SYNTROLEUM CORP, 424B5, 2000-06-30

SYNTROLEUM CORP
424B5, 2000-06-30
CRUDE PETROLEUM & NATURAL GAS

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<PAGE>

Filed Pursuant to Rule 424(b)(5)
Registration No. 333-32968
PROSPECTUS SUPPLEMENT
(To prospectus dated April 25, 2000)

5,250,000 Shares

[Syntroleum Logo]

Common Stock

---------------

Syntroleum Corporation is selling all of the shares.

The shares are quoted on the Nasdaq National Market under the symbol
"SYNM". On June 29, 2000, the last sale price of the shares as reported on the
Nasdaq National Market was $18 3/8 per share.

Investing in the common stock involves risks that are described in the
"Risk Factors" section beginning on page 10 of this prospectus supplement.

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<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price............................. $17.50 $91,875,000
Underwriting discount............................. $1.05 $5,512,500
Proceeds, before expenses, to Syntroleum.......... $16.45 $86,362,500
</TABLE>

The underwriters may also purchase up to an additional 787,500 shares
from Syntroleum at the public offering price, less the underwriting discount,
within 30 days from the date of this prospectus supplement to cover over-
allotments.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.

The shares will be ready for delivery on or about July 6, 2000.

---------------

Merrill Lynch & Co.

Goldman, Sachs & Co.

J.P. Morgan & Co.

Salomon Smith Barney

Petrie Parkman & Co.

---------------

The date of this prospectus supplement is June 29, 2000.
<PAGE>

TABLE OF CONTENTS

Prospectus Supplement

<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Supplement Summary............................................ S-1
Risk Factors............................................................. S-10
Cautionary Statement About Forward-Looking Statements.................... S-19
Use of Proceeds.......................................................... S-20
Dividend Policy.......................................................... S-20
Price Range of Common Stock.............................................. S-21
Capitalization........................................................... S-22
Dilution................................................................. S-23
Selected Consolidated Financial Data..................................... S-24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... S-25
Business................................................................. S-35
Management............................................................... S-58
Certain Transactions..................................................... S-64
Principal Stockholders................................................... S-65
Shares Eligible for Future Sale.......................................... S-67
Underwriting............................................................. S-69
Legal Opinions........................................................... S-71
Experts.................................................................. S-71
Index to Financial Statements............................................ F-1
</TABLE>

Prospectus

<TABLE>
<S> <C>
About This Prospectus....................................................... 2
About Syntroleum Corporation................................................ 3
Forward-Looking Statements.................................................. 4
Where You Can Find More Information......................................... 4
Risk Factors................................................................ 6
Use of Proceeds............................................................. 16
Dilution.................................................................... 16
Description of Capital Stock................................................ 16
Plan of Distribution........................................................ 25
Legal Opinions.............................................................. 26
Experts..................................................................... 26
</TABLE>

---------------

You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference is accurate only as of
their respective dates. Our business, financial condition, results of
operations and prospects may have changed since those dates.

i
<PAGE>

[World gas overview map depicting location of 1996 identified reserves
in various locations around the world.]

[Graphic detailing the world's gas fields outside North America by
size.]

[Graphic depicting market size in barrels of oil equivalent for
alternative markets for natural gas.]

[Graphic depicting the Syntroleum Process.]

[Graphic depicting product produced from the Syntroleum Process.]

[Photograph of the Cherry Point Demonstration Plant with ARCO in
Bellingham, Washington.]

[Photograph of Syntroleum Pilot Plant in Tulsa, Oklahoma.]

[Photograph of vehicle with caption "Fuels for Clean Combustion
Engines".]

[Photograph of Fuel Cell with caption "Efficient Fuel for Fuel Cells".]
<PAGE>

PROSPECTUS SUPPLEMENT SUMMARY

This summary highlights information contained elsewhere in this
prospectus supplement. This summary may not contain all of the information that
investors should consider before investing in our common stock. You should read
this entire prospectus supplement and the accompanying prospectus carefully. As
used in this prospectus supplement, the terms "Syntroleum," "we," "our" or "us"
mean Syntroleum Corporation, a Delaware corporation, and its predecessors and
subsidiaries, unless the context indicates otherwise.

Our Business

We are a leading developer, owner and licensor of a proprietary catalytic
process for converting natural gas to synthetic liquid hydrocarbons, generally
known as gas-to-liquids, or GTL, technology. We sell licenses to use our GTL
technology, the Syntroleum Process, for the production of fuels, and we plan to
develop and own GTL plants based on the Syntroleum Process that produce refined
specialty products and fuels. We believe that the costs to produce many
products from natural gas using the Syntroleum Process, including diesel fuel,
gasoline and lubricants, can be competitive with the costs to produce
comparable quality products from crude oil using conventional refining
processes. The key advantages of our technology over traditional GTL
technologies are the use of air in the conversion process (in contrast to the
requirement for pure oxygen in alternative technologies) and the use of our
proprietary catalysts, which enhance the conversion efficiency of the catalytic
reaction. These advantages reduce the capital and operating costs of GTL plants
based on the Syntroleum Process, while also permitting smaller unit sizes,
including mobile plants that could be placed on skids, barges and ocean-going
vessels. Based on our demonstrated research, we believe that the Syntroleum
Process can be economically applied in GTL plants with throughput levels from
as low as 2,000 to over 100,000 barrels per day. As a result of the advantages
of our technology and the large worldwide resource base of stranded natural
gas, we believe that a significant market opportunity exists for the use of the
Syntroleum Process by our company and our licensees to develop cost-effective
GTL plants.

The Syntroleum Process produces synthetic liquid hydrocarbons, also known
as synthetic crude oil, which can be further processed into higher margin
products through conventional refining processes. These products include:

. Premium, ultra-clean liquid fuels, such as diesel, kerosene, gasoline,
naphtha and fuel for fuel cells, and

. Specialty products, such as synthetic lubricants, process oils, high
melting point waxes, liquid normal paraffins, drilling fluids and
chemical feedstocks.

We have successfully demonstrated many elements and variations of the
Syntroleum Process in pilot plant operations and laboratory tests, including
our joint participation in a 70 barrel per day GTL demonstration plant with one
of our licensees, ARCO. While we have not yet built a commercial-scale GTL
plant based on the Syntroleum Process, we are currently developing a 10,000
barrel per day specialty product GTL plant based on the Syntroleum Process
known as the Sweetwater plant to be constructed in Western Australia. We are
also evaluating the potential development of additional GTL plants, including
facilities that will produce synthetic liquid fuels.

Business Strategy

Our objectives are to rapidly establish the Syntroleum Process as an
industry standard and maximize our market share relative to alternative GTL
technologies. Our business strategy to achieve these objectives involves the
following key elements:

S-1
<PAGE>

McGee Corporation, Marathon Oil Company, Repsol-YPF, S.A. and Texaco Inc. We
have also recently entered into a letter of intent with the Commonwealth of
Australia to license the Syntroleum Process, which is subject to the execution
of a definitive license agreement. We believe that widespread licensing,
combined with research and development activities to further improve the
Syntroleum Process, will provide an advantage over competing technologies,
strengthen our relationships with our existing licensees and attract new
licensees.

Develop and Own GTL Plants. We intend to own significant equity interests
in joint ventures with our licensees and other energy industry and financial
partners to develop and own GTL plants for the production of specialty products
and fuels. For example, we are currently developing the 10,000 barrel per day
Sweetwater plant to be constructed in Western Australia, in which we will own a
significant equity interest. We retain the exclusive right to manufacture
specialty products under our license agreements. We believe that our
proprietary reactor designs and catalysts, combined with our improvements to
existing refining methods, will enable us to produce relatively high margin,
high quality specialty products on a more economic basis than conventional
refining techniques.

Further Expand and Develop Product Markets. We intend to continue to
develop new markets for Syntroleum fuels and specialty products in order to
promote the construction of plants by our licensees and to establish markets
for the products of GTL plants developed and owned by us. We believe that our
technology can cost-effectively provide environmentally superior ultra-clean
fuels for use in diesel, gasoline and jet engines. We are in the process of
applying for certification that Syntroleum diesel fuels qualify as alternative
fuels under the Energy Policy Act. We also believe that the availability of our
fuels will enhance the successful development of fuel cells and other clean
combustion technologies.

Further Reduce Costs through Networked Research and Development
Activities. We intend to continue research and development activities with a
focus on improving the efficiency of the Syntroleum Process and further
reducing the capital and operating costs of GTL plants based on the Syntroleum
Process. We conduct research and development activities using our own resources
and through our network of joint development arrangements with licensees and
other industry partners. We believe that this network will provide us and our
licensees with an important competitive advantage and enhance our ability to
attract additional licensees and joint development partners. We generally
obtain title or exclusive rights to inventions or improvements that result from
our joint development activities with others. We regularly review technological
advances of others in related fields and actively seek to acquire rights to
technologies that may enhance the Syntroleum Process.

To date, we have joint development, testing, marketing or strategic
relationships with the following companies:

. AMEC Process and Energy Ltd. . GE Power Systems
. ARCO . The Lubrizol Corporation
. Argonne National Laboratories . Lyondell Petrochemical Company
. Bateman Engineering Inc. . Marathon
. Catalytica Combustion Systems, Inc. . Northwest Power Systems
. Criterion Catalyst Company L.P. . Tessag Industrie-Anlagen GmbH
. DaimlerChrysler AG . Texaco
. Epyx Corporation . Volkswagen of America
. General Motors Corporation

Complete Disposal of Our Real Estate Inventory. We intend to complete the
disposition of our real estate inventory in a manner that maximizes the sale
value. Our real estate inventory was owned by SLH Corporation prior to the
merger of Syntroleum Corporation and SLH Corporation and reflects the remaining
inventory of a real estate development business that was conducted by SLH's
former parent corporation. We have used the proceeds from the sale of our real
estate inventory to fund our operations.

S-2
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The Syntroleum Advantage

We expect that products of the Syntroleum Process will become a
competitive supply source for the anticipated demand for ultra-clean synthetic
fuels and specialty products, based on our belief that these products can be:

. produced at costs that can be competitive with costs to produce many
comparable quality products from crude oil using conventional refining
processes, including diesel fuel, gasoline and lubricants, assuming
crude oil prices of at least $15 per barrel and natural gas prices
lower than $1 per million British thermal units (price levels that are
available for the purchase of stranded natural gas in many markets),

. produced substantially free of contaminants normally found in fuels
and specialty products made from crude oil,

. used as blending stock to upgrade conventional fuels and specialty
products made from crude oil,

. used unblended in traditional combustion engines to significantly
reduce emissions,

. used in advanced combustion and fuel-cell engines that require sulfur
and aromatic-free fuels, and

. transported using the existing infrastructure for crude oil and
refined products.

We anticipate that the Syntroleum Process will be an attractive solution
for companies with natural gas reserves that are not economic to produce using
traditional technology based on our belief that the Syntroleum Process can be:

. applied as a comparatively low-cost process,

. used in relatively small formats,

. adapted to feedstock quality, the location of the reserves and the
desired end products, and

. made portable in applications producing up to 10,000 barrels per day.

Market Potential

We believe that significant market potential exists for the Syntroleum
Process and its products due to the large existing demand for refined fuels
and specialty products, including lubricants and chemical feedstocks, the
anticipated demand for ultra-clean synthetic fuels and fuels for fuel cells,
and the large supply of stranded natural gas worldwide.

Demand for Products

We expect demand for products created through the Syntroleum Process to
be driven by the following:

Refined Fuels. The existing market for transportation fuels is large,
comprising 64% of the approximately 64.4 million barrels per day of refined
petroleum products produced worldwide in 1998, as derived from information in
the BP Amoco Statistical Review of World Energy, 1999. Moreover, according to
the Energy Information Administration, estimates show that diesel fuel demand
is growing at a faster rate than the total demand for refined products due to
the superior fuel efficiency of a diesel engine. We believe that a significant
portion of the growing demand for transportation fuels can be satisfied
through the conversion of natural gas into ultra-clean Syntroleum fuels. We
also believe that even if substantial volumes of Syntroleum fuels were to flow
into these markets, these additional volumes would not cause a significant
price degradation based on the large size of the market.

S-3
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that can be simplified to take advantage of the ultra-clean nature of the
synthetic feedstock. We retain the exclusive right to manufacture these
products using the Syntroleum Process under our license agreements and intend
to develop and own significant equity interests in GTL plants designed to
produce these specialty products. We believe that Syntroleum specialty products
have environmental and performance characteristics that are superior to
comparable conventional crude oil products. For example, we expect our
synthetic lube-base oil will meet or exceed new high performance and emissions
standards established by the United States federal government and the
automobile industry for lubricants in new vehicles beginning in 2003. Our
targeted specialty product markets include the following.

. Process Oils. Process oils are used in a number of industries involved
in the production of chemicals, textiles, rubber and plastics.

. Waxes. Waxes are longer linear chain hydrocarbon molecules that are
solids at room temperature and have a variety of applications,
including adhesives, coatings and other products.

. Normal Paraffins. These products must be 98% pure, have low odor
levels and be of water clear quality. They are primarily used in the
production of laundry detergent, cosmetics, pharmaceuticals, paints,
stains, aluminum rolling oils and other products.

. Drilling Fluids. In conjunction with Amoco Production Company, we have
developed a synthetic drilling fluid product. Drilling fluids are used
in the drilling of oil and gas wells as a coolant and lubricant for
the drill bit and to enhance safety during drilling operations by
maintaining well pressure.

Ultra-Clean Synthetic Fuels. The market demand for ultra-clean fuels is
increasing according to a 1998 estimate by the Energy Information
Administration of alternatively fueled vehicles in use in the United States.
This increase has been driven by more stringent environmental and emission
standards in most of the world's industrialized countries and the need for
vehicle manufacturers to respond to the challenge of producing fuel-efficient
engines that meet these standards. The burden of producing cleaner fuels from
conventional crude oil is expected to substantially increase refining costs. We
believe that these factors will promote the creation of markets for premium
ultra-clean synthetic fuels produced by the Syntroleum Process.

Key domestic and international environmental regulations and initiatives
driving the demand for ultra-clean fuels include the following.

. The centrally fueled fleet and clean fuel vehicle requirements of the
Clean Air Act, which requires owners and operators of vehicle fleets
in many metropolitan areas to purchase clean fuel vehicles in
conjunction with new fleet additions and replacements.

. An Environmental Protection Agency mandate under the Clean Air Act
that requires the sulfur content in gasoline fuel be lowered from the
current level of 500 parts per million to 30 parts per million
beginning in 2004.

. An EPA proposal to reduce the allowable sulfur content in highway
diesel fuel from the current level of 500 parts per million to 15
parts per million beginning in 2006.

. A European Union directive to reduce the allowable sulfur content in
diesel fuel from the current level of 350 parts per million to 50
parts per million by 2005.

S-4
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. Corporate Average Fuel Economy standards, which mandate fuel economy
standards for light trucks and passenger cars and that strain auto
makers' ability to satisfy the high demand for larger vehicles such as
sport utility vehicles and pick-up trucks.

. A proposal by the Alliance of Automobile Manufacturers for a Worldwide
Fuel Charter that establishes recommendations for a maximum allowable
sulfur content of 10 parts per million and aromatic content of 15% by
volume for diesel fuels in markets with the most stringent
requirements for emission controls.

We believe that Syntroleum fuels are positioned to take advantage of the
demand for ultra-clean fuels that is anticipated to develop as a result of
these environmental and emission standards. Syntroleum fuels are substantially
free of contaminants, including sulfur, aromatics and heavy metals, and
demonstrate high operating efficiency. As a result, we believe that Syntroleum
fuels, either alone or blended with conventional fuels, can be used in existing
and new generation diesel and gasoline engines to cost-effectively meet or
exceed current and future emission standards.

Fuel cells. A fuel cell is a device that combines hydrogen, derived from
a fuel such as natural gas, propane, methanol, gasoline or diesel, and oxygen
from the air to produce electric power without combustion. Fuel-cell systems
have advantages over conventional power generation systems including low or no
pollution, higher fuel efficiency, greater flexibility in installation and
operation, quiet operation, low vibration and potentially lower maintenance and
capital costs. Fuel cells are being developed to support a variety of markets,
including transportation, continuous stationary (residential and commercial
power) and intermittent (recreational and emergency power).

Demand for fuel cells is expected to increase over the next several
years. Auto manufacturers and others are currently making significant
investments in fuel-cell technology. For example, DaimlerChrysler AG, one of
our strategic partners, and Ford Motor Company have invested approximately $750
million in a partnership with Ballard Power Systems Inc., and DaimlerChrysler
has indicated that it expects this partnership to produce fuel-cell systems for
40,000 vehicles by 2004 and 100,000 vehicles by 2006. Traditional power
generation markets also represent a large opportunity for fuel-cell technology.
According to the Department of Energy, the total installed electricity
generation capacity in the U.S. in 1998 was estimated at approximately 775,885
megawatts and is expected to double by 2015. In comparison, recent industry
estimates prepared by Kline & Company in June of 1998 have projected the demand
for fuel cells to be in the range of 2,500 to 6,000 megawatts by 2010. Allied
Business Intelligence stated in a 1999 market study that this growth in demand
is expected to increase the fuel cell market from $40 million in 1999 to over
$10 billion by 2010.

We believe that Syntroleum fuels have the potential to become ideal fuels
for fuel cells and to significantly enhance commercial opportunities for many
fuel-cell applications. The absence of sulfur, aromatics and heavy metals from
Syntroleum fuels allows for simplified fuel-cell processor design, construction
and operation. As the storage and processing of the fuel for a fuel cell are
simplified, the physical size of fuel-cell components can be reduced. Because
Syntroleum fuels have almost twice the hydrogen content of other fuels,
including compressed natural gas and methanol, Syntroleum fuels enable greater
utility and wider application of fuel-cell power for vehicles. Although
methanol initially emerged as the auto industry's favored fuel-cell fuel, it
has encountered setbacks due to its high toxicity and water solubility compared
to conventional fuels and inability to use existing gasoline distribution
systems without major modifications. Syntroleum fuels can be distributed using
the existing conventional gasoline distribution infrastructure, have lower
toxicity and similar solubility compared to conventional fuels.

Natural Gas Resource Base

The world's large natural gas reserves provide an extensive resource base
from which Syntroleum fuels and specialty products can be produced. According
to information derived from the IHS Energy Group, BP Amoco Statistical Review
of World Energy, 1998, and the Department of Energy, worldwide identified
natural gas reserves are estimated to be approximately 5,429 trillion cubic
feet. Wood MacKenzie Consultants

S-5
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Limited has estimated in its Energy Services Newsletter that of the world's
identified natural gas reserves, approximately one-half, or 2,500 trillion
cubic feet (the equivalent of approximately 250 billion barrels of synthetic
crude oil), currently have no economic market and are considered "stranded."
Typically, stranded natural gas is either not produced or is flared or vented
if allowed by applicable law. This large amount of stranded natural gas is
caused by a combination of four primary factors:

. Overall size of the natural gas resource base and the relatively small
size of many fields,

. Location of the natural gas relative to developed markets,

. Cost to transport the natural gas to those markets, and

. The relatively small size of the markets for products like ammonia and
methanol that can be produced from the natural gas.

We believe that energy companies with stranded natural gas reserves will
be able to cost-effectively use our GTL technology to produce Syntroleum fuels
and products that can be sold in well-developed global markets. As a result, we
believe these companies would be able to generate a return on the exploration
and development expenditures associated with their stranded natural gas
reserves.

Key Testing and Commercial Projects

In addition to our nominal two barrel per day pilot plant and laboratory
facilities located in Tulsa, Oklahoma, which are the primary sites for our
research and development activities, we are currently involved in several
projects and initiatives, including the following.

Cherry Point Project. We have been a joint participant with ARCO in a 70
barrel per day GTL demonstration plant located at ARCO's Cherry Point refinery
in the State of Washington. The plant began operating in July 1999. Pilot
tests, which have been successful, are expected to conclude on June 30, 2000,
at which time the Cherry Point facility will be shut down. Plant operations
have successfully demonstrated a number of key aspects of our proprietary
autothermal reformer and moving bed reactor designs, and related catalyst
performance. We have gathered data and experience from plant operations which
will be useful in our efforts to apply these reactor designs on a commercial
basis both for fuels and specialty product plants. Based on the performance of
this plant, we believe that these reactor designs can be scaled-up for use in a
commercial plant at a lower cost than our fixed tube reactor designs. We are
currently conducting engineering studies with others for commercial-scale
plants using these reactor designs. ARCO has funded the construction and
operation of this plant under our joint development agreement.

Sweetwater Project. We are developing a 10,000 barrel per day specialty
product plant, which we call the Sweetwater plant. We currently anticipate that
this plant will produce synthetic lube oil, normal paraffins, process oils and
light paraffins. The plant is expected to use a fixed tube reactor design
because this design produces a high yield of the desired products with high wax
content and has lower scale-up risks than other reactor designs. The plant is
also expected to include additional refining equipment necessary to produce the
targeted specialty products. We plan to construct this plant through a joint
venture. In February 2000, we selected a site for the plant about four
kilometers from the North West Shelf liquid natural gas facility on the Burrup
Peninsula of Western Australia.

In June 2000, we entered into a non-binding letter of intent with a
subsidiary of Enron with respect to its contemplated contribution of $21
million in exchange for a 13% equity investment in the Sweetwater project.
Under the letter of intent, Enron would receive a $1 million credit toward its
investment in the Sweetwater project as a result of its prior contribution
toward the development of the project, resulting in net equity funding to be
received from Enron of $20 million. As a result of this investment, Enron would
have the right to receive cash flow distributions in excess of 13% if the plant
does not meet specified performance targets.

S-6
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year after the date on which the project completes successful performance
testing and ending on the tenth anniversary of execution of definitive
agreements relating to the transaction contemplated in the letter of intent. In
addition, upon Enron's funding of its net capital contribution, it would
receive a warrant to acquire no more than 1,640,625 additional shares of our
common stock at an exercise price equal to $21.00 per share. Under specified
circumstances and beginning no earlier than the fourth year after the
Sweetwater project has passed its performance tests, Enron would have the right
to require us to purchase their equity interest in the Sweetwater project for a
contractually specified amount. We would have a similar option to purchase
Enron's equity interest in the Sweetwater project at a contractually specified
amount beginning no earlier than the ninth year after the Sweetwater project
has passed its performance test.

Consummation of the transaction contemplated by the letter of intent
requires the satisfaction of a number of substantial conditions, some of which
are not within our control, including Enron management approvals, satisfactory
completion of certain due diligence by Enron, funding of commitments with
respect to other debt and equity financing and the negotiation and execution of
definitive agreements. As a result, the transactions contemplated by the letter
of intent may not be realized or may only be realized under terms and
conditions that differ materially from those contemplated by the letter of
intent.

The State of Western Australia has recently announced its intention to
assist the Sweetwater project with an AUD$30 million (approximately U.S.$19
million) common use infrastructure package, including a desalinization plant to
which our project will supply steam and from which our project will receive
cooling water. In addition, we have entered into a gas purchase agreement with
the North West Shelf Gas Partners, whose members include affiliates of BHP
Petroleum, BP Amoco, Chevron, Mitsui, Mitsubishi, Royal Dutch Shell and
Woodside Energy Ltd. Subject to certain conditions, North West Shelf Gas
Partners agreed to supply the Sweetwater plant with the natural gas required to
operate the plant at full capacity for 20 years.

In November 1999, we signed a project development agreement with Tessag,
a wholly-owned subsidiary of RWE AG, to provide us with a fixed price for the
design and construction of the Sweetwater plant. Tessag also agreed to pay
liquidated damages up to certain levels in the event certain process and
product specifications are not achieved. We currently expect that Tessag will
complete the plant design and commence construction in early 2001. We expect
the plant to be operational in 2003, although construction of the plant will be
subject to the risk of delay inherent in any large construction project.

We entered into a letter of intent with the Commonwealth of Australia in
February 2000 to license the Syntroleum Process as part of a program designed
to unlock the value of Australia's energy reserves and improve the quality of
the environment. Under this letter of intent, the Commonwealth would make an
AUD$30 million (approximately U.S.$19 million) deposit, of which AUD$20 million
(approximately U.S.$12 million) may be credited against future license fees.
The letter of intent also provides that the Commonwealth would make a non-
amortizing, interest-free loan in the amount of AUD$40 million (approximately
U.S.$25 million) with a 25-year maturity to support the further development and
commercialization of GTL technologies in Australia, and that we would conduct a
feasibility study on constructing a large-scale GTL fuels plant in Australia.
The transactions contemplated by our letter of intent with the Commonwealth are
subject to the execution of definitive license and loan agreements.

In January 2000, we received $2 million dollars from Methanex Corporation
towards the cost of engineering work being performed by Tessag pursuant to a
letter of intent that provided for the contribution by Methanex of an
additional $43 million in exchange for an equity interest in the plant, subject
to the execution of definitive agreements and the satisfaction of certain
conditions. Subsequent to the execution of this letter of intent, we entered
into negotiations with Methanex to consider forming a joint venture to develop
a series of GTL specialty products plants. After extensive negotiations, we
could not reach agreement with Methanex on terms for forming the joint venture.
In May 2000, Methanex informed us that it was terminating negotiations,
including its participation in the Sweetwater project.

S-7
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We have not yet received definitive cost estimates for the construction
of the Sweetwater plant. The capital costs of this plant are currently expected
to be funded primarily by non-recourse senior and subordinated debt at the
project level, as well as equity financing, including the funding discussed
above. We are currently exploring sources of debt and additional equity capital
to fund final design and construction. However, we can give no assurance that
the funding discussed above, any additional funding or debt financing for this
project will be obtained.

Fuel Cell Testing. We have participated in tests performed by the Argonne
National Laboratory, Epyx Corporation and Northwest Power Systems in the
evaluation of fuels for fuel-cell applications. Fuels produced by the
Syntroleum Process were determined to have physical properties similar to
conventional fuel equivalents and to yield more hydrogen per fuel equivalent
volume. Argonne tested Syntroleum fuels in its proprietary fuel-cell reformer,
and results indicated performance comparable to conventional gasoline, although
the equipment had not been optimized for the higher hydrogen content of our
fuels. Under a program sponsored by the Department of Energy, Epyx Corporation,
a leading fuel processing technology company, successfully demonstrated the
high efficiency and low emission operation of a fuel-cell power system using
synthetic fuel produced by the Syntroleum Process and a Plug Power fuel cell.
In addition, Northwest Power Systems, a leading manufacturer of patented fuel-
cell systems, has demonstrated that synthetic fuels produced by the Syntroleum
Process are an effective on-board source of hydrogen to power fuel cells. Tests
conducted by Northwest Power also confirmed that Syntroleum fuels produced a
higher yield of hydrogen than comparable fuel produced from crude oil and
successfully powered their fuel cells.

The Offering

<TABLE>
<S> <C>
Common stock offered by
Syntroleum.................. 5,250,000 shares
Shares outstanding after the
offering.................... 32,615,909 shares
Use of proceeds.............. The net proceeds from this offering without
exercise of the over-allotment option will be
approximately $86 million. We intend to use a
substantial portion of these net proceeds to
fund a portion of the Sweetwater plant's
construction costs. We currently anticipate that
we will make an equity contribution of between
approximately $75 million and $95 million for
the construction of the Sweetwater plant. We
intend to use any remaining net proceeds to fund
costs associated with pilot plant facilities,
the development and construction of additional
GTL plants, research and development activities,
the acquisition of complementary technologies,
working capital needs and other general
corporate purposes.
Risk factors................. See "Risk Factors" and other information
included in this prospectus supplement for a
discussion of factors you should carefully
consider before deciding to invest in shares of
the common stock.
Nasdaq National Market
symbol...................... SYNM
</TABLE>

The number of shares outstanding after the offering excludes 3,530,347
shares reserved for issuance under our stock option plans, of which options to
purchase 2,411,238 shares at an average option price of $7.98 have been issued
as of May 31, 2000. This number assumes that the underwriters' over-allotment
option is not exercised. If the over-allotment option is exercised in full, we
will issue and sell an additional 787,500 shares.

S-8
<PAGE>

Summary Consolidated Financial Data

You should read the following summary consolidated financial data along
with the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and the related notes included elsewhere in this prospectus supplement. The
results of operations of SLH Corporation have been included in our consolidated
statement of operations following the August 7, 1998 effective date of the
merger of Syntroleum Corporation and SLH Corporation.

<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
---------------- ---------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------- ------- -------- -------- ------- ------- -------
(unaudited)
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Joint development
revenue................ $ 283 $ 603 $ 1,986 $ 1,779 $ 2,006 $ 616 $ 45
Real estate sales
revenue................ 3,538 -- 1,219 2,416 -- -- --
Other revenue........... 54 163 650 284 1 -- --
------- ------- -------- -------- ------- ------- -------
Total revenues.......... 3,875 766 3,855 4,479 2,007 616 45
------- ------- -------- -------- ------- ------- -------
Costs and expenses:
Cost of real estate
sold................. 3,078 -- 824 2,387 -- -- --
Real estate operating
expenses............. 162 156 781 267 -- -- --
Pilot plant,
engineering and
research and
development.......... 3,153 1,652 10,863 5,693 3,554 1,120 671
Catalyst services..... -- -- -- -- 4,800 -- --
General and
administrative....... 3,035 2,154 10,409 9,151 3,618 1,421 580
------- ------- -------- -------- ------- ------- -------
Total operating
expenses........... 9,428 3,962 22,877 17,498 11,972 2,541 1,251
------- ------- -------- -------- ------- ------- -------
Operating income
(loss)................. (5,553) (3,196) (19,022) (13,019) (9,965) (1,925) (1,206)
Investment, interest and
other income
(expense).............. 201 393 1,864 1,308 353 (12) 60
------- ------- -------- -------- ------- ------- -------
Net income (loss)....... $(5,352) $(2,803) $(17,158) $(11,711) $(9,612) $(1,937) $(1,146)
======= ======= ======== ======== ======= ======= =======
Net income (loss) per
share--basic and
diluted................ $ (0.20) $ (0.10) $ (0.64) $ (0.46) $ (0.40) $ (0.08) $ (0.06)
======= ======= ======== ======== ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
As of As of December 31,
March 31, ------------------------------------
2000 1999 1998 1997 1996 1995
----------- ------- ------- ------- ----- -----
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital............. $19,447 $22,798 $37,476 $ 9,846 $ 601 $(410)
Property and equipment,
net........................ 8,767 6,442 3,210 1,245 521 507
Total assets................ 38,585 39,591 50,400 12,091 1,552 873
Deferred revenue............ 11,000 11,000 11,000 11,000 -- --
Stockholders' equity........ 21,295 24,832 35,962 (1,242) 266 203
</TABLE>

S-9
<PAGE>

RISK FACTORS

You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. If any of the following risks actually occur, our
business, financial condition or results of operations could be materially
adversely affected. In that case, the trading price of the common stock could
decline, and you may lose all or part of your investment.

Risks Relating to our Technology

We might not successfully commercialize our technology, and commercial-
scale GTL plants based on the Syntroleum Process may never be successfully
constructed or operated.

To date, no commercial-scale GTL plant based on the Syntroleum Process
has been constructed. A commercial-scale GTL plant based on the Syntroleum
Process might never be successfully built either by us or by any of our
licensees. Our success depends on our ability, and the ability of our
licensees, to economically design, construct and operate GTL plants based on
the Syntroleum Process on a commercial scale. The successful commercial
construction and operation of a GTL plant based on the Syntroleum Process
depends on a variety of factors, many of which are outside our control.
Although we are currently developing the Sweetwater plant, our first
commercial-scale GTL plant, we do not know for certain when construction of
this plant will begin or when it will become operational. We do not have any
experience managing the design, construction or operation of commercial-scale
GTL plants, and we may not be successful in doing so.

Commercial-scale GTL plants based on the Syntroleum Process might not
produce results necessary for success, including results demonstrated on a
laboratory and pilot plant basis.

A variety of results necessary for successful operation of the Syntroleum
Process could fail to occur at a commercial plant, including reactions
successfully tested on a laboratory and pilot plant basis. Results that could
cause commercial-scale GTL plants to be unsuccessful include:

. lower reaction activity than that demonstrated in laboratory and
pilot plant operations, which would increase the amount of catalyst
or number of reactors required to convert synthesis gas into liquid
hydrocarbons and increase capital and operating costs,

. shorter than anticipated catalyst life, which would require more
frequent catalyst purchases and therefore increase operating costs,

. excessive production of gaseous light hydrocarbons from the Fisher-
Tropsch reaction compared to design conditions, which would lower the
anticipated amount of liquid hydrocarbons produced and lower revenues
and margins from plant operations, and

. inability of the gas turbines or heaters integrated into the
Syntroleum Process to burn the low-heating-value tail gas that is
produced by the process, which would result in the need to
incorporate other methods to generate horsepower for the compression
process that may increase capital and operating costs.

In addition, these plants could experience mechanical difficulties,
either related or unrelated to elements of the Syntroleum Process.

S-10
<PAGE>

Many of our competitors have significantly more financial and other
resources than our company, and GTL technologies developed by our competitors
could become more commercially successful than our technology or render our
technology obsolete.

