UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______.
COMMISSION FILE NO. 0-21911
SYNTROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 43-1764632
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1350 SOUTH BOULDER, SUITE 1100
TULSA, OKLAHOMA 74119-3295
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (918) 592-7900
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO __.
At August 10, 1999, the number of outstanding shares of the issuer's common
stock was 26,900,052.
ii
<PAGE>
SYNTROLEUM CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<S> <C>
Unaudited Consolidated Balance Sheets as of June 30, 1999 and
December 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Unaudited Consolidated Statements of Operations for the three month and six month
periods ended June 30, 1999 and 1998. . . . . . . . . . . . . . . . . . . . . . 2
Unaudited Consolidated Statements of Stockholders' Equity for the six
month period ended June 30, 1999. . . . . . . . . . . . . . . . . . . . . . . . 3
Unaudited Consolidated Statements of Cash Flows for the six month
periods ended June 30, 1999 and 1998. . . . . . . . . . . . . . . . . . . . . . 4
Notes to Unaudited Consolidated Financial Statements. . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . . . . . . . . 13
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . 13
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 14
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements as
well as historical facts. These forward-looking statements include statements
relating to the Syntroleum Process and related technologies, gas-to-liquids
plants based on the Syntroleum Process, anticipated costs to design, construct
and operate such plants, the timing of commencement and completion of the design
and construction of such plants, obtaining required financing for such plants,
the economic construction and operation of GTL plants, including the value,
markets and prices for and other characteristics of products produced by such
plants, the continued development of the Syntroleum Process (alone or with
partners), anticipated capital expenditures, anticipated revenues, the sale of
Syntroleum's real estate inventory and any other statements regarding future
growth, cash needs, operations, business plans and financial results. When used
in this document the words "anticipate," "believe," "estimate," "expect,"
"intend," "may," "plans," "project," "should" and similar expressions are
intended to be among the statements that identify forward-looking statements.
Although Syntroleum believes that the expectations reflected in these
forward-looking statements are reasonable, such statements involve risks and
uncertainties and actual results may not be consistent with these
forward-looking statements. Important factors that could cause actual results
to differ from these forward-looking statements include the potential that the
cost of designing and constructing commercial-scale GTL plants will exceed
current estimates, commercial-scale GTL plants will not achieve the same results
as those demonstrated on a laboratory or pilot basis or that such plants will
experience technological and mechanical problems, the potential that
improvements to the Syntroleum Process currently under development may not be
successful, the impact on plant economics of operating conditions (including
energy prices), competition, intellectual property risks, Syntroleum's ability
to obtain financing and other risks described in this Quarterly Report on Form
10-Q and Syntroleum's Annual Report on Form 10-K for the year ended December 31,
1998.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SYNTROLEUM CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . $ 32,329 $ 34,981
Short-term investments . . . . . . . . . . . . . . . . 3,152 3,135
Accounts and notes receivable. . . . . . . . . . . . . 853 860
Other current assets . . . . . . . . . . . . . . . . . 286 498
--------- ---------
Total current assets. . . . . . . . . . . . . . . . 36,620 39,474
REAL ESTATE HELD FOR SALE. . . . . . . . . . . . . . . . 2,776 3,122
REAL ESTATE UNDER DEVELOPMENT. . . . . . . . . . . . . . 4,292 2,722
INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . 1,259 1,180
PROPERTY AND EQUIPMENT, net. . . . . . . . . . . . . . . 3,622 3,210
OTHER ASSETS, net. . . . . . . . . . . . . . . . . . . . 659 692
--------- ---------
$ 49,228 $ 50,400
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . $ 1,070 $ 1,365
Accrued liabilities. . . . . . . . . . . . . . . . . . 664 633
Total current liabilities . . . . . . . . . . . . . 1,734 1,998
--------- ---------
OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . . 95 103
MINORITY INTERESTS . . . . . . . . . . . . . . . . . . . 1,303 1,337
DEFERRED REVENUE . . . . . . . . . . . . . . . . . . . . 11,000 11,000
Total liabilities . . . . . . . . . . . . . . . . . 14,132 14,438
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 5,000,000 shares
authorized, no shares issued. . . . . . . . . . . . - -
Common stock, $0.01 par value, 150,000,000 shares
authorized, 34,574,957 shares issued in 1999 and
1998, respectively, including shares in treasury . . . 346 346
Additional paid-in capital . . . . . . . . . . . . . . 68,905 62,908
Notes receivable from sale of common stock . . . . . . (699) (699)
Accumulated deficit. . . . . . . . . . . . . . . . . . (33,379) (26,516)
--------- ---------
35,173 36,039
Less-treasury stock, 7,674,905 shares in 1999 and 1998 (77) (77)
--------- ---------
Total stockholders' equity. . . . . . . . . . . . . 35,096 35,962
--------- ---------
$ 49,228 $ 50,400
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
1
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SYNTROLEUM CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------- ---------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Joint development revenue. . . . . . . . . $ 548 $ 466 $ 1,151 $ 851
Real estate sales. . . . . . . . . . . . . 520 - 520 -
Other. . . . . . . . . . . . . . . . . . . 162 - 324 -
------------ ------------ ------------ ------------
Total revenues . . . . . . . . . . . . . 1,230 466 1,995 851
------------ ------------ ------------ ------------
COST AND EXPENSES:
Cost of real estate sales. . . . . . . . . 404 - 404 -
Real estate operating expense. . . . . . . 233 - 390 -
Pilot plant, engineering and research and
Development. . . . . . . . . . . . . . . 2,206 980 3,194 2,046
General and administrative . . . . . . . . 3,205 2,291 6,021 4,657
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS. . . . . . . . (4,818) (2,805) (8,014) (5,852)
INVESTMENT AND INTEREST INCOME . . . . . . . 729 90 1,115 190
OTHER INCOME . . . . . . . . . . . . . . . . 2 - 2 -
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE MINORITY
INTERESTS. . . . . . . . . . . . . . . . . (4,087) (2,715) (6,897) (5,662)
MINORITY INTERESTS . . . . . . . . . . . . . 28 4 34 14
------------ ------------ ------------ ------------
NET INCOME (LOSS). . . . . . . . . . . . . . $ (4,059) $ (2,711) $ (6,863) $ (5,648)
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE -
Basic and diluted. . . . . . . . . . . . . $ (0.15) $ (0.11) $ (0.26) $ (0.23)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING. . . . . . . . . . . . . . . . 26,900,052 24,500,236 26,900,052 24,500,236
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
statements.
<PAGE>
2
SYNTROLEUM CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
COMMON STOCK NOTES
---------------------- ADDITIONAL 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, December 31, 1998. 34,575 $ 346 $ 62,908 $ (699) $ (26,516) $ (77) $ 35,962
SETTLEMENT OF MERGER
CONTINGENCY. . . . . . - - 5,997 - - - 5,997
NET INCOME (LOSS) . . . . - - - - (6,863) - (6,863)
BALANCE, June 30, 1999. . . 34,575 $ 346 $ 68,905 $ (699) $ (33,379) $ (77) $ 35,096
============ =========== =========== ============== ============= ========== ===============
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
statements.
