LIABILITY COMPANY
EFFECTIVE AS OF JANUARY 12, 1998
- ------------------------------------------------------------------------------
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE 1 DEFINITIONS......................................................... 2
ARTICLE 2 FORMATION OF COMPANY................................................ 11
2.1 Formation............................................. 11
2.2 Name.................................................. 11
2.3 Principal Place of Business........................... 11
2.4 Registered Office and Registered Agent................ 11
2.5 Term.................................................. 11
ARTICLE 3 BUSINESS OF COMPANY................................................. 12
ARTICLE 4 NAMES AND ADDRESSES OF MEMBERS...................................... 12
ARTICLE 5 RIGHTS AND DUTIES OF MANAGER........................................ 12
5.1 Management............................................ 12
5.2 Number, Tenure and Qualifications..................... 13
5.3 Certain Powers of Manager............................. 13
5.4 Power of Others........................................14
5.5 Operating Committee....................................15
5.6 Limitations on Authority.............................. 18
5.7 Liability for Certain Acts............................ 19
5.8 Managers and Members Have No Exclusive
Duty to Company...................................... 19
5.9 Bank Accounts......................................... 19
5.10 Indemnification....................................... 19
5.11 Resignation........................................... 20
5.12 Removal............................................... 20
5.13 Vacancies............................................. 20
5.14 Compensation, Reimbursement, Organization Expenses.... 21
5.15 Right to Rely on the Manager.......................... 21
i
<PAGE>
Syntroleum-Sweetwater Company Agreement
---------------------------------------------------------------------------
CONFIDENTIAL
ARTICLE 6 RIGHTS AND OBLIGATIONS OF MEMBERS................................... 22
6.1 Limitation of Liability............................... 22
6.2 Company Debt Liability................................ 22
6.3 Company Books......................................... 22
6.4 Priority and Return of Capital........................ 22
6.5 Dealing with Members...................................22
ARTICLE 7 MEETINGS OF MEMBERS................................................. 23
7.1 Annual Meeting........................................ 23
7.2 Special Meetings...................................... 23
7.3 Place of Meetings..................................... 23
7.4 Notice of Meetings.................................... 23
7.5 Meeting of all Members................................ 23
7.6 Record Date........................................... 23
7.7 Quorum................................................ 24
7.8 Manner of Acting...................................... 24
7.9 Proxies............................................... 24
7.10 Action by Members Without a Meeting................... 24
7.11 Waiver of Notice...................................... 25
ARTICLE 8 CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS.......................... 25
8.1 Initial Contributions................................. 25
8.2 First Closing; ECT Admission as Class B Member........ 25
8.3 Second Closing; Payment of Capital Commitments
of Additional Class B Members........................ 26
8.4 Additional Class A Members............................ 28
8.5 Capital Accounts...................................... 28
8.6 Withdrawal or Reduction of Members'
Contributions to Capital............................ 30
ARTICLE 9 ALLOCATIONS, INCOME TAX, DISTRIBUTIONS, ELECTIONS AND REPORTS....... 30
9.1 Allocations of Profits and Losses from Operations..... 30
9.2 Special Allocations to Capital Accounts and Certain
ii
<PAGE>
Syntroleum-Sweetwater Company Agreement
---------------------------------------------------------------------------
CONFIDENTIAL
Other Income Tax Allocations.......................... 30
9.3 Distributions......................................... 34
9.4 Structuring Fee........................................34
9.5 Limitation Upon Distributions......................... 35
9.6 Accounting Principles................................. 35
9.7 Interest On and Return of Capital Contributions....... 35
9.8 Loans to Company...................................... 35
9.9 Accounting Period..................................... 35
9.10 Records, Audits and Reports........................... 35
9.11 Returns and other Elections........................... 36
ARTICLE 10 TRANSFERABILITY, WITHDRAWAL AND CESSATION OF MEMBERSHIP............. 36
10.1 General............................................... 36
10.2 Right of First Refusal................................ 37
10.3 Right of Assignee as a Member......................... 40
10.4 Withdrawal............................................ 40
10.5 Dissociation of a Member.............................. 40
ARTICLE 11 ADDITIONAL MEMBERS.................................................. 42
ARTICLE 12 DISSOLUTION AND TERMINATION......................................... 43
12.1 Dissolution........................................... 43
12.2 Winding Up, Liquidation and Distribution of Assets.... 43
12.3 Return of Contribution Nonrecourse to Other Members... 45
12.4 Filing of Certificate of Cancellation ................ 46
ARTICLE 13 MISCELLANEOUS PROVISIONS............................................ 46
13.1 Notices............................................... 46
13.2 Application of Delaware Law........................... 46
13.3 Waiver of Action for Partition........................ 46
13.4 Amendments............................................ 47
13.5 Execution of Additional Instruments................... 47
13.6 Construction.......................................... 47
iii
<PAGE>
Syntroleum-Sweetwater Company Agreement
---------------------------------------------------------------------------
CONFIDENTIAL
13.7 Headings and Pronouns................................. 47
13.8 Waivers .............................................. 47
13.9 Rights and Remedies Cumulative........................ 47
13.10 Severability.......................................... 47
13.11 Successors and Assigns................................ 48
13.12 Creditors............................................. 48
13.13 Counterparts ......................................... 48
13.14 Investment Representations ........................... 48
13.15 Limitation on Damages ................................ 49
EXHIBIT A ....................................................................... 51
</TABLE>
iv
<PAGE>
Syntroleum-Sweetwater Company Agreement
- -----------------------------------------------------------------------------
CONFIDENTIAL
FIRST AMENDED AND RESTATED COMPANY AGREEMENT
This First Amended and Restated Company Agreement (the "Company
Agreement") of Syntroleum/Sweetwater Company, L.L.C., a Delaware limited
liability company (the "Company"), is made and entered into effective as of
the 12th day of January, 1998 (the "Effective Date"), by and among Syntroleum
Corporation, an Oklahoma corporation ("Syntroleum"), SLH Corporation, a
Kansas corporation ("SLH"), Enron Capital & Trade Resources Corp., a Delaware
corporation ("ECT"), and such other Persons who shall be admitted as Members
of the Company as provided herein (each a "Member" and collectively the
"Members").
RECITALS
A. The Company is a Delaware limited liability company formed on October
6, 1997 under the Act.
B. The Company was formed to construct, start up, own and operate
the Plant and to sell the products produced at the Plant.
C. The original Members of the Company entered into the Original
Company Agreement effective May 6, 1997.
D. The Members desire to amend and restate the Original Company
Agreement for the purpose of setting forth in detail their amended and
restated agreement with respect to the ownership and operation of the Company.
In consideration of the mutual covenants and conditions hereinafter set
forth, the Members hereby agree that the terms of this Company Agreement
governing the Company shall be as follows from and after the Effective Date.
<PAGE>
Syntroleum-Sweetwater Company Agreement
- -----------------------------------------------------------------------------
CONFIDENTIAL
ARTICLE 1
DEFINITIONS
The following terms used in this Company Agreement shall have the
following meanings (unless otherwise expressly provided herein);
(a) "ACT" means the Delaware Limited Liability Company Act, Title 6,
Delaware Code, Sections 18-101 et seq., as it may be amended from time to
time, and any successor to such Act.
(b) "ADDITIONAL CLASS B MEMBER" means any Person admitted to
the Company as a Class B member pursuant to SECTION 8.3.
(c) "AFFILIATE" of a Person means (I) any other Person directly,
or indirectly through one or more intermediaries, controlling, controlled
by or under common control with such Person; (ii) any officer, director,
partner, employer, or direct or indirect beneficial owner of any 10% or
greater equity or voting interest of such Person; or (iii) any other
Person for which a Person described in clause (ii) acts in any such
capacity.
(d) "ANNUAL BUDGET" means the annual budget established by the
Manager and approved by the Operating Committee under SECTION 5.3(b).
(e) "AVAILABLE CASH" means the amount determined by the Manager
under the provisions of SECTION 9.3 to be available for distribution to
Members.
(f) "BANKRUPT MEMBER" means a Member who:
(i) has become the subject of an Order for Relief under the United
States Bankruptcy Code;
(ii) has initiated, either in an original proceeding or by way of
answer in any state insolvency or receivership proceeding, an action for
liquidation arrangement, composition, readjustment, dissolution, or
similar relief.
2
<PAGE>
Syntroleum-Sweetwater Company Agreement
- -----------------------------------------------------------------------------
CONFIDENTIAL
(g) "CAPITAL ACCOUNT" as of any given date means the Capital Account
of a Member or Economic Interest Owner established and maintained pursuant to
Article 8.
(h) "CAPITAL COMMITMENT" means the amount which a Member has agreed to
contribute to the capital of the Company under SECTION 8.1, 8.2, or 8.3.
(i) "CAPITAL CONTRIBUTION" means any contribution to the capital of the
Company in cash or property by a Member or Economic Interest Owner whenever
made.
(j) "CERTIFICATE OF FORMATION" means the Certificate of Formation of
the Company as filed with the Secretary of State of Delaware on May 6, 1997,
and as the same may be amended, amended and restated or otherwise modified
from time to time.
(k) "CLASS A MEMBER" means Syntroleum and any assignee of Syntroleum's
Membership Interest or Economic Interest and any Person otherwise admitted to
the Company as a Class A Member under the terms of this Agreement.
(l) "CLASS B MEMBER" means SLH, and any Person otherwise admitted to
the Company as a Class B Member under SECTIONS 8.2 and 8.3.
(m) "CODE" means the Internal Revenue Code of 1986 or corresponding
provisions of subsequent superseding federal revenue laws.
(n) "COMPANY" means Syntroleum/Sweetwater Company, L.L.C., a Delaware
limited liability company.
(o) "COMPANY AGREEMENT" means this Amended and Restated Company
Agreement as originally executed and as amended, amended or restated, or
otherwise modified from time to time.
(p) "CONTRACTOR" means a licensed U.S. engineering or construction
contractor designated by the Manager to perform the detailed design,
engineering, procurement and construction work for the Plant if and when such
work is not being performed by Syntroleum.
3
<PAGE>
Syntroleum-Sweetwater Company Agreement
- -----------------------------------------------------------------------------
CONFIDENTIAL
(q) "CONVERSION PROCESS" shall have the same meaning as given in the
License Agreement between the Company and Syntroleum.
(r) "DEFICIT CAPITAL ACCOUNT" means with respect to any Member or
Economic Interest Owner, the deficit balance, if any, in such Member's or
Economic Interest Owner's Capital Account as of the end of the taxable year,
after giving effect to the following adjustments:
(i) credit to such Capital Account any amount which such Member or
Economic Interest Owner is obligated to restore under Section
1.704-1(b)(2)(ii)(c) of the Treasury Regulations, as well as any
addition thereto pursuant to the next to last sentence of Sections
1.704-2(g)(1) and (i)(5) of the Treasury Regulations, after taking into
account thereunder any changes during such year in partnership minimum
gain (as determined in accordance with Section 1.704-2(d) of the
Treasury Regulations) and in the minimum gain attributable to any
partner nonrecourse debt (as determined under Section 1.704-2(i)(3) of
the Treasury Regulations); and
(ii) debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury Regulations.
This definition of Deficit Capital Account is intended to comply with the
provisions of Treasury Regulations Sections 1.704-1(b)(2)(ii)(d) and 1.704-2,
and will be interpreted consistently with those provisions.
(s) "DEPRECIATION" means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such Fiscal Year, Depreciation shall be an
amount which bears the same ratio to such beginning Gross Asset Value as the
federal income tax depreciation, amortization, or other cost recovery
deduction for such Fiscal Year bears to such beginning adjusted tax basis;
provided, however, that if the adjusted basis for federal income tax purposes
of an asset at the beginning of such Fiscal Year is zero, Depreciation shall
be determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the Manager.
4
<PAGE>
Syntroleum-Sweetwater Company Agreement
- -----------------------------------------------------------------------------
CONFIDENTIAL
(t) "ECONOMIC INTEREST" means a Member's or Economic Interest Owner's
share of one or more of the Company's Net Profits, Net Losses and
distributions of the Company's assets pursuant to this Company Agreement, but
shall not include any right to participate in the management or affairs of
the Company, including, the right to vote on, consent to or otherwise
participate in any decision of the Members or Managers.
(u) "ECONOMIC INTEREST OWNER" means the owner of an Economic Interest
who is not a Member.
(v) "EFFECTIVE DATE" means the date set forth in the first paragraph of
this Company Agreement.
(w) "ENTITY" means any general partnership, limited partnership,
limited liability company, limited liability partnership, corporation, joint
venture, trust, business trust, cooperative or association or any foreign
trust or foreign business organization.
(x) "EPC AGREEMENT" means the engineering, procurement and construction
agreement to be entered into between the Company and the Contractor for the
design, engineering and construction of the Plant.
(y) "FIRST CLOSING" means the date upon which Syntroleum, SLH and ECT
shall execute this Company Agreement and ECT shall be admitted to the Company
as a Class B Member pursuant to Section 8.2.
(z) "FISCAL YEAR" means the Company's fiscal year, which shall be the
calendar year.
(aa) "GIFTING MEMBER" means any Member who gifts, bequeaths or
otherwise transfers for no consideration (by operation of law or otherwise,
except with respect to bankruptcy) all or any part of its Membership Interest
or Economic Interest.
(bb) "GROSS ASSET VALUE" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
5
<PAGE>
Syntroleum-Sweetwater Company Agreement
- -----------------------------------------------------------------------------
CONFIDENTIAL
(i) The initial Gross Asset Value of any asset contributed by a
Member or Economic Interest Owner to the Company shall be the gross
fair market value of such asset, as determined by the contributing
Member or Economic Interest Owner and the Manager, provided that the
initial Gross Asset Values of the assets contributed to the Company
pursuant to SECTION 8.1 hereof shall be as set forth therein, and
provided further that, if the contributing Member is a Manager, the
determination of the fair market value of any other contributed asset
shall require the consent of the other Members owning greater than 50%
of the Membership Interest (determined without regard to the Membership
Interest of such contributing Member);
(ii) The Gross Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values, as
determined by the Manager as of the following times: (a) the
acquisition of an additional interest by any new or existing Member or
Economic Interest Owner in exchange for more than a DE MINIMIS
contribution of property (including money); (b) the distribution by the
Company to a Member or Economic Interest Owner of more than a DE
MINIMIS amount of property as consideration for a Membership Interest
or Economic Interest; and (c) the liquidation of the Company within
the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); provided,
however, that adjustments pursuant to clauses (a) and (b) above shall
be made only if the Manager reasonably determines that such adjustments
are necessary or appropriate to reflect the relative economic interests
of the Members or Economic Interest Owners in the Company;
(iii) The Gross Asset Value of any Company asset distributed to
any Member or Economic Interest Owner shall be adjusted to equal the
gross fair market value of such asset on the date of distribution as
determined by the distributee and the Manager, provided that, if the
distributee is a Manager, the determination of the fair market value of
the distributed asset shall require the consent of the other Members
owning greater than 50% of the Membership Interest (determined without
regard to the Membership Interest of the distributee Member); and
(iv) The Gross Asset Values of Company assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such
assets pursuant to Code Section 734(b) or Code Section 743(b), but only
to the extent that such
6
<PAGE>
Syntroleum-Sweetwater Company Agreement
- -----------------------------------------------------------------------------
CONFIDENTIAL
adjustments are taken into account in determining Capital Accounts
pursuant to Regulation Section 1.704-1(b)(2)(iv)(m) and SECTION 8.3 and
subparagraph (iv) under the definition of Net Profits and Net Losses;
provided, however, that Gross Asset Values shall not be adjusted
pursuant to this definition to the extent the Manager determines that
an adjustment pursuant to subparagraph (ii) of this definition is
necessary or appropriate in connection with a transaction that would
otherwise result in an adjustment pursuant to this subparagraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted pursuant
to subparagraph (i), (ii) or (iv) of this definition, then such Gross Asset
Value shall thereafter be adjusted by the Depreciation taken into account
with respect to such asset for purposes of computing Net Profits and Net
Losses.
(cc) "LAND" means the land to be acquired by lease or purchase by the
Company or by contribution by a Member to the Company, upon which the Plant
is to be built, together with all buildings and improvements thereon,
including the Plant to be constructed thereon, and all appurtenant easements,
other appurtenances, and all fixtures and equipment required for the
operation thereof.
(dd) "LENDER" means one or more Persons from whom the Company borrows
money (including secured senior and subordinated borrowings) to design,
engineer, construct, start up and initially operate the Plant.
(ee) "LICENSE AGREEMENT" means the site license agreement between
Syntroleum and the Company dated as of the Effective Date pursuant to which
the Company has received or will receive a non-exclusive site license to
practice the Conversion Process at the Plant.
(ff) "LOAN" means one or more loans from one or more Lenders to the
Company (including secured senior and subordinated loans) in the aggregate
principal sum of up to that amount which is necessary, in the opinion of the
Manager, to design, engineer, construct, start up and initially operate the
Plant.
(gg) "MANAGER" means Syntroleum or any other Person or Persons that
succeed it in that capacity. References to the Manager in the singular or as
him, her, it, itself, or other like references shall also, where the context
so requires, be deemed to include the plural or
7
<PAGE>
Syntroleum-Sweetwater Company Agreement
- -----------------------------------------------------------------------------
CONFIDENTIAL
the masculine or feminine reference, as the case may be.
(hh) "MEMBER" means each Person who executes a counterpart of this
Company Agreement as a member (whether Class A or Class B) and each Person
who may hereafter become a member. To the extent a Manager has purchased
Membership Interests in the Company, such Manager will have all the rights of
a Member with respect to such Membership Interests, and the term "Member" as
used herein shall include a Manager to the extent such Manager has purchased
such Membership Interests in the Company. If a Person is a Member immediately
prior to the purchase or other acquisition by such Person of an Economic
Interest, such Person shall have all the rights of a Member with respect to
such purchased or otherwise acquired Membership Interest or Economic
Interest, as the case may be. Any reference to Members shall mean both Class
A Members and Class B Members, collectively.
(ii) "MEMBERSHIP INTEREST" means a Member's entire interest in the
Company including such Member's Economic Interest and any right to
participate in the management or affairs of the Company, including, the right
to vote on, consent to or otherwise participate in any decision of the
Members or Managers granted hereby or by the applicable provisions of the Act
and such other rights and privileges that the Member may enjoy by being a
Member. The percentage Membership Interest of each Member is as set forth on
EXHIBIT A.
(jj) "MEMBERSHIP INTEREST PURCHASE AGREEMENT" means the purchase
agreement between the Company and a Member pursuant to which such Member
acquires a Membership Interest in the Company and containing such terms and
conditions as may be agreed upon by the Company and such Member.
(kk) "NET PROFITS" and "NET LOSSES" means for each taxable year of the
Company an amount equal to the Company's net taxable income or loss for such
year as determined for federal income tax purposes (including separately
stated items) in accordance with the accounting method and rules used by the
Company and in accordance with Section 703 of the Code with the following
adjustments:
(i) Any items of income, gain, loss and deduction allocated to
Members pursuant to SECTION 9.2 shall not be taken into account in
computing Net Profits or Net Losses;
8
<PAGE>
Syntroleum-Sweetwater Company Agreement
- -----------------------------------------------------------------------------
CONFIDENTIAL
(ii) Any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Net
Profits and Net Losses (pursuant to this definition) shall be added to
such taxable income or loss;
(iii) Any expenditure of the Company described in
Section 705(a)(2)(B) of the Code and not otherwise taken into account
in computing Net Profits and Net Losses (pursuant to this definition)
shall be subtracted from such taxable income or loss;
(iv) In the event the Gross Asset Value of any Company asset
is adjusted pursuant to clause (ii) or (iii) of the definition of Gross
Asset Value, the amount of such adjustment shall be taken into account
as gain or loss from the disposition of such asset for purposes of
computing Net Profits and Net Losses;
(v) Gain or loss resulting from any disposition of any Company
asset with respect to which gain or loss is recognized for federal
income tax purposes shall be computed with reference to the Gross Asset
Value of the asset disposed of, notwithstanding that the adjusted tax
basis of such asset differs from its Gross Asset Value;
(vi) In lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable income
or loss, there shall be taken into account Depreciation for such Fiscal
Year; and
(vii) To the extent an adjustment to the adjusted tax basis of
any Company asset pursuant to Section 734(b) of the Code or
Section 743(b) of the Code is required pursuant to
Section 1.704-1(b)(2)(iv)(m)(4) of the Treasury Regulations to be taken
into account in determining Capital Accounts as a result of a
distribution other than in liquidation of a Membership Interest or
Economic Interest, the amount of such adjustment shall be treated as an
item of gain (if the adjustment decreases the basis of the asset) from
the disposition of the asset and shall be taken into account for
purposes of computing Net Profits or Net Losses.