The development of GTL technology is highly competitive, and other GTL
technologies could become more commercially successful than our technology. The
Syntroleum Process is based on chemistry that has been used by several
companies in synthetic fuel projects over the past 60 years. Our competitors
include major integrated oil companies that have developed or are developing
competing GTL technologies, including Exxon, Shell, Sasol, BP Amoco and Conoco.
Each of these companies has significantly more financial and other resources
than us to spend for research and development of their respective technologies
and for funding construction and operation of commercial-scale GTL plants.
These competitors could offer to license their technology to others. In
addition, several small companies have developed, and are continuing to
develop, competing GTL technologies. The Department of Energy has also
sponsored a number of research programs relating to GTL technology, including a
recent program relating to the development of a ceramic membrane technology
that could potentially lower the cost of competitive processes.

As GTL technologies continue to be developed by our competitors, one or
more of our current technologies may become obsolete. Our ability to create and
maintain technological advantages is critical to our future success. As new
technologies develop, we may be placed at a competitive disadvantage, and
competitive pressures may force us to implement new technologies at a
substantial cost. We may not be able to successfully develop, or expend the
financial resources necessary to acquire new technology.

Our ability to protect our intellectual property rights involves many
complexities and uncertainties, and commercialization of the Syntroleum Process
could give rise to claims that our technology infringes upon the rights of
others.

Our success depends on our ability to protect our intellectual property
rights, which involves complex legal, scientific and factual questions and
uncertainties. We rely on a combination of patents, copyrights, trademarks,
trade secret laws and contractual restrictions to protect our proprietary
rights. We cannot assure you that additional patents will be granted, and our
existing patents might not provide us with commercial benefit or might be
infringed upon, invalidated or circumvented by others. In addition, the
availability of patents in foreign markets, and the nature of any protection
against competition that may be afforded by those patents, are often difficult
to predict and vary significantly from country to country. Our licensors or we
may choose not to seek, or may be unable to obtain, patent protection in a
country that could potentially be an important market for our GTL technology.
The confidentiality agreements that are designed to protect our trade secrets
could be breached, and we might not have adequate remedies for the breach. In
addition, our trade secrets and proprietary know-how might otherwise become
known or be independently discovered by others.

Commercialization of the Syntroleum Process may give rise to claims that
our technologies infringe upon the patents or other proprietary rights of
others. Although it is our policy to regularly review patents that may have
applicability in the GTL industry, we may not become aware of these patents or
rights until after we have made a substantial investment in the development and
commercialization of those technologies. Legal actions could be brought against
us, our partners or licensees, claiming damages and seeking an injunction that
would prevent us, our partners or licensees, from testing, marketing or
commercializing the affected technologies. Major energy companies seeking to
gain a competitive advantage may have an interest in bringing one of these
actions. If an infringement action was successful, in addition to potential
liability for damages, our partners, our licensees or we could be required to
obtain a license in order to continue to test, market or commercialize the
affected technologies. Any required license might not be made available or, if
available, might not be available on acceptable terms, and we could be
prevented entirely from testing, marketing or commercializing the affected
technology. We may have to expend substantial resources in litigation, either
in enforcing our patents, defending against the infringement claims of others,
or both. Many possible claimants, like the major energy companies that have or
may be developing proprietary GTL

S-11
<PAGE>

technologies competitive with the Syntroleum Process, have significantly more
resources to spend on litigation. We can give no assurance that third parties
will not claim infringement by us with respect to past, present or future GTL
technologies. In any potential intellectual property dispute involving us, our
licensees could also become the target of litigation.

We could have potential indemnification liabilities to licensees
relating to the operation of GTL plants based on the Syntroleum Process or
intellectual property disputes.

Our license agreements require us to indemnify the licensee, subject to
a cap of 50% of the license fees received, against specified losses relating
to, among other things:

. the use of patent rights and technical information relating to the
Syntroleum Process,

. acts or omissions by us in connection with process design packages
for plants, and

. performance guarantees that may be provided by us.

Our indemnification obligations could result in substantial expenses and
liabilities to us in the event that intellectual property rights claims are
made against us or our licensees, or GTL plants based on the Syntroleum
Process fail to operate as designed.

If improvements to the Syntroleum Process are not commercially viable,
the design and construction of lower-cost GTL plants based on the Syntroleum
Process could be delayed or prevented.

A number of improvements to the Syntroleum Process are in various early
stages of development. These improvements will require substantial additional
investment, development and testing prior to their commercialization. We might
not be successful in developing these improvements and, if developed, they may
not be capable of being utilized on a commercial basis. If improvements to the
Syntroleum Process currently under development do not become commercially
viable on a timely basis, the total potential market for GTL plants that could
be built by us and our partners and by our licensees could be significantly
limited.

For example, improvements to the heat integration of the Syntroleum
Process designed to lower capital and operating costs are currently under
development. These improvements may not occur because further integration of
the gas turbine into the process might not be technically feasible due to the
operating tolerances of the materials in the gas turbine. In addition, our
horizontal reactor, which is designed to have a low center of gravity for
marine applications, may not be capable of commercial application due to
operational difficulties which could limit the market for floating GTL plants.

The economic application of our technology depends on favorable plant
operating conditions.

The economic application of GTL technology depends on favorable plant
operating conditions. Among the operating conditions that impact plant
economics are the site location, infrastructure, weather conditions, the size
of the equipment, the quality of the natural gas feedstock, the type of plant
products and whether the natural gas converted by the plant is associated with
oil reserves. For example, if a plant is located in an area that requires the
construction of substantial infrastructure, plant economics would be adversely
affected. In addition, plants that are not designed to produce specialty
products or other high margin products and plants that are not used to convert
natural gas that is associated with oil reserves will be more dependent on
favorable natural gas and oil prices than plants designed for those uses and
are not expected to be cost-effective at price levels below the range of at
least $15 to $20 per barrel for oil.

Industry rejection of our technology would make the construction of GTL
plants based on the Syntroleum Process more difficult or impossible and
adversely affect our ability to receive future license fees.

S-12
<PAGE>

ability to receive future license fees and to generate other revenue. Should a
high profile industry participant adopt the Syntroleum Process and fail to
achieve success or should any commercial GTL plant based on the Syntroleum
Process fail to achieve success, other industry participants' perception of the
Syntroleum Process could be adversely affected. In addition, some oil companies
may be motivated to seek to prevent industry acceptance of GTL technology based
on their belief that widespread adoption of GTL technology might negatively
impact their competitive position.

Risks Relating to our Business

We will need to obtain funds from additional financings or other sources
for the Sweetwater project and other activities, and if we do not receive these
funds we might need to delay or eliminate our expenditures, including those for
the Sweetwater project.

We have expended and will continue to expend a substantial amount of
funds to continue the research and development of our technologies, to market
the Syntroleum Process and to design and construct GTL plants. We intend to
finance the Sweetwater plant primarily through non-recourse debt financing at
the project level, as well as equity financing, and plan to obtain additional
funds for our GTL plant projects primarily through a combination of equity and
debt project financing. We also intend to obtain additional funds through
collaborative or other arrangements with strategic partners and others and debt
and equity financing in the capital markets. Financing may not be available
when needed or on terms acceptable or favorable to us. Our letters of intent
may not lead to definitive agreements. In addition, definitive agreements with
equity and debt participants in the Sweetwater project and our other capital
projects are expected to include conditions to funding, many of which could be
outside of our control. If adequate funds are not available, we may be required
to delay or to eliminate expenditures for the Sweetwater project and our other
capital projects, research and development and other activities. We could also
be forced to license to third parties the rights to commercialize additional
products or technologies that we would otherwise seek to develop ourselves. If
we obtain additional funds by issuing equity securities, dilution to
stockholders may occur. In addition, preferred stock could be issued in the
future without stockholder approval and the terms of our preferred stock could
include dividend, liquidation, conversion, voting and other rights that are
more favorable than the rights of the holders of our common stock.

Assuming the commercial success of the plants based on the Syntroleum
Process, we expect that license fees, catalyst sales and sales of specialty
products from GTL plants in which we own an interest will be a source of funds
for operations. However, we may not receive any of these revenues, and these
revenues may not be sufficient for capital expenditures or operations and may
not be received within the expected time frame. If we are unable to generate
funds from operations, our need to obtain funds through financing activities
will be increased.

The construction of the Sweetwater plant and other GTL plants based on
the Syntroleum Process will be subject to the risks of delay and cost overruns
inherent in any large construction project.

The construction of GTL plants based on the Syntroleum Process, including
the Sweetwater plant we are currently developing and plan to construct in
Western Australia, will be subject to the risks of delay or cost overruns
inherent in any large construction project resulting from numerous factors,
including the following:

. shortages of equipment, materials or skilled labor,

. unscheduled delays in the delivery of ordered materials and
equipment,

. engineering problems, including those relating to the commissioning
of newly designed equipment,

. work stoppages,

. weather interference,

. unanticipated cost increases, and

. difficulty in obtaining necessary permits or approvals.

S-13
<PAGE>

We have incurred losses and anticipate continued losses.

As of March 31, 2000, we had negative retained earnings of $49 million.
We have not yet achieved profitability and expect to continue to incur net
losses until we recognize sufficient revenues from licensing activities, GTL
plants or other sources. Because we do not have an operating history upon which
an evaluation of our prospects can be based, our prospects must be considered
in light of the risks, expenses and difficulties frequently encountered by
small companies seeking to develop new and rapidly evolving technologies. To
address these risks, we must, among other things, respond to competitive
factors, continue to attract, retain and motivate qualified personnel and
commercialize and continue to upgrade our GTL technologies. We may not be
successful in addressing these risks. We can give no assurance that we will
achieve or sustain profitability.

Our anticipated expense levels are based in part on our expectations as
to future operating activities and are not based on historical financial data.
We plan to increase our capital expenditures to fund the design and
construction of GTL plants, increase our operating expenses to fund greater
levels of research and development and increase our marketing and operational
capabilities. These expenses may not subsequently be followed by increased
revenues or cash flows.

The economic application of GTL plants based on the Syntroleum Process
depends on favorable crude oil prices and other commodity prices.

Our belief that the Syntroleum Process can be cost effective at GTL
plants with throughput levels from as low as 2,000 to over 100,000 barrels per
day is based on our assumption that oil prices in the range of at least $15 to
$20 per barrel will prevail. However, the markets for oil and natural gas have
historically been very volatile and are likely to continue to be very volatile
in the future. Although current crude oil prices are relatively high, during
1998 crude oil prices fell to historically low levels of below $10 per barrel
for a period of time and could return to low levels in the future.

Because the synthetic crude oil, liquid fuels and specialty products that
GTL plants based on the Syntroleum Process are expected to produce will compete
in markets with oil and refined petroleum products, and because natural gas
will be used as the feedstock at these GTL plants, an increase in natural gas
prices relative to prices for oil and refined products, or a decrease in prices
for oil and refined products, could adversely affect the operating results of
these plants. Higher than anticipated costs for the catalysts and other
materials used in these plants could also adversely affect operating results.
Factors that could cause changes in the prices and availability of oil, natural
gas and refined products include:

. the level of consumer product demand,

. weather conditions,

. domestic and foreign government regulation,

. the actions of the Organization of Petroleum Exporting Countries,

. political conditions in oil and natural gas producing countries,

. the supply of foreign crude oil and natural gas,

. the location of GTL plants relative to natural gas reserves and
pipelines,

. the capacities of pipelines,

. fluctuations in seasonal demand, and

. the price and availability of alternative fuels and overall economic
conditions.

We cannot predict the future markets and prices for oil, natural gas,
refined products or other materials used in the Syntroleum Process.

S-14
<PAGE>

GTL plants will depend on the availability of natural gas at economic
prices, and alternative uses of natural gas could be preferred in many
circumstances.

GTL plants will depend on the availability of natural gas at economic
prices. The market for natural gas is highly competitive in many areas of the
world, and in many circumstances, the sale of natural gas for use as a
feedstock in a GTL plant will not be the highest value market for the owner of
the natural gas. The cryogenic conversion of natural gas to liquefied natural
gas may compete with our GTL plants for use of natural gas as feedstocks in
many locations. Local commercial, residential and industrial consumer markets,
power generation, ammonia, methanol and petrochemicals are also alternative
markets for natural gas. Unlike us, many of our competitors also produce or
have access to large volumes of natural gas, which may be used in connection
with their GTL operations. The availability of natural gas at economic prices
for use as a feedstock for GTL plants may also depend on the production costs
for the gas and whether natural gas pipelines are located in the areas where
these plants are located. New pipelines may be built in, or existing pipelines
may be expanded into, areas where GTL plants are built, and this may affect the
operating margins of these plants as other markets compete for the natural gas
feedstocks. The United States and Western Europe have well-developed natural
gas markets. In these markets, the relationship between natural gas prices and
liquid hydrocarbon prices would likely make investments in GTL plants that
produce fuels uneconomic based upon current natural gas and refined product
prices, as well as other market, environmental and regulatory conditions. Other
areas around the world that have developed local markets for natural gas may
also have higher valued uses for natural gas than as feedstocks for GTL plants.
In addition, the commercialization of GTL technologies may have an adverse
effect on the availability of natural gas at economic prices.

Our receipt of license fees depends on substantial efforts by our
licensees, and our licensees could choose not to construct a GTL plant based on
the Syntroleum Process or to pursue alternative GTL technologies.

Our licensees will control whether any plant site licenses are issued
and, as a result, whether any additional license fees are due under our license
agreements. Licensees may need to undertake substantial activities and
investments before any plant site license is issued and license fees are due.
These activities may include performing feasibility studies, obtaining
regulatory approvals and permits, obtaining preliminary cost estimates and
final design and engineering for the plant, obtaining a sufficient dedicated
supply of natural gas, obtaining adequate commitments for the purchase of the
plant's products and obtaining the financing for construction of the plant. The
licensee will control the amount and timing of resources devoted to these
activities. Whether licensees are willing to expend the resources necessary to
construct GTL plants will depend on a variety of factors outside our control,
including the prevailing view of prices for crude oil, natural gas and refined
products. In addition, our license agreements may be terminated by the
licensee, with or without cause, upon 90 days' notice to us. If we do not
receive payments under our license agreements, we may not have sufficient
resources to implement our business strategy. Our licensees are not restricted
from pursuing alternative GTL technologies on their own or in collaboration
with others, including our competitors.

Our future plans could be harmed if we are unable to attract or retain
key personnel.

Our success substantially depends on the performance of our executive
officers, including Kenneth L. Agee (our founder, Chief Executive Officer and
Chairman of the Board and inventor with respect to many of our patents and
patent applications) and Mark A. Agee (our President and Chief Operating
Officer). Given the technological nature of our business, we also depend on our
scientific and technical personnel. Our efforts to develop and commercialize
our technology have placed a significant strain on our scientific and technical
personnel, as well as our operational and administrative resources. Our ability
to implement our business strategy may be constrained, and the timing of
implementation may be impacted, if we are unable to attract and retain
sufficient personnel. At May 31, 2000, we had 79 full-time employees. Except
for a $500,000 life insurance policy held by us on the life Kenneth L. Agee, we
do not maintain "key person" life insurance policies on any of our employees.

S-15
<PAGE>

We depend on strategic relationships with manufacturing and engineering
companies, and failure by these companies to provide necessary components or
services could negatively impact our business.

We intend to, and believe our licensees will, utilize third party
component manufacturers in the design and construction of GTL plants based on
the Syntroleum Process. If any third party manufacturer is unable to acquire
raw materials or to provide components of GTL plants based on the Syntroleum
Process in commercial quantities in a timely manner and within specifications,
we or our licensees could experience material delays, or construction plans
could be canceled, while alternative suppliers or manufacturers are identified
and prepare for production. We have no experience in manufacturing and do not
have any manufacturing facilities. Consequently, we will depend on third
parties to manufacture components of GTL plants based on the Syntroleum
Process. We have conducted development activities with third parties relating
to our proprietary catalysts and turbines that may be used in the Syntroleum
Process, and other manufacturing companies may not have the same expertise as
these companies.

We also intend to utilize third parties to provide engineering services
in connection with our efforts to commercialize the Syntroleum Process. If
these engineering firms are unable to provide requisite services or performance
guarantees, we or our licensees could experience material delays, or
construction plans could be canceled, while alternative engineering firms are
identified and become familiar with the Syntroleum Process. We have no
experience in providing engineering services and have a limited engineering
staff. Consequently, we will depend on third parties to provide necessary
engineering services, and these firms may be asked by licensees or financial
participants in plants to provide performance guarantees in connection with the
design and construction of GTL plants based on the Syntroleum Process.

Our operating results may be volatile due to a variety of factors and are
not a meaningful indicator of future performance.

We expect to experience significant fluctuations in future annual and
quarterly operating results because of the unpredictability of many factors
that impact our business. These factors include:

. timing of any construction by us or our licensees of GTL plants,

. demand for licenses of the Syntroleum Process and receipt and revenue
recognition of license fees,

. oil and gas prices,

. timing and amount of research and development expenditures,

. demand for specialty products,

. introduction or enhancement of GTL technologies by us and our
competitors,

. market acceptance of new technologies, and

. general economic conditions.

As a result, we believe that period-to-period comparisons of our results
of operations are not meaningful and should not be relied upon as any
indication of future performance. Due to all of the foregoing factors, it may
be that in some future year or quarter our operating results will be below the
expectations of public market analysts and investors. In that event, the price
of our common stock would likely be materially adversely affected.

We are subject to extensive laws relating to the protection of the
environment, and these laws may increase the cost of designing, constructing
and operating our GTL plants.

S-16
<PAGE>

lawsuits and may be required to install costly pollution control equipment or,
in some extreme cases, curtail operations. Our GTL plants will generally be
required to obtain permits under applicable environmental laws and various
permits for industrial siting and construction. Compliance with environmental
laws and regulations, and any requisite permits, may increase the costs of
designing, constructing and operating our GTL plants. We may also face exposure
to actual or potential claims and lawsuits involving environmental matters with
respect to our current real estate inventory as well as previously owned real
estate.

We plan to construct GTL plants in foreign countries, where we would be
subject to risks of a political nature and other risks inherent in foreign
operations.

We plan to construct GTL plants in foreign countries, where we would be
subject to risks of a political nature and other risks inherent in foreign
operations. These risks include changes in domestic and foreign taxation,
currency exchange risks, labor disputes and uncertain political and economic
environments as well as risk of war, civil disturbances or other events that
could limit or disrupt production and markets or result in the deprivation of
contract rights or the taking of property by nationalization or appropriation
without fair compensation. International operations and investments may also be
adversely affected by laws and policies of the United States affecting foreign
trade, investment and taxation, which could affect the conduct or profitability
of these operations.

Sufficient markets for the synthetic products of the Syntroleum Process
or products which utilize these synthetic products, including fuel cells, may
never develop or may take longer to develop than we anticipate.

Sufficient markets may never develop for the synthetic products of the
Syntroleum Process, or may develop more slowly than we anticipate. The
development of sufficient markets for the synthetic products of the Syntroleum
Process may be affected by many factors, some of which are out of our control,
including:

. the cost competitiveness of the synthetic products of the Syntroleum
Process,

. consumer reluctance to try a new product,

. environmental, safety and regulatory requirements, and

. the emergence of more competitive products.

In addition, a new market may fail to develop for products which utilize
our synthetic products. For example, the establishment of a market for the use
of these products as fuel for fuel cells is uncertain, in part because fuel
cells represent an emerging market, and we do not know whether distributors
will want to sell them or if end-users will want to use them.

If sufficient markets fail to develop or develop more slowly than we
anticipate, we may be unable to recover the losses we will have incurred in the
development of our technology and may never achieve profitability.

Risks Relating to this Offering

The concentrated ownership of our common stock may have the effect of
delaying or preventing a change of control of our company.

As of May 31, 2000, our directors and officers beneficially owned
approximately 43% of the outstanding shares of our common stock. As a result,
our directors and officers, to the extent they act together, will be in a
position to significantly influence the outcome of matters requiring a
stockholder vote, including the election of directors, the adoption or
amendment of provisions in our certificate of incorporation or bylaws and the
approval of mergers and other significant corporate transactions. This
concentrated ownership of our common stock may have the effect of delaying or
preventing a change of control of our company.

S-17
<PAGE>

Our stock price may continue to be volatile and could decline following
this offering.

Historically, the market price of our common stock has been very
volatile. The trading price of our common stock is expected to continue to be
subject to substantial volatility in response to numerous factors, including
publicity regarding actual or potential results with respect to development of
the Syntroleum Process and design, construction and commercial operation of
plants using our process, announcements of technological innovations by others
with competing GTL processes, developments concerning intellectual property
rights, including claims of infringement, annual and quarterly variances in
operating results, changes in energy prices, competition, changes in financial
estimates by securities analysts, any differences in actual results and results
expected by investors and analysts, investor perception of our favorable or
unfavorable prospects and other events or factors. In addition, the stock
market has experienced and continues to experience significant price and volume
volatility that has affected the market price of equity securities of many
companies. This volatility has often been unrelated to the operating
performance of those companies. These broad market fluctuations may adversely
affect the market price of our common stock. There is no guarantee that an
active public market for our common stock will be sustained.

Provisions in our charter documents and Delaware law may delay or prevent
an acquisition of our company, which could decrease the value of our common
stock.

Our certificate of incorporation and bylaws and Delaware law contain
provisions that could make it difficult for a third party to acquire our
company without the consent of our board of directors. The provisions of our
certificate of incorporation and bylaws include a classified board of directors
with staggered terms, supermajority voting requirements for business
combinations with owners of 10% or more of our common stock and restrictions on
the ability of stockholders to take action by written consent. In addition, our
board of directors has adopted a stockholder rights plan, and is authorized to
set the terms of our preferred stock without stockholder approval. Delaware law
also imposes some restrictions on mergers and other business combinations
between our company and owners of 15% or more of our common stock. These
provisions apply even if an acquisition proposal is considered beneficial by
some stockholders and could depress the value of our common stock.

Future sales of our common stock could adversely affect our stock price.

Substantial sales of our common stock in the public market following this
offering, or the perception by the market that those sales could occur, could
lower our stock price or make it difficult for us to raise additional equity
capital in the future. These sales could include sales of shares of our common
stock by our directors and officers, who beneficially owned approximately 43%
of the outstanding shares of our common stock as of May 31, 2000. We cannot
predict if future sales of our common stock, or the availability of our common
stock for sale, will harm the market price for our common stock or our ability
to raise capital by offering equity securities.

You will suffer immediate and substantial dilution.

The public offering price per share of common stock is substantially
higher than the net tangible book value per share immediately after this
offering. As a result, investors purchasing stock in this offering will
experience an immediate dilution in the net tangible book value of the common
stock of $14.21 per share, based on the number of outstanding shares as of
March 31, 2000 and a public offering price of $17.50 per share.

S-18
<PAGE>

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

This prospectus supplement 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
these plants, anticipated costs to make products from these plants, the timing
of commencement and completion of the design and construction of these plants,
obtaining required financing for these plants, the economic construction and
operation of gas-to-liquids plants, the value and markets for plant products,
testing, certification, characteristics and use of plant products, the
continued development of the Syntroleum Process (alone or with partners),
anticipated capital expenditures, anticipated revenues, the sale of and costs
associated with our 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," "plan," "project," "should" and similar expressions
are intended to be among the statements that identify forward-looking
statements. Although we believe that the expectations reflected in these
forward-looking statements are reasonable, these kind of statements involve
risks and uncertainties. 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 risks that the cost
of designing, constructing and operating commercial-scale gas-to-liquids plants
will exceed current estimates, commercial-scale gas-to-liquids plants will not
achieve the same results as those demonstrated on a laboratory or pilot basis,
gas-to-liquids plants may experience technological and mechanical problems,
improvements to the Syntroleum Process currently under development may not be
successful, plant economics may be adversely impacted by operating conditions,
including energy prices, construction risks and risks associated with
investments and operations in foreign countries, our ability to implement
corporate strategies, competition, intellectual property risks, our ability to
obtain financing and other risks described under "Risk Factors" and elsewhere
in this prospectus supplement and the accompanying prospectus.

S-19
<PAGE>

USE OF PROCEEDS

We expect our net proceeds from the sale of the 5,250,000 shares of
common stock in this offering will be approximately $86 million ($99 million if
the underwriters' over-allotment option is exercised in full) at a public
offering price of $17.50 per share, after deducting the underwriting discount
and estimated offering expenses of $450,000. We intend to use a substantial
portion of the net proceeds from this offering to fund a portion of the
construction costs of the Sweetwater plant. We currently anticipate that we
will make an equity contribution of between approximately $75 million and $95
million for the construction of the Sweetwater plant. We have not yet received
definitive cost estimates for the construction of this plant. We plan to obtain
additional funds for these construction costs primarily through non-recourse
debt financing at the project level, as well as additional equity financing in
a joint venture that will own this plant. We have not yet entered into
definitive arrangements with other equity investors or financial institutions
relating to the debt financing, and we cannot assure you that we will be able
to obtain these funds. In the event that we obtain equity financing from third
parties in excess of amounts currently anticipated, we plan to reduce our
contribution to the Sweetwater project proportionally. If we do not use all of
the net proceeds from this offering to fund construction costs of the
Sweetwater plant or if the Sweetwater project is abandoned due to failure to
obtain necessary funding or for other reasons, we intend to use any remaining
net proceeds to fund costs associated with pilot plant facilities, the
development and construction of additional GTL plants, research and development
activities, the acquisition of complementary technologies, working capital
needs and other general corporate purposes. As a result of the foregoing, we
cannot specify with certainty the particular uses for our net proceeds from
this offering. Accordingly, our management will have broad discretion in the
application of the net proceeds.

Pending use of the net proceeds, we intend to invest the funds in short-
term, interest-bearing, investment-grade, marketable securities.

DIVIDEND POLICY

Cash dividends have not been paid since inception. We currently intend to
retain any earnings for the future operation and development of our business
and do not currently anticipate paying any dividends in the foreseeable future.
Any future determination as to dividend policy will be made, subject to
Delaware law, in the discretion of our board of directors and will depend on a
number of factors, including our future earnings, capital requirements,
financial condition and business prospects and other factors that our board of
directors may deem relevant. Although we are not currently a party to any
agreement that restricts dividend payments, future dividends may be restricted
by our then-existing financing arrangements. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

S-20
<PAGE>

PRICE RANGE OF COMMON STOCK

Our common stock is traded on the National Market System of the Nasdaq
Stock Market under the symbol "SYNM." The table below reflects the high and low
bid prices for the common stock for the periods indicated. The information has
been adjusted for a two-for-one stock split on February 9, 1998.

<TABLE>
<CAPTION>
Bid Price
--------------
High Low
---- ----
<S> <C> <C>
1998:
First Quarter.............................................. $35 1/2 $25 1/2
Second Quarter............................................. 32 11/16 16 1/4
Third Quarter.............................................. 25 1/8 6
Fourth Quarter............................................. 12 3/8 5 1/4
1999:
First Quarter.............................................. $11 1/2 $ 5 3/8
Second Quarter............................................. 9 1/8 5 5/8
Third Quarter.............................................. 10 6 1/2
Fourth Quarter............................................. 10 3/16 5 7/8
2000:
First Quarter.............................................. $27 $ 7
Second Quarter (through June 29, 2000)..................... 26 5/8 7 15/16
</TABLE>

As of June 29, 2000, the last reported bid price of our common stock was
$18.125. As of June 29, 2000, we had approximately 1,564 record holders of our
common stock (including brokerage firms and other nominees).

S-21
<PAGE>

CAPITALIZATION

The following table sets forth at March 31, 2000 our historical
capitalization and our as adjusted capitalization after giving effect to the
completion of this offering at a public offering price of $17.50 per share, and
prior to the application of the estimated net proceeds from this offering as
set forth in "Use of Proceeds."

This table should be read along with our consolidated financial
statements and related notes included elsewhere in this prospectus supplement.
The information in this table assumes no exercise of the underwriters' over-
allotment option.

<TABLE>
<CAPTION>
March 31, 2000
----------------------
Historical As Adjusted
---------- -----------
(In thousands)
<S> <C> <C>
Cash and cash equivalents................................ $ 18,667 $104,580
Short term investments................................... 3,441 3,441
-------- --------
Total.................................................. $ 22,108 $108,021
======== ========
Long-term debt........................................... $ -- $ --
-------- --------
Shareholders' equity(1):
Common stock........................................... 350 403
Additional paid-in capital............................. 70,647 156,507
Notes receivable from sale of common stock............. (599) (599)
Treasury stock......................................... (77) (77)
Accumulated deficit.................................... (49,026) (49,026)
-------- --------
Total shareholders' equity............................. 21,295 107,208
-------- --------
Total capitalization................................. $ 21,295 $107,208
======== ========
</TABLE>
--------
(1) Does not include an aggregate of 2,395,496 shares of common stock issuable
pursuant to outstanding stock options granted to directors, officers and
other employees at a weighted average exercise price of $7.79 per share
(including vested options for 1,502,982 shares). See "Shares Eligible For
Future Sale."

S-22
<PAGE>

DILUTION

Our net tangible book value as of March 31, 2000 was $21,295,000 or $.78
per share of common stock. Net tangible book value per share is determined by
dividing our tangible net worth, which is tangible assets less liabilities, by
the total number of shares of our common stock outstanding. After giving effect
to the sale of 5,250,000 shares of our common stock offered hereby at a public
offering price of $17.50 per share and after deducting underwriting discounts
and commissions and estimated offering expenses payable by us, our as adjusted
net tangible book value at March 31, 2000 would have been $107,208,000 or $3.29
per share. This represents an immediate increase in net tangible book value to
our existing shareholders of $2.51 per share and an immediate dilution of
$14.21 per share which is the difference between the public offering price and
the net tangible book value per share after the offering, to persons purchasing
our common stock at the public offering price. The following table illustrates
the per share dilution:

<TABLE>
<S> <C> <C>
Public offering price per share................................... $17.50
------
Net tangible book value per share as of March 31, 2000.......... $ .78
Increase in net tangible book value per share attributable to
sale of common stock in the offering........................... $2.51
-----
As adjusted net tangible book value per share after the offering.. $ 3.29
------
Dilution in net tangible book value per share to the purchasers of
common stock in the offering..................................... $14.21
======
</TABLE>

S-23
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below is derived from
our consolidated financial statements. This information should be read along
with the consolidated financial statements and the related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus supplement. The results of
operations of SLH Corporation have been included in our consolidated statement
of operations following the August 7, 1998 effective date of the merger of
Syntroleum Corporation and SLH Corporation. The selected consolidated financial
data provided below is not necessarily indicative of our future results of
operations or financial performance.

<TABLE>
<CAPTION>
As of As of December 31,
March 31, -----------------------------------
2000 1999 1998 1997 1996 1995
----------- ------- ------- ------ ----- -----
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital............... $19,447 $22,798 $37,476 $9,846 $ 601 $(410)
Property and equipment, net... 8,767 6,442 3,210 1,245 521 507
Total assets.................. 38,585 39,591 50,400 12,091 1,552 873
Deferred revenue.............. 11,000 11,000 11,000 11,000 -- --
Stockholders' equity.......... 21,295 24,832 35,962 (1,242) 266 203
</TABLE>

S-24
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

In August 1998, Syntroleum Corporation, an Oklahoma corporation, merged
into SLH Corporation, a Kansas corporation. SLH Corporation was the surviving
corporation and changed its name to Syntroleum Corporation in connection with
the merger. This merger was accounted for as a reverse acquisition, with
Syntroleum Corporation, an Oklahoma corporation, being treated as the
accounting acquiror. The results of operations of SLH Corporation have been
included in our financial results since completion of the merger.

In June 1999, we completed a reincorporation as a Delaware corporation.
In the reincorporation, our predecessor, Syntroleum Corporation, a Kansas
corporation, merged into a wholly owned Delaware subsidiary, and each share of
our predecessor's common stock was converted into one share of the Delaware
corporation's common stock. The Delaware corporation was the surviving
corporation in the merger. 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.

Because we are incurring costs with respect to developing and
commercializing the Syntroleum Process and do not anticipate recognizing any
significant revenues from licensing our technology or from production from a
specialty plant in the near future, we expect to continue to operate at a loss
unless and until sufficient revenues are recognized from licensing activities,
GTL plants or real estate sales.

Operating Revenues

General. During the periods discussed below, our revenues were generated
from the following:

. sales of real estate holdings owned by SLH Corporation prior to the
merger of Syntroleum Corporation and SLH Corporation,

. reimbursement for research and development activities associated with
the Syntroleum Process, and

. other sources, including rent generated by real estate holdings owned
by SLH prior to the merger.

Because our real estate portfolio has been substantially sold, we expect
to receive lower levels of revenues from these sources in following periods.
In the future, we expect to receive revenue relating to the Syntroleum Process
from four principal sources:

. licensing,

. catalyst sales,

. sales of products from GTL plants in which we own an equity interest,
and

. revenues from research and development activities carried out with
industry partners.

Until the commencement of commercial operation of GTL plants in which we
own an interest, we expect that cash flow relating to the Syntroleum Process
will consist primarily of license fee deposits, site license fees and revenues
associated with joint development activities. We will not receive any cash
flow from GTL plants in which we own an equity interest until the first of
these plants is constructed. Our 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. Our results of operations and cash flows are
expected to be affected by changing 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.

S-25
<PAGE>

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. We have acquired technology, commitment of funds
for joint development activities, services or other consideration in lieu of
the initial cash deposit in cases where we believed the technologies or
commitments had a greater value.