3
<PAGE>
SYNTROLEUM CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
--------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) . . . . . . . . . . . . . . . . $(6,863) $(5,648)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operations:
Minority interest in loss of subsidiary. . . . (34) (14)
Depreciation and amortization. . . . . . . . . 259 123
Equity in earnings of affiliates . . . . . . . (110) -
Changes in real estate held for sale and
under development . . . . . . . . . . . . . (1,223) -
Changes in assets and liabilities--
Accounts receivable. . . . . . . . . . . . 7 65
Prepaids and other . . . . . . . . . . . . 195 (19)
Other assets . . . . . . . . . . . . . . . 65 (94)
Accounts payable . . . . . . . . . . . . . (295) (448)
Accrued liabilities and other. . . . . . . (55) 111
-------- --------
Net cash provided by (used in)
operating activities . . . . . . . . . (8,054) (5,924)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment. . . . . . . . (564) (1,611)
Maturity of SLH investments held to maturity. . . (17) -
-------- --------
Net cash provided by (used in)
investing activities. . . . . . . . . (581) (1,611)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Settlement of merger contingency. . . . . . . . . 5,997 -
Payments under capital lease. . . . . . . . . . . (14) (8)
Minority interest in investment in subsidiary . . - 1,000
-------- --------
Net cash provided by (used in)
financing activities. . . . . . . . . 5,983 992
-------- --------
NET DECREASE IN CASH. . . . . . . . . . . . . . . . (2,652) (6,543)
CASH AND CASH EQUIVALENTS,
beginning of period . . . . . . . . . . . . . . . 34,981 10,158
-------- --------
CASH AND CASH EQUIVALENTS, end of period. . . . . . $32,329 $ 3,615
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
statements
4
<PAGE>
SYNTROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. BASIS OF REPORTING
The primary operations of Syntroleum Corporation (together with its
predecessors and subsidiaries, the "Company" or "Syntroleum") 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 naphtha, or
specialty products such as synthetic lubricants, synthetic drilling fluid,
waxes, liquid normal paraffins and certain chemical feedstocks.
The consolidated financial statements included in this report have been
prepared by Syntroleum without audit pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"). Accordingly, these statements
reflect all adjustments (consisting of normal recurring entries) which are, in
the opinion of management, necessary for a fair statement of the financial
results for the interim periods presented. These financial statements should be
read in conjunction with the financial statements and the notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31, 1998
filed with the SEC under the Securities Exchange Act of 1934, as amended, on
March 31, 1999.
Effective June 17, 1999, the Company completed its reincorporation as a
Delaware corporation. In the reincorporation, the Company merged (the
"Reincorporation Merger") with the Company's predecessor, Syntroleum
Corporation, a Kansas corporation ("Syntroleum-Kansas"), with the Company being
the surviving corporation and the successor to Syntroleum-Kansas. The
Reincorporation Merger has been accounted for as a combination of entities
under common control using the historical cost basis of the combining companies
as if it were a pooling of interests.
On August 7, 1998, the Company's predecessor, Syntroleum Corporation, an
Oklahoma corporation, merged with SLH Corporation, a Kansas corporation ("SLH").
This merger was accounted for as a reverse acquisition. The results of
operations of SLH have been included in the results of Syntroleum since
completion of the merger with SLH. Unaudited pro forma results of operations
for the six months ended June 30, 1998, as though the merger with SLH had
occurred at January 1, 1998, are presented below. The proforma results of
operations are not necessarily indicative of the actual operating results had
the transaction been consummated at the beginning of the period presented below
or in future operating results of the combined operations:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, 1998
---------------------
<S> <C>
Revenues. . . . . . . . . . . . . $ 8,226
Net income (loss) . . . . . . . . (1,469)
Basic and diluted earnings (loss)
per share. . . . . . . . . . . $ (.06)
</TABLE>
The preparation of financial statements in conformity with generally
accepted accounting principals 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. EARNINGS PER SHARE
The Company applies the provisions of SFAS No. 128, "Earnings Per Share."
Basic and diluted 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. Options to purchase 2,709,304 shares
of common stock at an average exercise price of $7.29 were not included in the
computation of diluted earnings per share as inclusion of such options would be
anti-dilutive.
3. FOOTNOTES INCORPORATED BY REFERENCE
Certain footnotes are applicable to the financial statements, but
would be substantially unchanged from the footnotes presented in the Company's
December 31, 1998 financial statements included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998 as filed with the SEC, and are
incorporated herein by reference as follows:
<TABLE>
<CAPTION>
NOTE DESCRIPTION
- ---- -------------------------------------------
<C> <S>
1. Summary of Significant Accounting Policies
2. Investments
3. Property and Equipment
4. Notes Receivable from Sale of Common Stock
5. Accrued Liabilities
6. Income Taxes
7. Supplemental Cash Flow Information
9. Commitments
10. Stock Options
11. Cash Equivalents and Short-Term Investments
12. Stock Options
13. Significant Customers
14. Stockholder Rights Plan
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following information should be read in conjunction with the
information presented elsewhere in this Quarterly Report on Form 10-Q and with
the information presented in Syntroleum's Annual Report on Form 10-K for the
year ended December 31, 1998 (including Syntroleum's financial statements and
notes thereto).
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. Although no
commercial-scale GTL plant based on the Syntroleum Process has yet been built,
Syntroleum owns and operates a nominal two barrel per day pilot plant in Tulsa,
Oklahoma where it has successfully demonstrated certain elements and variations
of the Syntroleum Process. Syntroleum has also participated with Atlantic
Richfield Company ("ARCO"), a licensee of Syntroleum's GTL technology, in the
development and successful start-up of a 70 barrel-per-day pilot plant located
at ARCO's refinery at Cherry Point, Washington. Syntroleum believes that a
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: (1) 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; (2) 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; (3)
making available mobile GTL plants to customers on a contract basis through
efforts with industry partners and others; and (4) 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, Inc. ("Texaco"), ARCO, and Marathon Oil Company ("Marathon"), and
has entered into volume license agreements with 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"). 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 and others
with respect to joint ventures to develop specialty product GTL plants.
Syntroleum has formed a joint venture with Enron with respect to the development
of a specialty products plant and Syntroleum is currently evaluating different
potential international sites, including a possible site in Australia. The
schedule for construction of this proposed plant has not yet been finally
determined.
Syntroleum has entered into joint development arrangements with Texaco, ARCO,
Marathon, Bateman Engineering, Inc. ("Bateman"), AGC Manufacturing Services,
Inc. ("AGC"), GE Power Systems ("GE Power Systems"), DaimlerChrysler AG
("DaimlerChrysler"), Catalytica Combustion Systems, Inc. ("Catalytica Combustion
Systems"), and AMEC Process and Energy Limited ("AMEC").
Because Syntroleum is incurring costs with respect to developing and
commercializing the Syntroleum Process and does not anticipate recognizing any
revenues from licensing its technology in the near future, the Company expects
to operate at a loss unless and until sufficient revenues are recognized from
licensing activities, specialty product GTL plants or real estate sales.
OPERATING REVENUES
General. During the periods discussed below, Syntroleum's revenues were
generated from (1) sales of real estate holdings owned by SLH prior to the
merger with SLH, (2) reimbursement for research and development activities
associated with the Syntroleum Process and (3) other sources, including rent
generated by real estate holdings owned by SLH prior to the merger with SLH.
Because SLH had substantially reduced its real estate inventory prior to the
merger with SLH, and Syntroleum had sold several properties since the merger,
Syntroleum expects to receive lower levels of revenues from these sources in
following periods. In the future, Syntroleum expects to receive revenue
relating to the Syntroleum Process from five sources: licensing; catalyst sales;
sales of products from specialty product GTL plants in which Syntroleum owns an
equity interest; revenues from providing mobile GTL plants on a contract basis;
and revenues from research and development activities carried out with industry
partners. Until the commencement of commercial operation of GTL plants in which
Syntroleum owns an interest, Syntroleum expects that its cash flow relating to
the Syntroleum Process will consist primarily of license fee deposits, site
license fees, catalysts sales and revenues associated with joint development
activities. Syntroleum will not receive any cash flow from GTL plants in which
it owns an equity interest until the first such plant is constructed.
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 gas, crude oil, fuel and specialty product prices. If the price of
these products increases (decreases), there could be a corresponding increase
(decrease) in operating revenues.
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 individual 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 up-front 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.
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 (1) the yearly maximum design capacity of the
plant, (2) an assumed life of the plant and (3) 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
up-front 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 engineering process design
package for a plant licensed 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 is 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.
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. Syntroleum
anticipates that its specialty GTL plants will include partners 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.
Revenues from Providing 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. The
Company is currently doing preliminary design work for these types of plants.
Joint 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: (1) independent
development utilizing its own resources and (2) 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.