9
<PAGE>
Syntroleum-Sweetwater Company Agreement
- -----------------------------------------------------------------------------
CONFIDENTIAL
(ll) "OPERATING COMMITTEE" means the committee of Members created
pursuant to Section 5.5.
(mm) "ORIGINAL COMPANY AGREEMENT" means the Operating Agreement of
the Company as originally executed effective May 6, 1997.
(nn) "PAYOUT" means cash distributions to a Member in an amount
equal to such Member's aggregate Capital Contributions plus a simple
annual return of 30%.
(oo) "PERSON" means any individual or Entity, and the heirs,
executors, administrators, legal representatives, successors, and
assigns of such Person where the context so permits.
(pp) "PLANT" means the commercial facility to be designed and
constructed by the Company with the use of the proceeds from Capital
Contributions and Loan to practice the Conversion Process under the
License Agreement.
(qq) "REPUBLIC" means Republic Financial Corporation.
(rr) "RESERVES" means, with respect to any fiscal period, funds
set aside or amounts allocated during such period to reserves which
shall be maintained in amounts deemed sufficient by the Manager for
working capital and to pay taxes, insurance, debt service, obligations,
losses or other costs or expenses incident to the ownership or
operation of the Company's business.
(ss) "SECOND CLOSING" means the date upon which the Class B
Members are required to pay the remaining balance of their Capital
Commitments and Additional Class B members, if any, are admitted to the
Company, all as provided in SECTION 8.3.
(tt) "SELLING MEMBER" means any Member or Economic Interest Owner
which sells, assigns, or otherwise transfers for consideration all or
any portion of its Membership Interest or Economic Interest.
(uu) "TRANSFERRING MEMBER" collectively means a Selling Member and
a Gifting Member.
10
<PAGE>
Syntroleum-Sweetwater Company Agreement
- -----------------------------------------------------------------------------
CONFIDENTIAL
(vv) "TREASURY REGULATIONS" means proposed, temporary and final
regulations promulgated under the Code in effect from time to time and the
corresponding sections of any regulations subsequently issued that amend or
supersede such regulations.
(ww) "UNITS" means the units of Membership Interest (either Class A or
Class B) issued to Members hereunder.
ARTICLE 2
FORMATION OF COMPANY
2.1 FORMATION. On May 6, 1997, the Company was organized by
executing and filing the original Certificate of Formation with the
Delaware Secretary of State in accordance with and pursuant to the Act.
2.2 NAME. The name of the Company is Syntroleum/Sweetwater
Company, L.L.C.
2.3 PRINCIPAL PLACE OF BUSINESS. The principal place of business
of the Company shall be 400 South Boston, Suite 1000, Tulsa, Oklahoma
74103-5023. The Company may locate its places of business and
registered office at any other place or places as the Manager may from
time to time deem advisable.
2.4 REGISTERED OFFICE AND REGISTERED AGENT. The Company's
registered office shall be at the office of its registered agent at
1209 Orange Street, City of Wilmington, County of New Castle, Delaware,
and the name of its registered agent at such address shall be The
Corporation Trust Company. The registered office and registered agent
may be changed from time to time by filing the address of the new
registered office and/or the name of the new registered agent with the
Delaware Secretary of State pursuant to the Act.
2.5 TERM. The term of the Company shall be perpetual, unless the
Company is earlier dissolved in accordance with either the provisions
of this Company Agreement or the applicable provisions of the Act.
11
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
ARTICLE 3
BUSINESS OF COMPANY
The business of the Company shall be to design, engineer, construct
(or cause to be designed, engineered and constructed), start up, own and
operate the Plant and market all products produced at the Plant. Without
limiting the foregoing, the Company shall have and exercise all other powers
necessary to or reasonably connected with the Company's business which may
be legally exercised by limited liability companies under the Act, and may
engage in all activities necessary, customary, convenient, or incident to any
of the foregoing.
ARTICLE 4
NAMES AND ADDRESSES OF MEMBERS
The names and addresses of the Members are as follows:
NAME ADDRESS
Syntroleum Corporation, an 1350 South Boulder, Suite 1100
Oklahoma corporation Tulsa, Oklahoma 74119
SLH Corporation, a 5000 West 95th Street, Suite 260
Kansas corporation Shawnee Mission, Kansas 66207
Enron Capital & Trade Resources Corp., P.O. Box 4428
a Delaware corporation Houston, Texas 77210-4428
ARTICLE 5
RIGHTS AND DUTIES OF MANAGER
5.1 MANAGEMENT. The business and affairs of the Company shall be
managed by Syntroleum which is hereby appointed as the Manager. Except when
approval of the Members or approval of the Operating Committee under SECTION
5.5 is expressly required by this Company Agreement, the Manager shall have
full and complete authority, power and discretion to manage and control the
business, affairs and properties of the Company, to make all decisions
regarding those matters and to perform any and all other acts or activities
customary or incident to the management of the Company's business.
12
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
5.2 NUMBER, TENURE AND QUALIFICATIONS. The Company shall initially have
one Manager. The number of Managers of the Company shall be one unless a
different number is fixed from time to time by the affirmative vote of all
Members, but in no instance shall there be less than one Manager. The Manager
shall hold office until it is removed pursuant to SECTION 5.12. Any successor
Manager shall be appointed by the affirmative vote of all Members. Managers
need not be residents of the State of Delaware or Members of the Company.
5.3 CERTAIN POWERS OF MANAGER. Without limiting the generality of
SECTION 5.1, subject to the provisions of SECTION 5.5 below, the Managers
shall have power and authority, on behalf of the Company:
(a) to negotiate and enter into the License Agreement;
(b) to acquire by lease or purchase the Land for the construction
of the Plant;
(c) to negotiate and enter into the EPC Agreement with the
Contractor and such other agreements necessary for the design,
engineering, construction start up and operation of the Plant;
(d) to negotiate the terms of one or more Loans and to borrow funds
from one or more Lenders for the design, engineering, construction,
start-up, and initial operation of the Plant;
(e) to design, engineer, construct (or cause to be designed,
engineered and constructed), start up, own and operate the Plant;
(f) to borrow money for the Company from banks, other lending
institutions, on such terms as the Manager deems appropriate, and in
connection therewith, to hypothecate, encumber and grant security
interests in the assets of the Company to secure repayment of the
borrowed sums. No debt shall be contracted or liability incurred by or on
behalf of the Company except by the Manager, or by agents or employees of
the Company expressly authorized to contract such debt or incur such
liability by the Manager;
13
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
(g) to purchase property, casualty, liability and other insurance
to protect the Company's property and business;
(h) to hold and own any Company real and personal properties in
the name of the Company;
(i) to invest any Company funds temporarily (by way of example but
not limitation) in time deposits, short-term governmental obligations,
commercial paper or other investments;
(j) to execute on behalf of the Company all instruments and
documents, including, without limitation: checks; drafts; notes and other
negotiable instruments; mortgages or deeds of trust; security agreements;
financing statements; documents providing for the acquisition, mortgage
or disposition of the Company's real and personal property; assignments;
bills of sale; leases; partnership agreements; operating agreements of
other limited liability companies; and any other instruments or documents
necessary, or appropriate, in the opinion of the Manager, to the business
of the Company;
(k) to employ accountants, legal counsel, agents or other experts
or professionals to perform services for the Company and to compensate
them from Company funds; and
(l) to do and perform all other acts as may be necessary or
appropriate to the conduct of the Company's business.
5.4 POWERS OF OTHERS. Unless authorized to do so by this Company
Agreement or by the Manager, no attorney-in-fact, employee or other agent of
the Company shall have any power or authority to bind the Company in any way,
to pledge its credit or to render it liable pecuniary for any purpose. No
Member shall have any power or authority to bind the Company unless the
Member has been authorized by the Manager to act as an agent of the Company
in accordance with the previous sentence.
14
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
5.5 OPERATING COMMITTEE.
(a) The Company shall at all times have a committee of Members (the
"Operating Committee") consisting of one representative from each Member.
(b) The Committee shall have the responsibility to:
(i) develop and approve annual budgets (in each instance, the
"Annual Budget") for the Company, which approval shall require the
affirmative vote of 51% of the Membership Interest represented by the
Members of the Operating Committee, which vote must include the
affirmative vote of at least two members of the Operating Committee;
(ii) approve the design and engineering of the Plant;
(iii) approve the EPC Agreement;
(iv) ratify the appointment of, and approve, outside auditors,
attorneys and engineering firms for the Company;
(v) monitor the performance of the Manager;
(vi) meet at least once each year review the status of the
Company;
(vii) oversee the affairs of the Company upon liquidation or
dissolution pursuant to ARTICLE 12; and
(viii) perform such other tasks or duties as are
specifically set forth in this Agreement and all activities
necessary to, in connection with or incidental to any of the
foregoing.
(c) Each member of the Operating Committee shall be
required to undertake to perform such duties and only such duties
as are set forth in this SECTION 5.5 and, without limiting the
generality of the foregoing, no member of the Operating Committee
shall be expected or required to present, disclose to or
otherwise advise the Company of any investment or other business
opportunity which comes to the attention of such member.
15
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
(d) The members of the Operating Committee shall not
be liable with respect to any action taken or omitted to be taken
by such members in good faith in accordance with the direction,
approval or consent of the requisite percentage in interest of
the Members set forth in this Agreement with respect to any
action which may be directed, approved, or consented to by the
Members.
(e) The members of the Operating Committee may rely, and
shall be protected in acting, or refraining from acting in good faith
on any information, opinions, certificates, reports or statements,
including financial statements and financial data, prepared or
presented by (I) the officers or employees of the Manager, or (ii)
counsel, public accountants, engineers or other personnel as to matters
within such person's professional or expert competence.
(f) The members of the Operating Committee may consult with
counsel, and any advice or opinion of such counsel shall be full and
complete authorization and protection in respect of any action taken or
omitted in good faith in accordance with such advice or opinion Fees
and disbursements of any such counsel shall be paid by the Company.
(g) No member of the Operating Committee shall be liable for any
action taken or omitted in good faith, unless the member is judicially
determined to have been guilty of gross negligence, willful misconduct,
fraud or breach of this Company Agreement. In the absence of gross
negligence, bad faith, willful misconduct, a willful breach of the
Company Agreement on the part of the member, the Company shall, to the
fullest extent permitted by law, indemnify and hold harmless each such
member of the Operating Committee (and their respective heirs and legal
and personal representatives) from and against any and all claims,
liabilities, damages, losses, costs and expenses (including amounts
paid in satisfaction of judgments, in compromises and settlements, as
fines and penalties and legal or other costs and reasonable expenses of
investigation or defending against any claim or alleged claim) of any
nature whatsoever, known or unknown, liquidated or unliquidated, that
are incurred by any such member and arise out of or in connection with
serving on the Operating Committee; PROVIDED, that a member of the
Operating Committee shall not be entitled to indemnification with
respect to economic losses incurred by such person as a result of its
owning an interest in the Company and, PROVIDED FURTHER, that nothing
in this Agreement shall constitute a waiver or limitation of any rights
which a Member or the Company may have under applicable law and which
may not be waived. The termination of any
16
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
proceeding by settlement, judgment, order, conviction, or upon a plea
of NOLO CONTENDERE or its equivalent, shall not, or by itself, create a
presumption that such member's conduct constituted fraud, bad faith,
willful misconduct, gross negligence or a violation of applicable laws
or willful breach of this Company Agreement. The satisfaction of any
indemnification and any holding harmless pursuant to this Section
5.5(g) shall be from and limited to Company assets, and no Member shall
have any personal liability on account thereof; PROVIDED FURTHER, that
any Person entitled to indemnification from the Company hereunder shall
obtain the written consent of the Manager (which consent shall not be
unreasonably withheld) prior to entering into any compromise or
settlement which would result in an obligation of the Company to
indemnify such Person.
(h) CONFIDENTIALITY. Each member of the Operating Committee
shall keep confidential all matters involving (i) the Company and (ii)
any other member of the Operating Committee, until such time as there
shall have been general public disclosure of such matters or unless
such matters have become matters of public record or common knowledge.
(i) VOTES OF THE OPERATING COMMITTEE. The Operating Committee
shall act by the affirmative vote of at least 51% of the aggregate
Membership Interest represented by the members of the Operating
Committee except as otherwise specified. A majority of the Membership
Interest represented by the members of the Operating Committee shall
constitute a quorum. With respect to any vote taken by the Operating
Committee during a period in which the Company is not operating in a
manner so that it is meeting the Annual Budget for that period, the
approval of any such matter shall require a majority vote of the
Membership Interest represented on the Operating Committee which vote
must include the affirmative vote of at least two members of the
Operating Committee.
(j) Meetings of the Operating Committee shall be held no
fewer than four times per year at any place within the United States
and within or without the State of Delaware. The time and place for
holding meetings of the Operating Committee shall be fixed by the
Operating Committee.
(k) Regular meetings of the Operating Committee may be held
without notice if the time and place of the meetings are fixed by the
Operating Committee. Special meetings shall be held upon two days'
notice to members. Notice of a meeting need not be given to any
Operating Committee member who submits a signed waiver of notice
whether before or
17
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
after the meeting, or who attends the meeting without protesting, prior
thereto or at its commencement, the lack of notice to him. A notice or
waiver of notice need not specify the purpose of any regular or special
meeting.
(l) Members of the Operating Committee may participate in a
meeting by means of conference telephone or other similar
communications equipment which enable all persons participating in the
meeting to hear each other, and participation in a meeting by such
means shall constitute present at such meeting.
5.6 LIMITATIONS ON AUTHORITY. Notwithstanding any other provision of
this Company Agreement, the Manager shall not cause the Company to do any of
the following without the express written consent of all Members:
(a) sell or otherwise dispose of all or substantially all of the
Company's assets, or merge, consolidate, acquire or combine with another
Entity;
(b) mortgage, pledge, or grant a security interest in any property
of the Company, other than in connection with a Loan;
(c) lend money to or guaranty or become a surety for the obligations
of any Person;
(d) borrow any amounts in excess of the Loan or the amount set forth
in the Annual Budget;
(e) expend any amounts in excess of the amounts set forth in the
Annual Budget;
(f) confess any judgment against the Company, file any petition
for bankruptcy or make any assignment for the benefit of creditors in
any bankruptcy, insolvency, receivership or similar proceedings;
(g) change the character of the business of the Company as
described in ARTICLE 3 of this Company Agreement; or
18
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
(h) make any material modification, change or amendment to any
agreement or arrangement which is the subject of the matters referred
to in subclauses (a) through (g) above.
5.7 LIABILITY FOR CERTAIN ACTS. The Manager does not, in any way,
guarantee the return of the Members' or Economic Interest Owners' Capital
Contributions or a profit for the Members or Economic Interest Owners from
the operations of the Company. The Manager shall not be liable to the Company
or to any Member or Economic Interest Owner for any loss or damage sustained
by the Company or any Member or Economic Interest Owner, unless the loss or
damage shall have been the result of fraud, deceit, gross negligence, willful
misconduct, intentional breach of this Company Agreement or a wrongful taking
by the Manager.
5.8 MANAGERS AND MEMBERS HAVE NO EXCLUSIVE DUTY TO COMPANY. The
Manager shall not be required to manage the Company as its sole and exclusive
function and it (and any Member) may have other business interests and may
engage in other activities in addition to those relating to the Company.
Neither the Company nor any Member or Economic Interest Owner shall have any
right, by virtue of this Company Agreement, to share or participate in such
other activities of the Manager and/or Member or Economic Interest Owner or
to the income or proceeds derived therefrom. Neither the Manager nor any
Member or Economic Interest Owner shall incur any liability to the Company or
to any of the other Members or Economic Interest Owner as a result of
engaging in any other business or venture.
5.9 BANK ACCOUNTS. The Manager may from time to time open bank
accounts in the name of the Company, and the Manager shall be the sole
signatory thereon.
5.10 INDEMNIFICATION. Notwithstanding any other provision of this
Company Agreement, no Manager shall be liable to any Member or Economic
Interest Owner or the Company with respect to any act performed or neglected
to be performed in good faith and in a manner which such Manager believed to
be necessary or appropriate in connection with the ordinary and proper
conduct of the Company's business or the preservation of its property, and
consistent with the provisions of this Agreement. The Company shall indemnify
the Manager for, and hold it harmless from, any liability, whether civil or
criminal, and any loss, damage, or expense, including reasonable attorneys'
fees, incurred in connection with the ordinary and proper conduct of the
Company's business and the preservation of its business and property, or by
reason of the fact that such Person is or was a Manager, provided the Manager
to be indemnified acted in good faith and in a manner
19
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
such Manager believed to be consistent with the provisions of this Agreement;
and provided further that with respect to any criminal action or proceeding,
the Manager to be indemnified had no reasonable cause to believe the conduct
was unlawful. In connection with any claim of indemnification under this
SECTION 5.10, the Company shall make advances for expenses to the maximum
extent permitted by the Act provided that such expenses shall be refunded to
the Company if it is ultimately determined by a court of competent
jurisdiction that the Manager was not entitled to indemnification under this
Section 5.10. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its
equivalent shall not of itself create a presumption that indemnification is
not available under this SECTION 5.10. The obligation of the Company to
indemnify any Manager under this SECTION 5.10 shall be satisfied out of
Company assets only, and if the assets of the Company are insufficient to
satisfy its obligation to indemnify any Manager, such Manager shall not be
entitled to contribution from any Member.
5.11 RESIGNATION. The Manager of the Company may resign at any time by
giving not less than sixty (60) days written notice to each of the Members of
the Company. The resignation of any Manager shall take effect sixty (60) days
after delivery of notice thereof or at such later time as shall be specified
in such notice; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective. The resignation
of a Manager who is also a Member or Economic Interest Owner shall not affect
the Manager's rights as a Member or Economic Interest Owner and shall not
constitute a withdrawal of a Member or Economic Interest Owner.
5.12 REMOVAL. At a meeting called expressly for that purpose, the
Manager may be removed at any time, with or without cause, by the affirmative
vote of all of the Members. The removal of a Manager who is also a Member
shall not affect the Manager's rights as a Member and shall not constitute a
withdrawal of a Member.
5.13 VACANCIES. Any vacancy occurring for any reason in the position
of Manager shall be filled by the affirmative vote of all Members.
20
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
5.14 COMPENSATION, REIMBURSEMENT, ORGANIZATION EXPENSES
(a) Other than as set forth in this SECTION 5.14,
neither the Manager nor any Member shall be entitled to
compensation from the Company for services rendered to the
Company.
(b) The Manager shall be reimbursed by the
Company for all direct expenses of the Manager related to the
business of the Company, expenses incurred by the Manager
on behalf of the Company or at the Company's request plus an
allocable portion of the Manager's total overhead not to
exceed an amount of $500,000 per year.
(c) The Manager shall cause the Company to
make an appropriate election to treat the expenses
incurred by the Company in connection with the formation and
organization of the Company to be amortized over the 60-month
period beginning with the month in which the Company begins
business to the extent that such expenses constitute
"organizational expenses" of the Company within the meaning
of Code Section 709(b)(2).
