<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 8, 1998
REGISTRATION NO. 333-50253
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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. / /
------------------------------
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.
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<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. For a
discussion of SLH's reasons for the Merger and possible disadvantages of the
Merger, see "The Merger--SLH's Reasons for the Merger" in the attached Joint
Proxy Statement/Prospectus.
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 June
1, 1998 ($23.5625 per share), each share of Syntroleum common stock would have
been converted into 1.40757 shares of SLH common stock in the Merger. 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. 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. As a result, stockholders may not know the actual exchange ratio at the
time they deliver their proxy cards.
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 35% 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.
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
<PAGE>
[World gas overview map depicting location of 1996
identified 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>
[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. For a discussion of Syntroleum's reasons for
the Merger and possible disadvantages of the Merger, see "The
Merger--Syntroleum's Reasons for the Merger" in the attached Joint Proxy
Statement/Prospectus.
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 June
1, 1998 ($23.5625 per share), each share of Syntroleum common stock would have
been converted into 1.40757 shares of SLH common stock in the Merger. 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.
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. As a result, stockholders may not know the actual
exchange ratio at the time they deliver their proxy cards.
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 65% 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.
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
<PAGE>
[World gas overview map depicting location of 1996
identified 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.]
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.
YOU WILL RECEIVE INSTRUCTIONS REGARDING THE SURRENDER AND EXCHANGE OF YOUR
CERTIFICATES FOLLOWING THE MERGER.
By Order of the Board of Directors
--------------------------------------
Eric Grimshaw
SECRETARY
Tulsa, Oklahoma
, 1998
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 8, 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 ("Syntroleum Common Stock")
will be converted into a number of shares of SLH's common stock 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 June 1,
1998 ($23.5625 per share), each share of Syntroleum Common Stock would be
converted into 1.40757 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. As a result, stockholders that deliver their proxy cards prior to
the date of SLH's 1998 Annual Meeting will not know the actual exchange ratio at
the time of delivery. See "The Merger" and "Material Provisions of the Merger
Agreement--Merger Consideration." SLH currently owns 5,950,000 shares of
Syntroleum Common Stock (representing approximately 31% of the outstanding
shares of Syntroleum Common Stock as of the date hereof). Based on the assumed
exchange ratio described above and the outstanding shares of Syntroleum Common
Stock and SLH Common Stock as of the date hereof, the current holders of
outstanding shares of SLH Common Stock and the current holders of outstanding
shares of Syntroleum Common Stock would own approximately 35% and 65%,
respectively, of the outstanding shares of the combined company following the
Merger. 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 ("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, as amended, 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 17 FOR CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN EVALUATING THE SECURITIES OFFERED HEREBY.
<PAGE>
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>
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. 20006-1500.
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. SUCH DOCUMENTS WILL BE SENT BY FIRST CLASS MAIL
WITHIN ONE BUSINESS DAY OF RECEIPT OF SUCH REQUEST.
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.
ii
<PAGE>
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 Quarterly Report on Form 10-Q for the quarter ended March 31,
1998.
(3) SLH's Current Reports on Form 8-K dated January 27, 1998 and March
30, 1998; and
(4) 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 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
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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.
The estimates of identified reserves of oil and natural gas set forth in
this Joint Proxy Statement/ Prospectus do not constitute proved reserves in
accordance with the regulations of the SEC. Under SEC regulations, proved oil
and gas reserves are the estimated quantities of crude oil, natural gas, and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions, i.e., prices and costs as of
the date the estimate is made. Syntroleum compiled the estimates of identified
reserves set forth in this Joint Proxy Statement/Prospectus from the referenced
industry publications and other publicly available reports to identify the order
of magnitude of the resource base and does not purport to have independently
verified this information. Accordingly, there can be no assurance as to the
existence or recoverability of the estimates of identified reserves of oil and
natural gas set forth in this Joint Proxy Statement/Prospectus.
------------------------
Syntroleum is both a service mark and a trademark of Syntroleum Corporation.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION...................................................................................... ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ ii
FORWARD-LOOKING STATEMENTS................................................................................. iii
CERTAIN INDUSTRY TERMS..................................................................................... iv
SUMMARY.................................................................................................... 1
The Companies............................................................................................ 1
The Meetings............................................................................................. 3
The Merger............................................................................................... 5
Price Range of SLH Common Stock.......................................................................... 12
Summary Historical Financial Information for SLH......................................................... 13
Summary Historical Financial Information for Syntroleum.................................................. 14
Summary Pro Forma Combined Financial Information (Unaudited)............................................. 15
Comparative Per Share Data............................................................................... 16
RISK FACTORS............................................................................................... 17
THE MEETINGS............................................................................................... 30
SLH Annual Meeting....................................................................................... 30
Syntroleum Special Meeting............................................................................... 30
Quorum................................................................................................... 31
Vote Required............................................................................................ 31
Record Date; Stock Entitled to Vote...................................................................... 31
Voting of Proxies........................................................................................ 31
Revocation of Proxies.................................................................................... 32
Solicitation of Proxies.................................................................................. 32
Security Ownership of Certain Persons.................................................................... 32
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS.......................................................... 33
THE MERGER................................................................................................. 38
General.................................................................................................. 38
The Merger............................................................................................... 38
Background of the Merger................................................................................. 38
Syntroleum's Reasons for the Merger...................................................................... 41
SLH's Reasons for the Merger............................................................................. 42
Recommendations of the Boards of Directors............................................................... 44
Opinion of SLH's Financial Advisor....................................................................... 44
Opinion of Syntroleum's Financial Advisor................................................................ 48
Accounting Treatment..................................................................................... 51
Material Federal Income Tax Consequences................................................................. 51
Interests of Certain Persons in the Merger; Inherent Conflicts of Interest............................... 52
Dissenters' Appraisal Rights............................................................................. 54
Resales of SLH Common Stock.............................................................................. 57
Increased Authorized Shares.............................................................................. 57
Certain Regulatory Matters............................................................................... 58
MATERIAL PROVISIONS OF THE MERGER AGREEMENT................................................................ 59
Merger Consideration..................................................................................... 59
Conversion of Shares; Fractional Shares.................................................................. 60
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Appraisal Rights......................................................................................... 61
Treatment of Syntroleum Options.......................................................................... 61
Adjustments to SLH Options............................................................................... 61
Conditions to the Merger................................................................................. 62
Representations and Warranties........................................................................... 63
Certain Covenants; Conduct of Business................................................................... 64
Amendment of Articles of Incorporation................................................................... 65
NASDAQ Listing of Common Stock........................................................................... 65
Additional Agreements.................................................................................... 65
Expenses................................................................................................. 65
Indemnification.......................................................................................... 66
Amendment, Waiver and Termination........................................................................ 66
INFORMATION REGARDING SYNTROLEUM........................................................................... 68
Overview................................................................................................. 68
Industry Overview........................................................................................ 70
The Syntroleum Solution.................................................................................. 73
Business Strategy........................................................................................ 76
Implementation of Syntroleum's Business Strategy......................................................... 78
Strategic Relationships.................................................................................. 84
Sales and Marketing...................................................................................... 88
Historical Development of the Technology................................................................. 88
The Syntroleum Process................................................................................... 90
Intellectual Property.................................................................................... 93
Employees................................................................................................ 94
Property................................................................................................. 94
Competition.............................................................................................. 94
Government Regulation.................................................................................... 95
Legal Proceedings........................................................................................ 96
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SYNTROLEUM........ 97
MANAGEMENT AFTER THE MERGER................................................................................ 105
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF SYNTROLEUM............................... 112
INFORMATION REGARDING SLH.................................................................................. 115
Overview................................................................................................. 115
Support of Syntroleum.................................................................................... 115
Management and Disposition of Real Estate and Miscellaneous Assets....................................... 116
Miscellaneous Contingent Interests and Liabilities....................................................... 117
Company Employees........................................................................................ 118
Properties............................................................................................... 118
Regulation--Potential Future Application of the Investment Company Act of 1940........................... 118
Legal Proceedings........................................................................................ 118
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SLH............... 120
MANAGEMENT OF SLH.......................................................................................... 127
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF SLH...................................... 134
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DESCRIPTION OF SLH CAPITAL STOCK........................................................................... 136
COMPARATIVE RIGHTS OF STOCKHOLDERS......................................................................... 147
PROPOSAL TO ELECT SLH DIRECTORS............................................................................ 150
PROPOSAL TO APPROVE THE SYNTROLEUM STOCK OPTION PLANS...................................................... 152
PROPOSAL TO APPROVE AND RATIFY SLH'S APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS......................... 157
EXPERTS.................................................................................................... 157
LEGAL MATTERS.............................................................................................. 158
STOCKHOLDER PROPOSALS...................................................................................... 158
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 Corporation 1993 Stock Option and Incentive Plan
APPENDIX F--Syntroleum Corporation Stock Option Plan for Outside Directors
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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 March 31, 1998, SLH had approximately $50 million in assets,
consisting of approximately $42 million of cash, other current assets and notes
receivable and approximately $8 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
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has been found. The United States Department of Energy has reported worldwide
identified natural gas reserves of 5,011 Tcf as of January 1, 1996. Wood
MacKenzie Consultants Limited ("Wood MacKenzie") and others have estimated that
of the world's identified natural gas reserves, 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 identified
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.
- 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 development 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 development of a small
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; (ii) conversion of
small associated gas fields; and (iii) short-term use of a GTL plant on
large fields while a permanent GTL plant is being built. 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, Bateman Engineering, Inc.
("Bateman"), Brown & Root, Inc. ("Brown & Root"), ABB Power Generation
Ltd. and ABB STAL AB (collectively, "ABB"), AGC Manufacturing Services,
Inc. ("AGC"), Catalytica Combustion Systems, Inc. ("Catalytica Combustion
Systems") and Catalytica Advanced Technologies, Inc. ("Catalytica Advanced
Technologies") are currently participating in specific joint development
projects with Syntroleum.
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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.
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."
THE MEETINGS
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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.
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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 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.
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THE MERGER
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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." The diagrams set forth below
illustrate the corporate structure of SLH and Syntroleum
prior to and following consummation of the Merger.
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Graphic Depicting the Corporate Structure of SLH Corporation and Syntroleum
Corporation Prior to the Merger.
Graphic depicts:
(i) SLH Corporation owning 100 percent of Scout Development Corporation.
(ii) SLH Corporation owning 100 percent of BMA Resources, Inc.
(iii) SLH Corporation owning six percent of Syntroleum/Sweetwater Company,
L.L.C. (Footnote 1).
(iv) Scout Development Corporation owning 100 percent of Scout Development of
New Mexico.
(v) Scout Development Corporation owning 75 percent of 529 Partners, Ltd., and
Lot Development, Inc. (Houston Project).
(vi) BMA Resources, Inc., owning 31 percent of Syntroleum Corporation.
(vii) Syntroleum Corporation owning 90 percent of Syntroleum/Sweetwater Company,
L.L.C. (Footnote 1).
Graphic Depicting the Corporate Structure of SLH Corporation and Syntroleum
Corporation After the Merger.
Graphic depicts:
(i) Syntroleum Corporation owning 100 percent of Scout Development Corporation.
(ii) Syntroleum owning 100 percent of BMA Resources, Inc.
(iii) Syntroleum Corporation owning ninety-six percent of Syntroleum/Sweetwater
Company, L.L.C. (Footnote 1).
(iv) Scout Development Corporation owning 100 percent of Scout Development of
New Mexico.
(v) Scout Development Corporation owning 75 percent of 529 Partners, Ltd., and
Lot Development, Inc. (Houston Project).
(Footnote 1) Subject to reduction as described under 'Management's Discussion
and Analysis of Financial Condition and Results of Operations-
Liquidity and Capital Resources-Sweetwater GTL Plant.'
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[GRAPH]
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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
$50,520,000 (SLH's total stockholders' equity as of
March 31, 1998) 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 portion of the shares issuable pursuant to
unvested stock options).
For example, based on the average closing price during
the five trading days preceding June 1, 1998 ($23.5625
per share), the Exchange Ratio would be 1.40757. 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. As a result, stockholders that deliver
their proxy card prior to the date of SLH's 1998 Annual
Meeting will not know the actual exchange ratio at the
time of delivery. Based on an Exchange Ratio of 1.40757,
the current holders of outstanding shares of SLH Common
Stock would own approximately 35% 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 65% of the SLH
Common Stock to be outstanding following the Merger. For
an illustration of the determination of the Exchange
Ratio, see "Material 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
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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 $42
million of cash, other current assets and notes
receivable and approximately $8 million of other assets
being liquidated, in each case as of March 31, 1998.
These assets may be used in Syntroleum's projects to
design and construct two GTL 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.
The SLH Board of Directors realized that there are
certain possible disadvantages and risks associated with
the Merger, including (i) some of the benefits set forth
above may not be realized, (ii) the implied market value
of the Syntroleum Common Stock used to determine the
Exchange Ratio may not reflect the ultimate value of the
Syntroleum Common Stock, (iii) SLH's cash and liquid
assets will be used in the development of the Syntroleum
Process rather than be distributed as a dividend or used
in some other business or investment, (iv) SLH
stockholders will experience a significant change in
management and (v) stockholders that deliver their proxy
cards prior to the date of the SLH Annual Meeting will
not know the actual Exchange Ratio at the time of
delivery. See "Risk Factors," and "The Merger--SLH's
Reasons for the Merger." However, the
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
SLH Board of Directors believes that the positive
factors should outweigh any possible disadvantages,
although there can be no assurance in this regard.
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 $42 million of cash, other current assets
and notes receivable and approximately $8 million of
other assets being liquidated, in each case as of March
31, 1998. 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.
The Syntroleum Board of Directors realized that there
are certain possible disadvantages and risks associated
with the Merger, including (i) some of the benefits set
forth above may not be realized, (ii) the implied market
value of the Syntroleum Common Stock used to determine
the Exchange Ratio may not reflect the ultimate value of
the Syntroleum Common Stock, (iii) stockholder rights
will change as a result of the Merger and (iv)
stockholders that deliver their proxy cards prior to the
date of the Syntroleum Special Meeting will not know the
actual Exchange Ratio at the time of delivery. See "Risk
Factors," "The Merger--Syntroleum's Reasons for the
Merger" and "Comparative Rights of Stockholders."
However, the Syntroleum Board of Directors believes that
the positive factors should outweigh any possible
disadvantages, although there can be no assurance in
this regard.
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.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
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 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 "Material
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
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
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.
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 "Material 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."
MATERIAL FEDERAL INCOME TAX
CONSEQUENCES.................... SLH and Syntroleum have received an opinion of counsel
that (i) the Merger will be a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), (ii) 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, (iii) a holder of Syntroleum Common Stock who
receives cash by reason of its exercise of appraisal
rights will recognize income or loss with respect to the
cash received and (iv) 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 (which is
based upon the market value of the outstanding shares of
SLH Common Stock) 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
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
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; Inherent Conflicts of
Interest."
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>
12
<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 June 1,
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 June 1, 1998).................................. 33.00 23.00
</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 June 1, 1998, the closing sales price per share of SLH Common Stock
was $23.50.
As of June 1, 1998, SLH had approximately 1,600 holders of SLH Common Stock
of record and 7,000 beneficial owners, based on SLH estimates.
STOCKHOLDERS ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR SLH COMMON
STOCK.
There is no established trading market for shares of Syntroleum Common
Stock.
12
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION FOR SLH
The following table sets forth a summary of selected historical financial
data for SLH. The financial data for SLH for each of the years ended December
31, 1997, 1996, 1995, 1994 and 1993 are derived from audited statements of SLH
as reported in its Annual Reports on Form 10-K. The summary historical financial
data for each of the interim periods ended March 31, 1998 and 1997 are derived
from the unaudited consolidated financial statements of SLH as reported in its
Quarterly Reports on Form 10-Q. 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>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------- --------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................ $ 3,238 $ 4,214 $ 17,343 $ 16,365 $ 11,486 $ 11,991 $ 17,470
Cost of sales....................... 2,904 4,038 16,566 15,250 10,984 10,897 16,133
Other operating expenses............ 1,326 1,257 5,071 5,383 12,682 10,002 5,018
Investment and other income
(expense), net.................... 2,610 3,254 8,360 126 (316) 926 (2,962)
Provision (benefit) for income
taxes............................. (913) (3) (5,027) 56 (1,264) (1,437) (2,477)
Net income (loss)................... 2,531 2,176 9,093 (5,598) (11,232) (6,545) (4,166)
Net income per share--basic......... 0.25 0.22 0.92
Net income per share--diluted....... 0.23 0.21 0.84
<CAPTION>
AS OF
MARCH 31, AS OF DECEMBER 31,
--------- ------------------------------------------------------
1998 1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................... $ 39,558 $ 37,478 $ 3,364 $ 4,067 $ 3,468 $ 3,856
Cash and short-term investments............... 30,335 32,046 3,925 -- -- --
Income taxes receivable....................... 6,047 5,109 -- -- -- --
Real estate held for sale and development..... 6,517 9,058 24,202 35,073 40,998 39,047
Investments................................... 1,545 1,530 8,244 10,391 12,864 15,167
Total assets.................................. 51,319 53,169 38,474 51,638 64,627 70,155
Current liabilities........................... 643 2,039 2,165 365 239 2,150
Combined equity............................... -- -- 35,813 49,686 61,147 66,438
Stockholders' equity.......................... 50,520 51,051 -- -- -- --
</TABLE>
13
<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 financial information of Syntroleum set forth below for the
three months ended March 31, 1998 and 1997 has been derived from the unaudited
consolidated 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 consolidated financial
statements of Syntroleum and the related notes thereto included elsewhere in
this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Operating revenues................ $ 385 $ 481 $ 2,007 $ 616 $ 45 $ 60 $ --
--------- ------- --------- --------- --------- --------- ---------
Costs and expenses:
Pilot plant..................... 724 373 2,847 1,120 671 -- --
Catalyst services............... -- -- 4,800 -- -- -- --
General and administrative...... 2,654 414 4,249 1,402 568 384 263
Depreciation and amortization... 55 2 76 19 12 13 12
--------- ------- --------- --------- --------- --------- ---------
Total operating expenses...... 3,433 789 11,972 2,541 1,251 397 275
--------- ------- --------- --------- --------- --------- ---------
Operating income (loss)........... (3,048) (308) (9,965) (1,925) (1,206) (337) (275)
Other income (expense)............ 120 (4) 353 (12) 60 18 3
--------- ------- --------- --------- --------- --------- ---------
Income (loss) before taxes........ (2,928) (312) (9,612) (1,937) (1,146) (319) (272)
Provision for income taxes........ -- -- -- -- -- -- --
--------- ------- --------- --------- --------- --------- ---------
Net income (loss)................. $ (2,928) $ (312) $ (9,612) $ (1,937) $ (1,146) $ (319) $ (272)
--------- ------- --------- --------- --------- --------- ---------
--------- ------- --------- --------- --------- --------- ---------
Net income (loss) per share--
basic and diluted............... $ (0.15) $ (0.02) $ (0.52) $ (0.11) $ (0.07) $ (0.02) $ (0.02)
--------- ------- --------- --------- --------- --------- ---------
--------- ------- --------- --------- --------- --------- ---------
<CAPTION>
AS OF DECEMBER 31,
AS OF MARCH 31, -----------------------------------------------------
1998 1997 1996 1995 1994 1993
--------------- --------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................... $ 7,474 $ 9,846 $ 601 $ (410) $ (65) $ 65
Property and equipment, net....... 1,603 1,245 521 507 89 23
Total assets...................... 10,018 12,091 1,552 873 188 152
Deferred revenue.................. 11,000 11,000 -- -- -- --
Long-term debt.................... -- -- 1,000 -- -- --
Stockholders' equity.............. (4,170) (1,242) 266 203 102 132
</TABLE>
14
<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 three months ended March 31, 1998 and
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 March 31, 1998, 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 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>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
------------------- -----------------
(IN THOUSANDS, EXCEPT FOR PER SHARE
DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Real estate sales...................................................... $ 3,068 $ 16,557
Other.................................................................. 555 2,793
------- --------
Total revenues....................................................... 3,623 19,350
------- --------
Cost and expenses:
Cost of real estate sold............................................... 2,904 16,566
Pilot plant, research and development and other........................ 1,047 5,981
Catalyst services...................................................... -- 4,800
General and administrative............................................. 3,712 6,612
------- --------
Total costs and expenses............................................. 7,663 33,959
------- --------
Loss from operations................................................... (4,040) (14,609)
Investment, interest and other income, net............................. 2,730 8,964
------- --------
Loss before income taxes............................................... (1,310) (5,645)
Income tax benefit..................................................... 913 5,027
------- --------
Net loss................................................................. $ (397) $ (618)
------- --------
------- --------
Net loss per share-basic and diluted..................................... $ (0.01) $ (0.02)
------- --------
------- --------
<CAPTION>
AS OF
MARCH 31, 1998
-----------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................................... $ 44,032
Cash and cash equivalents................................................ 7,728
Short-term investments................................................... 27,469
Income taxes receivable.................................................. 6,047
Total current assets..................................................... 45,324
Property and equipment, net.............................................. 1,665
Other noncurrent assets.................................................. 9,862
Total assets............................................................. 56,851
Deferred revenue......................................................... 11,000
Total liabilities........................................................ 12,464
Stockholders' equity..................................................... 43,350
</TABLE>
15
<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 or to date during 1998. 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
THREE MONTHS ENDED -----------------
MARCH 31, 1998
---------------------
(UNAUDITED)
<S> <C> <C>
SLH--HISTORICAL(1)
Book value per common share.......................... $ 5.01 $ 5.16
Basic earnings per common share...................... $ 0.25 $ 0.92
Diluted earnings per common share.................... $ 0.23 $ 0.84
SLH--PRO FORMA (UNAUDITED)(1)
Book value per common share.......................... $ 1.52 $ 1.71
Basic earnings (loss) per common share............... $ (0.01) $ (0.02)
Diluted earnings (loss) per common share............. $ (0.01) $ (0.02)
SYNTROLEUM--HISTORICAL
Book value per common share.......................... $ (0.22) $ (0.07)
Basic earnings (loss) per common share............... $ (0.15) $ (0.52)
Diluted earnings (loss) per common share............. $ (0.15) $ (0.52)
SYNTROLEUM--EQUIVALENT PRO FORMA (UNAUDITED)(2)
Book value per equivalent common share............... $ 2.15 $ 2.52
Basic earnings (loss) per equivalent common share.... $ (0.02) $ (0.03)
Diluted earnings (loss) per common share............. $ (0.02) $ (0.03)
</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 1.40757. The 1.40757
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 $23.5625 (based on such average
during the five trading days preceding June 1, 1998).
16
<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
NO ASSURANCE OF SUCCESSFUL COMMERCIAL-SCALE 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. 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 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. 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.
Syntroleum does not expect any commercial-scale GTL plant based on the
Syntroleum Process to become operational until 2000 at the earliest, and does
not expect to receive any cash flows from GTL plants in which it owns an equity
interest until such date. Even if GTL plants based on the Syntroleum Process are
successfully built, there can be no assurance that these plants will operate as
currently anticipated.
POTENTIAL FOR TECHNOLOGICAL AND MECHANICAL PROBLEMS
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.
NO ASSURANCE OF IMPOVEMENTS TO THE SYNTROLEUM PROCESS
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
17
<PAGE>
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.
POTENTIAL INDEMNIFICATION LIABILITIES
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. 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
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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 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. Significant competition exists for anyone attempting to
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
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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."
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. 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
not conducted an exhaustive search of patents applicable to the GTL field.
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
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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,
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 and to establish the terms of such preferred stock. As a
result, preferred stock could be issued in the future with dividend,
liquidation, conversion, voting and other rights that are more favorable than
the rights of the holders of 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
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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 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
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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 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 June 1, 1998,
Syntroleum had 55 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. 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
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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
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.
SYNTROLEUM'S LACK OF 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. There is no guarantee
that an active public market for the combined company's stock will be sustained
following the Merger. See "Summary-- Price Range of SLH Common Stock."
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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 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 18,360,273 shares to be issued in connection with the
Merger (assuming an Exchange Ratio of 1.40757 based on the average closing price
of the SLH Common Stock during the five trading days preceding June 1, 1998 of
$23.5625) are being registered under the Securities Act and, therefore, will be
freely tradable. However, a total of approximately 8,621,244 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 2,470,865 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.
FAIRNESS OPINIONS OF FINANCIAL ADVISORS BASED PRIMARILY ON INFORMATION PROVIDED
BY SLH AND SYNTROLEUM WITHOUT INDEPENDENT VERIFICATION; OTHER LIMITATIONS OF
THE FAIRNESS OPINIONS
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.
DATE OF DETERMINATION OF THE EXCHANGE RATIO
The Exchange Ratio will be determined on the day of the SLH Annual Meeting
based on the closing price of the SLH Common Stock during the five preceding
trading days. As a result, stockholders that deliver their proxy card prior to
the date of the SLH Annual Meeting will not know the actual Exchange
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Ratio at the time of delivery. Based on the average closing price of the SLH
Common Stock during the five trading days preceding June 1, 1998 ($23.5625 per
share), each share of Syntroleum Common Stock would have been converted into
1.40757 shares of SLH Common Stock in the Merger. If the market value of the SLH
Common Stock during the five trading days ending on the business day immediately
preceding the date of the SLH 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. For an illustration of the
determination of the Exchange Ratio assuming various average closing prices of
the SLH Common Stock, see "Material Provisions of the Merger Agreement--Merger
Consideration." Stockholders are entitled to revoke proxies prior to the
Meetings as described under "The Meetings--Revocation of Proxies."
MECHANISM FOR DETERMINING THE EXCHANGE RATIO
There can be no assurance that the mechanism for determining the Exchange
Ratio will result in a fair exchange of the Syntroleum Common Stock for the SLH
Common Stock. The Exchange Ratio is determined by dividing the Implied
Syntroleum Per Share Common Stock Market Value by the SLH Per Share Common Stock
Market Value. The SLH Per Share 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 Implied
Syntroleum Per Share Common Stock Market Value means the implied value of a
share of Syntroleum Common Stock as determined pursuant to a formula based
primarily on the SLH Per Share Common Stock Market Value adjusted to exclude the
value of SLH's non-Syntroleum assets, which are valued according to their book
value. There can be no assurance that the Implied Syntroleum Per Share Common
Stock Market Value will accurately reflect the ultimate value of the Syntroleum
Common Stock. See "Material Provisions of the Merger Agreement--Merger
Consideration."
DIFFERENCES IN STOCKHOLDER RIGHTS AS A RESULT OF THE MERGER
As a result of the Merger, Syntroleum stockholders will no longer own shares
of Syntroleum Common Stock and will become stockholders of SLH. While Syntroleum
is an Oklahoma corporation, SLH is a Kansas corporation, and the different laws
governing the two corporations, together with differences in the provisions of
the respective corporate charters and bylaws of Syntroleum and SLH, result in
differences in the rights of the stockholders of the two corporations. In
particular, SLH has a classified Board of Directors and has adopted a
stockholder rights plan that may have the effect of delaying or preventing a
change of control of SLH even in cases where the stockholders of SLH believe
that such changes may be in their best interests. In addition, stockholder
action may generally be taken by majority written consent of Syntroleum
stockholders, whereas stockholder action may be taken by written consent of SLH
stockholders only if the holders of all shares which would be entitled to vote
thereon consent. Further, certain amendments to the SLH Articles of
Incorporation require supermajority (either 66 2/3% or, in some cases, 80%)
stockholder approval, whereas, amendments to the Certificate of Incorporation of
Syntroleum require only majority stockholder approval. For a more complete
description of the rights of the stockholders of SLH and Syntroleum, see
"Description of SLH Capital Stock" and "Comparative Rights of Stockholders."
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. GTL plants will generally be required
to obtain applicable permits under state and federal clean air and water laws
and various permits for industrial siting and construction. Emissions from a GTL
plant,
26
<PAGE>
primarily from the gas turbine, will contain nitrous oxides and may require
certain abatement equipment to be installed in order to meet state and federal
permit requirements. Additionally, GTL plants will be required to adhere to
state and federal laws applicable to the disposal of byproducts produced,
including waste water and spent catalyst. 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 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 31% of the outstanding shares of
SLH Common Stock (assuming an Exchange Ratio of 1.40757 based on the average
closing price of the SLH Common Stock during the five trading days preceding
June 1, 1998 of $23.5625). 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."
27
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER; INHERENT 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. All of the directors and officers of Syntroleum
who are not currently officers and directors of SLH will become officers and
directors of SLH. SLH directors and officers will have certain adjustments made
to the exercise period of the outstanding options to purchase SLH Common Stock.
Three SLH officers will receive payments in connection with the termination of
their employment with SLH, and SLH has agreed to provide certain indemnification
for officers and directors of SLH. In addition to those interests of officers
and directors of SLH and Syntroleum, James R. Seward, who is the President,
Chief Executive Officer and a director of SLH, and P. Anthony Jacobs, who is
Chairman of the Board of SLH, are also directors of Syntroleum and will continue
as directors following the Merger. As a result of such dual capacities,
conflicts existed in negotiating the terms of the Merger Agreement and conflicts
could arise under the Merger Agreement prior to any completion of the Merger,
including any issue relating to the manner in which shares of Syntroleum Common
Stock held by SLH should be voted. SLH and Syntroleum intend to cause any such
decision to be approved by a majority of non-interlocking directors of SLH
and/or Syntroleum, as the case may be. 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% in value 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. Syntroleum believes
that it will satisfy such income character component of the definition of a
personal holding company after the Merger only if deposits or other payments
which it receives under its license agreements constitute items of personal
holding company income. Although Syntroleum believes that such payments are not
personal holding company income, the Internal Revenue Service may contest such
position.
A personal holding company is subject to not only the regular federal income
tax, but is also subject to an additional tax of 39.6% of its undistributed
personal holding company income, which is generally taxable income reduced by
dividends paid and with the adjustments which are listed in Section 545 of the
Code. Syntroleum believes that it has no material exposure to the personal
holding company tax for periods prior to the Merger because the amounts which
would have been undistributed personal holding company income for any such
period if Syntroleum had been a personal holding company were not material for
such periods. 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. Such individuals are Blanche L. Agee (mother of Mark A. and Kenneth L.
Agee), Robert A. Day, W. D. Grant, P. Anthony Jacobs and James R. Seward. 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.
28
<PAGE>
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.
ABSENCE OF DIVIDENDS ON COMMON STOCK
Syntroleum currently and after the Merger 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 including after the
Merger is consummated. Although Syntroleum has no current restrictions with
respect to dividend payments, future dividends 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."
29
<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.
30
<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, except that proxies containing
instructions to vote AGAINST adoption and approval of the Merger Agreement will
not be voted in favor of a motion to adjourn either Meeting to another time
and/or place.
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
31
<PAGE>
brokers and other nominees or fiduciaries that are present at either Meeting but
not voted on a particular 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. SLH stockholders should address any revocation of such proxy to: SLH
Corporation, 5000 West 95th Street, Suite 260, Shawnee Mission, Kansas 66207,
Attention: Steven K. Fitzwater.
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. Syntroleum stockholders should
address any revocation of such proxy to: Syntroleum Corporation, 1350 South
Boulder, Suite 1100, Tulsa, Oklahoma 74119, Attention: Eric Grimshaw.
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.
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<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements present (i)
unaudited pro forma balance sheet data at March 31, 1998, giving effect to the
Merger as if the Merger had been consummated on that date and (ii) unaudited pro
forma operating data for the three months ended March 31, 1998 and 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 statements of
operations for the three months ended March 31, 1998 and the year ended December
31, 1997 combine the results of operations for Syntroleum's three months ended
March 31, 1998 and fiscal year ended December 31, 1997 with the results of
operations for SLH's three months ended March 31, 1998 and 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 (which is based
upon the market value of the outstanding shares of SLH Common Stock) 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.
33
<PAGE>
SLH CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1998
(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................................. $ 7,862 $ 2,866 $ (3,000)(8) $ 7,728
Short-term investments.................................... -- 27,469 -- 27,469
Accounts and notes receivable............................. 183 1,397 -- 1,580
Real estate under contract................................ -- 2,074 -- 2,074
Income taxes receivable................................... -- 6,047 -- 6,047
Other current assets...................................... 78 348 -- 426
----------- ----------- ------------- -----------
Total current assets.................................... 8,123 40,201 (3,000) 45,324
REAL ESTATE HELD FOR SALE................................... -- 5,489 -- 5,489
REAL ESTATE UNDER DEVELOPMENT............................... -- 1,028 -- 1,028
INVESTMENT SECURITIES....................................... -- 1,545 -- 1,545
INVESTMENT IN AFFILIATES.................................... -- 1,287 (1,486)(1) (199)
PROPERTY, PLANT AND EQUIPMENT............................... 1,603 62 -- 1,665
OTHER ASSETS................................................ 292 1,707 -- 1,999
----------- ----------- ------------- -----------
$ 10,018 $ 51,319 $ (4,486) $ 56,851
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 477 $ 269 $ -- $ 746
Other liabilities......................................... 172 374 -- 546
----------- ----------- ------------- -----------
Total current liabilities............................... 649 643 -- 1,292
OTHER NONCURRENT LIABILITIES................................ 61 111 -- 172
DEFERRED REVENUE............................................ 11,000 -- -- 11,000
----------- ----------- ------------- -----------
Total liabilities....................................... 11,710 754 -- 12,464
----------- ----------- ------------- -----------
MINORITY INTERESTS.......................................... 2,478 45 (1,486)(1) 1,037
----------- ----------- ------------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock(11)....................................... -- -- -- --
Common stock(11).......................................... 19 101 (19)(2) 284
183(3)
Paid-in capital........................................... 14,254 42,455 19(2) 61,498
(183)(3)
7,964(4)
(11)(5)
(3,000)(8)
Notes receivable from sale of common stock................ (699) -- -- (699)
Retained earnings (deficit)............................... (17,733) 7,964 (7,964)(4) (17,733)
----------- ----------- ------------- -----------
(4,159) 50,520 (3,011) 43,350
Less-treasury stock....................................... (11) -- 11(5) --
----------- ----------- ------------- -----------
Total stockholders' equity.............................. (4,170) 50,520 (3,000) 43,350
----------- ----------- ------------- -----------
$ 10,018 $ 51,319 $ (4,486) $ 56,851
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
</TABLE>
See notes to unaudited pro forma combined financial statements.
34
<PAGE>
SLH CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SYNTROLEUM SLH PRO FORMA PRO FORMA
CORPORATION CORPORATION ADJUSTMENTS FINANCIAL
HISTORICAL HISTORICAL FOR THE MERGER STATEMENTS
----------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Real estate sales....................................... $ -- $ 3,068 $ -- $ 3,068
Other................................................... 385 170 -- 555
----------- ----------- ------- -----------
Total revenues........................................ 385 3,238 -- 3,623
COSTS AND EXPENSES:
Cost of real estate sold................................ -- 2,904 -- 2,904
Operating expense....................................... -- 323 -- 323
Pilot plant and research and development................ 724 -- -- 724
General and administrative.............................. 2,709 1,003 -- 3,712
----------- ----------- ------- -----------
Loss from operations.................................. (3,048) (992) -- (4,040)
INVESTMENT AND INTEREST INCOME--net....................... 101 2,521 -- 2,622
EQUITY IN NET INCOME OF AFFILIATES........................ -- 6 14(6) 20
EQUITY IN NET EARNINGS OF VENTURE CAPITAL INVESTMENT
FUNDS................................................... -- 49 -- 49
INTEREST EXPENSE.......................................... -- (1) -- (1)
OTHER INCOME.............................................. -- 34 -- 34
----------- ----------- ------- -----------
Income (loss) before income taxes....................... (2,947) 1,617 14 (1,316)
PROVISION (BENEFIT) FOR INCOME TAXES...................... -- (913) -- (913)
----------- ----------- ------- -----------
INCOME (LOSS) BEFORE MINORITY INTERESTS................... (2,947) 2,530 14 (403)
MINORITY INTERESTS........................................ (19) (1) 14(6) (6)
----------- ----------- ------- -----------
NET INCOME (LOSS)......................................... $ (2,928) $ 2,531 $ -- $ (397)
----------- ----------- ------- -----------
----------- ----------- ------- -----------
NET INCOME (LOSS) PER SHARE--BASIC AND DILUTED............ $ (0.01)
-----------
-----------
COMMON SHARES OUTSTANDING................................. 18,994 10,075 (634)(10) 28,435
----------- ----------- ------- -----------
----------- ----------- ------- -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING................ 18,994 9,953 (634)(10) 28,313
----------- ----------- ------- -----------
----------- ----------- ------- -----------
</TABLE>
See notes to unaudited pro forma combined financial statements.
35
<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>
SYNTROLEUM SLH PRO FORMA PRO FORMA
CORPORATION CORPORATION ADJUSTMENTS FINANCIAL
HISTORICAL HISTORICAL FOR THE 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 1,937 350(9) 6,612
----------- ----------- ------- -----------
Loss from operations.................................. (9,965) (4,294) (350) (14,609)
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 (96) (5,649)
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 (96) (622)
MINORITY INTERESTS........................................ (3) (4) 3(6) (4)
----------- ----------- ------- -----------
NET INCOME (LOSS)......................................... $ (9,612) $ 9,093 $ (99) $ (618)
----------- ----------- ------- -----------
----------- ----------- ------- -----------
NET INCOME (LOSS) PER SHARE--BASIC AND DILUTED............ $ (0.02)
-----------
-----------
COMMON SHARES OUTSTANDING................................. 18,994 9,903 (634)(10) 28,263
----------- ----------- ------- -----------
----------- ----------- ------- -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING................ 18,517 9,791 (828)(10) 27,480
----------- ----------- ------- -----------
----------- ----------- ------- -----------
</TABLE>
See notes to unaudited pro forma combined financial statements.
36
<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 18,360,273 shares of $.01 par value SLH Common
Stock in exchange for the outstanding shares of Syntroleum Common Stock
(other than the 5,950,000 shares of Syntroleum Common Stock held by SLH)
assuming an Exchange Ratio of 1.40757 (based on the average closing price of
the SLH Common Stock during the five trading days preceding June 1, 1998 of
$23.5625). If the Exchange Ratio increases by 10 percent to 1.54833,
20,196,339 shares of $.01 par value SLH Common Stock would be issued for the
outstanding shares of Syntroleum Common Stock. Correspondingly, if the
Exchange Ratio decreases by 10 percent to 1.26681, 16,524,206 shares of $.01
par value SLH Common Stock would be issued for the outstanding shares of
Syntroleum Common Stock. Such increases or decreases would have no impact on
the per share data for any of the periods presented.
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 in losses of Syntroleum.
8. Reflects estimated expenses of $3,000,000 incurred by SLH and Syntroleum in
connection with the Merger.
9. Reflects increased expenses related to the employment agreements with
certain SLH executive officers.
10. Reflects the issuance of $.01 par value SLH Common Stock in exchange for the
common shares outstanding or the weighted average common shares outstanding,
as applicable, of Syntroleum Common Stock (other than the 5,950,000 shares
of Syntroleum Common Stock held by SLH) assuming an Exchange Ratio of
1.40757, plus the common shares outstanding or the weighted average common
shares outstanding, as applicable, of SLH Common Stock. For example, the pro
forma common shares outstanding at March 31, 1998 is calculated as follows
(shares in thousands):
<TABLE>
<S> <C>
Syntroleum common shares outstanding.......................... 18,994
Less Syntroleum common shares held by SLH..................... 5,950
---------
Syntroleum common shares outstanding not held by SLH.......... 13,044
Assumed Exchange Ratio........................................ x 1.40757
---------
SLH common shares issued in the Merger........................ 18,360
SLH common shares outstanding prior to the Merger............. 10,075
---------
Pro forma common shares outstanding........................... 28,435
---------
---------
</TABLE>
11. In connection with the Merger, the number of authorized shares of SLH
Preferred Stock will increase from 1,000,000 shares to 5,000,000 shares, and
the number of authorized shares of SLH Common Stock will increase from
30,000,000 shares to 150,000,000 shares.
37
<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 "Material
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. As Syntroleum's largest stockholder, the board of
directors and management of SLH and its predecessor have acted to be a
supporting influence on Syntroleum management and Syntroleum affairs with the
view to Syntroleum being operated independently by its own management. This is
reflected by the fact that SLH has had two of eight directors on the Syntroleum
Board without maintaining any Syntroleum executive officer position. As stated
in SLH's Form 10-K, SLH's objective at the time of the Distribution was to
liquidate its non-Syntroleum assets, settle certain outstanding claims and
litigation and support the management, growth and development of Syntroleum.
38
<PAGE>
Consistent with that stated strategy, following the Distribution, SLH and SLH
management, primarily through the efforts of Mr. Seward, have assisted
Syntroleum management in connection with Syntroleum's efforts to license the
Syntroleum Process, strategic planning and Syntroleum's financing activities.
This has included assistance with finding and negotiating potential equity and
debt financing, advice and counsel relative to executive staffing and
administrative operations, direct investments of capital for research and
development activities, the pilot plant and the Sweetwater Plant and pursuit of
the Merger as a vehicle to provide Syntroleum with capital to further the
development of the Syntroleum Process.
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 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, with the support of SLH,
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. Due to these concerns, the
Syntroleum and SLH boards and management both concluded that the opportunities
for a Syntroleum public equity offering would be greater following a merger of
the two companies.
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 to SLH). 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.
39
<PAGE>
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, initiated discussions with Mr. Mark A. Agee, President and Chief
Operating Officer of Syntroleum, and Mr. Randall M. Thompson, Vice President and
Chief Financial Officer of Syntroleum, 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. The principal issues
discussed were the structure of the transaction and the mechanism for
determining the exchange ratio. During these discussions, although the structure
of the transaction had not yet been determined, both parties agreed that the
exchange ratio should be based on the fair market value of each company.
Conceptually, the parties agreed that Syntroleum's fair market value could be
implied by SLH's market capitalization less its non-Syntroleum assets. SLH and
Syntroleum also agreed that those assets, which consisted primarily of cash and
short term investments, should be valued at their book value because that value
approximated their fair value.
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 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. At these meetings, the parties concluded
that the exchange ratio should reflect the relative value of shares of SLH
Common Stock and shares of Syntroleum Common Stock, and should be primarily
based on the public trading prices for the SLH Common Stock (after public
dissemination of a joint proxy statement/prospectus), as adjusted to reflect the
book value of SLH's non-Syntroleum assets. The parties also discussed revising
the vesting schedule for SLH's employee stock options, which would otherwise
vest as a result of the proposed transaction. Various corporate structures were
also discussed for the transaction, although no determination was made.
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 these meetings, the parties concluded that the
transaction should be structured to provide that Syntroleum would merge into
SLH, which would be the surviving corporation, due to certain cost and timing
advantages associated with SLH being a public company. Discussions relating to
the exchange ratio involved the mechanism for determining the implied value of
the Syntroleum Common Stock and the treatment of outstanding SLH employee stock
options in such mechanism. The parties determined to treat a portion of the
shares of SLH Common Stock subject to the options as outstanding for purposes of
the calculation.
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
40
<PAGE>
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 of approximately $42
million of cash, other current assets and notes receivable and
approximately $8 million of other assets being liquidated, in each case as
of March 31, 1998. 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
41
<PAGE>
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.
The Syntroleum Board of Directors realized that there are certain possible
disadvantages and risks associated with the Merger, including (i) some of the
benefits set forth above may not be realized, (ii) the implied market value of
the Syntroleum Common Stock used to determine the Exchange Ratio may not reflect
the ultimate value of the Syntroleum Common Stock, (iii) stockholder rights will
change as a result of the Merger and (iv) stockholders that deliver their proxy
cards prior to the date of the Syntroleum Special Meeting will not know the
actual Exchange Ratio at the time of delivery. See "Risk Factors" and
"Comparative Rights of Stockholders." However, the Syntroleum Board of Directors
believes that the positive factors should outweigh any negative factors,
although there can be no assurance in this regard.
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 $42
million of cash, other current assets and notes receivable and
approximately $8 million of other assets being liquidated, in each case as
of March 31, 1998. 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
42
<PAGE>
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.
- 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.
The SLH Board of Directors realized that there are certain possible
disadvantages and risks associated with the Merger, including (i) some of the
benefits set forth above may not be realized, (ii) the implied market value of
the Syntroleum Common Stock used to determine the Exchange Ratio may not reflect
the ultimate value of the Syntroleum Common Stock, (iii) SLH's cash and liquid
assets will be used in the development of the Syntroleum Process rather than be
distributed as a dividend or used in some
43
<PAGE>
other business or investment, (iv) SLH stockholders will experience a
significant change in management and (v) stockholders that deliver their proxy
cards prior to the date of the SLH Annual Meeting will not know the actual
Exchange Ratio at the time of delivery. See "Risk Factors." However, the SLH
Board of Directors believes that the positive factors should outweigh any
possible disadvantages, although there can be no assurance in this regard.
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 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
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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 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
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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 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
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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 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.
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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.
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
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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.
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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
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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 (which is based
upon the market value of the outstanding shares of SLH Common Stock) 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."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the Merger to the holders of Syntroleum Common Stock. Such
summary is based upon current law (which is subject to change). The following
does not comment on all federal income tax consequences of the Merger that may
be relevant to particular holders, including holders who are subject to special
tax rules such as dealers in securities, mutual funds, insurance companies,
tax-exempt entities and persons who do not hold their Syntroleum Common Stock as
capital assets. Neither Syntroleum nor SLH has requested a ruling from the
Internal Revenue Service as to the United States federal income tax consequences
of the Merger.
Each of SLH and Syntroleum has received an opinion from Baker & Botts,
L.L.P. as to the United States federal income tax consequences of the Merger.
Such opinion provides, in summary, as follows:
(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.
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(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.
(f) A holder of Syntroleum Common Stock who receives cash by reason of the
exercise of appraisal rights in respect of all of the shares of
Syntroleum Common Stock which such person owns immediately prior to the
Merger will recognize income or loss as a result thereof in an amount
which should, as a general matter, be the amount of cash so received
reduced by such holder's basis in the Syntroleum Common Stock so
surrendered.
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 which are set out in a tax certificate which is attached to such
opinion (which has been filed as an exhibit to the registration statement of
which this Joint Proxy Statement/Prospectus is a part) and 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 is urged to 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; INHERENT CONFLICTS OF INTEREST
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."
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DIRECTOR COMPENSATION AFTER THE MERGER. Following the merger all of the
directors of the combined company will comprise all of the present directors of
Syntroleum. As directors of the combined company they will continue to receive
the same director compensation that they have received as directors of
Syntroleum. Employee directors receive no additional compensation as directors.
After the Effective Time, the outside or non-employee directors of SLH who
continue on as directors of the combined company, will be entitled to receive
reimbursement of expenses related to their attendance of Board meetings along
with additional compensation pursuant to Syntroleum's Stock Option Plan for
Outside Directors (the "Director Plan"). In general, under the Director Plan,
each director is granted on January 1st of each year 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. The term of each granted option is ten years and grants are typically
made on January 1st of each year (except for the initial grant which is made
upon a director becoming eligible under the Director Plan). Except for the
initial issuance to a director under the Director Plan which is 100% vested,
vesting is based on the percentage of total Board meetings attended by such
director during the preceding year. See "Proposal to Approve the Syntroleum
Stock Option Plans--Stock Option Plan for Outside Directors."
ADJUSTMENTS TO STOCK OPTIONS. As shown in the following table, SLH officers
and directors hold options to purchase a total of 948,900 shares of SLH Common
Stock at an exercise price of $3.19 per share, 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:
<TABLE>
<CAPTION>
CURRENT VALUE OF
OPTIONS BASED ON THE
SLH 6-1-98 CLOSING
OPTIONS HELD AS OF JUNE 1, STOCK PRICE
1998 EXERCISABLE/
NAME EXERCISABLE/UNEXERCISABLE UNEXERCISABLE
- -------------------------------------- ----------------------------- -----------------------
<S> <C> <C>
James R. Seward....................... 0/195,000 $ 0/$3,960,119
P. Anthony Jacobs..................... 0/195,000 0/ 3,960,119
Steven K. Fitzwater................... 0/121,500 0/ 2,467,458
Lan C. Bentsen........................ 48,600/ 48,600 986,983/ 986,983
W.D. Grant............................ 48,600/ 48,600 986,983/ 986,983
William T. Grant, II.................. 48,600/ 48,600 986,983/ 986,983
Michael E. Herman..................... 48,600/ 48,600 986,983/ 986,983
David W. Kemper....................... 0/ 48,600 0/ 986,983
</TABLE>
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 the above
unexercisable 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 upon the delivery of written
consents by each of the optionees to these adjustments. See "Material 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
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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.
CONFLICTS OF INTEREST. James R. Seward, who is the President, Chief
Executive Officer and a director of SLH, and P. Anthony Jacobs, who is Chairman
of the Board of SLH, are also directors of Syntroleum and will continue as
directors following the Merger. As a result of such dual capacities, and because
Mr. Seward was SLH's primary representative in connection with the negotiation
of the Merger Agreement, conflicts existed in negotiating the terms of the
Merger Agreement. In addition, conflicts could arise under the Merger Agreement
prior to any completion of the Merger, including any issue relating to the
manner in which shares of Syntroleum Common Stock held by SLH should be voted.
SLH and Syntroleum intend to cause any such decision to be approved by a
majority of non-interlocking directors of SLH and/or Syntroleum, as the case may
be.
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.
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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 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.
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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 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
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<PAGE>
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).
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 250,000 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 28,434,994 shares of SLH
Common Stock, and will have 4,031,415 shares of SLH Common Stock reserved for
issuance under stock options and employee benefit plans, assuming an Exchange
Ratio of 1.40757 and the number of shares outstanding as of June 1, 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
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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 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.
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MATERIAL 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 Implied Syntroleum Per Share Common Stock Market Value
divided by the SLH Per Share Common Stock Market Value. "SLH Per Share Common
Stock Market Value" 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 "Implied Syntroleum Per Share Common Stock Market Value" is
equal to (i) the difference between the SLH Market Capitalization and
$50,520,000 (SLH's total stockholders' equity as of March 31, 1998 (excluding
the book value of the shares of Syntroleum Common Stock that SLH owns, which was
zero)) 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)).
In establishing the mechanism for determining the Exchange Ratio, SLH and
Syntroleum sought to provide that the holders of shares of Syntroleum Common
Stock would receive in the Merger a number of shares of SLH Common Stock that
reflect the relative value of a share of Syntroleum Common Stock compared to a
share of SLH Common Stock. Because (i) shares of SLH Common Stock are publicly
traded and shares of Syntroleum Common Stock are not and (ii) SLH and Syntroleum
both believed that the trading prices for the SLH Common Stock reflected a
market valuation of the value of the shares of Syntroleum Common Stock held by
SLH and a fair valuation of SLH's other assets as equal to their book value, SLH
and Syntroleum determined that the relative value of shares of Syntroleum Common
Stock and SLH Common Stock should be determined pursuant to a formula that was
primarily based on the trading prices of the SLH Common Stock. As a result, the
mechanism for determining the Exchange Ratio uses closing prices of the SLH
Common Stock to determine the value of the SLH Common Stock. The implied value
of the Syntroleum Common Stock is determined by calculating the value of the
shares of Syntroleum Common Stock held by SLH implied by the trading prices of
the SLH Common Stock. The Exchange Ratio mechanism for determining this value
consists first of calculating the total market capitalization of SLH reflected
by the trading prices of the SLH Common Stock, and then of subtracting the book
value of SLH's non-Syntroleum assets (this is reflected in the above paragraph
as subtracting SLH's total stockholders' equity from the SLH Market
Capitalization). The result is the implied value of a share of Syntroleum Common
Stock that is used to determine the Exchange Ratio.
Set forth below is an illustration of the determination of the Exchange
Ratio. All of the amounts used in the determination of the Exchange Ratio are
fixed and specified in the Merger Agreement except the stockholders equity of
SLH as of March 31, 1998 (which was established and reflected in SLH's Quarterly
Report on Form 10-Q filed with the SEC on May 15, 1998) and the SLH Per Share
Common Stock Market Value (which will be determined on the day of the SLH Annual
Meeting). Because the Exchange Ratio will be determined on the day of the SLH
Annual Meeting based on the average closing price of the SLH
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Common Stock during the five preceding trading days, stockholders that deliver
their proxy card prior to the date of the SLH Annual Meeting will not know the
actual Exchange Ratio at the time of delivery.
<TABLE>
<CAPTION>
<S> <C> <C>
Implied Syntroleum Per Share Common Stock Market Value
= ------------------------------------------------------------------
Exchange Ratio SLH Per Share Common Stock Market Value
Implied Syntroleum Per (SLH Per Share Common Stock Market Value x 10,519,121) - $50,520,000
Share 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 $23.5625 (which was the average closing price of the SLH
Common Stock during the five trading days immediately preceding June 1, 1998),
the Exchange Ratio would be 1.40757, calculated as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
(($23.5625 x 10,519,121) - $50,520,000)/5,950,000
-------------------------------------------------------------- = 1.40757
$23.5625
</TABLE>
Set forth below are examples of the calculation of the Exchange Ratio at
various assumed average closing prices of the SLH Common Stock. Also shown are
the percentages of the outstanding shares of the combined company that the
current holders of SLH Common Stock and Syntroleum Common Stock hold following
the Merger based on such Exchange Ratios.
<TABLE>
<CAPTION>
ASSUMED SLH PER IMPLIED SYNTROLEUM PERCENTAGE OWNED PERCENTAGE OWNED BY
SHARE COMMON STOCK PER SHARE COMMON EXCHANGE BY FORMER SLH FORMER SYNTROLEUM
MARKET VALUE STOCK MARKET VALUE RATIO STOCKHOLDERS STOCKHOLDERS
- ------------------ ------------------ ----------- ----------------- ----------------------
<S> <C> <C> <C> <C>
$ 20.00 $ 26.868 1.34338 36.51% 63.49%
$ 23.5625 (1) $ 33.166 1.40757 35.43% 64.57%
$ 25.00 $ 35.707 1.42829 35.10% 64.90%
$ 27.975 (2) $ 40.878 1.46122 34.58% 65.42%
$ 30.00 $ 44.547 1.48489 34.22% 65.78%
$ 35.00 $ 53.386 1.52533 33.61% 66.39%
$ 40.00 $ 62.226 1.55565 33.18% 66.82%
</TABLE>
- ------------------------
(1) Reflects the average closing price of the SLH Common Stock during the five
trading days preceding June 1, 1998.
(2) Reflects the average closing price of the SLH Common Stock during the five
trading days preceding March 30, 1998, the last trading date preceding
public announcement of the Merger.
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.
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.
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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 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.
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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 dated on or
about the date which is two days prior to the date this Joint Proxy
Statement/Prospectus is first mailed to stockholders of SLH, 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.
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<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
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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
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<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
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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
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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.
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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. The United States Department of Energy has
reported worldwide identified natural gas reserves of 5,011 Tcf as of January 1,
1996. Wood MacKenzie and others have estimated that of the world's identified
natural gas reserves, 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 identified 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,
including sublicense rights, to all inventions or improvements relating to
the Syntroleum Process that are commercially used by its licensees.
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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 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, 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 development 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 development 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.
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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.
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.
Set forth below and elsewhere in this Joint Proxy Statement/Prospectus are
estimates of identified reserves of oil and natural gas. These estimates do not
constitute proved reserves in accordance with the regulations of the SEC. Under
SEC regulations, proved oil and gas reserves are the estimated quantities of
crude oil, natural gas, and natural gas liquids which geological and engineering
data demonstrate with reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating conditions, i.e.,
prices and costs as of the date the estimate is made. Syntroleum compiled the
estimates of identified reserves included herein from the referenced industry
publications and other publicly available reports to identify the order of
magnitude of the resource base and does not purport to have independently
verified this information. Accordingly, there can be no assurance as to the
existence or recoverability of the estimates of identified reserves of oil and
natural gas set forth in this Joint Proxy Statement/Prospectus.
NATURAL GAS RESOURCE BASE
The world's natural gas resource base is very large. The United States
Department of Energy has reported worldwide identified natural gas reserves of
approximately 5,011 Tcf as of January 1, 1996. 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).
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The following table presents the 1996 worldwide identified natural gas
reserves, consumption and ratio of reserves to consumption (i.e., reserve life)
by region.
