UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______.
COMMISSION FILE NO. 0-21911
SYNTROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 43-1764632
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1350 SOUTH BOULDER, SUITE 1100
TULSA, OKLAHOMA 74119-3295
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (918) 592-7900
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO __.
At August 10, 1999, the number of outstanding shares of the issuer's common
stock was 26,900,052.
ii
SYNTROLEUM CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Unaudited Consolidated Balance Sheets as of June 30, 1999 and
December 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Unaudited Consolidated Statements of Operations for the three month and six month
periods ended June 30, 1999 and 1998. . . . . . . . . . . . . . . . . . . . . . 2
Unaudited Consolidated Statements of Stockholders' Equity for the six
month period ended June 30, 1999. . . . . . . . . . . . . . . . . . . . . . . . 3
Unaudited Consolidated Statements of Cash Flows for the six month
periods ended June 30, 1999 and 1998. . . . . . . . . . . . . . . . . . . . . . 4
Notes to Unaudited Consolidated Financial Statements. . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . . . . . . . . 13
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . 13
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 14
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements as
well as historical facts. These forward-looking statements include statements
relating to the Syntroleum Process and related technologies, gas-to-liquids
plants based on the Syntroleum Process, anticipated costs to design, construct
and operate such plants, the timing of commencement and completion of the design
and construction of such plants, obtaining required financing for such plants,
the economic construction and operation of GTL plants, including the value,
markets and prices for and other characteristics of products produced by such
plants, the continued development of the Syntroleum Process (alone or with
partners), anticipated capital expenditures, anticipated revenues, the sale of
Syntroleum's real estate inventory and any other statements regarding future
growth, cash needs, operations, business plans and financial results. When used
in this document the words "anticipate," "believe," "estimate," "expect,"
"intend," "may," "plans," "project," "should" and similar expressions are
intended to be among the statements that identify forward-looking statements.
Although Syntroleum believes that the expectations reflected in these
forward-looking statements are reasonable, such statements involve risks and
uncertainties and actual results may not be consistent with these
forward-looking statements. Important factors that could cause actual results
to differ from these forward-looking statements include the potential that the
cost of designing and constructing commercial-scale GTL plants will exceed
current estimates, commercial-scale GTL plants will not achieve the same results
as those demonstrated on a laboratory or pilot basis or that such plants will
experience technological and mechanical problems, the potential that
improvements to the Syntroleum Process currently under development may not be
successful, the impact on plant economics of operating conditions (including
energy prices), competition, intellectual property risks, Syntroleum's ability
to obtain financing and other risks described in this Quarterly Report on Form
10-Q and Syntroleum's Annual Report on Form 10-K for the year ended December 31,
1998.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SYNTROLEUM CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
JUNE 30, DECEMBER 31,
1999 1998
--------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . $ 32,329 $ 34,981
Short-term investments . . . . . . . . . . . . . . . . 3,152 3,135
Accounts and notes receivable. . . . . . . . . . . . . 853 860
Other current assets . . . . . . . . . . . . . . . . . 286 498
--------- ---------
Total current assets. . . . . . . . . . . . . . . . 36,620 39,474
REAL ESTATE HELD FOR SALE. . . . . . . . . . . . . . . . 2,776 3,122
REAL ESTATE UNDER DEVELOPMENT. . . . . . . . . . . . . . 4,292 2,722
INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . 1,259 1,180
PROPERTY AND EQUIPMENT, net. . . . . . . . . . . . . . . 3,622 3,210
OTHER ASSETS, net. . . . . . . . . . . . . . . . . . . . 659 692
--------- ---------
$ 49,228 $ 50,400
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . $ 1,070 $ 1,365
Accrued liabilities. . . . . . . . . . . . . . . . . . 664 633
Total current liabilities . . . . . . . . . . . . . 1,734 1,998
--------- ---------
OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . . 95 103
MINORITY INTERESTS . . . . . . . . . . . . . . . . . . . 1,303 1,337
DEFERRED REVENUE . . . . . . . . . . . . . . . . . . . . 11,000 11,000
Total liabilities . . . . . . . . . . . . . . . . . 14,132 14,438
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 5,000,000 shares
authorized, no shares issued. . . . . . . . . . . . - -
Common stock, $0.01 par value, 150,000,000 shares
authorized, 34,574,957 shares issued in 1999 and
1998, respectively, including shares in treasury . . . 346 346
Additional paid-in capital . . . . . . . . . . . . . . 68,905 62,908
Notes receivable from sale of common stock . . . . . . (699) (699)
Accumulated deficit. . . . . . . . . . . . . . . . . . (33,379) (26,516)
--------- ---------
35,173 36,039
Less-treasury stock, 7,674,905 shares in 1999 and 1998 (77) (77)
--------- ---------
Total stockholders' equity. . . . . . . . . . . . . 35,096 35,962
--------- ---------
$ 49,228 $ 50,400
========= =========
The accompanying notes are an integral part of these consolidated balance
sheets.