5.15 RIGHT TO RELY ON THE MANAGER. Any Person dealing with the
Company may rely (without duty of further inquiry) upon a certificate signed
by the Manager as to:
(a) the identity of any Manager, Member or
Economic Interest Owner;
(b) the existence or nonexistence of any
fact or facts which constitute a condition precedent to
acts on behalf of the Company by any Manager or which are in
any other manner germane to the affairs of the Company;
(c) the Persons who are authorized to execute
and deliver any instrument or document of the Company; or
(d) any act or failure to act by the Company or
any other matter whatsoever involving the Company or any
Member or Economic Interest Owner.
21
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
ARTICLE 6
RIGHTS AND OBLIGATIONS OF MEMBERS
6.1 LIMITATION OF LIABILITY. Each Member's or Economic
Interest Owner's liability shall be limited as set forth in this Company
Agreement, the Act and other applicable law.
6.2 COMPANY DEBT LIABILITY. Anything herein to the contrary
notwithstanding, except as otherwise expressly agreed in writing, a Member
or Economic Interest Owner will not be personally liable for any debts,
liabilities or losses of the Company, whether to the Company, another
Member or to creditors of the Company, beyond its respective Capital
Contributions and any obligation of the Member or Economic Interest Owner
under ARTICLE 8 to make Capital Contributions, or as otherwise required by
law. The Manager shall not have the right, absent the written consent of a
Member, to obligate such Member to guarantee any obligation of the Company.
6.3 COMPANY BOOKS. In accordance with SECTION 9.9, the
Manager shall maintain and preserve, during the existence of the Company,
all accounts, books, and other relevant Company documents. Upon
reasonable request, and for a proper company purpose, each Member shall
have the right, during ordinary business hours, to inspect and copy such
Company documents at the requesting Member's expense.
6.4 PRIORITY AND RETURN OF CAPITAL. Except as may be
expressly provided in ARTICLE 9, no Member or Economic Interest Owner
shall have priority over any other Member or Economic Interest Owner,
either as to the return of Capital Contributions or as to Net Profits, Net
Losses or distributions; provided that this SECTION 6.4 shall not apply to
loans (as distinguished from Capital Contributions) which a Member or
Economic Interest Owner has made to the Company.
6.5 DEALING WITH MEMBERS. The fact that a Member, an
Affiliate of a Member or any employee, consultant or agent of a Member,
is, or is directly or indirectly interested in or connected with any Person
that is, employed by the Company to render or perform a service, or from
or to whom the Company may buy or sell any property or have other business
dealings, shall not prohibit the Company from employing such Member,
Affiliate or other Person or from dealing with him, her or it and neither
the Company nor any of the other Members shall have any rights in or to any
income or profits derived therefrom by such other Person.
22
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
ARTICLE 7
MEETINGS OF MEMBERS
7.1 ANNUAL MEETING. The annual meeting of the Members shall be
held on the third Tuesday in March or at such other time as shall be
determined by resolution of the Members, commencing with the year 1998, for
the purpose of the transaction of such business as may come before the
meeting.
7.2 SPECIAL MEETINGS. Special meetings of the Members, for any
purpose or purposes, may be called by the Manager or by any Member holding at
least 10% of the Company's aggregate Membership Interest.
7.3 PLACE OF MEETINGS. The Manager may designate any place as
the location for any meeting of the Members. If no designation is made, the
place of meeting shall be the principal executive office of the Company.
7.4 NOTICE OF MEETINGS. Except as provided in SECTION 7.5,
written notice stating the place, day and hour of the meeting and the purpose
or purposes for which the meeting is called shall be delivered not less than
three nor more than thirty (30) days before the date of the meeting, either
personally or by mail, by or at the direction of the Manager or the Member or
Members calling the meeting, to each Member entitled to vote at such meeting.
7.5 MEETING OF ALL MEMBERS. If all of the Members shall meet
at any time and place, and consent to the holding of a meeting at such time
and place, such meeting shall be valid without call or notice, and at such
meeting lawful action may be taken by the Members.
7.6 RECORD DATE. For the purpose of determining Members
entitled to notice of or to vote at any meeting of Members or any adjournment
thereof, or Members entitled to receive payment of any distribution, or in
order to make a determination of Members for any other purpose, the date on
which notice of the meeting is mailed or the date on which the resolution
declaring such distribution is adopted, as the case may be, shall be the
record date for such determination of Members. When a determination of
Members entitled to vote at any meeting of Members has been made as provided
in this SECTION 7.6, such determination shall apply to any adjournment of
such meeting.
23
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
7.7 QUORUM. Members holding an aggregate of more than 50% of
the total Membership Interest held by all Members, represented in person or
by proxy, shall constitute a quorum at any meeting of Members. In the absence
of a quorum at any such meeting, a majority of the Membership Interests so
represented may adjourn the meeting from time to time for a period not to
exceed 60 days without further notice. However, if the adjournment is for
more than 60 days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to
each Member of record entitled to vote at the meeting. At such adjourned
meeting at which a quorum shall be present or represented, any business may
be transacted which might have been transacted at the meeting as originally
noticed. The Members present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal during
such meeting of that number of Membership Interests whose absence would cause
less than a quorum.
7.8 MANNER OF ACTING. The affirmative vote of Members holding
an aggregate of more than 50% of the total Membership Interest held by all
Members shall be the act of the Members. Unless otherwise expressly provided
herein or required under applicable law, Members who have an interest
(economic or otherwise) in the outcome of any particular matter upon which
the Members vote or consent may vote or consent upon any such matter and
their Membership Interest, vote or consent, as the case may be, shall be
counted in the determination of whether the requisite matter was approved by
the Members.
7.9 PROXIES. At all meetings of Members a Member may vote in
person or by proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. Such proxy shall be filed with the Manager of the Company
before or at the time of the meeting. No proxy shall be valid after eleven
months from the date of its execution, unless otherwise provided in the proxy.
7.10 ACTION BY MEMBERS WITHOUT A MEETING. Action required or
permitted to be taken at a meeting of Members may be taken without a meeting
if the action is evidenced by one or more written consents or approvals
describing the action taken and signed by Members holding sufficient
Membership Interests to approve such action had such action been properly
voted on at a duly called meeting of the Members. Action taken under this
SECTION 7.10 is effective when Members with the requisite Membership
Interests have signed the consent or approval, unless the consent specifies a
different effective date. The record date for determining Members entitled to
take action without a meeting shall be the date the first Member signs a
written consent. The Manager shall
24
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
provide prompt notice to all Members of the taking of any action by written
consent under this SECTION 7.10.
7.11 WAIVER OF NOTICE. When any notice is required to be given
to any Member, a waiver thereof in writing signed by the Person entitled to
such notice, whether before, at, or after the time stated therein, shall be
equivalent to the giving of such notice.
ARTICLE 8
CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS
8.1 INITIAL CONTRIBUTIONS.
(a) Upon execution of the Original Company
Agreement, Syntroleum was issued 98.95 Units of Class A
Membership Interest in consideration for a Capital
Contribution to the Company consisting of the granting, at the
First Closing, of the non-exclusive license to the Conversion
Process as set forth in the License Agreement, which Units
represented 98.95% of the aggregate Membership Interest prior
to the First Closing, and became the sole Class A Member until
additional Class A Members are admitted pursuant to SECTION 8.4.
(b) Upon execution of the Original Company
Agreement, SLH was issued 1.05 Units of Class B Membership
Interest in consideration for a Capital Contribution to the
Company of $1,500,000, which Units represented 1.05% of the
aggregate Membership Interest prior to the First Closing, and
became the sole Class B Member until Additional Class B
Members are admitted pursuant to Sections 8.2 and 8.3. SLH
shall not be required to make any further Capital
Contributions.
8.2 FIRST CLOSING; ECT ADMISSION AS CLASS B MEMBER.
(a) At the First Closing:
(i) Syntroleum shall make an additional Capital
Contribution in the amount of $500,000 for no additional
Membership Interest and Syntroleum's Units of Membership
Interest shall be adjusted downward from 98.95 Units of Class
A Membership Interest to 90.0 Units of Class A Membership
Interest. Syntroleum shall not be required to make any further
Capital Contributions; and
25
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
(ii) ECT shall make a Capital Commitment in
the amount of $15,450,000, of which $1,000,000 shall be
contributed in cash or other immediately available funds as a
Capital Contribution for four Units of Class B Membership
Interest, which Units represent four percent (4%) of the
aggregate Membership Interest in the Company.
(iii) SLH shall be issued, at no expense, an
additional 4.95 Units of Class B Membership Interest which
Units, together with the Units issued to SLH upon becoming a
Member pursuant to the Original Company Agreement, represent
six percent (6%) of the aggregate Membership Interest in the
Company.
(b) The First Closing shall occur at such time
and place designated by the Manager and shall occur upon the
execution by Syntroleum and ECT of a Membership Interest
Purchase Agreement providing for the Capital Contributions
described in SECTION 8.2(a) and the execution by Syntroleum,
ECT and SLH of this Company Agreement.
(c) Syntroleum, ECT and SLH consent to the
admission of up to two additional Class B Members as described
in SECTION 8.3 at the Second Closing, provided, that any
amendments to this Company Agreement proposed by any
additional Member (whether such Member is an additional Class
A Member or an Additional Class B Member) shall require the
unanimous approval of Members in accordance with SECTION 13.4
of this Company Agreement.
(d) A description of the Members' Capital
Contributions to, and relative Membership Interest in, the
Company following the First Closing is attached to this
Company Agreement as EXHIBIT A.
8.3 SECOND CLOSING; PAYMENT OF CAPITAL COMMITMENTS OF
CLASS B MEMBERS.
(a) At the Second Closing (i) upon the terms and
conditions of this Company Agreement and the terms and
conditions of the Purchase Agreement between ECT and the
Company, the Company will issue to ECT, in consideration for a
Capital Contribution of $14,450,000, that number of additional
Units of Class B Membership Interest equal to 7% of the
aggregate Membership Interest, and (ii) upon the terms and
conditions of this Company Agreement and the terms and
conditions of the Purchase Agreement between any
26
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
Additional Class B Members and the Company, the Company will
issue to not more than two Additional Class B Members, in
consideration for a Capital Contribution of $15,450,000 to be
made by each such Additional Class B Member in the manner set
forth in this SECTION 8.3, that number of Units of Class B
Membership Interest equal 11% of the Company's aggregate
Membership Interest for each such Additional Class B Member.
The exact number of Additional Class B Members (up to two) to
be admitted shall be at the absolute discretion of the Manager
based upon the capital needs of the Company. In the event of
the admission of Additional Class B Members or additional
Capital Contributions by existing Class B Members, SLH shall
be issued, at no cost to SLH, such number of additional Units
of Class B Membership Interest as will be necessary to
maintain SLH's 1.07% aggregate Membership Interest in the
Company and Syntroleum's relative Membership Interest in the
Company shall be proportionately reduced.
(b) The Second Closing shall occur on a date
and at a place determined by the Manager as soon as practical
after satisfaction by the Company of the conditions to the
Second Closing set forth in the Membership Interest Purchase
Agreements between the Company and ECT dated as of the
Effective Date and the Membership Interest Purchase
Agreements between the Company and the Additional Class B
Members dated as of the date of the Second Closing.
(c) At the Second Closing, ECT shall make a
Capital Contribution to the Company by wire transfer or other
certified funds in the amount of $14,450,000 which sum
represents the remaining balance of the Capital Commitment of
ECT and each Additional Class B Member shall make a Capital
Contribution to the Company (by wire transfer or other
certified funds with respect to the cash portion of such
Capital Contribution) in the amount of $15,450,000.
(d) In the event that ECT fails to make its
required Capital Contribution of $14,450,000 at the Second
Closing, Syntroleum shall have the option to purchase ECT's
Membership Interest in the Company for a purchase price equal
to the Capital Contributions made by ECT up to the date of
the Second Closing. Should Syntroleum elect to exercise the
option granted in this SECTION 8.3(d), Syntroleum shall give
ECT written notice of its election and closing of Syntroleum's
purchase shall take place at the Second Closing.
27
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
8.4 ADDITIONAL CLASS A MEMBERS.
(a) The Company may admit an additional Class A
Member, in the discretion of the Manager, in exchange for a
contribution by such proposed new Class A Member of the Land
for the Plant, all on terms acceptable to Syntroleum. Upon the
issuance of Units to an additional Class A Member under this
SECTION 8.4(a), the Company shall issue, for no additional
consideration, additional Units of Class B Membership
Interests to each Class B Member sufficient to maintain each
Class B Member's relative percentage ownership of the total
Membership Interest of all the Members. All parties, by the
execution of this Company Agreement, consent to the admission
of an additional Class A Member under this SECTION 8.4(a)
without any further action on their part, provided, however,
that any amendments to this Company Agreement proposed by any
additional Member (whether such Member is an additional Class
A Member or an additional Class B Member) shall require the
unanimous approval of Members in accordance with SECTION 13.4
of this Company Agreement.
(b) The Company may admit Republic as an
additional Class A Member pursuant to the terms of that
certain agreement dated March 4, 1997 between the Company and
Republic and by which Republic has agreed to provide services
to the Company in connection with obtaining debt financing for
the Plant (the "Republic Agreement"). Under the terms of the
Republic Agreement, the Company may be required to issue Units
to Republic under certain circumstances. In such event, the
Company shall also issue additional Units of Class B
Membership Interests to all Class B Members sufficient to
maintain each Class B Member's relative percentage ownership
of the total Membership Interest of all the Members. All
parties, by their execution of this Company Agreement, hereby
consent to the admission of Republic if and when such event
occurs, without any further action on their part, provided,
however, that any amendments to this Company Agreement
proposed by any additional Member (whether such Member is an
additional Class A Member or an additional Class B Member)
shall require the unanimous approval of Members in accordance
with SECTION 13.4 of this Company Agreement.
8.5 CAPITAL ACCOUNTS.
(a) A separate Capital Account will be
maintained for each Member or Economic Interest Owner. Each
Member's or Economic Interest Owner's Capital Account
28
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
will be increased by (1) the amount of money contributed by
such Member or Economic Interest Owner to the Company; (2) the
fair market value of property contributed by such Member or
Economic Interest Owner to the Company (net of liabilities
secured by such contributed property that the Company is
considered to assume or take subject to under Section 752 of
the Code); (3) allocations to such Member or Economic Interest
Owner of Net Profits; (4) any items in the nature of income
and gain which are specially allocated to the Member pursuant
to paragraphs (a), (b), (c), (d), (e), (i) and/or (j) of
SECTION 9.2; and (5) allocations to such Member or Economic
Interest Owner of income described in Section 705(a)(1)(B) of
the Code. Each Member's or Economic Interest Owner's Capital
Account will be decreased by (1) the amount of money
distributed to such Member or Economic Interest Owner by the
Company; (2) the fair market value of property distributed to
such Member or Economic Interest Owner by the Company (net of
liabilities secured by such distributed property that such
Member or Economic Interest Owner is considered to assume or
take subject to under Section 752 of the Code);
(3) allocations to such Member or Economic Interest Owner of
expenditures described in Section 705(a)(2)(B) of the Code;
(4) any items in the nature of deduction and loss that are
specially allocated to the Member or Economic Interest Owner
pursuant to paragraphs (a), (b), (c), (d), (e), (i) and/or (j)
of SECTION 9.2; (5) any decrease in the relative Capital
Accounts of the Members or Economic Interest Owners under
SECTION 13.2; and (6) allocations to the account of such
Member or Economic Interest Owner of Net Losses.
(b) In the event of a permitted sale or exchange
of a Membership Interest or Economic Interest in the Company,
the Capital Account of the transferor shall become the Capital
Account of the transferee to the extent it relates to the
transferred Membership Interest or Economic Interest in
accordance with Section 1.704-1(b)(2)(iv) of the Treasury
Regulations.
(c) The manner in which Capital Accounts are to
be maintained pursuant to this SECTION 8.5 is intended to
comply with the requirements of Section 704(b) of the Code and
the Treasury Regulations promulgated thereunder. If in the
opinion of the Company's accountants the manner in which
Capital Accounts are to be maintained pursuant to the
preceding provisions of this SECTION 8.3 should be modified in
order to comply with Section 704(b) of the Code and the
Treasury Regulations thereunder, then notwithstanding anything
to the contrary contained in the preceding provisions of this
SECTION 8.3, the method in which Capital Accounts are
maintained shall be so modified; provided, however,
29
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
that any change in the manner of maintaining Capital
Accounts shall not materially alter the economic agreement
between or among the Members or Economic Interest Owners.
(d) Upon liquidation of the Company, liquidating
distributions will be made in accordance with the Members' or
Economic Interest Owner's respective Membership Interests or
Economic Interests, as determined after taking into account
all Capital Account adjustments for the Company's taxable
year during which the liquidation occurs. Liquidation
proceeds will be paid in accordance with SECTION 12.3. The
Company may offset damages for breach of this Company
Agreement by a Member or Economic Interest Owner whose
interest is liquidated (either upon the withdrawal of the
Member or the liquidation of the Company) against the amount
otherwise distributable to such Member or Economic Interest
Owner.
(e) Except as otherwise required in the Code or
applicable laws, (and subject to the provisions of ARTICLE 8),
no Member or Economic Interest Owner shall have any liability
to restore all or any portion of a deficit balance in such
Member's or Economic Interest Owner's Capital Account.
8.6 WITHDRAWAL OR REDUCTION OF MEMBERS' CONTRIBUTIONS TO
CAPITAL. Except as specifically set forth herein, a Member or Economic
Interest Owner shall not be entitled to demand or receive out of the
Company's property any part of its Capital Contribution except upon
liquidation of the Company.
ARTICLE 9
ALLOCATIONS, INCOME TAX, DISTRIBUTIONS, ELECTIONS AND REPORTS
9.1 ALLOCATIONS OF PROFITS AND LOSSES FROM OPERATIONS. Except
as specifically set forth in this ARTICLE 9, the Net Profits and Net Losses
of the Company for each Fiscal Year will be allocated in accordance with the
relative aggregate Membership Interest of each Member or Economic Interest
Owner set forth opposite such Member's or Economic Interest Owner's name on
Exhibit A as such may be amended from time to time upon the admission of
additional Members pursuant to the provisions hereof.
9.2 SPECIAL ALLOCATIONS TO CAPITAL ACCOUNTS AND CERTAIN OTHER
INCOME TAX ALLOCATIONS. Notwithstanding Section 9.1 hereof:
30
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
(a) In the event any Member or Economic Interest
Owner unexpectedly receives any adjustments, allocations, or
distributions described in Sections 1.704-1(b)(2)(ii)(d)(4),
(5), or (6) of the Treasury Regulations, which create or
increase a Deficit Capital Account of such Member or Economic
Interest Owner, then items of Company income and gain
(consisting of a pro rata portion of each item of Company
income, including gross income, and gain for such year and,
if necessary, for subsequent years) shall be specially
allocated to such Member or Economic Interest Owner in an
amount and manner sufficient to eliminate, to the extent
required by the Treasury Regulations, the Deficit Capital
Account so created as quickly as possible. It is the intent
that this SECTION 9.2(a) be interpreted to comply with the
alternate test for economic effect set forth in Section
1.704-1(b)(2)(ii)(d) of the Treasury Regulations.
(b) In the event any Member or Economic Interest
Owner would have a Deficit Capital Account at the end of any
Company taxable year which is in excess of the sum of any
amount that such Member or Economic Interest Owner is
obligated to restore to the Company under Section
1.704-1(b)(2)(ii)(c) of the Treasury Regulations and such
Member's or Economic Interest Owner's share of minimum gain as
defined in Section 1.704-2(g)(1) of the Treasury Regulations
(which is also treated as an obligation to restore in
accordance with Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations), the Capital Account of such Member or Economic
Interest Owner shall be specially credited with items of
Company income (including gross income) and gain in the amount
of such excess as quickly as possible.