1996 WORLDWIDE NATURAL GAS RESERVES, CONSUMPTION AND RESERVE LIFE
<TABLE>
<CAPTION>
REGION
- --------------------------------------------------- RESERVES 1996 RESERVES TO
----------- CONSUMPTION CONSUMPTION RATIO
--------------- (RESERVE LIFE)
(TCF) (TCF) -------------------
(YEARS)
<S> <C> <C> <C>
Central and South America.......................... 214 3.0 71
Africa and the Middle East......................... 1,960 6.0 327
Asia............................................... 363 8.0 45
Europe............................................. 169 12.3 14
North America...................................... 299 26.0 11
Russia and other former Soviet Union regions....... 2,006 22.0 91
----- --- ---
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, identified 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 identified 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. Only 86 of these fields are
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 world's identified
natural gas reserves, approximately one-half, or 2,500 Tcf are stranded. This
would equate to approximately 250 billion barrels
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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).
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 394 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, published pipeline tariffs, 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 $9 and $13 billion (including conversion plant, dedicated LNG tankers
and regasification facilities). On the other hand, Syntroleum estimates that a
GTL plant producing the
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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 57 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 74 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)..................................................... 5,022 5,609 6,431
Middle Distillates(2)............................................ 6,012 6,820 8,253
Others(3)........................................................ 6,600 7,216 7,790
--------- --------- ---------
Total.......................................................... 17,634 19,645 22,474
--------- --------- ---------
--------- --------- ---------
</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 synthesis gas and Fischer-Tropsch
reactions, with any remaining surplus heat energy being dissipated or
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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.
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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 generally
result in a cetane number of approximately 50 for diesel while the cetane number
of diesel produced from synthetic crude oil is between 70 and 75. As such, this
product makes a superior blending stock for upgrading conventional fuels. From
1996 to 1997, prices have ranged from a low of $23 to a high of $31 per barrel.
ENVIRONMENTAL BENEFITS. Southwest Research Institute recently tested diesel
fuels produced from three sources of Fischer-Tropsch fuels to obtain
environmental performance data. The study, presented in 1997, 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
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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
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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
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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 in
cash 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 initial cash deposits in cases where
Syntroleum viewed these technologies or commitments as being more valuable than
the initial cash 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
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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
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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
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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 develop an 8,000 Bbl/d specialty product
plant in Sweetwater County, Wyoming. The current capital structure anticipates
the project will be funded by a combination of debt and equity financing
including equity contributions of approximately $45 million and subordinated and
senior project debt for the balance of the capital costs. Ownership percentages
are currently anticipated to be as follows: Syntroleum--74% (including SLH's
current interest), 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. Syntroleum
currently expects that Bateman will design and 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, although such schedule may
be delayed as a result of a variety of factors. 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 small 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 2000, although such schedule may be delayed as
a result of a variety of factors. 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 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, the parties have agreed in
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principal to extend the term of the agreement to October 1, 1998, subject to
execution of an amendment to the agreement providing for such extension.
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 degrees)
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 several employees working on
research and development activities related to improving the Syntroleum Process.
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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. 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
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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.
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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 currently have under development 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
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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.
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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.
In April 1998, Syntroleum entered into a technical catalyst services and
development agreement with Catalytica Advanced Technologies. Under this
agreement, Syntroleum may engage, on a project by project basis, the technical,
research and development services of Catalytica Advanced Technologies to assist
Syntroleum in its ongoing catalyst research, development and manufacturing
activities.
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
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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
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
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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.
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.
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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.
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
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Natural Gas Air Steam Synthesis Gas (diluted with Nitrogen) Water
Catalyst
CH4 + O2 + N2 + H2O CO + H2 + N2 + H2O
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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.
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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,
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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
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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 55 employees at June 1, 1998, including 19 employees involved
in research and development and pilot plant operations, 8 employees in business
development and marketing, 9 employees in engineering and 19 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
recently acquired 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 currently planned to be
located.
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
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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.
GTL plants will generally be required to obtain permits under applicable
state and federal clean air and water laws and various permits for industrial
siting and construction. Emissions from a GTL plant, primarily from the gas
turbine, will contain nitrous oxides and may require certain abatement equipment
to be installed in order to meet state and federal permit requirements.
Additionally, GTL plants will be required to adhere to state and federal laws
applicable to the disposal of byproducts produced, including waste water and
spent catalyst.
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
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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 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.
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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, although such schedule
may be delayed as a result of a variety of factors. Syntroleum has also entered
into a joint development agreement with Texaco and Brown & Root with respect to
the design and construction of a small GTL plant that is scheduled to be
operational by 2000, although such schedule may be delayed as a result of a
variety of factors.
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
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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 does not expect to receive any
cash flow from GTL plants in which it owns an equity interest until 2000 at the
earliest, when the GTL plant under development with Texaco and Brown & Root is
scheduled to be operational. Syntroleum's future operating 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 cash 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 cash 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.
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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 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
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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
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1998
OPERATING REVENUE. Revenues decreased by $96,000 from $481,000 in the first
quarter of 1997 to $385,000 in the first quarter of 1998. This decrease was due
to the completion of the hybrid, multi-phase (HMX) reactor which was funded by
Texaco under an ongoing joint development agreement.
PILOT PLANT EXPENSE. Expenses from the pilot plant and research and
development activities increased by $351,000 from $373,000 in the first quarter
1997 to $724,000 in the first quarter of 1998. The pilot plant increases were
related to ongoing activities with the hybrid, multi-phase (HMX) reactor and the
building of a new fixed tubular reactor. The laboratory increases were due to
the completion of the move into a new laboratory with additional reactors and
the building of HMX and slurry lab reactors. Syntroleum anticipates that
expenses related to the HMX reactor will be reimbursed under a joint development
agreement with Texaco and expenses related to the slurry reactor will be
reimbursed under a pending joint development agreement with ARCO.
GENERAL ADMINISTRATIVE EXPENSE. General and administrative expenses
increased by $2,239,000 from $414,000 in the first quarter of 1997 to $2,653,000
in the first quarter of 1998. These increases were related to increased salaries
expense for increased staffing levels, increased engineering expenses for
outside engineering related to development of the GTL plant under Syntroleum's
joint venture with Texaco and Brown & Root and the Sweetwater Plant. The
increased travel and office expenses were due to the increased focus on
commercializing the Syntroleum Process.
OTHER INCOME (EXPENSES). Other income increased by $124,000 from $(4,000)
in 1997 to $120,000 in 1998. This increase was due to increased interest income
from higher cash balances.
PROVISION FOR INCOME TAXES. Syntroleum incurred a loss in both first
quarter 1997 and first quarter 1998 and did not recognize an income tax benefit
for such loss.
NET INCOME. Net loss increased by $2,616,000 from $(312,000) in 1997 to
$(2,928,000) in 1998 as a result of the factors described above.
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-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. At year end 1997, the Company had $429,000 in
accounts receivables outstanding with its joint development partner, Texaco, for
joint development activities during November and December of 1997.
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. The writedown of property and
equipment in 1997 represents costs capitalized in 1996 as part of an anticipated
commercial plant to be located near Odessa, Texas. In 1997, the Company
determined not to pursue this plant because an agreement was not reached with
the owner of the proposed plant site. The costs were therefore expensed.
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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.
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
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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. Syntroleum does not currently have any
material outstanding debt or lines of credit.
Cash flows (used in) provided by operations were ($1,003,000), ($1,660,000),
$6,748,000, ($559,000) and ($2,884,000) in 1995, 1996, 1997, first quarter 1997
and first quarter 1998 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 was primarily the result of the receipt of
deposits and options related to license agreements and joint development fees.
The decrease in cash flows in first quarter 1998 as compared to first quarter
1997 was primarily due to higher salaries and wages, higher engineering expenses
related to the Texaco initial commercial plant, and higher laboratory expenses
related to pending joint development agreements with Texaco and ARCO. From
January 1, 1995 to March 31, 1998 cash flows used in investment activities were
$1,742,000, which primarily related to office equipment and leasehold
improvements. Cash flows provided by financing activities were $1,247,000,
$2,500,000, $3,643,000, $148,000 and $996,000 during 1995, 1996, 1997, first
quarter 1997 and first quarter 1998 respectively, and primarily consisted of
equity contributions including the receipt of funds upon the exercise 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. During the first quarter of 1998, Enron contributed
$1,000,000 to Sweetwater LLC as discussed below.
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 expected to be
funded by a combination of project debt and equity financing. The current
capital structure anticipates the project will require equity contributions of
approximately $45 million and subordinated and senior project debt for the
balance of the expected costs. 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% interest in Sweetwater
LLC. However, if Syntroleum obtains additional capital, it may increase such
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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. Syntroleum currently
expects that Bateman will design and 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, although such schedule may be
delayed as a result of a variety of factors.
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 2000, although such schedule may be delayed as a result of a variety of
factors. 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
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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 1998. 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 1998.
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.
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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
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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.
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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"), an asset 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.
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.
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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 -- 107,679
Vice President and Chief Financial Officer
Larry J. Weick...................................................... $ 123,162 $ 50,000 28,151
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 $50,000 or 10% of total salary
and bonus reported for such executive officer.
(2) Gives effect to the assumption of Syntroleum options by SLH and the related
adjustments to the number of shares purchasable and the per-share exercise
price. See "Material Provisions of the Merger Agreement--Treatment of
Syntroleum Options."
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning Options/SARs
granted during 1997 to the Future Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL
GRANTS POTENTIAL REALIZABLE
--------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/ SARS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)(3)
OPTIONS/SARS EMPLOYEES IN OR BASE PRICE EXPIRATION ----------------------
NAME GRANTED (#)(1) FISCAL YEAR(1) ($/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........... 107,679 20% $ 5.27 2/10/07 $ 356,878 $ 904,399
Larry J. Weick................ 28,151 5% $ 5.27 2/10/07 $ 93,301 $ 236,444
</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 "Material Provisions of the Merger Agreement--Treatment of
Syntroleum Options."
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(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............ 30,262 -- 14,075 63,340 $ 319,925 $ 1,439,718
Larry J. Weick................. -- -- 28,151 -- $ 639,872 --
</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 "Material 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
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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. In January 1998, in connection with its annual review of executive
compensation arrangements, 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 (iv) by the mutual
agreement of the employee and Syntroleum and (v) 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 (i), (ii) and (iii) of the preceding
sentence, the employee is entitled to receive his monthly salary for a period of
one to two years following the date of termination. In addition, if there is a
change in control of Syntroleum and (i) Syntroleum terminates the employee's
employment for any reason other than the employee's death, disability,
retirement or just cause during the one-year period immediately following the
change of control, (ii) the employee terminates his employment for good reason,
or (iii) during the 60-day period immediately following the lapse of one year
after any change of control, Syntroleum or the employee terminates the
employee's employment for any reason, then Syntroleum or its successor will pay
the employee his full base salary in effect at the time of the notice of
termination through the date of termination, and in lieu of any further payments
for periods subsequent to the date of termination, Syntroleum or its successor
will pay the employee an amount equal to one to two times such employee's full
base salary in effect on the date of termination payable in equal monthly
installments for a period of 12 to 24 months. 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 including a covenant not to compete.
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
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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 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."
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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 June 1, 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 PRIOR
TO THE MERGER 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% 5,471,824 19.2%
Mark A. Agee (5).......................................... 1,118,000 5.9% 1,574,611 5.5%
Charles A. Bayens (6)..................................... -- * -- *
Eric Grimshaw (7)......................................... 10,000 * 14,075 *
Peter V. Snyder, Jr. (8).................................. 200,000 1.1% 283,314 1.0%
Randall M. Thompson (9)................................... 41,500 * 91,114 *
Larry Weick (10).......................................... 220,000 1.2% 321,665 1.1%
Alvin R. Albe, Jr. (11)................................... 77,239 * 120,827 *
Frank M. Bumstead (11).................................... 57,489 * 80,919 *
P. Anthony Jacobs (12).................................... 6,066,489 31.9% 343,530 1.2%
Robert Rosene, Jr. (13)................................... 216,989 1.1 306,627 1.1%
James R. Seward (14)...................................... 6,092,239 32.1% 351,440 1.2%
J. Edward Sheridan (11)................................... 22,239 * 31,480 *
All directors and executive officers as a group (13
persons) (15)........................................... 12,059,184 63.5% 8,991,426 31.6%
Robert A. Day (16)........................................ 2,786,250 14.7% 3,921,841 13.8%
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 prior
to the Merger are based on the 18,993,950 shares of Syntroleum Common Stock
outstanding as of June 1, 1998. Percentages for SLH after the Merger are
based on an assumed 28,434,994 shares of SLH Common Stock outstanding
following the Merger.
(3)
The shares of SLH Common Stock beneficially owned after the Merger were
calculated by multiplying the number of shares of Syntroleum Common Stock
beneficially owned by the named party by 1.40757 and adding such number to
the number of shares of SLH Common Stock owned by the named party as of
June 1, 1998. The 1.40757 represents the number of shares that a holder of
Syntroleum Common Stock would receive in the Merger per Syntroleum share
assuming a five-
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trading-day average closing price of SLH Common Stock of $23.5625 (based on
such average during the five trading days preceding June 1, 1998).
(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 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 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 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 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 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 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)
In the case of Syntroleum prior to the Merger, shares shown include
5,950,000 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
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case of SLH after the Merger, shares shown (i) include 178,064 shares of
SLH Common Stock owned by Mr. Jacobs and 1,500 shares of SLH Common Stock
held by Mr. Jacobs' wife as to which he disclaims beneficial ownership 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 SLH after the
Merger, shares shown include 1,200 shares of SLH Common Stock owned by Mr.
Rosene.
(14)
In the case of Syntroleum prior to the Merger, shares shown include
5,950,000 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 SLH after the Merger, shares shown (i)
include 148,979 shares of SLH Common Stock owned by Mr. Seward and 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)
and (ii) exclude shares of Syntroleum Common Stock held by SLH prior to the
Merger.
(15)
In the case of Syntroleum prior to the Merger, shares shown include shares
of Syntroleum Common Stock held by SLH, as indicated in footnotes 12 and 14
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.
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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.
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 March 31, 1998, consist of (i) the remaining inventory from a
condominium development located in Santa Fe, New Mexico (comprising 4 completed
homes that have been priced for sale between $529,000 and $545,000) ("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 (13 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
March 31, 1998, of approximately $8.4 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 March 31, 1998 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) $40 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 $530,000.
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.
SUPPORT OF SYNTROLEUM
SLH's support of Syntroleum has been guided primarily by James R. Seward,
the President and Chief Executive Officer of SLH. In 1988, Mr. Seward, through
SLH's subsidiary BMA Resources, Inc., assisted Syntroleum in obtaining the
capital necessary to build the initial pilot plant. A major portion of the
required capital was provided by BMA Resources and, as a result of that and
subsequent investments, SLH acquired approximately one third of the Syntroleum
common stock. Following the initial investment, Mr. Seward and Mr. Jacobs became
directors of Syntroleum and actively participated with the Syntroleum Board and
Syntroleum management in the ongoing development of all aspects of Syntroleum's
operations.
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Following the Distribution, SLH management has continued to assist the
Syntroleum Board and Syntroleum management with Syntroleum's efforts to license
the Syntroleum Process, with strategic planning, with Syntroleum's financing
activities and with the continued development of the Syntroleum management team.
This has included assistance with finding and negotiating potential equity and
debt financing, advice and counsel relative to executive staffing and
administrative operations, direct investments of capital for research and
development activities, the pilot plant and the Sweetwater Plant and the pursuit
of the Merger itself as a vehicle to provide Syntroleum with capital to further
the development of the Syntroleum Process.
As Syntroleum's largest stockholder, the board of directors and management
of SLH and its predecessor have acted to be a supporting influence on Syntroleum
management and Syntroleum affairs with the view to Syntroleum being operated
independently by its own management. Although SLH has significant representation
on the Syntroleum Board, none of its executive officers or employees serve in
any Syntroleum executive officer position. Consistent with this philosophy, a
major objective of SLH has been to help Syntroleum recruit and develop the
strong management team that SLH believes is now in place.
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 March 31,
1998, 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 March 31, 1998:
REAL ESTATE INVENTORY
<TABLE>
<CAPTION>
CARRYING VALUE AS
OF
ASSET LOCATION MARCH 31, 1998
- --------------------------------------- ------------------------- ------------------
<S> <C> <C>
Quail Run Condominiums................. Santa Fe, New Mexico $ 1,189,000
Reno Parking Garage.................... Reno, Nevada 2,738,000
Houston Project........................ Houston, Texas 2,513,000
Corinth Tract.......................... Ft. Worth, Texas 33,000
Kansas City Tracts..................... Olathe, Kansas 2,118,000
Shopping Center Interest............... Gillette, Wyoming (209,000)
------------------
Total.............................. $ 8,382,000
------------------
------------------
</TABLE>
Quail Run consists of inventory remaining from real estate development
projects commenced by Scout. The four homes remaining at March 31, 1998 have
been listed for sale at prices ranging from $529,000 to $545,000. SLH is
actively involved in marketing these properties and anticipates that the
remaining inventory could 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
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$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 at March 31, 1998 consists of an aggregate of approximately
392 acres, with 370 acres in Houston, Texas comprising the Houston Project, 13
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 13 acres
near the intersection of Interstate Highway 35 and 119th Street in the
southwestern section of the Kansas City metropolitan area. During the quarter
ending March 31, 1998, approximately 3 acres were sold for $800,000. As of March
31, 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 million at March 31, 1998 and an investment
in a privately held venture capital limited partnership having a carrying value
at March 31, 1998, of $530,000. SLH plans to liquidate all of these investments
in an orderly manner to maximize their value to stockholders.
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 $5.7 million, including interest. An appeal of the
judgment was heard on May 20, 1998 and a decision is expected before the end of
this year. 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,
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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 June 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."
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.
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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 $5.7 million
as of March 31, 1998. 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. The appeal
was heard on May 20, 1998, and a final decision is expected 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. In May 1998, SLH received a refund
in the amount of $5,966,000, including interest, for the 1986-1989 years. This
refund, which is primarily due to SLH's real estate operations, resulted in $5.1
million of tax benefits for 1997 and $1.7 million of tax benefits and interest
income in the first quarter of 1998. A refund of approximately $436,000 is being
processed by the IRS for the 1990 year.
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 the first quarter
of 1998.
Although SLH has settled potential liabilities to the IRS and California for
the tax years in question, the settlement made it necessary for SLH to file
amended tax returns in certain states to reflect the results of the settlement.
Approximately $20,000 was paid with the amended state returns and a $170,000
delayed state tax refund is now expected.
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 the first quarter of 1998 with payment of the
settlement being made by Scout'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
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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.
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, and
the SLH Quarter Report on Form 10-Q for the quarterly period ending March 31,
1998, 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.
FIRST QUARTER OF 1998 COMPARED TO FIRST QUARTER OF 1997
Real estate revenues in the first quarter of 1998 were $3.2 million as
compared with $4.2 million in the first quarter of 1997. The real estate sales
revenues in 1998 include the sale of 5 residential units in New Mexico totaling
$2.2 million, and approximately 3 acres of undeveloped land zoned for retail use
in Kansas for $800,000. In 1997, the real estate sales revenue included the sale
of 10 residential units in Florida, New Mexico and Texas totaling $1.8 million
and 547 acres of undeveloped land in Texas for $2.2 million. Real estate rental
and other revenues were approximately the same in both the first quarters of
1998 and 1997.
At March 31, 1998, real estate holdings include undeveloped commercial and
residential 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 400 acres and approximately 35 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 the real estate sales in the first quarter of 1998 totaled $2.9
million, compared with a cost of approximately $4 million in the first quarter
of 1997, reflecting the mix of real estate sold during each period as discussed
above in the revenue analysis. Real estate operating expenses totaled $323,000
in 1998, compared with $745,000 in 1997. The decrease is attributable to a
reduction in expenses associated with the completion of the residential projects
and the inventory reductions.
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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.
A net impairment loss of $179,000 in the first quarter of 1997 was recorded on
real estate held for sale. The impairment loss 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 million in the first quarter
of 1998 as compared to $333,000 in the first quarter of 1997. General and
administrative expenses in SLH's statements of operations for 1997 included a
$250,000 estimated allocation of Lab Holdings' actual costs. The increase in
general and administrative expenses during 1998 primarily reflects costs
associated with the proposed merger of SLH with Syntroleum, expenses of
executive bonuses and slightly increased expenses as a stand alone company in
1998.
The above factors produced a loss from operations of $992,000 in the first
quarter of 1998 and $1.1 million in the first quarter of 1997.
Investment and interest income in the first quarter of 1998 totaled $2.5
million, as compared with $3.2 million in the first quarter of 1997. The first
quarter of 1998 included a gain of approximately $1 million on the sale of
shares of a public company (Watson Pharmaceuticals, Inc.) received as the result
of a merger with one of SLH's venture capital investments. Additionally in 1998,
interest of $856,000 on the federal income tax refunds was recognized resulting
from the IRS finalizing interest calculations. In the first quarter of 1997,
investment income consisted primarily of the sale of shares in the same venture
investment for a gain of approximately $3 million.
Interest expense decreased to $1,000 in the first quarter of 1998 from
$44,000 in the same period of 1997 primarily due to interest costs last year
associated with state tax issues and the fourth quarter 1997 payment of a real
estate mortgage.
Equity in affiliates' operations produced earnings of $6,000 in 1998,
compared with a loss of $232,000 in the first quarter of 1997. During 1997, the
oil and gas partnership interests were sold. SLH's share of these partnerships'
first quarter 1997 losses totaled $248,000. The real estate joint venture had
earnings of $11,000 in 1998 compared to earnings of $16,000 in 1997.
Equity in earnings of venture capital investment funds totaled $49,000 in
1998 and $58,000 in 1997. These funds are invested in development stage
companies which may cause earnings to be subject to significant variations.
The $34,000 of other income in 1998 primarily consists of gain on sale of
miscellaneous assets and Lab Holdings' services agreement fees, while other
income in 1997 of $266,000 reflects $508,000 in receipts on receivables
accounted for on the cost recovery method and $300,000 for costs associated with
the move of SLH to a new location in 1997.
During the first quarter of 1998, income tax benefits of $913,000 were
recognized after filing amended state income tax returns reflecting the IRS
settlement last year. In the first quarter of 1997, tax benefits of $3,000 were
recorded, as valuation allowances were provided on the remaining federal tax
benefits because utilization within the group was not expected.
The net earnings in the first quarter of 1998 of $2.5 million and $2.2
million in the first quarter of 1997 reflect the above results of operations.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 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
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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 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
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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 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.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 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
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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. During 1995, a $7.9 million net realizable value provision on real
estate was recorded. The loss reflected decreases in sales prices during 1995.
Management believed the decline was other than temporary and therefore recorded
a loss provision on the affected sales inventory.
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 $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 U.S. 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.
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At March 31, 1998, SLH had available $30.3 million in cash and short-term
investments. SLH received a federal income tax net refund of approximately $5.9
million in May of 1998 for the 1986 to 1989 tax years. SLH has been informed
that a federal tax refund of approximately $436,000 for the 1990 tax year is
being processed by the IRS. Current assets totaled approximately $40.2 million
while current liabilities totaled $643,000. Changes in assets and liabilities on
the balance sheet include reductions in the real estate portfolio, the payment
of interest on a state income tax liability and the federal income tax refunds.
Cash provided by operations in the first quarter of 1998 totaled $3.3
million, as compared to $4.7 million in the first quarter of 1997. During 1998,
the net cash provided by operations included $2.5 million of net earnings, $2.6
million of real estate sales, a decrease in short-term investments of $2
million, a $1.3 million decrease in accounts receivable, a $1.5 million decrease
in interest payable and a $1.1 million change in taxes and other items. During
the first quarter of 1997, the net cash provided by operations included $2.2
million of net earnings, $3.8 million of real estate sales and a $1.5 million
increase in notes receivable from sales of real estate.
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 $17.5 million in the first quarter of
1998 reflecting purchases of investments available for sale exceeding sales of
investments by $17.5 million, while the first quarter of 1997 cash used by
investing activities also reflected purchases of investments available for sale
exceeding sales of investments.
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 used by financing activities in the first quarter of 1998 reflects the
net issuance of SLH Common Stock pursuant to SLH's stock option plan, while in
the first quarter of 1997 the cash provided by financing activities represented
the capitalization of SLH by Lab Holdings.
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.
Debt associated with real estate totaled $21,000 at both March 31, 1998 and
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 $6.1 million at March 31, 1998) of an
affiliate which is accounted for on the equity method. SLH's obligation on this
recourse debt is secured by a $3 million United States Treasury Note transferred
to SLH on the Distribution date. A $1.4 million note receivable was prepaid
during the second quarter of 1998, therefore the associated debt of $21,000 was
also prepaid during the second quarter of 1998. See Notes to Consolidated
Financial Statements of SLH which are incorporated by reference for additional
information.
In January 1998, Congress' Joint Committee on Taxation approved the tax
refund issues included in SLH's negotiated tax settlement with the Internal
Revenue Service relating to tax years 1986 through 1990. SLH received a federal
tax refund of approximately $5.6 million which had been accrued at December 31,
1997 (plus interest of $354,000) in May 1998 for the tax years 1986-1989. An
additional refund for the 1990
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tax year is still pending. The settlement required the filing of amended state
income tax returns during 1998 for the tax years 1986 through 1990.
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 is upgrading one
computer system. Management of SLH expects that the total cost for Year 2000
compliance should be approximately $15,000.
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.
SUBSEQUENT EVENT
As described in Item 2 of the SLH Form 10-Q for the quarter ended March 31,
1998, the Assignment and Assumption Agreement between SLH and Lab Holdings
imposes a restriction on the payment of dividends and redemptions of SLH capital
stock that expires on February 28, 1999. On June 1, 1998, SLH and Lab Holdings
agreed that the restrictions would expire upon the effective date of the Merger.
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 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.
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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.
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
127
<PAGE>
(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
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 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.
128
<PAGE>
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
$75,000. The arrangement is terminable by either party on 30 days' notice.
The Merger Agreement contemplates that the Named Executive Officers will
tender their resignations at the Effective Time and that such tender will be
deemed to effect a termination of the Employment Agreements not for cause so
that each will be entitled to receive payments of their base compensation for
the remainder of the term of each of the contracts, all of which expire on March
3, 2000.
STOCK OPTIONS
The table shown below contains information concerning the grant of stock
options under SLH's Stock Option Plan to the Named Executive Officers during
1997. All information has been adjusted to reflect the 1997 and 1998 stock
splits.
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<PAGE>
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED ANNUAL
SECURITIES % OF TOTAL RATES OF STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR OPTION
OPTIONS GRANTED TO EXERCISE TERM
GRANTED EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME (#)(1) FISCAL YEAR ($/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>
130
<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
131
<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
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<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.
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<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 June 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)......................................... 151,229 1.5% 351,440 1.2%
P. Anthony Jacobs(8)....................................... 179,564 1.8% 343,530 1.2%
Steven K. Fitzwater........................................ 82,745 -- 82,745 --
Lan C. Bentsen(9).......................................... 60,372 -- 60,372 --
W. D. Grant(10)............................................ 912,380 9.0% 1,082,484 3.8%
W. T. Grant II(11)......................................... 128,526 1.3% 128,526 --
Michael E. Herman(12)...................................... 115,602 1.1% 214,131 --
David W. Kemper(13)........................................ 25,696 -- 25,696 --
All Directors and Officers as a group of eight(14)......... 1,656,114 16.4% 2,288,924 8.0%
Gotham Partners, L.P.(15) ................................. 493,049 4.9% 746,750 2.6%
110 East 42nd Street, 18th Floor
New York, New York 10017
UMB Bank, n.a.(16) ........................................ 1,473,594 14.6% 1,473,594 5.2%
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
10,074,721 shares outstanding as of June 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 June
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 and all directors and
executive officers as a group, 194,400 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 average closing price of SLH
Common Stock of $23.5625 (based on such average during the five
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<PAGE>
trading days preceding June 1, 1998), which results in an exchange ratio of
1.40757. 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 28,434,994 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 June
1, 1998, less 5,950,000 shares of Syntroleum Common Stock held by SLH),
multiplied by the exchange ratio of 1.40757 and (ii) 10,074,721 shares
outstanding as of June 1, 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 June 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 1.40757.
(5) The percentages represent the total number of shares of SLH Common Stock
shown in the adjacent column divided by 10,074,721, the number of issued
and outstanding shares of SLH Common Stock on June 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 June 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 June 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) 14,024 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 receive
the remainder; and (b) 40,272 shares that are reported herein by UMB Bank,
n.a., that were
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<PAGE>
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 194,400 shares of SLH Common Stock issuable upon the exercise of
stock options granted under the SLH 1997 Stock Incentive Plan that were
exercisable on June 1, 1998 or that become exercisable within 60 days
thereafter.
(15) The shares include 4,008 shares reported in the Gotham Partners, L.P.
Schedule 13D, filed on April 22, 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
18,360,273 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 June 1, 1998 of $23.5625 (the actual number will
depend upon the Exchange Ratio). SLH has 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."
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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.
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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
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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.
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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
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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.
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
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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 SLH Junior Preferred Stock
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
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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.
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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
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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
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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
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(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
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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 generally require 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. However, the
amendment or repeal of or the adoption of provisions that are inconsistent with,
the provisions of 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 and (ii) the number, election and classification of directors
of SLH requires 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. In
addition, the amendment or repeal of, or the adoption of provisions that are
inconsistent with, the provisions of the SLH Articles of Incorporation regarding
votes required for certain business combinations requires 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.
Amendments to the Certificate of Incorporation of Syntroleum require 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.
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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, respectively.
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 provide 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 provide 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 the date of this Joint Proxy
Statement/Prospectus, 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.
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REMOVAL OF DIRECTORS
The SLH bylaws provide 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, any director, or the entire Board of Directors of SLH,
may be removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 80% of the voting power of the then
outstanding shares of SLH Common Stock.
The Syntroleum bylaws provide that any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority of
shares entitled to vote at a regular or special meeting of stockholders.
STOCKHOLDER PROPOSALS
The SLH 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. In general, these
provisions limit the ability of a stockholder to nominate directors or bring
other business before a meeting of stockholders of SLH unless timely written
notice of such nomination or proposed business has been given to the Secretary
of SLH. The advanced notice provisions are more completely described in
"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 Syntroleum bylaws do not establish any advance notice procedures for
stockholders to make nominations of candidates for election as directors or
bring other business before a meeting of stockholders of Syntroleum.
PREFERRED SHARE PURCHASE RIGHTS
Each share of SLH Common Stock to be issued in connection with the Merger
will include one Right that entitles the registered holder to purchase from SLH
one-sixth of one one-hundredth of a share of SLH Junior Preferred Stock at a
price of $125.00 per one one-hundredth of a share, subject to adjustment. As
long as the Rights are attached to the outstanding SLH Common Stock, SLH will
issue one Right with each new share of SLH Common Stock that becomes outstanding
so that all shares will have attached Rights. The Rights may have the effect of
delaying or preventing a change of control of SLH. 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
Syntroleum Common Stock has no similar attached rights.
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
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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.
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.
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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. 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 $23.5625 (which was the average closing
price of the SLH Common Stock during the five
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<PAGE>
trading days immediately preceding June 1, 1998), then the number of shares
reserved for issuance pursuant to the Syntroleum Stock Option Plans will be
increased from 2,189,939 to 3,082,492 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 1,023,914. 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
In June of 1993 Syntroleum adopted the 1993 Stock Option and Incentive Plan
(the "Employee Plan"). In April of 1997 Syntroleum approved certain amendments
to the Employee Plan and in May 1997 the Board of Directors approved additional
amendments to the Employee Plan. As used in this Joint Proxy
Statement/Prospectus, "Employee Plan" includes such plan, as amended. 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 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
153
<PAGE>
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 805,130 shares of SLH
Common Stock (including vested options for 84,456 shares) at a weighted average
exercise price of $11.39 (assuming an Exchange Ratio of 1.40757 based on the
average closing price of the SLH Common Stock during the five trading days
preceding June 1, 1998 of $23.5625). See "Material Provisions of the Merger
Agreement--Treatment of Syntroleum Options."
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
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<PAGE>
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.
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<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 18,909 shares of SLH Common Stock (all of which would be vested) at
a weighted average exercise price of $11.42 (assuming an Exchange Ratio of
1.40757 based on the average closing price of the SLH Common Stock during the
five trading days preceding June 1, 1998 of $23.5625). See "Material 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 eight directors of Syntroleum have
outstanding options under either the Employee Plan or the Director Plan.
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<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 77,416 5.27
Larry J. Weick...................................... 20,000 7.42 28,151 5.27
All current executive officers as a group (7)....... 145,000 10.37 204,097 7.37
All current nonexecutive directors
as a group (6).................................... 9,000 12.00 12,668 8.53
All other employees as a group...................... 220,000 13.11 309,665 9.31
</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 1.40757. 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 1.40757. The 1.40757 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 $23.5625 (based on such average during the five
trading days preceding June 1, 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.
157
<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.
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INDEX TO SYNTROLEUM CORPORATION FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Consolidated Balance Sheets--March 31, 1998 (unaudited) and December 31, 1997 and 1996..................... F-3
Consolidated Statements of Operations--Three Months Ended March 31, 1998 and 1997 (unaudited) and Years
Ended December 31, 1997, 1996 and 1995................................................................... F-4
Consolidated Statements of Stockholders' Equity--Three Months Ended March 31, 1998 (unaudited) and Years
Ended December 31, 1997, 1996 and 1995................................................................... F-5
Consolidated Statements of Cash Flows--Three Months Ended March 31, 1998 and 1997 (unaudited) and 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
MARCH 31, ------------- -------------
1998
--------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................ $ 7,862,047 $ 10,157,924 $ 881,593
Accounts receivable from joint development activities (Notes 1
and 8)......................................................... 183,428 429,238 --
Prepaids and other............................................... 77,626 35,182 6,302
-------------- ------------- -------------
Total current assets......................................... 8,123,101 10,622,344 887,895
PROPERTY AND EQUIPMENT, net (Note 1)............................... 1,603,477 1,244,522 521,071
INTEREST RECEIVABLE FROM OFFICERS (Note 2)......................... 21,075 8,430 91,884
OTHER ASSETS, net.................................................. 270,398 215,788 51,640
-------------- ------------- -------------
$ 10,018,051 $ 12,091,084 $ 1,552,490
-------------- ------------- -------------
-------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................. $ 476,931 $ 676,823 $ 191,971
Accrued liabilities.............................................. 171,855 99,209 95,000
-------------- ------------- -------------
Total current liabilities.................................... 648,786 776,032 286,971
CONVERTIBLE DEBENTURE (Note 5)..................................... -- -- 1,000,000
OTHER NONCURRENT LIABILITIES....................................... 60,542 59,701 --
DEFERRED REVENUE (Note 1).......................................... 11,000,000 11,000,000 --
COMMITMENTS (Note 6)............................................... -- -- --
MINORITY INTEREST (Note 1)......................................... 2,478,415 1,497,070 --
-------------- ------------- -------------
14,187,743 13,332,803 1,286,971
-------------- ------------- -------------
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...... 18,996 18,996 18,311
Additional paid-in capital....................................... 14,254,347 14,254,347 6,140,786
Notes receivable from sale of common stock....................... (698,600) (698,600) (700,000)
Accumulated deficit.............................................. (17,733,305) (14,805,332) (5,193,578)
-------------- ------------- -------------
(4,158,562) (1,230,589) 265,519
Less-treasury stock, 1,500 shares at cost........................ (11,130) (11,130) --
-------------- ------------- -------------
Total stockholders' equity................................... (4,169,692) (1,241,719) 265,519
-------------- ------------- -------------
$ 10,018,051 $ 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 THREE MONTHS ENDED
MARCH 31, FOR THE YEARS ENDED DECEMBER 31,
----------------------------- --------------------------------------------
1998 1997 1997 1996 1995
------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
OPERATING REVENUES.............................. $ 385,094 $ 481,121 $ 2,007,440 $ 615,857 $ 45,000
------------- -------------- ------------- -------------- -------------
OPERATING EXPENSES:
Pilot plant and research and development (Note
1).......................................... 724,158 373,281 2,846,558 1,120,178 670,823
Catalyst services (Note 6).................... -- -- 4,799,600 -- --
General and administrative.................... 2,653,422 413,727 4,250,185 1,401,538 567,819
Depreciation and amortization................. 55,307 2,444 76,032 18,830 12,196
------------- -------------- ------------- -------------- -------------
Total operating expenses.................. 3,432,887 789,452 11,972,375 2,540,546 1,250,838
------------- -------------- ------------- -------------- -------------
INCOME (LOSS) FROM OPERATIONS................... (3,047,793) (308,331) (9,964,935) (1,924,689) (1,205,838)
------------- -------------- ------------- -------------- -------------
INTEREST INCOME (EXPENSE):
Interest income............................... 101,165 17,718 372,250 82,709 51,343
Interest expense.............................. -- (21,707) (21,999) (95,000) --
Other......................................... -- -- -- (379) 8,713
------------- -------------- ------------- -------------- -------------
Net other income (expense)................ 101,165 (3,989) 350,251 (12,670) 60,056
------------- -------------- ------------- -------------- -------------
INCOME (LOSS) BEFORE MINORITY INTEREST.......... (2,946,628) (312,320) (9,614,684) (1,937,359) (1,145,782)
MINORITY INTEREST IN LOSS OF SUBSIDIARY......... 18,655 -- 2,930 -- --
------------- -------------- ------------- -------------- -------------
NET INCOME (LOSS)............................... $ (2,927,973) $ (312,320) $ (9,611,754) $ (1,937,359) $ (1,145,782)
------------- -------------- ------------- -------------- -------------
------------- -------------- ------------- -------------- -------------
NET INCOME (LOSS) PER SHARE-- Basic and
diluted....................................... $ (0.15) $ (0.02) $ (0.52) $ (0.11) $ (0.07)
------------- -------------- ------------- -------------- -------------
------------- -------------- ------------- -------------- -------------
WEIGHTED AVERAGE SHARES OUTSTANDING............. 18,993,950 18,335,590 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)
NET INCOME (LOSS)
(unaudited)................. -- -- -- -- (2,927,973) -- (2,927,973)
----------- ------- ----------- ---------------- ------------- --------- -------------
BALANCE, MARCH 31, 1998
(unaudited)................. 18,995,450 $18,996 $14,254,347 $(698,600) $(17,733,305) $(11,130) $ (4,169,692)
----------- ------- ----------- ---------------- ------------- --------- -------------
----------- ------- ----------- ---------------- ------------- --------- -------------
</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 THREE MONTHS
ENDED MARCH 31, FOR THE YEARS ENDED DECEMBER 31,
-------------------------- -------------------------------------------
1998 1997 1997 1996 1995
------------- ----------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,927,973) $ (312,320) $ (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 21,708 -- --
Minority interest in loss of
subsidiary........................ (18,655) -- (2,930) -- --
Depreciation and amortization....... 55,307 2,444 76,032 18,830 12,196
Writedown of property and
equipment......................... -- -- 414,170 199,104 --
Changes in assets and liabilities--
Accounts receivable............... 245,809 (257,963) (429,238) -- --
Prepaids and other................ (42,444) (3,338) (28,880) (1,091) (1,327)
Other assets...................... (56,277) -- (38,296) -- --
Interest receivable from
officers........................ (12,645) (10,555) (47,151) (42,223) (32,973)
Accounts payable.................. (199,891) 94,480 484,852 13,535 168,795
Accrued liabilities............... 72,687 (93,522) 75,693 89,681 3,502
Deferred revenue.................. -- -- 11,000,000 -- (7,500)
------------- ----------- ------------- ------------- -------------
Net cash provided by (used in)
operating activities.......... (2,884,082) (559,066) 6,747,814 (1,659,523) (1,003,089)
------------- ----------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment... (407,941) (9,592) (1,114,098) (213,875) (6,113)
------------- ----------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under capital lease.......... (3,854) -- (11,585) -- --
Minority interest investment in
subsidiary.......................... 1,000,000 -- 1,500,000 -- --
Proceeds from issuance of convertible
debenture........................... -- -- -- 1,000,000 --
Proceeds from sale of common stock.... -- 159,509 2,163,930 1,500,004 1,246,825
Proceeds from notes receivable........ -- -- 1,400 -- --
Treasury stock purchased.............. -- (11,130) (11,130) -- --
------------- ----------- ------------- ------------- -------------
Net cash provided by financing
activities.................... 996,146 148,379 3,642,615 2,500,004 1,246,825
------------- ----------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH......... (2,295,877) (420,279) 9,276,331 626,606 237,623
CASH AND CASH EQUIVALENTS, beginning of
period................................ 10,157,924 881,593 881,593 254,987 17,364
------------- ----------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of
period................................ $ 7,862,047 $ 461,314 $ 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
(UNAUDITED AS TO INFORMATION FOR MARCH 31, 1998 AND 1997)
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 because the contract provides that revenue is
earned as the expenses under the contract are incurred. Substantially all
revenues for the years ended December 31, 1997, 1996 and 1995 have been from
joint development activities with a single major oil company (see Note 8). All
joint development activities with other companies during the three months ended
March 31, 1998 and the year ended December 31, 1997, were pursuant to joint
research and development agreements where the Company expensed its research and
development costs as incurred.
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.
F-7
<PAGE>
SYNTROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO INFORMATION FOR MARCH 31, 1998 AND 1997)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
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
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------
1998 1997 1996
------------ ------------ ----------
<S> <C> <C> <C>
Furniture and office equipment........................ $ 1,181,459 $ 954,834 $ 196,334
Leasehold improvements................................ 227,775 213,455 --
Construction in progress.............................. 394,320 223,417 400,642
------------ ------------ ----------
1,803,554 1,391,706 596,976
Less--accumulated depreciation........................ $ 200,077 147,184 75,905
------------ ------------ ----------
$ 1,603,477 $ 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 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Patents.................................................... $ 143,974 $ 103,815 $ 71,699
Notes receivable from officers............................. 130,604 130,604 --
Other...................................................... 25,000 8,882 2,701
---------- ---------- ---------
299,578 243,301 74,400
Less--accumulated amortization............................. 29,180 27,513 22,760
---------- ---------- ---------
$ 270,398 $ 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.
F-8
<PAGE>
SYNTROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO INFORMATION FOR MARCH 31, 1998 AND 1997)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company follows the provisions of SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
The Company makes assessments of impairment on a project-by-project basis.
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 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <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 --
---------- ---------- ----------
$ 698,600 $ 698,600 $ 700,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-9
<PAGE>
SYNTROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO INFORMATION FOR MARCH 31, 1998 AND 1997)
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.
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.
F-10
<PAGE>
SYNTROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO INFORMATION FOR MARCH 31, 1998 AND 1997)
4. SUPPLEMENTAL CASH FLOW INFORMATION: (CONTINUED)
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.
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 services rendered to the Company in 1997 and test
catalysts received by the Company from the manufacturer and used prior to
December 31, 1997. 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 March 31, 1998, the Company
has not purchased any catalyst from the manufacturer (other than test
catalysts).
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 March 31, 1998 and December 31, 1997, the Company
has spent approximately $298,000 and $16,000, respectively.
F-11
<PAGE>
SYNTROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO INFORMATION FOR MARCH 31, 1998 AND 1997)
6. COMMITMENTS: (CONTINUED)
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 (189,955 and 183,111 as of March 31,
1998 and December 31, 1997, respectively) 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 March 31, 1998 and
December 31, 1997, 1,444,521 and 1,639,111 shares, respectively, 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.............................................................. 415,500 11.78
Exercised............................................................ (21,500) 7.42
Expired.............................................................. (212,500) 0.43
---------- -----------
OUTSTANDING AT DECEMBER 31, 1997....................................... 544,000 8.97
Granted.............................................................. 203,434 23.80
Expired.............................................................. (2,000) 12.00
---------- -----------
OUTSTANDING AT MARCH 31, 1998.......................................... 745,434 $ 13.22
---------- -----------
---------- -----------
</TABLE>
F-12
<PAGE>
SYNTROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO INFORMATION FOR MARCH 31, 1998 AND 1997)
7. COMMON STOCK OPTIONS: (CONTINUED)
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 months ended March 31, 1998
and 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 Company's net income (loss) and income (loss) per share
would have increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED DECEMBER 31,
ENDED MARCH 31, --------------------------------------------
1998 1997 1996 1995
---------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
NET INCOME (LOSS):
As reported.................................... $ (2,927,973) $ (9,611,754) $ (1,937,359) $ (1,145,782)
Pro forma...................................... (3,238,760) (10,261,000) (1,955,000) (1,149,000)
BASIC AND DILUTED INCOME (LOSS) PER SHARE:
As reported.................................... $ (0.15) $ (0.52) $ (0.11) $ (0.07)
Pro forma...................................... (0.17) (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 5.60% 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
F-13
<PAGE>
SYNTROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO INFORMATION FOR MARCH 31, 1998 AND 1997)
7. COMMON STOCK OPTIONS: (CONTINUED)
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.
In addition to the options granted as discussed in the paragraph above, the
Company granted options to purchase 179,000 shares of common stock to various
employees of the Company. The options are exercisable at costs ranging from
$23.79 to $24.32 per share. All options were, in the opinion of management,
granted at fair market value at the date of grant.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ----------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE ------------------------------
OPTION REMAINING WEIGHTED AVERAGE
OPTIONS EXERCISE CONTRACTUAL LIFE (IN OPTIONS EXERCISE PRICE
OUTSTANDING PRICE YEARS) EXERCISABLE PER SHARE
- ----------- ----------- --------------------- ----------- -----------------
<S> <C> <C> <C> <C>
140,000 $ 0.50 2.3 140,000 $ 0.50
105,000 7.42 8.0 50,001 7.42
257,000 12.00 9.2 19,000 12.00
243,434 23.91 9.8 -- 23.91
- ----------- -----------
745,434 217,333
- ----------- -----------
- ----------- -----------
</TABLE>
8. SIGNIFICANT CUSTOMERS:
Substantially all of the Company's operating revenues in the three months
ended March 31, 1998 and in the years ended December 31, 1997, 1996 and 1995
were from a single major oil company. The Company has signed 15-year master
license agreements with three different major oil companies dated September 25,
1996, March 7, 1997 and April 10, 1997, respectively. The Company has signed a
15-year volume license agreement with an international oil company dated August
1, 1997 and volume license agreements with two large independent oil companies
dated January 12, 1998 and February 4, 1998, respectively. The license
agreements allow the oil companies to use the Syntroleum Process in their
production of synthetic crude oil and fuels primarily outside of North America.
Syntroleum received an aggregate of $9 million and rights to certain
technologies in connection with these license agreements. The Company also
received from a licensee a separate nonrefundable payment of $2 million 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 March 31, 1998 and
December 31, 1997.
Under these license agreements, a licensee obtains the right to use the
Syntroleum Process and to acquire catalysts from the Company, secures pricing
terms for future site licenses and obtains rights to future improvements to the
Syntroleum Process. Generally, the amount of the license fee for site licenses
under the Company's master and volume 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) the Company's per barrel rate. Initial cash deposits under the
Company's license agreements are credited against future site license fees. (See
Note 1.)
The Company has entered into joint ventures with various parties, including
certain licensees, to develop a small commercial plant using the Syntroleum
Process in Wyoming and a small commercial plant using the Syntroleum Process at
an as yet undetermined location. In addition, the Company conducts a
F-14
<PAGE>
SYNTROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO INFORMATION FOR MARCH 31, 1998 AND 1997)
8. SIGNIFICANT CUSTOMERS: (CONTINUED)
portion of its research and development activities through joint development
agreements with its licensees and other industry partners. The terms of these
agreements vary, but generally provide cost and revenue sharing arrangements
and, in the case of research and development arrangements, ownership by
Syntroleum of the resulting technology.
9. EVENTS SUBSEQUENT TO DECEMBER 31, 1997:
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-15
<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.................................................................. A-1
1.1 The Merger; Effective Time of the Merger.................................... A-1
1.2 Closing..................................................................... A-1
1.3 Effects of the Merger....................................................... A-1
(a) Surviving Corporation; Charter; Bylaws........................... A-1
(b) Directors and Officers........................................... A-2
(c) Other............................................................ A-2
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE A-2
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 Effect of the Merger on Capital Stock....................................... A-2
(a) Exchange Ratio for Syntroleum Common Stock....................... A-2
(b) Assumption of Syntroleum Stock Options........................... A-3
(c) Adjustment of SLH Stock Options.................................. A-3
(d) Termination of Syntroleum Shareholder Agreements................. A-3
2.2 Exchange of Certificates.................................................... A-4
(a) Exchange Agent................................................... A-4
(b) Exchange Procedures.............................................. A-4
(c) Distributions with Respect to Unexchanged Shares................. A-4
(d) No Further Ownership Rights in Syntroleum Common Stock........... A-5
(e) No Fractional Shares............................................. A-5
(f) Termination of Exchange Fund..................................... A-5
(g) No Liability..................................................... A-5
2.3 Dissenting Shares........................................................... A-5
ARTICLE III REPRESENTATIONS AND WARRANTIES.............................................. A-6
3.1 Representations and Warranties of Syntroleum................................ A-6
(a) Organization, Standing and Power................................. A-6
(b) Capital Structure................................................ A-6
(c) Non-Subsidiaries Equity Investment............................... A-7
(d) Authority; No Violations; Consents and Approvals................. A-7
(e) Financial Statements............................................. A-8
(f) Information Supplied............................................. A-9
(g) Absence of Certain Changes or Events............................. A-9
(h) No Undisclosed Material Liabilities.............................. A-9
(i) Material Contracts; No Defaults.................................. A-10
(j) Compliance with Applicable Laws.................................. A-11
(k) Litigation....................................................... A-11
(l) Taxes............................................................ A-11
(m) Pension and Benefit Plans; ERISA................................. A-12
(n) Labor Matters.................................................... A-14
(o) Intangible Property.............................................. A-14
(p) Environmental Matters............................................ A-15
(q) Opinion of Financial Advisor..................................... A-17
</TABLE>
A-i
<PAGE>
<TABLE>
<S> <C> <C> <C>
(r) Vote Required.................................................... A-17
(s) Insurance........................................................ A-17
(t) Brokers.......................................................... A-17
(u) Tax Matters...................................................... A-17
(v) Title............................................................ A-17
(w) Books and Records................................................ A-17
(x) Certain Payments................................................. A-17
(y) Transactions with Related Parties................................ A-18
(z) State Takeover Laws.............................................. A-18
(aa) Year 2000........................................................ A-18
3.2 Representations and Warranties of SLH....................................... A-18
(a) Organization, Standing and Power................................. A-18
(b) Capital Structure................................................ A-18
(c) Non-Subsidiaries Equity Investment............................... A-19
(d) Authority; No Violations; Consents and Approvals................. A-19
(e) SEC Documents.................................................... A-20
(f) Information Supplied............................................. A-21
(g) Absence of Certain Changes or Events............................. A-21
(h) No Undisclosed Material Liabilities.............................. A-22
(i) Material Contracts; No Defaults.................................. A-22
(j) Compliance with Applicable Laws.................................. A-22
(k) Litigation....................................................... A-22
(l) Taxes............................................................ A-23
(m) Pension and Benefit Plans; ERISA................................. A-24
(n) Labor Matters.................................................... A-25
(o) Intangible Property.............................................. A-26
(p) Environmental Matters............................................ A-26
(q) Opinion of Financial Advisor..................................... A-27
(r) Vote Required.................................................... A-27
(s) Insurance........................................................ A-27
(t) Brokers.......................................................... A-27
(u) Tax Matters...................................................... A-27
(v) Title............................................................ A-28
(w) Books and Records................................................ A-28
(x) Certain Payments................................................. A-28
(y) Transactions with Related Parties................................ A-28
(z) State Takeover Laws and SLH Rights Plan.......................... A-28
(aa) Year 2000........................................................ A-28
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS................................... A-28
4.1 Conduct of Business by Syntroleum Pending the Merger........................ A-28
(a) Ordinary Course.................................................. A-29
</TABLE>
A-ii
<PAGE>
<TABLE>
<S> <C> <C> <C>
(b) Dividends; Changes in Stock...................................... A-29
</TABLE>
<TABLE>
<CAPTION>
(c) Issuance of Securities......................................... A-29
<S> <C> <C> <C>
(d) Governing Documents............................................ A-29
(e) No Acquisitions................................................ A-29
(f) No Dispositions................................................ A-29
(g) No Dissolution, Etc............................................ A-29
(h) Certain Employee Matters....................................... A-30
(i) Indebtedness; Leases; Capital Expenditures..................... A-30
(j) No Solicitation................................................ A-30
Conduct of Business by SLH Pending the Merger.............................
4.2 A-31
(a) Ordinary Course................................................ A-31
(b) Dividends; Changes in Stock.................................... A-31
(c) Issuance of Securities......................................... A-31
(d) Governing Documents............................................ A-31
(e) No Acquisitions................................................ A-31
(f) No Dispositions................................................ A-31
(g) No Dissolution, Etc............................................ A-32
(h) Certain Employee Matters....................................... A-32
(i) Indebtedness; Leases; Capital Expenditures..................... A-32
(j) No Solicitation................................................ A-32
ADDITIONAL AGREEMENTS.....................................................
ARTICLE V A-33
Preparation of S-4 and the Proxy Statement................................
5.1 A-33
Letter of Syntroleum's Accountants........................................
5.2 A-33
Letter of SLH's Accountants...............................................
5.3 A-33
Access to Information.....................................................
5.4 A-33
Stockholders Meetings.....................................................
5.5 A-34
Legal Conditions to Merger................................................
5.6 A-34
Agreements of Others......................................................
5.7 A-34
Listing...................................................................
5.8 A-34
Board of Directors and Officers...........................................
5.9 A-34
Stock Options; Reservation and Registration of Shares.....................
5.10 A-35
Indemnification; Directors' and Officers' Insurance.......................
5.11 A-35
Public Announcements......................................................
5.12 A-36
Other Actions.............................................................
5.13 A-36
Advice of Changes; SEC Filings............................................
5.14 A-36
Reorganization............................................................
5.15 A-37
Termination of Certain SLH Employees......................................
5.16 A-37
CONDITIONS PRECEDENT......................................................
ARTICLE VI A-37
Conditions to Each Party's Obligation to Effect the Merger................
6.1 A-37
(a) Stockholder Approval........................................... A-37
(b) Listing........................................................ A-37
(c) Other Approvals................................................ A-37
(d) S-4............................................................ A-37
</TABLE>
A-iii
<PAGE>
<TABLE>
<S> <C> <C> <C>
(e) No Injunctions or Restraints................................... A-37
(f) Dissenters..................................................... A-37
(g) Accounting Treatment........................................... A-37
(h) Tax Opinion.................................................... A-38
Conditions of Obligations of SLH..........................................
6.2 A-38
(a) Representations and Warranties................................. A-38
(b) Performance of Obligations of Syntroleum....................... A-38
(c) No Vesting of Syntroleum Stock Options......................... A-38
(d) Fairness Opinion............................................... A-38
(e) Officers' Certificate.......................................... A-38
(f) Letters from Affiliates........................................ A-38
(g) Opinion of Counsel to Syntroleum............................... A-38
Conditions of Obligations of Syntroleum...................................
6.3 A-39
(a) Representations and Warranties................................. A-39
(b) Performance of Obligations of SLH.............................. A-39
(c) Fairness Opinion............................................... A-39
(d) Officers' Certificate.......................................... A-39
(e) Board of Directors and Officers at the Effective Time.......... A-39
(f) Opinion of Counsel to SLH...................................... A-39
(g) Consents of Optionees.......................................... A-39
TERMINATION AND AMENDMENT.................................................
ARTICLE VII A-39
Termination...............................................................
7.1 A-39
Effect of Termination.....................................................
7.2 A-41
Amendment.................................................................
7.3 A-41
Extension; Waiver.........................................................
7.4 A-41
GENERAL PROVISIONS........................................................
ARTICLE VIII A-41
Payment of Expenses.......................................................
8.1 A-41
Nonsurvival of Representations, Warranties and Agreements.................
8.2 A-41
Notices...................................................................
8.3 A-41
Interpretation............................................................
8.4 A-42
Counterparts..............................................................
8.5 A-43
Entire Agreement; No Third Party Beneficiaries............................
8.6 A-43
Governing Law.............................................................
8.7 A-43
Severability..............................................................
8.8 A-43
Assignment................................................................
8.9 A-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>
A-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>
A-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>
A-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>
A-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.
A-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
A-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.
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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
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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
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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
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"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
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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
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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
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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
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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
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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
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(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;
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(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
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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
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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.
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(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.
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(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
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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
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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
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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
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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
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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.
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(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
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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
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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
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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.
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(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):
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(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.
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(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
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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
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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
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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,
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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
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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
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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
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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
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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.
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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
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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.
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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:
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(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
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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.
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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>
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<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
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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
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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
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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.
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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.
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APPENDIX D
SECTION 1091 OF THE OKLAHOMA GENERAL CORPORATION ACT
1091 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.
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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
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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,
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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.)
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APPENDIX E
SYNTROLEUM CORPORATION
1993 STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE
The Syntroleum Corporation 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 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 Syntroleum Corporation.