Our site license agreements require fees to be paid in increments when
milestones during the plant design and construction process are achieved. The
amount of the license fee under our 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) our per barrel rate, which currently is
approximately $.50 per barrel of daily capacity, regardless of plant capacity.
Our 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.
Our existing master and volume license agreements allow for the adjustment of
fees for new site licenses under certain circumstances. Our 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
the 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 the other 50% of the deposits and fees when the plant has passed the
performance tests. The amount of license revenue we earn will be dependent on
the construction of plants by licensees, as well as the number of licenses we
sell in the future.

Catalyst Revenues. We expect to earn revenue from the sale of our
proprietary catalysts to our licensees. Our license agreements require our
catalyst to be used in the initial fill for the licensee to receive our process
guarantee. After the initial fill, the licensee may use other catalyst vendors
if appropriate catalysts are available. The price for catalysts purchased from
us pursuant to license agreements is equal to our cost plus a specified margin.
We will receive revenue from catalyst sales if and when our licensees purchase
catalysts. We expect that catalysts will need to be replaced every three to
five years.

GTL Plant Revenues. We intend to develop several GTL plants and to retain
significant equity interests in these plants. These plants will enable us to
gain experience with the commercial operation of the Syntroleum Process and, if
successful, are expected to provide ongoing revenues. The anticipated products
of these plants (i.e., fuels, synthetic lube base oils, process oils, waxes,
synthetic drilling fluid and liquid normal paraffins) have historically been
sold at premium prices and are expected to result in relatively high margins
for these plants. We anticipate forming several joint ventures with energy
industry and financial partners in order to finance and operate these plants.
We anticipate that our 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.

Joint Development Revenues. We continually conduct research and
development activities in order to reduce the capital and operating costs of
GTL plants based on the Syntroleum Process. We conduct our research and
development activities primarily through two initiatives: (1) independent
development utilizing our own resources and (2) formal joint development
arrangements with our licensee partners and others. Through these joint
development agreements, we may receive revenue as reimbursement for specified
portions of our research and development expenses. Under some of these
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 March 31, 2000, our real estate
inventory consisted of undeveloped land in Houston, Texas (300 acres of
undeveloped land and 100 lots comprising the "Houston Project") and in

S-26
<PAGE>

Corinth, Texas (nine acres). This real estate inventory was owned by SLH
Corporation prior to the merger of Syntroleum Corporation and SLH Corporation
and reflects the remaining assets of a real estate development business that
was conducted by SLH's former parent corporation. Our total real estate
inventory had an aggregate carrying value at March 31, 2000 of approximately
$3.2 million. All of our real estate inventory is held for sale except the
Houston Project, which is being developed for commercial and residential use
and ultimate sale. The timing of real estate sales will create variances in
period-to-period earnings recognition. We do not intend to acquire additional
real estate holdings for development and/or sale outside our core business
interests, and real estate sales revenues should decrease as the current real
estate inventory is liquidated.

In February 2000, we closed the sale of the Reno parking garage to
Fitzgeralds Reno, Inc. The sale price was $3 million, of which $750,000 was
paid in cash at or before closing and the balance was paid in the form of a
Fitzgeralds' promissory note in the principal amount of $2,250,000. The note
bears interest at the rate of 10% and is payable in monthly installments of
principal and interest based on a 20-year amortization, with the entire unpaid
balance due in 10 years. The note is secured by the ground lease on which the
garage is located as well as the parking garage itself.

Operating Expenses

Our 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 expenses
associated with other related administrative functions. Our policy is to
expense pilot plant, engineering and research and development costs as
incurred. All of these research and development expenses are associated with
our development of the Syntroleum Process. We have also recognized depreciation
and amortization expense primarily related to office and computer equipment.
Following the merger of Syntroleum Corporation and SLH Corporation in 1998, our
operating expenses have also included costs of real estate sold and real estate
operating expense. Our general and administrative expenses have increased
substantially, and we have expanded our research and development, engineering
and commercial staffing levels. These expenses are expected to continue to
increase. We also expect to continue to incur pilot plant, engineering and
research and development expenses as we continue to develop and improve our GTL
technology.

We expect to incur significant expenses in connection with the start-up
of our GTL plants. For example, we expect that our expenses will increase at
the time of commencement of construction of GTL plants in which we own an
interest. Upon the commencement of commercial operation of GTL plants in which
we own an equity interest, we will incur cost of sales expenses relating
primarily to the cost of natural gas feedstocks for our specialty plants and
operating expenses relating to these plants, including labor, supplies and
maintenance. Due to the substantial capital expenditures associated with the
construction of GTL plants, we expect to incur significant depreciation and
amortization expense in the future. Our policy is to capitalize costs
associated with the development of GTL plants once a plant life is established
and an engineering agreement is signed.

Results of Operations

Overview

During the first three months of 2000, we continued our efforts to
commercialize our GTL technology on several fronts. We continued our joint
participation with ARCO in a 70 barrel per day demonstration GTL plant located
at ARCO's Cherry Point refinery in the State of Washington. The plant began
operating in July 1999. Pilot tests, which have been successful, are expected
to conclude on June 30, 2000, at which time the Cherry Point facility will be
shut down. Plant operations have successfully demonstrated a number of key
aspects of our proprietary autothermal reformer and moving bed reactor designs
and related catalyst performance. We have gathered data and experience from
plant operations

S-27
<PAGE>

which will be useful in our efforts to apply these reactor designs on a
commercial basis both for fuels and specialty product plants.

We continued our activities to confirm catalyst performance and reactor
designs for our proposed Sweetwater project. These activities included the
construction and operation of new pilot scale Fischer-Tropsch reactors at our
pilot plant in Tulsa, Oklahoma. Operation of these reactors will allow us to
complete a battery of confirmation tests and begin detailed engineering of our
proposed Sweetwater plant during the year 2000.

We also continued our efforts to advance numerous other aspects of the
Sweetwater project. In February 2000, we selected a site for the plant
approximately 4 kilometers from the North West Shelf liquid natural gas
facility on the Burrup Peninsula of Western Australia. In November 1999, we
signed a project development agreement with Tessag Industrie-Anlagen GmbH
(formerly Klockner Industrie-Anlagen GmbH), a wholly-owned subsidiary of RWE
AG, to provide us with a fixed price for the design and construction of the
Sweetwater plant. We entered into a letter of intent with the Commonwealth of
Australia in February 2000 to license the Syntroleum Process as part of a
program designed to unlock the value of Australia's energy reserves and improve
the quality of the environment. Under this letter of intent, the Commonwealth
would make an AUD$30 million (approximately U.S.$19 million) deposit, of which
AUD$20 million (approximately U.S.$12.4 million) may be credited against future
license fees. The letter of intent also provides that the Commonwealth would
make an unsecured, interest-free loan in the amount of AUD$40 million
(approximately U.S.$25 million) with a 25-year maturity to support the further
development and commercialization of GTL technologies in Australia, and that we
would conduct a feasibility study on constructing a large-scale GTL fuels plant
in Australia. The transactions contemplated by our letter of intent with the
Commonwealth are subject to the execution of definitive license and loan
agreements.

Subsequent to the end of the first quarter of 2000, we entered into a
non-exclusive volume license agreement with Ivanhoe Energy Inc. granting
Ivanhoe rights to use the Syntroleum Process to convert natural gas into
synthetic oil and transportation fuels.

Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999

Joint Development Revenue. Revenues from our joint research and
development and pilot plant operations were $283,000 in the first three months
of 2000, down $320,000 from the first three months of 1999 when they were
$603,000. The decrease was primarily due to the completion during 1999 of the
funding received under our joint development agreement with ARCO relating to
the construction of the pilot plant at ARCO's Cherry Point refinery in
Washington. We continue to receive funding for the operating of this pilot
plant. Pilot tests at the Cherry Point facility are scheduled to be completed
by June 30, 2000.

Real Estate Sales Revenue. Revenues from the sale of real estate were
$3,538,000 in the first three months of 2000, compared to zero in the first
three months of 1999. The increase was due to the sale of our Reno parking
garage to Fitzgeralds Reno, Inc. during February of this year and the sale of
25 lots from our Houston Project. There were no real estate sales during the
first quarter of 1999. Real estate sales revenues should decrease as the
remaining real estate inventory is sold.

Other Revenue. Other revenues were $54,000 in the first three months of
2000, down $109,000 from the first three months of 1999 when they were
$163,000. The decrease resulted primarily from the lower parking and retail
rentals from our parking garage in Reno, Nevada, which we sold in February of
this year.

Cost of Real Estate Sold and Real Estate Operating Expense. The cost of
real estate sold was $3,078,000 in the first three months of 2000, compared to
zero in the first three months of 1999. The increase resulted from the sale of
our Reno parking garage to Fitzgeralds Reno, Inc. during February of this year
and the sale of 25 lots from our Houston Project. We had no real estate sales
in the first quarter of 1999. Real estate expenses were $162,000 during the
first quarter of 2000, up $6,000 from $156,000 in the first quarter of 1999.

S-28
<PAGE>

This increase was due to intensified efforts to sell the remaining real estate
assets acquired in the merger with SLH during 1998.

Pilot Plant, Engineering and R&D. Expenses from pilot plant, engineering
and research and development activities were $3,153,000 in the first three
months of 2000, up $1,501,000 from the first three months of 1999 when these
expenses were $1,652,000. The increase occurred primarily as a result of the
continued expansion of our Tulsa, Oklahoma pilot plant facility, higher
research and development spending and higher outside engineering expense
associated with the design and engineering of the Sweetwater plant.

General and Administrative Expense. General and administrative expenses
were $3,035,000 in the first three months of 2000, up $881,000 from the first
three months of 1999 when these expenses were $2,154,000. The increase is
attributable primarily to higher wages and salaries resulting from our higher
staffing levels, higher rent expense and higher expense for outside
consultants.

Investment, Interest and Other Income (Expense). Investment, interest and
other income decreased to $201,000 in the first three months of 2000, down
$192,000 from the first three months of 1999 when this income was $393,000. The
decrease was primarily attributable to increased minority interest expense from
the Houston Project and lower cash balances invested during the first quarter
of 2000 compared to the 1999 period.

Provision for Income Taxes. We incurred a loss in both the first three
months of 2000 and the first three months of 1999 and did not recognize an
income tax benefit for such loss.

Net Income. In the first three months of 2000, we experienced a loss of
$5,352,000. The loss was $2,549,000 higher than in the first three months of
1999 when we experienced a loss of $2,803,000. The increase in the loss is a
result of the factors described above.

1999 Compared to 1998

Joint Development Revenue. Revenues from our joint research and
development and pilot plant operations were $1,986,000 in 1999, up $207,000
from 1998 when they were $1,779,000. The increase was primarily due to the
funding received under the joint development agreement with ARCO relating to
our pilot plant at their Cherry Point refinery in Washington. This increase was
partially offset by decreased revenues under our joint development agreement
with Texaco as a result of the completion in 1998 of construction of the
hybrid, multiphase (HMX) reactor at our pilot plant.

Real Estate Sales Revenue. Revenues from the sale of real estate were
$1,219,000 in 1999, down $1,197,000 from $2,416,000 in 1998. This decrease was
the result of the sale of 38 lots in the Houston Project and the sale of the
remaining land in Kansas City, Missouri during 1999 compared to the sale of the
final three condominium units at our Quail Run development in Santa Fe, New
Mexico, the sale of undeveloped land in Kansas City, Missouri and the sale of a
boat slip in Florida during 1998. These revenues should continue to decrease as
the remaining real estate inventory is sold.

Other Revenue. Other revenues were $650,000 in 1999, up $366,000 from
1998 when they were $284,000. The increase resulted primarily from parking and
retail rentals at our parking garage in Reno, Nevada. We sold this parking
garage during the first quarter of 2000 and we will no longer receive revenues
from parking and retail rentals at this garage.

Cost of Real Estate Sold and Real Estate Operating Expense. The cost of
real estate sold was $824,000 in 1999, down $1,563,000 from $2,387,000 in 1998.
The decrease resulted from the sale of 38 lots in the Houston Project and the
sale of the remaining land in Kansas City, Missouri. Our 1998 cost of sales
included the sale of our remaining condominium units in New Mexico, the
undeveloped land in Kansas City and the boat slip in Florida during 1998. Real
estate operating expenses were $781,000 during 1999, up $514,000 from 1998 when
they were $267,000. This increase was primarily attributed to inclusion of a
full year of expenses in 1999 as the merger with SLH occurred in August of
1998.

S-29
<PAGE>

Pilot Plant, Engineering and R&D. Expenses from pilot plant, engineering
and research and development activities were $10,863,000 in 1999, up $5,170,000
from 1998 when these expenses were $5,693,000. The increase occurred primarily
as a result of the expansion of our Tulsa, Oklahoma pilot plant facility, the
purchase of equipment for our recently acquired technology center in Tulsa,
Oklahoma, higher research and development spending and higher outside
engineering expense associated with our joint efforts with ARCO to design and
construct the pilot plant at ARCO's Cherry Point refinery and our efforts to
accelerate the preliminary design and operating parameters of the Sweetwater
plant.

General and Administrative Expense. General and administrative expenses
were $10,409,000 in 1999, up $1,258,000 from 1998 when these expenses were
$9,151,000. The increase is attributable primarily to higher wages and salaries
resulting from our increased staffing levels, increased rent expense and
increased expense for outside consultants.

Investment, Interest and Other Income (Expense). Investment, interest and
other income increased to $1,864,000 in 1999, up $556,000 from 1998 when this
income was $1,308,000. The increase was primarily attributable to interest
income from higher cash balances following the merger of Syntroleum Corporation
and SLH Corporation.

Provision for Income Taxes. We incurred a loss in both 1999 and 1998 and
did not recognize an income tax benefit for such loss.

Net Income. In 1999, we experienced a loss of $17,158,000. The loss was
$5,447,000 higher than in 1998 when we experienced a loss of $11,711,000. The
increase in the loss is a result of the factors described above.

1998 Compared to 1997

Joint Development Revenue. Revenues from our joint research and
development and pilot plant operations were $1,779,000 in 1998, down $227,000
from 1997 when they were $2,006,000. The decrease was primarily due to the
completion in 1998 of construction of the hybrid, multiphase (HMX) reactor at
our pilot plant that was funded by Texaco under our joint development
agreement.

Real Estate Sales Revenue. Revenues from the sale of real estate were
$2,416,000 in 1998, up from zero in 1997 when we had no real estate operations.
This increase was the result of the sale of the final three condominium units
at SLH's Quail Run development in Santa Fe, New Mexico, the sale of undeveloped
land in Kansas City, Missouri and the sale of a boat slip in Florida.

Other Revenue. Other revenues were $284,000 in 1998, up $283,000 from
1997 when they were $1,000. The increase resulted primarily from parking and
retail rentals at our parking garage in Reno, Nevada.

Cost of Real Estate Sold and Real Estate Operating Expense. The cost of
real estate sold was $2,387,000 in 1998, up from zero in 1997 when we had no
real estate operations. The increase resulted from the sale of the condominium
units in New Mexico, the undeveloped land in Kansas City and the boat slip in
Florida. Real estate operating expenses were $267,000 in 1998 compared to zero
in 1997 when we had no real estate operations.

Pilot Plant, Engineering and R&D. Expenses from pilot plant, engineering
and research and development activities were $5,693,000 in 1998, up $2,139,000
from 1997 when these expenses were $3,554,000. The increase occurred as a
result of our higher research and development spending and higher outside
engineering expense, partially offset by lower operating costs associated with
our development of the HMX reactor.

General and Administrative and Catalyst Services Expense. General and
administrative expenses were $9,151,000 in 1998, up $5,533,000 from 1997 when
these expenses were $3,618,000. The increase is

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attributable primarily to higher wages and salaries resulting from our
increased staffing levels, increased rent expense and increased expense for
outside consultants. During 1997 Syntroleum incurred a $4,800,000 catalyst
services expense in connection with a transaction whereby (1) Criterion
exercised a portion of an option and purchased 167,000 shares (on a pre-merger
basis) of Syntroleum's common stock for $2,004,000, (2) Syntroleum and
Criterion modified an agreement regarding future purchases of catalyst by
Syntroleum and (3) Syntroleum and Criterion entered into an agreement pursuant
to which Syntroleum issued 400,000 shares (on a pre-merger basis) of
Syntroleum's common stock (valued at $12.00 per share) to Criterion in
consideration for all prior services rendered to and catalyst received by
Syntroleum from Criterion and other consideration. Accordingly, this $4,800,000
was expensed.

Investment, Interest and Other Income (Expense). Investment, interest and
other income increased to $1,308,000 in 1998, up $955,000 from 1997 when this
income was $353,000. The increase was primarily attributable to interest income
from higher cash balances following the merger of Syntroleum Corporation with
SLH Corporation.

Provision for Income Taxes. We incurred a loss in both 1998 and 1997 and
did not recognize an income tax benefit for such loss.

Net Income. In 1998, we experienced a loss of $11,711,000. The loss was
$2,099,000 higher than 1997 when we experienced a loss of $9,612,000. The
increase in the loss is as a result of the factors described above.

Liquidity and Capital Resources

General

As of March 31, 2000, we had $22,108,000 in cash and short-term
investments and $3,177,000 in current liabilities. We do not currently have any
material outstanding debt or lines of credit. Prior to the merger of Syntroleum
Corporation and SLH Corporation in 1998, the primary sources of liquidity for
Syntroleum Corporation 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. As of March 31, 2000, we had $173,000 in accounts receivable
outstanding with our joint development partners relating to joint development
activities. We currently have short-term investments approximating $3,200,000
which secure 49.9% of a letter of credit for the Powder Basin Partnership in
which we are a 49.9% investor.

Cash flows used in operations were $3,059,000 in the first three months
of 2000 compared to $4,522,000 during the first three months of 1999. The
decrease in cash flows used in operations during the first three months of 2000
compared to the first three months of 1999 was primarily the result of the
completion of construction of the Cherry Point pilot plant in Cherry Point,
Washington during 1999 which was constructed under a joint development
agreement between ourselves and ARCO. Cash flows used in operations also
decreased because of the completion of site development for the beginning
phases of the Houston Project, the sale of the Reno garage and the sale of 25
lots in the Houston Project. Cash flows (used in) provided by operations were
($16,599,000), ($12,132,000) and $6,736,000 in 1999, 1998 and 1997,
respectively. The decrease in cash flows provided by operations in 1999 as
compared to 1998 was primarily the result of the absence during 1999 of prepaid
license and option fees, which we recognize as deferred revenue, the sale of 38
lots in Houston, Texas, offset by additional spending on the Houston
development, higher salaries and wages related to higher staffing levels and
increased spending on research and development and engineering activities.
Additionally, during 1998, we sold the final three condominium units in Santa
Fe, New Mexico, which were acquired from SLH as a result of our merger.

Cash flows used in investment activities were $2,437,000 in the first
three months of 2000 compared to $270,000 in the first three months of 1999.
The increase in cash flows used in investing activities in the first three
months of 2000 compared to the first three months of 1999 resulted primarily
from the increased capitalized development costs for the Sweetwater project to
be located in Western Australia. Cash flows (used

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<PAGE>

in) provided by investment activities were ($4,094,000), $35,242,000 and
($1,114,000) in 1999, 1998 and 1997, respectively. The decrease in cash flows
provided by investment activities in 1999 as compared to 1998 resulted from the
maturity of investments held that were acquired in the merger of Syntroleum
Corporation and SLH Corporation and by higher spending on property and
equipment.

Cash flows provided by financing activities were $3,847,000 in the first
three months of 2000 compared to $5,997,000 in the first three months of 1999.
The decrease was primarily due to the receipt during 1999 of approximately
$6,000,000 in satisfaction of a judgment in our favor which was a contingency
of the merger with SLH. This was offset by a $2,000,000 payment by Methanex
used to fund costs associated with the Sweetwater project and the exercise of
employee stock options during the first quarter of 2000. Cash flows provided by
financing activities were $6,028,000, $1,713,000 and $3,654,000 in 1999, 1998
and 1997, respectively. The increase in cash flows provided by financing
activities in 1999 as compared to 1998 is primarily related to the settlement
of a merger contingency in early 1999 for $6 million. Cash flows in 1998
primarily reflected the investment by Enron in our Sweetwater project and cash
received in the merger of Syntroleum Corporation and SLH Corporation.

The construction of our GTL plants will require significant capital
expenditures. Our operating activities and other efforts to commercialize the
Syntroleum Process will also involve significant expenditures, and we will need
additional funds to satisfy our working capital needs in the near term. We
intend to obtain additional funding through joint ventures, partnerships,
license agreements and other strategic alliances, as well as various other
financing arrangements. We may also seek debt or equity financing in the
capital markets. In the event such capital resources are not available to us,
our GTL plant development and other activities may be curtailed. Additionally,
we estimate that construction and disposal costs to complete real estate
projects in development will be approximately $1.5 million.

We have sought and intend to continue to temporarily invest our assets,
pending their use, so as to avoid becoming subject to the registration
requirements of the Investment Company Act of 1940. These investments are
likely to result in lower yields on the funds invested than might be available
in the securities market generally. If we were required to register as an
investment company under the Investment Company Act, we would become subject to
substantial regulation that would materially adversely affect us.

If five or fewer individuals own, directly or under constructive
ownership rules, more than 50% in value of our outstanding stock at any time
during the last half of a taxable year and at least 60% of our adjusted
ordinary gross income consists of personal holding company income, we would be
subject to not only the regular federal income tax, but would also be subject
to an additional tax of 39.6% of our undistributed personal holding company
income. Based on current levels of stock ownership, we believe that slightly
less than 50% in value of our common stock is owned by five or fewer
individuals. We also believe that payments we receive under our license
agreements do not constitute items of personal holding company income, although
the Internal Revenue Service may contest that position.

Initial Specialty Product GTL Plant

We are developing a 10,000 barrel per day specialty product plant called
the "Sweetwater plant." The capital costs of this plant are currently expected
to be funded primarily by non-recourse senior and subordinated debt at the
project level, as well as equity financing, including a portion of the proceeds
of this offering and the funding contemplated by the letters of intent
described below. We are currently exploring sources of debt and additional
equity capital to fund final design and construction. However, we can give no
assurance that the funding discussed below, any additional equity funding or
debt financing for this project will be obtained.

We plan to construct the Sweetwater plant through a joint venture, and
our ownership percentage in this joint venture will depend on the terms of
subsequent financings. A project development company we have engaged in
connection with the Sweetwater plant is expected to own a 4% equity interest in
the Sweetwater project.

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Upon Enron's funding of its net capital contribution, it would become
entitled to convert its interest in the Sweetwater project into a maximum of
1,640,625 shares of our common stock during a period beginning one year after
the date on which the project completes successful performance testing and
ending on the tenth anniversary of execution of definitive agreements relating
to the transaction contemplated in the letter of intent. In addition, upon
Enron's funding of its net capital contribution, it would receive a warrant to
acquire no more than 1,640,625 additional shares of our common stock at an
exercise price equal to $21.00 per share. Under specified circumstances and
beginning no earlier than the fourth year after the Sweetwater project has
passed its performance tests, Enron would have the right to require us to
purchase their equity interest in the Sweetwater project for a contractually
specified amount. We would have a similar option to purchase Enron's equity
interest in the Sweetwater project at a contractually specified amount
beginning no earlier than the ninth year after the Sweetwater project has
passed its performance test.

The State of Western Australia has recently announced its intention to
assist our Sweetwater project and other potential projects in the area with a
AUD$30 million (approximately US$19 million) common use infrastructure package,
including a desalinization plant to which our project will supply steam and
from which our project will receive cooling water.

In addition to the $2 million contributed by Methanex and the $1 million
contributed by Enron, we had contributed $2 million toward the Sweetwater
plant's development, through March 31, 2000.

For more detailed discussion of the Sweetwater project, see "Business--
Implementation of Syntroleum's Business Strategy."

In February 2000, we entered into a letter of intent with the
Commonwealth of Australia to license the Syntroleum Process to the Commonwealth
as part of a program for unlocking the value of Australia's energy reserves and
improving the quality of the environment. Under the letter of intent, the
Commonwealth would make a AUD$30 million (approximately U.S.$19 million)
license fee deposit, of which AUD$20 million (approximately U.S.$12 million)
may be credited against future license fees. The letter of intent also provides
that the Commonwealth would make a 25-year, AUD$40 million (approximately
U.S.$25 million) interest-free loan to support the further development and
commercialization of GTL technologies in Australia. The transactions
contemplated by the letter of intent with the Commonwealth are subject to
negotiation and execution of definitive license and loan agreements.

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Currency Risk

We expect to conduct a portion of our business in currencies other than
the United States dollar. We may attempt to minimize our currency exchange risk
by seeking international contracts payable in local currency in amounts equal
to our estimated operating costs payable in local currency and in United States
dollars for the balance of the contract. For example, our proposed funding plan
with the Commonwealth of Australia will be in Australian dollars. In addition,
we expect to seek contractual purchase price adjustments based on an exchange
rate formula related to United States dollars. In the future, we may also have
significant investments in countries other than the United States. The
functional currency of these foreign operations may be the local currency, and
accordingly, financial statement assets and liabilities may be translated at
prevailing exchange rates.

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, as amended by SFAS No. 137, is effective for fiscal years beginning
after June 15, 2000. However, companies may elect to adopt SFAS No. 133 prior
to that date. 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. We are currently in the process of determining timing and
the effect of adopting SFAS No. 133.

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BUSINESS

Overview

. Premium, ultra-clean liquid fuels, such as diesel, kerosene,
gasoline, naphtha and fuel for fuel cells, and

. Specialty products, such as synthetic lubricants, process oils, high
melting point waxes, liquid normal paraffins, drilling fluids and
chemical feedstocks.

Business Strategy

Broadly License the Syntroleum Process. We intend to continue offering
licenses to use the Syntroleum Process for the production of synthetic crude
oil and liquid fuels. To date, we have entered into license agreements with the
following companies or their affiliates: ARCO, Enron Corp., Ivanhoe Energy
Inc., Kerr-McGee Corporation, Marathon Oil Company, Repsol-YPF, S.A. and Texaco
Inc. We have also recently entered into a letter of intent with the
Commonwealth of Australia to license the Syntroleum process, which is subject
to the execution of a definitive license agreement. We believe that widespread
licensing, combined with research and development activities to further improve
the Syntroleum Process, will provide an advantage over competing technologies,
strengthen our relationships with our existing licensees and attract new
licensees.

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To date, we have joint development, testing, marketing or strategic
relationships with the following companies:

. AMEC Process and Energy Ltd. . GE Power Systems
. ARCO . The Lubrizol Corporation
. Argonne National Laboratories . Lyondell Petrochemical Company
. Bateman Engineering Inc. . Marathon
. Catalytica Combustion Systems, Inc.. Northwest Power Systems
. Criterion Catalyst Company L.P. . Tessag Industrie-Anlagen GmbH
. DaimlerChrysler AG . Texaco
. Epyx Corporation . Volkswagen of America
. General Motors Corporation

The Syntroleum Advantage

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$1 per million British thermal units (price levels that are available
for the purchase of stranded natural gas in many markets),

. produced substantially free of contaminants normally found in fuels
and specialty products made from crude oil,

. used as blending stock to upgrade conventional fuels and specialty
products made from crude oil,

. used unblended in traditional combustion engines to significantly
reduce emissions,

. used in advanced combustion and fuel-cell engines that require sulfur
and aromatic-free fuels, and

. transported using the existing infrastructure for crude oil and
refined products.

The total cost to produce a barrel of fuel includes the amortized plant
or refinery capital costs, the operating costs and feedstock costs (cost of
natural gas in the case of the Syntroleum Process and cost of crude oil in the
case of conventional refineries). Based on our current technology, we expect
the combined capital and operating costs per installed barrel of capacity to
be higher for a GTL plant based on the Syntroleum Process when compared to a
conventional refinery. However, we believe lower prices for natural gas
relative to crude oil can result in a total cost per equivalent barrel of
product for a GTL plant based on the Syntroleum Process that is substantially
less than the equivalent total cost for conventional refineries. Specifically,
we believe the price of stranded natural gas can be generally in the range of
$.25 to $1.25 per thousand cubic feet ($2.50 to $12.50 per equivalent barrel
of synthetic crude) in many markets, as compared to crude oil prices that are
generally in the range of $18.00 to $22.00 per equivalent barrel.

In addition, we believe conventional refineries will face additional
capital and operating costs to meet the expected EPA requirement to reduce the
sulfur content level of diesel fuel to between 15 and 50 parts per million by
2006. According to American Petroleum Institute estimates, a requirement to
reduce this sulfur content to 15 parts per million would add approximately
$4.20 per barrel of additional costs for conventional refining. In contrast,
the Syntroleum Process produces diesel fuel that already meets the expected
low sulfur requirement, providing an incremental relative cost advantage
compared to conventional refineries.

Low Cost. Historically, the most significant obstacle to widespread
commercial use of GTL technology has been capital cost. Because the Syntroleum
Process is less complex than traditional GTL technologies, we believe that GTL
plants based on the Syntroleum Process will have lower capital and operating
costs than comparable-sized GTL plants based on traditional technology.

Small Formats. Given the large number of fields with small reserve
accumulations containing unmarketable natural gas, GTL plants that are
economic only at high levels of throughput have limited application.

We believe that GTL plants based on the Syntroleum Process can be cost-
effective at throughput levels as low as 2,000 barrels per day. Consequently,
the Syntroleum Process could potentially be used at over 59% of the total gas
fields, representing over 95% of the total reserves held in identified natural
gas fields worldwide.

Adaptable. We also believe that GTL plants based on the Syntroleum
Process can be adapted to use lower quality feedstock and can be located in
isolated and remote locations. While many impurities must be removed from
natural gas feedstock prior to processing using traditional GTL technology,
some impurities like nitrogen and carbon dioxide will not need to be
completely removed from natural gas feedstock for GTL plants based on the
Syntroleum Process. Due to their relatively small size and the use of air
instead of pure oxygen,

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we believe GTL plants based on the Syntroleum Process can be placed on skids,
barges and ocean-going vessels. We believe this reduces capital costs for
land-based plants by allowing for offsite fabrication and use of GTL plants at
a variety of locations, including isolated and offshore areas where we believe
a majority of natural gas fields are located. Moreover, because the Syntroleum
Process is a net energy generator, we believe that these plants can be located
in remote areas without the need for any additional power supply.

Portable. Because of their high capital costs, gas pipelines and other
traditional methods for commercialization of natural gas resources require
significant reserves and established local markets to be economically
feasible. However, due to the potential portability of smaller-sized GTL
plants based on the Syntroleum Process, we believe that these plants may in
some circumstances be used to convert smaller quantities of in-place reserves
than would be necessary to support a traditional project. We also believe that
this portability, together with the global nature of the markets for liquid
hydrocarbons, will reduce the risk involved in GTL projects as compared to
traditional methods of commercialization.

Market Potential

Demand for Products

We expect demand for products created through the Syntroleum Process to
be driven by the following:

Worldwide Consumption of Refined Petroleum Products

<TABLE>
<CAPTION>
Product 1988 1993 1998
------- ------------ ------------ ------------
Volume % Volume % Volume %
------ ----- ------ ----- ------ -----
(millions of barrels per day)
<S> <C> <C> <C> <C> <C> <C>
Gasolines (1)................... 14.88 28.26% 16.32 28.43% 18.53 28.80%
Middle Distillates (2).......... 17.95 34.07 20.26 35.28 23.53 36.57
Others (3)...................... 19.84 37.67 20.84 36.29 22.29 34.63
----- ----- ----- ----- ----- -----
Total......................... 52.67 100.0% 57.42 100.0% 64.35 100.0%
===== ===== ===== ===== ===== =====
</TABLE>
-------
(1) Consists of aviation and motor gasoline and light distillate feedstock.
(2) Consists of jet and heating kerosenes, gas oils and diesel oils.
(3) Consists of fuel oil, refinery gas, propane, solvents, petroleum coke,
lubricants, bitumen, wax and refinery fuel and loss.
Source: Derived from information in the BP Amoco Statistical Review of World
Energy, 1999.

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Traditionally, United States consumers have relied on the less efficient
but more popular gasoline engines for automobiles. However, as economic and
environmental pressures come into play, the United States is expected to see
major growth in the replacement of gasoline engines with the more efficient
diesel engines.

Existing crude oil refineries are expected to require additional
investment due to the increasingly stringent specifications regarding sulfur
and aromatics content in fuels. These investments are expected to be uneconomic
for many smaller, less sophisticated refineries. As a result, we believe that
Syntroleum fuels can be a source of the fuel necessary to displace the fuel
supplied by these refineries.

Specialty Products, including Lubricants and Chemical Feedstock. The
synthetic crude oil produced by the Syntroleum Process can be further refined
into specialty products using conventional refining processes that can be
simplified to take advantage of the ultra-clean nature of the synthetic
feedstock. We retain the exclusive right to manufacture these products using
the Syntroleum Process under our license agreements and intend to develop and
own significant equity interests in GTL plants designed to produce these
specialty products. We believe that Syntroleum specialty products have
environmental and performance characteristics that are superior to comparable
conventional crude oil products. For example, we expect our synthetic lube-base
oil will meet or exceed new high performance and emissions standards
established by the United States federal government and the automobile industry
for lubricants in new vehicles beginning in 2003. Our targeted specialty
product markets include the following.