Real Estate Sales Revenues. As of June 30, 1999, Syntroleum's real estate
inventory consisted of (1) a seven-story parking garage in Reno, Nevada; (2) a
49.9% interest in a community shopping center in Gillette, Wyoming; (3) land
under development in Houston, Texas (341 acres comprising the "Houston Project")
and nine acres in Corinth, Texas, and (4) an equity investment in a hotel
located in Tulsa, Oklahoma. This real estate inventory was owned by SLH prior
to Syntroleum's merger with SLH and reflects the remaining assets of a real
estate development business that was conducted by SLH. The total real estate
inventory had an aggregate carrying value at June 30, 1999 of approximately $8.3
million. All of the real estate inventory is held for sale except for the
investment in the hotel located in Tulsa, Oklahoma and the Houston Project,
which is being developed for commercial and residential use. The timing of real
estate sales will create variances in period-to-period earnings recognition.
Syntroleum does not intend to acquire additional real estate holdings for
development and/or sale outside its core business interests, and real estate
sales revenues should decrease as the current real estate inventory is
liquidated.
OPERATING EXPENSES
Syntroleum's operating expenses historically have consisted primarily of
pilot plant, engineering and research and development expenses and general and
administrative expenses, which include costs associated with general corporate
overhead, compensation expense, legal and accounting expense and other related
administrative functions. Syntroleum's policy is to expense pilot plant,
engineering and research and development costs as incurred. All of these
research and development expenses are associated with Syntroleum's development
of the Syntroleum Process. Syntroleum has also recognized depreciation and
amortization expense primarily related to office and computer equipment.
Following the merger with SLH, Syntroleum's operating expenses have also
included costs of real estate sold and real estate operating expense.
Syntroleum's general and administrative expenses have increased substantially as
it has expanded its research and development, engineering and commercial
operations, and these expenses are expected to continue to increase. Syntroleum
also expects to continue to incur higher pilot plant, engineering and research
and development expenses as it continues to develop and improve its GTL
technology. In May 1998, Syntroleum acquired a 16,500-square-foot laboratory
(known as Syntroleum's "technology center") located on approximately 100 acres
at which it intends to increase its laboratory and pilot plant operations.
Syntroleum 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 commencement of construction of specialty products
plants in which it owns an interest. Upon the commencement of commercial
operation of GTL plants in which Syntroleum owns an equity interest, 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. 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.
REINCORPORATION MERGER
Effective June 17, 1999, the Company completed its reincorporation as a
Delaware corporation. In the reincorporation, the Company merged (the
"Reincorporation Merger") with the Company's predecessor, Syntroleum
Corporation, a Kansas corporation ("Syntroleum-Kansas"), with the Company being
the surviving corporation and the successor to Syntroleum-Kansas. The
Reincorporation Merger has been accounted for as a combination of entities
under common control using the historical cost basis of the combining companies
as if it were a pooling of interests.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30,
1998
Joint Development Revenue. Revenues from joint research and development
and pilot plant operations were $548,000 in the second quarter of 1999, up
$82,000 from the second quarter of 1998 when they were $466,000. The increase
was primarily due to revenue from ARCO in connection with research and
development activities related to the construction and preparation for start-up
of a GTL pilot plant at ARCO's Cherry Point, Washington refinery under a joint
development agreement with ARCO. This increase is partially offset by the
completion during 1998 of construction of the hybrid, multiphase (HMX) reactor
at the Company's pilot plant that was funded by Texaco under the joint
development agreement with Texaco.
Real Estate Sales. Real estate sales were $520,000 in the second quarter
of 1999, up from zero in the second quarter of 1998, when Syntroleum had no real
estate operations. Real estate sales in the second quarter of 1999 reflect the
sale of two acres in the Kansas City metropolitan area.
Other Revenues. Other revenues were $162,000 in the second quarter of
1999, up from zero in the second quarter of 1998. The increase resulted
primarily from parking and retail rentals at Syntroleum's parking garage in
Reno, Nevada.
Cost of Real Estate Sales and Real Estate Operating Expense. The cost of
real estate sales was $404,000 in the second quarter of 1999, up from zero in
the second quarter of 1998. The increase resulted from costs associated with
the sale of two acres of real estate in the Kansas City metropolitan area. Real
estate operating expenses were $233,000 in the second quarter of 1999 compared
to zero in the second quarter of 1998. These expenses include operating
expenses relating to the development or disposal of the remaining SLH real
estate.
Pilot Plant, Engineering and R&D. Expenses from pilot plant, engineering
and research and development activities were $2,206,000 in the second quarter of
1999, up $1,226,000 from the second quarter of 1998 when these expenses were
$980,000. The increase occurred as a result of ongoing expansion at the pilot
plant facility and the renovation of the recently acquired technology center,
both in Tulsa, Oklahoma.
General and Administrative Expenses. General and administrative expenses
were $3,205,000 in the second quarter of 1999, up $914,000 from the second
quarter of 1998 when these expenses were $2,291,000. The increase is
attributable to higher wages, salaries and other overhead costs resulting from
higher staffing levels as well as higher rent expense.
Investment, Interest and Other Income (Expense). Investment, interest and
other income increased to $759,000 in the second quarter of 1999, up $665,000
from the second quarter of 1998 when this income was $94,000. The increase was
primarily attributable to interest income from higher cash balances following
the merger with SLH.
Provision for Income Taxes. Syntroleum incurred a loss in both the second
quarter of 1999 and the second quarter of 1998 and did not recognize an income
tax benefit for such loss.
Net Income (loss). In the second quarter of 1999, Syntroleum experienced a
loss of $4,059,000. The loss was $1,348,000 higher than the second quarter of
1998 when Syntroleum experienced a loss of $2,711,000. The increase in the loss
is a result of the factors described above.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Joint Development Revenue. Revenues from joint research and development
and pilot plant operations were $1,151,000 in the first six months of 1999, up
$300,000 from the first six months of 1998 when they were $851,000. The
increase was primarily due to revenue from ARCO in connection with research and
development activities related to the construction and preparation for start-up
of a GTL pilot plant at ARCO's Cherry Point, Washington refinery under a joint
development agreement with ARCO. This increase is partially offset by the
completion during 1998 of construction of the hybrid, multiphase (HMX) reactor
at the Company's pilot plant that was funded by Texaco under the joint
development agreement with Texaco.
Real Estate Sales. Real estate sales were $520,000 in the first six months
of 1999, up from zero in the first six months of 1998, when Syntroleum had no
real estate operations. Real estate sales in the first six months of 1999
reflect the sale of two acres in the Kansas City metropolitan area.
Other Revenues. Other revenues were $324,000 in the first six months of
1999, up from zero in the first six months of 1998. The increase resulted
primarily from parking and retail rentals at Syntroleum's parking garage in
Reno, Nevada.
Cost of Real Estate Sales and Real Estate Operating Expense. The cost of
real estate sales was $404,000 in the first six months of 1999, up from zero in
the first six months of 1998. The increase resulted from costs associated with
the sale of two acres of real estate in the Kansas City metropolitan area. Real
estate operating expenses were $390,000 in the first six months of 1999 compared
to zero in the first six months of 1998. These expenses include operating
expenses relating to the development or disposal of the remaining SLH real
estate.
Pilot Plant, Engineering and R&D. Expenses from pilot plant, engineering
and research and development activities were $3,194,000 in the first six months
of 1999, up $1,148,000 from the first six months of 1998 when these expenses
were $2,046,000. The increase occurred as a result of ongoing expansion at the
pilot plant facility and the renovation of the recently acquired technology
center, both in Tulsa, Oklahoma.
General and Administrative Expenses. General and administrative expenses
were $6,021,000 in the first six months of 1999, up $1,364,000 from the first
six months of 1998 when these expenses were $4,657,000. The increase is
attributable to higher wages, salaries and other overhead costs resulting from
higher staffing levels as well as higher rent expense.
Investment, Interest and Other Income (Expense). Investment, interest and
other income increased to $1,151,000 in the first six months of 1999, up
$947,000 from the first six months of 1998 when this income was $204,000. The
increase was primarily attributable to interest income from higher cash balances
following the merger with SLH.
Provision for Income Taxes. Syntroleum incurred a loss in both the first
six months of 1999 and the first six months of 1998 and did not recognize an
income tax benefit for such loss.