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 Syntroleum Corporation.
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 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.
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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 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 Act 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.
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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. 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.
5. SHARES SUBJECT TO PLAN
The Company hereby reserves 2,000,000 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.
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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.
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.
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.
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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 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, disability or retirement, no
provision shall permit an Option to be exercised after 30 days following 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;
and
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(iv) no provision shall permit an Option or SAR to be exercised after
the date which is three years following the Grantee's retirement from the
Company or a Subsidiary.
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.
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.
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:
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(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.
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 an
Option, 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 an Option 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
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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.
14. EFFECTIVE DATE OF THE PLAN AND DURATION
14.1 The Plan shall become effective on May 10, 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 April 30, 2003. 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.
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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 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,
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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 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 an 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:
(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.
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(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 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.
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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.
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.
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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 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.
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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.
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 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
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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).
5.3 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
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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 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
F-5
<PAGE>
(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 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 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,
F-6
<PAGE>
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 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.
F-7
<PAGE>
[Photograph of Syntroleum Pilot Plant in Tulsa, Oklahoma.]
[Block flow diagram illustrating the Syntroleum Process.]
[Graphic depicting synthetic crude oil as clear.]
<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
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<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
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<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.
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<PAGE>
SIGNATURES
Pursuant to requirements of the Securities Act of 1933, the Registrant has
duly caused this Pre-Effective Amendment No. 1 to the 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 5th day of June, 1998.
<TABLE>
<S> <C> <C>
SLH CORPORATION
By /s/ JAMES R. SEWARD
-----------------------------------------
James R. Seward,
PRESIDENT
</TABLE>
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 Officer) June 5, 1998
James R. Seward and Director
/s/ P. ANTHONY JACOBS
------------------------------------------- Chairman of the Board and Director June 5, 1998
P. Anthony Jacobs*
Vice President, Treasurer, Secretary and
/s/ STEVEN K. FITZWATER Chief Financial and Accounting Officer
------------------------------------------- and Director (Principal Financial and June 5, 1998
Steven K. Fitzwater Accounting Officer)
/s/ LAN C. BENTSEN
------------------------------------------- Director June 5, 1998
Lan C. Bentsen*
/s/ W. D. GRANT
------------------------------------------- Director June 5, 1998
W. D. Grant*
/s/ W. T. GRANT II
------------------------------------------- Director June 5, 1998
W. T. Grant II*
/s/ MICHAEL E. HERMAN
------------------------------------------- Director June 5, 1998
Michael E. Herman*
/s/ DAVID W. KEMPER
------------------------------------------- Director June 5, 1998
David W. Kemper*
</TABLE>
* Signed by Steven K. Fitzwater, as Attorney-In-Fact for the person indicated,
pursuant to the power of attorney appearing on the signature page of the
Registration Statement.
II-5
<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 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.
4.3 Certificate of Designations of Series A Junior Participating Preferred Stock of SLH Corporation, dated
February 19, 1997, together with Statement of Increase, dated June 1, 1998.
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 Opinion of Lathrop & Gage L.C. concerning the legality of the securities being registered.
5.2 Certificate of officers of SLH relative to the opinion referred to in Exhibit 5.1.
8.1 Form of opinion of Baker & Botts, L.L.P. concerning the tax consequences of the Merger.
*10.1 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 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 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).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
*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).
<C> <S>
**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.
**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 Amended and Restated Employment Agreement between Syntroleum and Kenneth L. Agee.
10.16 Amended and Restated Employment Agreement between Syntroleum and Mark A. Agee.
10.17 Amended and Restated Employment Agreement between Syntroleum and Charles A. Bayens.
10.18 Amended and Restated Employment Agreement between Syntroleum and Eric Grimshaw.
10.19 Amended and Restated Employment Agreement between Syntroleum and Peter Snyder.
10.20 Amended and Restated Employment Agreement between Syntroleum and Randall M. Thompson.
10.21 Amended and Restated Employment Agreement between Syntroleum and Larry Weick.
10.22 Master Preferred License Agreement dated September 25, 1996 between Syntroleum and Texaco Natural Gas,
Inc.
10.23 Master Preferred License Agreement dated March 7, 1997 between Syntroleum and Marathon Oil Company.
10.24 Master Preferred License Agreement dated April 10, 1997 between Syntroleum and Atlantic Richfield
Company.
10.25 Volume License Agreement dated August 1, 1997 between Syntroleum and YPF International, Ltd.
10.26 Volume License Agreement dated February 4, 1998 between Syntroleum and Kerr-McGee Corporation.
10.27 Volume License Agreement dated January 12, 1998 between Syntroleum and Enron Capital & Trade Resources
Corp.
10.28 Site License Agreement dated January 12, 1998 between Syntroleum and Syntroleum/ Sweetwater Company,
L.L.C.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
10.29 Lab Holdings, Inc. Facilities Sharing and Interim Services Agreement, dated as of June 1, 1998.
<C> <S>
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.
+23.7 Consent of Alvin R. Albe, Jr. as person to become a director.
+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.
27.2 Syntroleum's Financial Data Schedule for the three months ended March 31, 1998.
**99.1 Form of proxy card of SLH Corporation.
**99.2 Form of proxy card of Syntroleum Corporation.
</TABLE>
- ------------------------
* Incorporated by reference as indicated.
** Previously Filed.
+ To be filed by amendment.
II-8
<PAGE>
CERTIFICATE OF DESIGNATIONS OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK OF
SLH CORPORATION
(Pursuant to Section 17-6401 of the Kansas General Corporation Code)
SLH Corporation, a corporation organized and existing under the General
Corporation Code of the State of Kansas (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 17-6401 of
the General Corporation Code at a meeting duly called and held on February
12, 1997:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the
Certificate of Incorporation, the Board of Directors hereby creates a series
of Preferred Stock, par value $0.01 per share (the "Preferred Stock"), of the
Corporation and hereby states the designation and number of shares, and fixes
the relative rights, preferences, and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A
Preferred Stock shall be 50,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of Series A Preferred Stock to a number
less than the number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Corporation convertible into Series A Preferred Stock.
SECTION 2. DIVIDENDS AND DISTRIBUTIONS. (A) Subject to the rights of
the holders of any shares of any series of Preferred Stock (or any similar
stock) ranking prior and superior to the Series A Preferred Stock with
respect to dividends, the holders of shares of Series A Preferred Stock, in
preference to the holders of Common Stock, par value $0.01 per share (the
"Common Stock"), of the Corporation, and of any other junior stock, shall be
entitled to receive, when, as and if declared by the Board of Directors out
of funds legally available for the purpose, quarterly dividends payable in
cash on the first day of March, June, September and December in each year
(each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the
first issuance of a share or fraction of a share of Series A Preferred Stock,
in an amount per share
<PAGE>
(rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject
to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a
share of Series A Preferred Stock. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior
to such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event. (B) The Corporation shall
declare a dividend or distribution on the Series A Preferred Stock as
provided in paragraph (A) of this Section immediately after it declares a
dividend or distribution on the Common Stock (other than a dividend payable
in shares of Common Stock); provided that, in the event no dividend or
distribution shall have been declared on the Common Stock during the period
between any Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $1 per share on the Series A Preferred
Stock shall nevertheless be payable on such subsequent Quarterly Dividend
Payment Date. (C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares, unless the date
of issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is
a Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board
of Directors may fix a record date for the determination of holders of shares
of Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than 60
days prior to the date fixed for the payment thereof.
2
<PAGE>
SECTION 3. VOTING RIGHTS. The holders of shares of Series A Preferred
Stock shall have the following voting rights: (A) Subject to the provision
for adjustment hereinafter set forth, each share of Series A Preferred Stock
shall entitle the holder thereof to 100 votes on all matters submitted to a
vote of the stockholders of the Corporation. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case
the number of votes per share to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event. (B) Except as otherwise
provided herein, in any other Certificate of Designations creating a series
of Preferred Stock or any similar stock, or by law, the holders of shares of
Series A Preferred Stock and the holders of shares of Common Stock and any
other capital stock of the Corporation having general voting rights shall
vote together as one class on all matters submitted to a vote of stockholders
of the Corporation. (C) Except as set forth herein, or as otherwise provided
by law, holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for taking
any corporate action.
SECTION 4. CERTAIN RESTRICTIONS. (A) Whenever quarterly dividends or
other dividends or distributions payable on the Series A Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation,
3
<PAGE>
dissolution or winding up) to the Series A Preferred Stock, provided
that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes. (B) The
Corporation shall not permit any subsidiary of the Corporation to purchase
or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
SECTION 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All
such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock subject to the conditions and restrictions on issuance set
forth herein, in the Certificate of Incorporation, or in any other
Certificate of Designations creating a series of Preferred Stock or any
similar stock or as otherwise required by law.
SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made
(1) to the holders of shares of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series A Preferred
Stock unless, prior thereto, the holders of shares of Series A Preferred
Stock shall have received $100 per share, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not declared, to the
date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares
of Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with
the Series A Preferred Stock, except distributions made ratably on the Series
A Preferred Stock and all such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Corporation shall at
any
4
<PAGE>
time declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the aggregate amount
to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under the proviso in clause (1) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
SECTION 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such case
each share of Series A Preferred Stock shall at the same time be similarly
exchanged or changed into an amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series A
Preferred Stock shall be adjusted by multiplying such amount by a fraction,
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
SECTION 8. NO REDEMPTION. The shares of Series A Preferred Stock shall
not be redeemable.
SECTION 9. RANK. The Series A Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to all
series of any other class of the Corporation's Preferred Stock.
SECTION 10. AMENDMENT. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter
or change the powers, preferences or special rights of the Series A Preferred
Stock so as to affect them adversely without the affirmative vote of the
holders of at least two-thirds of the outstanding shares of Series A
Preferred Stock, voting together as a single class.
5
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf
of the Corporation by its Chairman of the Board and attested by its Secretary
this 19th day of February, 1997.
/s/ P. Anthony Jacobs
------------------------------
P. Anthony Jacobs,
Chairman of the Board
ATTEST:
/s/ Steven K. Fitzwater
- ------------------------------
Steven K. Fitzwater,
Secretary
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
Personally appeared before me, a Notary Public in and for said county
and state, the above-named P. Anthony Jacobs, who is personally known to me
to be the Chairman of the Board of SLH Corporation and to be the same person
who, acting on behalf of SLH Corporation, executed the foregoing instrument
of writing and duly acknowledged the execution of the same.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
official seal this 19th day of February, 1997.
/s/ Kimberly A. Schaefer
---------------------------------
Notary Public
My commission expires:
Dec. 25, 2000
6
<PAGE>
STATEMENT OF INCREASE IN AUTHORIZED SHARES OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK OF
SLH CORPORATION AS SET FORTH IN
CERTIFICATE OF DESIGNATIONS FILED FEBRUARY 25, 1997
(Pursuant to Section 17-6401(g) of the Kansas General Corporation Code)
SLH Corporation, a corporation organized and existing under the General
Corporation Code of the State of Kansas (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 17-6401(g)
of the General Corporation Code by the unanimous written consent of the Board
of Directors on June 1, 1998:
"RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of SLH Corporation in accordance with the provisions of
the Articles of Incorporation and the Kansas General Corporation Code, the
Board of Directors hereby increases the number of shares of SLH Corporation's
Series A Junior Participating Preferred Stock, as specified in Section 1 of
the Resolution contained in that certain Certificate of Designations of
Series A Junior Participating Preferred Stock of SLH Corporation filed with
the Kansas Secretary of State on February 25, 1997, from 50,000 to 250,000
shares;"
IN WITNESS WHEREOF, this Certificate is executed on behalf of the
Corporation by its President and attested by its Secretary this 3rd day of
June, 1998.
/s/ James R. Seward
------------------------------
James R. Seward,
President
ATTEST:
/s/ Steven K. Fitzwater
- ------------------------------
Steven K. Fitzwater,
Secretary
<PAGE>
STATE OF KANSAS )
) ss.
COUNTY OF JOHNSON )
Personally appeared before me, a Notary Public in and for said county
and state, the above-named James R. Seward and Steven K. Fitzwater, who are
personally known to me to be the President and Secretary, respectively of SLH
Corporation and to be the same persons who, acting on behalf of SLH
Corporation, executed the foregoing instrument of writing and duly
acknowledged the execution of the same.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
official seal this 3rd day of June, 1998.
/s/ Kimberly A. Schaefer
-------------------------------
Notary Public
My commission expires:
7/14/2001
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]
June 5, 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 Securities and Exchange 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, file No. 333-50253, 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>
June 5, 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: /s/ John H. Calvert
----------------------------
John H. Calvert
<PAGE>
EXHIBIT 5.2
OFFICERS CERTIFICATE
OF SLH CORPORATION
Each of the undersigned hereby (a) certifies that, as of the date
hereof, he holds the offices listed below by his signature and is familiar
with the matters referred to herein, and (b) further certifies, on behalf of
SLH Corporation, a Kansas corporation (the Company), as follows:
1. The representations and warranties of the Company set forth in
Article III of the Agreement and Plan of Merger, dated as of March 30,
1998, by and between the Company and Syntroleum Corporation filed as
Exhibit 2.2 to the Form S-4 Registration Statement filed by the Company
on April 16, 1998 (File No. 333-50253), as amended (the "S-4"), are
true and correct as of the date hereof.
2. Exhibit 3.1 to the S-4 are true, correct and complete copies of the
Articles of Incorporation of the Company and all amendments thereto,
which copies are true, correct and complete and in effect as of the date
hereof.
3. Exhibit 3.2 to the S-4 are true, correct and complete copies of the
Bylaws of the Company and all amendments thereto, which copies are true,
correct and complete and in effect as of the date hereof.
4. Exhibit 4.1, 4.2 and 4.3 to the S-4 are true, correct and complete
copies of the Rights Agreement of the Company and all amendments thereto
and the Certificate of Designations of the Company and all amendments
thereto, which copies are true, correct and complete and in effect as of
the date hereof.
IN WITNESS WHEREOF, the undersigned have executed this certificate and
affixed the corporations seal hereto on this 5th day of June, 1998.
/s/ James R. Seward
----------------------------------------
James R. Seward, President and Chief
Executive Officer of SLH Corporation
/s/ Steven K. Fitzwater
----------------------------------------
Steven K. Fitzwater, Vice President,
Chief Accounting and Financial Officer,
Treasurer and Secretary of SLH
Corporation
<PAGE>
BAKER & BOTTS
L.L.P
AUSTIN ONE SHELL PLAZA
DALLAS 910 LOUISIANA
MOSCOW TELEPHONE (713) 229-1234
NEW YORK HOUSTON, TEXAS 77002-4995 FACSIMILE: (713) 229-1522
WASHINGTON, D.C.
GRAY JENNINGS E-MAIL ADDRESS
(713) 229-1640 GRAY [email protected]
June ___, 1998
SLH Corporation
500 West 95th Street, Suite 260
Shawnee Mission, Kansas 66207
Syntroleum Corporation
1350 South Boulder, Suite 1100
Tulsa, Oklahoma 74119
We have represented Syntroleum Corporation, an Oklahoma corporation
("Syntroleum"), in connection with the merger (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"). The Merger is described in a joint proxy
statement/prospectus of SLH and Syntroleum (the "Proxy Statement") which is
included in the Registration Statement on Form S-4, as amended (Registration
No. 333-_____ ) heretofore filed with the Securities and Exchange Commission
(the "Registration Statement"). This letter(1) is being delivered to each of
you 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.
- -------------------------
(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>
SLH Corporation -2- June __, 1998
Syntroleum Corporation
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:
(a) The Merger 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.
(f) A holder of Syntroleum Common Stock who receives cash by
reason the exercise of appraisal rights in respect of all of the
shares of Syntroleum Common Stock which such person owns immediately
prior to the Merger will recognize income or deduction as a result
thereof in an amount which should, as a general matter, be the amount
of cash so received reduced by such holder's basis in the Syntroleum
Common Stock so surrendered.
The foregoing opinions are based upon the current provisions of the Internal
Revenue Code of 1986, as amended and upon certain Treasury regulations, court
decisions and certain rulings of the Internal Revenue Service which have
appeared in the Internal Revenue Cumulative Bulletin.
<PAGE>
SLH Corporation -3- June __, 1998
Syntroleum Corporation
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 such person in connection with
the Merger.
We express no opinion as to the federal income tax consequences of the
Merger if any of the assumptions to our opinion are incorrect, 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 filed with any governmental agency or be used
for any other purpose without our prior written consent except that we hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement and to the references to us under the caption "The Merger--Certain
Material Federal Income Tax Consequences" in the Proxy Statement.
Sincerely,
BAKER & BOTTS, L.L.P.
By:
----------------------------------------
Gray Jennings
<PAGE>
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:
-----------------------------------------
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<PAGE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
CONFIDENTIAL
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is made
and entered into effective as of the 19th day of May, 1998 by and between
Syntroleum Corporation, an Oklahoma corporation (the "Company"), and Kenneth L.
Agee, an individual (the "Employee").
WHEREAS, the Company and Employee, are parties to that certain Employment
Agreement dated November 16, 1988 ("Original Employment Agreement"); and
WHEREAS, the Company and Employee desire to amend and restate the Original
Employment Agreement to continue Employee's employment by the Company on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the Company and Employee hereby agree as follows.
1. EMPLOYMENT AND DUTIES. The Company employs Employee in the capacity
of Chief Executive Officer and Chairman of the Board, or in such other position
and at such location as the Company may direct or desire and Employee hereby
accepts such employment, on the terms and conditions hereinafter set forth.
Employee agrees to perform such services and duties (including reasonable
travel) and hold such offices at such locations as may be reasonably assigned to
him from time to time by the Company and to devote substantially his full
business time, energies and best efforts to the performance thereof to the
exclusion of all other business activities, except any activities disclosed to
the Company in advance and consented to by the Company.
2. COMPENSATION. As compensation for the services to be rendered by
Employee to the Company pursuant to this Agreement, Employee shall be paid the
following compensation and other benefits.
(a) Salary in the amount of $225,000 per year, payable in equal bi-monthly
installments in arrears, or such higher compensation as may be established by
the Company from time to time. Payments of salary shall be made in accordance
with the Company's usual payroll procedures.
(b) Employee shall be eligible to participate, to the extent he may be
eligible, in any group medical and hospitalization, profit sharing, retirement,
life insurance or other employee benefit plans which the Company may from time
to time offer to its employees. All group insurance provided to Employee shall
be in such form and provide such coverage as is provided to other employees of
the Company.
(c) All compensation payments to Employee shall be made subject to normal
deductions therefrom, including federal and state social security and
withholding taxes.
3. LIFE INSURANCE. The Company, in its discretion, may apply for and
procure in its own name and for its own benefit, life insurance on the life of
Employee in any amount or
<PAGE>
amounts considered advisable by the Company. Employee shall submit to any
medical or other examination and execute and deliver any application or other
instrument in writing, reasonably necessary for the Company to acquire such
insurance.
4. EXPENSES. The Company shall reimburse Employee for his actual
out-of-pocket expenses incurred in carrying out his duties hereunder in the
conduct of the Company's business, which expenses shall be limited to
ordinary and necessary items and which shall be supported by vouchers,
receipts or similar documentation submitted in accordance with the Company's
expense reimburse policy and as required by law.
5. VACATIONS AND LEAVE. Employee shall be entitled to vacation and leave
in accordance with the Company's policies in effect from time to time.
6. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Employee acknowledges that in and as a result of his employment by the
Company, he will be making use of, acquiring, and/or adding to the Company's
Trade Secret Information. Except as required in the performance of Employee's
duties under this Agreement, Employee will not use any Trade Secret Information
of the Company for Employee's own benefit or purposes or disclose to third
parties, directly or indirectly, any Trade Secret Information of the Company,
either during or after Employee's employment with the Company.
(b) As used in this Agreement, "Trade Secret Information" means
information, including, but not limited to, any formula, pattern, compilation,
program, device, method, technique or process, that: (i) derives independent
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 (ii) is the subject of efforts
that are reasonable under the circumstances to maintain its secrecy. For
purposes of this Agreement, "Trade Secret Information" includes both information
disclosed to Employee by the Company and information developed by Employee in
the course of his employment with the Company. The types and categories of
information which are considered to be Trade Secret Information include, without
limitation: (a) specifications, descriptions, designs, dimensions, content
(including chemical composition) and tolerances of products, parts and
components; (b) plans, blueprints, design packages construction, part and
assembly drawings and diagrams; (c) design, construction and component costs and
cost estimates; (d) the existence, terms or conditions of any agreements
(including license agreements) between the Company and any third party; (e)
computer programs (whether in the form of source code, object code or any other
form, including software, firmware and programmable array logic), formulas,
algorithms, methods, techniques, processes, designs, specifications, diagrams,
flow charts, manuals, descriptions, instructions, explanations, improvements,
and the ideas, systems and methods of operation contained in such programs; (f)
information concerning or resulting from research and development work performed
by Syntroleum; (g) information concerning Syntroleum's management, financial
condition, financial operations, purchasing activities, sales activities,
marketing activities and business plans; (h) information
2
<PAGE>
acquired or compiled by Syntroleum concerning actual or potential customers;
and (i) all other types and categories of information (in whatever form) with
respect to which, under all the circumstances, Employee knows or has reason
to know that Syntroleum intends or expects secrecy to be maintained and as to
which Syntroleum has made reasonable efforts to maintain its secrecy.
(c) The Company may also advise Employee from time to time as to
restrictions upon the use or disclosure of specified information which has been
licensed or otherwise disclosed to the Company by third parties pursuant to
license or confidential disclosure agreements which contain restrictions upon
the use or disclosure of such information. Employee agrees to abide by the
restrictions upon use and/or disclosure contained in such agreements.
(d) Employee has not and will not use or disclose to the Company any
confidential or proprietary information belonging to others without the written
consent of the person to whom such information is confidential, and Employee
represents that his employment with the Company will not require the use of such
information or the violation of any confidential relationship with any third
party.
7. OTHER PROPERTY OF THE COMPANY. All documents, encoded media, and
other tangible items provided to Employee by the Company or prepared, generated
or created by Employee or others in connection with any business activity of the
Company are the property of the Company. Upon termination of Employee's
employment with the Company, Employee will promptly deliver to the Company all
such documents, media and other items in his possession, including all complete
or partial copies, recordings, abstracts, notes or reproductions of any kind
made from or about such documents, media, items or information contained
therein. Employee will neither have nor claim any right, title or interest in
any trademark, service mark or trade name owned or used by the Company.
8. INVENTIONS AND WORKS OF AUTHORSHIP.
(a) Employee agrees to assign and hereby irrevocably assigns to the
Company all of Employee's right, title and interest in and to any and all
Inventions and Works of Authorship made, generated or conceived by Employee
during the period of his employment with the Company, and Employee agrees to and
shall promptly disclose all such Inventions and Works of Authorship to the
Company in writing. As used herein, "Invention" means any discovery,
improvement, innovation, idea, formula, or shop right (whether or not
patentable, whether or not put into writing and whether or not put into
practice) made, generated or conceived by Employee (whether alone or with
others) while employed by the Company. For purposes of this Agreement, any
discovery, improvement, innovation, idea, formula, or shop right (whether or not
patentable, whether or not put into writing and whether or not put into
practice) relating directly or indirectly to the business of the Company or to
the Company's actual or demonstrably anticipated business, research or
development with respect to which Employee files a patent application within two
years after termination of employment with the Company shall be presumed to be
an Invention. As used herein, "Work
3
<PAGE>
of Authorship" means any original work of authorship within the purview of
the copyright laws of the United States of America, and both the Company and
Employee intend and agree that all Works of Authorship created by Employee in
the course of his employment with the Company will be and shall constitute
works made for hire within the meaning and purview of such copyright laws.
(b) Employee will execute and assign any and all applications,
assignments, and other documents and will render all assistance which may be
reasonably necessary for the Company to obtain patent, copyright, or any other
form of intellectual property protection with respect to all Inventions and
Works of Authorship in all countries and will cooperate with Syntroleum as
reasonably necessary to enforce any such intellectual property protection. The
Company will pay Employee $200 for each patent issued to the Company upon which
Employee's name appears as an inventor.
(c) The provisions of this Paragraph 8 do not apply to an invention for
which no equipment, supplies, facility or Trade Secret Information of the
Company was used and which was developed entirely on Employee's own time, and
which does not relate (i) directly or indirectly to the business, research or
development of the Company, or (ii) to the Company's actual or demonstrably
anticipated business, research or development. A reasonable determination of
the applicability of this Paragraph 8(a) to an Employee's invention shall be
made by Syntroleum after the Employee submits notification in writing of the
invention. Said notice shall include adequate detail for Syntroleum to evaluate
the invention.
9. LIMITED COVENANTS AGAINST COMPETITION; NON-SOLICITATION.
(a) Employee acknowledges that the services he is to render to the Company
are of a special and unusual character with a unique value to the Company, the
loss of which cannot adequately be compensated by damages in an action at law.
In view of the unique value to the Company of the services of Employee and
because of the confidential Trade Secret Information to be obtained by or
disclosed to Employee, as set forth above, and as a material inducement to the
Company to enter into this Agreement and to pay to Employee the compensation
stated in Paragraph 2, Employee covenants and agrees that during the period of
Employee's employment within the Company and for a period of two years following
termination of Employee's employment with the Company for any reason,
voluntarily or involuntarily, Employee will not directly or indirectly: (i)
start or participate or assist (as a proprietor, partner, shareholder, lender,
investor, director, employee, consultant, independent contractor or otherwise)
in starting any Competing Business; (ii) assist (as a proprietor, partner,
shareholder, lender, investor, director, employee, consultant, independent
contractor or otherwise) any existing Competing Business in the design,
development or manufacture of any Competing Product; (iii) sell or assist in the
sale of any Competing Product to any person or organization with whom Employee
had any contact while employed with the Company; (iv) directly or indirectly
solicit for employment or employ any of the Company's employees; or (v) become
employed by a former employee of the Company. Because Syntroleum actively
pursues opportunities throughout the world and is engaged in a world-wide
oriented
4
<PAGE>
business the Employee acknowledges the reasonableness of having no geographic
limitation hereunder.
(b) Employee further acknowledges that, while employed by the Company, he
will have contact with and become aware of the Company's customers and licensees
and their respective representatives, including their names and addresses,
specific needs and requirements, as well as leads and references to prospective
customers and licensees. Employee further acknowledges that loss of such
customers or licensees would cause the Company great and irreparable harm.
Employee agrees that for a period of two years following termination of
Employee's employment with the Company for any reason, voluntarily or
involuntarily, Employee will not directly or indirectly solicit, contact, call
upon, communicate with or attempt to communicate with any customer or licensee,
former customer or licensee, or prospective customer or licensee of the Company
for the purpose of selling, installing, implementing, or modifying any Competing
Product. This restriction shall apply only to any customer or licensee, former
customer or licensee, or prospective customer or licensee of the Company with
whom Employee had contact during the last two years of Employee's employment
with the Company.
(c) The Employee agrees that for as long as he is employed by the Company
and for a period of two years after termination of Employee's employment with
the Company for any reason, voluntarily or involuntarily, Employee will not
solicit, recruit, hire or attempt to solicit, recruit or hire, directly or by
assisting others, any other employee of the Company.
(d) As used in this Agreement, (i) "Competing Business" means any person,
entity or organization other than the Company which is engaged in or is about to
become engaged in the design, manufacture or sale of a Competing Product, (ii)
"Competing Product" means any product (including, without limitation, any
chemical formula or process) which is or may be marketed in competition with any
product marketed or under development by the Company at any time, and (iii)
"contact" means interaction between Employee and a customer or licensee, former
customer or licensee, or prospective customer or licensee of the Company, which
takes place to further any business relationship; or performing services for the
customer or licensee, former customer or licensee, or prospective customer or
licensee on behalf of the Company.
10. REASONABLENESS OF RESTRICTIONS.
(a) Employee expressly acknowledges that he has carefully read and
considered the provisions of Paragraphs 6, 7, 8 and 9, and, having done so,
agrees that the restrictions set forth in these Paragraphs, including, but not
limited to, the time periods and geographic areas of restriction are fair and
reasonable and are reasonably required for the protection of the interests of
the Company and its officers, directors, shareholders and other employees.
(b) In the event that, notwithstanding the foregoing, any of the
provisions of Paragraphs 6, 7, 8 and 9 shall be held to be invalid or
unenforceable, the remaining provisions thereof shall nevertheless continue to
be valid and enforceable as though the
5
<PAGE>
invalid or unenforceable parts had not been included therein. In the event
that any provision of Paragraphs 6, 7, 8 and 9 relating to the time period
and/or the areas of restriction and/or related aspects shall be declared by a
court of competent jurisdiction to exceed the maximum restrictiveness such
court deems reasonable and enforceable, the time period and/or areas of
restriction and/or related aspects deemed reasonable and enforceable by the
court shall become and thereafter be the maximum restriction in such regard,
and the restriction shall remain enforceable to the fullest extent deemed
reasonable by such court.
11. REQUESTS FOR CLARIFICATION. In the event Employee is uncertain as to
the meaning of any provision of this Agreement or its application to any
particular information, item or activity, Employee will inquire in writing to
the Company, specifying any areas of uncertainty. The Company will respond in
writing within a reasonable time and will endeavor to clarify any areas of
uncertainty, including such things as whether it considers particular
information to be its Trade Secret Information or whether it considers any
particular activity or employment to be in violation of this Agreement.
12. REMEDIES. In the event of a breach or threatened breach of any of the
covenants in Paragraphs 6, 7, 8 and 9, the Company shall have the right to seek
monetary damages and equitable relief, including specific performance by means
of an injunction against Employee or against Employee's partners, agents,
representatives, servants, employers, employees, family members and/or any and
all persons acting directly or indirectly by or with him, to prevent or restrain
any such breach.
13. TERM AND TERMINATION.
(a) The term of this Agreement shall be for an initial term of 12 months
from the effective date hereof, unless sooner terminated as provided herein, and
shall thereafter be automatically renewed for successive terms of 12 months each
unless sooner terminated as provided herein.
(b) Employment of Employee under this Agreement may be terminated:
(i) by the Company upon the death of Employee.
(ii) by the Company if Employee becomes disabled. For the purposes
of this Agreement, Employee will be deemed disabled if he (i) has been
declared legally incompetent by a final court decree (the date of such
decree being deemed to be the date on which the disability occurred), or
(ii) receives disability insurance benefits from any disability income
insurance policy maintained by the Company for a period of three
consecutive months, or (iii) has been found to be disabled pursuant to a
disability determination. A "disability determination" means a finding
that Employee, because of a medically determinable disease, injury, or
other mental or physical disability, is unable to perform substantially all
of his regular duties to the Company and that such disability is determined
or reasonably expected to last at least six months. The disability
determination shall be based upon the written opinion of
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<PAGE>
the physician regularly attending Employee whose disability is in
question. If the Company disagrees with the opinion of this physician
(the "First Physician"), it may engage, at its own expense, another
physician of its choice (the "Second Physician") to examine Employee.
If the First and Second Physicians agree in writing that Employee is or
is not disabled, their written opinion shall, except as otherwise set
forth in this subsection, be conclusive on the issue of disability. If
the First and Second Physicians disagree on the disability of Employee,
they shall choose a third consulting physician (whose expense shall be
borne by the Company), and the written opinion of a majority of these
three physicians shall, except as otherwise provided in this subsection,
be conclusive as to Employee's disability. The date of any written
opinion conclusively finding Employee to be disabled is the date on
which the disability will be deemed to have occurred. If there is a
conclusive finding that Employee is not totally disabled, the Company
shall have the right to request additional disability determinations
provided it agrees to pay all the expenses of the disability
determinations and does not request an additional disability
determination more frequently than once every three months. In
connection with any disability determination, Employee hereby consents
to any required medical examination, and agrees to furnish any medical
information requested by any examining physician and to waive any
applicable physician-patient privilege that may arise because of such
examination. All physicians except the First Physician must be
board-certified in the specialty most closely related to the nature of
the disability alleged to exist.
(iii) by the Company when Employee reaches mandatory retirement age
under any retirement policy applicable to all executive officers adopted by
the Company.
(iv) by mutual agreement of Employee and the Company.
(v) by the Company upon the dissolution and liquidation of the
Company (other than as part of a reorganization, merger, consolidation or
sale of all or substantially all of the assets of the Company whereby the
business of the Company is continued).
(vi) by the Company for just cause at any time upon written notice.
For purposes of this Agreement, "just cause" shall mean any one or more of
the following: (A) Employee's material breach of his obligations, duties
and responsibilities under any term or provision of this Agreement, which
breach remains uncured for a period of five days after written notice by
the Company to Employee; (B) Employee's failure to adhere to the reasonable
standards of performance prescribed by the Company; (C) Employee's act of
insubordination to the Company's Board of Directors; (D) Employee's gross
negligence or willful misconduct in the performance of his duties under
this Agreement; (E) Employee's dishonesty, fraud, misappropriation or
embezzlement in the course of, related to or connected with the business of
the Company; (F) Employee's conviction of a felony; or (G) Employee's
failure (after written notice to Employee of such failure and Employee not
correcting
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<PAGE>
such failure within five days of such notice) to devote his time,
attention and best efforts to the business of the Company as provided in
this Agreement.
(vii) by either the Company or Employee upon 60 days written notice.
(c) Any termination of Employee's employment, either by the Company or
Employee, shall be communicated by a written notice of termination to the other
party.
(d) If Employee's employment is terminated pursuant to the terms of this
Agreement for any reason, Employee shall be entitled to all arrearages of salary
and expenses up to and including the date of termination but shall not be
entitled to further compensation. Provided, that if, at any time after the
first 12 months from the date of the Original Employment Agreement, Employee's
employment is terminated by the Company for any reason other than Employee's
death, disability or retirement, the Company's dissolution or just cause as
provided in Paragraphs 13(b)(i), (ii), (iii), (v) or (vi), respectively,
Employee shall be entitled to and the Company shall pay Employee all arrearages
of salary and expenses up to and including the date of termination and, in
addition, Employee's monthly base salary for an additional period of 24 months.
(e) Upon expiration of the term of this Agreement or upon earlier
termination of this Agreement, Employee shall deliver all Trade Secret
Information of the Company to an authorized representative of the Company, and
the non-disclosure provisions of PARAGRAPH 6 shall survive such expiration or
termination and shall remain in full force and effect for a period of 15 years
from such expiration or termination.
14. CHANGE OF CONTROL.
(a) In the event of a Change of Control of the Company and (i) during
the one-year period immediately following any Change of Control, the Company
terminates Employee's employment for any reason other than Employee's death,
disability, retirement or just cause as provided in Paragraphs 13(b)(i),
(ii), (iii) and (vi), respectively, (ii) the Employee terminates his
employment for Good Reason, or (iii) during the Window Period the Company or
Employee terminates Employee's employment for any reason, then the Company or
its successor shall pay Employee his full base salary in effect at the time
of the notice of termination through the date of termination, and in lieu of
any further salary payments for periods subsequent to the date of
termination, the Company or its successor shall pay Employee as severance pay
an amount equal to two times Employee's full base salary in effect on the
date of termination payable in 24 equal monthly installments beginning on the
first day of the first calendar month following the date of Employee's
termination and continuing on the first day of each month thereafter until
paid.
(b) Anything in this Agreement to the contrary notwithstanding, if a
Change of Control occurs and if the Employee's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Employee that such termination of employment (i)
was at the request of a third party who has
8
<PAGE>
taken steps reasonably calculated to effect the Change of Control or (ii)
otherwise arose in connection with or anticipation of the Change of Control,
then for all purposes of this Agreement, the "Change of Control" shall be
deemed to have occurred on the date immediately prior to the date of such
termination of employment.
(c) as used in this Agreement, the terms set forth below shall have the
following respective meanings:
(i) "Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in
effect on the Agreement Effective Date.
(ii) "Agreement Effective Date" shall mean May 19, 1998.
(iii) "Associate" shall mean, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated organization or
other entity (other than the Company or a subsidiary of the Company) of which
such Person is an officer or general partner (or officer or general partner of a
general partner) or is, directly or indirectly, the Beneficial Owner of 10% or
more of any class of equity securities, (b) any trust or other estate in which
such Person has a substantial beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity and (c) any relative or
spouse of such Person, or any relative of such spouse, who has the same home as
such Person.
(iv) "Beneficial Owner" shall mean, with reference to any
securities, any Person if:
(a) such Person or any of such Person's Affiliates and
Associates, directly or indirectly, is the "beneficial owner" of (as
determined pursuant to Rule 13d-3 of the General Rules and Regulations
under the Exchange Act, as in effect on the Agreement Effective Date)
such securities or otherwise has the right to vote or dispose of such
securities, including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however, that a
Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security under this subsection (a) as a result
of an agreement, arrangement or understanding to vote such security if
such agreement, arrangement or understanding: (i) arises solely from a
revocable proxy or consent given in response to a public (I.E., not
including a solicitation exempted by Rule 14a-2(b)(2) of the General
Rules and Regulations under the Exchange Act) proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the Exchange Act
and (ii) is not then reportable by such Person on Schedule 13D under the
Exchange Act (or any comparable or successor report);
(b) such Person or any of such Person's Affiliates and
Associates, directly or indirectly, has the right or obligation to
acquire such securities (whether such right or obligation is exercisable
or effective immediately or only after the passage of time
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or the occurrence of an event) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, other rights, warrants or options,
or otherwise; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to "beneficially own," (i) securities tendered
pursuant to a tender or exchange offer made by such Person or any of
such Person's Affiliates or Associates until such tendered securities
are accepted for purchase or exchange or (ii) securities issuable upon
exercise of Exempt Rights; or
(c) such Person or any of such Person's Affiliates or Associates
(i) has any agreement, arrangement or understanding (whether or not in
writing) with any other Person (or any Affiliate or Associate thereof)
that beneficially owns such securities for the purpose of acquiring,
holding, voting (except as set forth in the proviso to subsection (a) of
this definition) or disposing of such securities or (ii) is a member of
a group (as that term is used in Rule 13d-5(b) of the General Rules and
Regulations under the Exchange Act) that includes any other Person that
beneficially owns such securities;
provided, however, that nothing in this definition shall cause a Person engaged
in business as an underwriter of securities to be the Beneficial Owner of, or to
"beneficially own," any securities acquired through such Person's participation
in good faith in a firm commitment underwriting until the expiration of 40 days
after the date of such acquisition. For purposes hereof, "voting" a security
shall include voting, granting a proxy, consenting or making a request or demand
relating to corporate action (including, without limitation, a demand for a
stockholder list, to call a stockholder meeting or to inspect corporate books
and records) or otherwise giving an authorization (within the meaning of Section
14(a) of the Exchange Act) in respect of such security.
The terms "beneficially own" and "beneficially owning" shall have meanings
that are correlative to this definition of the term "Beneficial Owner."
(v) "Change of Control" shall mean any of the following (provided,
however, that without limiting the generality of any other provision hereof, no
Change of Control shall be deemed to have occurred as a result of the
consummation of any of the transactions contemplated by the Agreement and Plan
of Merger dated as of March 30, 1998 by and between SLH Corporation, a Kansas
corporation, and the Company (the "Merger Agreement")):
(a) any Person (other than an Exempt Person) shall become the
Beneficial Owner of 30% or more of the shares of Common Stock then
outstanding or 30% or more of the combined voting power of the Voting
Stock of the Company then outstanding; provided, however, that no Change
of Control shall be deemed to occur for purposes of this subsection (a)
if such Person shall become a Beneficial Owner of 30% or more of the
shares of Common Stock or 30% or more of the combined voting power of
the Voting Stock of the Company solely as a result of (i) an Exempt
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Transaction or (ii) an acquisition by a Person pursuant to a
reorganization, merger or consolidation, if, following such
reorganization, merger or consolidation, the conditions described in
clauses (i), (ii) and (iii) of subsection (c) of this definition are
satisfied;
(b) individuals who, as of the Agreement Effective Date,
constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the Agreement Effective
Date whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board; provided,
further, that there shall be excluded, for this purpose, any such
individual whose initial assumption of office occurs as a result of any
actual or threatened election contest that is subject to the provisions
of Rule 14a-11 under the Exchange Act;
(c) approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless, following
such reorganization, merger or consolidation, (i) more than 80% of the
then outstanding shares of common stock of the corporation resulting
from such reorganization, merger or consolidation and the combined
voting power of the then outstanding Voting Stock of such corporation is
then beneficially owned, directly or indirectly, by all or substantially
all of the Persons who were the Beneficial Owners of the outstanding
Common Stock immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of
the outstanding Common Stock, (ii) no Person (excluding any Exempt
Person or any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 30% or
more of the Common Stock then outstanding or 30% or more of the combined
voting power of the Voting Stock of the Company then outstanding)
beneficially owns, directly or indirectly, 30% or more of the then
outstanding shares of common stock of the corporation resulting from
such reorganization, merger or consolidation or the combined voting
power of the then outstanding Voting Stock of such corporation and (iii)
at least a majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation
were members of the Incumbent Board at the time of the execution of the
initial agreement or initial action by the Board providing for such
reorganization, merger or consolidation; or
(d) approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company unless such
liquidation or dissolution is approved as part of a plan of liquidation
and dissolution involving a sale or disposition of all or substantially
all of the assets of the Company to a corporation with respect to which,
following such sale or other disposition, all of the requirements of
clauses (ii)(A), (B) and (C) of this subsection (d) are satisfied, or
(ii) the sale or other disposition of all or substantially all of the
assets of the Company, other than to
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<PAGE>
a corporation, with respect to which, following such sale or other
disposition, (A) more than 80% of the then outstanding shares of common
stock of such corporation and the combined voting power of the Voting
Stock of such corporation is then beneficially owned, directly or
indirectly, by all or substantially all of the Persons who were the
Beneficial Owners of the outstanding Common Stock immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition, of
the outstanding Common Stock, (B) no Person (excluding any Exempt Person
and any Person beneficially owning, immediately prior to such sale or
other disposition, directly or indirectly, 30% or more of the Common
Stock then outstanding or 30% or more of the combined voting power of
the Voting Stock of the Company then outstanding) beneficially owns,
directly or indirectly, 30% or more of the then outstanding shares of
common stock of such corporation and the combined voting power of the
then outstanding Voting Stock of such corporation and (C) at least a
majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the
initial agreement or initial action of the Board providing for such sale
or other disposition of assets of the Company.
(vi) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(vii) "Exempt Person" shall mean the Company, any subsidiary of the
Company, any employee benefit plan of the Company or any subsidiary of the
Company, and any Person organized, appointed or established by the Company for
or pursuant to the terms of any such plan.
(viii) "Exempt Rights" shall mean any rights to purchase shares of
Common Stock or other Voting Stock of the Company if at the time of the issuance
thereof such rights are not separable from such Common Stock or other Voting
Stock (I.E., are not transferable otherwise than in connection with a transfer
of the underlying Common Stock or other Voting Stock) except upon the occurrence
of a contingency, whether such rights exist as of the Agreement Effective Date
or are thereafter issued by the Company as a dividend on shares of Common Stock
or other Voting Securities or otherwise.
(ix) "Exempt Transaction" shall mean an increase in the percentage
of the outstanding shares of Common Stock or the percentage of the combined
voting power of the outstanding Voting Stock of the Company beneficially owned
by any Person solely as a result of a reduction in the number of shares of
Common Stock then outstanding due to the repurchase of Common Stock or Voting
Stock by the Company, unless and until such time as (a) such Person or any
Affiliate or Associate of such Person shall purchase or otherwise become the
Beneficial Owner of additional shares of Common Stock constituting 1% or more of
the then outstanding shares of Common Stock or additional Voting Stock
representing 1% or more of the combined voting power of the then outstanding
Voting Stock, or (b) any other Person (or Persons) who is (or collectively are)
the Beneficial Owner of shares of Common Stock constituting 1% or more of the
then outstanding shares of Common Stock or Voting
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<PAGE>
Stock representing 1% or more of the combined voting power of the then
outstanding Voting Stock shall become an Affiliate or Associate of such
Person.
(x) "Good Reason" shall mean:
(a) the assignment to the Employee of any duties materially
inconsistent in any respect with the Employee's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 1 of this Agreement, or
any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Employee;
(b) any material failure by the Company to comply with any
of the provisions of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Employee;
(c) the Company's requiring the Employee to be based at any
office outside the Tulsa metropolitan area;
(d) any purported termination by the Company of the
Employee's employment otherwise than as expressly permitted by this
Agreement; or
(e) any failure to reelect Employee as a member of the
Board of Directors.
(xi) "Person" shall mean any individual, firm, corporation,
partnership, association, trust, unincorporated organization or other entity.
(xii) "Voting Stock" shall mean, with respect to a corporation, all
securities of such corporation of any class or series that are entitled to vote
generally in the election of directors of such corporation (excluding any class
or series that would be entitled so to vote by reason of the occurrence of any
contingency, so long as such contingency has not occurred).
(xiii) "Window Period" shall mean the 60-day period immediately
following elapse of one year after any Change of Control.
15. RESIGNATION UPON TERMINATION. In the event of termination of this
Agreement other than for death, Employee agrees to resign from all positions
held in the Company, including without limitation any position as a director,
officer, agent, trustee or consultant of the Company or any affiliate of the
Company.
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<PAGE>
16. NOTICE TO SUBSEQUENT EMPLOYERS. For a period of two years after
termination of Employee's employment with the Company for any reason, Employee
will inform any new employer (before accepting employment) of the obligations of
Employee under Paragraphs 6, 7, 8, 9, and 10 of this Agreement.
17. OBLIGATIONS UNCONDITIONAL. The obligations of the parties under this
Agreement are unconditional and do not depend upon the performance of any
agreements, duties, obligations, or terms outside this Agreement.
18. WAIVER. A party's failure to insist on compliance or enforcement of
any provision of this Agreement shall not affect the validity or enforceability
or constitute a waiver of future enforcement of that provision or of any other
provision of this Agreement by that party or any other party.
19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF OKLAHOMA, UNITED STATES OF AMERICA,
WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF. The Company and Employee
expressly and irrevocably consent and submit to the nonexclusive jurisdiction of
any state or federal court sitting in Tulsa County, Oklahoma and agree that, to
the fullest extent allowed by law, such Oklahoma state or federal courts shall
have jurisdiction over any action, suit or proceeding arising out of or relating
to this Agreement. The Company and Employee 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 Tulsa County, 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 the Company or Employee 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.
20. SEVERABILITY. If for any reason any paragraph, term or provision of
this Agreement is held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall not affect any other provision hereof, and
this Agreement shall be construed and enforced as if such provision had not been
included herein and all other valid provisions herein shall remain in full force
and effect. If for any reason the restrictions and covenants contained herein
are held to cover a geographical area or be for a length of time which is
unreasonable or unenforceable, or in any other way are construed to be too broad
or to any extent invalid, then to the extent the same are or would be valid or
enforceable under applicable law, any court of competent jurisdiction shall
construe and interpret or reform this Agreement to provide for a covenant having
the maximum area, time or other provisions (not greater than those contained
herein) as shall be valid and enforceable under such applicable law.
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<PAGE>
21. JURISDICTION. The Company and Employee intend to and hereby confer
jurisdiction to enforce the provisions of this Agreement and any restrictive
covenants contained herein upon the courts of any jurisdiction within the
geographical scope of such covenants. If the courts of any one or more of such
jurisdictions hold the provisions of this Agreement or any of the restrictive
covenants contained herein unenforceable by reason of the breadth of such scope
or otherwise, it is the intention of the Company and Employee that such
determination not bar or in any way affect the Company's right to the relief
provided herein in the courts of any other jurisdiction within the geographical
scope of such covenants, as to breaches of such covenants, such covenants as
they relate to each jurisdiction being, for this purpose, severable into diverse
and independent covenants.
22. NOTICE. Any and all notices required or permitted herein shall be
deemed delivered if delivered personally or if mailed by registered or certified
mail to the Company at its principal place of business and to Employee at the
address hereinafter set forth following Employee's signature, or at such other
address or addresses as either party may hereafter designate in writing to the
other.
23. AMENDMENTS. This Agreement may be amended at any time by mutual
consent of the parties hereto, with any such amendment to be invalid unless in
writing, signed by the Company and Employee.
24. BURDEN AND BENEFIT. This Agreement, together with any amendments
hereto, shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors, assigns, heirs and personal
representatives. The Company may, in its sole discretion, assign this Agreement
or its rights hereunder to any parent, affiliate, shareholder, or successor of
the Company, or to any person or entity which purchases substantially all of the
assets of the Company. Employee may not transfer or assign this Agreement or
any of Employee's rights or obligations under this Agreement.
25. REFERENCES TO GENDER AND NUMBER TERMS. In construing this Agreement,
feminine or number pronouns shall be substituted for those masculine in form and
vice versa, and plural terms shall be substituted for singular and singular for
plural in any place which the context so requires.
26. HEADINGS. The various headings in this Agreement are inserted for
convenience only and are not part of the Agreement.
27. ENTIRE AGREEMENT. This Agreement contains the entire understanding
and agreement between the parties relating to the subject matter hereof. The
original Employment Agreement between the Company and Employee dated November
16, 1988 is hereby amended and restated in its entirety as set forth herein.
28. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and all such counterparts shall constitute one and the same
instrument.
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<PAGE>
29. SEVERANCE COMPENSATION. In the event of termination of Employee's
employment with the Company under the terms of this Agreement which provide for
payment by the Company to Employee of severance compensation, the amount of such
severance compensation shall in no event be greater than the amount which would
be deductible by the Company under Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), after taking into consideration all payments to
Employee covered by Code Section 280G which Employee receives or is deemed to
receive (i) under this Agreement; (ii) under the Company's 1993 Stock Option and
Incentive Plan, as amended, by reason of the acceleration of the right to
exercise any options (including any related stock appreciation rights) granted
thereunder or the acceleration of the vesting of any restricted stock awards
granted thereunder; or (iii) under any new plan or arrangement implemented by
the Company after the date of this Agreement which would otherwise be considered
a "parachute payment" under Section 280G. In the event such payments exceed the
amount which would be deductible by the Company under Code Section 280G, the
timing of such payments shall be extended or otherwise modified such that such
payments shall be deductible by the Company under Code Section 280G and in a
manner which, to the extent possible, provides Employee the full benefit of such
payments as originally agreed to.
IN WITNESS WHEREOF, the Company and Employee have duly executed this
Agreement as of the date and year first above written.
COMPANY:
SYNTROLEUM CORPORATION
By: /s/ Mark A. Agee
------------------------------
Mark A. Agee, President
Syntroleum Corporation.
1350 South Boulder, Suite 1100
Tulsa, Oklahoma 74119
EMPLOYEE:
By: /s/ Kenneth L. Agee
------------------------------
Kenneth L. Agee
Home address:
1616 S. Chestnut Avenue
Broken Arrow, Oklahoma 74012
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<PAGE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
CONFIDENTIAL
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is made
and entered into effective as of the 19th day of May, 1998 by and between
Syntroleum Corporation, an Oklahoma corporation (the "Company"), and Mark A.
Agee, an individual (the "Employee").
WHEREAS, the Company and Employee, are parties to that certain Employment
Agreement dated February 28, 1994 ("Original Employment Agreement"); and
WHEREAS, the Company and Employee desire to amend and restate the Original
Employment Agreement to continue Employee's employment by the Company on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the Company and Employee hereby agree as follows.
1. EMPLOYMENT AND DUTIES. The Company employs Employee in the capacity
of President, Chief Operating Officer and Director, or in such other position
and at such location as the Company may direct or desire and Employee hereby
accepts such employment, on the terms and conditions hereinafter set forth.
Employee agrees to perform such services and duties (including reasonable
travel) and hold such offices at such locations as may be reasonably assigned to
him from time to time by the Company and to devote substantially his full
business time, energies and best efforts to the performance thereof to the
exclusion of all other business activities, except any activities disclosed to
the Company in advance and consented to by the Company.
2. COMPENSATION. As compensation for the services to be rendered by
Employee to the Company pursuant to this Agreement, Employee shall be paid the
following compensation and other benefits.
(a) Salary in the amount of $200,000 per year, payable in equal bi-monthly
installments in arrears, or such higher compensation as may be established by
the Company from time to time. Payments of salary shall be made in accordance
with the Company's usual payroll procedures.
(b) Employee shall be eligible to participate, to the extent he may be
eligible, in any group medical and hospitalization, profit sharing, retirement,
life insurance or other employee benefit plans which the Company may from time
to time offer to its employees. All group insurance provided to Employee shall
be in such form and provide such coverage as is provided to other employees of
the Company.
(c) All compensation payments to Employee shall be made subject to normal
deductions therefrom, including federal and state social security and
withholding taxes.
3. LIFE INSURANCE. The Company, in its discretion, may apply for and
procure in its own name and for its own benefit, life insurance on the life of
Employee in any amount or
<PAGE>
amounts considered advisable by the Company. Employee shall submit to any
medical or other examination and execute and deliver any application or other
instrument in writing, reasonably necessary for the Company to acquire such
insurance.
4. EXPENSES. The Company shall reimburse Employee for his actual
out-of-pocket expenses incurred in carrying out his duties hereunder in the
conduct of the Company's business, which expenses shall be limited to
ordinary and necessary items and which shall be supported by vouchers,
receipts or similar documentation submitted in accordance with the Company's
expense reimburse policy and as required by law.
5. VACATIONS AND LEAVE. Employee shall be entitled to vacation and leave
in accordance with the Company's policies in effect from time to time.
6. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Employee acknowledges that in and as a result of his employment by the
Company, he will be making use of, acquiring, and/or adding to the Company's
Trade Secret Information. Except as required in the performance of Employee's
duties under this Agreement, Employee will not use any Trade Secret Information
of the Company for Employee's own benefit or purposes or disclose to third
parties, directly or indirectly, any Trade Secret Information of the Company,
either during or after Employee's employment with the Company.
(b) As used in this Agreement, "Trade Secret Information" means
information, including, but not limited to, any formula, pattern, compilation,
program, device, method, technique or process, that: (i) derives independent
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 (ii) is the subject of efforts
that are reasonable under the circumstances to maintain its secrecy. For
purposes of this Agreement, "Trade Secret Information" includes both information
disclosed to Employee by the Company and information developed by Employee in
the course of his employment with the Company. The types and categories of
information which are considered to be Trade Secret Information include, without
limitation: (a) specifications, descriptions, designs, dimensions, content
(including chemical composition) and tolerances of products, parts and
components; (b) plans, blueprints, design packages construction, part and
assembly drawings and diagrams; (c) design, construction and component costs and
cost estimates; (d) the existence, terms or conditions of any agreements
(including license agreements) between the Company and any third party; (e)
computer programs (whether in the form of source code, object code or any other
form, including software, firmware and programmable array logic), formulas,
algorithms, methods, techniques, processes, designs, specifications, diagrams,
flow charts, manuals, descriptions, instructions, explanations, improvements,
and the ideas, systems and methods of operation contained in such programs; (f)
information concerning or resulting from research and development work performed
by Syntroleum; (g) information concerning Syntroleum's management, financial
condition, financial operations, purchasing activities, sales activities,
marketing activities and business plans; (h) information
2
<PAGE>
acquired or compiled by Syntroleum concerning actual or potential customers;
and (i) all other types and categories of information (in whatever form) with
respect to which, under all the circumstances, Employee knows or has reason
to know that Syntroleum intends or expects secrecy to be maintained and as to
which Syntroleum has made reasonable efforts to maintain its secrecy.
(c) The Company may also advise Employee from time to time as to
restrictions upon the use or disclosure of specified information which has been
licensed or otherwise disclosed to the Company by third parties pursuant to
license or confidential disclosure agreements which contain restrictions upon
the use or disclosure of such information. Employee agrees to abide by the
restrictions upon use and/or disclosure contained in such agreements.
(d) Employee has not and will not use or disclose to the Company any
confidential or proprietary information belonging to others without the written
consent of the person to whom such information is confidential, and Employee
represents that his employment with the Company will not require the use of such
information or the violation of any confidential relationship with any third
party.
7. OTHER PROPERTY OF THE COMPANY. All documents, encoded media, and
other tangible items provided to Employee by the Company or prepared, generated
or created by Employee or others in connection with any business activity of the
Company are the property of the Company. Upon termination of Employee's
employment with the Company, Employee will promptly deliver to the Company all
such documents, media and other items in his possession, including all complete
or partial copies, recordings, abstracts, notes or reproductions of any kind
made from or about such documents, media, items or information contained
therein. Employee will neither have nor claim any right, title or interest in
any trademark, service mark or trade name owned or used by the Company.