. Lube-Base Oils. We have developed with others a proprietary process
and catalyst system for use in the production of a high quality
synthetic lube oils. These products have a variety of industrial
applications, including use as transformer oil, passenger car motor
oil, heavy duty lubricants and synthetic basestock. Worldwide demand
for all lubricants is approximately 800,000 barrels per day.
Historically, lube oil prices have varied from approximately $40 per
barrel for the lowest quality grades to over $200 per barrel for the
highest quality synthetic grades.

A new regulation in the United States will require that, beginning in
2003, lubricants initially supplied with new vehicles must possess
very high performance and emissions characteristics, such as those
produced by the Syntroleum Process. The National Petroleum Refining
Association has estimated that 60% of the current volume of
lubricants currently produced will not meet these specifications. We
believe that this regulation will cause a substantial increase in
demand for high quality lubricants.

. Process Oils. Process oils are used in a number of industries
involved in the production of chemicals, textiles, rubber and
plastics. These products have a wide variety of applications, from
mold release agents to ingredients in personal care products. Process
oils can also be used in electrical transformers as a cooling and
insulation agent. According to a study prepared for us in 1999,
prices for these products have historically ranged from $35 per
barrel to over $200 per barrel.

. Waxes. Waxes are longer linear chain hydrocarbon molecules that are
solids at room temperature and have a variety of applications,
including adhesives, coatings and other products. United States
demand for waxes is approximately 21,000 barrels per day. These
markets have primarily been supplied with petroleum derived waxes.
Historically, prices have varied between $30 per barrel for the
lowest quality wax to over $150 per barrel for high melting point
synthetic wax.

. Normal Paraffins. Normal paraffins are saturated linear hydrocarbons
with molecular ranges between ten and 15 carbon atoms. These products
must be 98% pure, have low odor levels and be of water clear quality.
They are primarily used in the production of laundry detergent,
cosmetics, pharmaceuticals, paints, stains, aluminum rolling oils and
other products. Prices for normal paraffins historically have
averaged between $60 and $85 per barrel.

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. Drilling Fluids. Drilling fluids are used in the drilling of oil and
gas wells as a coolant and lubricant for the drill bit and to enhance
safety during drilling operations by maintaining well pressure.
Drilling fluids mixed with well cuttings can accumulate under
offshore platforms. Crude oil-based fluids, which have been used
historically, degrade slowly and can suffocate aquatic plant and
animal life. In response to increased environmental pressures,
synthetic drilling fluids have been developed and used in the Gulf of
Mexico and other offshore locations, where prices have generally
ranged between $250 and $300 per barrel. In conjunction with Amoco
Production Company, we have developed a synthetic drilling fluid
product that we expect will meet or exceed all current applicable
environmental requirements for use in the drilling of oil and gas
wells.

Ultra-Clean Synthetic Fuels. The market demand for ultra-clean fuels is
increasing according to a 1998 estimate by the Energy Information
Administration of alternatively fueled vehicles in use in the United States.
This increase has been driven by more stringent environmental and emission
standards in most of the world's industrialized countries and the need for
vehicle manufacturers to respond to the challenge of producing fuel-efficient
engines that meet these standards. The burden of producing cleaner fuels from
conventional crude oil is expected to substantially increase refining costs.
We believe that these factors will promote the creation of markets for premium
ultra-clean synthetic fuels produced by the Syntroleum Process.

Key domestic and international environmental regulations and initiatives
driving the demand for ultra-clean fuels include the following.

. Clean Air Act. The Clean Air Act of 1970 set national goals for clean
and healthy air. It established specific responsibilities for
government and private industry to reduce emissions from vehicles,
factories and other pollution sources. In 1990, the Clean Air Act was
amended and updated to include further provisions regulating ground-
level ozone (urban smog), carbon monoxide and emissions from motor
vehicles. Certain tailpipe (exhaust) standards were set for all motor
vehicles to be phased in by 1996 with provisions that would allow the
EPA to set even lower standards in 1999 if warranted. In December
1999, the EPA made such a determination and has announced lower Tier
2 restrictions on light-duty vehicle emissions. In order to reach
these emission levels, the EPA has mandated that Tier 2 sulfur levels
in gasoline fuels be lowered from the current level of 500 parts per
million to 30 parts per million beginning in 2004. Additionally, the
EPA has proposed a Tier 2 reduction in the sulfur content of highway
diesel fuel from the current level of 500 parts per million to 15
parts per million beginning in 2006. The burden placed on the
petroleum refining and automobile industries to meet these new
gasoline and diesel sulfur levels is significant. In the last eight
years, the sulfur content of crude oil refined in the U.S. has
increased by 20 percent as a result of shifts in the production mix
of the world's crude oil.

In 1998, the EPA implemented centrally fueled fleet and clean fuel
fleet requirements pursuant to the Clean Air Act Amendments of 1990.
These requirements affect owners and operators of fleets
geographically located in metropolitan areas with populations of
250,000 or more and designated by the Environmental Protection Agency
as being in serious, severe, or extreme noncompliance with ambient
ozone standards or with specific carbon monoxide standards. The Clear
Air Act requires that owners of affected fleets must include in any
new vehicle purchases specified percentages of clean fuel vehicles
certified to meet federal Clean Air Act emission standards.

. Energy Policy Act. The Energy Policy Act was passed in 1992 in order
to reduce the dependence by the United States on foreign oil imports.
This act mandates that, by the year 2001, 75% of all affected federal
and state government vehicle purchases, and 90% of all affected
vehicle purchases by private alternative fuel suppliers, must be
alternative fuel vehicles. In addition, the Energy Policy Act
provides the Department of Energy with a goal of displacing 10% of
transportation fuel with non-petroleum replacement fuels, including
alternative fuels, by the year 2000, and 30% by 2010. During the
seven-year period from the passage of the Energy Policy Act in 1992
to 1999, the total number of alternative fuel vehicles grew from
251,000 to an estimated

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418,000. This represents a compounded annual growth rate of 7.6%. The
use of alternative fuels increased from 230,000 gasoline equivalent
gallons in 1992 to an estimated 341,000 gasoline equivalent gallons
in 1999. This represents a compounded annual growth rate of over 6.2%
per year compared to a less than a 2% annual growth rate for
gasoline. Yet, with total United States highway gasoline consumption
currently over 125 billion gallons per year, alternative fuel use
only amounts to approximately 0.2% of the fuel used in the United
States transportation sector each year. For the goals set forth by
the Energy Policy Act to be successful, we believe an alternative
fuel must be found that offers consumers the convenience of using
existing fuel distribution systems, while at the same time meeting
their expectations for vehicle power and range performance. We
believe our Syntroleum fuels could help meet these demands.

. State Regulation. States are also looking for emission reductions.
Many ozone nonattainment areas are looking for reductions from mobile
sources in order to meet EPA's state implementation plan
requirements. The Clean Air Act requires states to develop state
implementation plans demonstrating the emission reductions and
controls necessary for states to meet ozone attainment deadlines
under the Act. In response to this requirement, the California Air
Resources Board recently announced plans to implement stringent new
regulation on transit bus emissions. The regulation, which begins to
take effect in 2002, affects approximately 8,500 buses at
approximately 75 California transit agencies. Under the new
regulation, agencies electing to continue using older diesel buses
will be required to implement new emission controls to reduce exhaust
emission and to use low-sulfur fuels (containing a maximum of 15
parts per million) or to shift to alternative fuels. The regulation
also requires reduced exhaust particulate matter and nitrogen oxides
from new diesel engines. These reductions are expected to be achieved
only through the use of ultra-clean fuels.

. Corporate Average Fuel Economy. Under the Corporate Average Fuel
Economy standards established under the 1975 Energy Policy and
Conservation Act, mandatory fleet fuel economy standards were imposed
on all manufactures of passenger cars and light trucks sold in the
U.S. The continuing popularity of larger family vehicles, including
sport utility vehicles and pick-up trucks, has challenged auto makers
to develop more fuel efficient engines. According to the U.S.
Department of Energy 2000 Fuel Economy Guide, diesel engines in
automobiles can produce up to 63% better fuel economy than gasoline
engines in automobiles. As a result, auto makers are turning to the
use of diesel engines in their attempts to supply the demand for
these vehicles without violating these Federal fuel-efficiency
standards. While they do offer better fuel economy, traditional
diesel engines, when fueled by conventional diesel fuels, produce
higher emission levels of nitrous oxide and particulate matter. To
comply with more stringent environmental standards, auto makers have
been partnering with oil companies to develop ultra-clean fuels for
conventional diesel engines. Further, recommendations for a maximum
allowable sulfur content of 10 parts per million and aromatic content
of 15% by volume for diesel fuels in markets with the most stringent
requirements for emission controls has been proposed by the Alliance
of Automobile Manufacturers pursuant to a Worldwide Fuel Charter. In
addition, DaimlerChrysler, Ford and General Motors are currently
attempting to develop a new generation of diesel and gasoline engines
that use synthetic fuel and are more fuel-efficient.

. European Union. The European Union is also seeking sharp reductions
in engine emissions. Sulfur content from the current level of 350
parts per million to below 50 parts per million is currently mandated
for diesel fuel by 2005, and further changes to other specifications,
including reduction of aromatic content, are under evaluation.

We believe that Syntroleum fuels are positioned to take advantage of the
demand for ultra-clean fuels that is anticipated to develop as a result of
these environmental and emission standards. Syntroleum fuels are substantially
free of contaminants, including sulfur, aromatics and heavy metals, and
demonstrate high operating efficiency. As a result, we believe that Syntroleum
fuels, either alone or blended with conventional fuels, can be used in
existing and new generation diesel and gasoline engines to cost-effectively
meet or exceed

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current and future emission standards. We are in the process of applying for
certification that Syntroleum diesel fuels qualify as alternative fuels under
the Energy Policy Act. By eliminating the need for specially-equipped vehicles
or refueling stations, Syntroleum ultra-clean fuels can avoid the
infrastructure problems that have challenged the widespread use of other
alternative fuels to date.

We believe that Syntroleum fuels have the potential to become ideal fuels
for fuel cells and to significantly enhance commercial opportunities for many
fuel-cell applications. The absence of sulfur, aromatics and heavy metals from
Syntroleum fuels allows for simplified fuel cell processor design, construction
and operation. As the storage and processing of the fuel for a fuel cell are
simplified, the physical size of fuel-cell components can be reduced. Because
Syntroleum fuels have almost twice the hydrogen content of other fuels,
including compressed natural gas and methanol, Syntroleum fuels enable greater
utility and wider application of fuel-cell power for vehicles. Although
methanol initially emerged as the auto industry's favored fuel-cell fuel, it
has encountered setbacks due to its high toxicity and water solubility compared
to conventional fuels and inability to use existing gasoline distribution
systems without major modifications. Syntroleum fuels can be distributed using
the existing conventional gasoline distribution infrastructure, have lower
toxicity and similar solubility compared to conventional fuels.

Supply of Natural Gas

Natural Gas Resource Base. Set forth below and elsewhere in this
prospectus supplement are estimates of identified reserves of oil and natural
gas. These estimates do not constitute proved reserves in accordance with the
regulations of the Securities and Exchange Commission. Under Securities and
Exchange Commission regulations, proved oil and gas reserves are the estimated
quantities of crude oil, natural gas and natural gas liquids which geological
and engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions (i.e., prices and costs as of the date the estimate is made). We
compiled these estimates of identified reserves from the referenced industry
publications and other publicly available reports to identify the magnitude of
the oil and gas resource base. We have not independently verified this
information. Accordingly, we can give no assurance as to the existence or
recoverability of the estimates of identified reserves of oil and natural gas
set forth in this prospectus supplement. References below and elsewhere in this
prospectus supplement to the conversion of identified amounts of natural gas
into amounts of synthetic crude oil assume that all of the referenced natural
gas could be converted at anticipated conversion rates. Actual amounts of
synthetic crude oil produced will vary based on

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the ability of the producer to extract the natural gas, the composition of the
natural gas and process conditions selected for the plant and this variance may
be material.

The following table presents the 1998 worldwide identified natural gas
reserves, consumption and ratio of reserves to consumption (i.e., reserve life)
by region.

Identified 1998 Worldwide Natural Gas Reserves, Consumption and Reserve Life

<TABLE>
<CAPTION>
Identified
Reserves to
Consumption
1998 Ratio
Region Reserves Consumption (Reserve Life)
------ ----------- ----------- --------------
(trillion (trillion
cubic feet) cubic feet) (years)
<S> <C> <C> <C>
Central and South America.............. 235 3.0 77.3
Africa and the Middle East............. 1,791 7.8 230.2
Asia................................... 402 9.1 44.0
Europe................................. 279 15.1 18.5
North America.......................... 291 25.4 11.5
Russia and other former Soviet Union
regions............................... 2,431 18.7 130.1
----- ---- -----
Total................................ 5,429 79.1 68.6
===== ==== =====
</TABLE>
--------
Source: Information derived from IHS Energy Group, BP Amoco Statistical Review
of World Energy, 1998, and the Department of Energy.

Additionally, identified natural gas reserves have grown at a rapid rate.
For example, identified natural gas reserves in 1988 were estimated to be
approximately 3,798 trillion cubic feet, according to Oil & Gas Journal Energy
Statistics Source Book, 13th Edition. In 1998, these reserves were estimated to
be approximately 5,429 trillion cubic feet, according to information derived
from the IHS Energy Group, BP Amoco Statistical Review of World Energy, 1998,
and the Department of Energy. This increase occurred despite the fact that,
over the same time frame, demand for natural gas increased 21%. We believe
these statistics demonstrate the need for an economic market for this resource.

Natural Gas Field Size Distribution. The table below lists an estimate of
the distribution, by field size, of the world's natural gas fields. Only 179 of
these fields are larger than five trillion cubic feet, which is generally
considered to be the minimum size necessary to support the development of a
full-scale liquid natural gas plant based on a typical 30-year plant life.

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<PAGE>

The World's Natural Gas Fields

<TABLE>
<CAPTION>
Number
of
Reserves Fields
-------- ------
(trillion cubic feet)
<S> <C>
Between 50 and 500................................................. 16
Between 5 and 50................................................... 163
Between 1 and 5.................................................... 641
Between .5 and 1................................................... 668
Between .25 and .5................................................. 940
Between .1 and .25................................................. 1,620
Between .01 and .1................................................. 5,085
Less than .01...................................................... 6,243
------
Total............................................................ 15,376
======
</TABLE>
--------
Source: IHS Energy Group, 1998.

Based on field size and portability, we believe GTL plants based on the
Syntroleum Process can potentially access over 9,133 of the world's natural gas
fields, representing approximately 95% of the total reserves held in these
fields. Assuming a typical 30-year plant life, of the 15,376 natural gas fields
shown above approximately:

. 16 contain sufficient reserves to support ten or more 50,000 barrels
per day plants,

. an additional 163 contain sufficient reserves to support one or more
50,000 barrels per day plants,

. an additional 641 contain sufficient reserves to support one or more
10,000 to 50,000 barrels per day plants,

. an additional 668 contain sufficient reserves to support one or more
5,000 to 10,000 barrels per day plants, and

. an additional 940 contain sufficient reserves to support one or more
2,500 to 5,000 barrels per day plants.

An additional 6,705 of these 15,376 fields contain sufficient reserves to
support a portable 2,000 barrels per day plant for a shorter plant life.

Stranded Natural Gas Reserves. Wood MacKenzie Consultants Limited, an
international consulting firm, has estimated in its Energy Services Newsletter
that of the world's identified natural gas reserves, approximately one-half, or
2,500 trillion cubic feet, currently have no economic market. If converted
using GTL technology, this stranded gas could generally produce approximately
250 billion barrels of synthetic crude oil.

The term "stranded gas" generally refers to gas which exists in
reservoirs that have been discovered, but no economic market can be found for
the production, or production would be too prolific for the limited markets
available. Natural gas that is stranded is typically managed in one of the
following ways:

. Shut-in Gas. When stranded natural gas reserves have no associated
oil reserves, the natural gas is typically not produced. Based on a
resource study prepared for us by Petroconsultants, Inc., there are
at least 391 fields of at least .5 trillion cubic feet located
outside North America that are not associated with oil reserves and
hold approximately 1,488 trillion cubic feet of currently
unmarketable natural gas reserves. If converted using GTL technology,
this gas could generally produce approximately 149 billion barrels of
synthetic crude oil.

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<PAGE>

. Flared and Vented. When stranded natural gas reserves are associated
with oil reserves, the natural gas produced is typically flared or
vented if allowed by applicable law and applicable payments are made
to regulatory agencies if required by the country. According to
industry sources, an aggregate of approximately 3.6 trillion cubic
feet of natural gas was flared or vented worldwide in 1997. If
converted using GTL technology, this gas could generally produce
approximately one million barrels per day of synthetic crude oil.

. Re-injected. When flaring is not permitted by law and the nature of
the geologic formation permits, stranded natural gas is often
reinjected when associated with oil reserves. According to industry
sources, approximately 11.4 trillion cubic feet of natural gas was
reinjected worldwide in 1997. If converted using GTL technology, this
gas could generally produce approximately three million barrels per
day of synthetic crude oil.

. Shut-in Oil. The presence of natural gas in association with oil
reserves often results in the oil and gas not being produced if
flaring is not permitted by law and reinjection of the natural gas is
not a practical alternative due to the nature of the geologic
formation or the economics of the project. We are not aware of any
published estimates of shut-in oil reserves.

The large amount of stranded natural gas is caused by a combination of
four primary factors:

. Relatively Small Size of Many Fields. Much of the world's stranded
natural gas is located in fields of less than five trillion cubic
feet, which is generally considered the minimum size necessary to
support the development of a full-scale liquid natural gas plant for
a typical 20-year plant life. The small size of many of these fields
makes the production of natural gas from the fields uneconomical.

. Location of Gas Relative to Markets. Much of the world's stranded
natural gas is located in areas where there is no local market and
the distance to large natural gas consuming areas is great. This
makes transportation costs high and often renders development
projects uneconomic. As shown in the "1998 Worldwide Natural Gas
Reserves, Consumption and Reserve Life" table above under "Market
Potential--Supply--Natural Gas Resource Base", Africa, the Middle
East and Russia and other former Soviet Union regions have a large
percentage of the identified reserves and low levels of production,
combined with long distances from developed gas markets. This
situation creates stranded gas, which is manifested in the high
reserve-to-production ratios shown.

. Transportation Costs. Even in circumstances where a transportation
system is available for natural gas, the cost of transporting natural
gas in a gaseous state is generally substantially higher, on an
energy equivalent basis, than that of oil. For example, according to
published pipeline tariffs, the cost to transport natural gas
approximately 1,600 miles via pipeline from Houston to Boston is
approximately $1.00 per million British thermal units, equal to $6.00
per barrel of oil equivalent (assuming 6 million British thermal
units per barrel), while the cost to transport crude oil from the
Middle East to the United States Gulf Coast via tanker, a distance of
approximately 6,500 miles, is less than $2.00 per barrel.

Natural gas can also be transported as liquefied natural gas. In an
article published in the July 3, 1995 edition of the Oil & Gas
Journal, Mobil Oil Corporation estimated that a five million ton per
year (approximately 123,000 equivalent barrels per day) liquefied
natural gas plant would incur capital costs of between $9 billion and
$13 billion (including conversion plant, dedicated liquefied natural
gas tankers and regasification facilities). On the other hand, we
estimate that a GTL plant producing the same energy output would cost
substantially less and would not necessarily require dedicated
shipping or unloading facilities.

. Small Alternative Natural Gas Markets. Based on industry
publications, we estimate that the worldwide liquefied natural gas
market is approximately 1.8 million equivalent barrels per day, which
is relatively small compared to the approximately 57 million barrels
per day transportation

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<PAGE>

fuels markets. Natural gas can also be converted to ammonia and
methanol. Based on industry publications, we currently estimate that
the market for ammonia on a barrel of oil equivalent basis is
approximately 893,000 barrels per day and the market for methanol on
a barrel of oil equivalent basis is approximately 393,000 barrels per
day. These markets are small relative to the size of the worldwide
natural gas resource base and relative to the approximately 74
million barrels per day market for crude oil and related products.

We believe that energy companies with stranded natural gas reserves will
be able to cost-effectively use our GTL technology to produce Syntroleum fuels
and products that can be sold in well-developed global markets. As a result,
we believe these companies would be able to generate a return on the
exploration and development expenditures associated with their stranded
natural gas reserves.

Implementation of Syntroleum's Business Strategy

The following sets forth our progress to date in implementing our
business strategy. Although we have made significant progress towards
commercializing the Syntroleum Process, we can give no assurance that
licensees will construct any plants under their license agreements, that we
will be able to obtain financing for specialty product or mobile GTL plants,
that design and construction of any of these plants will be successfully
completed, that any of these plants will be commercially successful or that
these plants will be constructed or utilized on a cost-effective basis. See
"Risk Factors."

Licensing Arrangements

We currently market four types of license agreements:

. Master license agreements generally grant to the licensee the non-
exclusive right to enter into an unlimited number of site license
agreements to construct GTL plants based on the Syntroleum Process to
produce fuels worldwide. The licenses generally exclude the right to
use the Syntroleum Process in North America due to our desire to
retain this region for our own commercial development and in China
and India due to intellectual property protection concerns.

. Volume license agreements generally grant to the licensee the non-
exclusive right to enter into an unlimited number of site license
agreements to construct GTL plants based on the Syntroleum Process in
areas outside of North America, China and India, subject to specified
aggregate production capacity limits.

. Regional license agreements generally grant to the licensee the non-
exclusive right to enter into an unlimited number of site license
agreements to construct GTL plants based on the Syntroleum Process
within a designated region. The designated regions are not expected
to include North America, China or India.

. Site license agreements generally grant to the licensee the non-
exclusive right to use the Syntroleum Process in a GTL plant at a
single, specified location for the life of the plant. This type of
license may be granted under our master, regional or volume license
agreements or may be granted to licensees for a specific site who
have not otherwise entered into a master, regional or volume license
agreement.

By entering into a master, volume or regional license agreement, a
licensee secures pricing terms for site licenses and obtains the right to use
the Syntroleum Process, the right to acquire catalysts from us for which we
charge a fixed mark-up over our cost and the right to future improvements in
our GTL technology. To date, we have entered into master license agreements
with ARCO, Marathon and Texaco, and we have entered into volume license
agreements with Enron, Ivanhoe Energy, Kerr-McGee and Repsol-YPF. We have also
signed a letter of intent with the Commonwealth of Australia to license the
Syntroleum Process. We intend to continue to market the Syntroleum Process for
license primarily to major energy companies with significant stranded natural
gas reserves.

S-46
<PAGE>

The following description summarizes the principal terms and conditions
of the forms of our license agreements. This summary is not complete and is
qualified in its entirety by reference to the form of our master license
agreement, a copy of which has been filed as an exhibit to our Annual Report on
Form 10-K for the year ended December 31, 1999. Agreements entered into with
specific licensees may differ in material respects from the current forms of
our various license agreements.

Initial Deposits and License Fees. At the inception of a master, volume
or regional license agreement, the licensee is generally required to make an
initial deposit to us, which is credited against future site-specific license
fees. The amount of the initial deposit depends on market conditions and, in
the case of volume and regional license agreements, the volume limitation and
the size and location of the region covered. We have received an aggregate of
$11 million in cash as initial deposits and option fees under our existing
license agreements. In some cases, we have acquired technologies or commitments
to provide funding for future development activities in lieu of initial cash
deposits in cases where we viewed these technologies or commitments as being
more valuable than the initial cash deposit.

Generally, the amount of the license fee for site licenses under our
master, volume and regional license agreements is determined pursuant to a
formula based on the discounted present value of the product of (1) the annual
maximum design capacity of the plant, (2) an assumed life of the plant and (3)
our per barrel rate, which currently is approximately $.50 per barrel of daily
capacity. Our license fees for new plants may change from time to time based on
the size of the plant, improvements that reduce plant capital cost and
competitive market conditions. Our existing master and volume license
agreements allow for the adjustment of fees for new site licenses under certain
circumstances. We expect that license fees under existing agreements will be
paid in increments when certain milestones during the plant design and
construction process are achieved.

Catalyst Sales and Process Design Packages. Our license agreements grant
the licensee the right to acquire from us or vendors designated by us
proprietary catalysts for use in the synthesis gas reaction and the Fischer-
Tropsch reaction, in each case at prices based on our cost plus a margin. We
currently estimate that these catalysts will be required to be replaced every
three to five years. Licensees also have the right to acquire proprietary
reactors used in the Syntroleum Process from vendors approved by us. In
addition, under our license agreements, licensees are required to purchase a
process design package for plants covered by the license from us at a fee based
on our costs plus a specified margin. We may, however, develop the process
design package with the assistance of a third party. We are also required to
provide certain technical support to licensees at specified fees.

Other License Terms. As part of our network model for improving our GTL
technology, we acquire a royalty-free, non-exclusive license to any invention
or improvement to the Syntroleum Process that is developed by the licensee,
together with the right to grant corresponding sublicenses to our other
licensees who have granted us similar rights. Licensees also acquire the right
to use subsequent inventions or improvements to the Syntroleum Process that we
have acquired from other licensees. Our license agreements may be terminated by
the licensee, with or without cause, upon 90 days' notice to us.

Key Testing and Commercial Projects

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<PAGE>

on the performance of this plant, we believe that these reactor designs can be
scaled-up for use in a commercial plant at a lower cost than our fixed tube
reactor designs. We are currently conducting engineering studies with others
for commercial-scale plants using these reactor designs. ARCO has funded the
construction and operation of this plant under our joint development agreement.

S-48
<PAGE>

We have not yet received definitive cost estimates for the construction
of the Sweetwater plant. The capital costs of this plant are currently expected
to be funded primarily by non-recourse senior and subordinated debt at the
project level, as well as equity financing, including the funding discussed
above. We are currently exploring sources of debt and additional equity capital
to fund final design and construction. However, we can give no assurance that
the funding discussed above, any additional equity funding or debt financing
for this project will be obtained.

Research and Development

One of our key strategies is to continue to lower the capital and
operating cost of our GTL technology through research and development. Our
current laboratory has 14 fixed tube reactors, one HMX reactor, one moving bed
reactor and five continuous stirred tank reactors in which automated tests are
run and catalyst systems are evaluated and developed. We also have arrangements
with a number of universities and companies for a full range of state-of-the-
art catalyst evaluation. In addition, we own a separate 16,500 square foot
laboratory facility located on 100 acres of land where we are engaged in
extensive development and testing of Syntroleum products. This facility also
houses our product refining research and development activities, including
hydrogen saturation, hydroisomerization, hydrocracking and distillation
capabilities, as well as a fully automated dual train bench scale
hydroprocessing unit. We are currently designing a larger scale hydroprocessing
pilot unit. We also have arrangements with a number of companies for
hydroprocessing larger quantities of our synthetic products.

S-49
<PAGE>

As of May 31, 2000, we had 48 employees in our laboratory, pilot plant
and engineering departments, 28 of whom are chemists, engineers or other
degreed professionals (16 with masters or Ph.D. degrees) devoted to research
and development activities. A number of other chemists, engineers and
professionals that are employed by our licensees and joint development partners
are also contributing efforts to the further development and commercialization
of the Syntroleum Process.

We also have access to laboratory and test facilities through our joint
development partners. For example, both Texaco and ARCO have performed catalyst
tests at their own or contract facilities, and testing with Catalytica and
Marathon regarding low heating value gas combustion has been conducted at
Catalytica's and other test facilities. Additionally, we have our own technical
experts as well as access to the technical experts of our joint development
partners. Several of our joint development partners have employees working on
research and development activities related to improving the Syntroleum
Process.

Our continued research and development efforts will take place in four
primary areas: process design, catalyst development, reactor design and heat
integration/power recovery. For a discussion of our efforts in these areas, see
"--The Syntroleum Process."

Sales and Marketing

We intend to maintain an active marketing and sales effort to develop and
promote the Syntroleum Process through several channels. We have been and will
continue to be an active participant at industry conferences relating to GTL
processes. During 1999, representatives of our company spoke at 23 different
conferences at locations around the world. We also intend to continue to write
and publish papers on topics regarding the implications of GTL technology to
the industry. Additionally, we will continue to educate and inform our
customers through the use of multi-media and print presentations. We also
intend to establish brand recognition for specialty products to be produced by
our specialty plants. We have received trademark and service mark rights to the
name "Syntroleum" in the United States and have applications pending to
register the trademark in various foreign countries.

In addition, Bateman, AMEC and other engineering companies are familiar
with our GTL technology and have assisted us in marketing the Syntroleum
Process. Our agreements with engineering firms generally provide these firms
with the right to market the Syntroleum Process. We believe that these
relationships will expand our marketing effort in a cost-effective manner. We
currently have five employees in our business development and marketing
departments, three of whom hold advanced degrees, and we also retain a full-
time sales representative in London, England.

Historical Development of GTL Technology

The basis for most GTL technologies, including the Syntroleum Process,
originated in 1923 when two German chemists, Franz Fischer and Hans Tropsch,
discovered that synthesis gas (carbon monoxide and hydrogen) could be
catalytically converted into synthetic hydrocarbons using a precipitated cobalt
catalyst. In the Fischer-Tropsch reaction, the synthesis gas in contact with
the catalyst surface at appropriate temperatures and pressures causes a
chemical reaction that produces hydrocarbons and byproducts consisting
primarily of water and carbon dioxide.

Prior to and during World War II, development of the Fischer-Tropsch
process occurred primarily in Germany. Due to Germany's significant coal
resources and limited oil and gas resources, these development activities
focused exclusively on the conversion of coal into fuels and chemicals. Between
1934 and 1945, nine government-funded, coal-to-liquids plants were built in
Germany using coal as the feedstock.

Following World War II, development efforts continued in the United
States and South Africa. In 1950, Texaco participated in the Hydrocol plant,
which was an 8,000 barrel per day synthetic fuel plant that was built in
Brownsville, Texas and used natural gas as the feedstock. Although the plant
was a technological

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<PAGE>

success, it was not economic to operate because a new gas pipeline and changes
in the price of oil created a more economic market for the natural gas, which
resulted in the shutdown of the plant in 1953. In 1950, the South African
government formed a predecessor of Sasol (which was later privatized) to
develop synthetic fuels using coal as the feedstock. Three coal-to-liquids
plants were built in South Africa between 1955 and 1982, and a natural gas
based plant was built in 1993. Each of these plants is still in operation
today.

Following the oil embargo of 1973, further development efforts focused on
utilizing both coal and natural gas to produce synthesis gas for the Fischer-
Tropsch process. Several major oil companies and several governments funded
research into synthetic fuels. The worldwide recession of 1982 and the related
drop in oil prices resulted in the termination of most coal-related development
activities. However, development activities in the conversion of natural gas
continued during the 1980's and 1990's. In 1985, Mobil built a GTL plant in
Montuni, New Zealand, and in 1993 Shell built a GTL plant in Bintulu, Malaysia.
Neither of these plants remains operational as a GTL plant. Several major oil
companies, including BP Amoco, Chevron, Conoco, Exxon, Phillips and Shell, have
recently announced projects to construct gas-to-liquids plants.

We believe the generally accepted capital cost target for a GTL plant to
be cost effective for the production of transportation fuel is $30,000 per
barrel of daily plant capacity or less. This cost target is determined by
calculating the capital cost necessary to achieve an expected return on an
investment in a GTL plant. Factors influencing the expected return include
operating costs, feedstock cost and product prices. Capital costs at or below
$30,000 per barrel of daily plant capacity generally result in an expected
return on the investment, assuming operating costs comparable to those for a
conventional refinery, natural gas feedstock prices below $1.00 per million
British thermal units and oil prices above $18 per barrel.

We believe that to date no company has built a commercial-scale GTL plant
that has broken this cost barrier. In addition, we believe that each of the
current competitive GTL technologies has taken in excess of ten years to
develop, resulting in significant barriers to entry for potential new
participants.

The Syntroleum Process

The Syntroleum Process involves two catalytic reactions. The first
reaction converts natural gas into synthesis gas through our proprietary
autothermal reformer reactor, and the second reaction converts the synthesis
gas into hydrocarbons through the Fischer-Tropsch reaction over a proprietary
catalyst. The following diagrams illustrate the elements involved in these
reactions, but are not in exact proportions.

STEP 1
CONVERSION OF NATURAL GAS TO SYNTHESIS GAS

Synthesis Gas
Natural Gas Air Steam (diluted with Nitrogen) Water
Catalyst
CH\\4\\ + O\\2\\ + N\\2\\ + H\\2\\O (arrow) CO + H\\2\\ + N\\2\\ + H\\2\\O

STEP 2
FISCHER-TROPSCH SYNTHESIS

Synthesis Gas
(diluted with Nitrogen) Hydrocarbons Nitrogen Water
Catalyst
H\\2\\ + CO + N\\2\\ (arrow) C\\n\\H (\\2n+2\\) + N\\2\\ + H\\2\\O

Our goal in developing this process has been to substantially reduce both
the capital and operating costs and the minimum economic size of a GTL plant.
We believe that by reducing the complexity of the process we have achieved this
goal. We have developed and continue to develop variations of our basic process
design in an effort to further lower costs and increase the adaptability of the
Syntroleum Process to a wide variety of potential applications.