(c) Notwithstanding any other provision of this
SECTION 9.2, if there is a net decrease in the Company's
minimum gain as defined in Treasury Regulation Section
1.704-2(d) during a taxable year of the Company, then, the
Capital Accounts of each Member shall be allocated items of
income (including gross income) and gain for such year (and if
necessary for subsequent years) equal to that Member's or
Economic Interest Owner's share of the net decrease in Company
minimum gain. This SECTION 9.2(c) is intended to comply with
the minimum gain chargeback requirement of Section 1.704-2 of
the Treasury Regulations and shall be interpreted consistently
therewith. If in any taxable year that the Company has a net
decrease in the Company's minimum gain, if the minimum gain
chargeback requirement would cause a distortion in the
economic arrangement among the Members or Economic Interest
Owners and it is not expected that the Company will have
31
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
sufficient other income to correct that distortion, the
Manager may in its discretion (and shall, if requested to do
so by a Member) seek to have the Internal Revenue Service
waive the minimum gain chargeback requirement in accordance
with Treasury Regulation Section 1.704-2(f)(4).
(d) Items of Company loss, deduction and
expenditures described in Section 705(a)(2)(B) which are
attributable to any nonrecourse debt of the Company and are
characterized as partner (Member) nonrecourse deductions under
Section 1.704-2(i) of the Treasury Regulations shall be
allocated to the Members' or Economic Interest Owners' Capital
Accounts in accordance with said Section 1.704-2(i) of the
Treasury Regulations.
(e) Beginning in the first taxable year in which
there are allocations of "nonrecourse deductions" (as
described in Section 1.704-2(b) of the Treasury Regulations),
such deductions shall be allocated to the Members or Economic
Interest Owners in the same manner as Net Profit or Net Loss
is allocated for such period.
(f) In accordance with Section 704(c)(1)(A) of
the Code and Section 1.704-1(b)(2)(i)(iv) of the Treasury
Regulations, if a Member or Economic Interest Owner
contributes property with a initial Gross Asset Value that
differs from its adjusted basis at the time of contribution,
income, gain, loss and deductions with respect to the property
shall, solely for federal income tax purposes (and not for
Capital Account purposes), be allocated among the Members or
Economic Interest Owners so as to take account of any
variation between the adjusted basis of such property to the
Company and its Gross Asset Value at the time of contribution.
(g) Pursuant to Section 704(c)(1)(B) of the
Code, if any contributed property is distributed by the
Company other than to the contributing Member or Economic
Interest Owner within five years of being contributed, then,
except as provided in Section 704(c)(2) of the Code, the
contributing Member or Economic Interest Owner shall, solely
for federal income tax purposes (and not for Capital Account
purposes), be treated as recognizing gain or loss from the
sale of such property in an amount equal to the gain or loss
that would have been allocated to such Member or Economic
Interest Owner under Section 704(c)(1)(A) of the Code if the
property had been sold at its fair market value at the time of
the distribution.
32
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
(h) In the case of any distribution by the
Company to a Member or Economic Interest Owner, such Member or
Economic Interest Owner shall, solely for federal income tax
purposes (and not for Capital Account purposes), be treated as
recognizing gain in an amount equal to the lesser of:
(i) the excess (if any) of (A) the
fair market value of the property (other than money)
received in the distribution over (B) the adjusted
basis of such Member's or Economic Interest Owner's
Membership Interest or Economic Interest in the
Company immediately before the distribution reduced
(but not below zero) by the amount of money received
in the distribution, or
(ii) the Net Precontribution Gain (as
defined in Section 737(b) of the Code) of the Member
or Economic Interest Owner. The Net Precontribution
Gain means the net gain (if any) which would have
been recognized by the distributee Member or
Economic Interest Owner under Section 704(c)(1)(B)
of the Code if all property which (1) had been
contributed to the Company within five years of the
distribution, and (2) is held by the Company
immediately before the distribution, had been
distributed by the Company to another Member or
Economic Interest Owner. If any portion of the
property distributed consists of property which had
been contributed by the distributee Member or
Economic Interest Owner to the Company, then such
property shall not be taken into account under this
SECTION 9.2(h) and shall not be taken into account
in determining the amount of the Net Precontribution
Gain. If the property distributed consists of an
interest in an Entity, the preceding sentence shall
not apply to the extent that the value of such
interest is attributable to the property contributed
to such Entity after such interest had been
contributed to the Company.
(i) All recapture of income tax deductions
resulting from sale or disposition of Company property shall be
allocated to the Member or Members (or Economic Interest Owner) to
whom the deduction that gave rise to such recapture was allocated
hereunder to the extent that such Member or Economic Interest Owner
is allocated any gain from the sale or other disposition of such
property.
(j) Any credit or charge to the Capital Accounts of
the Members or Economic Interest Owners pursuant to SECTIONS
9.2(a), (b), (c), (d), and/or (e) hereof shall be taken into
33
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
account in computing subsequent allocations of profits and losses
pursuant to SECTION 9.1, so that the net amount of any items
charged or credited to Capital Accounts pursuant to SECTIONS 9.1
and 9.2(a), (b), (c), (d), and/or (e) shall to the extent possible,
be equal to the net amount that would have been allocated to the
Capital Account of each Member or Economic Interest Owner pursuant
to the provisions of this ARTICLE 9 if the special allocations
required by SECTIONS 9.2(a), (b), (c), (d), and/or (e) hereof had
not occurred.
9.3 DISTRIBUTIONS. The Company shall, to the extent it is able
to do so without, in the opinion of the Manager, jeopardizing the ability of
the Company to pay its obligations as they become due, distribute an amount
annually which is sufficient to pay the amount of federal income taxes of the
Members which arise as a consequence of the ownership by that Member of a
Membership Interest. Additionally, at least annually, the Manager shall
determine in its reasonable judgment to what extent, if any, the Company's
cash on hand exceeds the current and anticipated needs, including, without
limitation, needs for operating expenses, debt service, construction,
development, Plant operations, acquisitions, and Reserves, such excess amount
being referred to as "Available Cash". To the extent such Available Cash
exists, the Manager shall make annual distributions of Available Cash to the
Members within 60 days of the end of the Company's fiscal year as follows:
<TABLE>
Volume of Liquid Product Produced % of Distribution % of Distribution After
in a Given Six Month Period Before Payout Payout
----------------------------------------- ------------------------- ------------------------
Synt ECT SLH Synt ECT SLH
---- --- --- ---- --- ---
<S> <C> <C> <C> <C> <C> <C>
Above 1,343,000 barrels 87.93 11.0 1.07 87.93 11.0 1.07
(7,900 B/D x 170 days)
Between 1,190,000 and 1,343,000 85.74 13.0 1.26 86.83 12.0 1.17
(7,000 B/D x 170 days)
Between 1,020,000 and 1,190,000 83.55 15.0 1.45 85.18 13.5 1.32
(6,000 B/D x 170 days)
Below 1,020,000 75.87 22.0 2.13 78.04 20.0 1.96
(5,000 B/D x 170 days)
</TABLE>
9.4 STRUCTURING FEE In addition to the distributions provided
in SECTION 9.3, the Company shall pay to ECT Securities Corp. a one time
cash distribution equal to 3% of ECT's aggregate Capital Contributions as,
and payable at the time, of the first cash distribution to Members is made by
the Company.
34
<PAGE>
Syntroleum-Sweetwater Company Agreement
- --------------------------------------------------------------------------------
CONFIDENTIAL
9.5 LIMITATION UPON DISTRIBUTIONS. No distribution shall be
declared and paid unless, after the distribution is made, the assets of the
Company are in excess of all liabilities of the Company.
9.6 ACCOUNTING PRINCIPLES. The profits and losses of the Company
shall be determined in accordance with accounting principles applied on a
consistent basis. It is intended that the Company will elect those
accounting methods which provide the Company with the greatest tax benefits.
9.7 INTEREST ON AND RETURN OF CAPITAL CONTRIBUTIONS. No Member or
Economic Interest Owner shall be entitled to interest on its Capital
Contribution or to return of its Capital Contribution, except as otherwise
specifically provided for herein.
9.8 LOANS TO COMPANY. Nothing in this Company Agreement shall
prevent any Member or Economic Interest Owner from making secured or
unsecured loans to the Company by agreement with the Company.
9.9 ACCOUNTING PERIOD. The Company's accounting period shall
be the calendar year.
9.10 RECORDS, AUDITS AND REPORTS. The Manager shall maintain
records and accounts of all operations and expenditures of the Company. At a
minimum, the Company shall keep at its principal place of business the
following records:
(a) a current list of the full name and last known business,
residence, or mailing address of each Member or Economic Interest
Owner, both past and present;
(b) a copy of the Certificate of Formation of the Company and
all amendments thereto, together with executed copies of any powers of
attorney pursuant to which any amendment has been executed;
(c) copies of the Company's federal, state, and local income
tax returns and reports, if any, for the four most recent years;
(d) copies of the Company's currently effective written Company
Agreement,
35
<PAGE>
Syntroleum-Sweetwater Company Agreement
- --------------------------------------------------------------------------------
CONFIDENTIAL
copies of any writings permitted or required with respect to a Member's
or Economic Interest Owner's obligation to contribute cash, property or
services, and copies of any financial statements of the Company for the
two most recent years;
(e) minutes of every annual or special meeting;
(f) any written consents obtained from Members or Economic
Interest Owners for actions taken by Members without a meeting; and
(g) annual and quarterly financial statements of the Company
prepared in conformity with generally accepted accounting principles
which will be distributed to any Member upon request.
9.11 RETURNS AND OTHER ELECTIONS. The Manager shall cause the
preparation and timely filing of all tax returns required to be filed by the
Company pursuant to the Code and all other tax returns deemed necessary and
required in each jurisdiction in which the Company does business. Copies of
such returns, or pertinent information therefrom, shall be furnished to the
Members or Economic Interest Owners within a reasonable time after the end of
the Company's Fiscal Year. The Manager shall serve as the Company's "Tax
Matters Partner" under the Code. All elections permitted to be made by the
Company under federal or state laws shall be made by the Manager in its sole
discretion.
ARTICLE 10
TRANSFERABILITY, WITHDRAWAL AND CESSATION OF MEMBERSHIP
10.1 GENERAL. Except as otherwise specifically provided herein, no
Member or Economic Interest Owner shall have the right to:
(a) sell, assign, transfer, exchange, pledge, hypothecate, grant
a security in, permit a lien, charging order or encumbrance to
exist on, or otherwise transfer or dispose of for consideration
(collectively, "sell" or "sale"), or
(b) gift, bequeath or otherwise transfer for no consideration
whether or not by operation of law (collectively "gift") all or any
part of its Membership Interest or Economic
36
<PAGE>
Syntroleum-Sweetwater Company Agreement
- --------------------------------------------------------------------------------
CONFIDENTIAL
Interest. Each Member or Economic Interest Owner hereby acknowledges
the reasonableness of the restrictions on sale and gift of Membership
Interests or Economic Interests imposed by this Company Agreement in
view of the Company purposes and the relationship of the Members or
Economic Interest Owners. Accordingly, the restrictions on sale and
gift contained herein shall be specifically enforceable. In the event
that any Member or Economic Interest Owner pledges or otherwise
encumbers any of its Membership Interest or Economic Interest as
security for repayment of a liability, any such pledge or hypothecation
shall be made pursuant to a pledge or hypothecation agreement that
requires the pledgee or secured party to be bound by all the terms and
conditions of this ARTICLE 10 and require the secured party, upon a
default or other event which would entitle it to foreclose upon such
Membership Interest, to offer the Membership Interest for sale to the
other Members pursuant to the right of first refusal of provisions
of SECTION 10.2.
10.2 RIGHT OF FIRST REFUSAL.
(a) A Selling Member which desires to sell all or any portion
of its Membership Interest or Economic Interest in the Company for
cash only to a third party purchaser including a Member shall obtain
from such third party purchaser a bona fide written offer to purchase
such interest, stating the terms and conditions upon which the
purchase is to be made and the cash consideration offered therefor.
The Selling Member shall give written notification to the remaining
Members, by certified mail or personal delivery, of its intention to
so transfer such interest, furnishing to the remaining Members a copy
of the aforesaid written offer to purchase such interest.
(b) The remaining Members, and each of them, shall, on a basis
pro rata to their Membership Interests or on a basis pro rata to the
Membership Interests of those remaining Members exercising their right
of first refusal, have the right to exercise a right of first refusal
to purchase all (but not less than all) of the interest proposed to
be sold by the Selling Member upon the same terms and conditions as
stated in the aforesaid written offer to purchase by giving written
notification to the Selling Member, by certified mail or personal
delivery, of their intention to do so within ninety (90) days after
receiving written notice from the Selling Member and, within such
ninety (90) day period, demonstrating to the reasonable satisfaction
of the Selling Member (which demonstration may include furnishing
financial statements, loan commitments or other assurances consistent
with transactions of this nature) such remaining Members' financial
ability to complete the
37
<PAGE>
Syntroleum-Sweetwater Company Agreement
- --------------------------------------------------------------------------------
CONFIDENTIAL
purchase of the Selling Member's Membership Interest as provided
in this SECTION 10.2. In the event that the remaining Members (i) do
not so notify the Selling Member of their desire to exercise this
right of first refusal and purchase all of such interest within said
ninety (90) day period, or (ii) do not make such satisfactory
demonstration of financial ability, the Selling Member shall be
entitled to consummate the sale of such interest in the Company to
such third party purchaser on the terms set forth in the notice
delivered in accordance with SECTION 10.2(a) provided that such sale
shall be consummated within 120 days of the date such notice was given.
(c) In the event the remaining Members (or any one or more of
the remaining Members) give written notice to the Selling Member of
their desire to exercise their right of first refusal and to purchase
all of the Selling Member's interest in the Company which the Selling
Member desires to sell upon the same terms and conditions as are
stated in the aforesaid written offer to purchase, the remaining
Members shall have the right to designate the time, date and place of
closing, provided that the date of closing shall be within one hundred
twenty (120) days after receipt of written notification from the
Selling Member of the third party offer to purchase.
(d) In the event of either the purchase of the Selling
Member's interest in the Company by a third party purchaser or the
gift of an interest in the Company, and as a condition to recognizing
the effectiveness and binding nature of any such sale or gift, the
Company may require the Selling Member or Gifting Member and the
proposed purchaser, donee or successor-in-interest, as the case may
be, to execute, acknowledge and deliver to the Company such
instruments of transfer, assignment and assumption and such other
certificates, representations and documents, and to perform all such
other acts which the Company may deem necessary or desirable to:
(i) constitute such purchaser or donee as a Member or
Economic Interest Owner;
(ii) maintain the status of the Company as a partnership for
federal tax purposes;
(iii) confirm that the Person desiring to acquire an
interest or interests in the Company as a Member or Economic
Interest Owner has accepted, assumed and
38
<PAGE>
Syntroleum-Sweetwater Company Agreement
- --------------------------------------------------------------------------------
CONFIDENTIAL
agreed to be subject and bound by all of the terms,
obligations and conditions of the Company Agreement, as the
same may have been further amended;
(iv) preserve the Company after the completion of
such sale, transfer, assignment, or substitution under the
laws of each jurisdiction in which the Company is qualified,
organized or does business;
(v) assure compliance with any applicable state
and federal laws including securities laws and regulations.
(e) As a condition to recognition of any such proposed sale or
gift, the Company shall have the right to request and receive an opinion
of counsel acceptable to the Company confirming that any such transfer
will not change the treatment of the Company as a partnership for tax
purposes or result in the termination of the Company under Section 708
of the Code and that such proposed transfer has been made, or when made
will be in compliance with applicable federal and state securities laws.
Upon any sale or gift permitted hereunder, the Company shall continue
and no vote of Members need be taken in order for the Company to so
continue and such event shall not cause a dissolution of the Company.
(f) Any sale or gift of a Membership Interest or Economic Interest or
admission of a Member in compliance with this ARTICLE 10 shall be deemed
effective as of the last day of the calendar month in which the
remaining Members' consent thereto was given, or, if no such consent was
required, then on such date that the donee or successor in interest
complies with SECTION 10.2(c). The Transferring Member agrees, upon
request of the remaining Members, to execute such certificates or other
documents and perform such other acts as may be reasonably requested by
the remaining Members from time to time in connection with such sale,
transfer, assignment, or substitution. The Transferring Member hereby
indemnifies the Company and the remaining Members against any and all
loss, damage, or expense (including, without limitation, tax liabilities
or loss of tax benefits) arising directly or indirectly as a result of
any transfer or purported transfer in violation of this ARTICLE 10.
39
<PAGE>
Syntroleum-Sweetwater Company Agreement
- --------------------------------------------------------------------------------
CONFIDENTIAL
10.3 RIGHT OF ASSIGNEE AS A MEMBER.
(a) Notwithstanding anything contained herein to the
contrary (including, without limitation, SECTION 10.2 hereof), if the
Manager and Members holding at least 50% of the Membership Interest,
excluding that held by the Member or Economic Interest Owner making
such sale or gift, do not approve by written consent of the proposed
sale or gift of the Transferring Member's Membership Interest or
Economic Interest to a transferee or donee which is not a Member
immediately prior to the sale or gift, then the proposed transferee or
donee shall have no right to participate in the management of the
business and affairs of the Company or to become a Member. Such
transferee or donee shall be merely an Economic Interest Owner. No sale
or gift of a Member's interest in the Company (including any transfer
of the Economic Interest or any other transfer which has not been
approved as provided herein) shall be effective unless and until
written notice (including the name and address of the proposed
transferee or donee and the date of such transfer) has been provided to
the Company and the non-transferring Member(s). In the event that any
Member sells or gives its Membership Interest to more than five
Persons, the Company may require the assignees to appoint a nominee to
hold all of the Economic Interest, such nominee to be responsible for
accounting for the various interests of such assignees.
(b) Upon and contemporaneously with any sale or gift of a
Transferring Member's Economic Interest in the Company which does not
at the same time transfer the balance of the rights associated with the
Members' Membership Interest (including, without limitation, the rights
of the Transferring Member to participate in the management of the
business and affairs of the Company), the Company shall purchase from
the Transferring Member, and the Transferring Member shall sell to the
Company for a purchase price of $100.00, all remaining rights and
interests retained by the Transferring Member.
10.4 WITHDRAWAL. No Member shall have the right to resign or withdraw his
Membership Interest from the Company.
10.5 DISSOCIATION OF A MEMBER.
(a) A Person shall cease to be a Member upon the happening of any of
the following events:
40
<PAGE>
Syntroleum-Sweetwater Company Agreement
- --------------------------------------------------------------------------------
CONFIDENTIAL
(i) the Member's becoming a Bankrupt Member;
(ii) in the case of a Member that is an Entity other than a
corporation, the termination, dissolution, liquidation and/or
commencement of winding up of the Entity;
(iii) in the case of a Member that is a corporation, the filing of a
certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter;
(iv) the death, resignation or expulsion or withdrawal (as
permitted by the Act) of a Member who is an individual.
Any such event Member shall be known as a "Dissociated Member" and such
event shall be referred to as a "Dissociation."
(b) Upon any Dissociation, the Company shall continue and no vote
of Members need be taken in order for the Company to so continue and
such event shall not cause a dissolution of the Company. Upon the
Dissociation of a Member, Members holding a majority of the remaining
Membership Interest shall, subject to the provisions of the Act, elect
one of the two following provisions:
(i) The Dissociated Member's Membership Interest shall
be purchased by the Company for a purchase price equal to the
aggregate fair market value of the Member's Interest
determined according to the provisions of SECTION 10.5(c)
below. The purchase price of such interest shall be paid by
the Company to the Member in cash within 60 days of
determination of the aggregate fair market value or, at the
Company's option, said debt may be evidenced by a promissory
note bearing interest at the floating prime rate of interest
set forth as the average prime rate in the Wall Street
Journal, which shall be due and payable upon the expiration
of five years; or
(ii) The Dissociated Member, or assignee of Dissociated
Member's Interest, shall hold the Dissociated Member's Membership
Interest as an assignee.