8. INVENTIONS AND WORKS OF AUTHORSHIP.
(a) Employee agrees to assign and hereby irrevocably assigns to the
Company all of Employee's right, title and interest in and to any and all
Inventions and Works of Authorship made, generated or conceived by Employee
during the period of his employment with the Company, and Employee agrees to and
shall promptly disclose all such Inventions and Works of Authorship to the
Company in writing. As used herein, "Invention" means any discovery,
improvement, innovation, idea, formula, or shop right (whether or not
patentable, whether or not put into writing and whether or not put into
practice) made, generated or conceived by Employee (whether alone or with
others) while employed by the Company. For purposes of this Agreement, any
discovery, improvement, innovation, idea, formula, or shop right (whether or not
patentable, whether or not put into writing and whether or not put into
practice) relating directly or indirectly to the business of the Company or to
the Company's actual or demonstrably anticipated business, research or
development with respect to which Employee files a patent application within two
years after termination of employment with the Company shall be presumed to be
an Invention. As used herein, "Work
3
<PAGE>
of Authorship" means any original work of authorship within the purview of
the copyright laws of the United States of America, and both the Company and
Employee intend and agree that all Works of Authorship created by Employee in
the course of his employment with the Company will be and shall constitute
works made for hire within the meaning and purview of such copyright laws.
(b) Employee will execute and assign any and all applications,
assignments, and other documents and will render all assistance which may be
reasonably necessary for the Company to obtain patent, copyright, or any other
form of intellectual property protection with respect to all Inventions and
Works of Authorship in all countries and will cooperate with Syntroleum as
reasonably necessary to enforce any such intellectual property protection. The
Company will pay Employee $200 for each patent issued to the Company upon which
Employee's name appears as an inventor.
(c) The provisions of this Paragraph 8 do not apply to an invention for
which no equipment, supplies, facility or Trade Secret Information of the
Company was used and which was developed entirely on Employee's own time, and
which does not relate (i) directly or indirectly to the business, research or
development of the Company, or (ii) to the Company's actual or demonstrably
anticipated business, research or development. A reasonable determination of
the applicability of this Paragraph 8(a) to an Employee's invention shall be
made by Syntroleum after the Employee submits notification in writing of the
invention. Said notice shall include adequate detail for Syntroleum to evaluate
the invention.
9. LIMITED COVENANTS AGAINST COMPETITION; NON-SOLICITATION.
(a) Employee acknowledges that the services he is to render to the Company
are of a special and unusual character with a unique value to the Company, the
loss of which cannot adequately be compensated by damages in an action at law.
In view of the unique value to the Company of the services of Employee and
because of the confidential Trade Secret Information to be obtained by or
disclosed to Employee, as set forth above, and as a material inducement to the
Company to enter into this Agreement and to pay to Employee the compensation
stated in Paragraph 2, Employee covenants and agrees that during the period of
Employee's employment within the Company and for a period of two years following
termination of Employee's employment with the Company for any reason,
voluntarily or involuntarily, Employee will not directly or indirectly: (i)
start or participate or assist (as a proprietor, partner, shareholder, lender,
investor, director, employee, consultant, independent contractor or otherwise)
in starting any Competing Business; (ii) assist (as a proprietor, partner,
shareholder, lender, investor, director, employee, consultant, independent
contractor or otherwise) any existing Competing Business in the design,
development or manufacture of any Competing Product; (iii) sell or assist in the
sale of any Competing Product to any person or organization with whom Employee
had any contact while employed with the Company; (iv) directly or indirectly
solicit for employment or employ any of the Company's employees; or (v) become
employed by a former employee of the Company. Because Syntroleum actively
pursues opportunities throughout the world and is engaged in a world-wide
oriented
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business the Employee acknowledges the reasonableness of having no geographic
limitation hereunder.
(b) Employee further acknowledges that, while employed by the Company, he
will have contact with and become aware of the Company's customers and licensees
and their respective representatives, including their names and addresses,
specific needs and requirements, as well as leads and references to prospective
customers and licensees. Employee further acknowledges that loss of such
customers or licensees would cause the Company great and irreparable harm.
Employee agrees that for a period of two years following termination of
Employee's employment with the Company for any reason, voluntarily or
involuntarily, Employee will not directly or indirectly solicit, contact, call
upon, communicate with or attempt to communicate with any customer or licensee,
former customer or licensee, or prospective customer or licensee of the Company
for the purpose of selling, installing, implementing, or modifying any Competing
Product. This restriction shall apply only to any customer or licensee, former
customer or licensee, or prospective customer or licensee of the Company with
whom Employee had contact during the last two years of Employee's employment
with the Company.
(c) The Employee agrees that for as long as he is employed by the Company
and for a period of two years after termination of Employee's employment with
the Company for any reason, voluntarily or involuntarily, Employee will not
solicit, recruit, hire or attempt to solicit, recruit or hire, directly or by
assisting others, any other employee of the Company.
(d) As used in this Agreement, (i) "Competing Business" means any person,
entity or organization other than the Company which is engaged in or is about to
become engaged in the design, manufacture or sale of a Competing Product, (ii)
"Competing Product" means any product (including, without limitation, any
chemical formula or process) which is or may be marketed in competition with any
product marketed or under development by the Company at any time, and (iii)
"contact" means interaction between Employee and a customer or licensee, former
customer or licensee, or prospective customer or licensee of the Company, which
takes place to further any business relationship; or performing services for the
customer or licensee, former customer or licensee, or prospective customer or
licensee on behalf of the Company.
10. REASONABLENESS OF RESTRICTIONS.
(a) Employee expressly acknowledges that he has carefully read and
considered the provisions of Paragraphs 6, 7, 8 and 9, and, having done so,
agrees that the restrictions set forth in these Paragraphs, including, but not
limited to, the time periods and geographic areas of restriction are fair and
reasonable and are reasonably required for the protection of the interests of
the Company and its officers, directors, shareholders and other employees.
(b) In the event that, notwithstanding the foregoing, any of the
provisions of Paragraphs 6, 7, 8 and 9 shall be held to be invalid or
unenforceable, the remaining provisions thereof shall nevertheless continue to
be valid and enforceable as though the
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invalid or unenforceable parts had not been included therein. In the event
that any provision of Paragraphs 6, 7, 8 and 9 relating to the time period
and/or the areas of restriction and/or related aspects shall be declared by a
court of competent jurisdiction to exceed the maximum restrictiveness such
court deems reasonable and enforceable, the time period and/or areas of
restriction and/or related aspects deemed reasonable and enforceable by the
court shall become and thereafter be the maximum restriction in such regard,
and the restriction shall remain enforceable to the fullest extent deemed
reasonable by such court.
11. REQUESTS FOR CLARIFICATION. In the event Employee is uncertain as to
the meaning of any provision of this Agreement or its application to any
particular information, item or activity, Employee will inquire in writing to
the Company, specifying any areas of uncertainty. The Company will respond in
writing within a reasonable time and will endeavor to clarify any areas of
uncertainty, including such things as whether it considers particular
information to be its Trade Secret Information or whether it considers any
particular activity or employment to be in violation of this Agreement.
12. REMEDIES. In the event of a breach or threatened breach of any of the
covenants in Paragraphs 6, 7, 8 and 9, the Company shall have the right to seek
monetary damages and equitable relief, including specific performance by means
of an injunction against Employee or against Employee's partners, agents,
representatives, servants, employers, employees, family members and/or any and
all persons acting directly or indirectly by or with him, to prevent or restrain
any such breach.
13. TERM AND TERMINATION.
(a) The term of this Agreement shall be for an initial term of 12 months
from the effective date hereof, unless sooner terminated as provided herein, and
shall thereafter be automatically renewed for successive terms of 12 months each
unless sooner terminated as provided herein.
(b) Employment of Employee under this Agreement may be terminated:
(i) by the Company upon the death of Employee.
(ii) by the Company if Employee becomes disabled. For the purposes
of this Agreement, Employee will be deemed disabled if he (i) has been
declared legally incompetent by a final court decree (the date of such
decree being deemed to be the date on which the disability occurred), or
(ii) receives disability insurance benefits from any disability income
insurance policy maintained by the Company for a period of three
consecutive months, or (iii) has been found to be disabled pursuant to a
disability determination. A "disability determination" means a finding
that Employee, because of a medically determinable disease, injury, or
other mental or physical disability, is unable to perform substantially all
of his regular duties to the Company and that such disability is determined
or reasonably expected to last at least six months. The disability
determination shall be based upon the written opinion of
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the physician regularly attending Employee whose disability is in question.
If the Company disagrees with the opinion of this physician (the "First
Physician"), it may engage, at its own expense, another physician of its
choice (the "Second Physician") to examine Employee. If the First and
Second Physicians agree in writing that Employee is or is not disabled,
their written opinion shall, except as otherwise set forth in this
subsection, be conclusive on the issue of disability. If the First and
Second Physicians disagree on the disability of Employee, they shall choose
a third consulting physician (whose expense shall be borne by the Company),
and the written opinion of a majority of these three physicians shall,
except as otherwise provided in this subsection, be conclusive as to
Employee's disability. The date of any written opinion conclusively
finding Employee to be disabled is the date on which the disability will be
deemed to have occurred. If there is a conclusive finding that Employee is
not totally disabled, the Company shall have the right to request
additional disability determinations provided it agrees to pay all the
expenses of the disability determinations and does not request an
additional disability determination more frequently than once every three
months. In connection with any disability determination, Employee hereby
consents to any required medical examination, and agrees to furnish any
medical information requested by any examining physician and to waive any
applicable physician-patient privilege that may arise because of such
examination. All physicians except the First Physician must be
board-certified in the specialty most closely related to the nature of the
disability alleged to exist.
(iii) by the Company when Employee reaches mandatory retirement age
under any retirement policy applicable to all executive officers adopted by
the Company.
(iv) by mutual agreement of Employee and the Company.
(v) by the Company upon the dissolution and liquidation of the
Company (other than as part of a reorganization, merger, consolidation or
sale of all or substantially all of the assets of the Company whereby the
business of the Company is continued).
(vi) by the Company for just cause at any time upon written notice.
For purposes of this Agreement, "just cause" shall mean any one or more of
the following: (A) Employee's material breach of his obligations, duties
and responsibilities under any term or provision of this Agreement, which
breach remains uncured for a period of five days after written notice by
the Company to Employee; (B) Employee's failure to adhere to the reasonable
standards of performance prescribed by the Company; (C) Employee's act of
insubordination to the Company's Board of Directors; (D) Employee's gross
negligence or willful misconduct in the performance of his duties under
this Agreement; (E) Employee's dishonesty, fraud, misappropriation or
embezzlement in the course of, related to or connected with the business of
the Company; (F) Employee's conviction of a felony; or (G) Employee's
failure (after written notice to Employee of such failure and Employee not
correcting
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such failure within five days of such notice) to devote his time, attention
and best efforts to the business of the Company as provided in this
Agreement.
(vii) by either the Company or Employee upon 60 days written notice.
(c) Any termination of Employee's employment, either by the Company or
Employee, shall be communicated by a written notice of termination to the other
party.
(d) If Employee's employment is terminated pursuant to the terms of this
Agreement for any reason, Employee shall be entitled to all arrearages of salary
and expenses up to and including the date of termination but shall not be
entitled to further compensation. Provided, that if, at any time after the
first 12 months from the date of the Original Employment Agreement, Employee's
employment is terminated by the Company for any reason other than Employee's
death, disability or retirement, the Company's dissolution or just cause as
provided in Paragraphs 13(b)(i), (ii), (iii), (v) or (vi), respectively,
Employee shall be entitled to and the Company shall pay Employee all arrearages
of salary and expenses up to and including the date of termination and, in
addition, Employee's monthly base salary for an additional period of 24 months.
(e) Upon expiration of the term of this Agreement or upon earlier
termination of this Agreement, Employee shall deliver all Trade Secret
Information of the Company to an authorized representative of the Company, and
the non-disclosure provisions of PARAGRAPH 6 shall survive such expiration or
termination and shall remain in full force and effect for a period of 15 years
from such expiration or termination.
14. CHANGE OF CONTROL.
(a) In the event of a Change of Control of the Company and (i) during
the one-year period immediately following any Change of Control, the Company
terminates Employee's employment for any reason other than Employee's death,
disability, retirement or just cause as provided in Paragraphs 13(b)(i),
(ii), (iii) and (vi), respectively, (ii) the Employee terminates his
employment for Good Reason, or (iii) during the Window Period the Company or
Employee terminates Employee's employment for any reason, then the Company or
its successor shall pay Employee his full base salary in effect at the time
of the notice of termination through the date of termination, and in lieu of
any further salary payments for periods subsequent to the date of
termination, the Company or its successor shall pay Employee as severance pay
an amount equal to two times Employee's full base salary in effect on the
date of termination payable in 24 equal monthly installments beginning on the
first day of the first calendar month following the date of Employee's
termination and continuing on the first day of each month thereafter until
paid.
(b) Anything in this Agreement to the contrary notwithstanding, if a
Change of Control occurs and if the Employee's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Employee that such termination of employment (i)
was at the request of a third party who has
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<PAGE>
taken steps reasonably calculated to effect the Change of Control or (ii)
otherwise arose in connection with or anticipation of the Change of Control,
then for all purposes of this Agreement, the "Change of Control" shall be
deemed to have occurred on the date immediately prior to the date of such
termination of employment.
(c) as used in this Agreement, the terms set forth below shall have the
following respective meanings:
(i) "Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in
effect on the Agreement Effective Date.
(ii) "Agreement Effective Date" shall mean May 19, 1998.
(iii) "Associate" shall mean, with reference to any Person, (a)
any corporation, firm, partnership, association, unincorporated organization
or other entity (other than the Company or a subsidiary of the Company) of
which such Person is an officer or general partner (or officer or general
partner of a general partner) or is, directly or indirectly, the Beneficial
Owner of 10% or more of any class of equity securities, (b) any trust or
other estate in which such Person has a substantial beneficial interest or as
to which such Person serves as trustee or in a similar fiduciary capacity and
(c) any relative or spouse of such Person, or any relative of such spouse,
who has the same home as such Person.
(iv) "Beneficial Owner" shall mean, with reference to any
securities, any Person if:
(a) such Person or any of such Person's Affiliates and Associates,
directly or indirectly, is the "beneficial owner" of (as determined
pursuant to Rule 13d-3 of the General Rules and Regulations under the
Exchange Act, as in effect on the Agreement Effective Date) such securities
or otherwise has the right to vote or dispose of such securities, including
pursuant to any agreement, arrangement or understanding (whether or not in
writing); provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security under this
subsection (a) as a result of an agreement, arrangement or understanding to
vote such security if such agreement, arrangement or understanding: (i)
arises solely from a revocable proxy or consent given in response to a
public (I.E., not including a solicitation exempted by Rule 14a-2(b)(2) of
the General Rules and Regulations under the Exchange Act) proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the Exchange Act and
(ii) is not then reportable by such Person on Schedule 13D under the
Exchange Act (or any comparable or successor report);
(b) such Person or any of such Person's Affiliates and Associates,
directly or indirectly, has the right or obligation to acquire such
securities (whether such right or obligation is exercisable or effective
immediately or only after the passage of time
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<PAGE>
or the occurrence of an event) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, other rights, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to "beneficially own," (i) securities tendered
pursuant to a tender or exchange offer made by such Person or any of such
Person's Affiliates or Associates until such tendered securities are
accepted for purchase or exchange or (ii) securities issuable upon exercise
of Exempt Rights; or
(c) such Person or any of such Person's Affiliates or Associates
(i) has any agreement, arrangement or understanding (whether or not in
writing) with any other Person (or any Affiliate or Associate thereof) that
beneficially owns such securities for the purpose of acquiring, holding,
voting (except as set forth in the proviso to subsection (a) of this
definition) or disposing of such securities or (ii) is a member of a group
(as that term is used in Rule 13d-5(b) of the General Rules and Regulations
under the Exchange Act) that includes any other Person that beneficially
owns such securities;
provided, however, that nothing in this definition shall cause a Person engaged
in business as an underwriter of securities to be the Beneficial Owner of, or to
"beneficially own," any securities acquired through such Person's participation
in good faith in a firm commitment underwriting until the expiration of 40 days
after the date of such acquisition. For purposes hereof, "voting" a security
shall include voting, granting a proxy, consenting or making a request or demand
relating to corporate action (including, without limitation, a demand for a
stockholder list, to call a stockholder meeting or to inspect corporate books
and records) or otherwise giving an authorization (within the meaning of Section
14(a) of the Exchange Act) in respect of such security.
The terms "beneficially own" and "beneficially owning" shall have
meanings that are correlative to this definition of the term "Beneficial
Owner."
(v) "Change of Control" shall mean any of the following (provided,
however, that without limiting the generality of any other provision hereof,
no Change of Control shall be deemed to have occurred as a result of the
consummation of any of the transactions contemplated by the Agreement and
Plan of Merger dated as of March 30, 1998 by and between SLH Corporation, a
Kansas corporation, and the Company (the "Merger Agreement")):
(a) any Person (other than an Exempt Person) shall become the
Beneficial Owner of 30% or more of the shares of Common Stock then
outstanding or 30% or more of the combined voting power of the Voting Stock
of the Company then outstanding; provided, however, that no Change of
Control shall be deemed to occur for purposes of this subsection (a) if
such Person shall become a Beneficial Owner of 30% or more of the shares
of Common Stock or 30% or more of the combined voting power of the Voting
Stock of the Company solely as a result of (i) an Exempt
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Transaction or (ii) an acquisition by a Person pursuant to a
reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (i), (ii) and
(iii) of subsection (c) of this definition are satisfied;
(b) individuals who, as of the Agreement Effective Date, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the Agreement Effective Date whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board; provided, further, that there shall be
excluded, for this purpose, any such individual whose initial assumption
of office occurs as a result of any actual or threatened election contest
that is subject to the provisions of Rule 14a-11 under the Exchange Act;
(c) approval by the shareholders of the Company of a reorganization,
merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (i) more than 80% of the then
outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of
the then outstanding Voting Stock of such corporation is then beneficially
owned, directly or indirectly, by all or substantially all of the Persons
who were the Beneficial Owners of the outstanding Common Stock immediately
prior to such reorganization, merger or consolidation in substantially the
same proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the outstanding Common Stock,
(ii) no Person (excluding any Exempt Person or any Person beneficially
owning, immediately prior to such reorganization, merger or consolidation,
directly or indirectly, 30% or more of the Common Stock then outstanding or
30% or more of the combined voting power of the Voting Stock of the Company
then outstanding) beneficially owns, directly or indirectly, 30% or more of
the then outstanding shares of common stock of the corporation resulting
from such reorganization, merger or consolidation or the combined voting
power of the then outstanding Voting Stock of such corporation and (iii) at
least a majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation
were members of the Incumbent Board at the time of the execution of the
initial agreement or initial action by the Board providing for such
reorganization, merger or consolidation; or
(d) approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company unless such liquidation or
dissolution is approved as part of a plan of liquidation and dissolution
involving a sale or disposition of all or substantially all of the assets
of the Company to a corporation with respect to which, following such sale
or other disposition, all of the requirements of clauses (ii)(A), (B) and
(C) of this subsection (d) are satisfied, or (ii) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to
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a corporation, with respect to which, following such sale or other
disposition, (A) more than 80% of the then outstanding shares of common
stock of such corporation and the combined voting power of the Voting Stock
of such corporation is then beneficially owned, directly or indirectly, by
all or substantially all of the Persons who were the Beneficial Owners of
the outstanding Common Stock immediately prior to such sale or other
disposition in substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the outstanding
Common Stock, (B) no Person (excluding any Exempt Person and any Person
beneficially owning, immediately prior to such sale or other disposition,
directly or indirectly, 30% or more of the Common Stock then outstanding or
30% or more of the combined voting power of the Voting Stock of the Company
then outstanding) beneficially owns, directly or indirectly, 30% or more of
the then outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding Voting Stock of such
corporation and (C) at least a majority of the members of the board of
directors of such corporation were members of the Incumbent Board at the
time of the execution of the initial agreement or initial action of the
Board providing for such sale or other disposition of assets of the
Company.
(vi) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(vii) "Exempt Person" shall mean the Company, any subsidiary of
the Company, any employee benefit plan of the Company or any subsidiary of
the Company, and any Person organized, appointed or established by the
Company for or pursuant to the terms of any such plan.
(viii) "Exempt Rights" shall mean any rights to purchase shares of
Common Stock or other Voting Stock of the Company if at the time of the
issuance thereof such rights are not separable from such Common Stock or
other Voting Stock (I.E., are not transferable otherwise than in connection
with a transfer of the underlying Common Stock or other Voting Stock) except
upon the occurrence of a contingency, whether such rights exist as of the
Agreement Effective Date or are thereafter issued by the Company as a
dividend on shares of Common Stock or other Voting Securities or otherwise.
(ix) "Exempt Transaction" shall mean an increase in the
percentage of the outstanding shares of Common Stock or the percentage of the
combined voting power of the outstanding Voting Stock of the Company
beneficially owned by any Person solely as a result of a reduction in the
number of shares of Common Stock then outstanding due to the repurchase of
Common Stock or Voting Stock by the Company, unless and until such time as
(a) such Person or any Affiliate or Associate of such Person shall purchase
or otherwise become the Beneficial Owner of additional shares of Common Stock
constituting 1% or more of the then outstanding shares of Common Stock or
additional Voting Stock representing 1% or more of the combined voting power
of the then outstanding Voting Stock, or (b) any other Person (or Persons)
who is (or collectively are) the Beneficial Owner of shares of Common Stock
constituting 1% or more of the then outstanding shares of Common Stock or
Voting
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Stock representing 1% or more of the combined voting power of the then
outstanding Voting Stock shall become an Affiliate or Associate of such
Person.
(x) "Good Reason" shall mean:
(a) the assignment to the Employee of any duties materially
inconsistent in any respect with the Employee's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 1 of this Agreement, or
any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Employee;
(b) any material failure by the Company to comply with any of
the provisions of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Employee;
(c) the Company's requiring the Employee to be based at any
office outside the Tulsa metropolitan area;
(d) any purported termination by the Company of the Employee's
employment otherwise than as expressly permitted by this Agreement; or
(e) any failure to reelect Employee as a member of the Board of
Directors.
(xi) "Person" shall mean any individual, firm, corporation,
partnership, association, trust, unincorporated organization or other entity.
(xii) "Voting Stock" shall mean, with respect to a corporation,
all securities of such corporation of any class or series that are entitled
to vote generally in the election of directors of such corporation (excluding
any class or series that would be entitled so to vote by reason of the
occurrence of any contingency, so long as such contingency has not occurred).
(xiii) "Window Period" shall mean the 60-day period immediately
following elapse of one year after any Change of Control.
15. RESIGNATION UPON TERMINATION. In the event of termination of this
Agreement other than for death, Employee agrees to resign from all positions
held in the Company, including without limitation any position as a director,
officer, agent, trustee or consultant of the Company or any affiliate of the
Company.
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16. NOTICE TO SUBSEQUENT EMPLOYERS. For a period of two years after
termination of Employee's employment with the Company for any reason,
Employee will inform any new employer (before accepting employment) of the
obligations of Employee under Paragraphs 6, 7, 8, 9, and 10 of this Agreement.
17. OBLIGATIONS UNCONDITIONAL. The obligations of the parties under
this Agreement are unconditional and do not depend upon the performance of
any agreements, duties, obligations, or terms outside this Agreement.
18. WAIVER. A party's failure to insist on compliance or enforcement
of any provision of this Agreement shall not affect the validity or
enforceability or constitute a waiver of future enforcement of that provision
or of any other provision of this Agreement by that party or any other party.
19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF OKLAHOMA, UNITED STATES OF
AMERICA, WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF. The Company
and Employee expressly and irrevocably consent and submit to the nonexclusive
jurisdiction of any state or federal court sitting in Tulsa County, Oklahoma
and agree that, to the fullest extent allowed by law, such Oklahoma state or
federal courts shall have jurisdiction over any action, suit or proceeding
arising out of or relating to this Agreement. The Company and Employee 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 Tulsa County,
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
the Company or Employee 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.
20. SEVERABILITY. If for any reason any paragraph, term or provision
of this Agreement is held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall not affect any other provision hereof,
and this Agreement shall be construed and enforced as if such provision had
not been included herein and all other valid provisions herein shall remain
in full force and effect. If for any reason the restrictions and covenants
contained herein are held to cover a geographical area or be for a length of
time which is unreasonable or unenforceable, or in any other way are
construed to be too broad or to any extent invalid, then to the extent the
same are or would be valid or enforceable under applicable law, any court of
competent jurisdiction shall construe and interpret or reform this Agreement
to provide for a covenant having the maximum area, time or other provisions
(not greater than those contained herein) as shall be valid and enforceable
under such applicable law.
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21. JURISDICTION. The Company and Employee intend to and hereby confer
jurisdiction to enforce the provisions of this Agreement and any restrictive
covenants contained herein upon the courts of any jurisdiction within the
geographical scope of such covenants. If the courts of any one or more of
such jurisdictions hold the provisions of this Agreement or any of the
restrictive covenants contained herein unenforceable by reason of the breadth
of such scope or otherwise, it is the intention of the Company and Employee
that such determination not bar or in any way affect the Company's right to
the relief provided herein in the courts of any other jurisdiction within the
geographical scope of such covenants, as to breaches of such covenants, such
covenants as they relate to each jurisdiction being, for this purpose,
severable into diverse and independent covenants.
22. NOTICE. Any and all notices required or permitted herein shall be
deemed delivered if delivered personally or if mailed by registered or
certified mail to the Company at its principal place of business and to
Employee at the address hereinafter set forth following Employee's signature,
or at such other address or addresses as either party may hereafter designate
in writing to the other.
23. AMENDMENTS. This Agreement may be amended at any time by mutual
consent of the parties hereto, with any such amendment to be invalid unless
in writing, signed by the Company and Employee.
24. BURDEN AND BENEFIT. This Agreement, together with any amendments
hereto, shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors, assigns, heirs and personal
representatives. The Company may, in its sole discretion, assign this
Agreement or its rights hereunder to any parent, affiliate, shareholder, or
successor of the Company, or to any person or entity which purchases
substantially all of the assets of the Company. Employee may not transfer or
assign this Agreement or any of Employee's rights or obligations under this
Agreement.
25. REFERENCES TO GENDER AND NUMBER TERMS. In construing this
Agreement, feminine or number pronouns shall be substituted for those
masculine in form and vice versa, and plural terms shall be substituted for
singular and singular for plural in any place which the context so requires.
26. HEADINGS. The various headings in this Agreement are inserted for
convenience only and are not part of the Agreement.
27. ENTIRE AGREEMENT. This Agreement contains the entire understanding
and agreement between the parties relating to the subject matter hereof. The
original Employment Agreement between the Company and Employee dated February
28, 1994 is hereby amended and restated in its entirety as set forth herein.
28. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and all such counterparts shall constitute one and the same
instrument.
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29. SEVERANCE COMPENSATION. In the event of termination of Employee's
employment with the Company under the terms of this Agreement which provide
for payment by the Company to Employee of severance compensation, the amount
of such severance compensation shall in no event be greater than the amount
which would be deductible by the Company under Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), after taking into
consideration all payments to Employee covered by Code Section 280G which
Employee receives or is deemed to receive (i) under this Agreement; (ii)
under the Company's 1993 Stock Option and Incentive Plan, as amended, by
reason of the acceleration of the right to exercise any options (including
any related stock appreciation rights) granted thereunder or the acceleration
of the vesting of any restricted stock awards granted thereunder; or (iii)
under any new plan or arrangement implemented by the Company after the date
of this Agreement which would otherwise be considered a "parachute payment"
under Section 280G. In the event such payments exceed the amount which would
be deductible by the Company under Code Section 280G, the timing of such
payments shall be extended or otherwise modified such that such payments
shall be deductible by the Company under Code Section 280G and in a manner
which, to the extent possible, provides Employee the full benefit of such
payments as originally agreed to.
IN WITNESS WHEREOF, the Company and Employee have duly executed this
Agreement as of the date and year first above written.
COMPANY:
SYNTROLEUM CORPORATION
By: /s/ Kenneth L. Agee
-----------------------------------
Kenneth L. Agee, Chief Executive
Officer and Chairman of the Board
Syntroleum Corporation.
1350 South Boulder, Suite 1100
Tulsa, Oklahoma 74119
EMPLOYEE:
By: /s/ Mark A. Agee
-----------------------------------
Mark A. Agee
Home address:
9220 S. Hudson
Tulsa, Oklahoma 74137
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AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
CONFIDENTIAL
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is made
and entered into effective as of the 19th day of May, 1998 by and between
Syntroleum Corporation, an Oklahoma corporation (the "Company"), and Charles
A. Bayens, an individual (the "Employee").
WHEREAS, the Company and Employee, are parties to that certain Employment
Agreement dated July 8, 1997 ("Original Employment Agreement"); and
WHEREAS, the Company and Employee desire to amend and restate the Original
Employment Agreement to continue Employee's employment by the Company on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the Company and Employee hereby agree as follows.
1. EMPLOYMENT AND DUTIES. The Company employs Employee in the capacity
of Vice President of Engineering, or in such other position and at such location
as the Company may direct or desire and Employee hereby accepts such employment,
on the terms and conditions hereinafter set forth. Employee agrees to perform
such services and duties (including reasonable travel) and hold such offices at
such locations as may be reasonably assigned to him from time to time by the
Company and to devote substantially his full business time, energies and best
efforts to the performance thereof to the exclusion of all other business
activities, except any activities disclosed to the Company in advance and
consented to by the Company.
2. COMPENSATION. As compensation for the services to be rendered by
Employee to the Company pursuant to this Agreement, Employee shall be paid the
following compensation and other benefits.
(a) Salary in the amount of $140,000 per year, payable in equal bi-monthly
installments in arrears, or such higher compensation as may be established by
the Company from time to time. Payments of salary shall be made in accordance
with the Company's usual payroll procedures.
(b) Employee shall be eligible to participate, to the extent he may be
eligible, in any group medical and hospitalization, profit sharing, retirement,
life insurance or other employee benefit plans which the Company may from time
to time offer to its employees. All group insurance provided to Employee shall
be in such form and provide such coverage as is provided to other employees of
the Company.
(c) All compensation payments to Employee shall be made subject to normal
deductions therefrom, including federal and state social security and
withholding taxes.
3. LIFE INSURANCE. The Company, in its discretion, may apply for and
procure in its own name and for its own benefit, life insurance on the life of
Employee in any amount or
<PAGE>
amounts considered advisable by the Company. Employee shall submit to any
medical or other examination and execute and deliver any application or other
instrument in writing, reasonably necessary for the Company to acquire such
insurance.
4. EXPENSES. The Company shall reimburse Employee for his actual
out-of-pocket expenses incurred in carrying out his duties hereunder in the
conduct of the Company's business, which expenses shall be limited to
ordinary and necessary items and which shall be supported by vouchers,
receipts or similar documentation submitted in accordance with the Company's
expense reimburse policy and as required by law.
5. VACATIONS AND LEAVE. Employee shall be entitled to vacation and leave
in accordance with the Company's policies in effect from time to time.
6. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Employee acknowledges that in and as a result of his employment by the
Company, he will be making use of, acquiring, and/or adding to the Company's
Trade Secret Information. Except as required in the performance of Employee's
duties under this Agreement, Employee will not use any Trade Secret Information
of the Company for Employee's own benefit or purposes or disclose to third
parties, directly or indirectly, any Trade Secret Information of the Company,
either during or after Employee's employment with the Company.
(b) As used in this Agreement, "Trade Secret Information" means
information, including, but not limited to, any formula, pattern, compilation,
program, device, method, technique or process, that: (i) derives independent
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 (ii) is the subject of efforts
that are reasonable under the circumstances to maintain its secrecy. For
purposes of this Agreement, "Trade Secret Information" includes both information
disclosed to Employee by the Company and information developed by Employee in
the course of his employment with the Company. The types and categories of
information which are considered to be Trade Secret Information include, without
limitation: (a) specifications, descriptions, designs, dimensions, content
(including chemical composition) and tolerances of products, parts and
components; (b) plans, blueprints, design packages construction, part and
assembly drawings and diagrams; (c) design, construction and component costs and
cost estimates; (d) the existence, terms or conditions of any agreements
(including license agreements) between the Company and any third party; (e)
computer programs (whether in the form of source code, object code or any other
form, including software, firmware and programmable array logic), formulas,
algorithms, methods, techniques, processes, designs, specifications, diagrams,
flow charts, manuals, descriptions, instructions, explanations, improvements,
and the ideas, systems and methods of operation contained in such programs; (f)
information concerning or resulting from research and development work performed
by Syntroleum; (g) information concerning Syntroleum's management, financial
condition, financial operations, purchasing activities, sales activities,
marketing activities and business plans; (h) information
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<PAGE>
acquired or compiled by Syntroleum concerning actual or potential customers;
and (i) all other types and categories of information (in whatever form) with
respect to which, under all the circumstances, Employee knows or has reason
to know that Syntroleum intends or expects secrecy to be maintained and as to
which Syntroleum has made reasonable efforts to maintain its secrecy.
(c) The Company may also advise Employee from time to time as to
restrictions upon the use or disclosure of specified information which has been
licensed or otherwise disclosed to the Company by third parties pursuant to
license or confidential disclosure agreements which contain restrictions upon
the use or disclosure of such information. Employee agrees to abide by the
restrictions upon use and/or disclosure contained in such agreements.
(d) Employee has not and will not use or disclose to the Company any
confidential or proprietary information belonging to others without the written
consent of the person to whom such information is confidential, and Employee
represents that his employment with the Company will not require the use of such
information or the violation of any confidential relationship with any third
party.
7. OTHER PROPERTY OF THE COMPANY. All documents, encoded media, and
other tangible items provided to Employee by the Company or prepared, generated
or created by Employee or others in connection with any business activity of the
Company are the property of the Company. Upon termination of Employee's
employment with the Company, Employee will promptly deliver to the Company all
such documents, media and other items in his possession, including all complete
or partial copies, recordings, abstracts, notes or reproductions of any kind
made from or about such documents, media, items or information contained
therein. Employee will neither have nor claim any right, title or interest in
any trademark, service mark or trade name owned or used by the Company.
8. INVENTIONS AND WORKS OF AUTHORSHIP.
(a) Employee agrees to assign and hereby irrevocably assigns to the
Company all of Employee's right, title and interest in and to any and all
Inventions and Works of Authorship made, generated or conceived by Employee
during the period of his employment with the Company, and Employee agrees to and
shall promptly disclose all such Inventions and Works of Authorship to the
Company in writing. As used herein, "Invention" means any discovery,
improvement, innovation, idea, formula, or shop right (whether or not
patentable, whether or not put into writing and whether or not put into
practice) made, generated or conceived by Employee (whether alone or with
others) while employed by the Company. For purposes of this Agreement, any
discovery, improvement, innovation, idea, formula, or shop right (whether or not
patentable, whether or not put into writing and whether or not put into
practice) relating directly or indirectly to the business of the Company or to
the Company's actual or demonstrably anticipated business, research or
development with respect to which Employee files a patent application within two
years after termination of employment with the Company shall be presumed to be
an Invention. As used herein, "Work
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<PAGE>
of Authorship" means any original work of authorship within the purview of
the copyright laws of the United States of America, and both the Company and
Employee intend and agree that all Works of Authorship created by Employee in
the course of his employment with the Company will be and shall constitute
works made for hire within the meaning and purview of such copyright laws.
(b) Employee will execute and assign any and all applications,
assignments, and other documents and will render all assistance which may be
reasonably necessary for the Company to obtain patent, copyright, or any
other form of intellectual property protection with respect to all Inventions
and Works of Authorship in all countries and will cooperate with Syntroleum
as reasonably necessary to enforce any such intellectual property protection.
The Company will pay Employee $200 for each patent issued to the Company
upon which Employee's name appears as an inventor.
(c) The provisions of this Paragraph 8 do not apply to an invention for
which no equipment, supplies, facility or Trade Secret Information of the
Company was used and which was developed entirely on Employee's own time, and
which does not relate (i) directly or indirectly to the business, research or
development of the Company, or (ii) to the Company's actual or demonstrably
anticipated business, research or development. A reasonable determination of
the applicability of this Paragraph 8(a) to an Employee's invention shall be
made by Syntroleum after the Employee submits notification in writing of the
invention. Said notice shall include adequate detail for Syntroleum to evaluate
the invention.
9. LIMITED COVENANTS AGAINST COMPETITION; NON-SOLICITATION.
(a) Employee acknowledges that the services he is to render to the Company
are of a special and unusual character with a unique value to the Company, the
loss of which cannot adequately be compensated by damages in an action at law.
In view of the unique value to the Company of the services of Employee and
because of the confidential Trade Secret Information to be obtained by or
disclosed to Employee, as set forth above, and as a material inducement to the
Company to enter into this Agreement and to pay to Employee the compensation
stated in Paragraph 2, Employee covenants and agrees that during the period of
Employee's employment within the Company and for a period of two years following
termination of Employee's employment with the Company for any reason,
voluntarily or involuntarily, Employee will not directly or indirectly: (i)
start or participate or assist (as a proprietor, partner, shareholder, lender,
investor, director, employee, consultant, independent contractor or otherwise)
in starting any Competing Business; (ii) assist (as a proprietor, partner,
shareholder, lender, investor, director, employee, consultant, independent
contractor or otherwise) any existing Competing Business in the design,
development or manufacture of any Competing Product; (iii) sell or assist in the
sale of any Competing Product to any person or organization with whom Employee
had any contact while employed with the Company; (iv) directly or indirectly
solicit for employment or employ any of the Company's employees; or (v) become
employed by a former employee of the Company. Because Syntroleum actively
pursues opportunities throughout the world and is engaged in a world-wide
oriented
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<PAGE>
business the Employee acknowledges the reasonableness of having no geographic
limitation hereunder.
(b) Employee further acknowledges that, while employed by the Company, he
will have contact with and become aware of the Company's customers and licensees
and their respective representatives, including their names and addresses,
specific needs and requirements, as well as leads and references to prospective
customers and licensees. Employee further acknowledges that loss of such
customers or licensees would cause the Company great and irreparable harm.
Employee agrees that for a period of two years following termination of
Employee's employment with the Company for any reason, voluntarily or
involuntarily, Employee will not directly or indirectly solicit, contact, call
upon, communicate with or attempt to communicate with any customer or licensee,
former customer or licensee, or prospective customer or licensee of the Company
for the purpose of selling, installing, implementing, or modifying any Competing
Product. This restriction shall apply only to any customer or licensee, former
customer or licensee, or prospective customer or licensee of the Company with
whom Employee had contact during the last two years of Employee's employment
with the Company.
(c) The Employee agrees that for as long as he is employed by the Company
and for a period of two years after termination of Employee's employment with
the Company for any reason, voluntarily or involuntarily, Employee will not
solicit, recruit, hire or attempt to solicit, recruit or hire, directly or by
assisting others, any other employee of the Company.
(d) As used in this Agreement, (i) "Competing Business" means any person,
entity or organization other than the Company which is engaged in or is about to
become engaged in the design, manufacture or sale of a Competing Product, (ii)
"Competing Product" means any product (including, without limitation, any
chemical formula or process) which is or may be marketed in competition with any
product marketed or under development by the Company at any time, and (iii)
"contact" means interaction between Employee and a customer or licensee, former
customer or licensee, or prospective customer or licensee of the Company, which
takes place to further any business relationship; or performing services for the
customer or licensee, former customer or licensee, or prospective customer or
licensee on behalf of the Company.
10. REASONABLENESS OF RESTRICTIONS.
(a) Employee expressly acknowledges that he has carefully read and
considered the provisions of Paragraphs 6, 7, 8 and 9, and, having done so,
agrees that the restrictions set forth in these Paragraphs, including, but not
limited to, the time periods and geographic areas of restriction are fair and
reasonable and are reasonably required for the protection of the interests of
the Company and its officers, directors, shareholders and other employees.
(b) In the event that, notwithstanding the foregoing, any of the
provisions of Paragraphs 6, 7, 8 and 9 shall be held to be invalid or
unenforceable, the remaining provisions thereof shall nevertheless continue
to be valid and enforceable as though the
5
<PAGE>
invalid or unenforceable parts had not been included therein. In the event
that any provision of Paragraphs 6, 7, 8 and 9 relating to the time period
and/or the areas of restriction and/or related aspects shall be declared by a
court of competent jurisdiction to exceed the maximum restrictiveness such
court deems reasonable and enforceable, the time period and/or areas of
restriction and/or related aspects deemed reasonable and enforceable by the
court shall become and thereafter be the maximum restriction in such regard,
and the restriction shall remain enforceable to the fullest extent deemed
reasonable by such court.
11. REQUESTS FOR CLARIFICATION. In the event Employee is uncertain as to
the meaning of any provision of this Agreement or its application to any
particular information, item or activity, Employee will inquire in writing to
the Company, specifying any areas of uncertainty. The Company will respond in
writing within a reasonable time and will endeavor to clarify any areas of
uncertainty, including such things as whether it considers particular
information to be its Trade Secret Information or whether it considers any
particular activity or employment to be in violation of this Agreement.
12. REMEDIES. In the event of a breach or threatened breach of any of the
covenants in Paragraphs 6, 7, 8 and 9, the Company shall have the right to seek
monetary damages and equitable relief, including specific performance by means
of an injunction against Employee or against Employee's partners, agents,
representatives, servants, employers, employees, family members and/or any and
all persons acting directly or indirectly by or with him, to prevent or restrain
any such breach.
13. TERM AND TERMINATION.
(a) The term of this Agreement shall be for an initial term of 12 months
from the effective date hereof, unless sooner terminated as provided herein, and
shall thereafter be automatically renewed for successive terms of 12 months each
unless sooner terminated as provided herein.
(b) Employment of Employee under this Agreement may be terminated:
(i) by the Company upon the death of Employee.
(ii) by the Company if Employee becomes disabled. For the purposes
of this Agreement, Employee will be deemed disabled if he (i) has been
declared legally incompetent by a final court decree (the date of such
decree being deemed to be the date on which the disability occurred), or
(ii) receives disability insurance benefits from any disability income
insurance policy maintained by the Company for a period of three
consecutive months, or (iii) has been found to be disabled pursuant to a
disability determination. A "disability determination" means a finding
that Employee, because of a medically determinable disease, injury, or
other mental or physical disability, is unable to perform substantially all
of his regular duties to the Company and that such disability is determined
or reasonably expected to last at least six months. The disability
determination shall be based upon the written opinion of
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<PAGE>
the physician regularly attending Employee whose disability is in
question. If the Company disagrees with the opinion of this physician
(the "First Physician"), it may engage, at its own expense, another
physician of its choice (the "Second Physician") to examine Employee.
If the First and Second Physicians agree in writing that Employee is or
is not disabled, their written opinion shall, except as otherwise set
forth in this subsection, be conclusive on the issue of disability. If
the First and Second Physicians disagree on the disability of Employee,
they shall choose a third consulting physician (whose expense shall be
borne by the Company), and the written opinion of a majority of these
three physicians shall, except as otherwise provided in this subsection,
be conclusive as to Employee's disability. The date of any written
opinion conclusively finding Employee to be disabled is the date on
which the disability will be deemed to have occurred. If there is a
conclusive finding that Employee is not totally disabled, the Company
shall have the right to request additional disability determinations
provided it agrees to pay all the expenses of the disability
determinations and does not request an additional disability
determination more frequently than once every three months. In
connection with any disability determination, Employee hereby consents
to any required medical examination, and agrees to furnish any medical
information requested by any examining physician and to waive any
applicable physician-patient privilege that may arise because of such
examination. All physicians except the First Physician must be
board-certified in the specialty most closely related to the nature of
the disability alleged to exist.
(iii) by the Company when Employee reaches mandatory retirement age
under any retirement policy applicable to all executive officers adopted by
the Company.
(iv) by mutual agreement of Employee and the Company.
(v) by the Company upon the dissolution and liquidation of the
Company (other than as part of a reorganization, merger, consolidation or
sale of all or substantially all of the assets of the Company whereby the
business of the Company is continued).
(vi) by the Company for just cause at any time upon written notice.
For purposes of this Agreement, "just cause" shall mean any one or more of
the following: (A) Employee's material breach of his obligations, duties
and responsibilities under any term or provision of this Agreement, which
breach remains uncured for a period of five days after written notice by
the Company to Employee; (B) Employee's failure to adhere to the reasonable
standards of performance prescribed by the Company; (C) Employee's act of
insubordination to the Company's Board of Directors; (D) Employee's gross
negligence or willful misconduct in the performance of his duties under
this Agreement; (E) Employee's dishonesty, fraud, misappropriation or
embezzlement in the course of, related to or connected with the business of
the Company; (F) Employee's conviction of a felony; or (G) Employee's
failure (after written notice to Employee of such failure and Employee not
correcting
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<PAGE>
such failure within five days of such notice) to devote his time, attention
and best efforts to the business of the Company as provided in this
Agreement.
(vii) by either the Company or Employee upon 60 days written notice.
(c) Any termination of Employee's employment, either by the Company or
Employee, shall be communicated by a written notice of termination to the other
party.
(d) If Employee's employment is terminated pursuant to the terms of this
Agreement for any reason, Employee shall be entitled to all arrearages of salary
and expenses up to and including the date of termination but shall not be
entitled to further compensation. Provided, that if, at any time after the
first 12 months from the date of the Original Employment Agreement, Employee's
employment is terminated by the Company for any reason other than Employee's
death, disability or retirement, the Company's dissolution or just cause as
provided in Paragraphs 13(b)(i), (ii), (iii), (v) or (vi), respectively,
Employee shall be entitled to and the Company shall pay Employee all arrearages
of salary and expenses up to and including the date of termination and, in
addition, Employee's monthly base salary for an additional period of 24 months.
(e) Upon expiration of the term of this Agreement or upon earlier
termination of this Agreement, Employee shall deliver all Trade Secret
Information of the Company to an authorized representative of the Company, and
the non-disclosure provisions of PARAGRAPH 6 shall survive such expiration or
termination and shall remain in full force and effect for a period of 15 years
from such expiration or termination.
14. CHANGE OF CONTROL.
(a) In the event of a Change of Control of the Company and (i) during the
one-year period immediately following any Change of Control, the Company
terminates Employee's employment for any reason other than Employee's death,
disability, retirement or just cause as provided in Paragraphs 13(b)(i),
(ii), (iii) and (vi), respectively, (ii) the Employee terminates his
employment for Good Reason, or (iii) during the Window Period the Company or
Employee terminates Employee's employment for any reason, then the Company or
its successor shall pay Employee his full base salary in effect at the time
of the notice of termination through the date of termination, and in lieu of
any further salary payments for periods subsequent to the date of
termination, the Company or its successor shall pay Employee as severance pay
an amount equal to two times Employee's full base salary in effect on the
date of termination payable in 24 equal monthly installments beginning on the
first day of the first calendar month following the date of Employee's
termination and continuing on the first day of each month thereafter until
paid.
(b) Anything in this Agreement to the contrary notwithstanding, if a
Change of Control occurs and if the Employee's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Employee that such termination of employment (i)
was at the request of a third party who has
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taken steps reasonably calculated to effect the Change of Control or (ii)
otherwise arose in connection with or anticipation of the Change of Control,
then for all purposes of this Agreement, the "Change of Control" shall be
deemed to have occurred on the date immediately prior to the date of such
termination of employment.
(c) as used in this Agreement, the terms set forth below shall have the
following respective meanings:
(i) "Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in
effect on the Agreement Effective Date.
(ii) "Agreement Effective Date" shall mean May 19, 1998.
(iii) "Associate" shall mean, with reference to any Person, (a)
any corporation, firm, partnership, association, unincorporated organization or
other entity (other than the Company or a subsidiary of the Company) of which
such Person is an officer or general partner (or officer or general partner of a
general partner) or is, directly or indirectly, the Beneficial Owner of 10% or
more of any class of equity securities, (b) any trust or other estate in which
such Person has a substantial beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity and (c) any relative or
spouse of such Person, or any relative of such spouse, who has the same home as
such Person.
(iv) "Beneficial Owner" shall mean, with reference to any securities,
any Person if:
(a) such Person or any of such Person's Affiliates and Associates,
directly or indirectly, is the "beneficial owner" of (as determined
pursuant to Rule 13d-3 of the General Rules and Regulations under the
Exchange Act, as in effect on the Agreement Effective Date) such
securities or otherwise has the right to vote or dispose of such
securities, including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however, that a
Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security under this subsection (a) as a result
of an agreement, arrangement or understanding to vote such security if
such agreement, arrangement or understanding: (i) arises solely from a
revocable proxy or consent given in response to a public (I.E., not
including a solicitation exempted by Rule 14a-2(b)(2) of the General
Rules and Regulations under the Exchange Act) proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the Exchange Act
and (ii) is not then reportable by such Person on Schedule 13D under the
Exchange Act (or any comparable or successor report);
(b) such Person or any of such Person's Affiliates and Associates,
directly or indirectly, has the right or obligation to acquire such
securities (whether such right or obligation is exercisable or effective
immediately or only after the passage of time
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<PAGE>
or the occurrence of an event) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, other rights, warrants or options,
or otherwise; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to "beneficially own," (i) securities tendered
pursuant to a tender or exchange offer made by such Person or any of
such Person's Affiliates or Associates until such tendered securities
are accepted for purchase or exchange or (ii) securities issuable upon
exercise of Exempt Rights; or
(c) such Person or any of such Person's Affiliates or Associates
(i) has any agreement, arrangement or understanding (whether or not in
writing) with any other Person (or any Affiliate or Associate thereof)
that beneficially owns such securities for the purpose of acquiring,
holding, voting (except as set forth in the proviso to subsection (a) of
this definition) or disposing of such securities or (ii) is a member of
a group (as that term is used in Rule 13d-5(b) of the General Rules and
Regulations under the Exchange Act) that includes any other Person that
beneficially owns such securities;
provided, however, that nothing in this definition shall cause a Person engaged
in business as an underwriter of securities to be the Beneficial Owner of, or to
"beneficially own," any securities acquired through such Person's participation
in good faith in a firm commitment underwriting until the expiration of 40 days
after the date of such acquisition. For purposes hereof, "voting" a security
shall include voting, granting a proxy, consenting or making a request or demand
relating to corporate action (including, without limitation, a demand for a
stockholder list, to call a stockholder meeting or to inspect corporate books
and records) or otherwise giving an authorization (within the meaning of Section
14(a) of the Exchange Act) in respect of such security.
The terms "beneficially own" and "beneficially owning" shall have meanings
that are correlative to this definition of the term "Beneficial Owner."
(v) "Change of Control" shall mean any of the following (provided,
however, that without limiting the generality of any other provision
hereof, no Change of Control shall be deemed to have occurred as a
result of the consummation of any of the transactions contemplated by
the Agreement and Plan of Merger dated as of March 30, 1998 by and
between SLH Corporation, a Kansas corporation, and the Company (the
"Merger Agreement")):
(a) any Person (other than an Exempt Person) shall become the
Beneficial Owner of 30% or more of the shares of Common Stock then
outstanding or 30% or more of the combined voting power of the Voting
Stock of the Company then outstanding; provided, however, that no Change
of Control shall be deemed to occur for purposes of this subsection (a)
if such Person shall become a Beneficial Owner of 30% or more of the
shares of Common Stock or 30% or more of the combined voting power of
the Voting Stock of the Company solely as a result of (i) an Exempt
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Transaction or (ii) an acquisition by a Person pursuant to a
reorganization, merger or consolidation, if, following such
reorganization, merger or consolidation, the conditions described in
clauses (i), (ii) and (iii) of subsection (c) of this definition are
satisfied;
(b) individuals who, as of the Agreement Effective Date, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the Agreement Effective Date whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board; provided, further, that
there shall be excluded, for this purpose, any such individual whose
initial assumption of office occurs as a result of any actual or
threatened election contest that is subject to the provisions of Rule
14a-11 under the Exchange Act;
(c) approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) more than
80% of the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation and the
combined voting power of the then outstanding Voting Stock of such
corporation is then beneficially owned, directly or indirectly, by all
or substantially all of the Persons who were the Beneficial Owners of
the outstanding Common Stock immediately prior to such reorganization,
merger or consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or
consolidation, of the outstanding Common Stock, (ii) no Person
(excluding any Exempt Person or any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation,
directly or indirectly, 30% or more of the Common Stock then outstanding
or 30% or more of the combined voting power of the Voting Stock of the
Company then outstanding) beneficially owns, directly or indirectly, 30%
or more of the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or consolidation
or the combined voting power of the then outstanding Voting Stock of
such corporation and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such
reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement or initial
action by the Board providing for such reorganization, merger or
consolidation; or
(d) approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company unless such liquidation or
dissolution is approved as part of a plan of liquidation and dissolution
involving a sale or disposition of all or substantially all of the
assets of the Company to a corporation with respect to which, following
such sale or other disposition, all of the requirements of clauses
(ii)(A), (B) and (C) of this subsection (d) are satisfied, or (ii) the
sale or other disposition of all or substantially all of the assets of
the Company, other than to
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a corporation, with respect to which, following such sale or other
disposition, (A) more than 80% of the then outstanding shares of common
stock of such corporation and the combined voting power of the Voting
Stock of such corporation is then beneficially owned, directly or
indirectly, by all or substantially all of the Persons who were the
Beneficial Owners of the outstanding Common Stock immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition, of
the outstanding Common Stock, (B) no Person (excluding any Exempt Person
and any Person beneficially owning, immediately prior to such sale or
other disposition, directly or indirectly, 30% or more of the Common
Stock then outstanding or 30% or more of the combined voting power of
the Voting Stock of the Company then outstanding) beneficially owns,
directly or indirectly, 30% or more of the then outstanding shares of
common stock of such corporation and the combined voting power of the
then outstanding Voting Stock of such corporation and (C) at least a
majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the
initial agreement or initial action of the Board providing for such sale
or other disposition of assets of the Company.
(vi) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(vii) "Exempt Person" shall mean the Company, any subsidiary of
the Company, any employee benefit plan of the Company or any subsidiary of the
Company, and any Person organized, appointed or established by the Company for
or pursuant to the terms of any such plan.
(viii) "Exempt Rights" shall mean any rights to purchase shares of
Common Stock or other Voting Stock of the Company if at the time of the issuance
thereof such rights are not separable from such Common Stock or other Voting
Stock (I.E., are not transferable otherwise than in connection with a transfer
of the underlying Common Stock or other Voting Stock) except upon the occurrence
of a contingency, whether such rights exist as of the Agreement Effective Date
or are thereafter issued by the Company as a dividend on shares of Common Stock
or other Voting Securities or otherwise.
(ix) "Exempt Transaction" shall mean an increase in the percentage of
the outstanding shares of Common Stock or the percentage of the combined voting
power of the outstanding Voting Stock of the Company beneficially owned by any
Person solely as a result of a reduction in the number of shares of Common Stock
then outstanding due to the repurchase of Common Stock or Voting Stock by the
Company, unless and until such time as (a) such Person or any Affiliate or
Associate of such Person shall purchase or otherwise become the Beneficial Owner
of additional shares of Common Stock constituting 1% or more of the then
outstanding shares of Common Stock or additional Voting Stock representing 1% or
more of the combined voting power of the then outstanding Voting Stock, or (b)
any other Person (or Persons) who is (or collectively are) the Beneficial Owner
of shares of Common Stock constituting 1% or more of the then outstanding shares
of Common Stock or Voting
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Stock representing 1% or more of the combined voting power of the then
outstanding Voting Stock shall become an Affiliate or Associate of such
Person.
(x) "Good Reason" shall mean:
(a) the assignment to the Employee of any duties materially
inconsistent in any respect with the Employee's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 1 of this Agreement, or
any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Employee;
(b) any material failure by the Company to comply with any of
the provisions of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Employee;
(c) the Company's requiring the Employee to be based at any
office outside the Tulsa metropolitan area;
(d) any purported termination by the Company of the Employee's
employment otherwise than as expressly permitted by this Agreement; or
(xi) "Person" shall mean any individual, firm, corporation,
partnership, association, trust, unincorporated organization or other entity.
(xii) "Voting Stock" shall mean, with respect to a corporation,
all securities of such corporation of any class or series that are entitled to
vote generally in the election of directors of such corporation (excluding any
class or series that would be entitled so to vote by reason of the occurrence of
any contingency, so long as such contingency has not occurred).
(xiii) "Window Period" shall mean the 60-day period immediately
following elapse of one year after any Change of Control.
15. RESIGNATION UPON TERMINATION. In the event of termination of
this Agreement other than for death, Employee agrees to resign from all
positions held in the Company, including without limitation any position as a
director, officer, agent, trustee or consultant of the Company or any
affiliate of the Company.
16. NOTICE TO SUBSEQUENT EMPLOYERS. For a period of two years
after termination of Employee's employment with the Company for any reason,
Employee will inform any
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new employer (before accepting employment) of the obligations of Employee
under Paragraphs 6, 7, 8, 9, and 10 of this Agreement.