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Although we believe that the Syntroleum Process can be utilized in
commercial-scale GTL plants, we can give no assurance that commercial-scale GTL
plants based on the Syntroleum Process will be successfully constructed and
operated or that these plants will yield the same economics and results as
those demonstrated on a pilot plant basis. In addition, improvements to the
Syntroleum Process currently under development may not prove to be commercially
applicable. See "Risk Factors--Risks Relating to our Technology."

Fischer-Tropsch Catalyst Systems

We have developed several different proprietary catalysts systems for use
in the Fischer-Tropsch reaction in order to allow for matching a catalyst
system to a particular reactor design and provide more flexibility in matching
the Syntroleum Process to the desired applications.

Based upon pilot tests of catalysts that we have manufactured, we believe
that a number of proprietary catalyst systems meet or exceed the activity and
selectivity targets necessary for commercial application in some current
Syntroleum Process designs, including the catalysts associated with the moving
bed reactor currently operating at the pilot plant jointly developed with ARCO
at ARCO's Cherry Point refinery.

Most Fischer-Tropsch catalysts produce a very waxy synthetic crude oil.
Typically, more than 50% of a barrel of synthetic crude oil is solid at room
temperature due to the high wax content. These waxy hydrocarbons are typically
processed through a hydrocracker to convert them into liquid hydrocarbons at
room temperature that can be further processed into transportation fuels. Our
proprietary "high alpha" catalyst produces a very waxy synthetic crude oil
which can be further processed through hydrocracking to make liquid synthetic
fuels, or, with other refining processes, the waxy portion can be converted
into higher value specialty products such as synthetic lubricants.

Under our agreement with Criterion, Criterion has manufactured, in its
commercial facilities, batches of our catalysts in quantities sufficient to
confirm that the performance of these catalysts is comparable to the same
catalyst produced by us and that these catalysts can be produced in commercial
quantities at targeted cost levels. We estimate that the useful life of our
Fischer-Tropsch catalysts will be three to five years under normal operating
conditions.

We plan to improve existing catalysts and continue to develop additional
catalyst formulations for use in the Syntroleum Process. Catalyst development
is a complex process requiring significant scientific skill and resources. We
have in the past and intend to continue to devote substantial resources to
research and development activities to produce Fischer-Tropsch catalysts with
improved activity rates, selectivity and active life, all at reasonable
manufacturing cost. In addition, we intend to enhance our catalyst development
activities through catalyst joint development programs with our joint
development partners. From time to time, we also retain catalysis experts on a
consulting basis to assist in catalyst development.

Fischer-Tropsch Reactor Designs

We have tested at our pilot plant several different proprietary Fischer-
Tropsch reactor designs and associated catalysts for use in the Syntroleum
Process. These include multiple fixed bed vertical tubular reactor, a fluidized
bed reactor for use with our chain-limiting catalyst and a moving bed reactor.
In addition, under our agreement with ARCO, ARCO has constructed and is
currently operating a 70 barrel per day GTL pilot plant that is testing the
moving bed reactor on a larger scale. A horizontal reactor design is also being
developed by us and may be preferred in GTL plants on ships operating in rough
water conditions, where its low center of gravity may be an important feature.
We have several pending United States and foreign patent applications related
to our Fischer-Tropsch reactors.

Heat Integration and Power Recovery

Compression energy is the primary energy consumer in the Syntroleum
Process. Engineering studies conducted by Bateman and others have demonstrated
that the heat generated by the two catalytic reactions in

S-52
<PAGE>

the Syntroleum Process can be captured in the form of mechanical and electrical
energy sufficient to supply all of a GTL plant's needs plus a surplus for other
uses, if desired. We have developed several heat integration and power recovery
schemes with partners such as GE Power Systems to broaden the flexibility of
the Syntroleum Process and, in some cases, lower the capital cost as well as
the number of pieces of major equipment necessary for operation of a GTL plant.

Different configurations of GTL plants based on the Syntroleum Process
can also change the energy sources within the plant and the excess energy
produced. For example, a steam turbine can be incorporated into the process and
utilize the steam produced by the auto-thermal reformer and Fischer-Tropsch
reactions to produce energy for compression, and electrical power for
commercial sale. In addition, we have developed a configuration that utilizes
the low-heating-value residue stream from the process as feedstock for a
specially designed gas turbine that can utilize very low-heating-value gas.
Several of these heat integration and power recovery schemes are the subject of
United States patents and patent applications and foreign patent applications
and are a part of our joint development efforts with others.

Product Upgrading

Synthetic liquid hydrocarbons made from the Syntroleum Process can be
refined into fuels using conventional refining processes such as hydrocracking.
However, we believe that because of the purity and uniform nature of the
synthetic hydrocarbon molecules, conventional process configurations and
conditions may not be optimum. We are currently developing new processes to
further refine synthetic liquid hydrocarbons made from the Syntroleum Process
in a manner that maximizes the value of the refined product streams, while
minimizing the processing cost. If successful, we intend to license these
processes.

Advantages Over Competing Processes

We believe that the method by which our process uses air directly from
the atmosphere is a unique characteristic and a primary competitive advantage
of the Syntroleum Process. Competitive processes for the conversion of natural
gas into synthetic hydrocarbons generally utilize either steam reforming or a
combination of steam reforming and partial oxidation with pure oxygen in the
conversion of natural gas to synthesis gas. Steam reformers react steam with
natural gas to produce synthesis gas. A steam reformer is a relatively complex
unit that consists of a large fired heater with catalyst-filled tubes. Because
the reaction operates at high temperature and pressure, the tubes are made of
exotic alloys and are expensive. Operating costs are increased due to the
endothermic nature of the process, which requires a continuous input of heat.
Processes that utilize a combination of steam reforming and partial oxidation
with pure oxygen also require an air separation plant to produce pure oxygen.
The air separation plant must be constructed with expensive metals and
materials, because its operation involves very low temperatures and requires
significant energy input, as well as operating risks inherent in handling pure
oxygen. Moreover, the use of pure oxygen generates synthesis gas that is free
of nitrogen. While the Fischer-Tropsch reaction in competitive processes is
designed to occur without the presence of nitrogen, the Syntroleum Process is
designed to utilize the nitrogen in the Fischer-Tropsch process to remove a
portion of the heat generated by the process. Use of the auto thermal reformer
reactor in the Syntroleum Process also provides advantages over competitive
processes because of its relatively low capital and operating costs. In
addition to lowering the capital cost, the elimination of an air separation
plant and steam reformer has the additional advantage of reducing the size and
complexity and lowering the energy requirement of GTL plants based on the
Syntroleum Process.

We believe that another advantage of the Syntroleum Process is the
absence of recycle loops necessary in some competitive processes, which also
tends to lower capital costs. In the Fischer-Tropsch stage of some competitive
processes, a recycle loop is utilized in order to maximize the output of
hydrocarbons and help control the heat generated by the reaction. As a result,
these processes are designed to avoid the introduction of inert gases
(including nitrogen) into the process, which would otherwise build up in the
system and hinder the reaction.

S-53
<PAGE>

Feedstocks

The Syntroleum Process is designed to produce approximately six million
British thermal units of liquid hydrocarbons from between 10 and 12 million
British thermal units of natural gas feedstock, although conversion efficiency
may vary depending on gas composition and process conditions selected for each
plant. One of the benefits of the Syntroleum Process is its ability to utilize
natural gas containing nitrogen and carbon dioxide, up to specified levels,
without removing these impurities prior to consumption by the plant. However,
natural gas that contains sulphur, metals and other materials that poison
catalysts must be processed in order to remove these contaminants prior to the
use of the natural gas in the first catalytic reaction.

Byproducts and Emissions

A byproduct of the Syntroleum Process is synthesized water that, with
treatment to remove organic materials, could be sold commercially as industrial
or irrigation water in areas where sufficient demand exists. Based on pilot
plant tests, we believe that approximately 1.3 barrels of synthesized water can
be produced for each barrel of synthetic crude oil produced.

Depending on the process configuration, emissions from the Syntroleum
Process are expected to include nitrous oxide, carbon monoxide, carbon dioxide
and light hydrocarbons, which we believe will generally be within applicable
emissions standards. Spent catalysts are expected to be processed by a catalyst
reclaimer who will recover useful metals and be responsible for disposal of the
nonreclaimed portion of the catalyst.

Intellectual Property

Our success depends on our ability to obtain, protect, and enforce our
intellectual property rights, to successfully avoid infringing the valid and
enforceable intellectual property rights of others and, if necessary, to defend
against any alleged infringements. We regard the protection of our proprietary
technologies as critical to our future success and we rely on a combination of
patent, copyright, trademark and trade secret laws and contractual restrictions
to protect our proprietary rights. We pursue protection of the Syntroleum
Process primarily through patents and trade secrets. It is our policy to seek,
when appropriate, protection for our proprietary products and processes by
filing patent applications in the United States and selected foreign countries
and to encourage or further the efforts of others who have licensed technology
to us to file patent applications. Our ability to protect and enforce these
rights involves complex legal, scientific and factual questions and
uncertainties.

We currently own, or have licensed, rights to more than 80 patents or
patent applications pending in the United States and various foreign countries
that relate in general to one or more embodiments of the Syntroleum Process.

S-54
<PAGE>

The United States patents we own or have licensed include the following:

<TABLE>
<CAPTION>
Owned or
U.S. Patent No. Title Licensed
--------------- ----- --------
<S> <C> <C>
4,833,170 Process and Apparatus for the Production of Heavier Hydrocarbons Owned
from Gaseous Light Hydrocarbons
4,973,453 Apparatus for the Production of Heavier Hydrocarbons from Gaseous Owned
Light Hydrocarbons
5,593,569 Hydrocracking Process Using a Homogeneous Catalysis System Owned
Comprising a Metal Halide Lewis Acid, a Bronsted Acid and an Alkane
5,733,941 Hydrocarbon Gas Conversion System and Process for Producing a Licensed
Synthetic Hydrocarbon Liquid
5,861,441 Combusting a Hydrocarbon Gas Licensed
5,950,732 System and Method for Hydrate Recovery Owned
6,011,073 System and Method for Converting Lighter Hydrocarbons to Heavier Owned
Hydrocarbons with Separation of Water to Oxygen and Hydrogen
6,056,793 Blended Compression--ignition fuel containing light synthetic crude Licensed
and blending stock
</TABLE>

We own 12 issued foreign patents in various countries that are foreign
counterparts to U.S. Patent 4,833,170. We also have 16 U.S. patent applications
(owned and licensed) pending and more than 45 foreign counterpart applications
pending in various countries around the world.

We can give no assurance that additional patents will be granted with
respect to any patent applications filed by us or our licensors. Further, any
patents issued or licensed to us might not provide us with commercial benefit
or might be infringed, invalidated or circumvented by others. The approval or
rejection of our patent applications by the U.S. Patent Office may take several
years.

The availability of patents in foreign markets, and the nature of any
protection against competition that may be afforded by such patents, is often
difficult to predict and varies significantly from country to country.
Moreover, we or our licensors may choose not to seek, or may, for a variety of
reasons, be unable to obtain, patent protection in a country that might become
an important market for our GTL technology.

In addition to patent protection, we also rely significantly on trade
secrets, know-how and technological advances, which we seek to protect, in
part, through confidentiality agreements with our collaborators, licensees,
employees and consultants. If these agreements are breached, we might not have
adequate remedies for the breach. In addition, our trade secrets and
proprietary know-how might otherwise become known or be independently
discovered by others.

It is our policy to honor the valid, enforceable intellectual property
rights of others. Our success depends on our ability to avoid infringing the
valid, enforceable intellectual property rights of others and, if need be,
defending ourselves against any claims of infringement. While we have made
efforts to avoid any such infringement, commercialization of our GTL
technologies may give rise to claims that the technologies infringe upon the
patents or other proprietary rights of others.

Although it is our policy to regularly review patents that may have
applicability in the GTL industry, we may not become aware of these patents or
rights until after we have made a substantial investment in the development and
commercialization of those technologies. Legal actions could be brought against
us, our partners or licensees, claiming damages and seeking an injunction that
would prevent us, our partners or licensees, from testing, marketing or
commercializing the affected technologies. Major energy companies seeking to
gain a competitive advantage may have an interest in bringing one of these
actions. If such an action was successful, in addition to potential liability
for damages, we, our partners or licensees could be required to obtain a
license in order to continue to test, market or commercialize the affected
technologies. Any required license might not be made available or, if
available, might not be available on acceptable terms, and we could

S-55
<PAGE>

be prevented entirely from testing, marketing or commercializing the affected
technology. We may have to expend substantial resources in litigation, either
in enforcing our patents, defending against the infringement claims of others,
or both. Many possible claimants, like the major energy companies that have or
may be developing proprietary GTL technologies competitive with the Syntroleum
Process, have significantly more resources to spend on litigation. We have
conducted a review of more than 600 existing patents applicable to the GTL
field and believe that we are not infringing on the patents of others. To date,
we have not been notified of any claim that our GTL technology infringes the
proprietary rights of any third party, but we can give no assurance that third
parties will not claim infringement by us with respect to past, present or
future GTL technologies.

In any potential intellectual property dispute involving us, our
licensees could also become the target of litigation. Our license agreements
require us to indemnify the licensees against specified losses, including the
losses resulting from patent and trade secret infringement claims, subject to a
cap of 50% of the license fees received. Our indemnification and support
obligations could result in substantial expenses and liabilities to us. These
expenses or liabilities could have a material adverse effect on our business,
operating results and financial condition. See "Risk Factors--Risks Relating to
our Technology."

Employees

We had 79 employees at May 31, 2000, including 38 employees involved in
research and development and pilot plant operations, seven employees in
business development and marketing, 10 employees in engineering, and 24
employees in finance, legal, information technology and administration. None of
our employees are represented by a labor union. We have experienced no work
stoppages and believe that our relations with our employees are excellent.

Government Regulation

We will be subject to extensive federal, state and local laws and
regulations relating to the protection of the environment, including laws and
regulations relating to the release, emission, use, storage, handling, cleanup,
transportation and disposal of hazardous materials and employee health and
safety. In addition, our GTL plants will be subject to the environmental and
health and safety laws and regulations of any foreign countries in which these
plants are to be located. Violators of these laws and regulations may be
subject to substantial fines, criminal sanctions or third party lawsuits and
may be required to install costly pollution control equipment or, in some
extreme cases, curtail operations. Further, these laws and regulations may
limit or prohibit activities on lands lying within wilderness areas, wetlands
or other protected areas. Our operations in the United States are also subject
to the federal "Superfund" law, and similar state laws, which can impose joint
and several liability for site cleanup, regardless of fault, upon statutory
categories of parties, including our company, that sent wastes offsite for
disposal and current owners and operators of property. Environmental laws and
regulations often require the acquisition of a permit or other authorization
before activities may be conducted and compliance with laws and regulations,
and any requisite permits, can increase the costs of designing, installing and
operating our GTL plants.

GTL plants will generally be required to obtain permits under applicable
state and federal clean air and water laws and various permits for industrial
siting and construction. Emissions from a GTL plant, primarily from the gas
turbine, will contain nitrous oxides and may require abatement equipment to be
installed in order to meet state and federal permit requirements. Additionally,
GTL plants will be required to adhere to state and federal laws applicable to
the disposal of byproducts produced, including waste water and spent catalyst.

Although we do not believe that compliance with environmental and health
and safety laws in connection with our current operations will have a material
adverse effect on us, the future costs of complying with environmental laws and
regulations and containing or remediating contamination cannot be predicted
with certainty. In the future, we could incur material liabilities or costs
related to environmental matters, and these

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<PAGE>

environmental liabilities or costs (including fines or other sanctions) could
have a material adverse effect on our business, operating results and financial
condition. We do not currently carry environmental impairment liability
insurance to protect us against these contingencies but may, in the future,
seek to obtain insurance in connection with our participation in the
construction and operation of GTL plants if coverage is available at reasonable
cost and without unreasonably broad exclusions.

Operating Hazards

Operations at our GTL plants will involve a risk of incidents involving
personal injury and property damage due to the operation of machinery in close
proximity to individuals and the highly flammable nature of natural gas and the
materials produced at these plants. The frequency and severity of personal
injury and property damage incidents will affect our operating costs,
insurability and relationships with customers, employees and regulators. Any
significant frequency or severity of these incidents, or the general level of
compensation awards, could affect our ability to obtain insurance and could
have a material adverse effect on our business, operating results and financial
condition.

Management and Disposition of Real Estate and Miscellaneous Assets

Our predecessor, SLH Corporation, acquired our real estate assets from
Lab Holdings, Inc. concurrent with the distribution by Lab Holdings to its
stockholders of all of SLH's outstanding common stock. These assets reflect the
remaining assets of a real estate development business that was conducted by
Lab Holdings in association with a previously owned life insurance company that
was sold in 1990. Real estate assets, as of March 31, 2000, consisted of
undeveloped land in Houston, Texas (300 acres of undeveloped land and 100 lots
available for sale) and in Corinth, Texas (9 acres comprising the "Corinth
Tract"). The total real estate inventory had an aggregate carrying value at
March 31, 2000 of approximately $3.2 million. All of the real estate assets are
held for sale except for the land in Houston that is being developed for
commercial and residential use and ultimate sale.

Our other assets at March 31, 2000 included (1) an investment in Norian
Corporation, a privately owned developer of proprietary bone substitute
technology, which had a carrying value of approximately $565,000, (2) $22
million of cash, government securities and current receivables, (3) an
investment in a privately held venture capital limited partnership, which had a
carrying value of $476,000, (4) a 49.9% interest in a community retail shopping
center in Gillette, Wyoming and (5) an equity investment in a recently
renovated hotel in Tulsa, Oklahoma. We plan to liquidate all of these
investments other than the cash, government securities and current receivables
in an orderly manner to maximize their value to stockholders.

The following table shows the carrying value of the inventory of our real
estate assets as of March 31, 2000:

REAL ESTATE INVENTORY

<TABLE>
<CAPTION>
Carrying
value as
of
March 31,
Asset 2000 Location
----- ---------- ----------------
<S> <C> <C>
The Houston Project........................... $3,162,673 Houston, Texas
The Corinth Tract............................. 22,656 Ft. Worth, Texas
----------
Total....................................... $3,185,329
==========
</TABLE>

Legal Proceedings

We are not a party to, nor are any of our properties the subject of, any
pending legal proceedings that, in the opinion of management, are expected to
have a material adverse effect on our consolidated results of operations or
financial position.

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<PAGE>

MANAGEMENT

The following table sets forth certain information concerning our
directors and executive officers as of May 31, 2000. Unless otherwise
indicated, each of our directors and executive officers has served in the
indicated positions since the closing of the merger of Syntroleum Corporation
and SLH Corporation on August 7, 1998 and served in the same position with
Syntroleum Corporation before the merger. References to positions held with our
company before the date of the merger refer to positions held with our
predecessor company, Syntroleum Corporation, an Oklahoma corporation.

<TABLE>
<CAPTION>
Director's
Name Age Position Term Ending
---- --- ---------------------------------------------------- -----------
<S> <C> <C> <C>
Kenneth L. Agee......... 43 Chief Executive Officer and Chairman of the Board 2001
Mark A. Agee............ 47 President, Chief Operating Officer and Director 2000
Charles A. Bayens....... 61 Vice President of Engineering
Carla S. Covey.......... 28 Controller
Eric Grimshaw........... 48 Vice President, General Counsel and Secretary
Paul F. Schubert........ 44 Vice President of Research and Development
Michael L. Stewart...... 45 Vice President of Information Technology
Randall M. Thompson..... 41 Vice President and Chief Financial Officer
Larry J. Weick.......... 52 Vice President of Licensing and Business Development
Alvin R. Albe, Jr....... 46 Director 2002
Frank M. Bumstead....... 58 Director 2000
Robert A. Day........... 56 Director 2002
P. Anthony Jacobs....... 58 Director 2001
Robert Rosene, Jr....... 46 Director 2000
James R. Seward......... 47 Director 2001
J. Edward Sheridan...... 65 Director 2002
</TABLE>

Kenneth L. Agee is our Chief Executive Officer and Chairman of the Board.
Mr. Kenneth L. Agee founded our company in 1984 and initially served as
President and a director. He became Chief Executive Officer in February 1996
and Chairman of the Board in November 1995. He is a graduate of Oklahoma State
University with a degree in Chemical Engineering and is a licensed Professional
Engineer in the State of Oklahoma. In addition, he has over 15 years of
experience in the energy industry and is listed as Inventor on several United
States and foreign patents and several pending patent applications, all of
which have been assigned to us by Mr. Agee.

Mark A. Agee is our President, Chief Operating Officer and a director.
Mr. Mark A. Agee joined our company in 1994 as Vice President of Finance and
became President and Chief Operating Officer in February 1996. He has served as
a director since March 1985. From 1989 to May 1993, he served as President,
Chief Executive Officer and Director of Convergent Communications, a company
which he founded in 1989 and sold in 1993. From 1981 to 1989, he served as
President, Chief Executive Officer and a Director of XETA Corp., a computer
company which he founded in 1981 and which became public in 1987. He holds a
Bachelor's degree in Chemical Engineering from the University of Tulsa and is a
licensed Professional Engineer in the State of Oklahoma.

Charles A. Bayens is our Vice President of Engineering. Mr. Bayens joined
our company in July 1997 as Business Development Manager and became Vice
President of Engineering in December 1997. Prior to joining our company, Mr.
Bayens was with Shell Oil Company from 1967 to 1997 in various technical and
business assignments. From 1991 to 1997, he was President of Shell Synthetic
Fuels, Inc., where he managed the commercialization of Shell's suite of
synfuels technologies. Concurrently, from 1991 to 1994, he was also Manager,
Technology Licensing for Shell. Mr. Bayens holds a Ph.D. in Chemical
Engineering from Johns Hopkins University.

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<PAGE>

Carla S. Covey is our Controller. Ms. Covey became our Director of
Accounting in June 1997. Prior to joining our company, Ms. Covey served as
Accounting Manager/Human Resource Manager and Manager, Facility Operations for
AGC Manufacturing Services, Inc., in Tulsa, Oklahoma from 1995 to 1997. Ms.
Covey also served as Assistant Director of Human Resources for the Adam's Mark
Hotel in Tulsa, Oklahoma from 1994 to 1995. Ms. Covey received her B.A. degree
in Business Administration from Drury University and her M.S. degree in
Management from Southern Nazarene University. Ms. Covey is a certified public
accountant.

Eric Grimshaw is our Vice President, General Counsel and Secretary. Prior
to joining our company in June 1997, Mr. Grimshaw was a partner with the law
firm of Pray, Walker, Jackman, Williamson & Marlar. Mr. Grimshaw received a
B.A. degree from the University of Colorado and received his law degree from
the University of Tulsa.

Paul F. Schubert is our Vice President of Research and Development. Dr.
Schubert joined us as Research Project Manager in May 1998. From 1996 to 1998,
Dr. Schubert was Vice President of Monitor Labs, Denver, Colorado, where he was
responsible for the research, development and marketing of catalytic and laser-
based air emissions monitoring devices. From 1990 until 1996, Dr. Schubert
served in a variety of roles with Catalytica, Inc. (Mountain View, California),
a company engaged in research and development of catalytic processes. In his
last few years at Catalytica, he served as Vice President of their Advanced
Sensor Devices Division, which was sold to Monitor Labs in 1996. Prior to
joining Catalytica, Dr. Schubert worked with Phillips Petroleum and Englehard
Corporation in research, development and manufacturing of catalysts for the
petrochemical industry. Dr. Schubert received a B.S. with High Honors from the
University of Arkansas and a Ph.D. in Inorganic Chemistry from the University
of Illinois at Urbana-Champaign. He is an inventor or co-inventor of 13 U.S.
patents, and has authored over two dozen technical publications.

Michael L. Stewart is our Vice President of Information Systems and has
served in that position since November 1998. Mr. Stewart joined our company in
May 1997 as information technology manager, bringing over 23 years of computer
and information systems related experience. From 1993 until joining us, he was
a management consultant involved in data processing, systems operation,
planning and organization. Earlier, he held the positions of Vice President--
Management Information Services for Convergent Communications, Inc., and
database design specialist for Continental Savings and Loan.

Randall M. Thompson is our Vice President and Chief Financial Officer.
Mr. Thompson joined our company in January 1997. From January 1994 through
December 1996, he held various financial and marketing positions with Tenneco
Energy Corporation, as Vice President of Strategic Planning, Marketing and
Business Development. From 1983 through 1994, Mr. Thompson was employed by
Atlantic Richfield Company and held financial management positions. Mr.
Thompson holds a B.A. in Economics from the University of Colorado and an
M.B.A. from The Wharton School at the University of Pennsylvania.

Larry J. Weick is our Vice President of Licensing and Business
Development. Mr. Weick joined our company in 1996. From 1971 to 1982, he held
positions in engineering, planning and project development in the natural gas
and electric utility industry. From 1982 to 1994, he held several finance,
planning and business development positions with Atlantic Richfield Company.
From 1994 to 1996, Mr. Weick served as a consultant to us. He holds a B.S. in
Electrical Engineering from the University of Nebraska at Lincoln and an M.S.
in Engineering-Economics from Stanford University. Mr. Weick is also a Licensed
Professional Engineer in both Nebraska and Texas.

Alvin R. Albe, Jr., became a director in December 1988. Mr. Albe is
currently Executive Vice President of the TCW Group, Inc., a capital management
firm. Prior to joining TCW in 1991, Mr. Albe was President of Oakmont
Corporation, a privately held corporation which administers and manages assets
for several families and individuals. Mr. Albe was associated with Oakmont
Corporation from 1982 to 1991. Before that time, he was Manager of Accounting
at McMoRan Oil and Gas Co. and a Certified Public Accountant with Arthur
Andersen & Co. in New Orleans. Mr. Albe graduated from the University of New
Orleans with a B.S. in Accounting.

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<PAGE>

Frank M. Bumstead became a director in May 1993. He has served as the
President of Flood, Bumstead, McCready & McCarthy, Inc., a financial and
business management firm, since 1990. Mr. Bumstead has served as Vice Chairman
of the Board of Response Oncology, Inc., a health care services firm, since
1986. He has served as a director of First Union National Bank of Tennessee
since 1996. Mr. Bumstead has also served as a director of American Retirement
Corp., and as a director of Imprint Records, Inc., since 1995 and as a director
of TBA Entertainment, Inc., since 1994.

Robert A. Day became a director in March 2000. Mr. Day is currently
Chairman of the Board and Chief Executive Officer of Trust Company of the West,
an investment management company, and Chairman and President of W.M. Keck
Foundation, a philanthropic organization. Mr. Day also serves on the board of
directors of Fisher Scientific International, Inc., Freeport-McMoRan, Inc.,
McMoRan Exploration Company and Freeport-McMoRan Copper & Gold, Inc. Mr. Day
holds a B.S. in Economics from Claremont McKenna College.

P. Anthony Jacobs has served as a director since December 1996. Mr.
Jacobs also served as the Chairman of the Board of SLH Corporation from
December 1996 through the closing date of the merger of Syntroleum Corporation
and SLH Corporation. Mr. Jacobs served as President and Chief Executive Officer
of Lab Holdings, Inc., a company principally engaged in the laboratory testing
business, a position he held from September 1997 until August of 1999 when the
company merged with Lab One. From 1990 to 1993, he served as Executive Vice
President and Chief Operating Officer of Lab Holdings, and from May 1993 to
September 1997, he served as President and Chief Operating Officer of Lab
Holdings. Mr. Jacobs also serves on the board of directors for Trenwick Group,
Inc. and Response Oncology, Inc. Mr. Jacobs holds an M.B.A. from the University
of Kansas and also is a Chartered Financial Analyst.

Robert Rosene, Jr. became a director in March 1985. Mr. Rosene is
President of Seminole Energy Services, L.L.C., a natural gas consulting and
marketing company. From 1984 to August 1998, he was Vice President of Boyd
Rosene and Associates, Inc., a natural gas consulting and marketing firm which
he co-founded. From 1976 to 1984, he was employed with Transok Pipeline
Company, where he served in various positions, including Manager of Rates and
Contract Administration and Director of Gas Acquisitions. In 1987, Mr. Rosene
co-founded MBR Resources, an oil and gas production company with operations in
Arkansas, New Mexico, Oklahoma and Texas. Mr. Rosene holds a B.A. in Accounting
from Oklahoma Baptist University.

James R. Seward has served as a director since December 1988. Mr. Seward
also served as the President, Chief Executive Officer and director of SLH
Corporation from February 1997 through the closing date of the merger of
Syntroleum Corporation and SLH Corporation. From 1990 to September 1997, Mr.
Seward served as Chief Financial Officer and a director of Lab Holdings. From
1990 to May 1993 he served as Senior Vice President of Lab Holdings, and from
May 1993 to September 1997, he served as Executive Vice President. He also
serves as a director of Response Oncology, Inc., Lab One, Inc. and Concorde
Career Colleges. Mr. Seward holds an M.B.A. in Finance and a M.P.A. from the
University of Kansas and is also a Chartered Financial Analyst.

J. Edward Sheridan became a director in November 1995. In 1985, Mr.
Sheridan founded and since that time has served as President of Sheridan
Management Corporation, a company whose purpose is to provide support services
to businesses in industries with global markets for their products and
services. From 1973 to 1975, he was Chief Financial Officer at Fairchild
Industries, and from 1975 to 1985, he was Chief Financial Officer at AMF, Inc.
Mr. Sheridan is also a director of Bitwise Design, Inc. Mr. Sheridan holds an
M.B.A. from Harvard University with an emphasis on Finance and International
Operations and a B.A. from Dartmouth College.

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<PAGE>

There are no family relations, of first cousin or closer, among our
directors or executive officers, by blood, marriage or adoption, except that
Mr. Kenneth L. Agee and Mr. Mark A. Agee are brothers.

Executive Compensation

The following tables show the compensation for our chief executive
officer and each of our other four most highly compensated executive officers
serving as such on December 31, 1999. The information shown includes
compensation received while the named executive officers were employees of our
predecessor company prior to the merger of Syntroleum Corporation and SLH
Corporation in 1998.

Summary Compensation Table

<TABLE>
<CAPTION>
Annual Long Term
Compensation(1) Compensation
---------------- ------------
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus Options(2) Compensation(3)
--------------------------- ---- -------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Kenneth L. Agee............. 1999 $229,000 -- 35,000 --
Chairman of the Board and
Chief Executive 1998 225,000 -- 32,247 $1,258
Officer 1997 140,092 $50,000 -- --

Mark A. Agee................ 1999 $203,000 -- 30,000 --
Director, President and
Chief Operating Officer 1998 200,000 -- 25,798 $1,506
1997 128,333 $50,000 -- --

Randall M. Thompson......... 1999 $170,000 -- 180,000 --
Vice President and Chief
Financial Officer 1998 170,008 $50,000 32,247 $ 100
1997 114,583 -- 98,677 --

Larry J. Weick.............. 1999 $170,200 -- 30,000 --
Vice President of Licensing
and Business 1998 170,000 -- 25,798 $ 100
Development 1997 123,162 $50,000 25,798 --

Peter V. Snyder, Jr.(4)..... 1999 $150,000 -- -- --
Vice President of Product
Sales 1998 150,000 -- -- --
1997 117,000 -- -- --
</TABLE>
--------
(1) The named executive officers did not receive any annual compensation not
properly categorized as salary or bonus, except for certain perquisites and
other personal benefits which are not shown because the aggregate amount of
such compensation, if any, for the named executive officers during the
fiscal year did not exceed the lesser of $50,000 or 10% of total salary and
bonus reported for such executive officer.

(2) The options reflect adjustments made for the merger of Syntroleum
Corporation and SLH Corporation in 1998.

(3) Reflects auto allowances.

(4) Mr. Snyder retired from our company on March 6, 2000.

S-61
<PAGE>

The following table provides information concerning grants of stock
options made to the named executive officers during 1999.

Option/SAR Grants in Last Fiscal Year

<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Price Appreciation
Individual Grants for Option Term(2)
------------------------------------------- ------------------
Number of % of Total Exercise
Securities Options or Base
Underlying Granted to Price
Options Employees in per Expiration
Name Granted Fiscal Year Share(1) Date 5% 10%
---- ---------- ------------ -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Kenneth L. Agee......... 35,000 4.64% $7.57 2/3/04 $ 42,379 $ 122,861
Mark A. Agee............ 30,000 3.98 6.88 2/3/09 129,804 328,948
Peter V. Snyder, Jr..... -- -- -- -- -- --
Randall M. Thompson..... 50,000 6.63 6.88 2/3/09 216,340 548,247
130,000 17.24 6.88 9/24/09 562,483 1,425,443
Larry J. Weick.......... 30,000 3.98 6.88 2/3/09 129,804 328,948
</TABLE>
--------
(1) The exercise price of the options granted is equal to the market value of
the common stock on the date of grant, except in the case of Kenneth L.
Agee where the exercise price of the options granted to Mr. Agee is equal
to 110% of the market value of the common stock on the date of the grant.

(2) Potential realizable value of each grant assumes that the market prices of
the underlying security appreciates at annualized rates of 5% and 10% over
the term of the award. These rates are specified by the Securities and
Exchange Commission. Actual gains, if any, on stock option exercises are
dependent on the future performance of the common stock and overall market
conditions. There can be no assurance that the amounts reflected on this
table will be achieved.

The following table provides information concerning each stock option
exercised during 1999 by each of the named executive officers and the value of
unexercised options held by such officers at the end of 1999.