41
<PAGE>
Syntroleum-Sweetwater Company Agreement
- --------------------------------------------------------------------------------
CONFIDENTIAL
(c) The fair market value of a Member's Interest to be purchased
by the Company pursuant to SECTION 10.5(b) above shall be determined by
agreement between the Dissociated Member (or the assignee of the
Dissociated Member's Membership Interest, as the case may be) and the
Company, which agreement is subject to approval by Members holding in
the aggregate at least 50% of the Membership Interest held by all
Members other than the Disassociated Member. For this purpose, the fair
market value of the Dissociated Member's Membership Interest shall be
computed as the amount which could reasonably be expected to be
realized by such Member upon the sale of the Company assets in the
ordinary course of the business at the time of Dissociation. If the
Dissociated Member (or the Assignee of the Dissociated Member's
Membership Interest, as the case may be) and the Company cannot agree
upon the fair market value of such Membership Interest within 30 days
of the Disassociation, the fair market value thereof shall be
determined by appraisal, the Company and the terminated Member each to
choose one appraiser and the two appraisers so chosen to choose a third
appraiser. The decision of a majority of the appraisers as to the fair
market value of such Membership Interest shall be final and binding and
may be enforced by legal proceedings. The Dissociated Member and the
Company shall each compensate the appraiser appointed by it and the
compensation of the third appraiser shall be borne equally by such
parties.
(d) The provision set forth herein shall not effect any claim
for damages the Company may have against the Dissociated Member if such
Dissociation is in violation of this Company Agreement. The Company
shall have the right to offset any payments due under this SECTION 10.5
by any damages that the Company may incur as a result of a Dissociation
of a Member in contravention of this Company Agreement.
ARTICLE 11
ADDITIONAL MEMBERS
In addition to any Member properly admitted pursuant to ARTICLE
10 upon a sale or gift and any Members admitted under the provisions of
SECTIONS 8.2, 8.3 or 8.4, any Person acceptable to all of the Members may
become a Member in this Company upon the unanimous consent of all Members
by the issuance by the Company of Membership Interests for such
consideration as is unanimously approved by such Members. No new Members
shall be entitled to any retroactive allocation of losses, income or
expense deductions incurred by the Company. The Manager may, at
42
<PAGE>
Syntroleum-Sweetwater Company Agreement
- --------------------------------------------------------------------------------
CONFIDENTIAL
its option, at the time a Member is admitted, close the Company books
(as though the Company's tax year had ended) or make pro rata allocations
of loss, income and expense deductions to a new Member for that portion of
the Company's tax year in which a Member was admitted in accordance with the
provisions of Section 706(d) of the Code and the Treasury Regulations
promulgated thereunder.
ARTICLE 12
DISSOLUTION AND TERMINATION
12.1 DISSOLUTION.
(a) The Company shall be dissolved upon the occurrence of any of
the following events:
(i) all Members agree in writing to dissolve the Company; or
(ii) the entry of a decree of judicial dissolution under Section
18-802 of the Act.
(b) The Members agree that neither the death, retirement,
resignation, expulsion, withdrawal, bankruptcy or dissolution of any
Member nor any other event that terminates the continued membership of
any Member shall result in the dissolution of the Company.
12.2 WINDING UP, LIQUIDATION AND DISTRIBUTION OF ASSETS
(a) Upon dissolution, an accounting shall be made by the Company's
independent accountants of the accounts of the Company and of the Company's
assets, liabilities and operations, from the date of the last previous
accounting until the date of dissolution. The Manager shall immediately
proceed to wind up the affairs of the Company and shall have all of the
rights with respect thereto as set forth in the Act.
(b) If the Company is dissolved and its affairs are to be wound up,
the Manager shall:
43
<PAGE>
Syntroleum-Sweetwater Company Agreement
- --------------------------------------------------------------------------------
CONFIDENTIAL
(i) Sell or otherwise liquidate all of the Company's assets as
promptly as practicable (except to the extent the Manager may determine
to distribute any assets to the Members in kind) provided that, the
Manager shall be authorized to take such time in the sale of such
assets as it deems reasonable to obtain the best available price
therefor;
(ii) Allocate any Net Profit or Net Loss resulting from such
sales to the Members' Capital Accounts in accordance with ARTICLE 9
hereof;
(iii) Discharge, contest, or make reasonable provision for,
including any settlement or compromise deemed reasonable in respect
thereof, all liabilities of the Company, including liabilities to
Members who are also creditors, to the extent otherwise permitted by
law, other than liabilities to Members for distributions and the return
of capital, and establish such Reserves as may be reasonably necessary
to provide for contingent liabilities of the Company (for purposes of
determining the Capital Accounts of the Members, the amounts of such
Reserves shall be deemed to be an expense of the Company),
(iv) Distribute the remaining assets in the following order:
(1) If any assets of the Company are to be distributed in
kind, the net fair market value of such assets as of the date of
dissolution shall be determined by independent appraisal or by
agreement of the Members. Such assets shall be deemed to have
been sold as of the date of dissolution for their fair market
value, and the Capital Accounts of the Members shall be adjusted
pursuant to the provisions of ARTICLE 9 and of this Company
Agreement to reflect such deemed sale.
(2) The positive balance (if any) of each Member's Capital
Account (as determined after taking into account all Capital
Account adjustments for the Company's taxable year during which
the liquidation occurs) shall be distributed to the Members,
either in cash or in kind, as determined by the Manager, with any
assets distributed in kind being valued for this purpose at their
fair market value. Any such distributions to the
44
<PAGE>
Syntroleum-Sweetwater Company Agreement
- --------------------------------------------------------------------------------
CONFIDENTIAL
Members in respect of their Capital Accounts shall be made in
accordance with the time requirements set forth in
Section 1.704-1(b)(2)(ii)(b)(2) of the Treasury Regulations.
(3) Not withstanding the provisions of SECTIONS
12.2(b)(iv)(1) and (2), in the event the Company is dissolved
within three years of the Effective Date, the remaining assets of
the Company shall be distributed to all Members in proportion to
their Capital Contributions made in cash until such time as such
distributions equal such cash Capital Contributions plus an a
simple annual rate of return on such Capital Contributions of 30%.
(c) Notwithstanding anything to the contrary in this Company
Agreement, upon a liquidation within the meaning of Section
1.704-1(b)(2)(ii)(g) of the Treasury Regulations, if any Member has a
Deficit Capital Account (after giving effect to all contributions,
distributions, allocations and other Capital Account adjustments for
all taxable years, including the year during which such liquidation
occurs), such Member shall have no obligation to make any Capital
Contribution, and the negative balance of such Member's Capital
Account shall not be considered a debt owed by such Member to the
Company or to any other Person for any purpose whatsoever.
(d) Upon completion of the winding up, liquidation and
distribution of the assets, the Company shall be deemed terminated.
(e) The Manager shall comply with any applicable requirements of
applicable law pertaining to the winding up of the affairs of the
Company and the final distribution of its assets.
12.3 RETURN OF CONTRIBUTION NONRECOURSE TO OTHER MEMBERS. Except
as provided by law or as expressly provided in this Company Agreement,
upon dissolution, each Member shall look solely to the assets of the
Company for the return of its Capital Contribution. If the Company
property remaining after the payment or discharge of the debts and
liabilities of the Company is insufficient to return the cash
contribution of one or more Members, such Members shall have no
recourse against any other Member.
45
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
12.4 FILING OF CERTIFICATE OF CANCELLATION. Upon the dissolution and
completion of the winding up of the Company, the Manager shall file a
Certificate of Cancellation with the Delaware Secretary of State.
ARTICLE 13
MISCELLANEOUS PROVISIONS
13.1 NOTICES. Any notices or other written communications provided for
hereunder shall be in writing and shall be deemed given (i) when received if
delivered in person, (ii) when sent if by facsimile transmission and a
confirmation is received, (iii) two business days after deposit with an
express courier if couriered on an internationally recognized express
courier, or (iv) three business days after deposit with the United States
Mail if mailed by registered or certified mail (return receipt requested),
postage prepaid. All notices or other communications to the parties shall be
at the addresses set forth in ARTICLE 4.
13.2 APPLICATION OF DELAWARE LAW. This Company Agreement, and the
application or interpretation hereof, shall be governed exclusively by its
terms and by the laws of the State of Delaware, and specifically the Act. The
parties expressly and irrevocably consent and submit to the jurisdiction of
any federal or state court sitting in Wilmington, Delaware and agree that, to
the fullest extent allowed by law, such Delaware federal and state courts
shall have jurisdiction over any action, suit or proceeding arising out of or
relating to this Agreement. The parties each irrevocably waive, to the
fullest extent allowed by law, any objection any one or more of them may have
to the laying of venue of any such suit, action or proceeding brought in any
state or federal court sitting in Wilmington, Delaware based upon a claim
that such court is inconvenient or otherwise an objectionable forum. Any
process in any action, suit or proceeding arising out of or relating to this
Agreement may, among other methods, be served upon any party by delivering it
or mailing it to their respective addresses set forth herein. Any such
delivery or mail service shall be deemed to have the same force and effect as
personal service in Wilmington, Delaware. The parties agree that the
provisions of this SECTION 13.2 relating to jurisdiction and venue shall not
be deemed to be the consent by any party to the exclusive jurisdiction or
venue of any federal or state court sitting in Wilmington, Delaware.
13.3 WAIVER OF ACTION FOR PARTITION. Each Member irrevocably waives
during the term of the Company any right that it may have to maintain any
action for partition with respect to the property of the Company.
46
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
13.4 AMENDMENTS. This Company Agreement may not be amended except by
the unanimous written agreement of all of the Members.
13.5 EXECUTION OF ADDITIONAL INSTRUMENTS. Each Member hereby agrees to
execute such other and further statements of interest and holdings,
designations, powers of attorney and other instruments necessary to comply
with any laws, rules or regulations.
13.6 CONSTRUCTION. Whenever the singular number is used in this
Company Agreement and when required by the context, the same shall include
the plural and vice versa, and the masculine gender shall include the
feminine and neuter genders and vice versa.
13.7 HEADINGS AND PRONOUNS. The headings in this Company Agreement are
inserted for convenience only and are in no way intended to describe,
interpret, define, or limit the scope, extent or intent of this Company
Agreement or any provision hereof. All pronouns and only variations thereof
shall be deemed to refer to masculine, feminine, or neuter, singular or
plural as the identity of the Person or Persons may require.
13.8 WAIVERS. The failure of any party to seek redress for violation
of or to insist upon the strict performance of any covenant or condition of
this Company Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from having the effect of an original
violation.
13.9 RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies provided
by this Company Agreement are cumulative and the use of any one right or
remedy by any party shall not preclude or waive the right to use any or all
other remedies. Said rights and remedies are given in addition to any other
rights the parties may have by law, statute, ordinance or otherwise.
13.10 SEVERABILITY. If any provision of this Company Agreement or the
application thereof to any person or circumstance shall be invalid, illegal
or unenforceable to any extent, the remainder of this Company Agreement and
the application there of shall not be affected and shall be enforceable to
the fullest extent permitted by law.
47
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
13.11 ASSIGNMENT. Except as expressly contemplated in this Company
Agreement, neither this Company Agreement nor any of the rights, interests or
obligations hereunder shall be assigned (which, for the purpose of this
SECTION 13.11, includes the sale or other transfer of a majority of the
voting securities of a party) by a party (whether by operation of law or
otherwise) without the prior written consent of all parties, except for (a)
an assignment by a party to an Entity which is 100% owned by such party, or
(b) an assignment by ECT to any Affiliate of ECT which is not engaged in
business or operations which could reasonably be deemed to be in competition
with the primary business or operations of the Company (including subsequent
assignments by any such Affiliate to any other Affiliate which meets the
foregoing conditions), each of which assignments may be made without the
consent of the other parties, provided that written notice of any such
assignment shall be promptly given to the other parties. Each and all of the
covenants, terms, provisions and agreements herein contained shall be binding
upon and inure to the benefit of the parties and, to the extent permitted by
this Company Agreement, their respective legal representatives, successors
and assigns.
13.12 CREDITORS. None of the provisions of this Company Agreement shall
be for the benefit of or enforceable by any creditors of the Company.
13.13 COUNTERPARTS. This Company Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument.
13.14 INVESTMENT REPRESENTATIONS.
(a) The undersigned Members understand (1) that the Membership
Interests evidenced by this Company Agreement have not been registered
under the Securities Act of 1933, or any state securities laws (the
"Securities Acts") because the Company is issuing these Membership
Interests in reliance upon the exemptions from the registration
requirements of the Securities Acts providing for issuance of
securities not involving a public offering, (2) that the Company has
relied upon the fact that the Membership Interests are to be held by
each Member for investment, and (3) that exemption from registrations
under the Securities Acts would not be available if the Membership
Interests were acquired by a Member with a view to distribution.
(b) Each Member hereby confirms to the Company that such Member
is acquiring the Membership Interests for such own Member's account,
for investment and not
48
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
with a view to the resale or distribution thereof. Each Member agrees
not to transfer, sell or offer for sale any of portion of the
Membership Interests unless there is an effective registration or other
qualification relating thereto under the Securities Acts or unless the
holder of Membership Interests delivers to the Company an opinion of
counsel, satisfactory to the Company, that such registration or other
qualification under such Securities Acts is not required in connection
with such transfer, offer or sale. Each Member understands that the
Company is under no obligation to register the Membership Interests or
to assist such Member in complying with any exemption from registration
under the Securities Acts if such Member should at a later date, wish
to dispose of the Membership Interest.
13.15 LIMITATION ON DAMAGES. In no event shall a party be liable to the
other parties for any special, indirect, consequential, incidental, punitive,
or exemplary damages, including without limitation, lost profits or savings,
regardless of the form of action giving rise to such a claim for such
damages, whether in contract or tort including negligence, even if a party
has been advised of the possibility of such damages. In the event a party is
found, despite the provisions of this SECTION 13.15, liable to another party
for special, indirect, consequential, incidental, punitive, or exemplary
damages, then the maximum limit of such damages is agreed to be $5,000.
49
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
CERTIFICATE
The undersigned hereby agree, acknowledge and certify that the foregoing
Company Agreement constitutes the Company Agreement of Syntroleum/Sweetwater
Company, L.L.C. adopted by the Members of the Company effective as of the
Effective Date.
SYNTROLEUM/SWEETWATER COMPANY, L.L.C.
By Syntroleum Corporation, its Manager
[SEAL]
By: /s/ Mark A. Agee
----------------------------------
Mark A. Agee, President
MEMBERS:
SYNTROLEUM CORPORATION
[SEAL]
By: /s/ Mark A. Agee
----------------------------------
Mark A. Agee, President
SLH CORPORATION
By: /s/ James R. Seward
----------------------------------
James R. Seward, Chief Executive Officer
ENRON CAPITAL & TRADE RESOURCES CORP.
By: /s/ J. Kevin McConville
----------------------------------
Title: Vice President
----------------------------------
50
<PAGE>
Syntroleum-Sweetwater Company Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
EXHIBIT A
<TABLE>
Units Purchased % Membership Interest
------------------- --------------------------------------
Class Class Capital Class Class
Member A B Contribution A B Aggregate
- ---------------------- ------- ------- -------------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Syntroleum Corporation 90.0 -- License 100% -- 90.0%
Agreement and
$500,000
SLH Corporation -- 6.0 $1,500,000 -- 60.0% 6.0%
Enron Capital & Trade -- 4.0 $1,000,000 -- 40.0% 4.0%
Resources Corp.
------- ------- -----------
100% 100% 100%
------- ------- -----------
------- ------- -----------
</TABLE>
51
<PAGE>
- -------------------------------------------------------------------------------
PURCHASE AGREEMENT
BETWEEN
SYNTROLEUM/SWEETWATER COMPANY, L.L.C.
AND
ENRON CAPITAL & TRADE RESOURCES CORP.
- -------------------------------------------------------------------------------
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
PURCHASE AGREEMENT
This Purchase Agreement is entered into effective as of the 12th day
of January, 1998, by and among SYNTROLEUM/SWEETWATER COMPANY, L.L.C., a
Delaware limited liability company (the "Company"), and ENRON CAPITAL & TRADE
RESOURCES CORP., a Delaware corporation ("ECT").
RECITALS
A. The Company is engaged in the business of designing,
constructing and operating the Plant.
B. The Company, in order to obtain additional equity capital to
further its business operations, desires to sell and issue to ECT Membership
Interest on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and in
consideration of the agreements and benefits set forth in this Agreement and
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Company and ECT agree as follows.
1. DEFINITIONS
The following terms (whether or not underscored) when used in this
Agreement, including its preamble and recitals, shall, except where the
context otherwise requires, have the following meanings (such meanings to be
equally applicable to the singular and plural forms thereof).
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
1.01 "ACT" means the Delaware Limited Liability Company Act, Title
6, Delaware Code, Sections 18-101 et seq., as it may be amended from time to
time, and any successor to such Act.
1.02 "ADVERSE CONSEQUENCES" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
reasonable amounts paid in settlement, liabilities, obligations, taxes,
liens, losses, expenses, and fees, including court costs and reasonable
attorneys' fees and expenses.
1.03 "AFFILIATE" of a Person means (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person; (ii) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 10% or greater equity
or voting interest of such Person; or (iii) any other Person for which a
Person described in clause (ii) acts in any such capacity.
1.04 "AGREEMENT" means this Purchase Agreement.
1.05 "ASSETS" of a Person means all of the assets, properties,
businesses and rights of such Person of every kind, nature, character and
description, whether real, personal or mixed, tangible or intangible, accrued
or contingent, or otherwise relating to or utilized in such Person's
business, directly or indirectly, in whole or in part, whether or not claimed
on the books and records of such Person, and whether or not owned in the name
of such Person or any Affiliate of such Person and wherever located.
1.06 "CAPITAL COMMITMENT" means the amount which ECT has agreed to
contribute to the capital of the Company under SECTION 2.01.
1.07 "CAPITAL CONTRIBUTION" means the contributions to the capital
of the Company made in cash by ECT under SECTIONS 2.01(a) AND (b).
1.08 "CLASS B MEMBER" means SLH, ECT and any Person otherwise
admitted to the Company as a Class B Member pursuant to the Company Agreement.
2
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
1.09 "CLASS B UNITS" means the units of Class B Membership Interest
issued to ECT under this Agreement.
1.10 "CLOSING" means either the First Closing or the Second Closing
as the context requires.
1.11 "CLOSING DATE" means either the First Closing Date or the
Second Closing Date as the context requires.
1.12 "COMPANY" means Syntroleum/Sweetwater Company, L.L.C., a
Delaware limited liability company.
1.13 "COMPANY AGREEMENT" means that certain First Amended and
Restated Operating Agreement dated as of the Effective Date between SLH, ECT
and the Company as amended, amended or restated, or otherwise modified from
time to time.
1.14 "CONSENT" means any consent, approval, authorization,
clearance, exemption, waiver, or similar affirmation by any Person pursuant
to any Contract, Law, Order, or Permit.
1.15 "CONTRACT" means any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease, license,
obligation, plan, practice, restriction, understanding or undertaking of any
kind or character, or other document to which any Person is a party or that
is binding on any Person or its capital securities, Assets or business.
1.16 "DEFAULT" means (i) any breach or violation of or default under
any Contract, Order or Permit, (ii) any occurrence of any event that with the
passage of time or the giving of notice or both would constitute a breach or
violation of or default under any Contract, Order or Permit, or (iii) any
occurrence of any event that with or without the passage of time or the
giving of notice would give rise to a right to terminate or revoke, change or
renegotiate the current terms of, or to accelerate, increase, or impose any
Liability under, any Contract, Order or Permit.
3
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
1.17 "ECT" means Enron Capital and Trade Resources Corp., a Delaware
corporation.
1.18 "EFFECTIVE DATE" means the date set forth in the first
paragraph of this Agreement.