Net Income (loss). In the first six months of 1999, Syntroleum experienced
a loss of $6,863,000. The loss was $1,215,000 greater than the first six months
of 1998 when Syntroleum experienced a loss of $5,648,000. The increase in the
loss is a result of the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
As of June 30, 1999, Syntroleum had $35,481,000 in cash and short-term
investments and $1,734,000 in current liabilities. Syntroleum does not
currently have any material outstanding debt or lines of credit. Prior to
Syntroleum's merger with SLH, Old Syntroleum's primary sources of liquidity were
equity capital contributions and prepaid license fees and its principal
liquidity needs were to fund expenditures relating to research and development
and pilot plant activities and to fund working capital. At June 30, 1999, the
Company had $853,000 in accounts receivable and notes receivable outstanding
which are primarily related to joint development activities with the Company's
joint development partners.
Cash flows (used in) provided by operations were $(8,054,000) in the first
six months of 1999 compared to $(5,924,000) during the first six months of 1998.
The increase in cash flows used in operations during the first six months of
1999 compared to the first six months of 1998 was primarily the result of an
increase in expenditures on real estate under development in Houston, Texas
and continued expenditures on pilot plant, engineering and research and
development activities. The increase was partially offset by the Company's
sale during the first six months of 1999 of the remaining two acres of
real estate in Kansas City.
Cash flows provided by (used in) investment activities were $(581,000) in
the first six months of 1999 compared to $(1,611,000) in the first six months of
1998. The decrease in cash flows used in investing activities in the first six
months of 1999 compared to the first six months of 1998 resulted from lower
spending on property and equipment.
Cash flows provided by financing activities were $5,983,000 in the first
six months of 1999 compared to $992,000 in the first six months of 1998. The
increase was primarily due to the receipt of approximately $6.0 million in
satisfaction of a judgment in favor of Syntroleum which was a contingency of the
merger with SLH and has been recorded as additional paid in capital. Cash flows
in 1998 primarily reflected the investment by Enron in Syntroleum/Sweetwater
Company, LLC.
The construction of Syntroleum's specialty product GTL plants will require
significant capital expenditures. Syntroleum's other efforts to commercialize
the Syntroleum Process will also involve significant expenditures. Syntroleum
intends to obtain additional funding through joint ventures, partnerships,
license agreements and other strategic alliances, as well as various other
financing arrangements. Syntroleum may also 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.
INITIAL SPECIALTY PRODUCT GTL PLANT
In May 1997, Syntroleum formed a joint venture through which Syntroleum
intends to develop an 8,000 to 10,000 barrel-per-day specialty product GTL
plant.
Syntroleum has issued a site license and contributed a total of $2 million
to the joint venture formed to own and operate this plant. Syntroleum intends
to contribute an additional $15 million at the closing of the financing for the
plant and, based on current plans, would retain a majority interest. In January
1998, Enron contributed $1 million in exchange for a four percent interest in
this joint venture and agreed to contribute an additional approximately $14
million in exchange for an additional seven percent interest upon the
satisfaction of certain conditions, including the execution of agreements which
provide for the remaining equity and debt financing for construction of the
plant, the execution of fixed price engineering and construction contracts, and
the execution of acceptable agreements for the sale of products produced at the
plant. The capital costs of this plant are currently expected to be funded by a
combination of project senior and subordinated debt and additional equity
financing. Actual ownership percentages may vary from current estimates
depending on the terms of subsequent financings. Additionally, 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 this joint venture, Enron may elect
during a period of two years to exchange its interest in this joint venture for
a number of shares of Syntroleum's common stock equal to the quotient of the
amount of Enron's contributions to this joint venture and 130% of the average
market price of the common stock during the first 30 trading days following an
underwritten public offering. The option agreement also provides that, if such
repayment does not occur by the eighth year after plant start up, Enron may
elect to purchase, during the 180-day period following such date, such number of
shares in exchange for the amount of Enron's contributions to this joint
venture. In addition, the option agreement provides that, if an underwritten
public offering has not yet occurred following the later to occur of the fourth
year after the plant passes certain performance tests and the repayment of at
least 50% of the senior term loan financing for this joint venture, Enron may
elect during a period of up to 10 years to require Syntroleum to purchase its
interest in this joint venture for a price equal to three times the annual
average cash distributions made to Enron by this joint venture during the
preceding three-year period.
Syntroleum plans to fund the remaining estimated capital cost of this plant
through project equity and debt financing. During the first six months of 1999,
Syntroleum continued to pursue development of the project. Syntroleum is
currently reviewing preliminary design and cost estimates for the plant and
exploring sources of debt and equity capital to fund final design and
construction. However, there can be no assurance that the necessary capital for
this project will be obtained and the schedule for construction of this plant
has not yet been finally determined.
YEAR 2000 COMPLIANCE
Historically, certain computerized systems have used two digits rather than
four digits to define the applicable year, causing them to not properly
recognize a year that does not begin with "19." This could result in major
failures or miscalculations and is generally referred to as the "Year 2000
issue." Syntroleum recognizes that the impact of the Year 2000 issue extends
beyond traditional computer hardware and software to automated systems and
instrumentation, as well as to third parties such as vendors, suppliers,
customers, banks and securities markets.
Syntroleum's computer hardware and software and automated systems and
instrumentation were acquired during the past two years. Based on the recent
date of purchase and assertions made by the vendors of these systems, Syntroleum
believes these systems are Year 2000 compliant.
With respect to external parties, Syntroleum is in the process of
completing its assessment of the level of risk to Syntroleum of non-compliance
by the external parties and, to the extent it deems necessary, has contacted
those external parties deemed to be significant to Syntroleum's operations.
Based on assertions made by these external parties, Syntroleum does not believe
that a material uncertainty exists of noncompliance by an external party which
would significantly affect Syntroleum's operations.
Because of the number of external risks involved, Syntroleum believes there
is likely to be some disruption in its business as a result of noncompliance by
third parties. Of all the external risks, Syntroleum believes that the most
reasonably likely worse case scenario would be a business disruption resulting
from lack of utilities such as electric power, gas and water service as well as
failure of telephone service. Based on Syntroleum's information regarding the
readiness of third parties, Syntroleum expects that any Year 2000 disruption
would be of short duration. However, Syntroleum is unable to determine the
potential business interruption costs that might be incurred as a result of Year
2000 disruptions.
Syntroleum is currently exploring contingency plans in the event of possible
business interruptions. Syntroleum intends to address possible emergency
situations such as the need for security, power outages and telecommunications
failures. Syntroleum expects that its contingency planning will continue to the
end of 1999 and the beginning of 2000.
The total cost of Year 2000 activities to date has not been, and future costs
are not expected to be, material to Syntroleum's operations, liquidity or
capital resources. Despite Syntroleum's assessment to date, there can be no
assurance as to the ultimate effect that the Year 2000 issues will have on
Syntroleum.
Syntroleum's assessment of its Year 2000 issues involves many assumptions,
and Syntroleum's assumptions may prove to be inaccurate and actual results could
differ significantly from these assumptions. In conducting its Year 2000
compliance efforts, Syntroleum has relied primarily on seller representations
with respect to its internal computerized systems and representations from third
parties with which Syntroleum has business relationships and has not
independently verified these representations. These representations might not
prove to be accurate. Syntroleum could be adversely affected by business
disruptions of a greater magnitude than anticipated or from a failure of its
contingency plans to adequately address problems. Syntroleum is also continuing
to monitor Year 2000 risks and compliance and expects this work to continue
through 2000.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement. Companies must formally document, designate and
assess the effectiveness of transactions that receive hedge accounting. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999, however,
companies may implement the statement as of the beginning of any fiscal quarter
beginning June 16, 1998. SFAS No. 133 cannot be applied retroactively and must
be applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the company's election, before January
1, 1998). As of June 30, 1999, the Company had no outstanding derivative
instruments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Syntroleum had short-term investments in the form of U.S. Treasury
securities as of June 30, 1999. The majority of these securities mature in less
than 90 days. The Company's policy is to hold short-term securities to maturity
which minimizes interest rate risk. The average interest rate on these
investments at June 30, 1999 was approximately 4.8%.