1
SYNTROLEUM CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------- ---------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
REVENUES:
Joint development revenue. . . . . . . . . $ 548 $ 466 $ 1,151 $ 851
Real estate sales. . . . . . . . . . . . . 520 - 520 -
Other. . . . . . . . . . . . . . . . . . . 162 - 324 -
------------ ------------ ------------ ------------
Total revenues . . . . . . . . . . . . . 1,230 466 1,995 851
------------ ------------ ------------ ------------
COST AND EXPENSES:
Cost of real estate sales. . . . . . . . . 404 - 404 -
Real estate operating expense. . . . . . . 233 - 390 -
Pilot plant, engineering and research and
Development. . . . . . . . . . . . . . . 2,206 980 3,194 2,046
General and administrative . . . . . . . . 3,205 2,291 6,021 4,657
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS. . . . . . . . (4,818) (2,805) (8,014) (5,852)
INVESTMENT AND INTEREST INCOME . . . . . . . 729 90 1,115 190
OTHER INCOME . . . . . . . . . . . . . . . . 2 - 2 -
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE MINORITY
INTERESTS. . . . . . . . . . . . . . . . . (4,087) (2,715) (6,897) (5,662)
MINORITY INTERESTS . . . . . . . . . . . . . 28 4 34 14
------------ ------------ ------------ ------------
NET INCOME (LOSS). . . . . . . . . . . . . . $ (4,059) $ (2,711) $ (6,863) $ (5,648)
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE -
Basic and diluted. . . . . . . . . . . . . $ (0.15) $ (0.11) $ (0.26) $ (0.23)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING. . . . . . . . . . . . . . . . 26,900,052 24,500,236 26,900,052 24,500,236
============ ============ ============ ============
The accompanying notes are an integral part of these unaudited consolidated
statements.
2
SYNTROLEUM CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
COMMON STOCK NOTES
---------------------- ADDITIONAL RECEIVABLE TOTAL
NUMBER PAID-IN FROM SALE OF ACCUMULATED TREASURY STOCKHOLDERS'
OF SHARES AMOUNT CAPITAL COMMON STOCK DEFICIT STOCK EQUITY
------------ ----------- ----------- -------------- ------------- ---------- ---------------
BALANCE, December 31, 1998. 34,575 $ 346 $ 62,908 $ (699) $ (26,516) $ (77) $ 35,962
SETTLEMENT OF MERGER
CONTINGENCY. . . . . . - - 5,997 - - - 5,997
NET INCOME (LOSS) . . . . - - - - (6,863) - (6,863)
BALANCE, June 30, 1999. . . 34,575 $ 346 $ 68,905 $ (699) $ (33,379) $ (77) $ 35,096
============ =========== =========== ============== ============= ========== ===============
The accompanying notes are an integral part of these unaudited consolidated
statements.
3
SYNTROLEUM CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
FOR THE SIX MONTHS
ENDED JUNE 30,
--------------
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) . . . . . . . . . . . . . . . . $(6,863) $(5,648)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operations:
Minority interest in loss of subsidiary. . . . (34) (14)
Depreciation and amortization. . . . . . . . . 259 123
Equity in earnings of affiliates . . . . . . . (110) -
Changes in real estate held for sale and
under development . . . . . . . . . . . . . (1,223) -
Changes in assets and liabilities--
Accounts receivable. . . . . . . . . . . . 7 65
Prepaids and other . . . . . . . . . . . . 195 (19)
Other assets . . . . . . . . . . . . . . . 65 (94)
Accounts payable . . . . . . . . . . . . . (295) (448)
Accrued liabilities and other. . . . . . . (55) 111
-------- --------
Net cash provided by (used in)
operating activities . . . . . . . . . (8,054) (5,924)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment. . . . . . . . (564) (1,611)
Maturity of SLH investments held to maturity. . . (17) -
-------- --------
Net cash provided by (used in)
investing activities. . . . . . . . . (581) (1,611)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Settlement of merger contingency. . . . . . . . . 5,997 -
Payments under capital lease. . . . . . . . . . . (14) (8)
Minority interest in investment in subsidiary . . - 1,000
-------- --------
Net cash provided by (used in)
financing activities. . . . . . . . . 5,983 992
-------- --------
NET DECREASE IN CASH. . . . . . . . . . . . . . . . (2,652) (6,543)
CASH AND CASH EQUIVALENTS,
beginning of period . . . . . . . . . . . . . . . 34,981 10,158
-------- --------
CASH AND CASH EQUIVALENTS, end of period. . . . . . $32,329 $ 3,615
======== ========
The accompanying notes are an integral part of these unaudited consolidated
statements
4
SYNTROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. BASIS OF REPORTING
The primary operations of Syntroleum Corporation (together with its
predecessors and subsidiaries, the "Company" or "Syntroleum") to date have
consisted of the research and development of a proprietary process (the
"Syntroleum Process") designed to convert natural gas into synthetic liquid
hydrocarbons. Synthetic crude oil produced by the Syntroleum Process can be
further processed into liquid fuels such as diesel, kerosene and naphtha, or
specialty products such as synthetic lubricants, synthetic drilling fluid,
waxes, liquid normal paraffins and certain chemical feedstocks.