17. OBLIGATIONS UNCONDITIONAL. The obligations of the parties
under this Agreement are unconditional and do not depend upon the performance
of any agreements, duties, obligations, or terms outside this Agreement.
18. WAIVER. A party's failure to insist on compliance or
enforcement of any provision of this Agreement shall not affect the validity
or enforceability or constitute a waiver of future enforcement of that
provision or of any other provision of this Agreement by that party or any
other party.
19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OKLAHOMA, UNITED STATES
OF AMERICA, WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF. The
Company and Employee expressly and irrevocably consent and submit to the
nonexclusive jurisdiction of any state or federal court sitting in Tulsa
County, Oklahoma and agree that, to the fullest extent allowed by law, such
Oklahoma state or federal courts shall have jurisdiction over any action,
suit or proceeding arising out of or relating to this Agreement. The Company
and Employee 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
Tulsa County, 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 the Company or Employee 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.
20. SEVERABILITY. If for any reason any paragraph, term or
provision of this Agreement is held to be invalid or unenforceable for any
reason, such invalidity or unenforceability shall not affect any other
provision hereof, and this Agreement shall be construed and enforced as if
such provision had not been included herein and all other valid provisions
herein shall remain in full force and effect. If for any reason the
restrictions and covenants contained herein are held to cover a geographical
area or be for a length of time which is unreasonable or unenforceable, or in
any other way are construed to be too broad or to any extent invalid, then to
the extent the same are or would be valid or enforceable under applicable
law, any court of competent jurisdiction shall construe and interpret or
reform this Agreement to provide for a covenant having the maximum area, time
or other provisions (not greater than those contained herein) as shall be
valid and enforceable under such applicable law.
21. JURISDICTION. The Company and Employee intend to and hereby
confer jurisdiction to enforce the provisions of this Agreement and any
restrictive covenants contained herein upon the courts of any jurisdiction
within the geographical scope of such
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covenants. If the courts of any one or more of such jurisdictions hold the
provisions of this Agreement or any of the restrictive covenants contained
herein unenforceable by reason of the breadth of such scope or otherwise, it
is the intention of the Company and Employee that such determination not bar
or in any way affect the Company's right to the relief provided herein in the
courts of any other jurisdiction within the geographical scope of such
covenants, as to breaches of such covenants, such covenants as they relate to
each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
22. NOTICE. Any and all notices required or permitted herein
shall be deemed delivered if delivered personally or if mailed by registered
or certified mail to the Company at its principal place of business and to
Employee at the address hereinafter set forth following Employee's signature,
or at such other address or addresses as either party may hereafter designate
in writing to the other.
23. AMENDMENTS. This Agreement may be amended at any time by
mutual consent of the parties hereto, with any such amendment to be invalid
unless in writing, signed by the Company and Employee.
24. BURDEN AND BENEFIT. This Agreement, together with any
amendments hereto, shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors, assigns, heirs and
personal representatives. The Company may, in its sole discretion, assign
this Agreement or its rights hereunder to any parent, affiliate, shareholder,
or successor of the Company, or to any person or entity which purchases
substantially all of the assets of the Company. Employee may not transfer or
assign this Agreement or any of Employee's rights or obligations under this
Agreement.
25. REFERENCES TO GENDER AND NUMBER TERMS. In construing this
Agreement, feminine or number pronouns shall be substituted for those
masculine in form and vice versa, and plural terms shall be substituted for
singular and singular for plural in any place which the context so requires.
26. HEADINGS. The various headings in this Agreement are inserted
for convenience only and are not part of the Agreement.
27. ENTIRE AGREEMENT. This Agreement contains the entire
understanding and agreement between the parties relating to the subject
matter hereof. The original Employment Agreement between the Company and
Employee dated July 8, 1997 is hereby amended and restated in its entirety as
set forth herein.
28. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and all such counterparts shall constitute one and the same
instrument.
29. SEVERANCE COMPENSATION. In the event of termination of
Employee's employment with the Company under the terms of this Agreement
which provide for payment by the Company to Employee of severance
compensation, the amount of such
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<PAGE>
severance compensation shall in no event be greater than the amount which
would be deductible by the Company under Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), after taking into consideration all
payments to Employee covered by Code Section 280G which Employee receives or
is deemed to receive (i) under this Agreement; (ii) under the Company's 1993
Stock Option and Incentive Plan, as amended, by reason of the acceleration of
the right to exercise any options (including any related stock appreciation
rights) granted thereunder or the acceleration of the vesting of any
restricted stock awards granted thereunder; or (iii) under any new plan or
arrangement implemented by the Company after the date of this Agreement which
would otherwise be considered a "parachute payment" under Section 280G. In
the event such payments exceed the amount which would be deductible by the
Company under Code Section 280G, the timing of such payments shall be
extended or otherwise modified such that such payments shall be deductible by
the Company under Code Section 280G and in a manner which, to the extent
possible, provides Employee the full benefit of such payments as originally
agreed to.
IN WITNESS WHEREOF, the Company and Employee have duly executed
this Agreement as of the date and year first above written.
COMPANY:
SYNTROLEUM CORPORATION
By: /s/ Mark A. Agee
------------------------------
Mark A. Agee, President
Syntroleum Corporation.
1350 South Boulder, Suite 1100
Tulsa, Oklahoma 74119
EMPLOYEE:
By: /s/ Charles A. Bayens
------------------------------
Charles A. Bayens
Home address:
14427 Broadgreen
Houston, Texas 77079
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<PAGE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
CONFIDENTIAL
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is made
and entered into effective as of the 19th day of May, 1998 by and between
Syntroleum Corporation, an Oklahoma corporation (the "Company"), and Eric
Grimshaw, an individual (the "Employee").
WHEREAS, the Company and Employee, are parties to that certain
Employment Agreement dated June 23, 1997 ("Original Employment Agreement");
and
WHEREAS, the Company and Employee desire to amend and restate the
Original Employment Agreement to continue Employee's employment by the
Company on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the Company and Employee hereby agree as follows.
1. EMPLOYMENT AND DUTIES. The Company employs Employee in the
capacity of Vice President, General Counsel and Secretary, or in such other
position and at such location as the Company may direct or desire and
Employee hereby accepts such employment, on the terms and conditions
hereinafter set forth. Employee agrees to perform such services and duties
(including reasonable travel) and hold such offices at such locations as may
be reasonably assigned to him from time to time by the Company and to devote
substantially his full business time, energies and best efforts to the
performance thereof to the exclusion of all other business activities, except
any activities disclosed to the Company in advance and consented to by the
Company.
2. COMPENSATION. As compensation for the services to be rendered by
Employee to the Company pursuant to this Agreement, Employee shall be paid
the following compensation and other benefits.
(a) Salary in the amount of $140,000 per year, payable in equal
bi-monthly installments in arrears, or such higher compensation as may be
established by the Company from time to time. Payments of salary shall be
made in accordance with the Company's usual payroll procedures.
(b) Employee shall be eligible to participate, to the extent he may be
eligible, in any group medical and hospitalization, profit sharing,
retirement, life insurance or other employee benefit plans which the Company
may from time to time offer to its employees. All group insurance provided
to Employee shall be in such form and provide such coverage as is provided to
other employees of the Company.
(c) All compensation payments to Employee shall be made subject to
normal deductions therefrom, including federal and state social security and
withholding taxes.
3. LIFE INSURANCE. The Company, in its discretion, may apply for and
procure in its own name and for its own benefit, life insurance on the life
of Employee in any amount or
<PAGE>
amounts considered advisable by the Company. Employee shall submit to any
medical or other examination and execute and deliver any application or other
instrument in writing, reasonably necessary for the Company to acquire such
insurance.
4. EXPENSES. The Company shall reimburse Employee for his actual
out-of-pocket expenses incurred in carrying out his duties hereunder in the
conduct of the Company's business, which expenses shall be limited to
ordinary and necessary items and which shall be supported by vouchers,
receipts or similar documentation submitted in accordance with the Company's
expense reimburse policy and as required by law.
5. VACATIONS AND LEAVE. Employee shall be entitled to vacation and
leave in accordance with the Company's policies in effect from time to time.
6. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Employee acknowledges that in and as a result of his employment by
the Company, he will be making use of, acquiring, and/or adding to the
Company's Trade Secret Information. Except as required in the performance of
Employee's duties under this Agreement, Employee will not use any Trade
Secret Information of the Company for Employee's own benefit or purposes or
disclose to third parties, directly or indirectly, any Trade Secret
Information of the Company, either during or after Employee's employment with
the Company.
(b) As used in this Agreement, "Trade Secret Information" means
information, including, but not limited to, any formula, pattern,
compilation, program, device, method, technique or process, that: (i)
derives independent 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
(ii) is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy. For purposes of this Agreement, "Trade Secret
Information" includes both information disclosed to Employee by the Company
and information developed by Employee in the course of his employment with
the Company. The types and categories of information which are considered to
be Trade Secret Information include, without limitation: (a) specifications,
descriptions, designs, dimensions, content (including chemical composition)
and tolerances of products, parts and components; (b) plans, blueprints,
design packages construction, part and assembly drawings and diagrams; (c)
design, construction and component costs and cost estimates; (d) the
existence, terms or conditions of any agreements (including license
agreements) between the Company and any third party; (e) computer programs
(whether in the form of source code, object code or any other form, including
software, firmware and programmable array logic), formulas, algorithms,
methods, techniques, processes, designs, specifications, diagrams, flow
charts, manuals, descriptions, instructions, explanations, improvements, and
the ideas, systems and methods of operation contained in such programs; (f)
information concerning or resulting from research and development work
performed by Syntroleum; (g) information concerning Syntroleum's management,
financial condition, financial operations, purchasing activities, sales
activities, marketing activities and business plans; (h) information
2
<PAGE>
acquired or compiled by Syntroleum concerning actual or potential customers;
and (i) all other types and categories of information (in whatever form) with
respect to which, under all the circumstances, Employee knows or has reason
to know that Syntroleum intends or expects secrecy to be maintained and as to
which Syntroleum has made reasonable efforts to maintain its secrecy.
(c) The Company may also advise Employee from time to time as to
restrictions upon the use or disclosure of specified information which has
been licensed or otherwise disclosed to the Company by third parties pursuant
to license or confidential disclosure agreements which contain restrictions
upon the use or disclosure of such information. Employee agrees to abide by
the restrictions upon use and/or disclosure contained in such agreements.
(d) Employee has not and will not use or disclose to the Company any
confidential or proprietary information belonging to others without the
written consent of the person to whom such information is confidential, and
Employee represents that his employment with the Company will not require the
use of such information or the violation of any confidential relationship
with any third party.
7. OTHER PROPERTY OF THE COMPANY. All documents, encoded media, and
other tangible items provided to Employee by the Company or prepared,
generated or created by Employee or others in connection with any business
activity of the Company are the property of the Company. Upon termination of
Employee's employment with the Company, Employee will promptly deliver to the
Company all such documents, media and other items in his possession,
including all complete or partial copies, recordings, abstracts, notes or
reproductions of any kind made from or about such documents, media, items or
information contained therein. Employee will neither have nor claim any
right, title or interest in any trademark, service mark or trade name owned
or used by the Company.
8. INVENTIONS AND WORKS OF AUTHORSHIP.
(a) Employee agrees to assign and hereby irrevocably assigns to the
Company all of Employee's right, title and interest in and to any and all
Inventions and Works of Authorship made, generated or conceived by Employee
during the period of his employment with the Company, and Employee agrees to
and shall promptly disclose all such Inventions and Works of Authorship to
the Company in writing. As used herein, "Invention" means any discovery,
improvement, innovation, idea, formula, or shop right (whether or not
patentable, whether or not put into writing and whether or not put into
practice) made, generated or conceived by Employee (whether alone or with
others) while employed by the Company. For purposes of this Agreement, any
discovery, improvement, innovation, idea, formula, or shop right (whether or
not patentable, whether or not put into writing and whether or not put into
practice) relating directly or indirectly to the business of the Company or
to the Company's actual or demonstrably anticipated business, research or
development with respect to which Employee files a patent application within
two years after termination of employment with the Company shall be presumed
to be an Invention. As used herein, "Work
3
<PAGE>
of Authorship" means any original work of authorship within the purview of
the copyright laws of the United States of America, and both the Company and
Employee intend and agree that all Works of Authorship created by Employee in
the course of his employment with the Company will be and shall constitute
works made for hire within the meaning and purview of such copyright laws.
(b) Employee will execute and assign any and all applications,
assignments, and other documents and will render all assistance which may be
reasonably necessary for the Company to obtain patent, copyright, or any
other form of intellectual property protection with respect to all Inventions
and Works of Authorship in all countries and will cooperate with Syntroleum
as reasonably necessary to enforce any such intellectual property protection.
The Company will pay Employee $200 for each patent issued to the Company
upon which Employee's name appears as an inventor.
(c) The provisions of this Paragraph 8 do not apply to an invention for
which no equipment, supplies, facility or Trade Secret Information of the
Company was used and which was developed entirely on Employee's own time, and
which does not relate (i) directly or indirectly to the business, research or
development of the Company, or (ii) to the Company's actual or demonstrably
anticipated business, research or development. A reasonable determination of
the applicability of this Paragraph 8(a) to an Employee's invention shall be
made by Syntroleum after the Employee submits notification in writing of the
invention. Said notice shall include adequate detail for Syntroleum to
evaluate the invention.
9. LIMITED COVENANTS AGAINST COMPETITION; NON-SOLICITATION.
(a) Employee acknowledges that the services he is to render to the
Company are of a special and unusual character with a unique value to the
Company, the loss of which cannot adequately be compensated by damages in an
action at law. In view of the unique value to the Company of the services of
Employee and because of the confidential Trade Secret Information to be
obtained by or disclosed to Employee, as set forth above, and as a material
inducement to the Company to enter into this Agreement and to pay to Employee
the compensation stated in Paragraph 2, Employee covenants and agrees that
during the period of Employee's employment within the Company and for a
period of two years following termination of Employee's employment with the
Company for any reason, voluntarily or involuntarily, Employee will not
directly or indirectly: (i) start or participate or assist (as a proprietor,
partner, shareholder, lender, investor, director, employee, consultant,
independent contractor or otherwise) in starting any Competing Business; (ii)
assist (as a proprietor, partner, shareholder, lender, investor, director,
employee, consultant, independent contractor or otherwise) any existing
Competing Business in the design, development or manufacture of any Competing
Product; (iii) sell or assist in the sale of any Competing Product to any
person or organization with whom Employee had any contact while employed with
the Company; (iv) directly or indirectly solicit for employment or employ any
of the Company's employees; or (v) become employed by a former employee of
the Company. Because Syntroleum actively pursues opportunities throughout
the world and is engaged in a world-wide oriented
4
<PAGE>
business the Employee acknowledges the reasonableness of having no geographic
limitation hereunder.
(b) Employee further acknowledges that, while employed by the Company,
he will have contact with and become aware of the Company's customers and
licensees and their respective representatives, including their names and
addresses, specific needs and requirements, as well as leads and references
to prospective customers and licensees. Employee further acknowledges that
loss of such customers or licensees would cause the Company great and
irreparable harm. Employee agrees that for a period of two years following
termination of Employee's employment with the Company for any reason,
voluntarily or involuntarily, Employee will not directly or indirectly
solicit, contact, call upon, communicate with or attempt to communicate with
any customer or licensee, former customer or licensee, or prospective
customer or licensee of the Company for the purpose of selling, installing,
implementing, or modifying any Competing Product. This restriction shall
apply only to any customer or licensee, former customer or licensee, or
prospective customer or licensee of the Company with whom Employee had
contact during the last two years of Employee's employment with the Company.
(c) The Employee agrees that for as long as he is employed by the
Company and for a period of two years after termination of Employee's
employment with the Company for any reason, voluntarily or involuntarily,
Employee will not solicit, recruit, hire or attempt to solicit, recruit or
hire, directly or by assisting others, any other employee of the Company.
(d) As used in this Agreement, (i) "Competing Business" means any
person, entity or organization other than the Company which is engaged in or
is about to become engaged in the design, manufacture or sale of a Competing
Product, (ii) "Competing Product" means any product (including, without
limitation, any chemical formula or process) which is or may be marketed in
competition with any product marketed or under development by the Company at
any time, and (iii) "contact" means interaction between Employee and a
customer or licensee, former customer or licensee, or prospective customer or
licensee of the Company, which takes place to further any business
relationship; or performing services for the customer or licensee, former
customer or licensee, or prospective customer or licensee on behalf of the
Company.
10. REASONABLENESS OF RESTRICTIONS.
(a) Employee expressly acknowledges that he has carefully read and
considered the provisions of Paragraphs 6, 7, 8 and 9, and, having done so,
agrees that the restrictions set forth in these Paragraphs, including, but
not limited to, the time periods and geographic areas of restriction are fair
and reasonable and are reasonably required for the protection of the
interests of the Company and its officers, directors, shareholders and other
employees.
(b) In the event that, notwithstanding the foregoing, any of the
provisions of Paragraphs 6, 7, 8 and 9 shall be held to be invalid or
unenforceable, the remaining provisions thereof shall nevertheless continue
to be valid and enforceable as though the
5
<PAGE>
invalid or unenforceable parts had not been included therein. In the event
that any provision of Paragraphs 6, 7, 8 and 9 relating to the time period
and/or the areas of restriction and/or related aspects shall be declared by a
court of competent jurisdiction to exceed the maximum restrictiveness such
court deems reasonable and enforceable, the time period and/or areas of
restriction and/or related aspects deemed reasonable and enforceable by the
court shall become and thereafter be the maximum restriction in such regard,
and the restriction shall remain enforceable to the fullest extent deemed
reasonable by such court.
11. REQUESTS FOR CLARIFICATION. In the event Employee is uncertain as
to the meaning of any provision of this Agreement or its application to any
particular information, item or activity, Employee will inquire in writing to
the Company, specifying any areas of uncertainty. The Company will respond
in writing within a reasonable time and will endeavor to clarify any areas of
uncertainty, including such things as whether it considers particular
information to be its Trade Secret Information or whether it considers any
particular activity or employment to be in violation of this Agreement.
12. REMEDIES. In the event of a breach or threatened breach of any of
the covenants in Paragraphs 6, 7, 8 and 9, the Company shall have the right
to seek monetary damages and equitable relief, including specific performance
by means of an injunction against Employee or against Employee's partners,
agents, representatives, servants, employers, employees, family members
and/or any and all persons acting directly or indirectly by or with him, to
prevent or restrain any such breach.
13. TERM AND TERMINATION.
(a) The term of this Agreement shall be for an initial term of 12
months from the effective date hereof, unless sooner terminated as provided
herein, and shall thereafter be automatically renewed for successive terms of
12 months each unless sooner terminated as provided herein.
(b) Employment of Employee under this Agreement may be terminated:
(i) by the Company upon the death of Employee.
(ii) by the Company if Employee becomes disabled. For the purposes
of this Agreement, Employee will be deemed disabled if he (i) has been
declared legally incompetent by a final court decree (the date of such
decree being deemed to be the date on which the disability occurred), or
(ii) receives disability insurance benefits from any disability income
insurance policy maintained by the Company for a period of three
consecutive months, or (iii) has been found to be disabled pursuant to a
disability determination. A "disability determination" means a finding
that Employee, because of a medically determinable disease, injury, or
other mental or physical disability, is unable to perform substantially all
of his regular duties to the Company and that such disability is determined
or reasonably expected to last at least six months. The disability
determination shall be based upon the written opinion of
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<PAGE>
the physician regularly attending Employee whose disability is in question.
If the Company disagrees with the opinion of this physician (the "First
Physician"), it may engage, at its own expense, another physician of its
choice (the "Second Physician") to examine Employee. If the First and
Second Physicians agree in writing that Employee is or is not disabled,
their written opinion shall, except as otherwise set forth in this
subsection, be conclusive on the issue of disability. If the First and
Second Physicians disagree on the disability of Employee, they shall choose
a third consulting physician (whose expense shall be borne by the Company),
and the written opinion of a majority of these three physicians shall,
except as otherwise provided in this subsection, be conclusive as to
Employee's disability. The date of any written opinion conclusively
finding Employee to be disabled is the date on which the disability will be
deemed to have occurred. If there is a conclusive finding that Employee is
not totally disabled, the Company shall have the right to request
additional disability determinations provided it agrees to pay all the
expenses of the disability determinations and does not request an
additional disability determination more frequently than once every three
months. In connection with any disability determination, Employee hereby
consents to any required medical examination, and agrees to furnish any
medical information requested by any examining physician and to waive any
applicable physician-patient privilege that may arise because of such
examination. All physicians except the First Physician must be
board-certified in the specialty most closely related to the nature of the
disability alleged to exist.
(iii) by the Company when Employee reaches mandatory retirement age
under any retirement policy applicable to all executive officers adopted by
the Company.
(iv) by mutual agreement of Employee and the Company.
(v) by the Company upon the dissolution and liquidation of the
Company (other than as part of a reorganization, merger, consolidation or
sale of all or substantially all of the assets of the Company whereby the
business of the Company is continued).
(vi) by the Company for just cause at any time upon written notice.
For purposes of this Agreement, "just cause" shall mean any one or more of
the following: (A) Employee's material breach of his obligations, duties
and responsibilities under any term or provision of this Agreement, which
breach remains uncured for a period of five days after written notice by
the Company to Employee; (B) Employee's failure to adhere to the reasonable
standards of performance prescribed by the Company; (C) Employee's act of
insubordination to the Company's Board of Directors; (D) Employee's gross
negligence or willful misconduct in the performance of his duties under
this Agreement; (E) Employee's dishonesty, fraud, misappropriation or
embezzlement in the course of, related to or connected with the business of
the Company; (F) Employee's conviction of a felony; or (G) Employee's
failure (after written notice to Employee of such failure and Employee not
correcting
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such failure within five days of such notice) to devote his time, attention
and best efforts to the business of the Company as provided in this
Agreement.
(vii) by either the Company or Employee upon 60 days written notice.
(c) Any termination of Employee's employment, either by the Company or
Employee, shall be communicated by a written notice of termination to the
other party.
(d) If Employee's employment is terminated pursuant to the terms of
this Agreement for any reason, Employee shall be entitled to all arrearages
of salary and expenses up to and including the date of termination but shall
not be entitled to further compensation. Provided, that if, at any time
after the first 12 months from the date of the Original Employment Agreement,
Employee's employment is terminated by the Company for any reason other than
Employee's death, disability or retirement, the Company's dissolution or just
cause as provided in Paragraphs 13(b)(i), (ii), (iii), (v) or (vi),
respectively, Employee shall be entitled to and the Company shall pay
Employee all arrearages of salary and expenses up to and including the date
of termination and, in addition, Employee's monthly base salary for an
additional period of 24 months.
(e) Upon expiration of the term of this Agreement or upon earlier
termination of this Agreement, Employee shall deliver all Trade Secret
Information of the Company to an authorized representative of the Company,
and the non-disclosure provisions of PARAGRAPH 6 shall survive such
expiration or termination and shall remain in full force and effect for a
period of 15 years from such expiration or termination.
14. CHANGE OF CONTROL.
(a) In the event of a Change of Control of the Company and (i) during
the one-year period immediately following any Change of Control, the Company
terminates Employee's employment for any reason other than Employee's death,
disability, retirement or just cause as provided in Paragraphs 13(b)(i),
(ii), (iii) and (vi), respectively, (ii) the Employee terminates his
employment for Good Reason, or (iii) during the Window Period the Company or
Employee terminates Employee's employment for any reason, then the Company or
its successor shall pay Employee his full base salary in effect at the time
of the notice of termination through the date of termination, and in lieu of
any further salary payments for periods subsequent to the date of
termination, the Company or its successor shall pay Employee as severance pay
an amount equal to two times Employee's full base salary in effect on the
date of termination payable in 24 equal monthly installments beginning on the
first day of the first calendar month following the date of Employee's
termination and continuing on the first day of each month thereafter until
paid.
(b) Anything in this Agreement to the contrary notwithstanding, if a
Change of Control occurs and if the Employee's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it
is reasonably demonstrated by the Employee that such termination of
employment (i) was at the request of a third party who has
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<PAGE>
taken steps reasonably calculated to effect the Change of Control or (ii)
otherwise arose in connection with or anticipation of the Change of Control,
then for all purposes of this Agreement, the "Change of Control" shall be
deemed to have occurred on the date immediately prior to the date of such
termination of employment.
(c) as used in this Agreement, the terms set forth below shall have the
following respective meanings:
(i) "Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in
effect on the Agreement Effective Date.
(ii) "Agreement Effective Date" shall mean May 19, 1998.
(iii) "Associate" shall mean, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated organization or
other entity (other than the Company or a subsidiary of the Company) of which
such Person is an officer or general partner (or officer or general partner
of a general partner) or is, directly or indirectly, the Beneficial Owner of
10% or more of any class of equity securities, (b) any trust or other estate
in which such Person has a substantial beneficial interest or as to which
such Person serves as trustee or in a similar fiduciary capacity and (c) any
relative or spouse of such Person, or any relative of such spouse, who has
the same home as such Person.
(iv) "Beneficial Owner" shall mean, with reference to any
securities, any Person if:
(a) such Person or any of such Person's Affiliates and Associates,
directly or indirectly, is the "beneficial owner" of (as determined
pursuant to Rule 13d-3 of the General Rules and Regulations under the
Exchange Act, as in effect on the Agreement Effective Date) such securities
or otherwise has the right to vote or dispose of such securities, including
pursuant to any agreement, arrangement or understanding (whether or not in
writing); provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security under this
subsection (a) as a result of an agreement, arrangement or understanding to
vote such security if such agreement, arrangement or understanding: (i)
arises solely from a revocable proxy or consent given in response to a
public (I.E., not including a solicitation exempted by Rule 14a-2(b)(2) of
the General Rules and Regulations under the Exchange Act) proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the Exchange Act and
(ii) is not then reportable by such Person on Schedule 13D under the
Exchange Act (or any comparable or successor report);
(b) such Person or any of such Person's Affiliates and Associates,
directly or indirectly, has the right or obligation to acquire such
securities (whether such right or obligation is exercisable or effective
immediately or only after the passage of time
9
<PAGE>
or the occurrence of an event) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, other rights, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to "beneficially own," (i) securities tendered
pursuant to a tender or exchange offer made by such Person or any of
such Person's Affiliates or Associates until such tendered securities
are accepted for purchase or exchange or (ii) securities issuable upon
exercise of Exempt Rights; or
(c) such Person or any of such Person's Affiliates or Associates (i)
has any agreement, arrangement or understanding (whether or not in
writing) with any other Person (or any Affiliate or Associate thereof)
that beneficially owns such securities for the purpose of acquiring,
holding, voting (except as set forth in the proviso to subsection (a) of
this definition) or disposing of such securities or (ii) is a member of a
group (as that term is used in Rule 13d-5(b) of the General Rules and
Regulations under the Exchange Act) that includes any other Person that
beneficially owns such securities;
provided, however, that nothing in this definition shall cause a Person
engaged in business as an underwriter of securities to be the Beneficial
Owner of, or to "beneficially own," any securities acquired through such
Person's participation in good faith in a firm commitment underwriting until
the expiration of 40 days after the date of such acquisition. For purposes
hereof, "voting" a security shall include voting, granting a proxy,
consenting or making a request or demand relating to corporate action
(including, without limitation, a demand for a stockholder list, to call a
stockholder meeting or to inspect corporate books and records) or otherwise
giving an authorization (within the meaning of Section 14(a) of the Exchange
Act) in respect of such security.
The terms "beneficially own" and "beneficially owning" shall have
meanings that are correlative to this definition of the term "Beneficial
Owner."
(v) "Change of Control" shall mean any of the following (provided,
however, that without limiting the generality of any other provision hereof,
no Change of Control shall be deemed to have occurred as a result of the
consummation of any of the transactions contemplated by the Agreement and
Plan of Merger dated as of March 30, 1998 by and between SLH Corporation, a
Kansas corporation, and the Company (the "Merger Agreement")):
(a) any Person (other than an Exempt Person) shall become the
Beneficial Owner of 30% or more of the shares of Common Stock then
outstanding or 30% or more of the combined voting power of the Voting
Stock of the Company then outstanding; provided, however, that no Change
of Control shall be deemed to occur for purposes of this subsection (a) if
such Person shall become a Beneficial Owner of 30% or more of the shares
of Common Stock or 30% or more of the combined voting power of the Voting
Stock of the Company solely as a result of (i) an Exempt
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<PAGE>
Transaction or (ii) an acquisition by a Person pursuant to a
reorganization, merger or consolidation, if, following such
reorganization, merger or consolidation, the conditions described in
clauses (i), (ii) and (iii) of subsection (c) of this definition are
satisfied;
(b) individuals who, as of the Agreement Effective Date, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the Agreement Effective Date whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board; provided, further, that
there shall be excluded, for this purpose, any such individual whose
initial assumption of office occurs as a result of any actual or
threatened election contest that is subject to the provisions of
Rule 14a-11 under the Exchange Act;
(c) approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) more
than 80% of the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding
Voting Stock of such corporation is then beneficially owned,
directly or indirectly, by all or substantially all of the Persons
who were the Beneficial Owners of the outstanding Common Stock
immediately prior to such reorganization, merger or consolidation
in substantially thesame proportions as their ownership,
immediately prior to such reorganization, merger or consolidation,
of the outstanding Common Stock, (ii) no Person (excluding any
Exempt Person or any Person beneficially owning, immediately prior
to such reorganization, merger or consolidation, directly or
indirectly, 30% or more of the Common Stock then outstanding or 30%
or more of the combined voting power of the Voting Stock of the
Company then outstanding) beneficially owns, directly or
indirectly, 30% or more of the then outstanding shares of common
stock of the corporation resulting from such reorganization, merger
or consolidation or the combined voting power of the then
outstanding Voting Stock of such corporation and (iii) at least a
majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of
the execution of the initial agreement or initial action by the
Board providing for such reorganization, merger or consolidation; or
(d) approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company unless such
liquidation or dissolution is approved as part of a plan of
liquidation and dissolution involving a sale or disposition of all
or substantially all of the assets of the Company to a corporation
with respect to which, following such sale or other disposition,
all of the requirements of clauses (ii)(A), (B) and (C) of this
subsection (d) are satisfied, or (ii) the sale or other disposition
of all or substantially all of the assets of the Company, other
than to
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<PAGE>
a corporation, with respect to which, following such sale
or other disposition, (A) more than 80% of the then outstanding
shares of common stock of such corporation and the combined voting
power of the Voting Stock of such corporation is then beneficially
owned, directly or indirectly, by all or substantially all of the
Persons who were the Beneficial Owners of the outstanding Common
Stock immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the outstanding Common
Stock, (B) no Person (excluding any Exempt Person and any Person
beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 30% or more of the Common
Stock then outstanding or 30% or more of the combined voting power
of the Voting Stock of the Company then outstanding) beneficially
owns, directly or indirectly, 30% or more of the then outstanding
shares of common stock of such corporation and the combined voting
power of the then outstanding Voting Stock of such corporation and
(C) at least a majority of the members of the board of directors of
such corporation were members of the Incumbent Board at the time of
the execution of the initial agreement or initial action of the
Board providing for such sale or other disposition of assets of the
Company.
(vi) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(vii) "Exempt Person" shall mean the Company, any subsidiary of
the Company, any employee benefit plan of the Company or any subsidiary of
the Company, and any Person organized, appointed or established by the
Company for or pursuant to the terms of any such plan.
(viii) "Exempt Rights" shall mean any rights to purchase shares of
Common Stock or other Voting Stock of the Company if at the time of the
issuance thereof such rights are not separable from such Common Stock or
other Voting Stock (I.E., are not transferable otherwise than in connection
with a transfer of the underlying Common Stock or other Voting Stock) except
upon the occurrence of a contingency, whether such rights exist as of the
Agreement Effective Date or are thereafter issued by the Company as a
dividend on shares of Common Stock or other Voting Securities or otherwise.
(ix) "Exempt Transaction" shall mean an increase in the
percentage of the outstanding shares of Common Stock or the percentage of the
combined voting power of the outstanding Voting Stock of the Company
beneficially owned by any Person solely as a result of a reduction in the
number of shares of Common Stock then outstanding due to the repurchase of
Common Stock or Voting Stock by the Company, unless and until such time as
(a) such Person or any Affiliate or Associate of such Person shall purchase
or otherwise become the Beneficial Owner of additional shares of Common Stock
constituting 1% or more of the then outstanding shares of Common Stock or
additional Voting Stock representing 1% or more of the combined voting power
of the then outstanding Voting Stock, or (b) any other Person (or Persons)
who is (or collectively are) the Beneficial Owner of shares of Common Stock
constituting 1% or more of the then outstanding shares of Common Stock or
Voting
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<PAGE>
Stock representing 1% or more of the combined voting power of the then
outstanding Voting Stock shall become an Affiliate or Associate of such
Person.
(x) "Good Reason" shall mean:
(a) the assignment to the Employee of any duties materially
inconsistent in any respect with the Employee's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 1 of this Agreement, or
any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Employee;
(b) any material failure by the Company to comply with any of
the provisions of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Employee;
(c) the Company's requiring the Employee to be based at any
office outside the Tulsa metropolitan area;
(d) any purported termination by the Company of the Employee's
employment otherwise than as expressly permitted by this Agreement; or
(xi) "Person" shall mean any individual, firm, corporation,
partnership, association, trust, unincorporated organization or other entity.
(xii) "Voting Stock" shall mean, with respect to a corporation,
all securities of such corporation of any class or series that are entitled
to vote generally in the election of directors of such corporation (excluding
any class or series that would be entitled so to vote by reason of the
occurrence of any contingency, so long as such contingency has not occurred).
(xiii) "Window Period" shall mean the 60-day period immediately
following elapse of one year after any Change of Control.
15. RESIGNATION UPON TERMINATION. In the event of termination of this
Agreement other than for death, Employee agrees to resign from all positions
held in the Company, including without limitation any position as a director,
officer, agent, trustee or consultant of the Company or any affiliate of the
Company.
16. NOTICE TO SUBSEQUENT EMPLOYERS. For a period of two years after
termination of Employee's employment with the Company for any reason,
Employee will inform any
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<PAGE>
new employer (before accepting employment) of the obligations of Employee
under Paragraphs 6, 7, 8, 9, and 10 of this Agreement.
17. OBLIGATIONS UNCONDITIONAL. The obligations of the parties under
this Agreement are unconditional and do not depend upon the performance of
any agreements, duties, obligations, or terms outside this Agreement.
18. WAIVER. A party's failure to insist on compliance or enforcement
of any provision of this Agreement shall not affect the validity or
enforceability or constitute a waiver of future enforcement of that provision
or of any other provision of this Agreement by that party or any other party.
19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF OKLAHOMA, UNITED STATES OF
AMERICA, WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF. The Company
and Employee expressly and irrevocably consent and submit to the nonexclusive
jurisdiction of any state or federal court sitting in Tulsa County, Oklahoma
and agree that, to the fullest extent allowed by law, such Oklahoma state or
federal courts shall have jurisdiction over any action, suit or proceeding
arising out of or relating to this Agreement. The Company and Employee 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 Tulsa County,
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
the Company or Employee 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.
20. SEVERABILITY. If for any reason any paragraph, term or provision
of this Agreement is held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall not affect any other provision hereof,
and this Agreement shall be construed and enforced as if such provision had
not been included herein and all other valid provisions herein shall remain
in full force and effect. If for any reason the restrictions and covenants
contained herein are held to cover a geographical area or be for a length of
time which is unreasonable or unenforceable, or in any other way are
construed to be too broad or to any extent invalid, then to the extent the
same are or would be valid or enforceable under applicable law, any court of
competent jurisdiction shall construe and interpret or reform this Agreement
to provide for a covenant having the maximum area, time or other provisions
(not greater than those contained herein) as shall be valid and enforceable
under such applicable law.
21. JURISDICTION. The Company and Employee intend to and hereby confer
jurisdiction to enforce the provisions of this Agreement and any restrictive
covenants contained herein upon the courts of any jurisdiction within the
geographical scope of such
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covenants. If the courts of any one or more of such jurisdictions hold the
provisions of this Agreement or any of the restrictive covenants contained
herein unenforceable by reason of the breadth of such scope or otherwise, it
is the intention of the Company and Employee that such determination not bar
or in any way affect the Company's right to the relief provided herein in the
courts of any other jurisdiction within the geographical scope of such
covenants, as to breaches of such covenants, such covenants as they relate to
each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
22. NOTICE. Any and all notices required or permitted herein shall be
deemed delivered if delivered personally or if mailed by registered or
certified mail to the Company at its principal place of business and to
Employee at the address hereinafter set forth following Employee's signature,
or at such other address or addresses as either party may hereafter designate
in writing to the other.
23. AMENDMENTS. This Agreement may be amended at any time by mutual
consent of the parties hereto, with any such amendment to be invalid unless
in writing, signed by the Company and Employee.
24. BURDEN AND BENEFIT. This Agreement, together with any amendments
hereto, shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors, assigns, heirs and personal
representatives. The Company may, in its sole discretion, assign this
Agreement or its rights hereunder to any parent, affiliate, shareholder, or
successor of the Company, or to any person or entity which purchases
substantially all of the assets of the Company. Employee may not transfer or
assign this Agreement or any of Employee's rights or obligations under this
Agreement.
25. REFERENCES TO GENDER AND NUMBER TERMS. In construing this
Agreement, feminine or number pronouns shall be substituted for those
masculine in form and vice versa, and plural terms shall be substituted for
singular and singular for plural in any place which the context so requires.
26. HEADINGS. The various headings in this Agreement are inserted for
convenience only and are not part of the Agreement.
27. ENTIRE AGREEMENT. This Agreement contains the entire understanding
and agreement between the parties relating to the subject matter hereof. The
original Employment Agreement between the Company and Employee dated June 23,
1997 is hereby amended and restated in its entirety as set forth herein.
28. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and all such counterparts shall constitute one and the same
instrument.
29. SEVERANCE COMPENSATION. In the event of termination of Employee's
employment with the Company under the terms of this Agreement which provide
for payment by the Company to Employee of severance compensation, the amount
of such
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<PAGE>
severance compensation shall in no event be greater than the amount which
would be deductible by the Company under Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), after taking into consideration all
payments to Employee covered by Code Section 280G which Employee receives or
is deemed to receive (i) under this Agreement; (ii) under the Company's 1993
Stock Option and Incentive Plan, as amended, by reason of the acceleration of
the right to exercise any options (including any related stock appreciation
rights) granted thereunder or the acceleration of the vesting of any
restricted stock awards granted thereunder; or (iii) under any new plan or
arrangement implemented by the Company after the date of this Agreement which
would otherwise be considered a "parachute payment" under Section 280G. In
the event such payments exceed the amount which would be deductible by the
Company under Code Section 280G, the timing of such payments shall be
extended or otherwise modified such that such payments shall be deductible by
the Company under Code Section 280G and in a manner which, to the extent
possible, provides Employee the full benefit of such payments as originally
agreed to.
IN WITNESS WHEREOF, the Company and Employee have duly executed this
Agreement as of the date and year first above written.
COMPANY:
SYNTROLEUM CORPORATION
By: /s/ Mark A. Agee
----------------------------------
Mark A. Agee, President
Syntroleum Corporation.
1350 South Boulder, Suite 1100
Tulsa, Oklahoma 74119
EMPLOYEE:
By: /s/ Eric Grimshaw
----------------------------------
Eric Grimshaw
Home address:
2246 E. 32nd Place
Tulsa, Oklahoma 74105
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<PAGE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
CONFIDENTIAL
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is made
and entered into effective as of the 19th day of May, 1998 by and between
Syntroleum Corporation, an Oklahoma corporation (the "Company"), and Peter V.
Snyder, Jr., an individual (the "Employee").
WHEREAS, the Company and Employee, are parties to that certain
Employment Agreement dated January 23, 1996 ("Original Employment
Agreement"); and
WHEREAS, the Company and Employee desire to amend and restate the
Original Employment Agreement to continue Employee's employment by the
Company on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the Company and Employee hereby agree as follows.
1. EMPLOYMENT AND DUTIES. The Company employs Employee in the
capacity of Vice President of Product Sales, or in such other position and at
such location as the Company may direct or desire and Employee hereby accepts
such employment, on the terms and conditions hereinafter set forth. Employee
agrees to perform such services and duties (including reasonable travel) and
hold such offices at such locations as may be reasonably assigned to him from
time to time by the Company and to devote substantially his full business
time, energies and best efforts to the performance thereof to the exclusion
of all other business activities, except any activities disclosed to the
Company in advance and consented to by the Company.
2. COMPENSATION. As compensation for the services to be rendered by
Employee to the Company pursuant to this Agreement, Employee shall be paid
the following compensation and other benefits.
(a) Salary in the amount of $150,000 per year, payable in equal
bi-monthly installments in arrears, or such higher compensation as may be
established by the Company from time to time. Payments of salary shall be
made in accordance with the Company's usual payroll procedures.
(b) Employee shall be eligible to participate, to the extent he may be
eligible, in any group medical and hospitalization, profit sharing,
retirement, life insurance or other employee benefit plans which the Company
may from time to time offer to its employees. All group insurance provided
to Employee shall be in such form and provide such coverage as is provided to
other employees of the Company.
(c) All compensation payments to Employee shall be made subject to
normal deductions therefrom, including federal and state social security and
withholding taxes.
3. LIFE INSURANCE. The Company, in its discretion, may apply for and
procure in its own name and for its own benefit, life insurance on the life
of Employee in any amount or
<PAGE>
amounts considered advisable by the Company. Employee shall submit to any
medical or other examination and execute and deliver any application or other
instrument in writing, reasonably necessary for the Company to acquire such
insurance.
4. EXPENSES. The Company shall reimburse Employee for his actual
out-of-pocket expenses incurred in carrying out his duties hereunder in the
conduct of the Company's business, which expenses shall be limited to
ordinary and necessary items and which shall be supported by vouchers,
receipts or similar documentation submitted in accordance with the Company's
expense reimburse policy and as required by law.
5. VACATIONS AND LEAVE. Employee shall be entitled to vacation and
leave in accordance with the Company's policies in effect from time to time.
6. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Employee acknowledges that in and as a result of his employment by
the Company, he will be making use of, acquiring, and/or adding to the
Company's Trade Secret Information. Except as required in the performance of
Employee's duties under this Agreement, Employee will not use any Trade
Secret Information of the Company for Employee's own benefit or purposes or
disclose to third parties, directly or indirectly, any Trade Secret
Information of the Company, either during or after Employee's employment with
the Company.
(b) As used in this Agreement, "Trade Secret Information" means
information, including, but not limited to, any formula, pattern,
compilation, program, device, method, technique or process, that: (i)
derives independent 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
(ii) is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy. For purposes of this Agreement, "Trade Secret
Information" includes both information disclosed to Employee by the Company
and information developed by Employee in the course of his employment with
the Company. The types and categories of information which are considered to
be Trade Secret Information include, without limitation: (a) specifications,
descriptions, designs, dimensions, content (including chemical composition)
and tolerances of products, parts and components; (b) plans, blueprints,
design packages construction, part and assembly drawings and diagrams; (c)
design, construction and component costs and cost estimates; (d) the
existence, terms or conditions of any agreements (including license
agreements) between the Company and any third party; (e) computer programs
(whether in the form of source code, object code or any other form, including
software, firmware and programmable array logic), formulas, algorithms,
methods, techniques, processes, designs, specifications, diagrams, flow
charts, manuals, descriptions, instructions, explanations, improvements, and
the ideas, systems and methods of operation contained in such programs; (f)
information concerning or resulting from research and development work
performed by Syntroleum; (g) information concerning Syntroleum's management,
financial condition, financial operations, purchasing activities, sales
activities, marketing activities and business plans; (h) information
2
<PAGE>
acquired or compiled by Syntroleum concerning actual or potential customers;
and (i) all other types and categories of information (in whatever form) with
respect to which, under all the circumstances, Employee knows or has reason
to know that Syntroleum intends or expects secrecy to be maintained and as to
which Syntroleum has made reasonable efforts to maintain its secrecy.
(c) The Company may also advise Employee from time to time as to
restrictions upon the use or disclosure of specified information which has
been licensed or otherwise disclosed to the Company by third parties pursuant
to license or confidential disclosure agreements which contain restrictions
upon the use or disclosure of such information. Employee agrees to abide by
the restrictions upon use and/or disclosure contained in such agreements.
(d) Employee has not and will not use or disclose to the Company any
confidential or proprietary information belonging to others without the
written consent of the person to whom such information is confidential, and
Employee represents that his employment with the Company will not require the
use of such information or the violation of any confidential relationship
with any third party.
7. OTHER PROPERTY OF THE COMPANY. All documents, encoded media, and
other tangible items provided to Employee by the Company or prepared,
generated or created by Employee or others in connection with any business
activity of the Company are the property of the Company. Upon termination of
Employee's employment with the Company, Employee will promptly deliver to the
Company all such documents, media and other items in his possession,
including all complete or partial copies, recordings, abstracts, notes or
reproductions of any kind made from or about such documents, media, items or
information contained therein. Employee will neither have nor claim any
right, title or interest in any trademark, service mark or trade name owned
or used by the Company.
8. INVENTIONS AND WORKS OF AUTHORSHIP.
(a) Employee agrees to assign and hereby irrevocably assigns to the
Company all of Employee's right, title and interest in and to any and all
Inventions and Works of Authorship made, generated or conceived by Employee
during the period of his employment with the Company, and Employee agrees to
and shall promptly disclose all such Inventions and Works of Authorship to
the Company in writing. As used herein, "Invention" means any discovery,
improvement, innovation, idea, formula, or shop right (whether or not
patentable, whether or not put into writing and whether or not put into
practice) made, generated or conceived by Employee (whether alone or with
others) while employed by the Company. For purposes of this Agreement, any
discovery, improvement, innovation, idea, formula, or shop right (whether or
not patentable, whether or not put into writing and whether or not put into
practice) relating directly or indirectly to the business of the Company or
to the Company's actual or demonstrably anticipated business, research or
development with respect to which Employee files a patent application within
two years after termination of employment with the Company shall be presumed
to be an Invention. As used herein, "Work
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of Authorship" means any original work of authorship within the purview of
the copyright laws of the United States of America, and both the Company and
Employee intend and agree that all Works of Authorship created by Employee in
the course of his employment with the Company will be and shall constitute
works made for hire within the meaning and purview of such copyright laws.
(b) Employee will execute and assign any and all applications,
assignments, and other documents and will render all assistance which may be
reasonably necessary for the Company to obtain patent, copyright, or any
other form of intellectual property protection with respect to all Inventions
and Works of Authorship in all countries and will cooperate with Syntroleum
as reasonably necessary to enforce any such intellectual property protection.
The Company will pay Employee $200 for each patent issued to the Company
upon which Employee's name appears as an inventor.
(c) The provisions of this Paragraph 8 do not apply to an invention for
which no equipment, supplies, facility or Trade Secret Information of the
Company was used and which was developed entirely on Employee's own time, and
which does not relate (i) directly or indirectly to the business, research or
development of the Company, or (ii) to the Company's actual or demonstrably
anticipated business, research or development. A reasonable determination of
the applicability of this Paragraph 8(a) to an Employee's invention shall be
made by Syntroleum after the Employee submits notification in writing of the
invention. Said notice shall include adequate detail for Syntroleum to
evaluate the invention.
9. LIMITED COVENANTS AGAINST COMPETITION; NON-SOLICITATION.
(a) Employee acknowledges that the services he is to render to the
Company are of a special and unusual character with a unique value to the
Company, the loss of which cannot adequately be compensated by damages in an
action at law. In view of the unique value to the Company of the services of
Employee and because of the confidential Trade Secret Information to be
obtained by or disclosed to Employee, as set forth above, and as a material
inducement to the Company to enter into this Agreement and to pay to Employee
the compensation stated in Paragraph 2, Employee covenants and agrees that
during the period of Employee's employment within the Company and for a
period of two years following termination of Employee's employment with the
Company for any reason, voluntarily or involuntarily, Employee will not
directly or indirectly: (i) start or participate or assist (as a proprietor,
partner, shareholder, lender, investor, director, employee, consultant,
independent contractor or otherwise) in starting any Competing Business; (ii)
assist (as a proprietor, partner, shareholder, lender, investor, director,
employee, consultant, independent contractor or otherwise) any existing
Competing Business in the design, development or manufacture of any Competing
Product; (iii) sell or assist in the sale of any Competing Product to any
person or organization with whom Employee had any contact while employed with
the Company; (iv) directly or indirectly solicit for employment or employ any
of the Company's employees; or (v) become employed by a former employee of
the Company. Because Syntroleum actively pursues opportunities throughout
the world and is engaged in a world-wide oriented
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business the Employee acknowledges the reasonableness of having no geographic
limitation hereunder.
(b) Employee further acknowledges that, while employed by the Company,
he will have contact with and become aware of the Company's customers and
licensees and their respective representatives, including their names and
addresses, specific needs and requirements, as well as leads and references
to prospective customers and licensees. Employee further acknowledges that
loss of such customers or licensees would cause the Company great and
irreparable harm. Employee agrees that for a period of two years following
termination of Employee's employment with the Company for any reason,
voluntarily or involuntarily, Employee will not directly or indirectly
solicit, contact, call upon, communicate with or attempt to communicate with
any customer or licensee, former customer or licensee, or prospective
customer or licensee of the Company for the purpose of selling, installing,
implementing, or modifying any Competing Product. This restriction shall
apply only to any customer or licensee, former customer or licensee, or
prospective customer or licensee of the Company with whom Employee had
contact during the last two years of Employee's employment with the Company.
(c) The Employee agrees that for as long as he is employed by the
Company and for a period of two years after termination of Employee's
employment with the Company for any reason, voluntarily or involuntarily,
Employee will not solicit, recruit, hire or attempt to solicit, recruit or
hire, directly or by assisting others, any other employee of the Company.
(d) As used in this Agreement, (i) "Competing Business" means any
person, entity or organization other than the Company which is engaged in or
is about to become engaged in the design, manufacture or sale of a Competing
Product, (ii) "Competing Product" means any product (including, without
limitation, any chemical formula or process) which is or may be marketed in
competition with any product marketed or under development by the Company at
any time, and (iii) "contact" means interaction between Employee and a
customer or licensee, former customer or licensee, or prospective customer or
licensee of the Company, which takes place to further any business
relationship; or performing services for the customer or licensee, former
customer or licensee, or prospective customer or licensee on behalf of the
Company.
10. REASONABLENESS OF RESTRICTIONS.
(a) Employee expressly acknowledges that he has carefully read and
considered the provisions of Paragraphs 6, 7, 8 and 9, and, having done so,
agrees that the restrictions set forth in these Paragraphs, including, but
not limited to, the time periods and geographic areas of restriction are fair
and reasonable and are reasonably required for the protection of the
interests of the Company and its officers, directors, shareholders and other
employees.
(b) In the event that, notwithstanding the foregoing, any of the
provisions of Paragraphs 6, 7, 8 and 9 shall be held to be invalid or
unenforceable, the remaining provisions thereof shall nevertheless continue
to be valid and enforceable as though the
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invalid or unenforceable parts had not been included therein. In the event
that any provision of Paragraphs 6, 7, 8 and 9 relating to the time period
and/or the areas of restriction and/or related aspects shall be declared by a
court of competent jurisdiction to exceed the maximum restrictiveness such
court deems reasonable and enforceable, the time period and/or areas of
restriction and/or related aspects deemed reasonable and enforceable by the
court shall become and thereafter be the maximum restriction in such regard,
and the restriction shall remain enforceable to the fullest extent deemed
reasonable by such court.
11. REQUESTS FOR CLARIFICATION. In the event Employee is uncertain as
to the meaning of any provision of this Agreement or its application to any
particular information, item or activity, Employee will inquire in writing to
the Company, specifying any areas of uncertainty. The Company will respond
in writing within a reasonable time and will endeavor to clarify any areas of
uncertainty, including such things as whether it considers particular
information to be its Trade Secret Information or whether it considers any
particular activity or employment to be in violation of this Agreement.
12. REMEDIES. In the event of a breach or threatened breach of any of
the covenants in Paragraphs 6, 7, 8 and 9, the Company shall have the right
to seek monetary damages and equitable relief, including specific performance
by means of an injunction against Employee or against Employee's partners,
agents, representatives, servants, employers, employees, family members
and/or any and all persons acting directly or indirectly by or with him, to
prevent or restrain any such breach.
13. TERM AND TERMINATION.
(a) The term of this Agreement shall be for an initial term of 12
months from the effective date hereof, unless sooner terminated as provided
herein, and shall thereafter be automatically renewed for successive terms of
12 months each unless sooner terminated as provided herein.
(b) Employment of Employee under this Agreement may be terminated:
(i) by the Company upon the death of Employee.
(ii) by the Company if Employee becomes disabled. For the
purposes of this Agreement, Employee will be deemed disabled if he
(i) has been declared legally incompetent by a final court decree (the
date of such decree being deemed to be the date on which the disability
occurred), or (ii) receives disability insurance benefits from any
disability income insurance policy maintained by the Company for a
period of three consecutive months, or (iii) has been found to be
disabled pursuant to a disability determination. A "disability
determination" means a finding that Employee, because of a medically
determinable disease, injury, or other mental or physical disability, is
unable to perform substantially all of his regular duties to the Company
and that such disability is determined or reasonably expected to last at
least six months. The disability determination shall be based upon the
written opinion of
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the physician regularly attending Employee whose disability is in
question. If the Company disagrees with the opinion of this physician
(the "First Physician"), it may engage, at its own expense, another
physician of its choice (the "Second Physician") to examine Employee.
If the First and Second Physicians agree in writing that Employee is or
is not disabled, their written opinion shall, except as otherwise set
forth in this subsection, be conclusive on the issue of disability. If
the First and Second Physicians disagree on the disability of Employee,
they shall choose a third consulting physician (whose expense shall be
borne by the Company), and the written opinion of a majority of these
three physicians shall, except as otherwise provided in this subsection,
be conclusive as to Employee's disability. The date of any written
opinion conclusively finding Employee to be disabled is the date on
which the disability will be deemed to have occurred. If there is a
conclusive finding that Employee is not totally disabled, the Company
shall have the right to request additional disability determinations
provided it agrees to pay all the expenses of the disability
determinations and does not request an additional disability
determination more frequently than once every three months. In
connection with any disability determination, Employee hereby consents
to any required medical examination, and agrees to furnish any medical
information requested by any examining physician and to waive any
applicable physician-patient privilege that may arise because of such
examination. All physicians except the First Physician must be
board-certified in the specialty most closely related to the nature of
the disability alleged to exist.
(iii) by the Company when Employee reaches mandatory retirement
age under any retirement policy applicable to all executive officers
adopted by the Company.
(iv) by mutual agreement of Employee and the Company.
(v) by the Company upon the dissolution and liquidation of the
Company (other than as part of a reorganization, merger, consolidation
or sale of all or substantially all of the assets of the Company whereby
the business of the Company is continued).
(vi) by the Company for just cause at any time upon written
notice. For purposes of this Agreement, "just cause" shall mean any one
or more of the following: (A) Employee's material breach of his
obligations, duties and responsibilities under any term or provision of
this Agreement, which breach remains uncured for a period of five days
after written notice by the Company to Employee; (B) Employee's failure
to adhere to the reasonable standards of performance prescribed by the
Company; (C) Employee's act of insubordination to the Company's Board of
Directors; (D) Employee's gross negligence or willful misconduct in the
performance of his duties under this Agreement; (E) Employee's
dishonesty, fraud, misappropriation or embezzlement in the course of,
related to or connected with the business of the Company; (F) Employee's
conviction of a felony; or (G) Employee's failure (after written notice
to Employee of such failure and Employee not correcting
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such failure within five days of such notice) to devote his time,
attention and best efforts to the business of the Company as provided in
this Agreement.
(vii) by either the Company or Employee upon 60 days written notice.
(c) Any termination of Employee's employment, either by the Company or
Employee, shall be communicated by a written notice of termination to the
other party.
(d) If Employee's employment is terminated pursuant to the terms of
this Agreement for any reason, Employee shall be entitled to all arrearages
of salary and expenses up to and including the date of termination but shall
not be entitled to further compensation. Provided, that if, at any time
after the first 12 months from the date of the Original Employment Agreement,
Employee's employment is terminated by the Company for any reason other than
Employee's death, disability or retirement, the Company's dissolution or just
cause as provided in Paragraphs 13(b)(i), (ii), (iii), (v) or (vi),
respectively, Employee shall be entitled to and the Company shall pay
Employee all arrearages of salary and expenses up to and including the date
of termination and, in addition, Employee's monthly base salary for an
additional period of 12 months.