1.19 "ENVIRONMENTAL LAWS" means all Laws relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface or subsurface strata) and which are
administered, interpreted or enforced by the United States Environmental
Protection Agency and state and local agencies with jurisdiction over, and
including common law in respect of, pollution or protection of the
environment, including the Comprehensive Environmental Response Compensation
and Liability Act, as amended, 42 U.S.C. 9601 ET SEQ. ("CERCLA"), the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. 6901 ET SEQ.
("RCRA"), and other Laws relating to emissions, discharges, releases or
threatened releases of any Hazardous Material, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of any Hazardous Material.
1.20 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
1.21 "FINAL CLOSING" means the payment by ECT to the Company of the
remaining balance of its Capital Commitment and admission of Additional Class
B members, if any, to the Company and consummation of the other transactions
contemplated for the Final Closing, all as provided in this Agreement.
1.22 "FINAL CLOSING DATE" means the date on which the Final Closing
occurs.
1.23 "FIRST CLOSING" means the execution by Syntroleum, SLH and ECT
of the Company Agreement and this Agreement, the payment by ECT to the
Company of the first $1,000,000 of ECT's Capital Commitment and the admission
of ECT to the Company as a Class B Member, and consummation of the other
transactions contemplated for the First Closing, all as provided in this
Agreement.
4
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
1.24 "FIRST CLOSING DATE" means the date on which the First Closing
occurs.
1.25 "GAAP" means generally accepted accounting principles,
consistently applied during the periods involved.
1.26 "HAZARDOUS MATERIAL" means (i) any hazardous substance,
hazardous material hazardous waste, regulated substance or toxic substance
(as those terms are defined by any applicable Environmental Laws) and (ii)
any chemicals, pollutants, contaminants, petroleum, petroleum products, or
oil (and specifically shall include asbestos requiring abatement, removal, or
encapsulation pursuant to the requirements of governmental authorities and
any polychlorinated biphenyls).
1.27 "INTELLECTUAL PROPERTY" means copyrights, patents, trademarks,
service marks, service names, trade names and all applications therefor,
technology rights and licenses, computer software (including any source or
object codes therefor or documentation relating thereto), trade secrets,
franchises, know-how, inventions, and other intellectual property rights.
1.28 "INTERNAL REVENUE CODE" means the Internal Revenue Code of
1986, as amended, and the rules and regulations promulgated thereunder.
1.29 "KNOWLEDGE" as used with respect to a Person (including
references to such Person being aware of a particular matter) means those
facts that are known or should reasonably have been known after due inquiry
by the chairman, president, chief financial officer, chief accounting
officer, general counsel, any assistant or deputy general counsel, or any
vice president of such Person.
1.30 "LAW" means any code, law, ordinance, regulation, reporting or
licensing requirement, rule, or statute applicable to a Person or its Assets,
Liabilities or business, including those promulgated, interpreted or enforced
by any Regulatory Authority.
1.31 "LIABILITY" means any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost, or expense (including
costs of investigation, collection and defense), claim, deficiency, guaranty
or endorsement of or by any Person
5
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
(other than endorsements of notes, bills, checks, and drafts presented for
collection or deposit in the ordinary course of business) of any type,
whether accrued, absolute or contingent, liquidated or unliquidated, matured
or unmatured, or otherwise.
1.32 "LICENSE AGREEMENT" means the site license agreement between
Syntroleum and the Company dated as of the Effective Date pursuant to which
the Company has received a non-exclusive site license to practice the
Syntroleum Process at the Plant.
1.33 "LIEN" means any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title
retention or other security arrangement, or any adverse right or interest,
charge, or claim of any nature whatsoever of, on, or with respect to any
property or property interest, other than (i) Liens for current property
Taxes not yet due and payable, and (ii) Liens which do not materially impair
the use of the Assets subject to, such Lien.
1.34 "LITIGATION" means any action, arbitration, cause of action,
claim, complaint, criminal prosecution, demand letter, governmental or other
examination or investigation, hearing, inquiry, administrative or other
proceeding, or notice (written or oral) by any Person alleging potential
Liability or requesting information relating to or affecting a Party, its
business, its Assets (including Contracts related to it), or the transactions
contemplated by this Agreement.
1.35 "MANAGER" means the manager of the Company as set forth in the
Company Agreement.
1.36 "MATERIAL" for purposes of this Agreement shall be determined
in light of the facts and circumstances of the matter in question, provided
that any specific monetary amount stated in this Agreement shall determine
materiality in that instance.
1.37 "MATERIAL ADVERSE EFFECT" on a Party means an event, change, or
occurrence which, individually or together with any other event, change or
occurrence, has a material adverse impact on (i) the financial position,
business, or results of operations of such Party and its Subsidiaries, taken
as a whole, or (ii) the ability of such
6
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
Party to perform its obligations under this Agreement or the other
transactions contemplated by this Agreement.
1.38 "MEMBER" means each Person who executes a counterpart of the
Company Agreement as a member.
1.39 "MEMBERSHIP INTEREST" means a Member's entire interest in the
Company including any right to participate in the management or affairs of
the Company, including, the right to vote on, consent to or otherwise
participate in any decision of the Members or Managers granted under the
Company Agreement or by the applicable provisions of the Act and such other
rights and privileges that the Member may enjoy by being a Member.
1.40 "1933 ACT" means the Securities Act of 1933, as amended.
1.41 "1934 ACT" means the Securities Exchange Act of 1934, as
amended.
1.42 "OPTION AGREEMENT" means the agreement between Syntroleum and
ECT dated as of the Effective Date granting certain options to such parties
with respect to the purchase, sale or exchange of ECT's Membership Interest.
1.43 "ORDER" means any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or
writ of any federal, state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency or Regulatory Authority.
1.44 "PARTY" means either the Company or ECT, and PARTIES means both
the Company and ECT.
1.45 "PERMIT" means any federal, state, local, and foreign
governmental approval, authorization, certificate, easement, filing,
franchise, license, notice, permit, or right to which any Person is a party
or that is or may be binding upon or inure to the benefit of any Person or
its securities, Assets or business.
1.46 "PERSON" means a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint
7
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
venture, limited partnership, limited liability company, trust, business
association, group acting in concert, or any person acting in a
representative capacity.
1.47 "PLANT" means the commercial facility to be designed and
constructed by the Company in Sweetwater County, Wyoming to practice the
Syntroleum Process under the License Agreement.
1.48 "REGULATORY AUTHORITIES" means, collectively, all federal and
state regulatory agencies having jurisdiction over the Parties and their
respective Subsidiaries.
1.49 "SECURITIES LAWS" means the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act of
1940, as amended, the Trust Indenture Act of 1939, as amended, and the rules
and regulations of any Regulatory Authority promulgated thereunder.
1.50 "SLH" means SLH Corporation, a Kansas corporation.
1.51 "SUBSIDIARIES" means all Persons of which a Party owns or
controls 50% or more of the outstanding equity securities either directly or
through an unbroken chain of entities as to each of which 50% or more of the
outstanding equity securities is owned directly or indirectly by its parent;
provided, there shall not be included any such entity acquired through
foreclosure or any such entity the equity securities of which are owned or
controlled in a fiduciary capacity.
1.52 "SWEETWATER DISCLOSURE MEMORANDUM" means the written
information entitled "Sweetwater Disclosure Memorandum" delivered to ECT
prior to the First Closing and as supplemented in writing prior to the Final
Closing describing in reasonable detail the matters contained therein and,
with respect to each disclosure made therein, specifically referencing each
Section of this Agreement under which such disclosure is being made.
Information disclosed with respect to one Section shall not be deemed to be
disclosed for purposes of any other Section not specifically referenced with
respect thereto.
8
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
1.53 "SWEETWATER FINANCIAL STATEMENTS" means the balance sheet of
the Company as of November 30, 1997 and related statements of operations,
stockholders' equity, and cash flows (including related notes and schedules,
if any) with respect to period ended November 30, 1998.
1.54 "SYNTROLEUM" means Syntroleum Corporation, an Oklahoma
corporation.
1.55 "SYNTROLEUM PROCESS" shall have the meaning given in the
License Agreement.
1.56 "TAX" or "TAXES" shall mean any federal, state, county, local,
or foreign income, profits, franchise, gross receipts, payroll, sales,
employment use, property, withholding, excise, occupancy, and other taxes,
assessments, charges, fares, or impositions, including interest, penalties,
and additions imposed thereon or with respect thereto.
2. PURCHASE AND SALE OF MEMBERSHIP INTEREST
2.01 PURCHASE AND SALE. Subject to the terms and conditions of this
Agreement, ECT agrees to contribute $15,450,000 to the capital of the Company as
follows:
(a) At the First Closing the Company agrees to sell to ECT, and
ECT agrees to purchase from the Company, four (4) Class B Units,
representing four percent (4%) of the aggregate Membership Interest in
the Company, for a Capital Contribution of $1,000,000, payable in cash
or immediately available funds at First Closing.
(b) At the Final Closing the Company agrees to sell to ECT, and
ECT agrees to purchase from the Company, that number of additional
Class B Units sufficient to represent an additional seven percent (7%)
of the aggregate Membership Interest in the Company for a Capital
Contribution of $14,450,000, payable in cash or immediately available
funds at Final Closing.
9
<PAGE>
Syntroleum-Enron Purchase Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
2.02 CLOSING.
(a) The purchase and sale of Membership Interest at the First
Closing pursuant to in SECTION 2.01(a) of this Agreement shall take place at
10:00 a.m. at the offices of Syntroleum Corporation, 1350 South Boulder,
Suite 1100, Tulsa, Oklahoma, 74119, on January ___, 1998 or at such other
time and place as ECT and the Company agree in writing.
(b) The purchase and sale of the Membership Interest at the Final
Closing pursuant to in SECTION 2.01(b) of this Agreement shall take place at
the offices of Syntroleum Corporation, 400 South Boston, Suite 1000, Tulsa,
Oklahoma, 74103, at the time and on the date agreed upon by ECT and the
Company, but in no event later than five business days after satisfaction of
the conditions set forth in SECTION 6.02(c) or at such other time and place
as ECT and the Company agree in writing.
3. ADDITIONAL AGREEMENTS AND CLOSING DELIVERIES
3.01 FIRST CLOSING DELIVERIES.
(a) At the First Closing, the Company will execute and
deliver to ECT the following:
(i) an original of this Agreement;
(ii) an original of the Option Agreement;
(iii) an original of the Company Agreement;
(iv) a Company certificate representing ECT's Membership Interest;
10
<PAGE>
(v) a certified copy of the Certificate of Organization of the
Company, as currently in force and effect;
(vi) resolutions of the Members of the Company authorizing the
execution, delivery and performance of this Agreement and all
related documents and agreements, such resolutions to be certified
by the Manager of the Company as being true and correct and subject
to no modifications or amendments;
(vii) a Certificate of the Secretary of State of the State of
Delaware establishing that the Company is in existence and a
certificate of the proper official of the State of Delaware
establishing that the Company is in good standing to transact
business in the State of Delaware dated not more than 10 days prior
to Closing;
(viii) a Certificate of the Secretary of State of the State of
Wyoming establishing that the Company is duly qualified to transact
business and in good standing in the State of Wyoming;
(ix) the certificates, instruments and documents referred to
in SECTIONS 6.02(a) and (b); and
(x) such other documents, agreements, and instruments otherwise
required by this Agreement or as may be reasonably requested by ECT.
(b) At the First Closing, ECT will execute and deliver to the
Company the following:
(i) an original of this Agreement;
(ii) an original of the Option Agreement;
(iii) an original of the Company Agreement;
11
<PAGE>
Syntroleum-Enron Purchase Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
(iv) the sum of $1,000,000 in cash or other immediately
available funds, payable to the Company;
(v) resolutions of the Board of Directors of ECT authorizing
the execution, delivery and performance of this Agreement, and all
related documents and agreements, such resolutions to be certified
by the Secretary of ECT as being true and correct and subject to no
modifications or amendments;
(vi) a Certificate of the Secretary of State of the State
of Delaware establishing that ECT is in existence and a certificate
of the proper official of the State of Delaware establishing that
the Company is in good standing to transact business in the State
of Delaware dated not more than 10 days prior to Closing;
(vii) the certificates, instruments and documents referred
to in SECTIONS 6.02(a) and (b); and
(viii) such other documents, agreements and instruments
otherwise required by this Agreement or as may be reasonably
requested by the Company.
3.02 FINAL CLOSING DELIVERIES.
(a) At the Final Closing, the Company will execute and deliver
to ECT the following:
(i) a Company certificate representing ECT's additional
Membership Interest;
(ii) a certified copy of the Certificate of Organization and a
copy of the Company Agreement certified by the Manager of the Company,
as currently in force and effect;
12
<PAGE>
Syntroleum-Enron Purchase Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
(iii) resolutions of the Members of the Company authorizing the
execution, delivery and performance of this Agreement and all related
documents and agreements, such resolutions to be certified by the
Manager of the Company as being true and correct and subject to no
modifications or amendments;
(iv) a Certificate of the Secretary of State of the State of
Delaware establishing that the Company is in existence and a
certificate of the proper official of the State of Delaware
establishing that the Company is in good standing to transact
business in the State of Delaware dated not more than 10 days prior
to Closing;
(v) a Certificate of the Secretary of State of the State of
Wyoming establishing that the Company is duly qualified to transact
business and in good standing in the State of Wyoming;
(vi) the certificates, instruments and documents referred to
in SECTION 6.02(c); and
(vii) such other documents, agreements, and instruments
otherwise required by this Agreement or as may be reasonably
requested by ECT.
(b) At the Final Closing, ECT will execute and deliver to the
Company the following:
(i) the sum of $14,450,000 in cash or other immediately available
funds, payable to the Company;
(ii) resolutions of the Board of Directors of ECT authorizing
the execution, delivery and performance of this Agreement, and all
related documents and agreements, such resolutions to be certified
by the Secretary of ECT as being true and correct and subject to no
modifications or amendments;
13
<PAGE>
Syntroleum-Enron Purchase Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
(iii) a Certificate of the Secretary of State of the State of
Delaware establishing that the Company is in existence and a
certificate of the proper official of the State of Delaware
establishing that the Company is in good standing to transact
business in the State of Delaware dated not more than 10 days prior
to Closing;
(iv) the certificates, instruments and documents referred to in
SECTION 6.02(c); and
(v) such other documents, agreements and instruments otherwise
required by this Agreement or as may be reasonably requested by the
Company.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to ECT that the following
statements are true and correct as of the Effective Date and will be true and
correct at Closing, except as expressly qualified or modified in this
Agreement or by the Sweetwater Disclosure Memorandum.
4.01 ORGANIZATION, STANDING, AND POWER. The Company is a limited
liability company duly organized, validly existing, and in good standing
under the Laws of the State of Delaware, and has the power and authority to
carry on its business as now conducted and to own, lease and operate its
Assets. The Company is duly qualified or licensed to transact business as a
foreign limited liability company in good standing in the states of the
United States where the character of its Assets or the nature or conduct of
its business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
4.02 AUTHORITY. The Company has the power and authority necessary to
execute, deliver, and perform its obligations under this Agreement and to
consummate the
14
<PAGE>
Syntroleum-Enron Purchase Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
transactions contemplated by this Agreement. The execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement, have been validly authorized by all necessary
action in respect thereof on the part of the Company. This Agreement
represents a legal, valid, and binding obligation of the Company, enforceable
against the Company in accordance with its terms except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, conservatorship, moratorium, or similar Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding
may be brought.
4.03 NO BREACH. Neither the execution and delivery of this Agreement
by the Company, nor the consummation by the Company of the transactions
contemplated by this Agreement, nor compliance by the Company with any of the
provisions of this Agreement, will (i) conflict with or result in a breach of
any provision of the Company's Certificate of Organization or the Company
Agreement, or (ii) constitute or result in a Default under, or require any
consent pursuant to, or result in the creation of any Lien on any Asset of
any of the Company under, any Contract or Permit of the Company, or, (iii)
violate any Law or Order applicable to the Company or any of its material
Assets.
4.04 NO NOTICE OR CONSENT. No notice to, filing with, or consent of,
any public body or authority is necessary for the consummation by the Company
of the transactions contemplated in this Agreement.
4.05 SUBSIDIARIES. The Company has no subsidiaries.
4.06 ABSENCE OF CERTAIN UNDISCLOSED LIABILITIES. The Company has no
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on the Company, except Liabilities which
are accrued or reserved against in the consolidated balance sheet of the
Company as of November 30, 1997 included in the Sweetwater Financial
Statements delivered prior to the date of this Agreement or reflected in the
notes thereto and except as disclosed in SECTION 4.06 of the Sweetwater
Disclosure Memorandum. Except as disclosed in SECTION 4.06 of the Sweetwater
Disclosure
15
<PAGE>
Syntroleum-Enron Purchase Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
Memorandum, the Company has not incurred or paid any Liability since November
30, 1997, except for such Liabilities incurred or paid in the ordinary course
of business consistent with past business practice and which are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on the Company. Except as disclosed in SECTION 4.06 of the
Sweetwater Disclosure Memorandum, the Company is not directly or indirectly
liable, by guarantee, indemnity, or otherwise, upon or with respect to, or
obligated by, discount or repurchase agreement or in any other way, to
provide funds in respect to, or obligated to guarantee or assume any
Liability of any Person for any amount in excess of $100,000.
4.07 TAX MATTERS. All Tax returns required to be filed by or on
behalf of any of the Company have been timely filed or requests for
extensions have been timely filed, granted, and have not and all Tax returns
filed are complete and accurate in all material respects. All Taxes shown on
filed Tax returns have been paid. There is no audit examination, deficiency,
or refund litigation with respect to any Taxes.
4.08 ASSETS. Except as disclosed in SECTION 4.08 of the Sweetwater
Disclosure Memorandum, the Company has good and marketable title, free and
clear of all Liens, to all of its Assets. All tangible properties used in the
business of the Company are in good condition, reasonable wear and tear
excepted, and are usable in the ordinary course of business consistent with
the Company's past practices. All Assets which are material to the Company's
business held under leases or subleases by the Company are held under valid
Contracts enforceable in accordance with their respective terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the
discretion of the court before which any proceedings may be brought), and
each such contract is in full force and effect. The Assets of the Company
include all Assets required to operate the business of the Company as
presently conducted.
4.09 INSURANCE. SECTION 4.09 of the Sweetwater Disclosure Memorandum
sets forth the following information with respect to each insurance policy
(including policies
16
<PAGE>
Syntroleum-Enron Purchase Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
providing property, casualty, liability, and workers' compensation coverage
and bond and surety arrangements) to which the Company is a party, a named
insured, or otherwise the beneficiary of coverage.
(a) the name, address, and telephone number of the agent;
(b) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(c) the policy number and the period of coverage;
(d) the scope (including an indication of whether the coverage
was on a claims made, occurrence, or other basis) and amount (including
a description of how deductibles and ceilings are calculated and
operate) of coverage; and
(e) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy: (i) the policy
is legal, valid, binding, enforceable, and in full force and
effect; (ii) the policy will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated by this
Agreement; (iii) neither the Company nor any other party to the
policy is in breach or Default (including with respect to the
payment of premiums or the giving of notices), and no event has
occurred which, with notice or the lapse of time, would constitute
such a breach or Default, or permit termination, modification, or
acceleration, under the policy; and (iv) no party to the policy has
repudiated any provision thereof.
4.10 INTELLECTUAL PROPERTY.
(a) The Company owns or has the right to use pursuant to a
Contract, all Intellectual Property necessary for the operation of the
business of the Company as presently conducted and as presently
proposed to be conducted. Each item of Intellectual Property owned or
used by the Company immediately prior to Closing
17
<PAGE>
Syntroleum-Enron Purchase Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
will be owned or available for use by the Company on identical
terms and conditions immediately subsequent to Closing. The Company
has taken all reasonably necessary action to maintain and protect
each item of Intellectual Property that it owns or uses.