Aggregated Option Exercises in Last Fiscal Year
and FY-end Option Values

<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Options at Fiscal Year- the-Money Options at
Shares End Fiscal Year-End(2)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth L. Agee......... -- -- 10,749 56,498 -- $ 19,600
Mark A. Agee............ -- -- 8,600 47,198 -- 37,500
Peter V. Snyder, Jr..... -- -- -- -- -- --
Randall M. Thompson..... -- -- 55,896 227,295 $107,450 286,397
Larry J. Weick.......... -- -- 34,398 47,198 61,399 37,500
</TABLE>
--------
(1) Value realized is calculated based on the difference between the option
exercise price and the closing market price of the common stock on the date
of exercise, multiplied by the number of shares underlying the options.

(2) Based on the closing price of the common stock of $8.13 on December 31,
1999, the last trading day of 1999.

S-62
<PAGE>

Compensation Committee Interlocks and Insider Participation

Our compensation committee consists of Messrs. Albe, Jacobs, Rosene and
Seward, all of whom are our non-employee directors. Prior to serving on the
compensation committee, James R. Seward was our President and Chief Executive
Officer. P. Anthony Jacobs, prior to serving on the compensation committee, was
the Chairman of the Board and a director of our company.

Executive Employment Agreements

We have entered into employment agreements with each of our executive
officers. The annual base salaries for Messrs. Kenneth L. Agee, Mark A. Agee,
Randall M. Thompson and Larry J. Weick are currently approximately $225,000,
$200,000, $170,000 and $180,000, respectively. Each employment agreement also
entitles the employee to participate in employee benefit plans that we may
offer from time to time to our employees.

Each agreement provides for an initial term of 12 months and is
automatically renewed for successive terms of 12 months unless sooner
terminated. Under each agreement, employment may be terminated as follows:

. by us upon the employee's death, disability or retirement;

. by us upon the dissolution and liquidation of our company (unless our
business is thereafter continued);

. by us for just cause;

. by the mutual agreement of the employee and us; and

. by either us or the employee upon 60 days' written notice.

If employment is terminated by us for any reason other than as noted in
the first three items above, the employee is entitled to receive his monthly
salary for a period of one or two years, as applicable, following the date of
termination. In addition, if there is a change in control of our company and:

. we terminate the employee's employment for any reason other than the
employee's death, disability, retirement or just cause during the
one-year period immediately following the change of control;

. the employee terminates his employment for good reason; or

. during the 60-day period immediately following the lapse of one year
after any change of control, we or the employee terminate the
employee's employment for any reason;

then, in lieu of any further payments for periods subsequent to the date of
termination, we or our successor will pay the employee an amount equal to one
or two times, as applicable, such employee's full base salary in effect on the
date of termination payable in equal monthly installments for a period of 12 or
24 months, as applicable.

Pursuant to each agreement, the employee is prohibited from disclosing to
third parties, directly or indirectly, our trade secrets, either during or
after the employee's employment with us, other than as required in the
performance of the employee's duties. The agreement also provides that the
employee will not have or claim any right, title or interest in any trademark,
service mark or trade name owned or used by us. The employee also agrees to
irrevocably assign to us all of the employee's right, title and interest in and
to any and all inventions and works of authorship made, generated or conceived
by the employee during his or her period of employment with us and which
related to our business or which were not developed on the employee's own time.
Each employee further agrees that during the period of employment with us and
for a period of two years following the termination of employment, the employee
will not engage in certain activities related to our business, including a
covenant not to compete.

S-63
<PAGE>

CERTAIN TRANSACTIONS

In February 1994, Mr. Mark A. Agee, our President and Chief Operating
Officer, purchased 750,000 shares of our predecessor company's common stock for
a purchase price of $0.50 per share, which was paid by delivery of a promissory
note in the amount of the aggregate purchase price. In June 1995, Messrs. Mark
A. Agree, Larry J. Weick, our Vice President of Licensing and Business
Development and Peter V. Snyder, Jr., our former Vice President of Product
Sales, purchased 250,000, 200,000 and 200,000 shares of our predecessor
company's common stock, respectively, for a purchase price of $0.50 per share,
in each case paid by delivery of promissory notes in the amount of each of the
respective aggregate purchase prices. In September 1997, our predecessor
company loaned Messrs. Agee, Weick and Snyder $594,856, $117,174 and $117,174,
respectively, the proceeds of which were used to repay their respective
previously outstanding notes. The currently outstanding notes bear interest at
the rate of 6.1% per year and mature in May 2004. The largest aggregate amount
outstanding at any time during 1999 pursuant to each of such notes was
$676,204, $133,198 and $133,198 by Messrs. Agee, Weick and Snyder,
respectively. As of March 1, 2000, each of Messrs. Agee, Weick and Snyder owed
pursuant to such promissory notes approximately $679,854, $133,918 and
$133,918, respectively. To secure their respective notes, Messrs. Agee, Weick
and Snyder have each pledged to us shares of our common stock with a market
value equal to no less than two times the indebtedness under their respective
notes. On March 6, 2000, the note from Mr. Snyder was repaid.

In February 1999, we loaned Paul F. Schubert, our Vice President of
Research and Development, $29,335. In September 1999 we loaned Mr. Schubert
$30,000. These notes are unsecured, bear interest at the rate of 4.62% and
5.98%, respectively, and mature on February 25, 2001 and September 14, 2003,
respectively. At December 31, 1999, the balance of principal and interest under
both of these notes totaled $61,175.

Following the merger of Syntroleum Corporation and SLH Corporation, we
engaged Seward & Company, L.L.C. as a management consultant. During 1999, we
paid Seward & Company, L.L.C. approximately $75,000 for consulting services
rendered. We anticipate that we will pay Seward & Company, L.L.C. approximately
$72,000 during the year 2000 for consulting services. James R. Seward, one of
our directors, is the sole member of Seward & Company, L.L.C.

S-64
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth the number of shares of our common stock
beneficially owned as of May 31, 2000, and as adjusted to reflect the sale of
the shares offered hereby assuming the underwriters exercise their over-
allotment option in full by each of our directors, each of the executive
officers named in the Summary Compensation Table contained in our Annual Report
on Form 10-K for the year ended December 31, 1999, all directors and executive
officers as a group and all persons known by us to be the beneficial owners of
at least 5% of the outstanding common stock.

<TABLE>
<CAPTION>
Shares Beneficially
Owned before the
Offering
---------------------
Name(1)(2) Number Percentage
---------- ---------- ----------
<S> <C> <C>
Kenneth L. Agee(3)................................ 4,947,604 18.1%
Mark A. Agee(4)................................... 1,466,853 5.4
Randall M. Thompson............................... 169,541 *
Larry J. Weick(5)................................. 320,877 1.2
Alvin R. Albe, Jr................................. 72,460 *
Frank M. Bumstead................................. 81,568 *
Robert A. Day..................................... 3,239,261 11.8
P. Anthony Jacobs(6).............................. 422,195 1.5
Robert Rosene, Jr.(7)............................. 180,541 *
James R. Seward(8)................................ 478,517 1.7
J. Edward Sheridan................................ 34,986 *
All directors and executive officers as a group
(16 persons)..................................... 11,709,229 42.8
William D. Grant(9)............................... 2,110,924 7.7
</TABLE>
--------
* Represents ownership of less than 1%.
(1) Except as otherwise noted and subject to applicable community property
laws, each stockholder has sole voting and investment power with respect to
the shares beneficially owned. The business address of each director and
executive officer is c/o Syntroleum Corporation, 1350 South Boulder, Suite
1100, Tulsa, Oklahoma 74119-3295.
(2) Shares of common stock subject to options that are exercisable within 60
days of May 31, 2000 are deemed outstanding for purposes of computing the
percentage ownership of such person, but are not deemed outstanding for
purposes of computing the percentage ownership of any other person.
Accordingly, the following shares of common stock subject to stock options
are included in the table: Kenneth L. Agee--33,165; Mark A. Agee--27,199;
Randall M. Thompson--109,109; Larry Weick--52,997; Alvin R. Albe, Jr.--
8,010; Frank J. Bumstead--8,010; P. Anthony Jacobs--203,010; Robert Rosene,
Jr.--8,010; James R. Seward--203,010; J. Edward Sheridan--8,010; and all
directors and executive officers as a group--835,356.

(3) Includes 58,044 shares of common stock owned by Mr. Kenneth L. Agee's
children and excludes 16,500 shares of common stock owned by the Kenneth L.
Agree and Cindy A. Agree Charitable Remainder Unitrust of which Kenneth L.
Agee, his spouse, his children and a religious organization are
beneficiaries, as to which Mr. Kenneth L. Agee disclaims beneficial
ownership.

(4) Includes 58,144 shares of common stock owned by Mr. Mark A. Agee's
children, as to which Mr. Mark A. Agee disclaims beneficial ownership.

(5) Includes 4,200 shares of common stock held by Mr. Weick as custodian for
his daughters, as to which he disclaims beneficial ownership.

(6) Includes 1,500 shares of common stock held by Mr. Jacobs' wife, as to which
he disclaims beneficial ownership.

S-65
<PAGE>

(7) Includes 10,800 shares of common stock owned by trusts the beneficiaries
whom are Mr. Rosene's children, as to which Mr. Rosene disclaims beneficial
ownership.
(8) Includes 2,250 shares of common stock held in a family trust for which Mr.
Seward serves as a co-trustee with his mother (and in that capacity shares
voting and investment powers).
(9) Based on the Amendment No. 2 to Schedule 13G filed by Mr. William D. Grant
on February 9, 2000. The business address of Mr. Grant is One Ward Parkway,
Suite 130, Kansas City, Missouri 64112. Includes options to purchase 97,200
shares exercisable within 60 days of May 31, 2000.

S-66
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Sale of substantial amounts of our common stock, or a perception that
such sales could occur, and the existence of options to purchase shares of
common stock at prices that may be below the then current market price of the
common stock could adversely affect the market price of the common stock and
could impair our ability to raise capital through the sale of equity
securities. After this offering, 32,615,909 shares of common stock will be
outstanding (33,403,409 shares if the underwriters exercise their over-
allotment option in full). The 5,250,000 shares sold in this offering
(6,037,500 shares if the underwriters exercise their over-allotment option)
will be freely tradable without restriction under the Securities Act; except
for any shares purchased by "affiliates" of Syntroleum as defined in Rule 144
under the Securities Act. Of the remaining shares to be outstanding after this
offering, approximately 12,887,597 shares are "restricted securities" within
the meaning of Rule 144, or are held by affiliates of Syntroleum, and in each
case generally may not be sold except in transactions registered under the
Securities Act or pursuant to an exemption from registration, such as the
exemption provided by Rule 144.

Our officers and directors and Mr. Grant (who beneficially owns 7.7% of
our shares) have agreed to enter into lock-up agreements pursuant to which they
will agree, with exceptions specified in the lock-up agreements, not to offer
or sell any shares of common stock for a period of 180 days after the date of
this prospectus supplement without the prior written consent of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, on behalf of the underwriters. See
"Underwriting." Merrill Lynch, Pierce, Fenner & Smith Incorporated may, at any
time and without notice, waive any of the terms of these lock-up agreements
specified in the underwriting agreement. Following the lock-up period, these
shares will not be eligible for sale in the public market without registration
under the Securities Act unless such sales meet the conditions and restrictions
of Rule 144 as described below.

In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for a
period of at least one year is entitled to sell, within any three-month period,
a number of shares that does not exceed the greater of (i) 1% of the then-
outstanding shares of common stock and (ii) the average weekly trading volume
in the common stock during the four calendar weeks immediately preceding the
date on which the notice of such sale on Form 144 is filed with the Securities
and Exchange Commission. Sales under Rule 144 are also subject to certain
provisions relating to notice and manner of sale and the availability of
current public information about Syntroleum. In addition, a person (or persons
whose shares are aggregated) who has not been an affiliate of Syntroleum at any
time during the 90 days immediately preceding a sale, and who has beneficially
owned the shares for at least two years, would be entitled to sell such shares
under Rule 144(k) without regard to the volume limitation and other conditions
described above. Affiliates are subject to the volume limitations and other
conditions described above regardless of the length of time those shares have
been held and whether the shares are restricted. The foregoing summary of Rule
144 is not intended to be a complete description.

Options

As of May 31, 2000, we had outstanding options to purchase a total of
2,411,238 shares of common stock. Our outstanding options include options
covering 1,233,178 shares granted to our executive officers and directors, of
which 809,559 are exercisable. These vested and unvested options are
exercisable at prices ranging from $3.19 to $20.29 per share and have an
average remaining life of 6.29 years. Options covering 1,178,060 shares have
been issued to our employees and a former director pursuant to our stock option
plans and a consultant. These options are exercisable at prices ranging from
$0.39 to $18.88 per share and have an average remaining life of 6.41 years.

S-67
<PAGE>

Registration Rights Agreements

Criterion is entitled to "piggyback" registration rights with respect to
shares of our common stock owned by Criterion. Criterion has waived such
registration rights with respect to this offering. Those registration rights
terminate after we have had two registration statements (other than
registration statements on Form S-4 or Form S-8) declared effective by the
Securities and Exchange Commission or after August 16, 2001, whichever occurs
first. In 1996 and 1997, Criterion acquired 905,214 shares of our common stock.
We are not aware of any other acquisitions or any disposition by Criterion of
shares of our common stock.

S-68
<PAGE>

UNDERWRITING

General

We intend to offer our common stock in the United States and Canada
through a number of underwriters. Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Goldman, Sachs & Co., J.P. Morgan Securities Inc., Salomon Smith
Barney Inc. and Petrie Parkman & Co., Inc. are acting as representatives of
each of the underwriters named below. Subject to the terms and conditions
described in a purchase agreement among us and the underwriters, we have agreed
to sell to the underwriters, and each of the underwriters severally and not
jointly has agreed to purchase from us, the number of shares of common stock
set forth opposite its name below.

<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................ 1,091,250
Goldman, Sachs & Co.................................................. 1,091,250
J.P. Morgan Securities Inc........................................... 1,091,250
Salomon Smith Barney Inc............................................. 1,091,250
Petrie Parkman & Co., Inc............................................ 485,000
George K. Baum & Company............................................. 200,000
Security Investment Company of Kansas City........................... 200,000
---------
Total........................................................... 5,250,000
=========
</TABLE>

The underwriters have agreed to purchase all of the shares of common
stock sold under the purchase agreement if any of these shares are purchased.
If an underwriter defaults, the purchase agreement provides that the purchase
commitments of nondefaulting underwriters may be increased or the purchase
agreement may be terminated.

We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
the underwriters may be required to make in respect of those liabilities.

The underwriters are offering shares of common stock, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
legal matters by their counsel, including the validity of the shares of common
stock, and other conditions contained in the purchase agreement, such as
receipt by the underwriters of officer's certificates and legal opinions. The
underwriters reserve the right to withdraw, cancel or modify offers to the
public and to reject orders in whole or in part.

Commissions and Discounts

The representatives have advised us that the underwriters propose
initially to offer the shares of common stock to the public at the initial
public offering price on the cover page of this prospectus supplement, and to
dealers at such price less a concession not in excess of $.60 per share of
common stock. The underwriters may allow, and the dealers may reallow, a
discount not in excess of $.10 per share of common stock to other dealers.
After the initial public offering, the public offering price, concession and
discount may be changed.

S-69
<PAGE>

The following table shows public offering price, the underwriting
discount and proceeds before expenses to Syntroleum. This information assumes
either no exercise or full exercise by the underwriters of their over-
allotment option.

<TABLE>
<CAPTION>
Per
Share Without Option With Option
----- -------------- -----------
<S> <C> <C> <C>
Public offering price................. $17.50 $91,875,000 $105,656,250
Underwriting discount................. $1.05 $5,512,500 $6,339,375
Proceeds, before expenses, to
Syntroleum........................... $16.45 $86,362,500 $99,316,875
</TABLE>

The expenses of this offering, not including the underwriting discount,
are estimated at $450,000 and are payable by Syntroleum.

Over-Allotment Option

We have granted the underwriters an option to purchase up to 787,500
additional shares at the public offering price less the underwriting discount.
The underwriters may exercise this option for 30 days from the date of this
prospectus supplement solely to cover over-allotments. If the underwriters
exercise this option, each will be obligated, subject to conditions contained
in the purchase agreement, to purchase a number of additional shares of the
common stock proportionate to that underwriter's initial amount reflected in
the above table.

No Sales of Similar Securities

All our executive officers and directors and Mr. Grant (who beneficially
owns 7.7% of the shares of the capital stock) with exceptions, have agreed not
to sell or transfer any common stock for 180 days after the date of this
prospectus supplement without first obtaining the written consent of Merrill
Lynch. Specifically, we and these other individuals have agreed not to
directly or indirectly

. offer, pledge, sell or contract to sell any common stock,

. sell any option or contract to purchase any common stock,

. purchase any option or contract to sell any common stock,

. grant any option, right or warrant for the sale of any common stock,

. lend or otherwise dispose of or transfer any common stock,

. request or demand that we file a registration statement related to the
common stock, or

. enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock
whether any such swap or transaction is to be settled by delivery of
shares or other securities, in cash or otherwise.

This lockup provision applies to common stock and to securities
convertible into or exchangeable or exercisable for or repayable with common
stock. It also applies to common stock owned now or acquired later by the
person executing the agreement or for which the person executing the agreement
later acquires the power of disposition.

Nasdaq Listing

The shares of common stock are quoted on the Nasdaq National Market under
the symbol "SYNM."

S-70
<PAGE>

Price Stabilization and Short Positions

Until the distribution of the shares of common stock is completed, SEC
rules may limit the underwriters from bidding for and purchasing our common
stock. However, the representatives may engage in transactions that stabilize
the price of the common stock such as bids or purchases to peg, fix or maintain
that price.

If the underwriters create a short position in the common stock in
connection with this offering, i.e., if they sell more shares of common stock
than are listed on the cover page of this prospectus supplement, the
representatives may also elect to reduce any short position by purchasing in
the open market. The representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described
above. Purchases of the common stock to stabilize its price or to reduce a
short position may cause the price of the common stock to be higher than it
might be in absence of such purchases.

Other Relationships

Some of the underwriters and their affiliates engage in transactions
with, and perform services for, our company in, and may in the future engage
in, investment banking and other commercial dealings in the ordinary course of
business with us. They have received customary fees and commissions for these
transactions.

LEGAL OPINIONS

Baker Botts L.L.P., Houston, Texas, as our counsel, will issue an opinion
for us regarding the validity of the shares of common stock offered by this
prospectus supplement and the accompanying prospectus. Certain legal matters
related to this offering will be passed upon for the underwriters by Cleary,
Gottlieb, Steen & Hamilton.

EXPERTS

The audited consolidated financial statements included in this prospectus
supplement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein by reference in reliance upon the authority of said firm as
experts in giving said reports.

S-71
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Syntroleum Corporation and Subsidiaries

Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets as of March 31, 2000 (unaudited) and
December 31, 1999 and 1998............................................. F-3
Consolidated Statements of Operations for the three months ended March
31, 2000 and 1999 (unaudited) and for the years ended December 31,
1999, 1998 and 1997.................................................... F-4
Consolidated Statements of Stockholders' Equity for the three months
ended March 31, 2000 (unaudited) and for the years ended December 31,
1999, 1998 and 1997.................................................... F-5
Consolidated Statements of Cash Flows for the three months ended March
31, 2000 and 1999 (unaudited) and for the years ended December 31,
1999, 1998 and 1997.................................................... F-6
Notes to Consolidated Financial Statements for the three months ended
March 31, 2000 and 1999 (unaudited) and for the years ended December
31, 1999, 1998 and 1997................................................ F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and
Stockholders of Syntroleum Corporation:

We have audited the accompanying consolidated balance sheets of
Syntroleum Corporation (a Delaware corporation) as of December 31, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Syntroleum
Corporation as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the three years then ended, in conformity
with accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Tulsa, Oklahoma
January 18, 2000

F-2
<PAGE>

SYNTROLEUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

<TABLE>
<CAPTION>
December 31,
March 31, ------------------
2000 1999 1998
----------- -------- --------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................... $ 18,667 $ 20,316 $ 34,981
Short-term investments....................... 3,441 3,565 3,135
Accounts and notes receivable................ 173 1,193 860
Other current assets......................... 343 365 498
-------- -------- --------
Total current assets....................... 22,624 25,439 39,474
REAL ESTATE HELD FOR SALE...................... 23 2,665 3,122
REAL ESTATE UNDER DEVELOPMENT.................. 3,163 3,349 2,722
INVESTMENTS.................................... 1,155 1,104 1,180
PROPERTY AND EQUIPMENT, net.................... 8,767 6,442 3,210
NOTES RECEIVABLE............................... 2,390 -- --
OTHER ASSETS, net.............................. 463 592 692
-------- -------- --------
$ 38,585 $ 39,591 $ 50,400
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................. $ 2,691 $ 2,188 $ 1,365
Accrued liabilities.......................... 486 453 633
-------- -------- --------
Total current liabilities.................. 3,177 2,641 1,998
OTHER NONCURRENT LIABILITIES................... 88 94 103
MINORITY INTERESTS............................. 3,025 1,024 1,337
DEFERRED REVENUE............................... 11,000 11,000 11,000
-------- -------- --------
Total liabilities.......................... 17,290 14,759 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, 35,023,203, 34,668,748
and 34,574,957 shares issued at March 31,
2000 (unaudited), December 31, 1999 and
1998, respectively, including shares in
treasury.................................... 350 347 346
Additional paid-in capital................... 70,647 68,935 62,908
Notes receivable from sale of common stock... (599) (699) (699)
Accumulated deficit.......................... (49,026) (43,674) (26,516)
-------- -------- --------
21,372 24,909 36,039
Less-treasury stock, 7,674,905 shares at March
31, 2000 (unaudited), December 31, 1999 and
1998, respectively............................ (77) (77) (77)
-------- -------- --------
Total stockholders' equity................. 21,295 24,832 35,962
-------- -------- --------
$ 38,585 $ 39,591 $ 50,400
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-3
<PAGE>

SYNTROLEUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)

<TABLE>
<CAPTION>
For the Three Months
Ended March 31, For the Year Ended December 31,
------------------------ -------------------------------------
2000 1999 1999 1998 1997
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Joint development
revenue.............. $ 283 $ 603 $ 1,986 $ 1,779 $ 2,006
Real estate sales..... 3,538 -- 1,219 2,416 --
Other................. 54 163 650 284 1
----------- ----------- ----------- ----------- -----------
Total revenues....... 3,875 766 3,855 4,479 2,007
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of real estate
sales................ 3,078 -- 824 2,387 --
Real estate operating
expense.............. 162 156 781 267 --
Pilot plant,
engineering and
research and
development.......... 3,153 1,652 10,863 5,693 3,554
Catalyst services..... -- -- -- -- 4,800
General and
administrative....... 3,035 2,154 10,409 9,151 3,618
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) FROM
OPERATIONS............. (5,553) (3,196) (19,022) (13,019) (9,965)
INVESTMENT AND INTEREST
INCOME................. 235 386 1,681 1,159 372
INTEREST EXPENSE........ -- -- -- -- (22)
OTHER INCOME............ -- 1 154 118 --
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
MINORITY INTERESTS..... (5,318) (2,809) (17,187) (11,742) (9,615)
MINORITY INTERESTS...... (34) 6 29 31 3
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS)....... $ (5,352) $ (2,803) $ (17,158) $ (11,711) $ (9,612)
=========== =========== =========== =========== ===========
NET INCOME (LOSS) PER
SHARE--
Basic and diluted..... $ (0.20) $ (0.10) $ (0.64) $ (0.46) $ (0.40)
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING..... 27,201,843 26,900,052 26,905,853 25,466,737 23,953,347
=========== =========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-4
<PAGE>

SYNTROLEUM CORPORATION AND SUBSIDIARIES

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, January 1,
1997................... 23,619 $237 $ 5,921 $(700) $ (5,193) $ -- $ 265
CONVERSION OF
DEBENTURE............. 120 1 1,116 -- -- -- 1,117
SALE AND ISSUANCE OF
STOCK................. 759 7 6,957 -- -- -- 6,964
STOCK ISSUED FOR
SERVICES.............. 4 -- 34 -- -- -- 34
PURCHASE OF 1,934
SHARES OF TREASURY
STOCK................. -- -- -- -- -- (11) (11)
PAYMENT ON NOTES
RECEIVABLE............ -- -- -- 1 -- -- 1
NET INCOME (LOSS)...... -- -- -- -- (9,612) -- (9,612)
------ ---- ------- ----- -------- ---- --------
BALANCE, December 31,
1997................... 24,502 245 14,028 (699) (14,805) (11) (1,242)
RETIREMENT OF TREASURY
STOCK................. (2) -- (11) -- -- 11 --
MERGER WITH SLH
CORPORATION........... 10,075 101 48,891 -- -- (77) 48,915
NET INCOME (LOSS)...... -- -- -- -- (11,711) -- (11,711)
------ ---- ------- ----- -------- ---- --------
BALANCE, December 31,
1998................... 34,575 346 62,908 (699) (26,516) (77) 35,962
SETTLEMENT OF MERGER
CONTINGENCY........... -- -- 5,997 -- -- -- 5,997
STOCK OPTIONS
EXERCISED............. 94 1 30 -- -- -- 31
NET INCOME (LOSS)...... -- -- -- -- (17,158) -- (17,158)
------ ---- ------- ----- -------- ---- --------
BALANCE, December 31,
1999................... 34,669 347 68,935 (699) (43,674) (77) 24,832
STOCK OPTIONS EXERCISED
(unaudited)........... 360 3 1,844 -- -- -- 1,847
NOTE REPAYMENT
(unaudited)........... (6) -- (132) 100 -- -- (32)
NET INCOME (LOSS)
(unaudited)........... -- -- -- -- (5,352) -- (5,352)
------ ---- ------- ----- -------- ---- --------
BALANCE, March 31, 2000
(unaudited)............ 35,023 $350 $70,647 $(599) $(49,026) $(77) $ 21,295
====== ==== ======= ===== ======== ==== ========
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-5
<PAGE>

SYNTROLEUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
For the Three
Months Ended For the Year Ended
March 31, December 31,
---------------- ---------------------------
2000 1999 1999 1998 1997
------- ------- -------- -------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss).............. $(5,352) $(2,803) $(17,158) $(11,711) $(9,612)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operations:
Stock issued for catalyst
services..................... -- -- 4,800
Minority interest in income
(loss) of subsidiary......... 34 (6) (29) (31) (3)
Distribution of minority
interest..................... (33) -- (284) -- --
Depreciation and
amortization................. 242 118 676 306 76
Write-down of property and
equipment.................... -- -- 414
Equity in earnings of
affiliates................... (51) (20) (141) (8) --
Changes in real estate held
for sale and under
development.................. 2,828 (1,272) (170) 1,545 --
Other......................... -- -- 56
Changes in assets and
liabilities--
Accounts and notes
receivable.................. 1,020 (266) (333) 466 (429)
Other assets................. (2,277) 59 206 (362) (114)
Accounts payable............. 503 (254) 823 348 485
Accrued liabilities and
other....................... 27 (78) (189) (2,685) 63
Deferred revenue............. -- -- -- -- 11,000
------- ------- -------- -------- -------
Net cash provided by (used
in) operating activities... (3,059) (4,522) (16,599) (12,132) 6,736
------- ------- -------- -------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment..................... (2,561) (253) (3,881) (2,173) (1,114)
Distribution from venture
capital investment funds...... -- -- 217 -- --
Maturity of SLH investments
held to maturity.............. -- -- -- 37,415 --
Purchase of short-term
investments................... 124 (17) (430) -- --
------- ------- -------- -------- -------
Net cash provided by (used
in) investing activities... (2,437) (270) (4,094) 35,242 (1,114)
------- ------- -------- -------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Settlement of merger
contingency................... -- 5,997 5,997 -- --
Cash received from merger...... -- -- -- 713 --
Minority interest investment in
subsidiary.................... 2,000 -- -- 1,000 1,500
Proceeds from sale of common
stock......................... 1,847 -- 31 -- 2,164
Other.......................... -- -- -- -- (10)
------- ------- -------- -------- -------
Net cash provided by
financing activities....... 3,847 5,997 6,028 1,713 3,654
------- ------- -------- -------- -------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS........... (1,649) 1,205 (14,665) 24,823 9,276
CASH AND CASH EQUIVALENTS,
beginning of period............ 20,316 34,981 34,981 10,158 882
------- ------- -------- -------- -------
CASH AND CASH EQUIVALENTS, end
of period...................... $18,667 $36,186 $ 20,316 $ 34,981 $10,158
======= ======= ======== ======== =======
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-6
<PAGE>

SYNTROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Unaudited as to Information for March 31, 2000 and 1999)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

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 liquid hydrocarbons produced by the Syntroleum Process
can be further processed into high quality liquid fuels such as diesel,
kerosene and naphtha, or high quality specialty products such as synthetic
lubricants, synthetic drilling fluid, waxes, liquid normal paraffins and
certain chemical feedstocks.

The Company's current focus is to further demonstrate the commercial
viability of its proprietary technology. The Company has sold license
agreements to six oil companies and, in connection with its joint development
efforts with certain of its licensees, operates a pilot plant in Tulsa,
Oklahoma that has demonstrated certain elements and variations of the
Syntroleum Process and is participating in the operation of a pilot plant
located at ARCO's refinery in Cherry Point, Washington. The Company is
developing a commercial-scale specialty products plant to be located in Western
Australia.

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 years ended December 31, 1998 and 1997, as though the merger with SLH
had occurred at January 1, 1997, are presented below. The pro forma 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>
December 31,
----------------
1998 1997
------- -------
(in thousands,
except per
share amounts)
<S> <C> <C>
Revenues............................................... $12,028 $19,350
Net income (loss)...................................... (7,771) (519)
Basic and diluted earnings (loss) per share............ $ (0.31) $ (0.02)
</TABLE>

Operations

The construction of specialty product GTL plants will require significant
capital expenditures. The Company's other efforts to commercialize the
Syntroleum Process will also involve significant expenditures. The Company
intends to obtain additional funding through joint ventures, partnerships,
license agreements and

F-7
<PAGE>

SYNTROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

other strategic alliances, as well as various other financing arrangements. The
Company may also seek debt or equity financing in the capital markets. In the
event such capital resources are not available, the Company's GTL plant
development and other activities may be curtailed. Management estimates that
construction and disposal costs to complete real estate projects in development
will be approximately $1.5 million.

Consolidation

The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. These subsidiaries include BMA Resources,
Inc., Scout Development Corporation, Scout Development Corporation of New
Mexico, Lot Development, Inc., Carousel Apartment Homes, Inc., 529 Partners,
Ltd. Syntroleum/Sweetwater Company, LLC, Syntroleum International Corporation,
Syntroleum International Holdings Ltd., Syntroleum Sweetwater Holdings Ltd.,
and Syntroleum Sweetwater Operations Ltd. All subsidiaries except
Syntroleum/Sweetwater Company, LLC, Syntroleum International Corporation,
Syntroleum International Holdings Ltd., Syntroleum Sweetwater Holdings Ltd.,
and Syntroleum Sweetwater Operations Ltd. were acquired through the merger with
SLH. All significant inter-company accounts and transactions have been
eliminated. Investments in affiliated companies of 20% to 50% in which
Syntroleum does not have a controlling interest are accounted for by the equity
method. Investments in affiliated companies of 1% to 20% are accounted for by
the cost method.

Revenue Recognition

The Company recognizes revenues from joint development activities as the
related expenses are incurred because the contracts provide that revenue is
earned as the expenses under the contract are incurred. Substantially all of
the joint development revenues for the years ended December 31, 1999, 1998 and
1997 have been from joint development activities with two major oil companies
(see Note 12). All joint development activities during the years ended December
31, 1999, 1998 and 1997 were pursuant to joint research and development
agreements where the Company expenses its research and development costs as
incurred.

The Company recognizes revenue on the sale of license agreements by
recording 50% of the license fee deposit as revenue when: (1) the license
agreement has been formally executed, (2) the license fee deposit has been paid
in cash and (3) the Company has delivered to the licensee the process design
package for the licensee's initial licensed plant. Since 50% of the license fee
deposit is subject to the Company's indemnity obligation with respect to the
performance guarantee on the related plant, the remaining license fee deposit
is recorded as deferred revenue in the consolidated balance sheets and will be
recognized as revenue in the consolidated statements of operations after the
related plant has passed certain performance tests. Option fees, which provide
licensees the right to include additional geographic areas in its license
agreement territory, are deferred until the earlier of the option being
exercised or lapsing. As of December 31, 1999, the Company has deferred all
amounts received related to license and option agreements.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid investments
with an original maturity of three months or less.

Real Estate

Real estate sales are recognized when consummated. Profit is recognized
using the full accrual method when the down payment, continuing investment, and
transfer of risk criteria have been satisfied. Payments

F-8
<PAGE>

SYNTROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

received from buyers prior to recording of a sale are recorded as deposits.
Real estate rentals and other revenues are accrued in the period when earned.

Real estate is valued at lower of cost, including development costs, or
market. Development costs that are incurred during the period of development or
construction are capitalized. Capitalized costs are charged to expenses as
properties are sold.

During 1999, the Company sold its remaining Kansas City Tracts and an
easement in the Corinth Tract for a total of $531,000. The Company also sold 38
lots in Houston for $688,000. These assets were acquired in the merger with
SLH.