Syntroleum does not currently conduct any material operations in foreign
markets. Accordingly, Syntroleum does not have market risk related to foreign
exchange rates.
Syntroleum does not purchase futures contracts nor does it purchase or hold
any derivative financial instruments.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Effective June 17, 1999, the Company completed the Reincorporation Merger.
A description of the Reincorporation Merger and of the Company's common stock
and associated preferred share purchase rights is included in the Company's
Proxy Statement filed with the Securities and Exchange Commission on May 12,
1999 and its Current Report on Form 8-K dated June 17, 1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1999 annual meeting of the stockholders of the Company was held on June
17, 1999. Set forth below are the results of the voting with respect to each
matter acted upon at the meeting.
<TABLE>
<CAPTION>
VOTES
VOTES CAST VOTES BROKER
MATTER CAST FOR AGAINST WITHHELD ABSTENTIONS NON-VOTES
--------- ------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Approval of the Reincorporation Merger and
the transactions contemplated thereby. . . 15,758,676 315,138 __ 17,565 4,778,661
Election of Directors:
Alvin R. Albe, Jr.. . . . . . . . . . . 20,683,112 __ 186,928 __ __
J. Edward Sheridan. . . . . . . . . . . 20,682,812 __ 187,228 __ __
Ratification of the Appointment of Arthur
Andersen LLP as independent public
accountants for the 1999 fiscal year. . . 20,823,011 20,364 __ 26,665 __
</TABLE>
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Reports on Form 8-K. On June 17, 1999, Syntroleum filed with the
Securities and Exchange Commission a Current Report on Form 8-K dated June 17,
1999 containing information with respect to the Reincorporation Merger under
Item 5, Other Events.
Exhibits. The following exhibits are filed as part of this quarterly
report:
<TABLE>
<CAPTION>
<C> <S>
*2.1 Agreement and Plan of Merger dated as of May 7, 1999 by and between Syntroleum-Kansas
and the Company (incorporated by reference to Appendix A to the Proxy Statement of
Syntroleum-Kansas filed with the Securities and Exchange Commission on May 12, 1999).
*3.1 Certificate of Incorporation of the Company (incorporated by reference to Appendix B
to the Proxy Statement of Syntroleum-Kansas filed with the Securities and Exchange
Commission on May 12, 1999).
*3.2 Bylaws of the Company (incorporated by reference to Appendix C to the
Proxy Statement of Syntroleum-Kansas filed with the Securities and Exchange
Commission on May 12, 1999).
*3.3 Certificate of Designations of Series A Junior Participating Preferred Stock of
Syntroleum, dated June 16, 1999 (incorporated by reference to Exhibit 4.5 to the
Company's Current Report on Form 8-K dated June 17, 1999 and filed with the
Securities and Exchange Commission on June 17, 1999).
*3.4 Certificates of Merger filed on June 17, 1999 (incorporated by reference to Exhibit 4.2
to the Company's Current Report on Form 8-K dated June 17, 1999 and filed with the
Securities and Exchange Commission on June 17, 1999).
*4.1 Amended and Restated Rights Agreement dated as of January 31, 1997 and Amended
and Restated as of June 17, 1999 (incorporated by reference to Exhibit 4.4 to the
Company's Current Report on Form 8-K dated June 17, 1999 and filed with the
Securities and Exchange Commission on June 17, 1999).
10.1 Form of Employment Agreement between Syntroleum and its executive officers
dated June 17, 1999.
10.2 Form of Indemnification Agreement between Syntroleum and its directors and executive
officers dated June 17, 1999.
*10.3 Amendment Number 1 dated June 17, 1999 to the Stock Option Plan for Outside
Directors of Syntroleum-Kansas (incorporated by reference to Exhibit 4.10 to Post-
Effective Amendment No. 1 to the Company's Registration Statement on Form S-8
(Registration No. 333-64231)).
*10.4 Amendment Number 1 dated June 17, 1999 to the 1993 Stock Option and Incentive
Plan of Syntroleum-Kansas (incorporated by reference to Exhibit 4.9 to Post-Effective
Amendment No. 1 to the Company's Registration Statement on Form S-8 (Registration
No. 333-64231)).
*10.5 Amendment Number 1 dated June 17, 1999 to the 1997 Stock Incentive Plan of
Syntroleum-Kansas (incorporated by reference to Exhibit 4.6 to Post-Effective
Amendment No. 1 to the Company's Registration Statement on Form S-8 (Registration
No. 333-33345)).
27 Financial Data Schedule and Restated Financial Data Schedule.
</TABLE>
____________________
* Incorporated by reference as indicated.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYNTROLEUM CORPORATION, a Delaware
corporation (Registrant)
Date: August 12, 1999 By: /s/ Mark A. Agee
----------------
Mark A. Agee
President and Chief Operating Officer
(Principal Executive Officer)
Date: August 12, 1999 By: /s/ Randall M. Thompson
-----------------------
Randall M. Thompson
Chief Financial Officer (Principal
Financial Officer)
6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ---------------------------------------------------------------------------------------
<C> <S>
*2.1 Agreement and Plan of Merger dated as of May 7, 1999 by and between Syntroleum-
Kansas and the Company (incorporated by reference to Appendix A to the Proxy
Statement of Syntroleum-Kansas filed with the Securities and Exchange Commission
on May 12, 1999).
*3.1 Certificate of Incorporation of the Company (incorporated by reference to Appendix B
to the Proxy Statement of Syntroleum-Kansas filed with the Securities and Exchange
Commission on May 12, 1999).
*3.2 Bylaws of the Company (incorporated by reference to Appendix C to the
Proxy Statement of Syntroleum-Kansas filed with the Securities and Exchange
Commission on May 12, 1999).
*3.3 Certificate of Designations of Series A Junior Participating Preferred Stock of
Syntroleum, dated June 16, 1999 (incorporated by reference to Exhibit 4.5 to the
Company's Current Report on Form 8-K dated June 17, 1999 and filed with the
Securities and Exchange Commission on June 17, 1999).
*3.4 Certificates of Merger filed on June 17, 1999 (incorporated by reference to Exhibit 4.2
to the Company's Current Report on Form 8-K dated June 17, 1999 and filed with the
Securities and Exchange Commission on June 17, 1999).
*4.1 Amended and Restated Rights Agreement dated as of January 31, 1997 and Amended
and Restated as of June 17, 1999 (incorporated by reference to Exhibit 4.4 to the
Company's Current Report on Form 8-K dated June 17, 1999 and filed with the
Securities and Exchange Commission on June 17, 1999).
10.1 Form of Employment Agreement between Syntroleum and its executive officers
dated June 17, 1999.
10.2 Form of Indemnification Agreement between Syntroleum and its directors and executive
officers dated June 17, 1999.
*10.3 Amendment Number 1 dated June 17, 1999 to the Stock Option Plan for Outside
Directors of Syntroleum-Kansas (incorporated by reference to Exhibit 4.10 to Post-
Effective Amendment No. 1 to the Company's Registration Statement on Form S-8
(Registration No. 333-64231)).
*10.4 Amendment Number 1 dated June 17, 1999 to the 1993 Stock Option and Incentive
Plan of Syntroleum-Kansas (incorporated by reference to Exhibit 4.9 to Post-Effective
Amendment No. 1 to the Company's Registration Statement on Form S-8 (Registration
No. 333-64231)).
*10.5 Amendment Number 1 dated June 17, 1999 to the 1997 Stock Incentive Plan of
Syntroleum-Kansas (incorporated by reference to Exhibit 4.6 to Post-Effective
Amendment No. 1 to the Company's Registration Statement on Form S-8 (Registration
No. 333-33345)).
27 Financial Data Schedule and Restated Financial Data Schedule.
</TABLE>
____________________
* Incorporated by reference as indicated.
Syntroleum -Employment Agreement
--------------------------------
CONFIDENTIAL
EMPLOYMENT AGREEMENT
--------------------
CONFIDENTIAL
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into on the
17th day of June, 1999 by and between Syntroleum Corporation, an Delaware
corporation (the "Company"), and _______________________, an individual (the
"Employee").