(b) To its Knowledge, the Company has not interfered with,
infringed upon, misappropriated, or otherwise come into conflict
with any Intellectual Property rights of third parties, and the
Company has not received any charge, complaint, claim, demand, or
notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that the
Company must license or refrain from using any Intellectual
Property rights of any third party). To the Knowledge of the
Company, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any
Intellectual Property rights of the Company.
(c) SECTION 4.10(c) of the Sweetwater Disclosure Memorandum
identifies each item of Intellectual Property that any third party
owns and that the Company uses pursuant to a Contract. The Company
has delivered to ECT correct and complete copies of all such
Contracts (as amended to date). With respect to each item of
Intellectual Property identified in SECTION 4.10(c) of the
Sweetwater Disclosure Memorandum:
(i) the Contract covering the item is legal, valid, binding,
enforceable, and in full force and effect;
(ii) the Contract will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms
following Closing;
(iii) no party to the Contract is in breach or Default,
and no event has occurred which with notice or lapse of time
would constitute a breach or Default or permit termination,
modification, or acceleration thereunder;
18
<PAGE>
Syntroleum-Enron Purchase Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
(iv) no party to the Contract had repudiated any
provision thereof;
(v) to the Knowledge of the Company, the underlying item
of Intellectual Property is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(vi) to the Knowledge of the Company, no action, suit,
proceeding, hearing, investigation, charge, complaint, claim,
or demand is pending is threatened which challenges the
legality, validity, or enforceability of the underlying item
of Intellectual Property; and
(vii) the Company has not granted any sublicense or
similar right with respect to the Contract.
4.11 ENVIRONMENTAL MATTERS. To the Knowledge of the Company, the
Company, its facilities, and properties are, and have been, in compliance
with all Environmental Laws. There is no Litigation pending or to the
Knowledge of the Company, threatened, before any court, governmental agency,
or authority or other forum in which the Company or any of its properties or
facilities has been or, with respect to threatened Litigation, may be named
as a defendant (i) for alleged noncompliance with any Environmental Law, or
(ii) relating to the release into the environment of any Hazardous Material,
whether or not occurring at, on, under, adjacent to, or affecting (or
potentially affecting) a site owned, leased, or operated by the Company or
any of its properties or facilities, nor is there any reasonable basis for
any such Litigation. To the Knowledge of the Company there have been no
releases of Hazardous Material in, on, under, adjacent to, or affecting (or
potentially affecting) any properties or facilities of the Company.
4.12 COMPLIANCE WITH LAWS. The Company is not in violation of any Laws,
Orders, or Permits applicable to its business or employees conducting its
business and has not received any notification or communication from any
agency or department of federal, state, or local government or any Regulatory
Authority or the staff thereof (i) asserting that the Company is not in
compliance with any of the Laws or Orders which such governmental
19
<PAGE>
Syntroleum-Enron Purchase Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
authority or Regulatory Authority enforces, (ii) threatening to revoke any
Permits, or (iii) requiring the Company to enter into or consent to the
issuance of a cease and desist order, formal agreement, directive,
commitment, or memorandum of understanding, or to adopt any Company
resolution or similar undertaking. Copies of all material reports,
correspondence, notices and other documents relating to any inspection,
audit, monitoring or other form of review or enforcement action by a
Regulatory Authority have been made available to ECT.
4.13 LABOR RELATIONS. The Company is not the subject of any Litigation
asserting that it has committed an unfair labor practice (within the meaning
of the National Labor Relations Act or comparable state law) or seeking to
compel it to bargain with any labor organization as to wages or conditions of
employment, nor is the Company a party to any collective bargaining
agreement, nor is there any strike or other labor dispute involving the
Company, pending or threatened, or to the Knowledge of the Company, is there
any activity involving any Company employees seeking to certify a collective
bargaining unit or engaging in any other organization activity.
4.14 MATERIAL CONTRACTS. SECTION 4.14 of the Sweetwater Disclosure
Memorandum lists the following Contracts to which the Company is a party:
(a) any agreement (or group of related agreements) for the
lease of real or personal property to or from any Person providing for
lease payments in excess of $100,000 per annum;
(b) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or
other personal property, or for the furnishing or receipt of services,
the performance of which will extend over a period of more than one
year and involve consideration in excess of $100,000;
(c) any agreement concerning a partnership or joint venture;
(d) any agreement (or group of related agreements) under which
it has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money, or
20
<PAGE>
Syntroleum-Enron Purchase Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
any capitalized lease obligation, in excess of $100,000 or under which
it has imposed a Lien on any of its Assets;
(e) any agreement concerning confidentiality or noncompetition;
(f) any agreement with Syntroleum;
(g) any profit sharing, Membership Interest option, Membership
Interest purchase, Membership Interest appreciation, deferred
compensation, severance, or other Material plan or arrangement for the
benefit of its current or former members, Managers, and employees;
(h) any collective bargaining agreement;
(i) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $100,000 or providing severance benefits;
(j) any agreement under which it has advanced or loaned any
amount to any of its Members, Managers, and employees outside the
ordinary course of business;
(k) any agreement under which the consequences of a Default or
termination could have a Material Adverse Effect on the business,
financial condition, operations, results of operations, or future
prospects of any of the Company; or
(l) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $100,000.
The Company has delivered to ECT a correct and complete copy of each
written Contract listed in SECTION 4.14 of the Sweetwater Disclosure
Memorandum (as amended to date) and a written summary setting forth the terms
and conditions or each oral Contract referred to in SECTION 4.14 of the
Sweetwater Disclosure Memorandum. With respect to each such Contract (i) the
Contract is legal, valid, binding, enforceable, and in full force
21
<PAGE>
Syntroleum-Enron Purchase Agreement
- ------------------------------------------------------------------------------
CONFIDENTIAL
and effect; (ii) the Contract will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated by this Agreement; (iii) no
party is in breach or Default, and no event has occurred which with notice or
lapse of time would constitute a breach or Default, or permit termination,
modification, or acceleration, under the Contract and (iv) no party has
repudiated any provision of the Contract.
4.15 LEGAL PROCEEDINGS. There is no Litigation instituted or pending,
or, to the Knowledge of the Company, threatened (or unasserted but considered
probable of assertion and which if asserted would have at least a reasonable
probability of an unfavorable outcome) against the Company, or against any
Asset, of the Company that is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on the Company, nor are there any
Orders of any Regulatory Authority, other governmental authority, or
arbitrator outstanding against the Company. SECTION 4.15 of the Sweetwater
Disclosure Memorandum includes a summary report of all Litigation as of the
date of this Agreement to which the Company is a party and which names the
Company as a defendant or crossdefendant, or for which the Company has
potential exposure.
4.16 EMPLOYEE BENEFITS. SECTION 4.14 of the Sweetwater Disclosure
Memorandum lists each employee benefit plan that the Company maintains or to
which the Company contributes. To the Knowledge of the Company, each such
employee benefit plan (and each related trust, insurance contract, or fund)
complies in form and in operation in all respects with the applicable
requirements of ERISA and the Internal Revenue Code, except where the failure
to comply would not have a Material Adverse Effect on the financial condition
of the Company.
4.17 STATEMENTS TRUE AND CORRECT. No statement, certificate, instrument,
or other writing furnished or to be furnished by the Company or any Affiliate
thereof to ECT pursuant to this Agreement or any other document, agreement,
or instrument referred to herein or will contain any untrue statement of
material fact or omit any statement of material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
22
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
4.18 LIMITATION ON REPRESENTATIONS. The Company shall not be deemed
to have made any representation or warranty to ETC other than as expressly
made by the Company in this ARTICLE 4. Without limiting the generality of the
foregoing, and notwithstanding any otherwise express representations and
warranties made by the Company in this ARTICLE 4, the Company makes no
representation or warranty to ECT with respect to (a) any projections,
estimates or budgets heretofore delivered or made available to ECT of future
revenues, expenses or expenditures or future results of operations except
that the Company represents and warrants that all such projections, estimates
and budgets were prepared on the basis of assumptions, data, information,
tests or conditions believed by the Company to be reasonable at the time such
projections, estimates or budgets were furnished to ECT (with the exception
of the estimate of catalyst expense which is expected to be higher than
originally projected), or (b) except as expressly covered by a representation
and warranty contained in this ARTICLE 4, any other information or documents
(financial or otherwise) made available to ECT or its counsel, accountants or
advisors with respect to the Company.
5. REPRESENTATIONS AND WARRANTIES OF ECT
ECT represents and warrants that the following statements are true
and correct as of the Effective Date and will be true and correct at Closing.
5.01 ORGANIZATION, STANDING, AND POWER. ECT is a corporation duly
organized, validly existing, and in good standing under the Laws of the State
of Delaware, and has the power and authority to carry on its business as now
conducted and to own, lease and operate its Assets. ECT is duly qualified or
licensed to transact business as a foreign corporation in good standing in
the states of the United States where the character of its Assets or the
nature or conduct of its business requires it to be so qualified or licensed,
except for such jurisdictions in which the failure to be so qualified or
licensed is not reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on ECT.
5.02 AUTHORITY. ECT has the corporate power and authority necessary
to execute, deliver, and perform its obligations under this Agreement and to
consummate the
23
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
transactions contemplated by this Agreement. The execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement, have been validly authorized by all necessary
corporate action in respect thereof on the part of ECT. This Agreement
represents a legal, valid, and binding obligation of ECT, enforceable against
ECT in accordance with its terms except in all cases as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
receivership, conservatorship, moratorium, or similar Laws affecting the
enforcement of creditors' rights generally and except that the availability
of the equitable remedy of specific performance or injunctive relief is
subject to the discretion of the court before which any proceeding may be
brought.
5.03 NO BREACH. Neither the execution and delivery of this Agreement
by ECT, nor the consummation by ECT of the transactions contemplated by this
Agreement, nor compliance by ECT with any of the provisions of this
Agreement, will (i) conflict with or result in a breach of any provision of
ECT's Certificate of Incorporation or bylaws, or (ii) constitute or result
in a Default under, or require any consent pursuant to, or result in the
creation of any lien on any Asset of any of ECT under, any Contract or Permit
of ECT, or, (iii) violate any Law or Order applicable to ECT or any of its
material Assets.
5.04 NO NOTICE OR CONSENT. No notice to, filing with, or consent of,
any public body or authority is necessary for the consummation by ECT of the
transactions contemplated in this Agreement.
5.05 INVESTOR STATUS. ECT is an "accredited investor" as that term
is defined in Rule 501 of Regulation D promulgated by the Securities and
Exchange Commission under the 1933 Act.
5.06 SPECULATIVE NATURE AND RISK. ECT acknowledges the speculative
nature of and the risks associated with an investment in the Company. ECT
confirms that it has fully considered and understands for purposes of this
investment, in consultation with its legal, accounting, tax, or other
advisors, that (a) the Company has limited financial operating history, (b)
the Membership Interest is a speculative investment which involves
24
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
a high degree of risk, and (c) there are substantial restrictions on the
transferability of, and there will be no public market for, the Membership
Interest.
5.07 DUE DILIGENCE INVESTIGATION. ECT acknowledges that (a) it has
had the opportunity to visit with the Company and meet with its officers
(including officers of the Manager) and other representatives to discuss the
business and the Assets, Liabilities, financial condition, cash flow and
operations of the Company, and (b) all materials and information regarding
the Company requested by ECT have been provided to ECT to ECT's reasonable
satisfaction. ECT confirms that in making its decision to acquire the
Membership Interest it has made and relied upon the independent examination,
investigation, analysis and evaluation of the Company, including ECT's own
estimate of the value of the Company's business, made by it or its
representatives, including its own professional legal, accounting, tax, and
other advisors. ECT acknowledges that it and such representatives have been
given the opportunity to examine all relevant documents and to ask questions
of, and to received answers from the Company or a person(s) acting on its
behalf concerning the Company and to obtain any additional information it
deems appropriate to the extent the Company possesses such information or can
acquire it without unreasonable effort or expense. ECT further acknowledges
that it has undertaken such due diligence (including a review of the Assets,
Liabilities, books, records and contracts of the Company) as ECT deems
adequate, including that described above.
5.08 LIMITED TRANSFERABILITY. ECT acknowledges that the Membership
Interest issued to ECT under this Agreement has not been and will not be
registered under the 1933 Act or the securities Laws of any other state and
is being offered, and will be sold, pursuant to applicable exemptions from
such registration and will be issued as "restricted securities" as defined by
Rule 144 promulgated pursuant to the 1933 Act. The Membership Interest may
not be resold in the absence of an effective registration thereof under the
1933 Act and applicable state securities Laws or unless, in the opinion of
the Company's counsel, an applicable exemption from registration is available.
5.09 ACQUISITION FOR INVESTMENT. ECT is acquiring the Membership
Interest issued or to be issued to ECT under this Agreement for its own
account, for investment
25
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
purposes only and not with a view to, or for sale in connection with, a
distribution, as that term is used in Section 2(11) of the 1933 Act in a
manner which would require registration under the 1933 Act or any state
securities Laws.
5.10 FURTHER RESTRICTIONS. ECT acknowledges that it is aware that
substantial restrictions exist with respect to the transferability of the
Membership Interest under the terms of the Company Agreement. Additionally,
since the Membership Interest is not registered under the 1933 Act, as
amended, or any applicable state securities Laws, none of such securities
shall be sold, transferred, pledged or hypothecated absent registration under
the 1933 Act and such state securities Laws, or unless such sale, transfer,
pledge or hypothecation is exempt from registration under such Laws. ECT may
only transfer any of such securities if such transfer is in accordance with
applicable Law and in accordance with the terms of the Company Agreement and
if such transfer is in accordance with or has been registered under such Laws
or counsel to the Company has rendered an opinion that such transfer is
exempt from such registration.
5.11 RESTRICTIVE LEGEND. ECT understands and acknowledges that the
certificates evidencing the Membership Interest issued pursuant to this
Agreement shall bear the following restrictive legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR THE SECURITIES LAWS OF
ANY STATE. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT
BE SOLD OR TRANSFERRED FOR VALUE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION THEREOF UNDER THE SECURITIES ACT OF 1933 AND/OR THE
SECURITIES ACT OF ANY STATE HAVING JURISDICTION OR AN OPINION OF
COUNSEL TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
SUCH ACT OR ACTS.
or such other restrictive legend as counsel to the Company may reasonably
deem appropriate at the time of such issuance. Additionally, the certificates
evidencing the Membership Interest issued pursuant to the Agreement shall
bear a restrictive legend with respect to the transfer restrictions set forth
in the Company Agreement.
26
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
6. CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
6.01 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each Party to perform this Agreement and consummate the
transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions, unless waived by both Parties pursuant to
SECTION 8.07 of this Agreement:
(a) Each Party shall have obtained any and all Consents
required for consummation of the transactions or for the preventing of
any Default under any Contract, Order or Permit of such Party which, if
not obtained or made, is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on such Party.
(b) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or Regulatory Authority
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (i) prevent consummation of any of the
transactions contemplated by this Agreement, (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (iii) affect adversely the right of ECT to own the
Membership Interest, or (iv) affect adversely the right of the Company
to own its Assets and to operate its business (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect).
6.02 CONDITIONS TO OBLIGATIONS OF ECT.
(a) The obligations of ECT to perform this Agreement and
consummate the transactions contemplated by this Agreement are subject
to the satisfaction of the following conditions, unless waived by ECT
pursuant to SECTION 8.07 of this Agreement:
27
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
(i) For purposes of this SECTION 6.02(a)(i), the
accuracy of the representations and warranties of the Company
set forth in this Agreement shall be assessed as of the date
of this Agreement and as of the Closing Date with the same
effect as though all such representations and warranties had
been made on and as of the Closing Date (provided that
representations and warranties which are confined to a
specified date shall speak only as of such date). The
representations and warranties of the Company set forth in
this Agreement shall be true and correct in all material
respects.
(ii) Each and all of the agreements and covenants of
the Company to be performed and complied with pursuant to this
Agreement and the other agreements contemplated by this
Agreement prior to the Closing Date shall have been duly
performed and complied with in all material respects.
(iii) The Company shall have delivered to ECT (i) a
certificate, dated as of the Closing Date and signed on its
behalf by its chief executive officer, to the effect that the
conditions set forth in this SECTION 6.02(a) of this Agreement
have been satisfied, and (ii) certified copies of resolutions
duly adopted by the Members of the Company evidencing the
taking of all action necessary to authorize the execution,
delivery and performance of this Agreement, and the
consummation of the transactions contemplated by this
Agreement, all in such reasonable detail as ECT and its
counsel shall request.
(iv) ECT shall have received an opinion of Eric
Grimshaw, Vice President and General Counsel of the Company,
dated as of the Closing, in form and substance reasonably
acceptable to ECT.
(v) all actions to be taken by the Company in
connection with consummation of the transactions contemplated
by this Agreement and all certificates, opinions, instruments,
and other documents required to effect
28
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
the transaction contemplated by this Agreement will be
reasonably satisfactory in form and substance to ECT.
(b) In addition to satisfaction of the conditions set forth in
SECTION 6.02(a), the obligations of ECT to perform this Agreement and
consummate the transactions contemplated by this Agreement at the First
Closing are subject to the satisfaction of the following conditions,
unless waived by ECT pursuant to SECTION 8.07 of this Agreement:
(i) the Company shall have delivered to ECT a
written review of the Syntroleum Process conducted by Purvin
and Gertz, Inc. acceptable to ECT;
(ii) preliminary technical, financial, operational
and managerial aspects of the Company and Plant shall be
acceptable to ECT;
(iii) the Company shall have delivered to ECT a
patent infringement comfort letter and a description of the
patents relating to the Syntroleum Process;
(iv) SLH shall have contributed $1,500,000 in cash to
the capital of the Company;
(v) Syntroleum shall have contributed $500,000 in
cash to the capital of the Company;
(vi) there shall not have occurred any material
adverse change in the business, affairs and prospects
(financial or otherwise) of the Company;
(vii) there shall be no Defaults or events of Default
existing under any Contracts to which the Company is a Party;
(viii) ECT shall have received internal credit and
management approvals to enter into this Agreement; and
29
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
(ix) the License Agreement shall have been executed
by the Company and Syntroleum on terms acceptable to ECT.
(x) ECT and Syntroleum shall have entered into a
50,000 barrel capacity Volume License Agreement on terms
(including a waiver of the payment required by Section 5.01 of
the License Agreement) acceptable to ECT and Syntroleum.
(c) In addition to satisfaction of the conditions set forth in
SECTION 6.02(a), the obligations of ECT to perform this Agreement and
consummate the transactions contemplated by this Agreement at the Final
Closing are subject to the satisfaction of the following conditions,
unless waived by ECT pursuant to SECTION 8.07 of this Agreement.