Short-Term Investments

Short-term investments consist of U.S. Treasury securities and debt
obligations of U.S. Government agencies with original maturities between three
and twelve months. Management determines the appropriate classification of
these securities at the time of purchase and re-evaluates such designation as
of each subsequent balance sheet date. At December 31, 1999 and 1998, the
Company's investment portfolio consisted of debt securities classified as held-
to-maturity and trading securities and are presented at amortized cost and fair
value, respectively.

Research and Development

The Company incurs significant costs for research, development and
engineering programs. Such costs are charged to expense when incurred.

Income Taxes

Income taxes are accounted for using the asset and liability method of
accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and of net operating loss carry-forwards.
Deferred tax assets and liabilities are measured using the enacted tax rates
and laws in effect or that will be in effect when the differences are expected
to reverse. The Company records a valuation allowance if it is more likely than
not that some portion or all of the deferred tax asset will not be realized.

Impairment of Long-Lived Assets

The Company follows the provisions of SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
The Company makes assessments of impairment on a project-by-project basis. The
impairment provision is based on the excess of carrying value over fair value.
Fair value is defined as the present value of the estimated future net revenues
of a project. No impairment provisions were required in 1999, 1998 or 1997.

Segments

The Company has certain real estate assets that it acquired in the merger
with SLH. Management's intent is to liquidate these assets and it does not
intend to acquire additional real estate holdings. The Company's primary
operation is to further demonstrate the commercial viability of its proprietary
technology. Accordingly, management views the Company as having only one
segment.

F-9
<PAGE>

SYNTROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 periods. At December 31, 1999, options to
purchase 2,721,925 shares of common stock at an average exercise price of $7.44
were not included in the computation of diluted earnings per share as inclusion
of such options would be anti-dilutive. At March 31, 2000, options to purchase
2,395,496 shares of common stock at an average exercise price of $7.79 were not
included in the computation of diluted earnings per share because inclusion of
these options would be anti-dilutive.

Reclassifications

Certain reclassifications have been made to the 1997 and 1998 financial
statements to conform with the 1999 presentation. Such reclassifications did
not impact net income (loss).

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.

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, as amended by SFAS No. 137, is effective for fiscal years beginning
after June 15, 2000. However, companies may elect to adopt SFAS No. 133 prior
to that date. 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. The company is currently in the process of determining
timing and the effect of adopting SFAS No. 133.

2. INVESTMENTS:

At December 31, 1999, the Company has a 4.34% interest in a hotel
partnership in Tulsa, Oklahoma having a carrying value of $100,000. The Company
also owns a 3.61% investment in a privately held venture capital limited
partnership having a carrying value of $476,000 and an investment in Norian
Corporation, a developer of a proprietary bone substitute technology, which has
a carrying value of $565,000 at December 31, 1999.

The Company has a 49.9% interest in a partnership that owns a shopping
center having a carrying value of ($37,000). The Company has guaranteed debt
(with an unpaid balance of $5,830,000 at December 31, 1999) of the shopping
center partnership. Because the Company has guaranteed this debt, the
investment is

F-10
<PAGE>

SYNTROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

carried below zero to reflect the Company's pro rata share of the partnership's
deficit. The Company's obligation is secured by a $3.2 million U.S. Agency
note. Summary financial information of the shopping center partnership is shown
below:

<TABLE>
<CAPTION>
December 31,
--------------
1999 1998
------ ------
(in
thousands)
<S> <C> <C>
Results of Operations
Revenue................................................ $ 830 $ 798
Gross profit........................................... 466 446
Net earnings (loss).................................... 283 71
<CAPTION>
December 31,
--------------
1999 1998
------ ------
(in
thousands)
<S> <C> <C>
Financial Position
Current assets......................................... $1,303 $1,193
Real estate............................................ 4,357 4,343
Other assets........................................... 210 189
------ ------
$5,870 $5,725
====== ======
Short-term borrowings.................................. $ 195 $ 175
Current liabilities.................................... 114 77
Long-term borrowings................................... 5,635 5,830
------ ------
5,944 6,082
Partnership deficit.................................... (74) (357)
------ ------
$5,870 $5,725
====== ======
</TABLE>

3. PROPERTY AND EQUIPMENT:

Property and equipment is stated at cost. When assets are sold or
retired, the cost and accumulated depreciation related to those assets are
removed from the accounts and any gain or loss is credited or charged to
income. Depreciation of property and equipment is computed on the straight-line
method over estimated useful lives of three to seven years. Property and
equipment consists of the following:

<TABLE>
<CAPTION>
December 31,
March 31, -------------
2000 1999 1998
--------- ------ ------
(in thousands)
<S> <C> <C> <C>
Furniture and office equipment................... $2,774 $2,549 $1,919
Building and building improvements............... 840 840 807
Land............................................. 118 118 118
Leasehold improvements........................... 321 341 288
Construction in progress......................... 6,043 3,688 523
------ ------ ------
10,096 7,536 3,655
Less accumulated depreciation.................... 1,329 1,094 445
------ ------ ------
$8,767 $6,442 $3,210
====== ====== ======
</TABLE>

F-11
<PAGE>

SYNTROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4. NOTES RECEIVABLE FROM SALE OF COMMON STOCK:

Notes receivable from the sale of common stock consists of notes
receivable from officers for the purchase of common stock in the Company. The
notes bear interest at the rate of 6.10%, mature in May 2004 and are secured by
stock pledge agreements.

5. ACCRUED LIABILITIES:

The components of accrued liabilities are as follows:

<TABLE>
<CAPTION>
December
31,
March 31, ---------
2000 1999 1998
--------- ---- ----
(in thousands)
<S> <C> <C> <C>
Accrued warranty...................................... $135 $135 $135
Accrued vacation...................................... 189 167 161
Accrued rent.......................................... 77 95 120
Other................................................. 85 56 217
---- ---- ----
$486 $453 $633
==== ==== ====
</TABLE>

6. INCOME TAXES:

The Company has federal income tax net operating loss (NOL) carry-
forwards of approximately $58 million at December 31, 1999. In connection with
the merger with SLH, the Company obtained NOLs of approximately $17.6 million
and capital loss carry-forwards of approximately $4.6 million. These carry-
forwards generally begin to expire in 2004.

The Company recognizes the tax benefit of NOL carry-forwards as assets to
the extent that management concludes that the realization of the NOL carry-
forwards is "more likely than not." Realization of the future tax benefits is
dependent on the Company's ability to generate taxable income within the carry-
forward period. The Company's management has concluded that, based solely on
the criteria of SFAS No. 109 "Accounting for Income Taxes" and the historical
results of the Company, a valuation allowance should be provided for the entire
balance of the net deferred asset.

F-12
<PAGE>

SYNTROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company has not recorded an income tax provision or benefit for the
years ended December 31, 1999, 1998 or 1997, respectively. This differs from
the amount of income tax benefit that would result from applying the 34%
statutory federal income tax rate to the pretax loss due to the increase in the
valuation allowance in each period. The valuation allowance increased by
approximately $9,690,000, $13,177,000 and $3,609,000 for the years ended
December 31, 1999, 1998 and 1997, respectively. Deferred taxes arise primarily
from NOL carry-forwards and the recognition of revenues and expenses in
different periods for financial and tax purposes. Deferred taxes consist of the
following:

<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Deferred tax assets:
NOL carry-forwards................................... $19,304 $14,895
Capital loss carry-forwards.......................... 1,614 1,759
Research and development credit...................... 973 --
Deferred revenue..................................... 1,710 1,710
Other................................................ 3,463 682
------- -------
27,064 19,046
Deferred tax liabilities:
Depreciation......................................... (288) (268)
Other................................................ (330) (17)
------- -------
Net deferred tax asset before valuation allowance.... 26,446 18,761
Valuation allowance.................................. (26,446) (18,761)
------- -------
Net deferred tax................................... $ -- $ --
======= =======
</TABLE>

7. SUPPLEMENTAL CASH FLOW INFORMATION:

During 1997, a convertible debenture was converted into 120,036 shares of
the Company's common stock which was accounted for as a non-cash financing
activity. Also during 1997, the Company issued 515,960 shares of its common
stock to a catalyst manufacturer which was accounted for as a non-cash
operating activity except for the extent of cash received.

During 1998, the merger with SLH was accounted for as a non-cash
investing activity. In conjunction with the merger with SLH, the following
assets were acquired and liabilities assumed:

<TABLE>
<S> <C>
Cash............................................................. $ 713
Short-term investments........................................... 40,550
Real estate held for sale and under development.................. 7,387
Other assets..................................................... 2,719
Liabilities assumed.............................................. (2,454)
-------
Equity issued.................................................. $48,915
=======
</TABLE>

F-13
<PAGE>

SYNTROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

8. COMMITMENTS:

The Company has entered into various, non-cancelable leases for office
space, equipment, land and buildings that expire over the next several years.
Rental expense was $1,246,000 in 1999, $614,000 in 1998 and $168,000 in 1997.
Total future minimum lease payments under these agreements as of December 31,
1999 are as follows:

<TABLE>
<CAPTION>
Year Amount
----------------------------------------------------------- --------------
(in thousands)
<S> <C>
2000....................................................... $1,033
2001....................................................... 901
2002....................................................... 855
2003....................................................... 361
2004....................................................... 331
Thereafter................................................. 6,169
</TABLE>

The Company has entered into employment agreements which provide
severance benefits to several key employees. Commitments under these agreements
totaled approximately $3,132,000 at December 31, 1999.

9. FAIR VALUE OF FINANCIAL INSTRUMENTS:

The estimated fair values of the Company's financial instruments at
December 31 are summarized as follows:

<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents....... $20,316 $20,316 $34,981 $34,981
Short-term investments.......... 3,565 3,565 3,135 3,135
Accounts and notes receivable... 1,193 1,193 860 860
Investments..................... 1,104 1,104 1,180 1,180
Notes receivable from sale of
common stock................... 699 699 699 699
</TABLE>

The fair value of the short-term investments and accounts receivable
approximates cost because of the short-term maturity of these financial
instruments. The estimated fair value of the notes receivable were calculated
by discounting scheduled cash flows using estimated market discount rates. The
investments were acquired in the merger and, at the time of the merger, were
valued at market. No significant changes in the estimated fair value have
occurred since the merger.

10. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:

At December 31, 1999 and 1998, all marketable debt securities were
classified as held-to-maturity and trading securities. Held-to-maturity
investments were carried at amortized cost and trading securities were

F-14
<PAGE>

SYNTROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

carried at fair value. During 1999, 1998 and 1997, no securities classified as
held-to-maturity or trading securities were transferred out of held-to-maturity
or trading securities. Investments consisted of the following at December 31:

<TABLE>
<CAPTION>
Unrealized
Amortized Market Amount on Unrealized Holding
Cost Value Balance Sheet Holding Gains Losses
--------- ------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
1999
Trading Securities
Equity Securities....... $ 663 $ 415 $ 415 $-- $248
Held-to-Maturity
U.S. Government
Securities............. $16,243 $16,243 $16,243 $-- $ --
1998
Held-to-Maturity
U.S. Government
Securities............. $31,454 $31,454 $31,454 $-- $ --
</TABLE>

11. STOCK OPTIONS:

The Company maintains stock option and incentive plans for employees and
directors and has reserved 4,623,184 shares of common stock for issuance under
the employee plans including one percent of the outstanding shares of common
stock of the Company as of January 1 of each year (269,000 as of December 31,
1999) for the director plan. Under the terms of the plans, incentive stock
options may be issued with an exercise price of not less than 100% of fair
market value at the date of grant. All other options may be issued at an
exercise price of not less than 75% of the fair market value at the date of
grant. Options granted vest at a rate determined by the Compensation Committee
of the Company's Board of Directors and are exercisable for varying periods,
not to exceed ten years. At December 31, 1999, 1,186,232 shares were available
for granting future options.

The number and exercise price of stock options granted are as follows:

<TABLE>
<CAPTION>
Shares Weighted
Under Average Price
Option Per Share
--------- -------------
<S> <C> <C>
OUTSTANDING AT JANUARY 1, 1997................... 467,589 $ 0.50
Granted at market price........................ 535,954 9.13
Exercised...................................... (27,733) 5.75
Expired........................................ (274,104) 0.33
--------- ------
OUTSTANDING AT DECEMBER 31, 1997................. 701,706 6.95
SLH options from merger........................ 974,400 3.19
Fractional share payout........................ (19) 6.94
Granted at market price........................ 445,430 16.70
Granted at price exceeding market.............. 32,247 20.28
Expired........................................ (21,925) 10.42
--------- ------
OUTSTANDING AT DECEMBER 31, 1998................. 2,131,839 7.44
Granted at market price........................ 736,351 6.89
Granted at price exceeding market.............. 35,000 7.57
Exercised...................................... (101,694) 1.06
Expired........................................ (79,571) 10.48
--------- ------
OUTSTANDING AT DECEMBER 31, 1999................. 2,721,925 $ 7.44
Granted at market price........................ 47,090 10.28
Exercised ..................................... (364,911) 5.33
Cancelled ..................................... (8,608) 15.53
--------- ------
OUTSTANDING AT MARCH 31, 2000.................... 2,395,496 $ 7.79
========= ======
</TABLE>

F-15
<PAGE>

SYNTROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following is a summary of stock options outstanding as of December
31, 1999:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------------- --------------------------
Weighted
Weighted Weighted Average Average
Options Average Remaining Options Exercise Price
Range of Exercise Price Outstanding Exercise Price Contractual Life Exercisable Per Share
----------------------- ----------- -------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.39 - $ 0.39......... 103,192 $ 0.39 0.45 103,192 $ 0.39
$ 3.19 - $ 3.19......... 950,100 3.19 3.60 560,100 3.19
$ 5.75 - $ 6.88......... 771,575 6.66 8.85 101,043 5.75
$ 7.25 - $ 9.38......... 420,957 8.91 7.48 225,518 9.30
$15.44 - $20.88......... 476,101 17.39 7.93 179,729 17.47
--------- ------ --------- ------
2,721,925 $ 7.44 1,169,582 $ 6.54
========= ====== ========= ======
</TABLE>

The Company applies the disclosure-only provisions of SFAS No. 123,
"Accounting from Stock-Based Compensation." Accordingly, no compensation cost
has been recognized for the stock option plans. However, pursuant to the
requirements of SFAS No. 123, the following disclosures are presented to
reflect the Company's pro forma net income (loss) for the three years ended
December 31, 1999 as if the fair value method of accounting prescribed by SFAS
No. 123 had been used. Had compensation cost for the Company's stock option
plan been determined consistent with the provisions of SFAS No. 123, the
Company's net income (loss) and income (loss) per share would have increased to
the pro forma amounts indicated below:

<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998 1997
-------- -------- --------
(in thousands,
except per share data)
<S> <C> <C> <C>
NET INCOME (LOSS):
As reported.............................. $(17,158) $(11,711) $ (9,612)
Pro forma................................ $(19,632) $(14,175) $(10,261)
BASIC AND DILUTED INCOME (LOSS)
PER SHARE:
As reported.............................. $ (0.64) $ (0.46) $ (0.40)
Pro forma................................ $ (0.73) $ (0.56) $ (0.43)
</TABLE>

Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.

The weighted average per share fair value at date of grant for options
granted during 1999, 1998 and 1997 was $5.82, $10.60 and $4.71 per share,
respectively. Prior to the merger with SLH on August 7, 1998, the Company was a
privately held corporation and used the minimum value method with the following
assumptions during 1997: dividend yield of 0%, risk-free interest rate of 5.60%
to 6.83%, and expected lives of

F-16
<PAGE>

SYNTROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5 to 10 years. During 1997 and prior to the merger in 1998, volatility was
assumed to be 0%. The fair values of options granted since the merger have been
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions:

<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Expected dividend yield................................ 0% 0%
Expected volatility.................................... 83% 124%
Risk-free interest rate................................ 5.07% 5.47%
Expected life.......................................... 9.77yrs. 9.66yrs.
</TABLE>

Subsequent to December 31, 1999, the Company granted 47,090 options to
purchase shares of common stock to employees at an average exercise price of
$10.28.

12. SIGNIFICANT CUSTOMERS:

Substantially all of the Company's joint development revenue for the
three years ended December 31, 1999 were from two major oil companies for joint
development work conducted in the Company's research and development facilities
and at the pilot plant located at ARCO's Cherry Point Refinery in Cherry Point,
Washington. The testing in the laboratories under these agreements was
completed in September of 1999. In addition, the Company has signed master
license agreements with three oil companies since 1996. The Company has also
signed volume license agreements with three other oil companies. The license
agreements allow the oil companies to use the Syntroleum Process in their
production of synthetic crude oil and fuels primarily outside of North America.
Syntroleum received an aggregate of $9 million and rights to certain
technologies in connection with these license agreements. The Company also
received from a licensee a separate nonrefundable payment of $2 million for
options to add certain geographic areas not covered by the applicable license
agreement. The amounts received under license agreements and the amounts
received for options have been recorded as deferred revenue at December 31,
1999 and 1998.

Under these license agreements, a licensee obtains the right to use the
Syntroleum Process and to acquire catalysts from the Company, secures pricing
terms for future site licenses and obtains rights to future improvements to the
Syntroleum Process. Generally, the amount of the license fee for site licenses
under the Company's master and volume license agreements is determined pursuant
to a formula based on the discounted present value of the product of (i) the
annual maximum design capacity of the plant, (ii) an assumed life of the plant,
and (iii) the Company's per barrel rate. Initial cash deposits under the
Company's license agreement are credited against future site license fees. (See
Note 1.)

The Company is pursuing development of a commercial specialty products
plant to be located in Western Australia using the Syntroleum Process. In
addition, the Company conducts a portion of its research and development
activities through joint development agreements with licensees and other
industry partners. The terms of these agreements vary, but generally provide
cost sharing arrangements.

13. STOCKHOLDER RIGHTS PLAN:

Each outstanding share of the Company's common stock carries a stock
purchase right issued pursuant to a dividend distribution declared by the
Company's Board of Directors in March 1997. The rights entitle the holder to
buy one-sixth of one one-hundredth of a share of junior preferred stock at a
price of $125 per one one-hundredth of a share. Generally, the rights become
exercisable ten days after a public announcement that a

F-17
<PAGE>

SYNTROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

person or group has acquired, or a tender offer is made for 25% or more of the
common stock of the Company. If either of these events occur, each right will
entitle the holder (other than a holder owning more than 25% of the outstanding
stock) to buy the number of shares of the Company's common stock having a
market value two times the exercise price. The exercise price is $125. The
rights may be redeemed by the Company for $.01 per right until a person or
group has acquired 25% of the Company's stock. The rights expire January 2007.

14. EVENTS SUBSEQUENT TO DECEMBER 31, 1999:

Subsequent to December 31, 1999, the Company received $2 million dollars
towards the cost of the engineering work being performed by a third party for
the gas-to-liquids specialty product plant under development by the Company to
be located in Western Australia. These monies were received from a partner who,
upon satisfaction of certain conditions, will become an equity investor in the
project.

15. NOTES RECEIVABLE (UNAUDITED):

In February 2000, the Company closed the sale of its Reno parking garage
to Fitzgeralds Reno, Inc. The sale price of $3 million was paid by $750,000 in
cash at closing and the balance in the form of Fitzgeralds' promissory note in
the principal amount of $2,250,000. The note bears interest at the rate of 10%
and is payable in monthly installments of principal and interest based on a 20
year amortization, with the entire unpaid balance due in 10 years. The note is
secured by the ground lease on which the garage is located as well as the
parking garage itself.

16. EVENTS SUBSEQUENT TO MARCH 31, 2000 (UNAUDITED):

In May 2000, Methanex informed the Company that it was terminating
further participation in the Sweetwater plant. The $2 million contribution will
be recorded as a reduction in engineering costs for the Sweetwater plant in the
second quarter of 2000.

F-18
<PAGE>

PROSPECTUS
$120,000,000

[Syntroleum Logo]
Common Stock

---------------

We may offer from time to time shares of our common stock, including the
associated preferred stock purchase rights.

The aggregate initial offering price of the common stock that we offer
will not exceed $120,000,000. We will offer the common stock in amounts, at
prices and on terms to be determined at the time of the offering.

Our common stock is listed for trading on the Nasdaq Stock Market's
National Market under the symbol "SYNM." On April 24, 2000, the last reported
sales price of our common stock on the Nasdaq National Market was $18 5/8.

We will provide the specific terms of the offering in supplements to this
prospectus. You should read this prospectus and any supplement carefully before
you invest. This prospectus may not be used to offer and sell our common stock
unless accompanied by a prospectus supplement.

You should consider the risk factors we describe starting on page 4
before investing in our common stock.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined
whether this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.

The date of this prospectus is April 25, 2000
<PAGE>

TABLE OF CONTENTS

ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement that we have filed
with the Securities and Exchange Commission under a "shelf" registration
process. This prospectus provides you with a general description of the offered
common stock. Each time we offer common stock, we will provide a prospectus
supplement and, if applicable, a pricing supplement that will describe the
specific terms of the offering. The prospectus supplement and any pricing
supplement may also add to, update or change the information contained in this
prospectus. Please carefully read this prospectus, the prospectus supplement
and any pricing supplement, in addition to the information contained in the
documents we refer to under the heading "Where You Can Find More Information."

2
<PAGE>

ABOUT SYNTROLEUM CORPORATION

We are a leading developer, owner and licensor of a proprietary process
designed to catalytically convert natural gas into synthetic liquid
hydrocarbons. The Syntroleum Process is a simplification of traditional gas to
liquids, or "GTL," technologies aimed at substantially reducing the capital and
operating costs and the minimum economical size of a GTL plant. A primary
advantage of the Syntroleum Process over competing processes is its use of air,
rather than pure oxygen, in the conversion process. Synthetic liquid
hydrocarbons produced by the Syntroleum Process can be further processed into:

. premium, ultra-clean liquid fuels including diesel, kerosene,
gasoline, naphtha and fuel for fuel cells, and

. specialty products including synthetic lubricants, process oils, high
melting point waxes, liquid normal paraffins, drilling fluid and
chemical feedstocks.

Our business strategy is to:

. continue broadly licensing our technology for the production of
synthetic crude oil and fuels,

. use our technology to build and own plants designed to make specialty
products and fuels,

. develop alternative markets for the synthetic products of GTL plants
based on the Syntroleum Process like ultra-clean fuels and fuels for
fuel cell applications, and

. continue an aggressive research and development program alone and
with strategic partners to lower costs and expand the potential
applications for our technology.

We believe that the Syntroleum Process can be cost effective in GTL
plants with throughput levels as low as 2,000 to over 100,000 barrels per day.
Due to their relatively small size and the use of air instead of pure oxygen,
we believe GTL Plants can be placed on skids, barges and ocean-going vessels.
Although no commercial-scale GTL plant based on the Syntroleum Process has been
built to date, we have successfully demonstrated many elements and variations
of the Syntroleum Process in laboratory tests and pilot plant operations. We
are currently developing a 10,000 barrel per day specialty product GTL plant to
be constructed in Western Australia and are evaluating other potential plants.

Our principal executive offices are located at 1350 South Boulder, Suite
1100, Tulsa, Oklahoma 74119, and our telephone number at that location is (918)
592-7900. As used in this prospectus, the terms "we," "us" and "our," mean
Syntroleum Corporation, a Delaware corporation, and its subsidiaries and
predecessors, unless the context indicates otherwise.

3
<PAGE>

FORWARD-LOOKING STATEMENTS

This prospectus includes or incorporates by reference forward-looking
statements that reflect our current view of future events and financial
performance. These forward-looking statements are subject to numerous risks and
uncertainties, including those factors discussed elsewhere in or incorporated
by reference into this prospectus, the prospectus supplement, any pricing
supplement and our other filings with the SEC.

These risks and uncertainties could cause actual results or events to
differ materially from anticipated or historical results. You can identify
forward-looking statements by our use of words like "anticipate," "believe,"
"budget," "estimate," "expect," "forecast," "intend," "may," "plan," "predict,"
"project," "should" and similar expressions. Any statement that is not a
historical fact is a forward-looking statement. We caution you not to place
undue reliance on these forward-looking statements, which speak only as of
their dates. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You can read and copy these materials at the SEC's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the SEC's regional offices located at Seven World Trade Center, New York, New
York 10048 and at 500 West Madison Street, 14th Floor, Chicago, Illinois 60661.
You can obtain information about the operation of the SEC's public reference
room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a Web site
that contains information we file electronically with the SEC, which you can
access over the Internet at http://www.sec.gov. You can also obtain information
about us at the offices of the Nasdaq Stock Market, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006-1500.

This prospectus is part of a registration statement we have filed with
the SEC relating to the common stock. As permitted by SEC rules, this
prospectus does not contain all of the information we have included in the
registration statement and the accompanying exhibits and schedules. You may
refer to the registration statement, exhibits and schedules for more
information about us and our common stock. The registration statement, exhibits
and schedules are available at the SEC's public reference room or through its
Web site.

The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information we incorporate by reference
is an important part of this prospectus, and later information that we file
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until we sell all the offered common stock. The documents
we incorporate by reference are:

. our Annual Report on Form 10-K for the year ended December 31, 1999,
as amended by Amendment No. 1 on Form 10-K/A, and

. the description of our common stock and associated preferred stock
purchase rights contained in our Current Report on Form 8-K dated
June 17, 1999.

4
<PAGE>

You may request a copy of these filings, other than an exhibit to these
filings unless we have specifically incorporated that exhibit by reference into
the filing, at no cost, by writing or telephoning us at the following address:

Syntroleum Corporation
1350 South Boulder, Suite 1100
Tulsa, Oklahoma 74119
Attention: Director of Investor Relations
Telephone: (918) 592-7900

You should rely only on the information contained or incorporated by
reference in this prospectus, the prospectus supplement and any pricing
supplement. We have not authorized any person, including any salesman or
broker, to provide information other than that provided in this prospectus, the
prospectus supplement or any pricing supplement. We have not authorized anyone
to provide you with different information. We are not making an offer of the
common stock in any state where the offer is not permitted. You should not
assume that the information in this prospectus, the prospectus supplement or
any pricing supplement is accurate as of any date other than the date on its
cover page.

5
<PAGE>

RISK FACTORS

You should carefully consider the risks described below or in any
prospectus supplement or pricing supplement before making an investment
decision. The risks and uncertainties described below are not the only ones
facing our company. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially adversely
affected. In that case, the trading price of the common stock could decline,
and you may lose all or part of your investment.

Risks Relating to our Technology

We might not successfully commercialize our technology, and commercial-
scale gtl plants based on the Syntroleum Process may never be successfully
constructed or operated.

Commercial-Scale GTL plants based on the Syntroleum Process might not
produce results necessary for success, including results demonstrated on a
laboratory and pilot plant basis.

. shorter than anticipated catalyst life, which would require more
frequent catalyst purchases and therefore increase operating costs,

In addition, these plants could experience mechanical difficulties,
either related or unrelated to elements of the Syntroleum Process.

6
<PAGE>

Many of Our competitors have significantly more financial and other
resources than our Company, and GTL Technologies Developed by our competitors
could become more commercially successful than our technology or render our
technology obsolete.

As GTL technologies continue to be developed by our competitors, one or
more of our current technologies may become obsolete. Our ability to create and
maintain technological advantages is critical to our future success. As new
technologies develop, we may be placed at a competitive disadvantage, and
competitive pressures may force us to implement new technologies at substantial
cost. We may not be able to successfully develop, or expend the financial
resources necessary to acquire new technology.

Our ability to protect our intellectual property rights involves many
complexities and uncertainties, and commercialization of the syntroleum process
could give rise to claims that our technology infringes upon the rights of
others.

Commercialization of the Syntroleum Process may give rise to claims that
our technologies infringe upon the patents or other proprietary rights of
others. Although it is our policy to regularly review patents that may have
applicability in the GTL industry, we may not become aware of these patents or
rights until after we have made a substantial investment in the development and
commercialization of those technologies. Legal actions could be brought against
us, our partners or licensees, claiming damages and seeking an injunction that
would prevent us, our partners or licensees, from testing, marketing or
commercializing the affected technologies. Major energy companies seeking to
gain a competitive advantage may have an interest in bringing one of these
actions. If an infringement action was successful, in addition to potential
liability for damages, our partners, our licensees or we could be required to
obtain a license in order to continue to test, market or commercialize the
affected technologies. Any required license might not be made available or, if
available, might not be available on acceptable terms, and we could be
prevented entirely from testing, marketing or commercializing the affected
technology. We may have to expend substantial resources in litigation, either
in enforcing our patents, defending against the infringement claims of others,
or both. Many possible claimants, like the energy companies that have or may be
developing proprietary GTL technologies

7
<PAGE>

competitive with the Syntroleum Process, have significantly more resources to
spend on litigation. We can give no assurance that third parties will not
claim infringement by us with respect to past, present or future GTL
technologies. In any potential intellectual property dispute involving us, our
licensees could also become the target of litigation.

We could have potential indemnification liabilities to licensees
relating to the operation of gtl plants based on the Syntroleum Process or
intellectual property disputes.

Our license agreements require us to indemnify the licensee, subject to
a cap of 50% of the license fees received, against specified losses relating
to, among other things:

. the use of patent rights and technical information relating to the
Syntroleum Process,

. acts or omissions by us in connection with process design packages
for plants, and

. performance guarantees that may be provided by us.

If improvements to the syntroleum process are not commercially viable,
the design and construction of lower-cost GTL plants based on the Syntroleum
Process could be delayed or prevented.

The economic application of our technology depends on favorable plant
operating conditions.

8
<PAGE>

As is typical in the case of a new and rapidly evolving technology,
demand and industry acceptance for our GTL technology is subject to a high
level of uncertainty. Failure by the industry to accept our technology would
make our construction of GTL plants more difficult or impossible and adversely
affect our ability to receive future license fees and to generate other
revenue. Should a high profile industry participant adopt the Syntroleum
Process and fail to achieve success or should any commercial GTL plant based on
the Syntroleum Process fail to achieve success, other industry participants'
perception of the Syntroleum Process could be adversely affected. In addition,
some oil companies may be motivated to seek to prevent industry acceptance of
GTL technology based on their belief that widespread adoption of GTL technology
might negatively impact their competitive position.

Risks Relating to Our Business

We have incurred losses and anticipate continued losses.

As of December 31, 1999, we had negative retained earnings of $43.6
million. We have not yet achieved profitability and expect to continue to incur
net losses until we recognize sufficient revenues from licensing activities,
GTL plants or other sources. Because we do not have an operating history upon
which an evaluation of our prospects can be based, our prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by small companies seeking to develop new and rapidly evolving
technologies. To address these risks, we must, among other things, respond to
competitive factors, continue to attract, retain and motivate qualified
personnel, and commercialize and continue to upgrade our GTL technologies. We
may not be successful in addressing these risks. We can give no assurance that
we will achieve or sustain profitability.

Our anticipated expense levels are based in part on our expectations as
to future operating activities and are not based on historical financial data.
We plan to increase our capital expenditures to fund the design and
construction of GTL plants, increase our operating expenses to fund greater
levels of research and development, and increase our marketing and operational
capabilities. These expenses may not subsequently be followed by increased
revenues or cash flows.

The economic application of GTL plants based on the Syntroleum Process
depends on favorable crude oil prices and other commodity prices.

9
<PAGE>

materials used in these plants could also adversely affect operating results.
Factors that could cause changes in the prices and availability of oil, natural
gas and refined products include:

. the level of consumer product demand,

. weather conditions,

. domestic and foreign government regulation,

. the actions of the Organization of Petroleum Exporting Countries,

. political conditions in oil and natural gas producing countries,

. the supply of foreign crude oil and natural gas,

. the location of GTL plants relative to natural gas reserves and
pipelines,

. the capacities of pipelines,

. fluctuations in seasonal demand, and

. the price and availability of alternative fuels and overall economic
conditions.

We cannot predict the future markets and prices for oil, natural gas,
refined products or other materials used in the Syntroleum Process.

GTL plants will depend on the availability of natural gas at economic
prices, and alternative uses of natural gas could be preferred in many
circumstances.

GTL plants will depend on the availability of natural gas at economic
prices. The market for natural gas is highly competitive in many areas of the
world, and in many circumstances, the sale of natural gas for use as a
feedstock in a GTL plant will not be the highest value market for the owner of
the natural gas. The cryogenic conversion of natural gas to liquefied natural
gas, may compete with our GTL plants for use of natural gas as feedstocks in
many locations. Local commercial, residential and industrial consumer markets,
power generation, ammonia, methanol and petrochemicals are also alternative
markets for natural gas. Unlike us, many of our competitors also produce or
have access to large volumes of natural gas, which may be used in connection
with their GTL operations. The availability of natural gas at economic prices
for use as a feedstock for GTL plants may also depend on the production costs
for the gas and whether natural gas pipelines are located in the areas where
these plants are located. New pipelines may be built in, or existing pipelines
may be expanded into, areas where GTL plants are built, and this may affect the
operating margins of these plants as other markets compete for the natural gas
feedstocks. The United States and Western Europe have well-developed natural
gas markets. In these markets, the relationship between natural gas prices and
liquid hydrocarbon prices would likely make investments in GTL plants that
produce fuels uneconomic in many circumstances based upon current market,
environmental and regulatory conditions. Other areas around the world that have
developed local markets for natural gas may also have higher valued uses for
natural gas than as feedstocks for GTL plants. In addition, the
commercialization of GTL technologies may have an adverse effect on the
availability of natural gas at economic prices.