WHEREAS, the Company desires to enter into an employment relationship with
Employee and Employee is willing to accept such employment 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 _____________________, 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 $____________ 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 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 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 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 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 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 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 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 this 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 ___ 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
_____ times Employee's full base salary in effect on the date of termination
payable in ___ 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 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 _____________, 199__.
(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 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 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 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 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.
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 DELAWARE, 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 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.
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
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: _____________________________
Mark A. Agee, President
Syntroleum Corporation.
1350 South Boulder, Suite 1100
Tulsa, Oklahoma 74119
EMPLOYEE:
By: _____________________________
Home address:
<PAGE>
------
APPENDIX TO EXHIBIT 10.1
Syntroleum Corporation has entered into employment agreements on
substantially the same terms as Exhibit 10.1 with the following executive
officers:
Kenneth L. Agee
Mark A. Agee
Larry J. Weick
Randall M. Thompson
Eric Grimshaw
Charles A. Bayens
Michael L. Stewart
Peter V. Snyder, Jr.
Carla Covey
Paul F. Schubert
Syntroleum Indemnification Agreement
------------------------------------
CONFIDENTIAL
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement"), is made and entered into
as of the 17th day of June, 1999 by and between Syntroleum Corporation, a
Delaware corporation (the "Corporation"), and ___________________________
("Indemnitee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Indemnitee is currently serving or is about to begin serving as a
director and/or officer of the Corporation and/or in another Corporate Status,
and Indemnitee is willing, subject to, among other things, the Corporation's
execution and performance of this Agreement, to continue in or assume such
capacity or capacities; and
WHEREAS, the Bylaws of the Corporation provide that the Corporation
Shall indemnify directors and officers of the Corporation in the manner set
forth therein; and
WHEREAS, the Corporation and Indemnitee desire to enter into this
agreement to induce Indemnitee to provide services as contemplated hereby and
the Corporation has deemed it to be in its best interest to enter into
this Agreement with indemnitee.
NOW, THEREFORE, in consideration of Indemnitee's agreement to provide
services to the Corporation and/or certain of its affiliates as contemplated by
this Agreement, the mutual agreements contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows.
1. Certain Definitions
--------------------
As used herein, the following words and terms shall have the following
respective meanings (whether singular or plural):
"CHANGE OF CONTROL" means a change in control of the Corporation after the
date Indemnitee acquired his Corporate Status, which shall be deemed to have
occurred in any one of the following circumstances occurring after such date:
(i) there shall have occurred an event required to be reported with respect to
the Corporation in response to Item 6(e) of Schedule 14A of Regulation 14A (or
in response to any similar item or any similar schedule or form) promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
whether or not the Corporation is then subject to such reporting requirement;
(ii) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) shall have become the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Corporation representing 40% or more of the combined voting power of the
Corporation's then outstanding voting securities without prior approval of at
least two-thirds of the members of the Board of Directors in office immediately
prior to such person attaining such percentage interest; (iii) the Corporation
is a party to a merger, consolidation, sale of assets or other reorganization,
or a proxy contest, as a consequence of which members of the Board of Directors
in office immediately prior to such transaction or event constitute less than a
majority of the Board of Directors thereafter; or (iv) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors (including, for this purpose, any new director whose
election or nomination for election by the Corporation's shareholders was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of such period) cease for any reason to
constitute at least a majority of the Board of Directors.
"CORPORATE STATUS" describes the status of Indemnitee as a director,
officer, employee, agent or fiduciary of the Corporation or of any other
corporation, partnership, limited liability company, association, joint venture,
trust, employee benefit plan or other enterprise that Indemnitee is or was
serving at the request of the Corporation.
"COURT" means the District Court of Tulsa County of the State of Oklahoma
or any other court of competent jurisdiction.
"DGCL" means the Delaware General Corporation Law, as amended from time to
time.
"EXPENSES" shall include all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, or being or preparing to be a witness in a
Proceeding.
"INDEPENDENT COUNSEL" means a law firm, or a member of a law firm, that is
experienced in matters of corporation law and neither presently is, nor in the
five years previous to his selection or appointment has been, retained to
represent: (i) the Corporation or Indemnitee in any matter material to either
such party or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder.
"MATTER" is a claim, a material issue or a substantial request for relief.
"PROCEEDING" includes any action, suit, arbitration, alternate dispute
resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, except one
initiated by Indemnitee pursuant to Section 6.01 of this Agreement to enforce
his rights under this Agreement.
2. Services by Indemnitee
----------------------
2.01 SERVICES BY INDEMNITEE. Indemnitee agrees to serve or continue to
serve in his current capacity or capacities as a director, officer, employee,
agent or fiduciary of the Corporation. Indemnitee also agrees to serve, as the
Corporation may request from time to time, as a director, officer, employee,
agent or fiduciary of any other corporation, partnership, limited liability
company, association, joint venture, trust or other enterprise in which the
Corporation has an interest. Indemnitee and the Corporation each acknowledge
that they have entered into this Agreement as a means of inducing Indemnitee to
serve the Corporation in such capacities.
2.02 TERMINATION OF SERVICES. Indemnitee may at any time and for any reason
resign from such position or positions (subject to any other contractual
obligation or any obligation imposed by operation of law). The Corporation
shall have no obligation under this Agreement to continue Indemnitee in any such
position for any period of time and shall not be precluded by the provisions of
this Agreement from removing or terminating Indemnitee from any such position at
any time.
3. Indemnification
---------------
3.01 GENERAL. The Corporation shall, to the fullest extent permitted by
applicable law in effect on the date hereof, and to such greater extent as
applicable law may thereafter permit, indemnify and hold Indemnitee harmless
from and against any and all losses, liabilities, claims, damages and, subject
to Section 3.02, Expenses (as this and all other capitalized words are defined
in Article 1. of this Agreement), whatsoever arising out of any event or
occurrence related to the fact that Indemnitee is or was a director or officer
of the Corporation or is or was serving in another Corporate Status.
3.02 EXPENSES. If Indemnitee is, by reason of his Corporate Status, a party
to and is successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to any Matter
in such Proceeding, the Corporation shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf relating to
such Matter. The termination of any Matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
Matter. To the extent that the Indemnitee is, by reason of his Corporate
Status, a witness in any Proceeding, he shall be indemnified against all
Expenses actually and reasonably incurred by him or on his behalf in connection
therewith.
4. Advancement of Expenses
-----------------------
4.01 ADVANCES. In the event of any threatened or pending action, suit or
proceeding in which Indemnitee is a party or is involved and that may give rise
to a right of indemnification under this Agreement, following written request to
the Corporation by Indemnitee, the Corporation shall promptly pay to Indemnitee
amounts to cover expenses reasonably incurred by Indemnitee in such proceeding
in advance of its final disposition upon the receipt by the Corporation of (i) a
written undertaking executed by or on behalf of Indemnitee providing that
Indemnitee will repay the advance if it shall ultimately be determined that
Indemnitee is not entitled to be indemnified by the Corporation as provided in
this Agreement and (ii) satisfactory evidence as to the amount of such expenses.
4.02 REPAYMENT OF ADVANCES OR OTHER EXPENSES. Indemnitee agrees that
Indemnitee shall reimburse the Corporation for all expenses paid by the
Corporation in defending any civil, criminal, administrative or investigative
action, suit or proceeding against Indemnitee in the event and only to the
extent that it shall be determined pursuant to the provisions of this Agreement
or by final judgment or other final adjudication under the provisions of any
applicable law that Indemnitee is not entitled to be indemnified by the
Corporation for such expenses.
5. Procedure for Determination of Entitlement to Indemnification
-------------------------------------------------------------------
5.01 REQUEST FOR INDEMNIFICATION. To obtain indemnification, Indemnitee
shall submit to the Secretary of the Corporation a written claim or request.
Such written claim or request shall contain sufficient information to reasonably
inform the Corporation about the nature and extent of the indemnification or
advance sought by Indemnitee. The Secretary of the Corporation shall promptly
advise the Board of Directors of such request.