(e) Upon expiration of the term of this Agreement or upon earlier
termination of this Agreement, Employee shall deliver all Trade Secret
Information of the Company to an authorized representative of the Company,
and the non-disclosure provisions of PARAGRAPH 6 shall survive such
expiration or termination and shall remain in full force and effect for a
period of 15 years from such expiration or termination.
14. CHANGE OF CONTROL.
(a) In the event of a Change of Control of the Company and (i) during
the one-year period immediately following any Change of Control, the Company
terminates Employee's employment for any reason other than Employee's death,
disability, retirement or just cause as provided in Paragraphs 13(b)(i),
(ii), (iii) and (vi), respectively, (ii) the Employee terminates his
employment for Good Reason, or (iii) during the Window Period the Company or
Employee terminates Employee's employment for any reason, then the Company or
its successor shall pay Employee his full base salary in effect at the time
of the notice of termination through the date of termination, and in lieu of
any further salary payments for periods subsequent to the date of
termination, the Company or its successor shall pay Employee as severance pay
an amount equal to two times Employee's full base salary in effect on the
date of termination payable in 12 equal monthly installments beginning on the
first day of the first calendar month following the date of Employee's
termination and continuing on the first day of each month thereafter until
paid.
(b) Anything in this Agreement to the contrary notwithstanding, if a
Change of Control occurs and if the Employee's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it
is reasonably demonstrated by the Employee that such termination of
employment (i) was at the request of a third party who has
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taken steps reasonably calculated to effect the Change of Control or (ii)
otherwise arose in connection with or anticipation of the Change of Control,
then for all purposes of this Agreement, the "Change of Control" shall be
deemed to have occurred on the date immediately prior to the date of such
termination of employment.
(c) as used in this Agreement, the terms set forth below shall have the
following respective meanings:
(i) "Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in
effect on the Agreement Effective Date.
(ii) "Agreement Effective Date" shall mean May 19, 1998.
(iii) "Associate" shall mean, with reference to any Person, (a)
any corporation, firm, partnership, association, unincorporated organization
or other entity (other than the Company or a subsidiary of the Company) of
which such Person is an officer or general partner (or officer or general
partner of a general partner) or is, directly or indirectly, the Beneficial
Owner of 10% or more of any class of equity securities, (b) any trust or
other estate in which such Person has a substantial beneficial interest or as
to which such Person serves as trustee or in a similar fiduciary capacity and
(c) any relative or spouse of such Person, or any relative of such spouse,
who has the same home as such Person.
(iv) "Beneficial Owner" shall mean, with reference to any
securities, any Person if:
(a) such Person or any of such Person's Affiliates and Associates,
directly or indirectly, is the "beneficial owner" of (as determined
pursuant to Rule 13d-3 of the General Rules and Regulations under the
Exchange Act, as in effect on the Agreement Effective Date) such
securities or otherwise has the right to vote or dispose of such
securities, including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however, that a
Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security under this subsection (a) as a result
of an agreement, arrangement or understanding to vote such security if
such agreement, arrangement or understanding: (i) arises solely from a
revocable proxy or consent given in response to a public (I.E., not
including a solicitation exempted by Rule 14a-2(b)(2) of the General
Rules and Regulations under the Exchange Act) proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the Exchange Act
and (ii) is not then reportable by such Person on Schedule 13D under the
Exchange Act (or any comparable or successor report);
(b) such Person or any of such Person's Affiliates and Associates,
directly or indirectly, has the right or obligation to acquire such
securities (whether such right or obligation is exercisable or effective
immediately or only after the passage of time
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<PAGE>
or the occurrence of an event) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, other rights, warrants or options,
or otherwise; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to "beneficially own," (i) securities tendered
pursuant to a tender or exchange offer made by such Person or any of
such Person's Affiliates or Associates until such tendered securities
are accepted for purchase or exchange or (ii) securities issuable upon
exercise of Exempt Rights; or
(c) such Person or any of such Person's Affiliates or Associates
(i) has any agreement, arrangement or understanding (whether or not in
writing) with any other Person (or any Affiliate or Associate thereof)
that beneficially owns such securities for the purpose of acquiring,
holding, voting (except as set forth in the proviso to subsection (a) of
this definition) or disposing of such securities or (ii) is a member of
a group (as that term is used in Rule 13d-5(b) of the General Rules and
Regulations under the Exchange Act) that includes any other Person that
beneficially owns such securities;
provided, however, that nothing in this definition shall cause a Person
engaged in business as an underwriter of securities to be the Beneficial
Owner of, or to "beneficially own," any securities acquired through such
Person's participation in good faith in a firm commitment underwriting until
the expiration of 40 days after the date of such acquisition. For purposes
hereof, "voting" a security shall include voting, granting a proxy,
consenting or making a request or demand relating to corporate action
(including, without limitation, a demand for a stockholder list, to call a
stockholder meeting or to inspect corporate books and records) or otherwise
giving an authorization (within the meaning of Section 14(a) of the Exchange
Act) in respect of such security.
The terms "beneficially own" and "beneficially owning" shall have
meanings that are correlative to this definition of the term "Beneficial
Owner."
(v) "Change of Control" shall mean any of the following (provided,
however, that without limiting the generality of any other provision hereof,
no Change of Control shall be deemed to have occurred as a result of the
consummation of any of the transactions contemplated by the Agreement and
Plan of Merger dated as of March 30, 1998 by and between SLH Corporation, a
Kansas corporation, and the Company (the "Merger Agreement")):
(a) any Person (other than an Exempt Person) shall become the
Beneficial Owner of 30% or more of the shares of Common Stock then
outstanding or 30% or more of the combined voting power of the Voting
Stock of the Company then outstanding; provided, however, that no Change
of Control shall be deemed to occur for purposes of this subsection
(a) if such Person shall become a Beneficial Owner of 30% or more of the
shares of Common Stock or 30% or more of the combined voting power of
the Voting Stock of the Company solely as a result of (i) an Exempt
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Transaction or (ii) an acquisition by a Person pursuant to a
reorganization, merger or consolidation, if, following such
reorganization, merger or consolidation, the conditions described in
clauses (i), (ii) and (iii) of subsection (c) of this definition are
satisfied;
(b) individuals who, as of the Agreement Effective Date,
constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the Agreement Effective
Date whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board; provided,
further, that there shall be excluded, for this purpose, any such
individual whose initial assumption of office occurs as a result of any
actual or threatened election contest that is subject to the provisions
of Rule 14a-11 under the Exchange Act;
(c) approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless, following
such reorganization, merger or consolidation, (i) more than 80% of the
then outstanding shares of common stock of the corporation resulting
from such reorganization, merger or consolidation and the combined
voting power of the then outstanding Voting Stock of such corporation is
then beneficially owned, directly or indirectly, by all or substantially
all of the Persons who were the Beneficial Owners of the outstanding
Common Stock immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of
the outstanding Common Stock, (ii) no Person (excluding any Exempt
Person or any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 30% or
more of the Common Stock then outstanding or 30% or more of the combined
voting power of the Voting Stock of the Company then outstanding)
beneficially owns, directly or indirectly, 30% or more of the then
outstanding shares of common stock of the corporation resulting from
such reorganization, merger or consolidation or the combined voting
power of the then outstanding Voting Stock of such corporation and
(iii) at least a majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation
were members of the Incumbent Board at the time of the execution of the
initial agreement or initial action by the Board providing for such
reorganization, merger or consolidation; or
(d) approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company unless such liquidation or
dissolution is approved as part of a plan of liquidation and dissolution
involving a sale or disposition of all or substantially all of the
assets of the Company to a corporation with respect to which, following
such sale or other disposition, all of the requirements of clauses
(ii)(A), (B) and (C) of this subsection (d) are satisfied, or (ii) the
sale or other disposition of all or substantially all of the assets of
the Company, other than to
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<PAGE>
a corporation, with respect to which, following such sale or other
disposition, (A) more than 80% of the then outstanding shares of common
stock of such corporation and the combined voting power of the Voting
Stock of such corporation is then beneficially owned, directly or
indirectly, by all or substantially all of the Persons who were the
Beneficial Owners of the outstanding Common Stock immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition, of
the outstanding Common Stock, (B) no Person (excluding any Exempt Person
and any Person beneficially owning, immediately prior to such sale or
other disposition, directly or indirectly, 30% or more of the Common
Stock then outstanding or 30% or more of the combined voting power of
the Voting Stock of the Company then outstanding) beneficially owns,
directly or indirectly, 30% or more of the then outstanding shares of
common stock of such corporation and the combined voting power of the
then outstanding Voting Stock of such corporation and (C) at least a
majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the
initial agreement or initial action of the Board providing for such sale
or other disposition of assets of the Company.
(vi) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(vii) "Exempt Person" shall mean the Company, any subsidiary of
the Company, any employee benefit plan of the Company or any subsidiary of
the Company, and any Person organized, appointed or established by the
Company for or pursuant to the terms of any such plan.
(viii) "Exempt Rights" shall mean any rights to purchase shares of
Common Stock or other Voting Stock of the Company if at the time of the
issuance thereof such rights are not separable from such Common Stock or
other Voting Stock (I.E., are not transferable otherwise than in connection
with a transfer of the underlying Common Stock or other Voting Stock) except
upon the occurrence of a contingency, whether such rights exist as of the
Agreement Effective Date or are thereafter issued by the Company as a
dividend on shares of Common Stock or other Voting Securities or otherwise.
(ix) "Exempt Transaction" shall mean an increase in the
percentage of the outstanding shares of Common Stock or the percentage of the
combined voting power of the outstanding Voting Stock of the Company
beneficially owned by any Person solely as a result of a reduction in the
number of shares of Common Stock then outstanding due to the repurchase of
Common Stock or Voting Stock by the Company, unless and until such time as
(a) such Person or any Affiliate or Associate of such Person shall purchase
or otherwise become the Beneficial Owner of additional shares of Common Stock
constituting 1% or more of the then outstanding shares of Common Stock or
additional Voting Stock representing 1% or more of the combined voting power
of the then outstanding Voting Stock, or (b) any other Person (or Persons)
who is (or collectively are) the Beneficial Owner of shares of Common Stock
constituting 1% or more of the then outstanding shares of Common Stock or
Voting
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Stock representing 1% or more of the combined voting power of the then
outstanding Voting Stock shall become an Affiliate or Associate of such
Person.
(x) "Good Reason" shall mean:
(a) the assignment to the Employee of any duties materially
inconsistent in any respect with the Employee's position (including
status, offices, titles and reporting requirements), authority,
duties or responsibilities as contemplated by Section 1 of this
Agreement, or any other action by the Company which results in a
diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by
the Company promptly after receipt of notice thereof given by the
Employee;
(b) any material failure by the Company to comply with any of
the provisions of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith
and which is remedied by the Company promptly after receipt of
notice thereof given by the Employee;
(c) the Company's requiring the Employee to be based at any
office outside the Tulsa metropolitan area;
(d) any purported termination by the Company of the
Employee's employment otherwise than as expressly permitted by this
Agreement; or
(xi) "Person" shall mean any individual, firm, corporation,
partnership, association, trust, unincorporated organization or other entity.
(xii) "Voting Stock" shall mean, with respect to a corporation,
all securities of such corporation of any class or series that are entitled to
vote generally in the election of directors of such corporation (excluding any
class or series that would be entitled so to vote by reason of the occurrence of
any contingency, so long as such contingency has not occurred).
(xiii) "Window Period" shall mean the 60-day period immediately
following elapse of one year after any Change of Control.
15. RESIGNATION UPON TERMINATION. In the event of termination of this
Agreement other than for death, Employee agrees to resign from all positions
held in the Company, including without limitation any position as a director,
officer, agent, trustee or consultant of the Company or any affiliate of the
Company.
16. NOTICE TO SUBSEQUENT EMPLOYERS. For a period of two years after
termination of Employee's employment with the Company for any reason,
Employee will inform any
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new employer (before accepting employment) of the obligations of Employee
under Paragraphs 6, 7, 8, 9, and 10 of this Agreement.
17. OBLIGATIONS UNCONDITIONAL. The obligations of the parties under
this Agreement are unconditional and do not depend upon the performance of
any agreements, duties, obligations, or terms outside this Agreement.
18. WAIVER. A party's failure to insist on compliance or enforcement
of any provision of this Agreement shall not affect the validity or
enforceability or constitute a waiver of future enforcement of that provision
or of any other provision of this Agreement by that party or any other party.
19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF OKLAHOMA, UNITED STATES OF
AMERICA, WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF. The Company
and Employee expressly and irrevocably consent and submit to the nonexclusive
jurisdiction of any state or federal court sitting in Tulsa County, Oklahoma
and agree that, to the fullest extent allowed by law, such Oklahoma state or
federal courts shall have jurisdiction over any action, suit or proceeding
arising out of or relating to this Agreement. The Company and Employee 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 Tulsa County,
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
the Company or Employee 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.
20. SEVERABILITY. If for any reason any paragraph, term or provision
of this Agreement is held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall not affect any other provision hereof,
and this Agreement shall be construed and enforced as if such provision had
not been included herein and all other valid provisions herein shall remain
in full force and effect. If for any reason the restrictions and covenants
contained herein are held to cover a geographical area or be for a length of
time which is unreasonable or unenforceable, or in any other way are
construed to be too broad or to any extent invalid, then to the extent the
same are or would be valid or enforceable under applicable law, any court of
competent jurisdiction shall construe and interpret or reform this Agreement
to provide for a covenant having the maximum area, time or other provisions
(not greater than those contained herein) as shall be valid and enforceable
under such applicable law.
21. JURISDICTION. The Company and Employee intend to and hereby confer
jurisdiction to enforce the provisions of this Agreement and any restrictive
covenants contained herein upon the courts of any jurisdiction within the
geographical scope of such
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covenants. If the courts of any one or more of such jurisdictions hold the
provisions of this Agreement or any of the restrictive covenants contained
herein unenforceable by reason of the breadth of such scope or otherwise, it
is the intention of the Company and Employee that such determination not bar
or in any way affect the Company's right to the relief provided herein in the
courts of any other jurisdiction within the geographical scope of such
covenants, as to breaches of such covenants, such covenants as they relate to
each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
22. NOTICE. Any and all notices required or permitted herein shall be
deemed delivered if delivered personally or if mailed by registered or
certified mail to the Company at its principal place of business and to
Employee at the address hereinafter set forth following Employee's signature,
or at such other address or addresses as either party may hereafter designate
in writing to the other.
23. AMENDMENTS. This Agreement may be amended at any time by mutual
consent of the parties hereto, with any such amendment to be invalid unless
in writing, signed by the Company and Employee.
24. BURDEN AND BENEFIT. This Agreement, together with any amendments
hereto, shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors, assigns, heirs and personal
representatives. The Company may, in its sole discretion, assign this
Agreement or its rights hereunder to any parent, affiliate, shareholder, or
successor of the Company, or to any person or entity which purchases
substantially all of the assets of the Company. Employee may not transfer or
assign this Agreement or any of Employee's rights or obligations under this
Agreement.
25. REFERENCES TO GENDER AND NUMBER TERMS. In construing this
Agreement, feminine or number pronouns shall be substituted for those
masculine in form and vice versa, and plural terms shall be substituted for
singular and singular for plural in any place which the context so requires.
26. HEADINGS. The various headings in this Agreement are inserted for
convenience only and are not part of the Agreement.
27. ENTIRE AGREEMENT. This Agreement contains the entire understanding
and agreement between the parties relating to the subject matter hereof. The
original Employment Agreement between the Company and Employee dated
January 23, 1996 is hereby amended and restated in its entirety as set forth
herein.
28. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and all such counterparts shall constitute one and the same
instrument.
29. SEVERANCE COMPENSATION. In the event of termination of Employee's
employment with the Company under the terms of this Agreement which provide
for payment by the Company to Employee of severance compensation, the amount
of such
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<PAGE>
severance compensation shall in no event be greater than the amount which
would be deductible by the Company under Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), after taking into consideration all
payments to Employee covered by Code Section 280G which Employee receives or
is deemed to receive (i) under this Agreement; (ii) under the Company's 1993
Stock Option and Incentive Plan, as amended, by reason of the acceleration of
the right to exercise any options (including any related stock appreciation
rights) granted thereunder or the acceleration of the vesting of any
restricted stock awards granted thereunder; or (iii) under any new plan or
arrangement implemented by the Company after the date of this Agreement which
would otherwise be considered a "parachute payment" under Section 280G. In
the event such payments exceed the amount which would be deductible by the
Company under Code Section 280G, the timing of such payments shall be
extended or otherwise modified such that such payments shall be deductible by
the Company under Code Section 280G and in a manner which, to the extent
possible, provides Employee the full benefit of such payments as originally
agreed to.
IN WITNESS WHEREOF, the Company and Employee have duly executed this
Agreement as of the date and year first above written.
COMPANY:
SYNTROLEUM CORPORATION
By: /s/ Mark A. Agee
------------------------------
Mark A. Agee, President
Syntroleum Corporation.
1350 South Boulder, Suite 1100
Tulsa, Oklahoma 74119
EMPLOYEE:
By: /s/ Peter V. Snyder, Jr.
------------------------------
Peter V. Snyder, Jr.
Home address:
2121 S. Yorktown, #702
Tulsa, Oklahoma 74114
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AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
CONFIDENTIAL
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is made
and entered into effective as of the 19th day of May, 1998 by and between
Syntroleum Corporation, an Oklahoma corporation (the "Company"), and Randall M.
Thompson, an individual (the "Employee").
WHEREAS, the Company and Employee, are parties to that certain Employment
Agreement dated December 30, 1997 ("Original Employment Agreement"); and
WHEREAS, the Company and Employee desire to amend and restate the Original
Employment Agreement to continue Employee's employment by the Company on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the Company and Employee hereby agree as follows.
1. EMPLOYMENT AND DUTIES. The Company employs Employee in the capacity
of Vice President and Chief Financial Officer, or in such other position and at
such location as the Company may direct or desire and Employee hereby accepts
such employment, on the terms and conditions hereinafter set forth. Employee
agrees to perform such services and duties (including reasonable travel) and
hold such offices at such locations as may be reasonably assigned to him from
time to time by the Company and to devote substantially his full business time,
energies and best efforts to the performance thereof to the exclusion of all
other business activities, except any activities disclosed to the Company in
advance and consented to by the Company.
2. COMPENSATION. As compensation for the services to be rendered by
Employee to the Company pursuant to this Agreement, Employee shall be paid the
following compensation and other benefits.
(a) Salary in the amount of $170,000 per year, payable in equal bi-monthly
installments in arrears, or such higher compensation as may be established by
the Company from time to time. Payments of salary shall be made in accordance
with the Company's usual payroll procedures.
(b) Employee shall be eligible to participate, to the extent he may be
eligible, in any group medical and hospitalization, profit sharing, retirement,
life insurance or other employee benefit plans which the Company may from time
to time offer to its employees. All group insurance provided to Employee shall
be in such form and provide such coverage as is provided to other employees of
the Company.
(c) All compensation payments to Employee shall be made subject to normal
deductions therefrom, including federal and state social security and
withholding taxes.
3. LIFE INSURANCE. The Company, in its discretion, may apply for and
procure in its own name and for its own benefit, life insurance on the life of
Employee in any amount or
<PAGE>
amounts considered advisable by the Company. Employee shall submit to any
medical or other examination and execute and deliver any application or other
instrument in writing, reasonably necessary for the Company to acquire such
insurance.
4. EXPENSES. The Company shall reimburse Employee for his actual
out-of-pocket expenses incurred in carrying out his duties hereunder in the
conduct of the Company's business, which expenses shall be limited to
ordinary and necessary items and which shall be supported by vouchers,
receipts or similar documentation submitted in accordance with the Company's
expense reimburse policy and as required by law.
5. VACATIONS AND LEAVE. Employee shall be entitled to vacation and leave
in accordance with the Company's policies in effect from time to time.
6. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Employee acknowledges that in and as a result of his employment by
the Company, he will be making use of, acquiring, and/or adding to the
Company's Trade Secret Information. Except as required in the performance of
Employee's duties under this Agreement, Employee will not use any Trade
Secret Information of the Company for Employee's own benefit or purposes or
disclose to third parties, directly or indirectly, any Trade Secret
Information of the Company, either during or after Employee's employment with
the Company.
(b) As used in this Agreement, "Trade Secret Information" means
information, including, but not limited to, any formula, pattern,
compilation, program, device, method, technique or process, that: (i)
derives independent 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
(ii) is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy. For purposes of this Agreement, "Trade Secret
Information" includes both information disclosed to Employee by the Company
and information developed by Employee in the course of his employment with
the Company. The types and categories of information which are considered to
be Trade Secret Information include, without limitation: (a) specifications,
descriptions, designs, dimensions, content (including chemical composition)
and tolerances of products, parts and components; (b) plans, blueprints,
design packages construction, part and assembly drawings and diagrams; (c)
design, construction and component costs and cost estimates; (d) the
existence, terms or conditions of any agreements (including license
agreements) between the Company and any third party; (e) computer programs
(whether in the form of source code, object code or any other form, including
software, firmware and programmable array logic), formulas, algorithms,
methods, techniques, processes, designs, specifications, diagrams, flow
charts, manuals, descriptions, instructions, explanations, improvements, and
the ideas, systems and methods of operation contained in such programs; (f)
information concerning or resulting from research and development work
performed by Syntroleum; (g) information concerning Syntroleum's management,
financial condition, financial operations, purchasing activities, sales
activities, marketing activities and business plans; (h) information
2
<PAGE>
acquired or compiled by Syntroleum concerning actual or potential customers;
and (i) all other types and categories of information (in whatever form) with
respect to which, under all the circumstances, Employee knows or has reason
to know that Syntroleum intends or expects secrecy to be maintained and as to
which Syntroleum has made reasonable efforts to maintain its secrecy.
(c) The Company may also advise Employee from time to time as to
restrictions upon the use or disclosure of specified information which has been
licensed or otherwise disclosed to the Company by third parties pursuant to
license or confidential disclosure agreements which contain restrictions upon
the use or disclosure of such information. Employee agrees to abide by the
restrictions upon use and/or disclosure contained in such agreements.
(d) Employee has not and will not use or disclose to the Company any
confidential or proprietary information belonging to others without the written
consent of the person to whom such information is confidential, and Employee
represents that his employment with the Company will not require the use of such
information or the violation of any confidential relationship with any third
party.
7. OTHER PROPERTY OF THE COMPANY. All documents, encoded media, and
other tangible items provided to Employee by the Company or prepared, generated
or created by Employee or others in connection with any business activity of the
Company are the property of the Company. Upon termination of Employee's
employment with the Company, Employee will promptly deliver to the Company all
such documents, media and other items in his possession, including all complete
or partial copies, recordings, abstracts, notes or reproductions of any kind
made from or about such documents, media, items or information contained
therein. Employee will neither have nor claim any right, title or interest in
any trademark, service mark or trade name owned or used by the Company.
8. INVENTIONS AND WORKS OF AUTHORSHIP.
(a) Employee agrees to assign and hereby irrevocably assigns to the
Company all of Employee's right, title and interest in and to any and all
Inventions and Works of Authorship made, generated or conceived by Employee
during the period of his employment with the Company, and Employee agrees to
and shall promptly disclose all such Inventions and Works of Authorship to
the Company in writing. As used herein, "Invention" means any discovery,
improvement, innovation, idea, formula, or shop right (whether or not
patentable, whether or not put into writing and whether or not put into
practice) made, generated or conceived by Employee (whether alone or with
others) while employed by the Company. For purposes of this Agreement, any
discovery, improvement, innovation, idea, formula, or shop right (whether or
not patentable, whether or not put into writing and whether or not put into
practice) relating directly or indirectly to the business of the Company or
to the Company's actual or demonstrably anticipated business, research or
development with respect to which Employee files a patent application within
two years after termination of employment with the Company shall be presumed
to be an Invention. As used herein, "Work
3
<PAGE>
of Authorship" means any original work of authorship within the purview of
the copyright laws of the United States of America, and both the Company and
Employee intend and agree that all Works of Authorship created by Employee in
the course of his employment with the Company will be and shall constitute
works made for hire within the meaning and purview of such copyright laws.
(b) Employee will execute and assign any and all applications,
assignments, and other documents and will render all assistance which may be
reasonably necessary for the Company to obtain patent, copyright, or any other
form of intellectual property protection with respect to all Inventions and
Works of Authorship in all countries and will cooperate with Syntroleum as
reasonably necessary to enforce any such intellectual property protection. The
Company will pay Employee $200 for each patent issued to the Company upon which
Employee's name appears as an inventor.
(c) The provisions of this Paragraph 8 do not apply to an invention for
which no equipment, supplies, facility or Trade Secret Information of the
Company was used and which was developed entirely on Employee's own time, and
which does not relate (i) directly or indirectly to the business, research or
development of the Company, or (ii) to the Company's actual or demonstrably
anticipated business, research or development. A reasonable determination of
the applicability of this Paragraph 8(a) to an Employee's invention shall be
made by Syntroleum after the Employee submits notification in writing of the
invention. Said notice shall include adequate detail for Syntroleum to evaluate
the invention.
9. LIMITED COVENANTS AGAINST COMPETITION; NON-SOLICITATION.
(a) Employee acknowledges that the services he is to render to the
Company are of a special and unusual character with a unique value to the
Company, the loss of which cannot adequately be compensated by damages in an
action at law. In view of the unique value to the Company of the services of
Employee and because of the confidential Trade Secret Information to be
obtained by or disclosed to Employee, as set forth above, and as a material
inducement to the Company to enter into this Agreement and to pay to Employee
the compensation stated in Paragraph 2, Employee covenants and agrees that
during the period of Employee's employment within the Company and for a
period of two years following termination of Employee's employment with the
Company for any reason, voluntarily or involuntarily, Employee will not
directly or indirectly: (i) start or participate or assist (as a proprietor,
partner, shareholder, lender, investor, director, employee, consultant,
independent contractor or otherwise) in starting any Competing Business;
(ii) assist (as a proprietor, partner, shareholder, lender, investor, director,
employee, consultant, independent contractor or otherwise) any existing
Competing Business in the design, development or manufacture of any Competing
Product; (iii) sell or assist in the sale of any Competing Product to any
person or organization with whom Employee had any contact while employed with
the Company; (iv) directly or indirectly solicit for employment or employ any
of the Company's employees; or (v) become employed by a former employee of
the Company. Because Syntroleum actively pursues opportunities throughout
the world and is engaged in a world-wide oriented
4
<PAGE>
business the Employee acknowledges the reasonableness of having no geographic
limitation hereunder.
(b) Employee further acknowledges that, while employed by the Company,
he will have contact with and become aware of the Company's customers and
licensees and their respective representatives, including their names and
addresses, specific needs and requirements, as well as leads and references
to prospective customers and licensees. Employee further acknowledges that
loss of such customers or licensees would cause the Company great and
irreparable harm. Employee agrees that for a period of two years following
termination of Employee's employment with the Company for any reason,
voluntarily or involuntarily, Employee will not directly or indirectly
solicit, contact, call upon, communicate with or attempt to communicate with
any customer or licensee, former customer or licensee, or prospective
customer or licensee of the Company for the purpose of selling, installing,
implementing, or modifying any Competing Product. This restriction shall
apply only to any customer or licensee, former customer or licensee, or
prospective customer or licensee of the Company with whom Employee had
contact during the last two years of Employee's employment with the Company.
(c) The Employee agrees that for as long as he is employed by the
Company and for a period of two years after termination of Employee's
employment with the Company for any reason, voluntarily or involuntarily,
Employee will not solicit, recruit, hire or attempt to solicit, recruit or
hire, directly or by assisting others, any other employee of the Company.
(d) As used in this Agreement, (i) "Competing Business" means any
person, entity or organization other than the Company which is engaged in or
is about to become engaged in the design, manufacture or sale of a Competing
Product, (ii) "Competing Product" means any product (including, without
limitation, any chemical formula or process) which is or may be marketed in
competition with any product marketed or under development by the Company at
any time, and (iii) "contact" means interaction between Employee and a
customer or licensee, former customer or licensee, or prospective customer or
licensee of the Company, which takes place to further any business
relationship; or performing services for the customer or licensee, former
customer or licensee, or prospective customer or licensee on behalf of the
Company.
10. REASONABLENESS OF RESTRICTIONS.
(a) Employee expressly acknowledges that he has carefully read and
considered the provisions of Paragraphs 6, 7, 8 and 9, and, having done so,
agrees that the restrictions set forth in these Paragraphs, including, but not
limited to, the time periods and geographic areas of restriction are fair and
reasonable and are reasonably required for the protection of the interests of
the Company and its officers, directors, shareholders and other employees.
(b) In the event that, notwithstanding the foregoing, any of the
provisions of Paragraphs 6, 7, 8 and 9 shall be held to be invalid or
unenforceable, the remaining provisions thereof shall nevertheless continue
to be valid and enforceable as though the
5
<PAGE>
invalid or unenforceable parts had not been included therein. In the event
that any provision of Paragraphs 6, 7, 8 and 9 relating to the time period
and/or the areas of restriction and/or related aspects shall be declared by a
court of competent jurisdiction to exceed the maximum restrictiveness such
court deems reasonable and enforceable, the time period and/or areas of
restriction and/or related aspects deemed reasonable and enforceable by the
court shall become and thereafter be the maximum restriction in such regard,
and the restriction shall remain enforceable to the fullest extent deemed
reasonable by such court.
11. REQUESTS FOR CLARIFICATION. In the event Employee is uncertain as to
the meaning of any provision of this Agreement or its application to any
particular information, item or activity, Employee will inquire in writing to
the Company, specifying any areas of uncertainty. The Company will respond in
writing within a reasonable time and will endeavor to clarify any areas of
uncertainty, including such things as whether it considers particular
information to be its Trade Secret Information or whether it considers any
particular activity or employment to be in violation of this Agreement.
12. REMEDIES. In the event of a breach or threatened breach of any of the
covenants in Paragraphs 6, 7, 8 and 9, the Company shall have the right to seek
monetary damages and equitable relief, including specific performance by means
of an injunction against Employee or against Employee's partners, agents,
representatives, servants, employers, employees, family members and/or any and
all persons acting directly or indirectly by or with him, to prevent or restrain
any such breach.
13. TERM AND TERMINATION.
(a) The term of this Agreement shall be for an initial term of 12 months
from the effective date hereof, unless sooner terminated as provided herein, and
shall thereafter be automatically renewed for successive terms of 12 months each
unless sooner terminated as provided herein.
(b) Employment of Employee under this Agreement may be terminated:
(i) by the Company upon the death of Employee.
(ii) by the Company if Employee becomes disabled. For the purposes
of this Agreement, Employee will be deemed disabled if he (i) has been
declared legally incompetent by a final court decree (the date of such
decree being deemed to be the date on which the disability occurred), or
(ii) receives disability insurance benefits from any disability income
insurance policy maintained by the Company for a period of three
consecutive months, or (iii) has been found to be disabled pursuant to a
disability determination. A "disability determination" means a finding
that Employee, because of a medically determinable disease, injury, or
other mental or physical disability, is unable to perform substantially all
of his regular duties to the Company and that such disability is determined
or reasonably expected to last at least six months. The disability
determination shall be based upon the written opinion of
6
<PAGE>
the physician regularly attending Employee whose disability is in
question. If the Company disagrees with the opinion of this physician
(the "First Physician"), it may engage, at its own expense, another
physician of its choice (the "Second Physician") to examine Employee.
If the First and Second Physicians agree in writing that Employee is or
is not disabled, their written opinion shall, except as otherwise set
forth in this subsection, be conclusive on the issue of disability. If
the First and Second Physicians disagree on the disability of Employee,
they shall choose a third consulting physician (whose expense shall be
borne by the Company), and the written opinion of a majority of these
three physicians shall, except as otherwise provided in this
subsection, be conclusive as to Employee's disability. The date of any
written opinion conclusively finding Employee to be disabled is the
date on which the disability will be deemed to have occurred. If there
is a conclusive finding that Employee is not totally disabled, the
Company shall have the right to request additional disability
determinations provided it agrees to pay all the expenses of the
disability determinations and does not request an additional disability
determination more frequently than once every three months. In
connection with any disability determination, Employee hereby consents
to any required medical examination, and agrees to furnish any medical
information requested by any examining physician and to waive any
applicable physician-patient privilege that may arise because of such
examination. All physicians except the First Physician must be
board-certified in the specialty most closely related to the nature of
the disability alleged to exist.
(iii) by the Company when Employee reaches mandatory retirement age
under any retirement policy applicable to all executive officers adopted
by the Company.
(iv) by mutual agreement of Employee and the Company.
(v) by the Company upon the dissolution and liquidation of the
Company (other than as part of a reorganization, merger, consolidation or
sale of all or substantially all of the assets of the Company whereby the
business of the Company is continued).
(vi) by the Company for just cause at any time upon written
notice. For purposes of this Agreement, "just cause" shall mean any one
or more of the following: (A) Employee's material breach of his
obligations, duties and responsibilities under any term or provision of
this Agreement, which breach remains uncured for a period of five days
after written notice by the Company to Employee; (B) Employee's failure
to adhere to the reasonable standards of performance prescribed by the
Company; (C) Employee's act of insubordination to the Company's Board
of Directors; (D) Employee's gross negligence or willful misconduct in
the performance of his duties under this Agreement; (E) Employee's
dishonesty, fraud, misappropriation or embezzlement in the course of,
related to or connected with the business of the Company; (F)
Employee's conviction of a felony; or (G) Employee's failure (after
written notice to Employee of such failure and Employee not correcting
7
<PAGE>
such failure within five days of such notice) to devote his time,
attention and best efforts to the business of the Company as provided
in this Agreement.
(vii) by either the Company or Employee upon 60 days written notice.
(c) Any termination of Employee's employment, either by the Company or
Employee, shall be communicated by a written notice of termination to the other
party.
(d) If Employee's employment is terminated pursuant to the terms of this
Agreement for any reason, Employee shall be entitled to all arrearages of salary
and expenses up to and including the date of termination but shall not be
entitled to further compensation. Provided, that if, at any time after the
first 12 months from the date of the Original Employment Agreement, Employee's
employment is terminated by the Company for any reason other than Employee's
death, disability or retirement, the Company's dissolution or just cause as
provided in Paragraphs 13(b)(i), (ii), (iii), (v) or (vi), respectively,
Employee shall be entitled to and the Company shall pay Employee all arrearages
of salary and expenses up to and including the date of termination and, in
addition, Employee's monthly base salary for an additional period of 24 months.
(e) Upon expiration of the term of this Agreement or upon earlier
termination of this Agreement, Employee shall deliver all Trade Secret
Information of the Company to an authorized representative of the Company, and
the non-disclosure provisions of PARAGRAPH 6 shall survive such expiration or
termination and shall remain in full force and effect for a period of 15 years
from such expiration or termination.
14. CHANGE OF CONTROL.
(a) In the event of a Change of Control of the Company and (i) during
the one-year period immediately following any Change of Control, the Company
terminates Employee's employment for any reason other than Employee's death,
disability, retirement or just cause as provided in Paragraphs 13(b)(i),
(ii), (iii) and (vi), respectively, (ii) the Employee terminates his
employment for Good Reason, or (iii) during the Window Period the Company or
Employee terminates Employee's employment for any reason, then the Company or
its successor shall pay Employee his full base salary in effect at the time
of the notice of termination through the date of termination, and in lieu of
any further salary payments for periods subsequent to the date of
termination, the Company or its successor shall pay Employee as severance pay
an amount equal to two times Employee's full base salary in effect on the
date of termination payable in 24 equal monthly installments beginning on the
first day of the first calendar month following the date of Employee's
termination and continuing on the first day of each month thereafter until
paid.
(b) Anything in this Agreement to the contrary notwithstanding, if a
Change of Control occurs and if the Employee's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it
is reasonably demonstrated by the Employee that such termination of
employment (i) was at the request of a third party who has
8
<PAGE>
taken steps reasonably calculated to effect the Change of Control or
(ii) otherwise arose in connection with or anticipation of the Change of
Control, then for all purposes of this Agreement, the "Change of Control"
shall be deemed to have occurred on the date immediately prior to the date of
such termination of employment.
(c) as used in this Agreement, the terms set forth below shall have the
following respective meanings:
(i) "Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in
effect on the Agreement Effective Date.
(ii) "Agreement Effective Date" shall mean May 19, 1998.
(iii) "Associate" shall mean, with reference to any Person, (a)
any corporation, firm, partnership, association, unincorporated organization
or other entity (other than the Company or a subsidiary of the Company) of
which such Person is an officer or general partner (or officer or general
partner of a general partner) or is, directly or indirectly, the Beneficial
Owner of 10% or more of any class of equity securities, (b) any trust or
other estate in which such Person has a substantial beneficial interest or as
to which such Person serves as trustee or in a similar fiduciary capacity and
(c) any relative or spouse of such Person, or any relative of such spouse,
who has the same home as such Person.
(iv) "Beneficial Owner" shall mean, with reference to any securities,
any Person if:
(a) such Person or any of such Person's Affiliates and
Associates, directly or indirectly, is the "beneficial owner"
of (as determined pursuant to Rule 13d-3 of the General Rules
and Regulations under the Exchange Act, as in effect on the
Agreement Effective Date) such securities or otherwise has
the right to vote or dispose of such securities, including
pursuant to any agreement, arrangement or understanding
(whether or not in writing); provided, however, that a Person
shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security under this subsection (a) as
a result of an agreement, arrangement or understanding to
vote such security if such agreement, arrangement or
understanding: (i) arises solely from a revocable proxy or
consent given in response to a public (I.E., not including a
solicitation exempted by Rule 14a-2(b)(2) of the General
Rules and Regulations under the Exchange Act) proxy or
consent solicitation made pursuant to, and in accordance
with, the applicable provisions of the General Rules and
Regulations under the Exchange Act and (ii) is not then
reportable by such Person on Schedule 13D under the Exchange
Act (or any comparable or successor report);
(b) such Person or any of such Person's Affiliates and
Associates, directly or indirectly, has the right or
obligation to acquire such securities (whether such right or
obligation is exercisable or effective immediately or only
after the passage of time
9
<PAGE>
or the occurrence of an event) pursuant to any agreement, arrangement
or understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, other rights, warrants or options,
or otherwise; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to "beneficially own," (i) securities tendered
pursuant to a tender or exchange offer made by such Person or any of
such Person's Affiliates or Associates until such tendered securities
are accepted for purchase or exchange or (ii) securities issuable upon
exercise of Exempt Rights; or
(c) such Person or any of such Person's Affiliates or Associates
(i) has any agreement, arrangement or understanding (whether or not in
writing) with any other Person (or any Affiliate or Associate thereof)
that beneficially owns such securities for the purpose of acquiring,
holding, voting (except as set forth in the proviso to subsection (a)
of this definition) or disposing of such securities or (ii) is a member
of a group (as that term is used in Rule 13d-5(b) of the General Rules
and Regulations under the Exchange Act) that includes any other Person
that beneficially owns such securities;
provided, however, that nothing in this definition shall cause a Person
engaged in business as an underwriter of securities to be the Beneficial
Owner of, or to "beneficially own," any securities acquired through such
Person's participation in good faith in a firm commitment underwriting until
the expiration of 40 days after the date of such acquisition. For purposes
hereof, "voting" a security shall include voting, granting a proxy,
consenting or making a request or demand relating to corporate action
(including, without limitation, a demand for a stockholder list, to call a
stockholder meeting or to inspect corporate books and records) or otherwise
giving an authorization (within the meaning of Section 14(a) of the Exchange
Act) in respect of such security.
The terms "beneficially own" and "beneficially owning" shall have
meanings that are correlative to this definition of the term "Beneficial
Owner."
(v) "Change of Control" shall mean any of the following (provided,
however, that without limiting the generality of any other provision hereof,
no Change of Control shall be deemed to have occurred as a result of the
consummation of any of the transactions contemplated by the Agreement and
Plan of Merger dated as of March 30, 1998 by and between SLH Corporation, a
Kansas corporation, and the Company (the "Merger Agreement")):
(a) any Person (other than an Exempt Person) shall become the
Beneficial Owner of 30% or more of the shares of Common Stock then
outstanding or 30% or more of the combined voting power of the Voting
Stock of the Company then outstanding; provided, however, that no
Change of Control shall be deemed to occur for purposes of this
subsection (a) if such Person shall become a Beneficial Owner of 30% or
more of the shares of Common Stock or 30% or more of the combined
voting power of the Voting Stock of the Company solely as a result of
(i) an Exempt
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Transaction or (ii) an acquisition by a Person pursuant to a
reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (i), (ii) and
(iii) of subsection (c) of this definition are satisfied;
(b) individuals who, as of the Agreement Effective Date, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the Agreement Effective Date whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board; provided, further, that
there shall be excluded, for this purpose, any such individual whose
initial assumption of office occurs as a result of any actual or
threatened election contest that is subject to the provisions of Rule
14a-11 under the Exchange Act;
(c) approval by the shareholders of the Company of a reorganization,
merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (i) more than 80% of the then
outstanding shares of common stock of the corporation resulting from
such reorganization, merger or consolidation and the combined voting
power of the then outstanding Voting Stock of such corporation is then
beneficially owned, directly or indirectly, by all or substantially all
of the Persons who were the Beneficial Owners of the outstanding Common
Stock immediately prior to such reorganization, merger or consolidation
in substantially the same proportions as their ownership, immediately
prior to such reorganization, merger or consolidation, of the
outstanding Common Stock, (ii) no Person (excluding any Exempt Person or
any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 30% or
more of the Common Stock then outstanding or 30% or more of the combined
voting power of the Voting Stock of the Company then outstanding)
beneficially owns, directly or indirectly, 30% or more of the then
outstanding shares of common stock of the corporation resulting from
such reorganization, merger or consolidation or the combined voting
power of the then outstanding Voting Stock of such corporation and (iii)
at least a majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation
were members of the Incumbent Board at the time of the execution of the
initial agreement or initial action by the Board providing for such
reorganization, merger or consolidation; or
(d) approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company unless such liquidation or
dissolution is approved as part of a plan of liquidation and dissolution
involving a sale or disposition of all or substantially all of the
assets of the Company to a corporation with respect to which, following
such sale or other disposition, all of the requirements of clauses
(ii)(A), (B) and (C) of this subsection (d) are satisfied, or (ii) the
sale or other disposition of all or substantially all of the assets of
the Company, other than to
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a corporation, with respect to which, following such sale or other
disposition, (A) more than 80% of the then outstanding shares of common
stock of such corporation and the combined voting power of the Voting
Stock of such corporation is then beneficially owned, directly or
indirectly, by all or substantially all of the Persons who were the
Beneficial Owners of the outstanding Common Stock immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition, of
the outstanding Common Stock, (B) no Person (excluding any Exempt Person
and any Person beneficially owning, immediately prior to such sale or
other disposition, directly or indirectly, 30% or more of the Common
Stock then outstanding or 30% or more of the combined voting power of
the Voting Stock of the Company then outstanding) beneficially owns,
directly or indirectly, 30% or more of the then outstanding shares of
common stock of such corporation and the combined voting power of the
then outstanding Voting Stock of such corporation and (C) at least a
majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the
initial agreement or initial action of the Board providing for such sale
or other disposition of assets of the Company.
(vi) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(vii) "Exempt Person" shall mean the Company, any subsidiary of
the Company, any employee benefit plan of the Company or any subsidiary of the
Company, and any Person organized, appointed or established by the Company for
or pursuant to the terms of any such plan.
(viii) "Exempt Rights" shall mean any rights to purchase
shares of Common Stock or other Voting Stock of the Company if at the
time of the issuance thereof such rights are not separable from such
Common Stock or other Voting Stock (I.E., are not transferable
otherwise than in connection with a transfer of the underlying Common
Stock or other Voting Stock) except upon the occurrence of a
contingency, whether such rights exist as of the Agreement Effective
Date or are thereafter issued by the Company as a dividend on shares of
Common Stock or other Voting Securities or otherwise.
(ix) "Exempt Transaction" shall mean an increase in the
percentage of the outstanding shares of Common Stock or the percentage
of the combined voting power of the outstanding Voting Stock of the
Company beneficially owned by any Person solely as a result of a
reduction in the number of shares of Common Stock then outstanding due
to the repurchase of Common Stock or Voting Stock by the Company,
unless and until such time as (a) such Person or any Affiliate or
Associate of such Person shall purchase or otherwise become the
Beneficial Owner of additional shares of Common Stock constituting 1%
or more of the then outstanding shares of Common Stock or additional
Voting Stock representing 1% or more of the combined voting power of
the then outstanding Voting Stock, or (b) any other Person (or Persons)
who is (or collectively are) the Beneficial Owner of shares of Common
Stock constituting 1% or more of the then outstanding shares of Common
Stock or Voting
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Stock representing 1% or more of the combined voting power of the then
outstanding Voting Stock shall become an Affiliate or Associate of such
Person.
(x) "Good Reason" shall mean:
(a) the assignment to the Employee of any duties materially
inconsistent in any respect with the Employee's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 1 of this Agreement, or
any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Employee;
(b) any material failure by the Company to comply with any of
the provisions of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Employee;
(c) the Company's requiring the Employee to be based at any
office outside the Tulsa metropolitan area;
(d) any purported termination by the Company of the Employee's
employment otherwise than as expressly permitted by this Agreement; or
(xi) "Person" shall mean any individual, firm, corporation,
partnership, association, trust, unincorporated organization or other entity.
(xii) "Voting Stock" shall mean, with respect to a corporation,
all securities of such corporation of any class or series that are entitled to
vote generally in the election of directors of such corporation (excluding any
class or series that would be entitled so to vote by reason of the occurrence of
any contingency, so long as such contingency has not occurred).
(xiii) "Window Period" shall mean the 60-day period immediately following
elapse of one year after any Change of Control.
15. RESIGNATION UPON TERMINATION. In the event of termination of this
Agreement other than for death, Employee agrees to resign from all positions
held in the Company, including without limitation any position as a director,
officer, agent, trustee or consultant of the Company or any affiliate of the
Company.
16. NOTICE TO SUBSEQUENT EMPLOYERS. For a period of two years after
termination of Employee's employment with the Company for any reason, Employee
will inform any
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new employer (before accepting employment) of the obligations of Employee
under Paragraphs 6, 7, 8, 9, and 10 of this Agreement.
17. OBLIGATIONS UNCONDITIONAL. The obligations of the parties under this
Agreement are unconditional and do not depend upon the performance of any
agreements, duties, obligations, or terms outside this Agreement.
18. WAIVER. A party's failure to insist on compliance or enforcement
of any provision of this Agreement shall not affect the validity or
enforceability or constitute a waiver of future enforcement of that provision
or of any other provision of this Agreement by that party or any other party.
19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF OKLAHOMA, UNITED STATES OF
AMERICA, WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF. The Company
and Employee expressly and irrevocably consent and submit to the nonexclusive
jurisdiction of any state or federal court sitting in Tulsa County, Oklahoma
and agree that, to the fullest extent allowed by law, such Oklahoma state or
federal courts shall have jurisdiction over any action, suit or proceeding
arising out of or relating to this Agreement. The Company and Employee 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 Tulsa County,
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
the Company or Employee 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.
20. SEVERABILITY. If for any reason any paragraph, term or provision
of this Agreement is held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall not affect any other provision hereof,
and this Agreement shall be construed and enforced as if such provision had
not been included herein and all other valid provisions herein shall remain
in full force and effect. If for any reason the restrictions and covenants
contained herein are held to cover a geographical area or be for a length of
time which is unreasonable or unenforceable, or in any other way are
construed to be too broad or to any extent invalid, then to the extent the
same are or would be valid or enforceable under applicable law, any court of
competent jurisdiction shall construe and interpret or reform this Agreement
to provide for a covenant having the maximum area, time or other provisions
(not greater than those contained herein) as shall be valid and enforceable
under such applicable law.
21. JURISDICTION. The Company and Employee intend to and hereby confer
jurisdiction to enforce the provisions of this Agreement and any restrictive
covenants contained herein upon the courts of any jurisdiction within the
geographical scope of such
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covenants. If the courts of any one or more of such jurisdictions hold the
provisions of this Agreement or any of the restrictive covenants contained
herein unenforceable by reason of the breadth of such scope or otherwise, it
is the intention of the Company and Employee that such determination not bar
or in any way affect the Company's right to the relief provided herein in the
courts of any other jurisdiction within the geographical scope of such
covenants, as to breaches of such covenants, such covenants as they relate to
each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
22. NOTICE. Any and all notices required or permitted herein shall be
deemed delivered if delivered personally or if mailed by registered or
certified mail to the Company at its principal place of business and to
Employee at the address hereinafter set forth following Employee's signature,
or at such other address or addresses as either party may hereafter designate
in writing to the other.
23. AMENDMENTS. This Agreement may be amended at any time by mutual
consent of the parties hereto, with any such amendment to be invalid unless
in writing, signed by the Company and Employee.
24. BURDEN AND BENEFIT. This Agreement, together with any amendments
hereto, shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors, assigns, heirs and personal
representatives. The Company may, in its sole discretion, assign this
Agreement or its rights hereunder to any parent, affiliate, shareholder, or
successor of the Company, or to any person or entity which purchases
substantially all of the assets of the Company. Employee may not transfer or
assign this Agreement or any of Employee's rights or obligations under this
Agreement.
25. REFERENCES TO GENDER AND NUMBER TERMS. In construing this
Agreement, feminine or number pronouns shall be substituted for those
masculine in form and vice versa, and plural terms shall be substituted for
singular and singular for plural in any place which the context so requires.
26. HEADINGS. The various headings in this Agreement are inserted for
convenience only and are not part of the Agreement.
27. ENTIRE AGREEMENT. This Agreement contains the entire understanding
and agreement between the parties relating to the subject matter hereof. The
original Employment Agreement between the Company and Employee dated December
30, 1997 is hereby amended and restated in its entirety as set forth herein.
28. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and all such counterparts shall constitute one and the same
instrument.
29. SEVERANCE COMPENSATION. In the event of termination of Employee's
employment with the Company under the terms of this Agreement which provide
for payment by the Company to Employee of severance compensation, the amount
of such
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<PAGE>
severance compensation shall in no event be greater than the amount which
would be deductible by the Company under Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), after taking into consideration all
payments to Employee covered by Code Section 280G which Employee receives or
is deemed to receive (i) under this Agreement; (ii) under the Company's 1993
Stock Option and Incentive Plan, as amended, by reason of the acceleration of
the right to exercise any options (including any related stock appreciation
rights) granted thereunder or the acceleration of the vesting of any
restricted stock awards granted thereunder; or (iii) under any new plan or
arrangement implemented by the Company after the date of this Agreement which
would otherwise be considered a "parachute payment" under Section 280G. In
the event such payments exceed the amount which would be deductible by the
Company under Code Section 280G, the timing of such payments shall be
extended or otherwise modified such that such payments shall be deductible by
the Company under Code Section 280G and in a manner which, to the extent
possible, provides Employee the full benefit of such payments as originally
agreed to.
IN WITNESS WHEREOF, the Company and Employee have duly executed this
Agreement as of the date and year first above written.
COMPANY:
SYNTROLEUM CORPORATION
By: /s/ Mark A. Agee
------------------------
Mark A. Agee, President
Syntroleum Corporation.
1350 South Boulder, Suite 1100
Tulsa, Oklahoma 74119
EMPLOYEE:
By: /s/ Randall M. Thompson
------------------------
Randall M. Thompson
Home address:
16102 Abberton Hill
Spring, Texas 77379
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AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
CONFIDENTIAL
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is made
and entered into effective as of the 19th day of May, 1998 by and between
Syntroleum Corporation, an Oklahoma corporation (the "Company"), and Larry J.
Weick, an individual (the "Employee").
WHEREAS, the Company and Employee, are parties to that certain Employment
Agreement dated January 1, 1996 ("Original Employment Agreement"); and
WHEREAS, the Company and Employee desire to amend and restate the Original
Employment Agreement to continue Employee's employment by the Company on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the Company and Employee hereby agree as follows.
1. EMPLOYMENT AND DUTIES. The Company employs Employee in the capacity
of Vice President of Licensing and Business Development, or in such other
position and at such location as the Company may direct or desire and Employee
hereby accepts such employment, on the terms and conditions hereinafter set
forth. Employee agrees to perform such services and duties (including
reasonable travel) and hold such offices at such locations as may be reasonably
assigned to him from time to time by the Company and to devote substantially his
full business time, energies and best efforts to the performance thereof to the
exclusion of all other business activities, except any activities disclosed to
the Company in advance and consented to by the Company.
2. COMPENSATION. As compensation for the services to be rendered by
Employee to the Company pursuant to this Agreement, Employee shall be paid the
following compensation and other benefits.
(a) Salary in the amount of $170,000 per year, payable in equal bi-monthly
installments in arrears, or such higher compensation as may be established by
the Company from time to time. Payments of salary shall be made in accordance
with the Company's usual payroll procedures.
(b) Employee shall be eligible to participate, to the extent he may be
eligible, in any group medical and hospitalization, profit sharing, retirement,
life insurance or other employee benefit plans which the Company may from time
to time offer to its employees. All group insurance provided to Employee shall
be in such form and provide such coverage as is provided to other employees of
the Company.
(c) All compensation payments to Employee shall be made subject to normal
deductions therefrom, including federal and state social security and
withholding taxes.
<PAGE>
3. LIFE INSURANCE. The Company, in its discretion, may apply for and
procure in its own name and for its own benefit, life insurance on the life of
Employee in any amount or amounts considered advisable by the Company. Employee
shall submit to any medical or other examination and execute and deliver any
application or other instrument in writing, reasonably necessary for the Company
to acquire such insurance.
4. EXPENSES. The Company shall reimburse Employee for his actual
out-of-pocket expenses incurred in carrying out his duties hereunder in the
conduct of the Company's business, which expenses shall be limited to
ordinary and necessary items and which shall be supported by vouchers,
receipts or similar documentation submitted in accordance with the Company's
expense reimburse policy and as required by law.
5. VACATIONS AND LEAVE. Employee shall be entitled to vacation and
leave in accordance with the Company's policies in effect from time to time.
6. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Employee acknowledges that in and as a result of his employment by
the Company, he will be making use of, acquiring, and/or adding to the
Company's Trade Secret Information. Except as required in the performance of
Employee's duties under this Agreement, Employee will not use any Trade
Secret Information of the Company for Employee's own benefit or purposes or
disclose to third parties, directly or indirectly, any Trade Secret
Information of the Company, either during or after Employee's employment with
the Company.
(b) As used in this Agreement, "Trade Secret Information" means
information, including, but not limited to, any formula, pattern,
compilation, program, device, method, technique or process, that: (i)
derives independent 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
(ii) is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy. For purposes of this Agreement, "Trade Secret
Information" includes both information disclosed to Employee by the Company
and information developed by Employee in the course of his employment with
the Company. The types and categories of information which are considered to
be Trade Secret Information include, without limitation: (a) specifications,
descriptions, designs, dimensions, content (including chemical composition)
and tolerances of products, parts and components; (b) plans, blueprints,
design packages construction, part and assembly drawings and diagrams; (c)
design, construction and component costs and cost estimates; (d) the
existence, terms or conditions of any agreements (including license
agreements) between the Company and any third party; (e) computer programs
(whether in the form of source code, object code or any other form, including
software, firmware and programmable array logic), formulas, algorithms,
methods, techniques, processes, designs, specifications, diagrams, flow
charts, manuals, descriptions, instructions, explanations, improvements, and
the ideas, systems and methods of operation contained in such programs; (f)
information concerning or resulting from research and development work
performed by Syntroleum; (g)
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information concerning Syntroleum's management, financial condition,
financial operations, purchasing activities, sales activities, marketing
activities and business plans; (h) information acquired or compiled by
Syntroleum concerning actual or potential customers; and (i) all other types
and categories of information (in whatever form) with respect to which, under
all the circumstances, Employee knows or has reason to know that Syntroleum
intends or expects secrecy to be maintained and as to which Syntroleum has
made reasonable efforts to maintain its secrecy.
(c) The Company may also advise Employee from time to time as to
restrictions upon the use or disclosure of specified information which has been
licensed or otherwise disclosed to the Company by third parties pursuant to
license or confidential disclosure agreements which contain restrictions upon
the use or disclosure of such information. Employee agrees to abide by the
restrictions upon use and/or disclosure contained in such agreements.
(d) Employee has not and will not use or disclose to the Company any
confidential or proprietary information belonging to others without the written
consent of the person to whom such information is confidential, and Employee
represents that his employment with the Company will not require the use of such
information or the violation of any confidential relationship with any third
party.