We will need to obtain funds from additional financings or other sources,
and if we do not receive these funds we might need to delay or eliminate our
expenditures, including those for capital projects.

We have expended and will continue to expend a substantial amount of
funds to continue the research and development of our technologies, to market
the Syntroleum Process and to design and construct GTL plants. We intend to
obtain additional funds for our GTL plant projects primarily through a
combination of equity and debt project financing, and plan to finance the
Sweetwater plant primarily through non-recourse debt financing at the project
level. We also intend to obtain additional funds through collaborative or other

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arrangements with strategic partners and others and debt and equity financing
in the capital markets. Financing may not be available when needed or on terms
acceptable or favorable to us. If adequate funds are not available, we may be
required to delay or to eliminate expenditures for our capital projects,
research and development, and other activities. We could also be forced to
license to third parties the rights to commercialize additional products or
technologies that we would otherwise seek to develop ourselves. If we obtain
additional funds by issuing equity securities, dilution to stockholders may
occur. In addition, preferred stock could be issued in the future without
stockholder approval and the terms of our preferred stock could include
dividend, liquidation, conversion, voting and other rights that are more
favorable than the rights of the holders of our common stock.

The construction of the Sweetwater plant and other GTL plants based on
the Syntroleum Process will be subject to the risks of delay and cost overruns
inherent in any large construction project.

. shortages of equipment, materials or skilled labor,

. unscheduled delays in the delivery of ordered materials and
equipment,

. engineering problems, including those relating to the commissioning
of newly designed equipment,

. work stoppages,

. weather interference,

. unanticipated cost increases, and

. difficulty in obtaining necessary permits or approvals.

Our licensees will control whether any plant site licenses are issued
and, as a result, whether any additional license fees are due under our license
agreements. Licensees may need to undertake substantial activities and
investments before any plant site license is issued and license fees are due.
These activities may include performing feasibility studies, obtaining
regulatory approvals and permits, obtaining preliminary cost estimates and
final design and engineering for the plant, obtaining a sufficient dedicated
supply of natural gas, obtaining adequate commitments for the purchase of the
plant's products, and obtaining the financing for construction of the plant.
The licensee will control the amount and timing of resources devoted to these
activities. Whether licensees are willing to expend the resources necessary to
construct GTL plants will depend on a variety of factors outside our control,
including the prevailing view of prices for crude oil, natural gas and refined
products. In addition, our license agreements may be terminated by the
licensee, with or without cause, upon 90 days' notice to us. If we do not
receive payments under our license agreements, we may not have sufficient
resources to implement our business strategy. Our licensees are not restricted
from pursuing alternative GTL technologies on their own or in collaboration
with others, including our competitors.

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Our future plans could be harmed if we are unable to attract or retain
key personnel.

Our success substantially depends on the performance of our executive
officers, including Kenneth L. Agee (our founder, Chief Executive Officer and
Chairman of the Board and inventor with respect to many of our patents and
patent applications), and Mark A. Agee (our President and Chief Operating
Officer). Given the technological nature of our business, we also depend on our
scientific and technical personnel. Our efforts to develop and commercialize
our technology have placed a significant strain on our scientific and technical
personnel, as well as our operational and administrative resources. Our ability
to implement our business strategy may be constrained, and the timing of
implementation may be impacted, if we are unable to attract and retain
sufficient personnel. At March 31, 2000, we had 73 full-time employees. Except
for a $500,000 life insurance policy held by us on the life Kenneth L. Agee, we
do not maintain "key person" life insurance policies on any of our employees.

We depend on strategic relationships with manufacturing and engineering
companies, and failure by these companies to provide necessary components or
services could negatively impact our business.

Our operating results may be volatile due to a variety of factors and are
not a meaningful indicator of future performance.

We expect to experience significant fluctuations in future annual and
quarterly operating results because of the unpredictability of many factors
that impact our business. These factors include:

. timing of any construction by us or our licensees of GTL plants,

. demand for licenses of the Syntroleum Process and receipt and revenue
recognition of license fees,

. oil and gas prices,

. timing and amount of research and development expenditures,

. demand for specialty products,

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. introduction or enhancement of GTL technologies by us and our
competitors,

. market acceptance of new technologies, and

. general economic conditions.

We are subject to extensive laws relating to the protection of the
environment, and these laws may increase the cost of designing, constructing
and operating our GTL plants.

We are subject to extensive laws and regulations relating to the
protection of the environment. Violators of these laws and regulations may be
subject to substantial fines, criminal sanctions or third party lawsuits and
may be required to install costly pollution control equipment or, in some
extreme cases, curtail operations. Our GTL plants will generally be required to
obtain permits under applicable environmental laws and various permits for
industrial siting and construction. Compliance with environmental laws and
regulations, and any requisite permits, may increase the costs of designing,
constructing and operating our GTL plants. We may also face exposure to actual
or potential claims and lawsuits involving environmental matters with respect
to our current real estate inventory as well as previously owned real estate.

We plan to construct GTL plants in foreign countries, where we would be
subject to risks of a political nature and other risks inherent in foreign
operations.

. the cost competitiveness of the synthetic products of the Syntroleum
Process

. consumer reluctance to try a new product,

. environmental, safety and regulatory requirements, and

. the emergence of more competitive products.

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If sufficient markets fail to develop or develops more slowly than we
anticipate, we may be unable to recover the losses we will have incurred in the
development of our technology and may never achieve profitability.

Risks Relating to the Offering

The concentrated ownership of our common stock may have the effect of
delaying or preventing a change of control of our Company.

As of March 31, 2000, our directors and officers beneficially owned
approximately 43% of the outstanding shares of our common stock. As a result,
our directors and officers, to the extent they act together, will be in a
position to significantly influence the outcome of matters requiring a
stockholder vote, including the election of directors, the adoption or
amendment of provisions in our certificate of incorporation or bylaws and the
approval of mergers and other significant corporate transactions. This
concentrated ownership of our common stock may have the effect of delaying or
preventing a change of control of our company.

Our stock price may continue to be volatile and could decline following
this offering.

Provisions in our Charter documents and Delaware law may delay or prevent
an acquisition of our company, which could decrease the value of our common
stock.

Future Sales of our common stock could adversely affect our stock price.

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stock as of March 31, 2000. We cannot predict if future sales of our common
stock, or the availability of our common stock for sale, will harm the market
price for our common stock or our ability to raise capital by offering equity
securities.

You could suffer immediate and substantial dilution.

In any offering of our common stock, the public offering price per share
of common stock could be substantially higher than the net tangible book value
per share immediately after the offering. If we obtain additional funds by
issuing equity securities, dilution to stockholders may occur. The prospectus
supplement will set forth the information regarding any dilutive effect of an
offering of our common stock.

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USE OF PROCEEDS

Unless we inform you otherwise in the prospectus supplement or any
pricing supplement, we will use the net proceeds from the sale of the offered
common stock for general corporate purposes. These purposes may include capital
expenditures, working capital, repayment or refinancing of indebtedness,
acquisitions and repurchases and redemptions of securities. Pending any
specific application, we may initially invest funds in short-term marketable
securities or apply them to the reduction of short-term indebtedness.

DILUTION

Our net tangible book value at December 31, 1999 was $.92 per share of
common stock. Net tangible book value per share of common stock is determined
by dividing our tangible net worth, which is tangible assets less liabilities,
by the total number of shares of our common stock outstanding. Purchasers of
our common stock in an offering may experience immediate dilution in net
tangible book value per share. The prospectus supplement will set forth the
information regarding any dilutive effect of an offering of our common stock.

DESCRIPTION OF CAPITAL STOCK

The total number of shares of all classes of stock that we have authority
to issue is 155,000,000, consisting of 150,000,000 shares of common stock, par
value $.01 per share, and 5,000,000 shares of preferred stock, par value $.01
per share. We had 27,297,168 shares of common stock outstanding as of March 1,
2000. We have authorized and reserved for issuance 250,000 shares of junior
participating preferred stock in connection with the preferred stock purchase
rights described below.

Common Stock

The holders of common stock are entitled to one vote per share on all
matters voted on by our stockholders, including the election of directors,
except as may, in the future, be provided in any resolutions adopted by our
board of directors with respect to any series of preferred stock. Except as
otherwise required by law or provided in any resolution adopted by the board of
directors with respect to any series of preferred stock, the holders of shares
of common stock exclusively possess all voting power of our stockholders.
Subject to any preferential rights of any outstanding series of preferred
stock, the holders of common stock are entitled to those dividends as may be
declared from time to time by the board of directors from funds available for
dividends and, upon liquidation, are entitled to receive pro rata all of our
assets available for distribution to our stockholders.

Preferred Stock

Our board of directors is authorized to establish one or more series of
preferred stock and to determine, with respect to any series of preferred
stock, the powers, designation, preferences and rights of each series and the
qualifications, limitations or restrictions of each series, including:

. the designation of the series,

. the number of shares of the series, which number the board of
directors may, except where otherwise provided in the preferred stock
designation, increase or decrease, but not below the number of shares
of that series then outstanding,

. whether dividends, if any, will be cumulative or noncumulative and
the dividend rate and the preferences, if any, of the series,

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. the dates on which dividends, if any, will be payable,

. the redemption rights and price or prices, if any, for shares of the
series,

. the terms and amounts of any sinking fund provided for the purchase
or redemption of shares of the series,

. the amounts payable on, and the preferences, if any, of shares of the
series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of our affairs,

. whether the shares of the series will be convertible into or
exchangeable for shares of any other class or series, or any other
security, of our company or any other corporation, and, if so, the
specification of that class or series or that other security, the
conversion or exchange price or prices or rate or rates, any
adjustments to those prices or rates, the date or dates as of which
such shares will be convertible or exchangeable and all other terms
and conditions of the conversion or exchange,

. restrictions on the issuance of shares of the same series, or of any
other class or series, and

. the voting rights, if any, of the holders of shares of any series.

The authorized shares of preferred stock, as well as shares of common
stock, are available for issuance without further action by our stockholders,
unless stockholder action is required by the rules of any stock exchange or
automated quotation system on which our securities are listed or traded. If the
approval of our stockholders is not required for the issuance of shares of
preferred stock, par value $.01 per share, or common stock, the board of
directors may determine not to seek stockholder approval.

Although our board of directors has no intention at the present time of
doing so, it could issue a series of preferred stock that could, depending on
the terms of that series, impede the completion of a merger, tender offer or
other takeover attempt. Our board of directors will make any determination to
issue shares based on its judgment as to our best interests and the best
interests of our stockholders. Our board of directors, in so acting, could
issue preferred stock having terms that could discourage an acquisition
attempt, including a tender offer or other transaction that some, or a majority
of, our stockholders might believe to be in their best interests or that might
result in stockholders receiving a premium for their stock over the then
current market price of the stock.

Preferred Stock Purchase Rights

One preferred share purchase right is currently associated with each
outstanding share of our common stock. Each of these rights entitles the
registered holder to purchase from us one six-hundredth of a share of our
junior preferred stock, par value $.01 per share, at a purchase price of
$125.00 per one one-hundredth of a share, subject to adjustment.

The rights will have anti-takeover effects. The rights could cause
substantial dilution to a person or group that attempts to acquire us and
effect a change in the composition of our board of directors on terms not
approved by the board of directors, including by means of a tender offer at a
premium to the market price. The rights should not interfere with any merger or
business combination approved by the board of directors because the rights may
be redeemed by us at the redemption price prior to the time that a person has
become an acquiring person.

The following summary of the material terms of the rights is qualified in
its entirety by reference to the form of the Amended and Restated Rights
Agreement, a copy of which is incorporated by reference as an exhibit to this
Registration Statement.

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Evidence and Transferability of Rights. The rights will be evidenced by
the certificates representing shares of common stock until the earlier to occur
of:

. 10 days following a public announcement made by us or an "acquiring
person" that a person or group of affiliated or associated persons
has become an "acquiring person," which occurs when that person or
group has acquired beneficial ownership of 25% or more of the then
outstanding shares of common stock, or

. 10 business days, or a later date established by our board of
directors before the time any person or group becomes an acquiring
person, following the commencement of, or the first public
announcement of an intention of any person or group to make, a tender
offer or exchange offer that, if completed, would result in the
beneficial ownership by a person or group of 25% or more of the
outstanding shares of common stock.

The date that the rights are no longer evidenced by the certificates
representing shares of common stock is referred to as the "rights distribution
date." Neither Kenneth L. Agee nor Mark A. Agee nor members of their immediate
families, nor any of their affiliates or associates, individually or
collectively, will be deemed an acquiring person.

Until the rights distribution date or the earlier redemption or
expiration of the rights:

. the rights will be transferred with and only with the transfer of
shares of common stock,

. certificates representing shares of common stock will contain a
notation incorporating the terms of the rights by reference, and

. the surrender for transfer of any certificate representing shares of
common stock will also constitute the transfer of the rights
associated with the shares of common stock represented by that
certificate.

As soon as practicable following the rights distribution date, separate
certificates evidencing the rights will be mailed to holders of record of the
shares of common stock as of the close of business on the rights distribution
date and those separate rights certificates alone will evidence the rights.

Exercisability of Rights. The rights are not exercisable until the rights
distribution date. The rights will expire on January 31, 2007, unless the
expiration date is extended or unless the rights are earlier redeemed or
exchanged by us, in each case, as described below.

If any person becomes an acquiring person, each holder of a right, other
than rights beneficially owned by the acquiring person, which will be void,
will after the date that any person became an acquiring person have the right
to receive upon exercise of those rights at the then current exercise price
that number of shares of common stock having a market value of two times the
exercise price of the right. If, at any time on or after the date that any
person has become an acquiring person, we are acquired in a merger or other
business combination transaction or 50% or more of our consolidated assets or
earning power are sold, each holder of a right will after the date of that
transaction have the right to receive, upon the exercise of those rights at the
then current exercise price of the right, that number of shares of common stock
of the acquiring company which at the time of that transaction will have a
market value of two times the exercise price of the right.

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The purchase price payable, and the number of shares of junior preferred
stock or other securities or property issuable, upon exercise of the rights are
subject to adjustment from time to time to prevent dilution in the following
circumstances:

. in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the shares of junior preferred stock,

. upon the grant to holders of the shares of junior preferred stock of
specified rights, options or warrants to subscribe for or purchase
shares of junior preferred stock at a price, or securities
convertible into shares of junior preferred stock with a conversion
price less than the then current market price of the shares of junior
preferred stock, or

. upon the distribution to holders of the shares of junior preferred
stock of evidences of indebtedness or assets, excluding regular
periodic cash dividends paid out of earnings or retained earnings or
dividends payable in shares of junior preferred stock, or of
subscription rights or warrants other than those referred to above.

The number of outstanding rights and the number of shares of junior
preferred stock issuable upon exercise of each right are also subject to
adjustment in the event of a stock split of the common stock or a stock
dividend on the common stock payable in common stock or subdivisions,
consolidations or combinations of the common stock occurring, in any such case,
prior to the rights distribution date.

With specified exceptions, no adjustment in the purchase price will be
required until cumulative adjustments require an adjustment of at least 1% in
the purchase price. No fractional shares of junior preferred stock will be
issued, other than fractions which are integral multiples of one one-hundredth
of a share of junior preferred stock, which may, at our election, be evidenced
by depositary receipts. In lieu of those fractional shares, an adjustment in
cash will be made based on the market price of the shares of junior preferred
stock on the last trading day prior to the date of exercise.

Until a right is exercised, the holder of a right will have no rights as
a stockholder of our company, including the right to vote or to receive
dividends.

Terms of Junior Preferred Stock. Shares of junior preferred stock
purchasable upon exercise of the rights will not be redeemable. Each share of
junior preferred stock will be entitled to a minimum preferential quarterly
dividend payment of $1.00 per share but will be entitled to an aggregate
dividend equal to 600 times the dividend declared per share of common stock. In
the event of liquidation, the holders of the junior preferred stock will be
entitled to a minimum preferential liquidation payment of $600 per share but
will be entitled to an aggregate payment equal to 600 times the payment made
per share of common stock. Each share of junior preferred stock will have 600
votes, together with the common stock. Finally, in the event of any merger,
consolidation or other transaction in which the common stock is exchanged, each
share of junior preferred stock will be entitled to receive an amount equal to
600 times the amount received per share of common stock. These rights are
protected by customary antidilution provisions.

Because of the nature of the dividend, liquidation and voting rights of
the junior preferred stock, the value of the one six-hundredth interest in a
share of junior preferred stock purchasable upon exercise of each right should
approximate the value of one share of common stock.

Exchange or Redemption. At any time after any person becomes an acquiring
person and before the acquisition by that person of 50% or more of the
outstanding shares of common stock, our board of directors may exchange the
rights, in whole or in part, at an exchange ratio of one share of common stock,
or in the event there are not sufficient shares of common stock authorized to
be issued, one six-hundredth of a share of junior preferred stock, per right,
subject to adjustment. This exchange will not apply to rights owned by the
acquiring person which will have become void.

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At any time before any person becomes an acquiring person, our board of
directors may redeem the rights in whole, but not in part, at a price of $.01
per right.

The redemption of the rights may be made effective at any time, on any
basis and with any conditions as our board of directors in its sole discretion
may establish. Immediately upon any redemption of the rights, the rights will
terminate and holders of rights will only receive the redemption price.

Amendment. The terms of the rights may be amended by our board of
directors without the consent of the holders of the rights, including an
amendment to:

. lower the threshold at which a person becomes an acquiring person,
and

. lower the percentage of common stock proposed to be acquired in a
tender or exchange offer that would cause the rights distribution
date to occur to not less than the greater of (1) the sum of .001%
and the largest percentage of the outstanding common stock then known
to us to be beneficially owned by any person or group of affiliated
or associated persons and (2) 10%, except that, from and after the
time that any person or group of affiliated or associated persons
becomes an acquiring person, no amendment may adversely affect the
interests of the holders of the rights.

Restrictions on Business Combinations

Our charter provides that "business combinations" involving an
"interested stockholder" must be approved by the holders of at least 66 2/3% of
the voting power of the shares not owned by the interested stockholder, unless
the business combination is either approved by a majority of "continuing
directors" or meets specified requirements regarding price and procedure.

"Continuing directors" is generally defined in our charter as follows:

. directors who are unaffiliated with the interested stockholder and
joined the board before the party to the transaction became an
interested stockholder, or

. directors who are unaffiliated with the interested stockholder and
are elected to fill a vacancy and whose election is recommended by a
majority of continuing directors then on the board.

Our charter also provides that the initial directors named in our charter
who are unaffiliated with the interested stockholder are "continuing
directors."

A "business combination" is generally defined in our charter as follows:

. any merger or consolidation of our company or one of our subsidiaries
with any interested stockholder,

. any disposition, in one transaction or a series of transactions, to
or with any interested stockholder of any assets of our company or
any of our subsidiaries having an aggregate fair market value of
$10,000,000 or more,

. the issuance or transfer by us or any of our subsidiaries of any
securities of our company or any of our subsidiaries to any
interested stockholder, in exchange for property having an aggregate
fair market value of $10,000,000 or more,

. the adoption of any plan or proposal for our liquidation or
dissolution proposed by or on behalf of an interested stockholder, or

. any reclassification of securities, or recapitalization of our
company, or any merger or consolidation of our company with any of
our subsidiaries or any other transaction that has the

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effect, directly or indirectly, of increasing the proportionate share
of the outstanding shares of any class of our equity or convertible
securities of our company or any of our subsidiaries that are
directly or indirectly owned by any interested stockholder.

An "interested stockholder" is generally defined in our charter as any
person who or which:

. itself, or along with its affiliates, is the beneficial owner,
directly or indirectly, of more than 10% of our then outstanding
voting stock,

. is one of our affiliates and at any time within the two-year period
immediately before the date in question was itself, or along with its
affiliates, the beneficial owner, directly or indirectly, of 10% or
more of our then outstanding voting stock, or

. is an assignee of or has otherwise succeeded to any of our voting
stock that was at any time within the two-year period immediately
before the date in question beneficially owned by an interested
stockholder, if that assignment or succession occurred in the course
of a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.

The provisions in our charter restricting business combinations with
interested stockholders also generally apply to an interested stockholder's
affiliates.

To satisfy the price and procedure requirements of these provisions, the
following criteria must be satisfied:

. the total amount of the cash and the fair market value of
consideration other than cash to be received per share by holders of
our capital stock is at least equal to the highest of

(1) the highest price per share paid by the interested stockholder
in transactions during the two-year period before the announcement
of the transaction or in the transaction in which it became an
interested stockholder,

(2) the fair market value of the stock on the date of announcement
of the transaction or the date of the transaction in which it became
an interested stockholder, whichever is higher,

(3) the amount determined under clause (2) above multiplied by the
ratio of (A) the highest price per share paid by the interested
stockholder for any shares during the two-year period before the
date of announcement of the transaction to (B) the fair market value
of the stock on the first day in that two-year period on which the
interested stockholder acquired any shares of stock, and

(4) in the case of preferred stock, the highest preferential
amount per share to which stockholders are entitled in the event of
any voluntary or involuntary liquidation, dissolution or winding up
of our company,

. generally, the consideration to be received by holders of a
particular class of outstanding voting stock is in cash or in the
same form as the interested stockholder has previously paid for
shares of that class of voting stock,

. after the interested stockholder has become an interested stockholder
and before the completion of the business combination, specified
actions or omissions have not occurred with respect to dividends and
the interested stockholder has not become the beneficial owner of any
additional voting stock except as part of the transaction which
results in the interested stockholder becoming an interested
stockholder,

. after the interested stockholder has become an interested
stockholder, the interested stockholder has not received, except
proportionately as a shareholder, any financial assistance or tax

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advantages provided by the corporation, whether in anticipation of or
in connection with the business combination or otherwise, and

. a proxy or information statement describing the proposed business
combination and complying with the requirements of the Securities
Exchange Act of 1934 is mailed to stockholders at least 30 days
before the completion of the business combination.

Section 203 of the Delaware General Corporation Law provides that,
subject to specified exceptions, a corporation may not engage in a broad range
of business combinations with any "interested stockholder" for a three-year
period following the time that the stockholder becomes an interested
stockholder unless:

. prior to that time, the board of directors of the corporation
approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder,

. upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding, shares
owned by persons who are both officers and directors of the
corporation and shares held by specified employee stock ownership
plans, or

. on or after that time, the business combination is approved by the
board of directors of the corporation and approved at an annual
meeting or special meeting of stockholders by the affirmative vote of
at least 66 2/3% of the outstanding voting stock which is not owned
by the interested stockholder.

In general, an "interested stockholder" is defined for purposes of Section 203
to include any person that is

. the owner of 15% or more of the outstanding voting stock of the
corporation, or

. an affiliate or associate of the corporation that was the owner of
15% or more of the outstanding voting stock of the corporation at any
time within the previous three years.

Section 203 permits a corporation to opt out of these provisions, although we
have not done so. Our board of directors has, however, approved the transaction
which resulted in both Kenneth L. Agee and Mark A. Agee becoming interested
stockholders. As a result, the provisions of Section 203 are not applicable to
either Kenneth L. Agee or Mark A. Agee.

Amendments to Charter

Amendments of our charter generally require the approval of the holders
of a majority of the outstanding stock entitled to vote on the amendment, and
if the amendment would increase or decrease the number of authorized shares of
any class or series or the par value of shares of that class or series or would
adversely affect the rights, powers or preferences of that class or series, a
majority of the outstanding stock of that class or series also would be
required to approve the amendment. However, the approval of the board of
directors and the affirmative vote of 80% of the stock entitled to vote in the
election of directors is required for the amendment or repeal of, or the
adoption of provisions that are inconsistent with, the provisions of our
charter regarding:

. powers of the board of directors with respect to the bylaws and our
accounts and books, and

. the number, election and classification of our directors.

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In addition, the amendment or repeal of, or the adoption of provisions
that are inconsistent with, the provisions of our charter regarding votes
required for business combinations with interested stockholders described
above requires the approval of our board of directors and the affirmative vote
of 66 2/3% of the holders of stock entitled to vote in the election of
directors and not owned directly or indirectly by interested stockholders or
their affiliates.

Amendments to Bylaws

Our board of directors may adopt, alter or amend the bylaws. In addition
to meeting notice requirements, our bylaws provide that the affirmative vote
of the holders of at least 80% of the voting power of the then outstanding
voting stock, voting together as a single class, is required for stockholders
to alter, amend or repeal any provision of the bylaws or to adopt any
additional bylaws.

Special Meetings of Stockholders

Subject to the rights of holders of any series of preferred stock or any
other series or class of stock as set forth in our charter, our bylaws provide
that a special meeting may be called only by the chairman of the board of
directors or by the board of directors pursuant to a resolution adopted by a
majority of the total number of our directors (including vacancies). The
business permitted to be conducted at any special meeting of stockholders is
limited to the business brought before the meeting pursuant to the notice of
meeting.

Stockholder Action by Written Consent

Our charter provides that corporate action may not be taken by written
consent of stockholders.

Advance Notice Provisions for Stockholder Director Nominations and Stockholder
Proposals

Our bylaws establish an advance notice procedure for stockholders to
make nominations of candidates for election as directors or to bring other
business before an annual meeting of our stockholders.

Our bylaws provide that only individuals who are nominated pursuant to
the notice of meeting or by, or at the direction of, our chairman of the board
of directors or our board of directors, or by a stockholder who has given
timely written notice to our secretary before the meeting at which directors
are to be elected, will be eligible for election as one of our directors. The
bylaws also provide that at an annual meeting only business may be conducted
as has been brought before the meeting by, or at the direction of, the
chairman of the board or our board of directors, or by a stockholder who has
given timely written notice to our secretary of the stockholder's intention to
bring that business before the meeting.

Under these provisions, for notice of stockholder director nominations
or proposals to be made at an annual meeting to be timely, the notice must
generally be received by us:

. not less than 70 days nor more than 90 days before the first
anniversary of the previous year's annual meeting, or

. if the date of the annual meeting is advanced by more than 20 days,
or delayed by more than 70 days, from the anniversary date, not
earlier than 90 days before the meeting and not later than the later
of (1) 70 days before the meeting and (2) 10 days after public
announcement of the date of the meeting is first made.

However, if the number of directors to be elected is increased and there
is no public announcement naming all of the nominees for director or
specifying the size of the increased board of directors at least 80 days
before the first anniversary of the preceding year's annual meeting, a
stockholder's notice will be timely,

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but only with respect to nominees for any new positions created by that
increase, if it is received by us not later than 10 days after the public
announcement is first made by us. If directors are to be elected at a special
meeting, the notice must be received by us not earlier than 90 days before the
meeting and not later than the later of (1) 70 days before the meeting and (2)
10 days after public announcement of the date of the meeting. Stockholders may
not bring business before a special meeting of stockholders under the bylaws.

Under the bylaws, a stockholder's notice to us proposing to nominate an
individual for election as a director must contain specified information,
including the identity and address of the nominating stockholder and the
beneficial owner, if any, the class and number of shares of stock that are
owned beneficially and of record by the stockholder and the beneficial owner,
and all information regarding the proposed nominee that would be required to be
included in a proxy statement soliciting proxies for the proposed nominee.
Under the bylaws, a stockholder's notice relating to the conduct of business
other than the nomination of directors must contain specified information about
the proposed business and about the proposing stockholders, including a brief
description of the business the stockholder proposes to bring before the
meeting, the reasons for conducting the business at the meeting, the name and
address of the stockholder and the beneficial owner, if any, the class and
number of shares of stock owned beneficially and of record by the stockholder
and the beneficial owner, and any material interest of the stockholder and the
beneficial owner, if any, in the business so proposed. If the chairman of the
board or other officer presiding at a meeting determines that a person was not
nominated, or other business was not brought before the meeting, in accordance
with the bylaws, that person will not be eligible for election as a director,
or that business will not be conducted at the meeting, as the case may be.

Classification of Directors

Our charter provides that directors will be divided into three classes
serving staggered three-year terms so that approximately one-third of the board
of directors is elected each year. Our charter also provides that, subject to
the rights of the holders of any series of preferred stock or any other series
or class of stock as set forth in the charter to elect additional directors
under specified circumstances, the number of directors is fixed in accordance
with the bylaws. Our bylaws provide that the number of directors is to be fixed
from time to time pursuant to a resolution adopted by a majority of the board
of directors (including vacancies) but will not consist of more than 11 nor
less than three directors. As of March 7, 2000, the board of directors
consisted of nine persons.

The classification of directors makes it more difficult for stockholders
to change the composition of the board of directors. At least two annual
meetings of stockholders, instead of one, will be required to effect a change
in a majority of the board of directors.

Removal of Directors; Filling Vacancies on the Board of Directors

Our charter provides that a director may be removed only for cause and
only by the affirmative vote of the holders of at least 80% of the voting power
of the then outstanding voting stock, voting together as a single class.

Under our bylaws, newly created directorships resulting from any increase
in the number of directors or any vacancies on the board of directors may be
filled by the affirmative vote of a majority of the directors then in office,
subject to the rights, if any, of holders of our preferred stock. In addition,
our bylaws provide that the directors elected to fill vacancies on the board of
directors will hold office until the annual meeting of stockholders at which
the term of office of the class to which they have been elected expires.

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PLAN OF DISTRIBUTION

We may sell the offered common stock in and outside the United States
through underwriters or dealers, directly to purchasers or through agents. The
prospectus supplement will set forth the following information:

. the terms of the offering,

. the names of any underwriters or agents,

. the purchase price,

. the net proceeds to us,

. any delayed delivery arrangements,

. any underwriting discounts and other items constituting underwriters'
compensation,

. the initial public offering price, and

. any discounts or concessions allowed or reallowed or paid to dealers.

Sale Through Underwriters or Dealers

If we use underwriters in the sale, the underwriters will acquire the
common stock for their own account. The underwriters may resell the common
stock from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. Underwriters may offer common stock to the public either
through underwriting syndicates represented by one or more managing
underwriters or directly by one or more firms acting as underwriters. Unless we
inform you otherwise in the prospectus supplement, the obligations of the
underwriters to purchase the common stock will be subject to conditions, and
the underwriters will be obligated to purchase all the offered common stock if
they purchase any of the offered common stock. The underwriters may change from
time to time any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers.

During and after an offering through underwriters, the underwriters may
purchase and sell the common stock in the open market. These transactions may
include overallotment and stabilizing transactions and purchases to cover
syndicate short positions created in connection with the offering. The
underwriters may also impose a penalty bid, in which selling concessions
allowed to syndicate members or other broker-dealers for the offered common
stock sold for their account may be reclaimed by the syndicate if the offered
common stock is repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the offered common stock, which may be higher than the price
that might otherwise prevail in the open market. If commenced, these activities
may be discontinued at any time.

If we use dealers in the sale of common stock, we will sell the common
stock to them as principals. They may then resell that common stock to the
public at varying prices determined by the dealers at the time of resale. The
dealers participating in any sale of our common stock may be deemed to be
underwriters within the meaning of the Securities Act of 1933 with respect to
any sale of that common stock. We will include in the prospectus supplement the
names of the dealers and the terms of the transaction.

Direct Sales and Sales Through Agents

We may sell the common stock directly. In that event, no underwriters or
agents would be involved. We may also sell the common stock through agents we
designate from time to time. In the prospectus supplement, we will name any
agent involved in the offer or sale of the offered common stock, and we will
describe any commissions payable by us to the agent. Unless we inform you
otherwise in the prospectus

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supplement, any agent will agree to use its reasonable best efforts to solicit
purchases for the period of its appointment.

We may sell the common stock directly to institutional investors or
others who may be deemed to be underwriters within the meaning of the
Securities Act of 1933 with respect to any sale of that common stock. We will
describe the terms of any of these sales in the prospectus supplement.

Delayed Delivery Contracts

If we so indicate in the prospectus supplement, we may authorize agents,
underwriters or dealers to solicit offers from selected types of institutions
to purchase common stock from us at the public offering price under delayed
delivery contracts. These contracts would provide for payment and delivery on a
specified date in the future. The contracts would be subject only to those
conditions described in the prospectus supplement. The prospectus supplement
will describe the commission payable for solicitation of those contracts.

General Information

We may have agreements with the agents, dealers and underwriters to
indemnify them against civil liabilities, including liabilities under the
Securities Act of 1933, or to contribute with respect to payments that the
agents, dealers or underwriters may be required to make. Agents, dealers and
underwriters may engage in transactions with us or may perform services for us
in the ordinary course of their businesses.

LEGAL OPINIONS

Eric Grimshaw, our Vice President, Secretary and General Counsel, or
Baker Botts L.L.P., our outside legal counsel, will issue an opinion about the
legality of the offered common stock for us. Any underwriters will be advised
about issues relating to any offering by their own legal counsel.

EXPERTS

The audited consolidated financial statements incorporated by reference
in this prospectus and elsewhere in the registration statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.

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5,250,000 Shares

[SYNTROLEUM LOGO]

Common Stock

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PROSPECTUS SUPPLEMENT

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Merrill Lynch & Co.

Goldman, Sachs & Co.

J.P. Morgan & Co.

Salomon Smith Barney

Petrie Parkman & Co.

June 29, 2000

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