5.02 DETERMINATION OF ENTITLEMENT; NO CHANGE OF CONTROL. If there has been
no Change of Control at the time the request for indemnification is submitted,
Indemnitee's entitlement to indemnification shall be determined in accordance
with Section 145(d) of the DGCL. If entitlement to indemnification is to be
determined by Independent Counsel, the Corporation shall furnish notice to
Indemnitee within 10 days after receipt of the request for indemnification,
specifying the identity and address of Independent Counsel. The Indemnitee may,
within 14 days after receipt of such written notice of selection, deliver to the
Corporation a written objection to such selection. Such objection may be
asserted only on the ground that the Independent Counsel so selected does not
meet the requirements of Independent Counsel and the objection shall set forth
with particularity the factual basis for such assertion. If there is an
objection to the selection of Independent Counsel, either the Corporation or
Indemnitee may petition the Court for a determination that the objection is
without a reasonable basis and/or for the appointment of Independent Counsel
selected by the Court.
5.03 DETERMINATION OF ENTITLEMENT; CHANGE OF CONTROL. If there has been a
Change of Control at the time the request for indemnification is submitted,
Indemnitee's entitlement to indemnification shall be determined in a written
opinion by Independent Counsel selected by Indemnitee. Indemnitee shall give
the Corporation written notice advising of the identity and address of the
Independent Counsel so selected. The Corporation may, within seven days after
receipt of such written notice of selection, deliver to the Indemnitee a written
objection to such selection. Indemnitee may, within five days after the receipt
of such objection from the Corporation, submit the name of another Independent
Counsel and the Corporation may, within seven days after receipt of such written
notice of selection, deliver to the Indemnitee a written objection to such
selection. Any objections referred to in this Section 5.03 may be asserted only
on the ground that the Independent Counsel so selected does not meet the
requirements of Independent Counsel and such objection shall set forth with
particularity the factual basis for such assertion. Indemnitee may petition the
Court for a determination that the Corporation's objection to the first and/or
second selection of Independent Counsel is without a reasonable basis and/or for
the appointment as Independent Counsel of a person selected by the Court.
5.04 PROCEDURES OF INDEPENDENT COUNSEL. If a Change of Control shall have
occurred before the request for indemnification is sent by Indemnitee,
Indemnitee shall be presumed (except as otherwise expressly provided in this
Agreement) to be entitled to indemnification upon submission of a request for
indemnification in accordance with Section 5.01 of this Agreement, and
thereafter the Corporation shall have the burden of proof to overcome the
presumption in reaching a determination contrary to the presumption. The
presumption shall be used by Independent Counsel as a basis for a determination
of entitlement to indemnification unless the Corporation provides information
sufficient to overcome such presumption by clear and convincing evidence or the
investigation, review and analysis of Independent Counsel convinces him by clear
and convincing evidence that the presumption should not apply.
Except in the event that the determination of entitlement to indemnification is
to be made by Independent Counsel, if the person or persons empowered under
Section 5.02 or 5.03 of this Agreement to determine entitlement to
indemnification shall not have made and furnished to Indemnitee in writing a
determination within 60 days after receipt by the Corporation of the request
therefor, the requisite determination of entitlement to indemnification shall be
deemed to have been made and Indemnitee shall be entitled to such
indemnification unless Indemnitee knowingly misrepresented a material fact in
connection with the request for indemnification or such indemnification is
prohibited by applicable law. The termination of any Proceeding or of any
Matter therein, by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of Indemnitee
to indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner that he reasonably believed to be in or not opposed to the
best interests of the Corporation, or with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful. A
person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
of the Corporation shall be deemed to have acted in a manner not opposed to the
best interests of the Corporation.
For purposes of any determination hereunder, a person shall be deemed to have
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or Proceeding, to have had no reasonable cause to believe his
conduct was unlawful, if his action is based on the records or books of account
of the Corporation or another enterprise or on information supplied to him by
the officers of the Corporation or another enterprise in the course of their
duties or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the Corporation
or another enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Corporation or
another enterprise. The term "another enterprise" as used in this Section shall
mean any other corporation or any partnership, limited liability company,
association, joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the Corporation as a
director, officer, employee or agent. The provisions of this paragraph shall
not be deemed to be exclusive or to limit in any way the circumstances in which
an Indemnitee may be deemed to have met the applicable standards of conduct for
determining entitlement to rights under this Agreement.
5.05 INDEPENDENT COUNSEL EXPENSES. The Corporation shall pay any and all
reasonable fees and expenses of Independent Counsel incurred acting pursuant to
this Article 5. and in any proceeding to which it is a party or witness in
respect of its investigation and written report and shall pay all reasonable
fees and expenses incident to the procedures in which such Independent Counsel
was selected or appointed. No Independent Counsel may serve if a timely
objection has been made to his selection until a Court has determined that such
objection is without a reasonable basis.
6. Certain Remedies of Indemnitee
---------------------------------
6.01 ADJUDICATION. In the event that (i) a determination is made pursuant
to Section 5.02 or 5.03 hereof that Indemnitee is not entitled to
indemnification under this Agreement; (ii) advancement of Expenses is not timely
made pursuant to Section 4.01 of this Agreement; (iii) Independent Counsel has
not made and delivered a written opinion determining the request for
indemnification (a) within 90 days after being appointed by the Court, or (b)
within 90 days after objections to his selection have been overruled by the
Court or (c) within 90 days after the time for the Corporation or Indemnitee to
object to his selection; or (iv) payment of indemnification is not made within
five days after a determination of entitlement to indemnification has been made
or deemed to have been made pursuant to Section 5.02, 5.03 or 5.04 of this
Agreement, Indemnitee shall be entitled to an adjudication in the Court, or in
any other court of competent jurisdiction, of his entitlement to such
indemnification or advancement of Expenses. In the event that a determination
shall have been made that Indemnitee is not entitled to indemnification, any
judicial proceeding or arbitration commenced pursuant to this Section 6.01 shall
be conducted in all respects as a de novo trial on the merits and Indemnitee
shall not be prejudiced by reason of that adverse determination. If a Change of
Control shall have occurred, in any judicial proceeding commenced pursuant to
this Section 6.01, the Corporation shall have the burden of proving that
Indemnitee is not entitled to indemnification or advancement of Expenses, as the
case may be. If a determination shall have been made or deemed to have been
made that Indemnitee is entitled to indemnification, the Corporation shall be
bound by such determination in any judicial proceeding commenced pursuant to
this Section 6.01, or otherwise, unless Indemnitee knowingly misrepresented a
material fact in connection with the request for indemnification, or such
indemnification is prohibited by law.
The Corporation shall be precluded from asserting in any judicial proceeding
commenced pursuant to this Section 6.01 that the procedures and presumptions of
this Agreement are not valid, binding and enforceable, and shall stipulate in
any such proceeding that the Corporation is bound by all provisions of this
Agreement. In the event that Indemnitee, pursuant to this Section 6.01, seeks a
judicial adjudication to enforce his rights under, or to recover damages for
breach of, this Agreement, Indemnitee shall be entitled to recover from the
Corporation, and shall be indemnified by the Corporation against, any and all
Expenses actually and reasonably incurred by him in such judicial adjudication,
but only if he prevails therein. If it shall be determined in such judicial
adjudication that Indemnitee is entitled to receive part but not all of the
indemnification or advancement of Expenses sought, the Expenses incurred by
Indemnitee in connection with such judicial adjudication or arbitration shall be
appropriately prorated.