(i) any change in management of the Company,
including technical, financial and operational capabilities,
shall be acceptable to all Members;
(ii) there shall not have occurred any material
adverse change in the business, affairs and prospects
(financial or otherwise) of the Company;
(iii) all documents (including authorizing documents
and legal opinions) required for Capital Contributions and
senior and subordinated loans necessary to finance the design,
engineering and construction of the Plant and working capital
needs of the Company, including (x) aggregate Capital
Contributions to the Company of no less than $46,350,000, (y)
a senior term loan in the principal amount of $156,000,000,
and (z) a subordinated Loan in the principal amount of
$35,000,000, will be on terms and with parties satisfactory to
all Members;
30
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
(iv) the Company shall not be in Default, nor shall
there have occurred any event which, with the passage of time,
would result in a Default, under any Contract to which the
Company is a party;
(v) the Company shall have completed, to the
satisfaction of all Members, at the Company's expense and
using independent engineering and environmental consultants
acceptable to all Members, a technical review (including
environmental review and site audit) and analysis of the Plant
with respect to the integrity and feasibility of all
engineering, site conditions, permits, environmental
requirements, design, technology, capacity, construction,
completion schedule, final cost budget and operating
specifications;
(vi) the Company shall have executed a fixed price
turnkey agreement for the engineering, procurement and
construction of the Plant containing provisions for liquidated
damages for delay and underperformance, provisions for
performance tests, provisions for performance and payment
bonds or guarantees, and such other terms customary for such
an agreement in form and substance satisfactory to all
Members;
(vii) the Company shall have executed natural gas
supply contracts sufficient to supply the Plant's feedstock
requirements and product offtake contracts in form and
substance satisfactory to all Members;
(viii) all Members shall have completed due diligence
to their satisfaction regarding market, competition, cost,
strategy and management plans for the Plant, including review
by an independent consultant of Plant financial proforma
assumptions used by the Company;
31
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
(ix) all Members shall have received internal credit
and management approvals to enter into this Agreement and make
their respective Capital Contributions;
(x) the Company shall have received all Permits and
approvals necessary to design, construct and operate the Plant
(except for any Permits which cannot be obtained until a later
stage of design, construction or completion of the Plant, and
the Company shall have no reason to believe that any such
Permits that have not been obtained will not be obtained as
and when required for the design, construction and operation
of the Plant in accordance with applicable Laws);
(xi) the Company shall have received certificates of
insurance and brokers' opinion letter(s) satisfactory to all
Members demonstrating insurance coverage in types and amounts
and with insurers which are rated "A" or better by A. M. Best
& Company, which will include title, property, builders risk,
comprehensive general liability, auto liability, excess
liability, worker's compensation, business interruption and
key man life insurance and which policies will contain
provisions that the policies will not be invalidated by any
acts or omissions of the insurer, will require insurer to
provide at least 30 days written notice of cancellation or
material change, will list lenders, and their affiliates as
their applicable interests appear, and include insurer's
waiver of rights of subrogation, set-off and counterclaim
against lenders;
(xii) the Company shall have entered into employment
agreements with senior management of the Company in form and
substance satisfactory to all Members;
(xiii) the Company shall have received mortgagee and
owner title insurance policies acceptable to the lenders and
all Members;
32
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
(xiv) the final economics of the design, engineering,
construction, start up and operation of the Plant shall not be
materially different than those presented by the Company in
the proformas provided to each Member;
(xv) the terms of the waste water treatment and other
utility purchase agreements shall be acceptable to all
Members;
(xvi) all Members shall be satisfied with the parties
engaged by the Company to design, engineer, construct, start
up and operate the Plant; and
(xvii) all construction and term loan conditions
precedent to funding such loans shall have been met.
(xviii) the Company shall have paid ECT's legal
expenses incurred in connection with the transactions
contemplated by this Agreement up to $100,000.
6.03 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of
the Company to perform this Agreement and consummate the transactions
contemplated by this Agreement are subject to the satisfaction of the
following conditions, unless waived by The Company pursuant to SECTION 8.07
of this Agreement:
(a) For purposes of this SECTION 6.03(a), the accuracy of the
representations and warranties of ECT set forth in this Agreement shall
be assessed as of the date of this Agreement and as of the Closing Date
with the same effect as though all such representations and warranties
had been made on and as of the Closing Date (provided that
representations and warranties which are confined to a specified date
shall speak only as of such date). The representations and warranties
of ECT set forth in this Agreement shall be true and correct in all
material respects.
33
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
(b) Each and all of the agreements and covenants of ECT to be
performed and complied with pursuant to this Agreement and the other
agreements contemplated by this Agreement prior to the Closing shall
have been duly performed and complied with in all material respects.
(c) ECT shall have delivered to the Company (i) a certificate,
dated as of the Closing Date and signed on its behalf by an authorized
officer, to the effect that the conditions set forth in the SECTION
6.03 of this Agreement have been satisfied, and (ii) certified copies
of resolutions duly adopted by ECT's Board of Directors evidencing the
taking of all corporate action necessary to authorize the execution,
delivery and performance of this Agreement, and the consummation of the
transactions contemplated by this Agreement, all in such reasonable
detail as the Company and its counsel shall request.
(d) The Company shall have received an opinion of Bracewell &
Patterson L.L.P., counsel to ECT, dated as of the Closing Date, in form
and substance reasonably acceptable to the Company.
(e) All actions to be taken by ECT in connection with
consummation of the transactions contemplated by this Agreement and all
certificates, opinions, instruments, and other documents required to
effect the transaction contemplated by this Agreement will be
reasonably satisfactory in form and substance to the Company.
7. INDEMNIFICATION
7.01 SURVIVAL. All of the representations and warranties of the
Parties contained in this Agreement shall survive the Closing (even if the
damaged Party knew or had reason to know of any representation or breach of
warranty at the time of Closing) and continue in full force and effect for a
period of three years thereafter.
34
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
7.02 INDEMNIFICATION FOR BENEFIT OF ECT. In the event the Company
breaches any of its representations, warranties or covenants contained in
this Agreement, and provided that ECT makes a written claim for
indemnification against the Company pursuant to SECTION 7.04 below within the
survival period set forth in SECTION 7.01, then the Company agrees to
indemnify ECT from and against the entirety of any Adverse Consequences ECT
shall suffer through and after the date of the claim for indemnification (but
excluding any Adverse Consequences ECT shall suffer after the end of the
survival period to the extent a claim therefore is not made prior to the end
of such survival period) caused by the breach.
7.03 INDEMNIFICATION FOR BENEFIT OF THE COMPANY. In the event ECT
breaches any of its representations, warranties or covenants contained in
this Agreement, and provided that the Company makes a written claim for
indemnification against ECT pursuant to SECTION 7.04 below within the
survival period set forth in SECTION 7.01, then ECT agrees to indemnify the
Company from and against the entirety of any Adverse Consequences the Company
shall suffer through and after the date of the claim for indemnification (but
excluding Adverse Consequences the Company shall suffer after the end of any
applicable survival period to the extent a claim therefore is not made prior
to the end of such survival period) caused by the breach.
7.04 MATTERS INVOLVING THIRD PARTIES.
(a) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim")
which may give rise to a claim for indemnification against any other
Party (the "Indemnifying Party") under this ARTICLE 7, then the
Indemnified Party shall promptly (and in any event within five business
days after receiving notice of the Third Party Claim) notify the
Indemnifying Party thereof in writing.
(b) An Indemnifying Party will have the right to assume and
thereafter conduct the defense of the Third Party Claim with counsel of
its choice
35
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
reasonably satisfactory to the Indemnified Party; provided however,
that the Indemnifying Party will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party
Claim without the prior written consent of the Indemnified Party (not
to be withheld unreasonably) unless the judgment or proposed
settlement involves only the payment of money damages and does not
impose an injunction or other equitable relief upon the Indemnified
Party.
(c) Unless and until an Indemnifying Party assumes the defense
of the Third Party Claim as provided in SECTION 7.04(b) above, the
Indemnified Party may defend against the Third Party Claim in any
manner he or it reasonably may deem appropriate. In no event will the
Indemnified Party consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld
unreasonably).
7.05 DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall make
appropriate adjustments for tax benefits and insurance coverage in
determining Adverse Consequences for purposes of this ARTICLE 7.
7.06 OTHER INDEMNIFICATION PROVISIONS. The indemnification
provisions in this ARTICLE 7 are in addition to, and not in derogation of,
any statutory, equitable, or common law remedy any Party may have for any
breach of a representation, warranty, or covenant.
8. MISCELLANEOUS
8.01 EXPENSES AND ATTORNEY FEES. Except for payment by the Company
of up to $100,000 of ECT's legal fees, as provided in SECTION 6.02(c)(xviii),
each Party shall pay all of its own legal and due diligence expenses incurred
in connection with the negotiation, execution and performance of this
Agreement.
8.02 NOTICES. Any notice relating to this Agreement shall be deemed
sufficiently given and served for all purposes if given by a telegram filed,
charges
36
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
prepaid, or a writing deposited in the United States mail, postage prepaid
and registered or certified within the Continental United States, or a
writing sent by Federal Express or other nationally or internationally
recognized overnight courier service, or a writing sent by telecopy or
facsimile transmission (which shall request confirmation of receipt)
addressed as follows:
If to the Company:
Syntroleum/Sweetwater Company, L.L.C.
c/o Syntroleum Corporation
1350 South Boulder, Suite 1100
Tulsa, Oklahoma 74119
Attention: Office of the President
with a copy to:
Syntroleum Corporation
1350 South Boulder, Suite 1100
Tulsa, Oklahoma 74119
Attention: Office of the General Counsel
with a copy to:
Michael S. Moehlman, Esq.
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana Street
Houston, Texas 77002
If to ECT:
Enron Capital & Trade Resources Corp.
1400 Smith Street
Houston, Texas 77002-7361
Attention: Tony A. Valentine, Director
with a copy to:
Heather L. Brown, Esq.
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
Suite 2900
711 South Louisiana Street
Houston, Texas 77002-2781
37
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
8.03 HEADINGS. The section, subsection and paragraph headings
throughout this Agreement are for convenience and reference only, and the
words contained therein shall not be held to expand, modify, amplify or aid
in the interpretation, construction or meaning of this Agreement.
8.04 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each signed by different persons and all of said counterparts
together shall constitute one and the same instrument, and such instrument
shall be deemed to have been made, executed and delivered on the date first
hereinabove written, irrespective of the time or times when the same or any
counterparts thereof actually may have been executed and delivered.
8.05 BROKERS AND FINDERS. Each of the Parties represents and
warrants that neither it nor any of its officers, directors, employees, or
Affiliates has employed any broker or finder or incurred any Liability for
any financial advisory fees, investment bankers' fees, brokerage fees,
commissions, or finders' fees in connection with this Agreement or the
transactions contemplated in this Agreement. In the event of a claim by any
broker or finder based upon his or its representing or being retained by or
allegedly representing or being retained by the Company or ECT, each of the
Company and ECT, as the case may be, agrees to indemnify and hold the other
Party harmless of and from any Liability in respect of such claim.
8.06 ENTIRE AGREEMENT. Except as otherwise expressly provided in
this Agreement, this Agreement (including the documents and instruments
referred to in this Agreement) constitutes the entire agreement between the
Parties with respect to the transactions contemplated hereunder and
supersedes all prior arrangements or understandings with respect thereto,
written or oral (except for the Confidentiality Agreement between the Parties
dated April 23, 1997). Nothing in this Agreement expressed or implied, is
intended to confer upon any Person, other than the Parties or their
respective successors, any rights, remedies, obligations, or liabilities
under or by reason of this Agreement.
38
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
8.07 WAIVERS. Prior to Closing, a Party shall have the right to
waive any Default in the performance of any term of this Agreement by the
Company, to waive or extend the time for the compliance or fulfillment by the
other Party any and all of its obligations under this Agreement, and to waive
any or all of the conditions precedent to the obligations of a Party under
this Agreement, except any condition which, if not satisfied, would result in
the violation of any Law. No such waiver shall be effective unless in writing
signed by the Party granting such a waiver. The failure of any Party at any
time or times to require performance of any provision hereof shall in no
manner affect the right of such Party at a later time to enforce the same or
any other provision of this Agreement. No waiver of any condition or of the
breach of any term contained in this Agreement in one or more instances shall
be deemed to be or construed as a further or continuing waiver of such
condition or breach or a waiver of any other condition or of the breach of
any other term of this Agreement.
8.08 ASSIGNMENT. Except as expressly contemplated in this Agreement,
neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned (which, for the purpose of this SECTION 8.08,
includes the sale or other transfer of a majority of the voting securities of
a Party) by any Party hereto (whether by operation of Law or otherwise)
without the prior written consent of the other Party, except for (a) an
assignment by a Party to a Person which is 100% owned by such Party, or (b)
an assignment by ECT to any Affiliate of ECT which is not engaged in business
or operations which could reasonably be deemed to be in competition with the
primary business or operations of the Company (including subsequent
assignments by any such Affiliate to any other Affiliate which meets the
foregoing conditions), each of which assignments may be made without the
consent of the other Party, provided that written notice of any such
assignment shall be promptly given to the other Party. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of and be enforceable by the Parties and their respective successors and
assigns.
8.09 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the Laws of the State of Delaware, without
regard to any applicable conflicts of Laws. The Parties expressly and
irrevocably consent and submit to the
39
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
jurisdiction of any federal or state court sitting in Wilmington, Delaware
and agree that, to the fullest extent allowed by law, such Delaware federal
and state courts shall have jurisdiction over any action, suit or proceeding
arising out of or relating to this Agreement. The Parties each irrevocably
waive, to the fullest extent allowed by law, any objection either of them may
have to the laying of venue of any such suit, action or proceeding brought in
any state or federal court sitting in Wilmington, Delaware based upon a claim
that such court is inconvenient or otherwise an objectionable forum. Any
process in any action, suit or proceeding arising out of or relating to this
Agreement may, among other methods, be served upon any Party by delivering it
or mailing it to their respective addresses set forth herein. Any such
delivery or mail service shall be deemed to have the same force and effect as
personal service in Wilmington, Delaware. The parties agree that the
provisions of this SECTION 8.09 relating to jurisdiction and venue shall not
be deemed to be the consent by any party to the exclusive jurisdiction or
venue of any federal or state court sitting in Wilmington, Delaware.
8.10 INTERPRETATION. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against any Party, whether
under any rule of construction or otherwise. No Party to this Agreement shall
be considered the draftsman. The Parties acknowledge and agree that this
Agreement has been reviewed, negotiated and accepted by all Parties and their
attorneys and shall be construed and interpreted according to the ordinary
meaning of the words used so as fairly to accomplish the purposes and
intentions of all parties. Any singular term in this Agreement shall be
deemed to include the plural, and any plural term the singular. Whenever the
words "include," "includes" or "Including" are used in this Agreement, they
shall be deemed followed by the words "without limitation".
8.11 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any Jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other Jurisdiction. If any
40
<PAGE>
Syntroleum-Enron Purchase Agreement
- -------------------------------------------------------------------------------
CONFIDENTIAL
provision of this Agreement is so broad as to be unenforceable, the provision
shall be interpreted to be only so broad as is enforceable.
8.12 LIMITATION ON DAMAGES. In no event shall a Party be liable to
the other Party for any special, indirect, consequential, incidental,
punitive, or exemplary damages, including without limitation, lost profits or
savings, regardless of the form of action giving rise to such a claim for
such damages, whether in contract or tort including negligence, even if a
Party has been advised of the possibility of such damages. In the event a
Party is found, despite provisions of this SECTION 8.12, liable to another
Party for special, indirect, consequential, incidental, punitive, or
exemplary damages, then the maximum limit of such damages is agreed to be
$5,000.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to
be executed on its behalf as of the Effective Date.
SYNTROLEUM/SWEETWATER COMPANY, L.L.C.
By Syntroleum Corporation, Manager
[SEAL]
By /s/ Mark A. Agee
--------------------------------------------
Mark A. Agee, President
ENRON CAPITAL & TRADE RESOURCES CORP.
By /s/ J. Kevin McConville
--------------------------------------------
Title: Vice President
----------------------------------------
41
<PAGE>
Exhibit 23.3
The Board of Directors
SLH Corporation:
We consent to incorporation by reference in the registration statement on
Form S-4 of SLH Corporation of our report dated February 20, 1998, relating
to the consolidated balance sheets of SLH Corporation and subsidiaries as of
December 31, 1997, and 1996, and the related consolidated statements of
operations, retained earnings, and cash flows for each of the years in the
three-year period ended December 31, 1997, and all related schedules, which
report appears in the December 31, 1997, annual report on Form 10-K of SLH
Corporation, as amended.
We also consent to incorporation by reference in the registration statement
on Form S-4 of SLH Corporation of our report dated December 20, 1996,
relating to the combined balance sheets of SLH Operations as of December 31,
1995, and 1994, and the related combined statements of operations, equity,
and cash flows for each of the years in the three-year period ended December
31, 1995, which report appears in SLH Corporation's Registration Statement on
Form 10 filed on December 24, 1996, as amended on February 4, 1997 and
February 12, 1997.
/s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP
Kansas City, Missouri
April 14, 1998
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports on Syntroleum Corporation (and to all references to our Firm)
included in or made a part of this Form S-4 registration statement filed by
SLH Corporation on April 15, 1998.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
April 15, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 10,158
<SECURITIES> 429
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,622
<PP&E> 1,392
<DEPRECIATION> 147
<TOTAL-ASSETS> 12,091
<CURRENT-LIABILITIES> 776
<BONDS> 0
0
0
<COMMON> 19
<OTHER-SE> (1,261)
<TOTAL-LIABILITY-AND-EQUITY> 12,091
<SALES> 2,007
<TOTAL-REVENUES> 2,007
<CGS> 0
<TOTAL-COSTS> 11,972
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22
<INCOME-PRETAX> (9,612)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,612)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,612)
<EPS-PRIMARY> (0.52)
<EPS-DILUTED> (0.52)
</TABLE>
<PAGE>
SLH CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James R. Seward, P. Anthony Jacobs and
Steven K. Fitzwater, and each of them individually with the power of
substitution, as Proxy or Proxies of the undersigned, to attend and act for
and on behalf of the undersigned at the Annual Meeting of Stockholders of the
SLH Corporation (the "Company") to be held at _______________, ______________,
Kansas _____ on _______________, 1998 at ________ _.m. local time and at any
adjournment thereof, hereby revoking any prior Proxy or Proxies. This Proxy
when properly executed will be voted as directed on the reverse hereof by the
undersigned. IF NO DIRECTION IS MADE, SHARES WILL BE VOTED FOR PROPOSALS 1, 2
AND 3 AND FOR THE ELECTION OF DIRECTORS NAMED IN THE PROXY.
SHAREHOLDER NAME & ADDRESS
DO NOT PRINT IN THIS AREA
_________________________ __________________________ Date: ______________, 1998
Signature (title, if any) Signature, if held jointly
Please sign exactly as name appears on the certificate or certificates
representing shares to be voted by this proxy, as shown on the label above.
When signing as executor, administrator, attorney, trustee, or guardian,
please give full title as such. If a corporation, please sign full
corporation name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person(s).
(CONTINUED ON OTHER SIDE)
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" EACH OF THE PROPOSALS
LISTED BELOW AND FOR THE NOMINEES.
PROPOSAL FOR AGAINST ABSTAIN
- --------
1. Approval and Adoption of Agreement and Plan of Merger / / / / / /
2. Approval of Syntroleum Stock Option Plans (Effective / / / / / /
Only If Merger is Approved)
3. Ratification of Appointment of Accountants / / / / / /
4. Election of Directors.
Nominees: W. D. Grant, W. T. Grant II, and
David W. Kemper
For / / Withheld / /
FOR, except vote withheld from the following
nominee:________________________________________.
<PAGE>
SYNTROLEUM CORPORATION
1350 SOUTH BOULDER
SUITE 1350
TULSA, OKLAHOMA 74119
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
SYNTROLEUM CORPORATION. The undersigned hereby appoints Kenneth L. Agee,
Mark A. Agee and Eric Grimshaw, and each of them, attorneys and agents with
full power of substitution, to vote as proxy all the shares of Common Stock,
held of record by the undersigned on _________________, 1998 at the Special
Meeting of Stockholders of Syntroleum Corporation to be held on ____________,
1998 and at any adjournment or postponement thereof, in the manner indicated
herein and in their discretion on such other matters as may properly come
before said meeting or any adjournment thereof.
If you wish to vote in accordance with the recommendations of the Board of
Directors, you may just sign and date below and mail in the postage paid
envelope provided. Specific choices may also be made herein.
Dated ___________________, 1998
___________________________________
Signature
___________________________________
Signature if held jointly
When signing as Executor,
Administrator, Trustee or the like,
please give full title.
This Proxy will be voted as directed, or if no direction is indicated, will
be voted FOR adoption and approval of the Merger Agreement. The Board of
Directors recommends a vote FOR adoption and approval of the Merger Agreement.
(1) Adoption and approval of the Merger Agreement
FOR / / AGAINST / / ABSTAIN / /