7. OTHER PROPERTY OF THE COMPANY. All documents, encoded media, and
other tangible items provided to Employee by the Company or prepared, generated
or created by Employee or others in connection with any business activity of the
Company are the property of the Company. Upon termination of Employee's
employment with the Company, Employee will promptly deliver to the Company all
such documents, media and other items in his possession, including all complete
or partial copies, recordings, abstracts, notes or reproductions of any kind
made from or about such documents, media, items or information contained
therein. Employee will neither have nor claim any right, title or interest in
any trademark, service mark or trade name owned or used by the Company.
8. INVENTIONS AND WORKS OF AUTHORSHIP.
(a) Employee agrees to assign and hereby irrevocably assigns to the
Company all of Employee's right, title and interest in and to any and all
Inventions and Works of Authorship made, generated or conceived by Employee
during the period of his employment with the Company, and Employee agrees to and
shall promptly disclose all such Inventions and Works of Authorship to the
Company in writing. As used herein, "Invention" means any discovery,
improvement, innovation, idea, formula, or shop right (whether or not
patentable, whether or not put into writing and whether or not put into
practice) made, generated or conceived by Employee (whether alone or with
others) while employed by the Company. For purposes of this Agreement, any
discovery, improvement, innovation, idea, formula, or shop right (whether or not
patentable, whether or not put into writing and whether or not put into
practice) relating directly or indirectly to the business of the Company or to
the Company's actual or demonstrably anticipated business, research or
development with
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<PAGE>
respect to which Employee files a patent application within two years after
termination of employment with the Company shall be presumed to be an
Invention. As used herein, "Work of Authorship" means any original work of
authorship within the purview of the copyright laws of the United States of
America, and both the Company and Employee intend and agree that all Works of
Authorship created by Employee in the course of his employment with the
Company will be and shall constitute works made for hire within the meaning
and purview of such copyright laws.
(b) Employee will execute and assign any and all applications,
assignments, and other documents and will render all assistance which may be
reasonably necessary for the Company to obtain patent, copyright, or any other
form of intellectual property protection with respect to all Inventions and
Works of Authorship in all countries and will cooperate with Syntroleum as
reasonably necessary to enforce any such intellectual property protection. The
Company will pay Employee $200 for each patent issued to the Company upon which
Employee's name appears as an inventor.
(c) The provisions of this Paragraph 8 do not apply to an invention for
which no equipment, supplies, facility or Trade Secret Information of the
Company was used and which was developed entirely on Employee's own time, and
which does not relate (i) directly or indirectly to the business, research or
development of the Company, or (ii) to the Company's actual or demonstrably
anticipated business, research or development. A reasonable determination of
the applicability of this Paragraph 8(a) to an Employee's invention shall be
made by Syntroleum after the Employee submits notification in writing of the
invention. Said notice shall include adequate detail for Syntroleum to evaluate
the invention.
9. LIMITED COVENANTS AGAINST COMPETITION; NON-SOLICITATION.
(a) Employee acknowledges that the services he is to render to the Company
are of a special and unusual character with a unique value to the Company, the
loss of which cannot adequately be compensated by damages in an action at law.
In view of the unique value to the Company of the services of Employee and
because of the confidential Trade Secret Information to be obtained by or
disclosed to Employee, as set forth above, and as a material inducement to the
Company to enter into this Agreement and to pay to Employee the compensation
stated in Paragraph 2, Employee covenants and agrees that during the period of
Employee's employment within the Company and for a period of two years following
termination of Employee's employment with the Company for any reason,
voluntarily or involuntarily, Employee will not directly or indirectly: (i)
start or participate or assist (as a proprietor, partner, shareholder, lender,
investor, director, employee, consultant, independent contractor or otherwise)
in starting any Competing Business; (ii) assist (as a proprietor, partner,
shareholder, lender, investor, director, employee, consultant, independent
contractor or otherwise) any existing Competing Business in the design,
development or manufacture of any Competing Product; (iii) sell or assist in the
sale of any Competing Product to any person or organization with whom Employee
had any contact while employed with the Company; (iv) directly or indirectly
solicit for employment or employ any of the Company's employees;
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<PAGE>
or (v) become employed by a former employee of the Company. Because
Syntroleum actively pursues opportunities throughout the world and is engaged
in a world-wide oriented business the Employee acknowledges the
reasonableness of having no geographic limitation hereunder.
(b) Employee further acknowledges that, while employed by the Company, he
will have contact with and become aware of the Company's customers and licensees
and their respective representatives, including their names and addresses,
specific needs and requirements, as well as leads and references to prospective
customers and licensees. Employee further acknowledges that loss of such
customers or licensees would cause the Company great and irreparable harm.
Employee agrees that for a period of two years following termination of
Employee's employment with the Company for any reason, voluntarily or
involuntarily, Employee will not directly or indirectly solicit, contact, call
upon, communicate with or attempt to communicate with any customer or licensee,
former customer or licensee, or prospective customer or licensee of the Company
for the purpose of selling, installing, implementing, or modifying any Competing
Product. This restriction shall apply only to any customer or licensee, former
customer or licensee, or prospective customer or licensee of the Company with
whom Employee had contact during the last two years of Employee's employment
with the Company.
(c) The Employee agrees that for as long as he is employed by the Company
and for a period of two years after termination of Employee's employment with
the Company for any reason, voluntarily or involuntarily, Employee will not
solicit, recruit, hire or attempt to solicit, recruit or hire, directly or by
assisting others, any other employee of the Company.
(d) As used in this Agreement, (i) "Competing Business" means any person,
entity or organization other than the Company which is engaged in or is about to
become engaged in the design, manufacture or sale of a Competing Product, (ii)
"Competing Product" means any product (including, without limitation, any
chemical formula or process) which is or may be marketed in competition with any
product marketed or under development by the Company at any time, and (iii)
"contact" means interaction between Employee and a customer or licensee, former
customer or licensee, or prospective customer or licensee of the Company, which
takes place to further any business relationship; or performing services for the
customer or licensee, former customer or licensee, or prospective customer or
licensee on behalf of the Company.
10. REASONABLENESS OF RESTRICTIONS.
(a) Employee expressly acknowledges that he has carefully read and
considered the provisions of Paragraphs 6, 7, 8 and 9, and, having done so,
agrees that the restrictions set forth in these Paragraphs, including, but not
limited to, the time periods and geographic areas of restriction are fair and
reasonable and are reasonably required for the protection of the interests of
the Company and its officers, directors, shareholders and other employees.
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<PAGE>
(b) In the event that, notwithstanding the foregoing, any of the
provisions of Paragraphs 6, 7, 8 and 9 shall be held to be invalid or
unenforceable, the remaining provisions thereof shall nevertheless continue to
be valid and enforceable as though the invalid or unenforceable parts had not
been included therein. In the event that any provision of Paragraphs 6, 7, 8
and 9 relating to the time period and/or the areas of restriction and/or related
aspects shall be declared by a court of competent jurisdiction to exceed the
maximum restrictiveness such court deems reasonable and enforceable, the time
period and/or areas of restriction and/or related aspects deemed reasonable and
enforceable by the court shall become and thereafter be the maximum restriction
in such regard, and the restriction shall remain enforceable to the fullest
extent deemed reasonable by such court.
11. REQUESTS FOR CLARIFICATION. In the event Employee is uncertain as to
the meaning of any provision of this Agreement or its application to any
particular information, item or activity, Employee will inquire in writing to
the Company, specifying any areas of uncertainty. The Company will respond in
writing within a reasonable time and will endeavor to clarify any areas of
uncertainty, including such things as whether it considers particular
information to be its Trade Secret Information or whether it considers any
particular activity or employment to be in violation of this Agreement.
12. REMEDIES. In the event of a breach or threatened breach of any of the
covenants in Paragraphs 6, 7, 8 and 9, the Company shall have the right to seek
monetary damages and equitable relief, including specific performance by means
of an injunction against Employee or against Employee's partners, agents,
representatives, servants, employers, employees, family members and/or any and
all persons acting directly or indirectly by or with him, to prevent or restrain
any such breach.
13. TERM AND TERMINATION.
(a) The term of this Agreement shall be for an initial term of 12 months
from the effective date hereof, unless sooner terminated as provided herein, and
shall thereafter be automatically renewed for successive terms of 12 months each
unless sooner terminated as provided herein.
(b) Employment of Employee under this Agreement may be terminated:
(i) by the Company upon the death of Employee.
(ii) by the Company if Employee becomes disabled. For the purposes
of this Agreement, Employee will be deemed disabled if he (i) has been
declared legally incompetent by a final court decree (the date of such
decree being deemed to be the date on which the disability occurred), or
(ii) receives disability insurance benefits from any disability income
insurance policy maintained by the Company for a period of three
consecutive months, or (iii) has been found to be disabled pursuant to a
disability determination. A "disability determination" means a finding
that Employee, because of a medically determinable disease, injury, or
other mental or
6
<PAGE>
physical disability, is unable to perform substantially all of his
regular duties to the Company and that such disability is determined
or reasonably expected to last at least six months. The disability
determination shall be based upon the written opinion of the physician
regularly attending Employee whose disability is in question. If the
Company disagrees with the opinion of this physician (the "First
Physician"), it may engage, at its own expense, another physician of its
choice (the "Second Physician") to examine Employee. If the First and
Second Physicians agree in writing that Employee is or is not disabled,
their written opinion shall, except as otherwise set forth in this
subsection, be conclusive on the issue of disability. If the First and
Second Physicians disagree on the disability of Employee, they shall choose
a third consulting physician (whose expense shall be borne by the Company),
and the written opinion of a majority of these three physicians shall,
except as otherwise provided in this subsection, be conclusive as to
Employee's disability. The date of any written opinion conclusively
finding Employee to be disabled is the date on which the disability will be
deemed to have occurred. If there is a conclusive finding that Employee is
not totally disabled, the Company shall have the right to request
additional disability determinations provided it agrees to pay all the
expenses of the disability determinations and does not request an
additional disability determination more frequently than once every three
months. In connection with any disability determination, Employee hereby
consents to any required medical examination, and agrees to furnish any
medical information requested by any examining physician and to waive any
applicable physician-patient privilege that may arise because of such
examination. All physicians except the First Physician must be
board-certified in the specialty most closely related to the nature of the
disability alleged to exist.
(iii) by the Company when Employee reaches mandatory retirement age
under any retirement policy applicable to all executive officers adopted by
the Company.
(iv) by mutual agreement of Employee and the Company.
(v) by the Company upon the dissolution and liquidation of the
Company (other than as part of a reorganization, merger, consolidation or
sale of all or substantially all of the assets of the Company whereby the
business of the Company is continued).
(vi) by the Company for just cause at any time upon written notice.
For purposes of this Agreement, "just cause" shall mean any one or more of
the following: (A) Employee's material breach of his obligations, duties
and responsibilities under any term or provision of this Agreement, which
breach remains uncured for a period of five days after written notice by
the Company to Employee; (B) Employee's failure to adhere to the reasonable
standards of performance prescribed by the Company; (C) Employee's act of
insubordination to the Company's Board of Directors; (D) Employee's gross
negligence or willful misconduct in the performance of his duties under
this Agreement; (E) Employee's dishonesty, fraud,
7
<PAGE>
misappropriation or embezzlement in the course of, related to or connected
with the business of the Company; (F) Employee's conviction of a felony; or
(G) Employee's failure (after written notice to Employee of such failure
and Employee not correcting such failure within five days of such notice)
to devote his time, attention and best efforts to the business of the
Company as provided in this Agreement.
(vii) by either the Company or Employee upon 60 days written notice.
(c) Any termination of Employee's employment, either by the Company or
Employee, shall be communicated by a written notice of termination to the other
party.
(d) If Employee's employment is terminated pursuant to the terms of this
Agreement for any reason, Employee shall be entitled to all arrearages of salary
and expenses up to and including the date of termination but shall not be
entitled to further compensation. Provided, that if, at any time after the
first 12 months from the date of the Original Employment Agreement, Employee's
employment is terminated by the Company for any reason other than Employee's
death, disability or retirement, the Company's dissolution or just cause as
provided in Paragraphs 13(b)(i), (ii), (iii), (v) or (vi), respectively,
Employee shall be entitled to and the Company shall pay Employee all arrearages
of salary and expenses up to and including the date of termination and, in
addition, Employee's monthly base salary for an additional period of 24 months.
(e) Upon expiration of the term of this Agreement or upon earlier
termination of this Agreement, Employee shall deliver all Trade Secret
Information of the Company to an authorized representative of the Company, and
the non-disclosure provisions of PARAGRAPH 6 shall survive such expiration or
termination and shall remain in full force and effect for a period of 15 years
from such expiration or termination.
14. CHANGE OF CONTROL.
(a) In the event of a Change of Control of the Company and (i) during
the one-year period immediately following any Change of Control, the Company
terminates Employee's employment for any reason other than Employee's death,
disability, retirement or just cause as provided in Paragraphs 13(b)(i),
(ii), (iii) and (vi), respectively, (ii) the Employee terminates his
employment for Good Reason, or (iii) during the Window Period the Company or
Employee terminates Employee's employment for any reason, then the Company or
its successor shall pay Employee his full base salary in effect at the time
of the notice of termination through the date of termination, and in lieu of
any further salary payments for periods subsequent to the date of
termination, the Company or its successor shall pay Employee as severance pay
an amount equal to two times Employee's full base salary in effect on the
date of termination payable in 24 equal monthly installments beginning on the
first day of the first calendar month following the date of Employee's
termination and continuing on the first day of each month thereafter until
paid.
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<PAGE>
(b) Anything in this Agreement to the contrary notwithstanding, if a
Change of Control occurs and if the Employee's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Employee that such termination of employment (i)
was at the request of a third party who has taken steps reasonably calculated to
effect the Change of Control or (ii) otherwise arose in connection with or
anticipation of the Change of Control, then for all purposes of this Agreement,
the "Change of Control" shall be deemed to have occurred on the date immediately
prior to the date of such termination of employment.
(c) as used in this Agreement, the terms set forth below shall have the
following respective meanings:
(i) "Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in
effect on the Agreement Effective Date.
(ii) "Agreement Effective Date" shall mean May 19, 1998.
(iii) "Associate" shall mean, with reference to any Person, (a)
any corporation, firm, partnership, association, unincorporated organization
or other entity (other than the Company or a subsidiary of the Company) of
which such Person is an officer or general partner (or officer or general
partner of a general partner) or is, directly or indirectly, the Beneficial
Owner of 10% or more of any class of equity securities, (b) any trust or
other estate in which such Person has a substantial beneficial interest or as
to which such Person serves as trustee or in a similar fiduciary capacity and
(c) any relative or spouse of such Person, or any relative of such spouse,
who has the same home as such Person.
(iv) "Beneficial Owner" shall mean, with reference to any
securities, any Person if:
(a) such Person or any of such Person's Affiliates and Associates,
directly or indirectly, is the "beneficial owner" of (as determined
pursuant to Rule 13d-3 of the General Rules and Regulations under the
Exchange Act, as in effect on the Agreement Effective Date) such securities
or otherwise has the right to vote or dispose of such securities, including
pursuant to any agreement, arrangement or understanding (whether or not in
writing); provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security under this
subsection (a) as a result of an agreement, arrangement or understanding
to vote such security if such agreement, arrangement or understanding:
(i) arises solely from a revocable proxy or consent given in response to
a public (I.E., not including a solicitation exempted by Rule 14a-2(b)(2)
of the General Rules and Regulations under the Exchange Act) proxy or
consent solicitation made pursuant to, and in accordance with, the
applicable provisions of the General Rules and Regulations under the
Exchange Act and (ii) is not then reportable by such Person on Schedule 13D
under the Exchange Act (or any comparable or successor report);
9
<PAGE>
(b) such Person or any of such Person's Affiliates and Associates,
directly or indirectly, has the right or obligation to acquire such
securities (whether such right or obligation is exercisable or effective
immediately or only after the passage of time or the occurrence of an
event) pursuant to any agreement, arrangement or understanding (whether
or not in writing) or upon the exercise of conversion rights, exchange
rights, other rights, warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or
to "beneficially own," (i) securities tendered pursuant to a tender or
exchange offer made by such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange or (ii) securities issuable upon exercise of Exempt Rights; or
(c) such Person or any of such Person's Affiliates or Associates
(i) has any agreement, arrangement or understanding (whether or not in
writing) with any other Person (or any Affiliate or Associate thereof)
that beneficially owns such securities for the purpose of acquiring,
holding, voting (except as set forth in the proviso to subsection (a) of
this definition) or disposing of such securities or (ii) is a member of
a group (as that term is used in Rule 13d-5(b) of the General Rules and
Regulations under the Exchange Act) that includes any other Person that
beneficially owns such securities;
provided, however, that nothing in this definition shall cause a Person
engaged in business as an underwriter of securities to be the Beneficial
Owner of, or to "beneficially own," any securities acquired through such
Person's participation in good faith in a firm commitment underwriting until
the expiration of 40 days after the date of such acquisition. For purposes
hereof, "voting" a security shall include voting, granting a proxy,
consenting or making a request or demand relating to corporate action
(including, without limitation, a demand for a stockholder list, to call a
stockholder meeting or to inspect corporate books and records) or otherwise
giving an authorization (within the meaning of Section 14(a) of the Exchange
Act) in respect of such security.
The terms "beneficially own" and "beneficially owning" shall have meanings
that are correlative to this definition of the term "Beneficial Owner."
(v) "Change of Control" shall mean any of the following (provided,
however, that without limiting the generality of any other provision hereof,
no Change of Control shall be deemed to have occurred as a result of the
consummation of any of the transactions contemplated by the Agreement and Plan
of Merger dated as of March 30, 1998 by and between SLH Corporation, a Kansas
corporation, and the Company (the "Merger Agreement")):
(a) any Person (other than an Exempt Person) shall become the
Beneficial Owner of 30% or more of the shares of Common Stock then
outstanding or 30% or more of the combined voting power of the Voting
Stock of the Company then
10
<PAGE>
outstanding; provided, however, that no Change of Control shall be
deemed to occur for purposes of this subsection (a) if such Person shall
become a Beneficial Owner of 30% or more of the shares of Common Stock
or 30% or more of the combined voting power of the Voting Stock of the
Company solely as a result of (i) an Exempt Transaction or (ii) an
acquisition by a Person pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (i), (ii) and (iii)
of subsection (c) of this definition are satisfied;
(b) individuals who, as of the Agreement Effective Date, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the Agreement Effective Date whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board; provided, further, that
there shall be excluded, for this purpose, any such individual whose
initial assumption of office occurs as a result of any actual or
threatened election contest that is subject to the provisions of Rule
14a-11 under the Exchange Act;
(c) approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless, following
such reorganization, merger or consolidation, (i) more than 80% of the
then outstanding shares of common stock of the corporation resulting
from such reorganization, merger or consolidation and the combined
voting power of the then outstanding Voting Stock of such corporation is
then beneficially owned, directly or indirectly, by all or substantially
all of the Persons who were the Beneficial Owners of the outstanding
Common Stock immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of
the outstanding Common Stock, (ii) no Person (excluding any Exempt
Person or any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 30% or
more of the Common Stock then outstanding or 30% or more of the combined
voting power of the Voting Stock of the Company then outstanding)
beneficially owns, directly or indirectly, 30% or more of the then
outstanding shares of common stock of the corporation resulting from
such reorganization, merger or consolidation or the combined voting
power of the then outstanding Voting Stock of such corporation and (iii)
at least a majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation
were members of the Incumbent Board at the time of the execution of the
initial agreement or initial action by the Board providing for such
reorganization, merger or consolidation; or
(d) approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company unless such liquidation or
dissolution is approved as part of a plan of liquidation and dissolution
involving a sale or
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<PAGE>
disposition of all or substantially all of the assets of the Company to
a corporation with respect to which, following such sale or other
disposition, all of the requirements of clauses (ii)(A), (B) and (C) of
this subsection (d) are satisfied, or (ii) the sale or other disposition
of all or substantially all of the assets of the Company, other than to
a corporation, with respect to which, following such sale or other
disposition, (A) more than 80% of the then outstanding shares of common
stock of such corporation and the combined voting power of the Voting
Stock of such corporation is then beneficially owned, directly or
indirectly, by all or substantially all of the Persons who were the
Beneficial Owners of the outstanding Common Stock immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition, of
the outstanding Common Stock, (B) no Person (excluding any Exempt Person
and any Person beneficially owning, immediately prior to such sale or
other disposition, directly or indirectly, 30% or more of the Common
Stock then outstanding or 30% or more of the combined voting power of
the Voting Stock of the Company then outstanding) beneficially owns,
directly or indirectly, 30% or more of the then outstanding shares of
common stock of such corporation and the combined voting power of the
then outstanding Voting Stock of such corporation and (C) at least a
majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the
initial agreement or initial action of the Board providing for such sale
or other disposition of assets of the Company.
(vi) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(vii) "Exempt Person" shall mean the Company, any subsidiary of the
Company, any employee benefit plan of the Company or any subsidiary of the
Company, and any Person organized, appointed or established by the Company for
or pursuant to the terms of any such plan.
(viii) "Exempt Rights" shall mean any rights to purchase shares of
Common Stock or other Voting Stock of the Company if at the time of the issuance
thereof such rights are not separable from such Common Stock or other Voting
Stock (I.E., are not transferable otherwise than in connection with a transfer
of the underlying Common Stock or other Voting Stock) except upon the occurrence
of a contingency, whether such rights exist as of the Agreement Effective Date
or are thereafter issued by the Company as a dividend on shares of Common Stock
or other Voting Securities or otherwise.
(ix) "Exempt Transaction" shall mean an increase in the
percentage of the outstanding shares of Common Stock or the percentage of the
combined voting power of the outstanding Voting Stock of the Company
beneficially owned by any Person solely as a result of a reduction in the
number of shares of Common Stock then outstanding due to the repurchase of
Common Stock or Voting Stock by the Company, unless and until such time as
(a) such Person or any Affiliate or Associate of such Person shall purchase
or otherwise become the Beneficial Owner of additional shares of Common Stock
constituting 1% or more
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<PAGE>
of the then outstanding shares of Common Stock or additional Voting Stock
representing 1% or more of the combined voting power of the then outstanding
Voting Stock, or (b) any other Person (or Persons) who is (or collectively
are) the Beneficial Owner of shares of Common Stock constituting 1% or more
of the then outstanding shares of Common Stock or Voting Stock representing
1% or more of the combined voting power of the then outstanding Voting Stock
shall become an Affiliate or Associate of such Person.
(x) "Good Reason" shall mean:
(a) the assignment to the Employee of any duties materially
inconsistent in any respect with the Employee's position (including
status, offices, titles and reporting requirements), authority,
duties or responsibilities as contemplated by Section 1 of this
Agreement, or any other action by the Company which results in a
diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Employee;
(b) any material failure by the Company to comply with any of
the provisions of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Employee;
(c) the Company's requiring the Employee to be based at any
office outside the Tulsa metropolitan area;
(d) any purported termination by the Company of the Employee's
employment otherwise than as expressly permitted by this Agreement; or
(xi) "Person" shall mean any individual, firm, corporation,
partnership, association, trust, unincorporated organization or other entity.
(xii) "Voting Stock" shall mean, with respect to a corporation, all
securities of such corporation of any class or series that are entitled to vote
generally in the election of directors of such corporation (excluding any class
or series that would be entitled so to vote by reason of the occurrence of any
contingency, so long as such contingency has not occurred).
(xiii) "Window Period" shall mean the 60-day period immediately
following elapse of one year after any Change of Control.
15. RESIGNATION UPON TERMINATION. In the event of termination of this
Agreement other than for death, Employee agrees to resign from all positions
held in the Company, including without limitation any position as a director,
officer, agent, trustee or consultant of the Company or any affiliate of the
Company.
13
<PAGE>
16. NOTICE TO SUBSEQUENT EMPLOYERS. For a period of two years after
termination of Employee's employment with the Company for any reason,
Employee will inform any new employer (before accepting employment) of the
obligations of Employee under Paragraphs 6, 7, 8, 9, and 10 of this Agreement.
17. OBLIGATIONS UNCONDITIONAL. The obligations of the parties under
this Agreement are unconditional and do not depend upon the performance of
any agreements, duties, obligations, or terms outside this Agreement.
18. WAIVER. A party's failure to insist on compliance or enforcement
of any provision of this Agreement shall not affect the validity or
enforceability or constitute a waiver of future enforcement of that provision
or of any other provision of this Agreement by that party or any other party.
19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF OKLAHOMA, UNITED STATES OF
AMERICA, WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF. The Company
and Employee expressly and irrevocably consent and submit to the nonexclusive
jurisdiction of any state or federal court sitting in Tulsa County, Oklahoma
and agree that, to the fullest extent allowed by law, such Oklahoma state or
federal courts shall have jurisdiction over any action, suit or proceeding
arising out of or relating to this Agreement. The Company and Employee 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 Tulsa County,
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
the Company or Employee 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.
20. SEVERABILITY. If for any reason any paragraph, term or provision
of this Agreement is held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall not affect any other provision hereof,
and this Agreement shall be construed and enforced as if such provision had
not been included herein and all other valid provisions herein shall remain
in full force and effect. If for any reason the restrictions and covenants
contained herein are held to cover a geographical area or be for a length of
time which is unreasonable or unenforceable, or in any other way are
construed to be too broad or to any extent invalid, then to the extent the
same are or would be valid or enforceable under applicable law, any court of
competent jurisdiction shall construe and interpret or reform this Agreement
to provide for a covenant having the maximum area, time or other provisions
(not greater than those contained herein) as shall be valid and enforceable
under such applicable law.
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<PAGE>
21. JURISDICTION. The Company and Employee intend to and hereby confer
jurisdiction to enforce the provisions of this Agreement and any restrictive
covenants contained herein upon the courts of any jurisdiction within the
geographical scope of such covenants. If the courts of any one or more of
such jurisdictions hold the provisions of this Agreement or any of the
restrictive covenants contained herein unenforceable by reason of the breadth
of such scope or otherwise, it is the intention of the Company and Employee
that such determination not bar or in any way affect the Company's right to
the relief provided herein in the courts of any other jurisdiction within the
geographical scope of such covenants, as to breaches of such covenants, such
covenants as they relate to each jurisdiction being, for this purpose,
severable into diverse and independent covenants.
22. NOTICE. Any and all notices required or permitted herein shall be
deemed delivered if delivered personally or if mailed by registered or
certified mail to the Company at its principal place of business and to
Employee at the address hereinafter set forth following Employee's signature,
or at such other address or addresses as either party may hereafter designate
in writing to the other.
23. AMENDMENTS. This Agreement may be amended at any time by mutual
consent of the parties hereto, with any such amendment to be invalid unless
in writing, signed by the Company and Employee.
24. BURDEN AND BENEFIT. This Agreement, together with any amendments
hereto, shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors, assigns, heirs and personal
representatives. The Company may, in its sole discretion, assign this
Agreement or its rights hereunder to any parent, affiliate, shareholder, or
successor of the Company, or to any person or entity which purchases
substantially all of the assets of the Company. Employee may not transfer or
assign this Agreement or any of Employee's rights or obligations under this
Agreement.
25. REFERENCES TO GENDER AND NUMBER TERMS. In construing this
Agreement, feminine or number pronouns shall be substituted for those
masculine in form and vice versa, and plural terms shall be substituted for
singular and singular for plural in any place which the context so requires.
26. HEADINGS. The various headings in this Agreement are inserted for
convenience only and are not part of the Agreement.
27. ENTIRE AGREEMENT. This Agreement contains the entire understanding
and agreement between the parties relating to the subject matter hereof. The
original Employment Agreement between the Company and Employee dated January
1, 1996 is hereby amended and restated in its entirety as set forth herein.
28. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and all such counterparts shall constitute one and the same
instrument.
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29. SEVERANCE COMPENSATION. In the event of termination of Employee's
employment with the Company under the terms of this Agreement which provide
for payment by the Company to Employee of severance compensation, the amount
of such severance compensation shall in no event be greater than the amount
which would be deductible by the Company under Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), after taking into
consideration all payments to Employee covered by Code Section 280G which
Employee receives or is deemed to receive (i) under this Agreement; (ii)
under the Company's 1993 Stock Option and Incentive Plan, as amended, by
reason of the acceleration of the right to exercise any options (including
any related stock appreciation rights) granted thereunder or the acceleration
of the vesting of any restricted stock awards granted thereunder; or (iii)
under any new plan or arrangement implemented by the Company after the date
of this Agreement which would otherwise be considered a "parachute payment"
under Section 280G. In the event such payments exceed the amount which would
be deductible by the Company under Code Section 280G, the timing of such
payments shall be extended or otherwise modified such that such payments
shall be deductible by the Company under Code Section 280G and in a manner
which, to the extent possible, provides Employee the full benefit of such
payments as originally agreed to.
IN WITNESS WHEREOF, the Company and Employee have duly executed this
Agreement as of the date and year first above written.
COMPANY:
SYNTROLEUM CORPORATION
By: /s/ Mark A. Agee
-----------------------------------
Mark A. Agee, President
Syntroleum Corporation.
1350 South Boulder, Suite 1100
Tulsa, Oklahoma 74119
EMPLOYEE:
By: /s/ Larry J. Weick
-----------------------------------
Larry J. Weick
Home address:
7123 S. Indianapolis
Tulsa, Oklahoma 74136
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<PAGE>
SYNTROLEUM MASTER PREFERRED LICENSE AGREEMENT
CONFIDENTIAL
CONFIDENTIAL
Master Preferred License Agreement
Between
Syntroleum Corporation
and
Texaco Natural Gas Inc.
<PAGE>
MASTER PREFERRED LICENSE AGREEMENT
THIS LICENSE AGREEMENT is made and entered into as of this 25th day of
September 1996 by and between Syntroleum Corporation, an Oklahoma corporation
("Licensor"), and Texaco Natural Gas Inc., 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 the 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 company (including a
corporation, partnership, joint venture or other entity) in which the Party or
its parent company(ies) (one or more parent companies in an upward series) shall
at the time in question directly or indirectly own a fifty percent (50%) or more
interest in such
1
<PAGE>
company. It is understood that: (i) a Party or its parent company(ies)
directly owns a fifty percent (50%) or more interest in a particular company
if that Party or its parent company(ies) individually or collectively holds
shares carrying fifty percent (50%) or more of the voting power to elect
directors or other managers of the said particular company, and (ii) a Party
or its parent company(ies) indirectly owns a fifty percent (50%) or more
interest in a particular company if a series of companies can be specified
beginning with a Party or its parent company(ies), individually or
collectively, and ending with the particular company so related that each
company of the series, except the particular company, directly owns a fifty
percent (50%) or more interest in a later company in the series.
1.02 "AGREEMENT" means this Master Preferred License Agreement.
1.03 "BARREL" means forty-two (42) gallons of two hundred thirty-one (231)
cubic inches each, measured at sixty degrees Fahrenheit (60DEG.F) and one (1)
atmosphere pressure.
1.04 "CHAIN-LIMITING CATALYST" means a type of catalyst for use in a
Fischer-Tropsch Reaction whose primary products are predominately hydrocarbon
molecules of 20 or fewer carbon atoms which remain liquid at ambient
temperature and pressure.
1.05 "CONFIDENTIAL INFORMATION" means information, including any formula,
pattern, compilation, program, apparatus, device, drawing, schematic, method,
technique, process or pilot plant data that: (a) derives independent 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 of efforts that are
reasonable under the circumstances to maintain its secrecy. Confidential
Information includes, without limit, Licensor Catalyst Information, Licensor
Technical Information, and Licensee Technical Information.
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1.06 "CONFIDENTIALITY AGREEMENT" means the agreement between Licensee and
Syntroleum, dated December 8, 1993.
1.07 "CONVERSION PROCESS" means any process for the conversion of a
substantially gaseous hydrocarbon stream, that may contain methane, ethane,
propane, butanes, and other gaseous substances normally occurring with
natural gas, 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 (i) autothermal reforming of a feed stream
consisting substantially of gaseous hydrocarbons in the presence of air, or
enriched air having an oxygen level of up to 53.5 volume percent, to create
an intermediate feed stream containing carbon monoxide and molecular
hydrogen, and (ii) reacting the intermediate feed 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.
1.08 "EFFECTIVE DATE" means the date set forth in the first paragraph of this
Agreement.
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.
1.1 "FISCHER-TROPSCH REACTION" means the catalytic reaction of carbon
monoxide and hydrogen, the primary products of which are hydrocarbons.
1.2 "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.
1.3 "INVENTIONS OR IMPROVEMENTS" means any process, formula, composition,
device, catalyst (both autothermal reforming catalysts and Fischer-Tropsch
Catalysts), apparatus, technology, know-how, operating technique, improvement,
modification, or enhancement
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relating to the use, operation, or commercialization of the Conversion
Process and the products 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.
1.4 "LICENSE FEE" means the fee paid by Licensee to Licensor, as
consideration for granting a license to use Licensor Technology at each
Licensed Plant, as calculated in Attachment 3 of this Agreement, and does not
include fees related to the purchase of the associated Process Design
Package, any catalyst or catalyst markup.
1.5 "LICENSED FACILITIES" means one or more Licensed Plants.
1.6 "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 fixed site within the Licensed
Territory and at a design production capacity measured in Barrels of Syncrude
per day, using Licensor Technology to practice the Conversion Process to produce
Marketable Products.
1.7 "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, from time
to time, may be restricted by the United States Government from receiving
Licensor's underlying technology or the product thereof.
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1.8 "LICENSEE PATENT RIGHTS" means all rights with respect to patents and
patent applications of all relevant countries to the extent that the claims
embody features 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.
1.9 "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.
1.10 "LICENSOR CATALYST INFORMATION" means, without limit, information
relating to any catalyst, catalyst formulation, conditioning procedure, start-up
procedure, regeneration procedure, or performance information considered to be
proprietary by and to Licensor 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. However, it shall be specifically understood that
Licensor Catalyst Information shall not include any information relating to
methods for manufacturing catalysts for use in the Conversion Process.
1.11 "LICENSOR CATALYST PATENT RIGHTS" means all rights with respect to
patents and patent applications of all relevant countries to the extent that
the claims embody features 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 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,
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including the obligation to account to and/or make payments to others, under
which Licensor has the right to grant licenses, immunities or licensing
rights.
1.12 "LICENSOR PATENT RIGHTS" means all rights with respect to patents and
patent applications of all relevant countries to the extent that the claims
embody features of the Conversion Process (including, without limitation, any
operating techniques and apparatus and expressly excluding Licensor Catalyst
Patent Rights) which are acquired by Licensor 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, immunities or licensing rights.
1.13 "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 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 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.
1.14 "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 to practice the Conversion Process but expressly
excluding the right to make, have made, or sell Licensor Catalysts.
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1.15 "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.
1.16 "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 Syncrude and expressly excluding
waxes, chemicals, Lubricants, or any other specialty hydrocarbon products and
subject to the express condition that Marketable Products shall be:
(a) produced from Syncrude at the Licensed Plant; or
(b) produced from Syncrude at a separate facility by the Licensee, its
Affiliates, or third Persons who are contractually committed to Licensee
or its Affiliate to produce only Marketable Products from such Syncrude;
or
(c) produced at any location from a blended stream of Syncrude and at
least 15 vol % produced crude oil or condensate, in which the Syncrude,
before any blending,
(i) remains a liquid at sixty degrees Fahrenheit (60DEG.F) and
one (1) atmosphere pressure or,
(ii) has a chemical composition consisting of molecules having at
least 85 vol % of which contain no more than 20 carbon atoms each
and no more than 1 vol % of which contains more than 40 carbon
atoms each; or
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(d) produced at any location from a blended stream of Syncrude and at
least 40 vol % produced crude oil or condensate such that after blending
the mixture is a transportable liquid, expressly excluding slurries.
Notwithstanding the above language in this Section 1.26, hydrocarbons consumed
as fuel by Licensee or its Affiliates at locations which satisfy (a) or (b)
above are Marketable Products, regardless of whether or not they happen to be
waxes, chemicals, Lubricants, or any other specialty hydrocarbon products.
1.17 "PARTICIPATING INTEREST" means at least a ten percent (10%) working,
net profits, equity, or other economic interest, 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.
1.18 "PARTIES" means Licensor and Licensee.
1.19 "PARTY" means Licensor or Licensee.
1.20 "PERSON" means any natural person, corporation, partnership, limited
liability company, firm, association, trust, government, governmental agency
or any other entity, other than the Parties.
1.21 "REACTOR INFORMATION" means all information, including but not limited
to data, processes, plans, specifications, flow sheets, designs, and drawings
which relate to the internal design including, without limitation, tube
count, tube size and configuration and catalyst volume, of any Licensor
autothermal reformer or Fischer-Tropsch reactor, which, at any time during
the term of this Agreement, Licensor discloses to Licensee.
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1.22 "REACTOR VENDOR" shall mean those fabricators approved by Licensor to
perform the fabrication, and/or repair work in connection with autothermal
reformer or Fischer-Tropsch reactors for installation and use in Licensed
Facilities. Licensor may, from time to time, add or remove any Reactor
Vendor.
1.23 "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.
1.24 "SITE LICENSE AGREEMENT" means an agreement between the Parties, in
the form attached to this Agreement as Attachment 6 and which may be modified
from time to time by mutual consent of the Parties, granting the right to
build and operate a single Licensed Plant, specifying in each case the fixed
site and the nominal design capacity, in Barrels of Syncrude produced per day.
1.25 "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
Syncrude 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. Licensee
shall promptly notify Licensor in writing of such Start-up Date.
1.26 "SYNCRUDE" means those hydrocarbons, having a chemical composition
substantially consisting of molecules with five or more carbon atoms each,
produced using Licensor Technology in the practice of the Conversion Process
at a Licensed Plant.
2. LICENSE GRANTS
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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 2.05 & Article 8) 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 in the Licensed
Territory, under a separate Site License Agreement for each Licensed Plant,
to practice the Conversion Process to manufacture Syncrude 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 2.05 & Article 8) right to purchase from Reactor Vendors the
appropriate Fischer-Tropsch reactors and autothermal reforming reactors for
use in the practice of the Conversion Process at each Licensed Plant.
Licensee shall have no rights 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 each Licensed Plant in the
Licensed Territory to manufacture Syncrude 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
2.05 & 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 the Licensed Plant in the Licensed Territory to
manufacture Syncrude solely for the purpose of producing, using, and selling
Marketable Products anywhere in the world. Licensee may purchase catalyst
from Licensor at a price 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
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comparable quantities) was sold to another party at a markup less than twenty
five percent (25%), Licensee shall have a right 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, if proprietary to Licensor. Beyond the initial catalyst fill,
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 Upon Licensee's 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
(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.
2.05 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 2.05. The
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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 2.05) 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 assignment, 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.
3. TECHNICAL ASSISTANCE
3.01 Licensee shall purchase and Licensor agrees to furnish to Licensee, or
to a contractor selected 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 required for each Licensed Plant shall be excluded
from the Process Design Package, however, those elements of Reactor
Information which are required to fabricate such reactors will be provided by
Licensor directly to the 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 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 forth
in one or
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more separate written engineering services agreement(s) 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, improvements or inventions 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 Syncrude at Licensor's pilot plant which are
applicable to such improvements or inventions.
3.05 Licensee agrees to permit Licensor and/or its representatives access
to Licensee's Licensed Plants for inspection and training, at reasonable and
convenient times, by representatives of Licensor. Licensor shall have the
right to charge a reasonable fee for any training as 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 any Inventions or Improvements related to the
Conversion Process.
4.02 Subject to the terms and conditions of this Agreement, Licensee grants
to Licensor a limited, non-exclusive, irrevocable, royalty free, worldwide
license under Licensee Patent Rights and to use Licensee Technical
Information for the design, construction, operation and maintenance
(including modify, expand and replace) of plants practicing the Conversion
Process, together with the right to grant corresponding sublicenses to other
licensees of Licensor Technology provided that such other licensees shall
have granted reciprocal rights to Licensor to use and grant sublicenses under
their patent rights and technical information for the benefit of Licensee.
Licensee shall have
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the right to charge a reasonable fee for any training as 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 relating to use of the Conversion
Process for the production of Syncrude, Licensee may, at its sole discretion,
file patent applications with respect to such 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 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
therefor.
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 Syncrude which are
applicable to such 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
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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 ___________________________________
upon signing this Agreement and such monies shall be fully credited against
the first __________________________ in License Fees that become due as they
are set out in Attachment 3.
5.02 Licensee agrees to pay fees to Licensor in accordance with Attachment
3 for each Licensed Plant.
5.03 In addition to the amounts to be paid to Licensor under Section 5.01 &
5.02, Licensee agrees to pay Licensor for each Process Design Package, a fee
equal to the costs actually incurred by Licensor in preparing a Process
Design Package, plus 10 percent (10%) of the total of such actual cost. Such
fee shall be invoiced to Licensee after delivery of a Process Design Package.
Payment will be made within thirty (30) days from receipt of invoice by
Licensee.
5.04 All fees 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 the fees
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.
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5.06 With respect to each Site License Agreement under this Agreement, if
the Licensee's Participating Interest at the time of execution of the Site
License Agreement results in the Licensed Plant being classified as a
Standard Licensed Plant, regardless of whether the license is executed by
Licensee or an Affiliate of Licensee, Licensor agrees to refund to Licensee
that portion of the License Fee equal to the difference between the Preferred
Royalty Rate and the Market Royalty Rate, as defined in Attachment 3 of this
Agreement, pro-rated by Licensee's or Affiliate's share of the entire
Participating Interest.
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, including the
right to grant the rights and licenses as set forth in Article 2. 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.
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.
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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 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 OF CONFIDENTIAL INFORMATION 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, CONSEQUENTIAL,
INCIDENTAL, PUNITIVE, OR EXEMPLARY DAMAGES THEN THE MAXIMUM LIMIT OF SUCH
DAMAGES IS AGREED TO BE FIVE THOUSAND DOLLARS ($5,000.00).
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 the Licensed Facilities (including the
Syncrude produced from the Licensed Facilities).
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(a) If the Licensee has made a modification to the Process Design
Package, and infringement or misappropriation 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 damages or 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, which is the basis for
the 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 the Licensed
Facilities, 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 damages or 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.
(c) A Party will render all reasonable assistance that may be required
by the other Party in the defense of such claim or lawsuit 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.
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(e) Except as provided in (d) above, a Party shall not settle or
compromise any such claim or lawsuit 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.
6.06 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.
6.07 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.
6.08 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
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<PAGE>
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.
6.09 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 such Licensed Plant that is subject to the above claims.
6.4 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 such 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 its 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
20
<PAGE>
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, 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, not disclosed to others or copied of
duplicated, and 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 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
21
<PAGE>
becomes part of the public knowledge or literature without breach of this
Agreement by the receiving Party 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 keep confidential and not disclose to any
third party that any such information was also 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. 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 thirty (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
22
<PAGE>
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 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 Attachment 4. 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, which may be performed 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 notify Licensor in writing
of any assignment to an Affiliate. 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 and
Licensor shall simultaneously agree to the following:
23
<PAGE>
a) acquire from the Licensor a fully paid license for the then current
design capacity of the Licensed Plant,
b) transfer the fully paid license acquired in 8.02 (a) above to the Person
acquiring the Licensee's Participating Interest in the Licensed Plant
using the form of letter agreement set forth in Attachment 5 and
submitting it to Licensor, and
c) obtain the Person's unconditional execution of a new site license
agreement in the form of Attachment 6, and submit such new site license
agreement to Licensor, whereupon if Licensor gives its consent, such
consent not to be unreasonably withheld, and executes such new site
license agreement, then such Licensed Plant shall be deleted from this
Agreement and the Person or Persons shall be substituted for Licensee for
all purposes in connection with such Licensed Plant. Licensor's refusal
to consent may be justified by a reasonable concern that assignee will
not comply with the terms of the license agreement. A transfer of
Licensee's Participating Interest does not relieve Licensee of its
confidentiality obligations with respect to Confidential Information
associated with such transferred Participating Interest prior to
transfer.
9. TERM AND TERMINATION
9.01 This Agreement shall extend for a period of fifteen (15) years
following the Effective Date and shall then continue on a year-to-year basis
until terminated at the end of any calendar year by either Party on sixty
(60) days prior written notice to the other Party.
9.02 Upon the written notice from Licensor to Licensee of any material
default under this Agreement, other than as noted in Section 2.04 (c), all
rights of Licensee under Section 2.04 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 at another Licensed Plant. If a material default under this Agreement
shall
24
<PAGE>
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 terminate this Agreement upon written notice to Licensee.
The actions by Licensor under this Section 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 under this Agreement;
(b) affect any rights granted under Site License Agreements in effect
on the date of termination;
(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 Except as provided in Section VI of Attachment 3, 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.
25
<PAGE>
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.
10. MISCELLANEOUS
11.01 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 between
Texaco Development Corporation and Syntroleum, dated July 5, 1995, the
Confidentiality Agreement, the Sponsored Research and License Option
Agreement, dated February 15, 1995, and the Joint Development Agreement,
dated September ___, 1996, which were made between Licensee and Licensor. 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 under this
Agreement, this Agreement will govern.
10.01 THIS AGREEMENT HAS BEEN ENTERED INTO IN THE STATE OF NEW YORK AND THE
VALIDITY, INTERPRETATION AND LEGAL EFFECT HEREOF SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO CONFLICT OF LAW PROVISIONS THEREOF. The Parties expressly and
irrevocably consent and submit to the jurisdiction of any state or federal
court sitting in Texas or Oklahoma and agree that, to the fullest extent
allowed by law, only such Texas or Oklahoma courts, to the exclusion of all
others, 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 Texas or 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
26
<PAGE>
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 States of Texas or Oklahoma.
10.02 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
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.
10.03 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 any subsequent occurrence.
10.04 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.
27
<PAGE>
10.05 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.
10.06 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:
S. Erickson Grimshaw, Esq.
Pray, Walker, Jackman, Williamson & Marlar
900 Oneok Plaza
100 W. 5th Street
Tulsa, Oklahoma 74103-4218
Fax No.: (918) 581-5599
Phone No.: (918) 581-5500
(b) If to Licensee:
Mr. John H. Anderson
Texaco Natural Gas Inc.
1111 Bagby Street
Houston, TX 77002
Fax No.: (713) 752-4681
Phone No.: (713) 752-7886
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
28
<PAGE>
indicated above, electronically transmitted and acknowledged by the other
Party or by actual delivery of written notice to the other Party.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date set forth above.
Licensor
SYNTROLEUM CORP.
By: /s/ Kenneth L. Agee
------------------------------
Kenneth L. Agee, CEO
Date: September 25, 1996
----------------------------
Licensee
TEXACO NATURAL GAS INC.
By: /s/ Graham H. Batcheler
------------------------------
Name: Graham H. Batcheler
----------------------------
Title: Chairman
---------------------------
Date: September 20, 1996
------------------------------
29
<PAGE>
CONFIDENTIAL
Master Preferred License Agreement
Between
Syntroleum Corporation
and
Marathon
CONFIDENTIAL INFORMATION:
Use and distribution of this document is limited to the terms and conditions
of the confidentiality agreement dated October 22, 1996 between Syntroleum
Corporation and Marathon Oil Company.
<PAGE>
MASTER PREFERRED LICENSE AGREEMENT
THIS LICENSE AGREEMENT is made and entered into as of this 7th day of
MARCH, 1997 by and between Syntroleum Corporation, an Oklahoma corporation
("Licensor"), and Marathon Oil Company, an Ohio 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 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
<PAGE>
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 Preferred License Agreement.
1.03 "BARREL" means forty-two (42) gallons of two hundred thirty-one (231)
cubic inches each, measured at sixty degrees Fahrenheit (60DEG.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, including any formula,
pattern, compilation, program, apparatus, device, drawing, schematic, method,
technique, process or pilot plant data that is disclosed by one Party to the
other Party and that is proprietary to the disclosing Party. All
Confidential Information delivered by either Party after the Effective Date
will be classified in large bold letters "CONFIDENTIAL, Property of (owner)".
Any verbalized Confidential Information communicated by either Party after the
Effective Date will be memorialized in writing within thirty (30) days of the
verbalization and likewise classified.
1.06 "CONFIDENTIALITY AGREEMENT" means the agreement between Licensee and
Licensor, dated September 23, 1994.
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
<PAGE>
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
enriched air having an oxygen level of up to 53.5 volume percent, to create
an intermediate feed stream containing carbon monoxide and molecular
hydrogen, and (b) reacting the intermediate stream in the presence of
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.
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,
<PAGE>
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.
1.14 "LICENSED FACILITIES" means one or more Licensed Plants.
1.15 "LICENSED PLANT" means a plant (including modification, expansion or
replace ment thereof) licensed to operate pursuant to a Site License
Agreement issued under the terms of this Agreement, at a fixed site within
the Licensed Territory with a design production capacity measured in Barrels
of Syncrude 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, from
time to time, 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.
<PAGE>
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 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 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, 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 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,
<PAGE>
including the obligation to account to and/or make payments to others, under
which Licensor has the right to grant licenses, 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 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 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 Syncrude and expressly
excluding waxes, chemicals, Lubricants, or any other specialty hydrocarbon
products and subject to the express condition that Marketable Products shall
be:
<PAGE>
(a) produced from Syncrude at the Licensed Plant; or
(b) produced from Syncrude 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 Syncrude; or
(c) produced at any location by any Person from a blended stream of
Syncrude and at least 15% by volume of produced crude oil or
condensate, in which the Syncrude, before any blending,
(i) remains a liquid at sixty degrees Fahrenheit (60DEG.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
(d) produced at any location by one Person from a blended stream of
Syncrude and at least 40% by volume produced crude oil or condensate
such that after blending the mixture is a transportable liquid,
expressly excluding slurries.
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 SECTION 1.25 (a) or (b) above 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.
<PAGE>
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 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 fixed site and the nominal design capacity, in Barrels of Syncrude
produced per day.
<PAGE>
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
Syncrude 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 "SYNCRUDE" 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
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 2.05 and Article 8 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 Syncrude 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 2.05 & 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
<PAGE>
Licensed Plant to manufacture Syncrude 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 2.05 &
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 Syncrude 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 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 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
<PAGE>
(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.
2.05 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 2.05. 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
2.05) 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.
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 the Reactor Vendors selected by Licensee to
manufacture the autothermal reformer and Fischer-Tropsch
<PAGE>
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
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, improvements or inventions developed by Licensor
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 Syncrude 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
<PAGE>
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.
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 the use of
Licensee Technical Information, to other licensees of Licensor Technology,
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 therefor and provided that title to such
Inventions or Improvements shall remain in Licensee.
4.04 Licensor and Licensee each agree that they will take all actions and
<PAGE>
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 Syncrude 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 upon
execution of this Agreement. This amount shall be fully credited against the
in License Fees payable by Licensee to Licensor or as provided in ATTACHMENT 3.
5.02 Licensee agrees to pay fees to Licensor in accordance with ATTACHMENT
3 for each Licensed Plant.
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
<PAGE>
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.
5.06 With respect to each Site License Agreement under this Agreement, if
the Licensee's Participating Interest at the time of execution of the Site
License Agreement results in the Licensed Plant being classified as a
Standard Licensed Plant, regardless of whether the license is executed by
Licensee or an Affiliate of Licensee, Licensor agrees to refund to Licensee
that portion of the License Fee equal to the difference between the Preferred
Royalty Rate and the Market Royalty Rate, as defined in Attachment 3 of this
Agreement, pro-rated by Licensee's or Affiliate's share of the entire
Participating Interest.
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, including the
right to grant the rights and licenses as set forth in ARTICLE 2. 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.
<PAGE>
6.02 Licensee represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of Ohio,
United States of America, 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 OF CONFIDENTIAL INFORMATION 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, CONSEQUENTIAL,
INCIDENTAL, PUNITIVE, OR EXEMPLARY DAMAGES THEN THE MAXIMUM LIMIT OF SUCH
DAMAGES IS AGREED TO BE $5,000.
<PAGE>
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 Syncrude 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 arising out
of such modification, Licensee will be solely responsible for any claim or
lawsuit but only to the modifications made by Licensee. 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.
(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
<PAGE>
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.
6.06 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,
trade secret misappropriation, 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.
6.07 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.
<PAGE>
6.08 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.
6.09 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.
6.10 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.
<PAGE>
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, 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
confidentially provisions 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.
<PAGE>
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 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.
<PAGE>
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 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.
<PAGE>
8. ASSIGNMENT AND TRANSFERS
8.01 Except for assignment to an Affiliate, 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. Except for assignment to an
Affiliate, 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, 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 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 and shall then continue on a year-to-year basis
until terminated at the end of any calendar year by either Party on sixty
(60) days prior written notice to the other Party.
9.02 Upon the written notice from Licensor to Licensee of any material
default under this Agreement, other than as noted in SECTION 2.04 (c), all
rights of Licensee under SECTION 2.04 of this Agreement, shall be suspended
until such default is cured by Licensee.
<PAGE>
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 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;
(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 Except as provided in SECTION VI of ATTACHMENT 3, 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.
<PAGE>
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 between
Marathon Oil Company and Licensor, dated September 23, 1994, the
Non-Disclosure Agreement dated October 18, 1994, the Convertible Debenture
Purchase and Stock Option Agreement dated January 17, 1996, and the
Intellectual Property Agreement dated March 7, 1997. No stipulation,
agreement, representation or understanding of the Parties hereto shall be
valid or enforceable unless contained or referenced 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.
10.02 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAW
PROVISIONS THEREOF. The Parties expressly and irrevocably consent and submit
to the jurisdiction of any state or federal court sitting in the states of
Texas or Oklahoma and agree that, to the fullest extent allowed by law, only
such Texas or Oklahoma courts, to the exclusion of all others, 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, the states of Texas or 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
<PAGE>
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 States of
Texas or 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
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 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.
10.06 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.
<PAGE>
10.07 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:
S. Erickson Grimshaw, Esq.
Pray, Walker, Jackman, Williamson & Marlar
900 Oneok Plaza
100 W. 5th Street
Tulsa, Oklahoma 74103-4218
Fax No.: (918) 581-5599
Phone No.: (918) 581-5500
<PAGE>
(b) If to Licensee:
Marathon Oil Company
P.O. Box 3128
Houston, Texas 77253-3128
Fax No.: (713) 296-3170
Phone No.: (713-296-3126
Attn.: J. A. Turley
with copy to:
J.L Hummel
Marathon Oil Company
P.O. Box 269
Littleton, CO 80160-0269
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 indicated above,
electronically transmitted and acknowledged by the other Party or by actual
delivery of written notice to the other Party.
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date set forth above.
Licensor
SYNTROLEUM CORP.
By: /s/ Mark A. Agee
------------------------------------
Mark A. Agee, President/COO
Date: March 7, 1997
-----------------------------------
Licensee
MARATHON OIL COMPANY
By: /s/ J. A. Turley
------------------------------------
Name: J.A. Turley
Title: Manager, Engineering and Technology
Date: March 7, 1997
-----------------------------------
<PAGE>
CONFIDENTIAL
Master Preferred License Agreement
Between
Syntroleum Corporation
and
Arco
CONFIDENTIAL INFORMATION:
Use and distribution of this document is limited to the terms and conditions
of the confidentiality agreement dated October 25, 1996 between Syntroleum
Corporation and ARCO Exploration and Production Technology.
<PAGE>
MASTER PREFERRED LICENSE AGREEMENT
THIS LICENSE AGREEMENT is made and entered into as of this 10th day of
April, 1997 by and between Syntroleum Corporation, an Oklahoma corporation
("Licensor"), and ARCO Exploration and Production Technology, a unit of
Atlantic Richfield Company, 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 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)
<PAGE>
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 Preferred License Agreement.
1.03 "BARREL" means forty-two (42) gallons of two hundred thirty-one (231)
cubic inches each, measured at sixty degrees Fahrenheit (60DEG.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 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.
<PAGE>
1.06 "CONFIDENTIALITY AGREEMENT" means the agreement between Licensee and
Licensor, dated November 30, 1993.
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 enriched air having an oxygen level of up to 53.5 volume percent,
to create an intermediate feed stream containing carbon monoxide and
molecular hydrogen, and (b) reacting the intermediate stream in the presence
of 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.
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.
<PAGE>
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 and the products
(including Syncrude) of the Conversion Process, which is discovered, made,
designed, developed, acquired, or otherwise owned 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.