7. Participation by the Corporation
--------------------------------
7.01 PARTICIPATION BY THE CORPORATION. With respect to any such claim,
action, suit, proceeding or investigation as to which Indemnitee notifies the
Corporation of the commencement thereof: (a) the Corporation will be entitled
to participate therein at its own expense; (b) except as otherwise provided
below, to the extent that it may wish, the Corporation (jointly with any other
indemnifying party similarly notified) will be entitled to assume the defense
thereof, with counsel reasonably satisfactory to Indemnitee. After receipt of
notice from the Corporation to Indemnitee of the Corporation's election so to
assume the defense thereof, the Corporation will not be liable to Indemnitee
under this Agreement for any legal or other expenses subsequently incurred by
Indemnitee in connection with the defense thereof other than reasonable costs of
investigation or as otherwise provided below. Indemnitee shall have the right
to employ his own counsel in such action, suit, proceeding or investigation but
the fees and expenses of such counsel incurred after notice from the Corporation
of its assumption of the defense thereof shall be at the expense of Indemnitee
unless (i) the employment of counsel by Indemnitee has been authorized by the
Corporation, (ii) Indemnitee shall have reasonably concluded that there is a
conflict of interest between the Corporation and Indemnitee in the conduct of
the defense of such action or (iii) the Corporation shall not in fact have
employed counsel to assume the defense of such action, in each of which cases
the fees and expenses of counsel employed by Indemnitee shall be subject to
indemnification pursuant to the terms of this Agreement (the Corporation shall
not be entitled to assume the defense of any action, suit, proceeding or
investigation brought in the name of or on behalf of the Corporation or as to
which Indemnitee shall have made the conclusion provided for in (ii) above); and
(c) the Corporation shall not be liable to indemnify Indemnitee under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent, which consent shall not be unreasonably withheld.
The Corporation shall not settle any action or claim in any manner that would
impose any limitation or unindemnified penalty on Indemnitee without
Indemnitee's written consent, which consent shall not be unreasonably withheld.
8. Miscellaneous
-------------
8.01 NONEXCLUSIVITY OF RIGHTS. The rights of indemnification and
advancement of Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be entitled to
under applicable law, the Corporation's Certificate of Incorporation, the
Corporation's Bylaws, any agreement, a vote of shareholders or a resolution of
directors, or otherwise. No amendment, alteration or repeal of this Agreement
or any provision hereof shall be effective as to Indemnitee for acts, events and
circumstances that occurred, in whole or in part, before such amendment,
alteration or repeal. The provisions of this Agreement shall continue as to
Indemnitee whose Corporate Status has ceased for any reason and shall inure to
the benefit of his heirs, executors and administrators.
8.02 INSURANCE AND SUBROGATION. The Corporation shall not be liable under
this Agreement to make any payment of amounts otherwise indemnifiable hereunder
if, but only to the extent that, Indemnitee has otherwise actually received such
payment under any insurance policy, contract, agreement or otherwise. In the
event of any payment hereunder, the Corporation shall be subrogated to the
extent of such payment to all the rights of recovery of Indemnitee, who shall
execute all papers required and take all action reasonably requested by the
Corporation to secure such rights, including execution of such documents as are
necessary to enable the Corporation to bring suit to enforce such rights.
8.03 ACKNOWLEDGMENT OF CERTAIN MATTERS. Both the Corporation and Indemnitee
acknowledge that in certain instances, applicable law or public policy may
prohibit indemnification of Indemnitee by the Corporation under this Agreement
or otherwise. Indemnitee understands and acknowledges that the Corporation has
undertaken or may be required in the future to undertake, by the Securities and
Exchange Commission, to submit the question of indemnification to a court in
certain circumstances for a determination of the Corporation's right under
public policy to indemnify Indemnitee.
8.04 AMENDMENT. This Agreement may not be modified or amended except by a
written instrument executed by or on behalf of each of the parties hereto.
8.05 WAIVERS. The observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) by the party entitled to enforce such term only by a writing
signed by the party against which such waiver is to be asserted. Unless
otherwise expressly provided herein, no delay on the part of any party hereto in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party hereto of any right,
power or privilege hereunder operate as a waiver of any other right, power or
privilege hereunder nor shall any single or partial exercise of any right, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder.
8.06 ENTIRE AGREEMENT. This Agreement and the documents referred to herein
constitute the entire agreement between the parties hereto with respect to the
matters covered hereby, and any other prior or contemporaneous oral or written
understandings or agreements with respect to the matters covered hereby are
superseded by this Agreement.
8.07 SEVERABILITY. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby; and, to the fullest extent possible,
the provisions of this Agreement shall be construed so as to give effect to the
intent manifested by the provision held invalid, illegal or unenforceable.
8.08 CERTAIN ACTIONS FOR WHICH INDEMNIFICATION IS NOT PROVIDED.
Notwithstanding any other provision of this Agreement, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any Proceeding, or any Matter therein, brought or made by Indemnitee
against the Corporation.
8.09 NOTICES. Promptly after receipt by Indemnitee of notice of the
commencement of any action, suit or proceeding, Indemnitee shall, if he
anticipates or contemplates making a claim for expenses or an advance pursuant
to the terms of this Agreement, notify the Corporation of the commencement of
such action, suit or proceeding; provided, however, that any delay in so
notifying the Corporation shall not constitute a waiver or release by Indemnitee
of rights hereunder and that any omission by Indemnitee to so notify the
Corporation shall not relieve the Corporation from any liability that it may
have to Indemnitee otherwise than under this Agreement. Any communication
required or permitted to the Corporation shall be addressed to the Secretary of
the Corporation and any such communication to Indemnitee shall be addressed to
the Indemnitee's address as shown on the Corporation's records unless the
Indemnitee specifies otherwise and shall be personally delivered or delivered by
overnight mail delivery. Any such notice shall be effective upon receipt.
8.10 GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of Delaware without regard to any
principles of conflict of laws that, if applied, might permit or require the
application of the laws of a different jurisdiction.
8.11 HEADINGS. The Article and Section headings in this Agreement are for
convenience of reference only, and shall not be deemed to alter or affect the
meaning or interpretation of any provisions hereof.
8.12 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument.
8.13 USE OF CERTAIN TERMS. As used in this Agreement, the words "herein,"
"hereof," and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular paragraph, subparagraph, section,
subsection, or other subdivision. Whenever the context may require, any pronoun
used in this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns, pronouns and verbs shall include
the plural and vice versa.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered to be
effective as of the date first above written.
SYNTROLEUM CORPORATION
By:
--------------------------
Mark A. Agee, President
INDEMNITEE
By:
--------------------------
<PAGE>
APPENDIX TO EXHIBIT 10.2
Syntroleum Corporation has entered into indemnification agreements on
substantially the same terms as Exhibit 10.2 with the following executive
officers and directors:
Kenneth L. Agee
Mark A. Agee
Larry J. Weick
Randall M. Thompson
Eric Grimshaw
Charles A. Bayens
Michael L. Stewart
Peter V. Snyder, Jr.
Carla Covey
Paul F. Schubert
Alvin R. Albe, Jr.
Frank Bumstead
P. Anthony Jacobs
Robert B. Rosene, Jr.
James R. Seward
J. Edward Sheridan
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10Q
FOR THE PERIOD ENDING JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 32329
<SECURITIES> 3152
<RECEIVABLES> 853
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 36620
<PP&E> 0 <F1>
<DEPRECIATION> 0 <F1>
<TOTAL-ASSETS> 49228
<CURRENT-LIABILITIES> 1734
<BONDS> 0
<COMMON> 346
0
0
<OTHER-SE> 34750
<TOTAL-LIABILITY-AND-EQUITY> 49228
<SALES> 520
<TOTAL-REVENUES> 1995
<CGS> 404
<TOTAL-COSTS> 3988
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6863)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6863)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6863)
<EPS-BASIC> (.26)
<EPS-DILUTED> (.26)
<FN>
<F1> DISCLOSURE IS NOT REQUIRED ON INTERIM FINANCIAL STATEMENTS.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10Q
FOR THE PERIOD ENDING JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3615
<SECURITIES> 0
<RECEIVABLES> 383
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4035
<PP&E> 0 <F1>
<DEPRECIATION> 0 <F1>
<TOTAL-ASSETS> 7101
<CURRENT-LIABILITIES> 439
<BONDS> 0
<COMMON> 245
0
0
<OTHER-SE> 6644
<TOTAL-LIABILITY-AND-EQUITY> 7101
<SALES> 0
<TOTAL-REVENUES> 851
<CGS> 0
<TOTAL-COSTS> 2046
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5648)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5648)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5648)
<EPS-BASIC> (.23)
<EPS-DILUTED> (.23)
<FN>
<F1> DISCLOSURE IS NOT REQUIRED ON INERIM FINANCIAL STATEMENTS.
</TABLE>