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 or sites, where such site
or sites are deemed to be within the same lease or concession, within the
Licensed Territory with a design production capacity measured in Barrels of
Syncrude 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 the
State of Alaska and their respective territorial waters, except for the
remainder of the United States of
<PAGE>
America, Canada, Mexico, the People's Republic of China, India, and any
country that, from time to time, 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 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 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
<PAGE>
conditions, including the obligation to account to and/or make payments to
others, under which Licensor has the right to grant licenses, 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 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, 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 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 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
<PAGE>
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 Syncrude 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 Syncrude at the Licensed Plant or produced from Syncrude 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 Syncrude. 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
Syncrude and at least 15% by volume of produced crude oil or
condensate, in which the Syncrude, before any blending,
(i) remains a liquid at sixty degrees Fahrenheit (60DEG.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
Syncrude 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 Syncrude
with at least 50% by volume of like distilled fractions from
produced crude oil or condensate, in which each distilled fraction
from Syncrude, before any blending,
<PAGE>
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 Syncrude.
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.
<PAGE>
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 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 fixed site and the nominal design capacity, in Barrels of Syncrude
produced per day.
1.34 "SITE LICENSEE" means Licensee, its Affiliate, or a Joint Venture
which executes a Site License Agreement pursuant to the terms and conditions
of this Agreement.
1.35 "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
Syncrude 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.
1.36 "SYNCRUDE" 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
<PAGE>
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 2.05 & ARTICLE 8) 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 Syncrude solely for the purpose of producing, using,
and selling Marketable Products anywhere in the world. Each Licensed Plant
shall remain at the initial plant site or sites located within Licensee's
lease or concession for a minimum of seven (7) years from Start-Up Date.
Thereafter, Licensee may relocate upon notification in the form of ATTACHMENT
5 to a new plant site within the Licensed Territory provided (i) the Licensed
Plant remains at the new site for minimum of seven (7) years and (ii) the
Licensed Plant is operating under a fully paid up Site License Agreement.
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 2.05 & 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. Licensee may,
from time to time, nominate additional contractors to become Reactor Vendors
and will cooperate with Licensor to secure assurances acceptable to Licensor
regarding the protection of Licensor's rights and interests and Licensor's
approval of such contractor as a Reactor Vendor shall not be unreasonably
withheld.
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 Syncrude solely for the purpose of producing, using, and selling
Marketable Products anywhere in the world and (b) a limited non-exclusive,
non-
<PAGE>
transferable (except as provided in SECTION 2.05 & 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 Syncrude 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 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 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
(d) no Person having a Participating Interest in the proposed
Licensed Plant is in material default under any agreement
relating to Licensor Technology.
<PAGE>
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.
2.05 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 2.05. 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
2.05) 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.
2.06 The intent of the Licensor is that Licensor Technology acquired by
Licensor for which Licensor has the right to grant rights to others and where
there is an obligation to account to and/or make payment to others, that such
technology would be made available to Licensee consistent with the provisions
of SECTIONS 2.01, 2.02, and 2.03 and under terms that are no less favorable
than those granted to other licensees. With respect to any technology
related to the Conversion Process that is acquired through agreements with
other parties and used in a plant to make products substantially the same as
Marketable Products, it is Licensor's intent to provide Licensee with such
technology under this Agreement at a date no later than the date on which
such technology is practiced in a plant utilizing Licensor Technology to make
products substantially the same as Marketable Products by Licensor or under a
license from Licensor.
3. TECHNICAL ASSISTANCE
<PAGE>
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 the 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
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, improvements or inventions developed by Licensor
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 Syncrude 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
<PAGE>
representatives, who are under appropriate confidentiality provisions
acceptable to Licensee, access to Licensee's Licensed Plants at reasonable
and convenient times, and no more than once per year, 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.
3.06 Licensor agrees to disclose to Licensee, upon reasonable request but
at least once a year, improvements or inventions developed or under
development by Licensor or Licensor together with other parties, to the
extent allowed by Licensor's agreement with such other parties, relating to
Licensor Technology which have not been commercially used or which Licensor
has not yet determined to be 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 Syncrude at Licensor's pilot plant which are
applicable, if any, to such non-commercial improvements or inventions.
Should Licensee desire to use such non-commercial improvement or invention in
a Licensed Plant, Licensee may do so subject to and consistent with SECTION
2.01, provided that such use shall be without warranty of any kind or nature
from Licensor and shall be deemed a modification for which Licensee will be
solely responsible pursuant to SECTION 6.05(a) and SECTION 6.08.
4. LICENSEE GRANTS TO LICENSOR
4.01 During the term of this Agreement, Licensor may, no more than one (1)
time per year, request and Licensee agrees to disclose to Licensor in writing
any Inventions or Improvements which is the result of (a) the oral or written
disclosure by Licensor to Licensee of information relating to the Conversion
Process since the date of the Confidentiality Agreement or (b) the use of
Licensor Technology, and which Licensee has the right to disclose.
<PAGE>
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 (iii) of the Licensee Patent Rights and (iv) to use
Licensee Technical Information, to other licensees of Licensor Technology,
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 their 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 therefor and provided that title to such Inventions or
Improvements shall remain in Licensee.
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.
<PAGE>
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 Syncrude 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
upon execution of this Agreement. This amount shall be fully rebated to
Licensee from the first in License Fees received by Licensor
under a Site License Agreement issued under this Agreement.
5.02 Licensee agrees to pay fees to Licensor in accordance with ATTACHMENT
3 for each Licensed Plant.
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.
<PAGE>
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, including the
right to grant the rights and licenses as set forth in ARTICLE 2. 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.
6.02 Licensee represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of Delaware,
United States of America, 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
<PAGE>
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, 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 Syncrude 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
<PAGE>
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.
(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
<PAGE>
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.
6.06 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.
6.07 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.
6.08 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.
6.09 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
<PAGE>
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.
6.10 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
<PAGE>
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, 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 of 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
confidentially provisions 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
<PAGE>
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 keep confidential and not
disclose to any third party that any such information was also 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
<PAGE>
spent catalysts, such authorization not to be unreasonably withheld, and (b)
provide 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.
7.07 To the extent necessary for purposes permitted by this Agreement under
any Site License Agreement, and notwithstanding the provisions of this
ARTICLE 7, a Site Licensee shall have the right to disclose, only to the
extent required to complete the task at hand and following the execution of
the Contractor Secrecy Agreement, or an agreement having confidentiality
provisions no less restrictive than those in this Agreement, Licensor's
Confidential Information to:
(a) subject to the additional restrictions placed on the original
engineering contractor below, engineering and construction
contractors, for the purpose of designing, constructing,
repairing, altering, reconstructing, operating, maintaining, and
modifying the Licensed Plant; and
(a) raw material suppliers, equipment suppliers, vendors, and
installers to the extent necessary for the Site Licensee to
design, construct, operate, repair, alter, reconstruct, modify
and maintain the Licensed Plant; and
(c) United States Federal Government authorities, foreign governmental
authorities, and any local, state and/or city governmental bodies
(collectively "Governmental Authority") to meet their respective
requirements, provided that:
(i) the disclosure of Licensor Confidential Information is
requested or required by the particular Governmental
Authority to perform its statutory or other official
functions, including but not limited to permitting, audits,
and inspections;
<PAGE>
(ii) when required or requested to disclose Licensor Confidential
Information, the Site Licensee shall use reasonable efforts
to limit the amount of Licensor Confidential Information
disclosed to such Governmental Authority to the minimum
amount required to satisfy the request or requirement; and
(iii) the disclosure to the Governmental Authority is made subject
to secrecy protection from the Governmental Authority and
Licensor is notified of the Licensor Confidential
Information to be disclosed prior to any such disclosure.
However, the original engineering design contractor shall be required to
execute a separate confidentiality agreement directly with Licensor.
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, Shell,
Sasol 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, 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
<PAGE>
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 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 2.04 (c), all rights of
Licensee under SECTION 2.04 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 suspend all
rights of Licensee under 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;
<PAGE>
(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 Except as provided in SECTION VI of ATTACHMENT 3, 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 between
Licensee and Licensor, dated November 30, 1993. 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.
<PAGE>
10.02 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAW
PROVISIONS THEREOF. The Parties expressly and irrevocably consent and submit
to the jurisdiction of any state or federal court sitting in the state of
Oklahoma and agree that, to the fullest extent allowed by law, only such
Oklahoma courts, to the exclusion of all others, 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, 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
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.
<PAGE>
10.05 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.
10.06 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.
10.07 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
<PAGE>
with copy to:
S. Erickson Grimshaw, Esq.
Pray, Walker, Jackman, Williamson & Marlar
900 Oneok Plaza
100 W. 5th Street
Tulsa, Oklahoma 74103-4218
Fax No.: (918) 581-5599
Phone No.: (918) 581-5500
(b) If to Licensee:
ARCO Exploration and Production Technology
2300 West Plano Parkway
Plano, Texas 75075
Attention: Manager, Technology Licensing
with copy to:
ARCO Exploration and Production Technology
2300 West Plano Parkway
Plano, Texas 75075
Attention: Patent & Trademark Department
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 indicated above,
electronically transmitted and acknowledged by the other Party or by actual
delivery of written notice to the other Party.
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date set forth above.
Licensor:
SYNTROLEUM CORP.
By: /s/ Kenneth L. Agee
--------------------------------
Kenneth L. Agee, CEO
Date: 4/10/97
------------------------------
Licensee:
ARCO EXPLORATION AND
PRODUCTION TECHNOLOGY
By: /s/ H. L. Bilhartz
--------------------------------
Name: H. L. Bilhartz
------------------------------
Title: Senior Vice President
-----------------------------
Atlantic Richfield Company
Date: 4/10/97
------------------------------
<PAGE>
CONFIDENTIAL
Volume License Agreement
Between
Syntroleum Corporation
and
YPF International, Ltd.
CONFIDENTIAL INFORMATION:
Use and distribution of this document is limited to the terms and conditions
of the confidentiality agreement dated February 15, 1997 between Syntroleum
Corporation and Maxus Energy Corporation.
<PAGE>
VOLUME LICENSE AGREEMENT
THIS LICENSE AGREEMENT is made and entered into as of this 1st day of
August, 1997 by and between Syntroleum Corporation, an Oklahoma corporation
("Licensor"), and YPF International, Ltd., a Cayman Islands 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 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
<PAGE>
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 Volume License Agreement.
1.03 "BARREL" means forty-two (42) gallons of two hundred thirty-one (231)
cubic inches each, measured at sixty degrees Fahrenheit (60DEG.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 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.
<PAGE>
1.06 "CONFIDENTIALITY AGREEMENT" means the agreement between Maxus Energy
Corporation and Licensor, dated December 3, 1996.
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.
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
<PAGE>
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.
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.
<PAGE>
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 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.
<PAGE>
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 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.
<PAGE>
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. 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 (60DEG.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
<PAGE>
% 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.
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 (an economic interest shall
include an interest in a production sharing contract where the parties to
such contract construct the Licensed Plant), 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.
<PAGE>
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 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)
<PAGE>
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, provided that the
aggregate maximum daily design capacity of the Licensed Facilities, as
defined in the Process Design Packages for all Licensed Plants which comprise
the Licensed Facilities, shall not exceed 50,000 barrels per day of Synthetic
Product.
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
<PAGE>
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. Notwithstanding any other provision of
this Agreement, in the event of Licensor's default under the provisions of
this SECTION 2.04, Licensee shall be entitled to the equitable remedy of
specific performance of Licensor's obligations under this SECTION 2.04.
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
<PAGE>
(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 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
<PAGE>
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
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
<PAGE>
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.
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
<PAGE>
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.
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
<PAGE>
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
upon execution of this Agreement. This amount shall be fully credited against
the first 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.
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.
<PAGE>
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.
6.02 Licensor represents and warrants that, to the knowledge of Licensor
(a) Licensor is entitled to grant this license to Licensor Technology, (b)
the Licensor Technology does not infringe any patent, trademark, copyright or
other proprietary right of a third party, (c) the rights granted to Licensee
under this Agreement are fully inclusive of all rights required to perform
the Conversion Process utilizing the Licensor Technology, and (d) with
respect to any Licensor Technology acquired by Licensor from a third party,
as of the Effective Date Licensor is under no prohibition to grant Licensee
the rights to such Licensor Technology as set forth in this Agreement.
6.03 Licensee represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the
Cayman Islands, 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.
6.04 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
<PAGE>
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.
6.05 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, CONSEQUENTIAL, INCIDENTAL, PUNITIVE, OR
EXEMPLARY DAMAGES THEN THE MAXIMUM LIMIT OF SUCH DAMAGES IS AGREED TO BE
$5,000.
6.06 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
<PAGE>
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.
(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.
<PAGE>
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.
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
<PAGE>
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.
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.
<PAGE>
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, 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
<PAGE>
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 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
<PAGE>
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.
<PAGE>
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 of more than 10%), 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
Information associated with such transferred Participating Interest.
<PAGE>
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;
(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
<PAGE>
(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.
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
<PAGE>
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
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.
<PAGE>
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.
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:
S. Erickson Grimshaw, Esq.
General Counsel
400 S. Boston, Ste. 1000
<PAGE>
Tulsa, Oklahoma 74103
Fax No.: (918) 592-7979
Phone No.: (918) 592-7900
(b) If to Licensee:
YPF International, Ltd.
c/o YPF S.A.
Avenida Pte R, Saenz Pena 777
1364 Buenos Aires, Argentina
ATTN: Roberto Monti
with copy to:
Maxus Energy Corporation
717 N. Harwood Street
Dallas, TX 75201
ATTN: Mario B. Rosso
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 indicated above,
electronically transmitted and acknowledged by the other Party or by actual
delivery of written notice to the other Party.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date set forth above.
Licensor
SYNTROLEUM CORP.
By: /s/ Mark A. Agee
----------------------------------
Mark A. Agee, President/COO
Licensee
YPF INTERNATIONAL, LTD.
By: /s/ Michael C. Forrest
----------------------------------
Michael C. Forrest, Vice President
<PAGE>
CONFIDENTIAL
Volume License Agreement
Between
Syntroleum Corporation
and
KERR-McGEE CORPORATION
CONFIDENTIAL INFORMATION:
Use and distribution of this document is limited to the terms and conditions of
the License Confidentiality Agreement dated June 13, 1997 between Syntroleum
Corporation and KERR-McGEE CORPORATION.
<PAGE>
VOLUME LICENSE AGREEMENT
THIS LICENSE AGREEMENT is made and entered into as of 10:00 a.m.
Central Standard Time on this 4th day of February, 1998 by and between
Syntroleum Corporation, an Oklahoma corporation ("Licensor"), and Kerr-McGee
Corporation, 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 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)
<PAGE>
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 Volume License Agreement.
1.03 "BARREL" means forty-two (42) gallons of two hundred thirty-one (231)
cubic inches each, measured at sixty degrees Fahrenheit (60DEG.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 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.
<PAGE>
1.06 "CONFIDENTIALITY AGREEMENT" means, collectively, the agreements between
Licensee and Licensor, dated May 28, 1997 and June 13, 1997.
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.
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.
<PAGE>
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 and the products
(including Synthetic Product) 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.
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 or sites, where such site
or sites are deemed to be within the same lease or concession, 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, from
time to time, may be prohibited or
<PAGE>
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 (specifically excluding United States Patent No. 5,593,569
issued January 14, 1997 and United States Patent Application Serial No.
08/775,552 filed January 2, 1997), 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 (specifically
excluding United States Patent No. 5,593,569 issued January 14, 1997 and
United States Patent Application Serial No. 08/775,552 filed January 2,
1997), 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 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,
<PAGE>
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, under which 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 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.
<PAGE>
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. 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
(60DEG.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
<PAGE>
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.
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 (an economic interest shall
include an interest in a production sharing contract where the parties to
such contract construct the Licensed Plant), 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.
<PAGE>
1.30 "PROCESS DESIGN PACKAGE" means a compilation of text, figures, drawings
and documentation based on Licensor Technology and relating to the design and
construction of a Licensed Plant, in the form set forth in EXHIBIT B to this
Agreement, which may be modified from time to time by mutual consent of the
Parties, and expressly excluding Reactor Information.
1.31 "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 reactors,
which, at any time during the term of this Agreement, Licensor discloses to
Licensee.
1.32 "REACTOR VENDOR" shall mean those fabricators approved by Licensor to
perform the fabrication and/or maintenance and repair of autothermal reformer
or Fischer-Tropsch reactors for installation and use in Licensed Facilities.
Licensor may, from time to time, add or remove any vendor from being a
Reactor Vendor.
1.33 "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 fixed 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 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 five day
period.
<PAGE>
1.35 "SYNTHETIC PRODUCT" means those hydrocarbons, having a chemical
composition substantially consisting of molecules with five or more carbon
atoms each, produced using Licensor Technology in the practice of the
Conversion Process at a Licensed Plant.
2. LICENSOR 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) 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, provided that
the aggregate maximum daily design capacity of the Licensed Facilities, as
defined in the Process Design Packages for all Licensed Plants which comprise
the Licensed Facilities, shall not exceed 50,000 barrels per day of Synthetic
Product, regardless of Licensee's specific ownership interest in any
particular Licensed Plant.
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-
<PAGE>
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 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 at any
time during 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:
<PAGE>
(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
(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 upon
notification, in the form of EXHIBIT G of the Site License Agreement, to a new
plant site within the Licensed
<PAGE>
Territory provided (i) the Licensed Plant remains at the new site for minimum
of seven (7) years and (ii) the Licensed Plant is operating under a fully
paid up Site License Agreement. Notwithstanding the foregoing, Licensed
Plants 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. In the event that, at any time after the
Start-up Date of a Licensed Plant, Licensee demonstrates to Licensor's
reasonable satisfaction, which shall include furnishing an opinion from an
independent reservoir engineer agreed to by the Parties, that the natural gas
reserves are insufficient to supply such Licensed Plant for a period of at
least seven (7) years from such Start-up Date, Licensee may relocate upon
notification in the form of EXHIBIT G of the Site License Agreement, to a new
plant site within the Licensed Territory. Upon receipt of such reservoir
engineer's opinion and EXHIBIT G of the Site License Agreement, Licensor will
have sixty (60) days to review the opinion and authorize or object
(specifying the basis for such objection) to such relocation. 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 Reactor Vendors selected by Licensee to manufacture the autothermal
reformer and Fischer-Tropsch
<PAGE>
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
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
<PAGE>
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.
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.
<PAGE>
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 used at the Licensed
Plant.
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
upon execution of this Agreement. This amount shall be fully
credited against the first in License Fees payable by Licensee
to Licensor as provided in ATTACHMENT 3.
5.02 Licensee agrees to pay fees to Licensor in accordance with ATTACHMENT
3 for each Licensed Plant.
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 reasonable costs actually incurred by Licensor in
preparing the Process Design Package,
<PAGE>
plus 10% of the total of such actual costs. 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, including the
right to grant the rights and licenses as set forth in ARTICLE 2. 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.
6.02 Licensee represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of Delaware,
United States of America, 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.
<PAGE>
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,
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).
<PAGE>
(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 and from any
attorneys fees, costs of litigation and other reasonable out of pocket
expenses incurred in the defense of 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 and from any attorneys fees, costs of litigation
and other reasonable out of pocket expenses incurred in the defense of such
claim or lawsuit.
(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
<PAGE>
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.
6.06 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.
6.07 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.
6.08 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
<PAGE>
(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.
6.09 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.
6.10 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.
<PAGE>
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 and, using the same
standard of care, 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. Licensee may disclose such Confidential Information to third
parties who have executed a secrecy agreement with Licensor with
confidentiality terms no less restrictive than those set forth in this
SECTION 7.01. 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, 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 and, using the same standard of care, 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
<PAGE>
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 keep confidential and not disclose to any
third party that any such information was also 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
<PAGE>
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. Neither a Party not its Affiliate will be liable for the actions
of a former employee following the date on which such former employee ceases
to be an employee, provided that the actions of such Party or its Affiliate
with respect to such former employee are consistent with its standard of care
as provided in SECTION 7.01 or 7.02, which, at a minimum, shall include
recovery of all Confidential Information prior to termination of such
employment. The other Party will, at it option, be subrogated to any rights
the receiving Party may have against a former employee involving such
Confidential Information.
7.05 In the event that a Party which is a recipient of Confidential
Information from the other Party is requested or required by applicable law
or by deposition, interrogatory, request for documents, subpoena, civil
investigative demand or similar process to disclose any such Confidential
Information, the receiving Party shall provide the disclosing Party with
prompt written notice of such request or requirement prior to making the
requested disclosure, and shall cooperate with the disclosing Party so that
the disclosing Party may seek a protective order or other appropriate remedy
or, if the disclosing Party so elects, waive compliance with the terms of
this Agreement. In the event that such protective order or other remedy is
not obtained, the receiving Party may disclose only that portion of the
Confidential Information which the disclosing Party is advised by counsel is
legally required to be disclosed.
7.06 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.
<PAGE>
7.07 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 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.
<PAGE>
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
Information associated with such transferred Participating Interest.
<PAGE>
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 a Party of its obligations to account for and pay all
amounts due the other Party under this Agreement and all Site License
Agreements executed by the Parties under this Agreement;
(b) affect any rights granted Licensee under Site License Agreements
in effect on the date of termination;
(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
<PAGE>
(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 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 ninety 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. 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.
10.02 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAW
PROVISIONS THEREOF. The Parties expressly and irrevocably consent and submit
to the jurisdiction of any state or federal court sitting in the state of
Oklahoma and agree that, to the fullest extent allowed by law, only such
Oklahoma courts, to the exclusion of all others, shall have jurisdiction over
any action,
<PAGE>
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
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.
<PAGE>
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 notice of such approval
has been provided to 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.
<PAGE>
10.08 All notices hereunder shall be addressed to the Parties as follows:
(a) If to Licensor:
Syntroleum Corporation
1350 South Boulder, Suite 1100
Tulsa, Oklahoma 74119-3216
Fax No.: (918) 592-7979
Phone No.: (918) 592-7900
ATTN: Office of the President
with copy to:
Syntroleum Corporation
1350 South Boulder, Suite 1100
Tulsa, Oklahoma 74119-3216
Fax No.: (918) 592-7979
Phone No.: (918) 592-7900
ATTN: Office of the General Counsel
(b) If to Licensee:
Kerr-McGee Corporation
P.O. Box 25816
Oklahoma City, Oklahoma 73125
Attention: James B. Worthington
Director, Strategic Planning/ Business Development
with copy to:
Kerr-McGee Corporation
P.O. Box 25816
Oklahoma City, Oklahoma 73125
Attention: Office of the General Counsel
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 indicated above,
electronically transmitted and acknowledged by the other Party or by actual
delivery of written notice to the other Party.
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date set forth above.
Licensor
SYNTROLEUM CORPORATION
By: /s/ Mark A. Agee
-----------------------------
Mark A. Agee, President/COO
Date: February 4,1998
Licensee
KERR- McGEE CORPORATION
By: /s/ Luke R. Corbett
-----------------------------
Luke R. Corbett, Chairman of the Board
& Chief Executive Officer
Date: February 4, 1998
<PAGE>
CONFIDENTIAL
Volume License Agreement
Between
Syntroleum Corporation
and
Enron Capital & Trade Resources Corp.
CONFIDENTIAL INFORMATION:
Use and distribution of this document is limited to the terms and conditions of
the Confidentiality Agreement dated April 23,1997 between Syntroleum Corporation
and EOTT Energy Operating Limited Partnership.
<PAGE>
VOLUME LICENSE AGREEMENT
THIS LICENSE AGREEMENT is made and entered into effective as of the 12th day of
January, 1998 by and between Syntroleum Corporation, an Oklahoma corporation
("Licensor"), and Enron Capital & Trade Resources Corp., 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 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)
<PAGE>
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 Volume License Agreement.
1.03 "BARREL" means forty-two (42) gallons of two hundred thirty-one (231)
cubic inches each, measured at sixty degrees Fahrenheit (60DEG.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 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.
<PAGE>
1.06 "CONFIDENTIALITY AGREEMENT" means the agreements between Licensee,
Licensor and EOTT Energy Operating Limited Partnership dated April 23, 1997.
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.
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.
<PAGE>
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 and the products (including
Synthetic Product) 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.
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 or sites, where such site
or sites are deemed to be within the same lease or concession, 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
<PAGE>
Republic of China, India, and any country that, from time to time, 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 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
<PAGE>
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, under which 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 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
<PAGE>
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. 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 (60DEG.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
<PAGE>
(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.
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 (an economic interest shall
include an interest in a production sharing contract where the parties to
such contract construct the Licensed Plant), 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 "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 set
<PAGE>
forth in EXHIBIT B to this Agreement, which may be modified from time to time
by mutual consent of the Parties, and expressly excluding Reactor Information.
1.31 "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 reactors,
which, at any time during the term of this Agreement, Licensor discloses to
Licensee.
1.32 "REACTOR VENDOR" shall mean those fabricators approved by Licensor to
perform the fabrication and/or maintenance and repair of autothermal reformer
or Fischer-Tropsch reactors for installation and use in Licensed Facilities.
Licensor may, from time to time, add or remove any vendor from being a
Reactor Vendor.
1.33 "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 fixed 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 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 five day
period.
1.35 "SYNTHETIC PRODUCT" means those hydrocarbons, having a chemical
composition substantially consisting of molecules with five or more carbon
atoms each, produced using Licensor Technology in the practice of the
Conversion Process at a Licensed Plant.
<PAGE>
2. LICENSOR 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) 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, provided that
the aggregate maximum daily design capacity of the Licensed Facilities, as
defined in the Process Design Packages for all Licensed Plants which comprise
the Licensed Facilities, shall not exceed 50,000 barrels per day of Synthetic
Product, regardless of Licensee's specific ownership interest in any
particular Licensed Plant.
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
<PAGE>
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 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;
<PAGE>
(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
(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 upon notification, in the form of EXHIBIT G of the Site License
Agreement, to a new plant site within the Licensed Territory provided (i)
the Licensed Plant remains at the new site for minimum of seven (7) years and
(ii) the Licensed Plant is operating under a fully paid up Site License
Agreement. Notwithstanding the foregoing, Licensed Plants 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
<PAGE>
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
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
<PAGE>
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.
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
<PAGE>
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.
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 used at the Licensed Plant.
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
<PAGE>
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 upon
execution of this Agreement. This amount shall be fully credited against the
first in License Fees payable by Licensee to Licensor as provided in
ATTACHMENT 3.
5.02 Licensee agrees to pay fees to Licensor in accordance with ATTACHMENT 3
for each Licensed Plant.
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 reasonable costs actually incurred by Licensor in
preparing the Process Design Package, plus 10% of the total of such actual
costs. 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
<PAGE>
6.01 Licensor represents and warrants that:
(a) Licensor 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;
(b) 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; and
(c) Licensor is the sole owner or authorized licensee (with the right
to sublicense) of the Licensor Technology and has the right to grant the
licenses granted in this Agreement.
6.02 Licensee represents and warrants that it is a corporation duly organized,
validly existing, and in good standing under the laws of Delaware, United States
of America, 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.
<PAGE>
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,
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 and from any attorneys fees, costs of
litigation and other out of pocket expenses incurred in the defense of such
claim or lawsuit.
<PAGE>
(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 and from any attorneys fees, costs of litigation
and other out of pocket expenses incurred in the defense of such claim or
lawsuit.
(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.
<PAGE>
6.06 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 infringement of any
patent, copyright, trademark, trade secret or other intellectual property
right, 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.
6.07 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.
6.08 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.
6.09 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
<PAGE>
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.
6.10 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.
<PAGE>
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, 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 keep confidential and not disclose to any
third party that any such
<PAGE>
information was also 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 In the event that a Party which is recipient of Confidential
Information from the other Party is requested or required by deposition,
interrogatory, request for documents, subpoena, civil investigative demand or
similar process to disclose any such Confidential Information, the receiving
Party shall provide the disclosing Party with prompt written notice of such
request or requirement prior to making the requested disclosure, and shall
cooperate with the disclosing Party so that the disclosing Party may seek a
protective order or other appropriate remedy or, if the disclosing Party so
elects, waive compliance with the terms of this Agreement. In the event that
such protective order or other remedy is not obtained, the receiving Party
may disclose only that portion of the Confidential Information which the
disclosing Party is advised by counsel is legally required to be disclosed.
7.06 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
<PAGE>
to assist each other in securing protection of intellectual property and
Confidential Information referenced in this ARTICLE 7.
7.07 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 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
<PAGE>
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 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.
<PAGE>
9.03 Termination of this Agreement shall not:
(a) relieve a Party of its obligations to account for and pay all
amounts due the other Party under this Agreement and all Site License
Agreements executed by the Parties under this Agreement;
(b) affect any rights granted Licensee under Site License Agreements
in effect on the date of termination;
(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 ninety 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. No
<PAGE>
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.
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 or state court sitting in
Wilmington, Delaware and agree that, to the fullest extent allowed by law, such
Delaware federal 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 10.02 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.
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
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
<PAGE>
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 notice of such approval
has been provided to 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.
10.08 All notices hereunder shall be addressed to the Parties as follows:
(a) If to Licensor:
Syntroleum Corporation
<PAGE>
1350 S. Boulder, Ste. 1100
Tulsa, Oklahoma 74119
Fax No.: (918) 592-7979
Phone No.: (918) 592-7900
ATTN: Office of the President
with copy to:
Syntroleum Corporation
1350 S. Boulder, Ste. 1100
Tulsa, Oklahoma 74119
Fax No.: (918) 592-7979
Phone No.: (918) 592-7900
ATTN: Office of the General Counsel
(b) If to Licensee:
Enron Capital & Trade Resources Corp.
1400 Smith Street
Houston, Texas 77002-7361
Fax No.: (713) 646-8408
Phone No.: (713) 853-6903
ATTN: Tony A. Valentine, Director
with copy to:
Bracewell & Patterson, L.L.P.
711 Louisiana St., Ste. 2900
Houston, TX 77002-2781
Fax No.: (713) 221-1419
Phone No.: (713) 221-1212
ATTN: Heather L. Brown, Esq.
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 indicated above,
electronically transmitted and acknowledged by the other Party or by actual
delivery of written notice to the other Party.
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
Effective Date.
Licensor
SYNTROLEUM CORP.
By: /s/ Mark A. Agee
----------------------------------------
Mark A. Agee
President and Chief Operating Officer
Date: January 12, 1998
Licensee
ENRON CAPITAL & TRADE RESOURCES CORP.
By: /s/ J. Kevin McConville
----------------------------------------
Name: J. Kevin McConville
--------------------------------------
Title: Vice President
-------------------------------------
Date: January 12, 1998
<PAGE>
Syntroleum Corporation
Site License Agreement
CONFIDENTIAL INFORMATION:
Use and distribution of this document is limited to the terms and conditions
of the Confidentiality Agreement dated January 5, 1998 between Syntroleum
Corporation and Syntroleum/Sweetwater Company, L.L.C.
<PAGE>
SITE LICENSE AGREEMENT
THIS LICENSE AGREEMENT is made and entered into effective as of the 12th
day of January, 1998, by and between Syntroleum Corporation, an Oklahoma
corporation ("Licensor"), and Syntroleum/Sweetwater Company, L.L.C., a
Delaware limited liability company ("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 at the Licensed Plant to make and sell
Products.
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 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)
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<PAGE>
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 Site License Agreement.
1.03 "BARREL" means forty-two (42) gallons of two hundred thirty-one (231)
cubic inches each, measured at sixty degrees Fahrenheit (60DEG.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 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.
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<PAGE>
1.06 "CONFIDENTIALITY AGREEMENT" means the agreement between Licensee and
Licensor, dated January 5, 1998.
1.07 "CONTRACTOR" shall mean any engineering company approved by Licensor,
to perform the detailed engineering, construction or construction management
in connection with the Licensed Plant from a list of approved companies.
Licensor may, from time to time, modify the list of companies.
1.08 "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.
1.09 "EFFECTIVE DATE" means the date set forth in the first paragraph of
this Agreement.
1.10 "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.
1.11 "FISCHER-TROPSCH REACTION" means the catalytic reaction of carbon
monoxide and hydrogen, the primary products of which are hydrocarbons.
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<PAGE>
1.12 "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.
1.13 "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.
1.14 "LICENSE FEE" means the fees paid by Licensee to Licensor under this
Agreement, as consideration for granting this Site License Agreement to use
Licensor Technology at the Licensed Plant, as calculated in accordance with
SECTION 5.01 of this Agreement, and does not include fees related to the
purchase of the associated Process Design Package for the Licensed Plant, any
catalyst or any catalyst markup.
1.15 "LICENSED PLANT" means the plant with an initial nominal daily design
capacity of 8,000 Barrels of Synthetic Product per day licensed under this
Agreement to use Licensor Technology to practice the Conversion Process to
produce Products located in Section 16, T18N, R109W, Sweetwater County,
Wyoming.
1.16 "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,
4
<PAGE>
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.
1.17 "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.
1.18 "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 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.
1.19 "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.
1.20 "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
5
<PAGE>
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.
1.21 "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 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.
1.22 "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.
1.23 "PARTICIPATING INTEREST" means at least a ten percent (10%) working,
net profits, equity, or other economic interest (an economic interest shall
include an interest in a production sharing contract where the parties to
such contract construct the Licensed Plant), owned directly or indirectly
through another entity, in the Licensed Plant or Person owning or controlling
the Licensed Plant, but excluding a contract for operation of the Licensed
Plant.
1.24 "PARTIES" means Licensor and Licensee.
1.25 "PARTY" means Licensor or Licensee.
6
<PAGE>
1.26 "PERSON" means any natural person, corporation, partnership, limited
liability company, firm, association, trust, government, governmental agency
or any other entity, other than the Parties.
1.27 "PROCESS DESIGN PACKAGE" means a compilation of text, figures,
drawings and documentation, relating to the design and construction of the
Licensed Plant, in the form set forth in EXHIBIT A to this Agreement and
expressly excluding Reactor Information.
1.28 "PRODUCTS" means hydrocarbon products manufactured from Synthetic
Product produced at the Licensed Plant including, without limitation, fuels,
fuel blending stocks (including diesel, kerosene, naphtha and gasoline), 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; or (d) drilling fluids; and any other products, including
electricity, agreed to by the Parties. Hydrocarbons produced and consumed as
fuel at the Licensed Plant are Products.
1.29 "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.
1.30 "REACTOR VENDOR" shall mean those fabricators approved by Licensor to
perform the fabrication and/or maintenance and repair of autothermal reformer
or Fischer-Tropsch reactors for installation and use in the Licensed Plant.
Licensor may, from time to time, add or remove any vendor from being a
Reactor Vendor.
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<PAGE>
1.31 "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.
1.32 "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 the Licensed Plant.
2. LICENSOR 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
ARTICLE 8) right and license to use Licensor Patent Rights and Licensor
Technical Information to design, construct, operate and maintain (including
modify or replace) the Licensed Plant to practice the Conversion Process to
manufacture Synthetic Product solely for the purpose of producing Products
and using and selling such 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
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 the 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 the Licensed Plant to
manufacture Synthetic Product solely for the purpose of producing,
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<PAGE>
using, and selling Products anywhere in the world and (b) a limited
non-exclusive, non-transferable (except as provided in 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 the Licensed Plant to manufacture Synthetic Product solely for the purpose
of producing Products and using and selling such 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 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 the 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 the 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 the Licensed Plant, and
Licensee shall have the right to purchase such Fischer-Tropsch Catalyst from
such vendor for use in the Licensed Plant on the same terms (including price)
as set forth in SECTION 2.03.
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<PAGE>
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 the
Licensed Plant according to the terms specified in SECTION 5.02 of this
Agreement. At the request of Licensee, Licensor agrees to enter into a
Technical Services Agreement, attached as EXHIBIT D, to provide technical
support to Licensee related to Licensor Technology.
3.02 Reactor Information necessary for the 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 the 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 the 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 the Licensed Plant.
Licensor's responsibilities for any such services in the design, construction
and operation (including maintenance) of the Licensed Plant shall be as set
forth in one or more separate written engineering services agreement(s) (if
any) between Licensor and Licensee specifically applicable to the 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.
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3.05 Licensee shall provide Licensor 90 days advance written notice of the
anticipated Start-up Date. Licensee agrees to permit Licensor and/or its
representatives access to the Licensed Plant 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.
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 plants practicing
the Conversion Process, together with the right to grant corresponding
sublicenses of the Licensee Patent Rights and the use of Licensee Technical
Information to other licensees of Licensor Technology for use at licensed
plants 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.
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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.
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 used at the Licensed
Plant incorporating such Inventions or Improvements.
4.06 Licensee agrees to provide, from time to time and upon request by
Licensor, samples of Products as they are produced at the Licensed Plant to
verify compliance with this Agreement. Licensor agrees to limit its analysis
of samples of Products to those analyses necessary to determine compliance
with the definition of Products.
5. LICENSE AND OTHER FEES
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5.01 In consideration for the rights granted to Licensee by Licensor under
this Agreement, the Licensee shall pay License Fees for the Licensed Plant
calculated and paid as follows:
(a) For a period of fifteen (15) years from the Start-up Date of
the Licensed Plant, on or before thirty (30) days after the end of each
calendar quarter, Licensee agrees to pay Licensor a quarterly running royalty
fee based on the operation of the Licensed Plant calculated in accordance
with the following formula:
(b) All payments required hereunder shall be made within 30 days of
the end of each calendar quarter and, regardless if a royalty payment is due
or not, shall include a statement showing the details supporting the
calculation of the royalty fees being paid. Licensee shall keep accurate and
complete records of all natural gas feedstock processed (volume and
composition) and all Synthetic Product produced at and either used internally
within or removed from the Licensed Plant to enable verification of
statements and payments rendered to Licensor hereunder. Licensee agrees to
permit Licensor or an independent certified public accountant selected by
Licensor to inspect such records on reasonable notice and at reasonable
intervals during normal business hours to verify the fees paid and payable
under this Agreement. The entire cost of such inspection shall be borne by
Licensor unless the inspection reveals Licensee's statements to be in error
by five percent (5%) or more, in which case such cost shall be borne and paid
by Licensee.
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5.02 In addition to the amounts to be paid by Licensee to Licensor under
SECTION 5.01, Licensee agrees to pay Licensor for the Process Design Package,
a fee equal to the reasonable 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.
5.03 All amounts payable under this Agreement shall be paid by Licensee to
Licensor at Licensor's address specified in SECTION 9.09, or to an account at
a bank specified by Licensor, in dollars of the United States of America.
5.04 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:
(a) Licensor 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;
(b) 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;
(c) Licensor is the sole owner or authorized licensee (with the
right to sublicense) of the Licensor Technology and has the right to grant
the licenses granted in this Agreement; and
(d) As of the Effective Date, Licensor has not granted and is not
engaged in negotiations to grant a license to a Person to the Licensor
Technology to practice the
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Conversion Process to produce Synthetic Product for processing into non-fuel
or non-fuel blending stock Products in North America except negotiations
between Licensor and a Person with respect to the grant by Licensor of such a
license for the construction and operation of a facility to be located in the
state of Alaska.
6.02 Licensee represents and warrants that it is a limited liability
company 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
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SUCH DAMAGES. IN THE EVENT A PARTY IS FOUND LIABLE, DESPITE THE ABOVE
LANGUAGE, TO THE OTHER PARTY FOR SPECIAL, INDIRECT, 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 the Licensed Plant (including the Synthetic
Product or Products produced from the Licensed Plant).
(a) If Licensee has made a modification to the Process Design
Package, with respect to the 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 and from any attorneys fees, costs of litigation and other out of
pocket expenses incurred in the defense of such claim or lawsuit.
(b) If the design, construction and/or operation of the 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 the 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 and from any attorneys fees, costs of litigation
and other out of pocket expenses incurred in the defense of such claim or
lawsuit.
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(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 Plant, 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.
6.06 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 infringement of any
patent, copyright, trademark, trade secret or other intellectual property
right, 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.
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6.07 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 Plant.
6.08 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 Plant.
6.09 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 the Licensed Plant that is subject to the above claims.
6.10 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
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(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 the 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 or owner of an equity
interest in the Plant, provided that the Affiliate or equity owner has
entered into a secrecy agreement with Licensor containing confidentiality
terms no less restrictive than those set forth in this SECTION 7.01.
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, 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
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Conversion Process, and for no other purpose. Licensor may disclose such
Confidential Information to (a) third parties who have executed a secrecy
agreement with confidentiality terms no less restrictive than those set forth
in this SECTION 7.02, or (b) with the consent of Licensee, to third parties
without a secrecy 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 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
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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 In the event that a Party which is recipient of Confidential
Information from the other Party is requested or required by deposition,
interrogatory, request for documents, subpoena, civil investigative demand or
similar process to disclose any such Confidential Information, the receiving
Party shall provide the disclosing Party with prompt written notice of such
request or requirement prior to making the requested disclosure, and shall
cooperate with the disclosing Party so that the disclosing Party may seek a
protective order or other appropriate remedy or, if the disclosing Party so
elects, waive compliance with the terms of this Agreement. In the event that
such protective order or other remedy is not obtained, the receiving Party
may disclose only that portion of the Confidential Information which the
disclosing Party is advised by counsel is legally required to be disclosed.
7.06 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.
7.07 With respect to any catalyst furnished by Licensor to Licensee for use by
Licensee at the Licensed Plant, 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
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performance of the Licensed Plant and for regeneration, reclamation or
disposal of spent catalysts, such authorization not to be unreasonably
withheld, and (b) provide 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 a
confidentiality agreement with Licensor containing terms no less restrictive
than those set forth in this ARTICLE 7. Licensor will be provided with a copy
of all such analyses which have been approved in writing prior to release to
other parties.
8. TERM AND TERMINATION
8.01 This Agreement shall extend for the life of the Licensed Plant.
8.02 If a material default shall occur by Licensee under this Agreement,
Licensor shall provide written notice of such default to Licensee. If a
material default under this Agreement shall continue for a period of 120 days
following written notice of such default to Licensee from Licensor without
being cured by Licensee, then Licensor shall have the right to terminate this
Agreement upon written notice to Licensee. The actions by Licensor under
this Article shall not prejudice Licensor from enforcing any claim which it
may have for damages or otherwise on account of the default.
8.03 In the event of a Change of control of Licensee, Licensor shall have
the right to terminate this Agreement upon 60 days written notice. As used
in this SECTION 8.03, "Change of Control" means (i) the holders of Licensee's
voting securities (including holders of securities which are convertible,
exerciseable or exchangeable for voting securities and which securities, for
the purpose of this Agreement, shall be deemed voting securities) on the
Effective Date cease to possess 90% of the combined voting power of Licensee
or (ii) the business of Licensee is disposed of pursuant to a voluntary
liquidation, merger, consolidation, sale of assets or otherwise.
8.04 Termination of this Agreement shall not:
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(a) relieve Licensee of its obligations to account for and pay all
amounts due Licensor under this Agreement;
(b) 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
(c) affect the obligations of Licensor and Licensee under ARTICLES 6
AND 7 and SECTION 9.03 which shall survive termination in accordance with
their terms.
8.05 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 8.05. Each Party shall do all things reasonably
possible to remove the cause of such default.
8.06 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 ninety (90) days prior to the date of
such termination.
9. MISCELLANEOUS
9.01 This Agreement embodies the entire intent of the Parties and merges
all prior oral and written agreements between the Parties hereto with respect
to the Licensed Plant. No stipulation, agreement, representation or
understanding of the Parties hereto with respect to the Licensed Plant shall
be valid or enforceable unless contained in this Agreement or in a subsequent
written agreement signed by the Parties hereto.
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9.02 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 any of
the referenced companies has 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.
9.03 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 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
9.03 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.
9.04 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,
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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 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.
9.05 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.
9.06 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 the Licensed Plant on a need-to-know basis or as required by law.
9.07 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 notice of such approval
has been provided to Licensor.
9.08 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.
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9.09 All notices hereunder shall be addressed to the Parties as follows:
(a) If to Licensor:
Syntroleum Corporation
1350 S. Boulder, Ste. 1100
Tulsa, Oklahoma 74119
Fax No.: (918) 592-7979
Phone No.: (918) 592-7900
ATTN: Office of the President
with copy to:
Syntroleum Corporation
1350 S. Boulder, Ste. 1100
Tulsa, Oklahoma 74119
Fax No.: (918) 592-7979
Phone No.: (918) 592-7900
ATTN: Office of the General Counsel
(b) If to Licensee:
Syntroleum/Sweetwater Company L.L.C.
1350 S. Boulder, Ste. 1100
Tulsa, Oklahoma 74119
Fax No.: (918) 592-7979
Phone No.: (918) 592-7900
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 indicated above,
electronically transmitted and acknowledged by the other Party or by actual
delivery of written notice to the other Party.
26
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date set forth above.
Licensor
SYNTROLEUM CORP.
By: /s/ Kenneth L. Agee
-------------------------------------
Kenneth L. Agee
Chairman and Chief Executive Officer
Licensee
SYNTROLEUM/SWEETWATER COMPANY, L.L.C.
By: Syntroleum Corporation, Manager
By: /s/ Mark A. Agee
-------------------------------------
Mark A. Agee, President/COO
27
<PAGE>
LAB HOLDINGS, INC.
FACILITIES SHARING AND INTERIM SERVICES AGREEMENT
This FACILITIES SHARING AND INTERIM SERVICES AGREEMENT is made as of the
1st day of June, 1998, between Lab Holdings, Inc., a Missouri corporation
("Holdings"), SLH CORPORATION., a Kansas corporation ("SLH") and SYNTROLEUM
CORPORATION, an Oklahoma corporation ("Syntroleum").
RECITAL
SLH is a former subsidiary of Holdings and is the lessee of 3,400 square
feet of office space at 5000 West 95th Street, Suite 260, Shawnee Mission,
Kansas 66207 (the "Office"). Pursuant to a "Sublease and Services Agreement,"
dated as of June 1, 1997 (the "Services Agreement") SLH has been providing
Holdings with certain consulting services ("SLH Consulting Services"). SLH now
proposes to engage in a merger pursuant to which Syntroleum will be merged into
SLH (the "Merger") with the name of the surviving entity being Syntroleum (the
"Survivor"). The parties desire to terminate the SLH Consulting Services at the
effective time of the Merger, make certain provisions with Holdings such that
Holdings may continue to use certain of the space in the Office, and make
certain provisions so that Holdings may provide the Survivor with certain
consulting services.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and intending to be legally bound thereby, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
1.01 DEFINITIONS AND TERMS. Except as otherwise provided herein, the
capitalized terms in this agreement shall have the same meaning as those terms
are defined to have in that certain Agreement and Plan of Merger among SLH and
Syntroleum, dated as of March 30, 1998 (the "Merger Agreement").
ARTICLE II
FACILITIES AND SERVICES
2.01 AGREEMENT TO PROVIDE FACILITIES AND SERVICES. Subject to the terms
and conditions hereof immediately after the Effective Time, Holdings agrees to
provide to Survivor during the term specified in Section 2.03 (the "Term") all
services required by Survivor (the "Services"):
(a) with respect to the provision to Survivor of historical
information relating to the accounting, bookkeeping, tax and business
activities of SLH and its subsidiaries to the extent that the necessary books
and records of Survivor are made available to Holdings;
<PAGE>
(b) for the management of the operations of all of the subsidiaries
of Survivor that are identified in Exhibit 21 to the Form 10-K of SLH for the
year ended December 31, 1997.
Services to be provided hereunder shall be provided on a reasonably timely
basis. The Services provided hereunder shall be provided in exchange for the
facilities to be provided by Survivor to Holdings as set forth in Section 2.02
hereof. Periodic time and expense records shall be submitted by Holdings to
Survivor for services provided hereunder.
2.02 AGREEMENT TO PROVIDE FACILITIES AND SERVICES. Subject to the terms
and conditions hereof Survivor agrees to provide Holdings and Holdings agrees to
accept during the Term the use of a portion of Survivor's facilities at the
Office for up to seven Holdings' officers and employees, including the Holdings
employees performing Services for Survivor under Section 2.01. The Office
facilities provided Holdings shall include appropriate office space, furniture,
equipment and supplies to support the day to day activities of such personnel
during the term of this agreement and up to 144 square feet of file storage
space. The Office facilities provided Holdings hereunder shall be provided in
exchange for the Services to be provided by Holdings to Survivor as set forth in
Section 2.02 hereof; provided, however, following the Merger, Holdings and
Survivor will review the amount of Services provided under Section 2.01 and
Office facilities provided under Section 2.02 and each will reimburse the other
to the extent that the exchange of Office facilities for Services is not of
reasonably equivalent market value.
2.03 TERM. This Agreement shall be effective at the Effective Time of the
Merger and shall continue until terminated by either party by giving written
notice to the other party of termination to become effective as of the end of
the month following the month in which notice of termination is given.
ARTICLE III
MISCELLANEOUS
3.01 TERMINATION OF THE SERVICES AGREEMENT. At the effective time the
Services Agreement will immediately terminate such that following the Effective
Time, Survivor shall have no further obligation to Holdings to provide Holdings
with any SLH Consulting Services or to provide any facilities to Holdings other
than as contemplated under Section 2.02 of this Agreement.
3.02 CERTAIN PROVISIONS OF ASSIGNMENT AND ASSUMPTION AGREEMENT. Pursuant
to that certain Blanket Assignment, Bill of Sale, Deed and Assumption Agreement,
dated as of February 28, 1997, between Holdings and SLH (the "Assumption
Agreement") Holdings transferred to SLH certain assets and liabilities. Holdings
agrees that the provisions of Section 4.4 (relating to restrictions on payment
of dividends and redemptions of stock) of the Assumption Agreement shall
terminate as of the Effective Time.
2
<PAGE>
3.03 HOLDINGS INDEMNIFICATION. Survivor agrees to indemnify and hold
harmless Holdings, its officers, agents, employees, directors, representatives
and successors from any claims, liabilities, damages, losses, costs, attorneys
fees, damages and/or liability, worker's compensation and discrimination actions
and/or any other type of civil, administrative or criminal action(s) whether
such action(s) is brought by Holdings's personnel and/or any other third
party(ies), that they, or any one of them, may suffer or sustain as a result of
any claims, demands or causes of action arising out of, or in any way related to
the action or inaction of Survivor relating to Survivor's use of Services
provided to Survivor by Holdings hereunder.
3.04 SURVIVOR INDEMNIFICATION. Holdings agrees to indemnify and hold
harmless Survivor, its officers, agents, employees, directors, representatives
and successors from any claims, liabilities, damages, losses, costs, attorneys
fees, damages and/or liability, worker's compensation and discrimination actions
and/or any other type of civil, administrative or criminal action(s) whether
such action(s) is brought by Survivor's personnel and/or any other third
party(ies), that they, or any one of them, may suffer or sustain as a result of
any claims, demands or causes of action arising out of, or in any way related to
the action or inaction of Holdings relating to Holdings's use of facilities
provided to Holdings by Survivor hereunder.
3.05 FORCE MAJEURE. If either party is unable to perform any of its duties
or fulfill any of its covenants or obligations under this Agreement as a result
of causes beyond its control and without its fault or negligence, including but
not limited to acts of God or government, fire, flood, war, governmental
controls, and labor strife, then such party shall not be deemed to be in default
of this Agreement during the continuance of such events which rendered it unable
to perform; such party shall have such additional time thereafter as is
reasonably necessary to enable it to resume performance of its duties and
obligations under this Agreement; and the party entitled to such performance
shall not be required to pay the other party for such performance to the extent
that such other party is unable to perform. Notwithstanding the foregoing, if
the suspension of a party's obligation to perform under this Agreement is of
such a nature or duration as to substantially frustrate the purpose of this
Agreement, then Survivor or Holdings, as the case may be, shall have the right
to terminate this Agreement by giving to the other 30 days' prior written notice
of termination, in which case termination shall be effective upon the expiration
of such 30-day period unless performance is resumed prior to such expiration.
3.06 SEVERABILITY. The invalidity of any provision of this Agreement as
determined by a court of competent jurisdiction in no way shall affect the
validity of any other provision hereof. If a provision is determined to be
invalid, the parties shall negotiate in good faith in an effort to agree upon a
suitable and equitable alternative provision to effect the
3
<PAGE>
original intent of the parties.
3.07 TIME OF THE ESSENCE. The parties hereto agree that with respect to
the performance of all terms, conditions and covenants of this Agreement, time
is of the essence.
3.08 CAPTIONS. Section captions are not a part hereof and are merely for
the convenience of the parties.
3.09 BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof, this
Agreement shall bind the parties, their successors and assigns. This Agreement
shall be governed by the laws of the State of Kansas without reference to the
conflict or choice of law provisions thereof.
3.10 ASSIGNMENT. Neither party shall assign or sublease this Agreement or
any Services to be provided hereunder without the prior written consent of the
other, which consent shall not be withheld unreasonably. Notwithstanding the
foregoing, consent shall not be required for an assignment or sublease of this
Agreement or any Service provided hereunder by either party to a corporate
affiliate of such party or to any third party vendor or third party record
keeper who had been providing all or a material portion of the Services to or on
behalf of SLH or Holdings, as the case may be, prior to the date first written
above.
3.11 AMENDMENT. This Agreement may not be amended without the express
written agreement of all parties hereto.
3.12 NOTICES. All notices under this Agreement must be in writing and
delivered personally or sent by United States mail, postage prepaid, addressed
as follows, except that any party by written notice given as aforesaid, may
change its address for subsequent notices to be given hereunder.
If to Holdings:
Lab Holdings, Inc.
5000 West 95th Street, Suite 260,
Shawnee Mission, Kansas 66207
Attention: Chief Financial Officer
4
<PAGE>
If to SLH:
SLH CORPORATION.
5000 West 95th Street, Suite 260,
Overland Park, Kansas 66207
Attention: President
If to Survivor:
SYNTROLEUM CORPORATION.
1350 South Boulder, Suite 1100
Tulsa, Oklahoma 74119-3295
Attention: President
If to Syntroleum:
SYNTROLEUM CORPORATION.
1350 South Boulder, Suite 1100
Tulsa, Oklahoma 74119-3295
Attention: President
Notice sent by U.S. mail will be deemed given when deposited with the U.S.
postal service.
3.13 LIABILITY FOR NONPERFORMANCE. None of the parties hereto nor any
subsidiaries of such parties shall have any liability to each other for failure
to perform its obligations hereunder unless such failure arises out of, directly
or indirectly, the misconduct or gross negligence on the part of the
nonperforming party. Holdings shall not be required to perform any Services (or
any part thereof ) to the extent that performance of such Service (or such part
thereof) would violate any law, rule or regulation.
3.14 INDEPENDENT ENTITIES. In carrying out the provisions of this
Agreement, Holdings and Survivor are and shall be deemed to be for all purposes,
separate and independent entities. Holdings and Survivor shall select their
employees and agents, and such employees and agents shall be under the exclusive
and complete supervision and control of Holdings or Survivor, as the case may
be. Holdings hereby acknowledges responsibility for full payment of wages and
other compensation to its employees and agents engaged in the performance of
Services under this Agreement. It is the express intent of this Agreement that
the relationship of Holdings to Survivor and Survivor to Holdings shall be
solely that of separate and independent companies and not that of a joint
venture, partnership or any other joint relationship.
3.13 NONFIDUCIARY STATUS. In carrying out the provisions of this
Agreement, neither party shall be a fiduciary (as defined in Section 3(21) of
ERISA) with respect to any services or facilities provided hereunder or with
respect to any employee
5
<PAGE>
benefit plan, program or arrangement maintained by or on behalf of the other
party.
3.14 THIRD PARTY BENEFICIARIES. The provisions of this Agreement are solely
for the benefit of the parties and are not intended to confer upon any person
except the parties any rights or remedies hereunder. There are no third party
beneficiaries of this Agreement, and this Agreement shall not provide any third
person with any remedy, claim, liability, reimbursement, action or other right
in excess of those existing without reference to this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed in multiple
counterparts on the date set forth above, each of which shall, for all purposes,
be deemed an original and all of which shall evidence but one agreement between
the parties hereto.
SLH CORPORATION LAB HOLDINGS, INC.
a Kansas corporation a Missouri corporation
By: /s/ James R. Seward By: /s/Steven K. Fitzwater
------------------------------ ------------------------------
Name: James R. Seward Name: Steven K. Fitzwater
---------------------------- ----------------------------
Title: President & CEO Title: EVP, COO & Secretary
--------------------------- ---------------------------
SYNTROLEUM CORPORATION
an Oklahoma corporation
By: /s/ Mark A. Agee
------------------------------
Name: Mark A. Agee
----------------------------
Title: President and COO
---------------------------
6
<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, as
amended, filed by SLH Corporation on June 5, 1998.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
June 5, 1998
<TABLE> <S> <C>
<PAGE>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,862
<SECURITIES> 183
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,123
<PP&E> 1,803
<DEPRECIATION> 200
<TOTAL-ASSETS> 10,018
<CURRENT-LIABILITIES> 649
<BONDS> 0
0
0
<COMMON> 19
<OTHER-SE> (4,189)
<TOTAL-LIABILITY-AND-EQUITY> 10,018
<SALES> 385
<TOTAL-REVENUES> 385
<CGS> 0
<TOTAL-COSTS> 3,433
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,928)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,928)
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