The consolidated financial statements included in this report have been
prepared by Syntroleum without audit pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"). Accordingly, these statements
reflect all adjustments (consisting of normal recurring entries) which are, in
the opinion of management, necessary for a fair statement of the financial
results for the interim periods presented. These financial statements should be
read in conjunction with the financial statements and the notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31, 1998
filed with the SEC under the Securities Exchange Act of 1934, as amended, on
March 31, 1999.
Effective June 17, 1999, the Company completed its reincorporation as a
Delaware corporation. In the reincorporation, the Company merged (the
"Reincorporation Merger") with the Company's predecessor, Syntroleum
Corporation, a Kansas corporation ("Syntroleum-Kansas"), with the Company being
the surviving corporation and the successor to Syntroleum-Kansas. The
Reincorporation Merger has been accounted for as a combination of entities
under common control using the historical cost basis of the combining companies
as if it were a pooling of interests.
On August 7, 1998, the Company's predecessor, Syntroleum Corporation, an
Oklahoma corporation, merged with SLH Corporation, a Kansas corporation ("SLH").
This merger was accounted for as a reverse acquisition. The results of
operations of SLH have been included in the results of Syntroleum since
completion of the merger with SLH. Unaudited pro forma results of operations
for the six months ended June 30, 1998, as though the merger with SLH had
occurred at January 1, 1998, are presented below. The proforma results of
operations are not necessarily indicative of the actual operating results had
the transaction been consummated at the beginning of the period presented below
or in future operating results of the combined operations:
FOR THE SIX MONTHS
ENDED JUNE 30, 1998
---------------------
Revenues. . . . . . . . . . . . . $ 8,226
Net income (loss) . . . . . . . . (1,469)
Basic and diluted earnings (loss)
per share. . . . . . . . . . . $ (.06)
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. EARNINGS PER SHARE
The Company applies the provisions of SFAS No. 128, "Earnings Per Share."
Basic and diluted earnings (losses) per common share were computed by dividing
net income (loss) by the weighted average number of shares of common stock
outstanding during the reporting period. Options to purchase 2,709,304 shares
of common stock at an average exercise price of $7.29 were not included in the
computation of diluted earnings per share as inclusion of such options would be
anti-dilutive.
3. FOOTNOTES INCORPORATED BY REFERENCE
Certain footnotes are applicable to the financial statements, but
would be substantially unchanged from the footnotes presented in the Company's
December 31, 1998 financial statements included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998 as filed with the SEC, and are
incorporated herein by reference as follows:
NOTE DESCRIPTION
- ---- -------------------------------------------
1. Summary of Significant Accounting Policies
2. Investments
3. Property and Equipment
4. Notes Receivable from Sale of Common Stock
5. Accrued Liabilities
6. Income Taxes
7. Supplemental Cash Flow Information
9. Commitments
10. Stock Options
11. Cash Equivalents and Short-Term Investments
12. Stock Options
13. Significant Customers
14. Stockholder Rights Plan
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following information should be read in conjunction with the
information presented elsewhere in this Quarterly Report on Form 10-Q and with
the information presented in Syntroleum's Annual Report on Form 10-K for the
year ended December 31, 1998 (including Syntroleum's financial statements and
notes thereto).
OVERVIEW
Syntroleum is the developer and owner of a proprietary process (the
"Syntroleum Process") designed to catalytically convert natural gas into
synthetic liquid hydrocarbons ("gas to liquids" or "GTL"). The Syntroleum
Process is a simplification of traditional GTL technologies aimed at
substantially reducing both the capital cost and the minimum economical size of
a GTL plant, as well as plant operating costs. A unique characteristic and
primary advantage of the Syntroleum Process over competing processes is its use
of air, rather than pure oxygen, in the conversion process. Although no
commercial-scale GTL plant based on the Syntroleum Process has yet been built,
Syntroleum owns and operates a nominal two barrel per day pilot plant in Tulsa,
Oklahoma where it has successfully demonstrated certain elements and variations
of the Syntroleum Process. Syntroleum has also participated with Atlantic
Richfield Company ("ARCO"), a licensee of Syntroleum's GTL technology, in the
development and successful start-up of a 70 barrel-per-day pilot plant located
at ARCO's refinery at Cherry Point, Washington. Syntroleum believes that a
significant opportunity exists for cost-effective GTL plants due to the large
volumes of natural gas reserves worldwide that are currently not marketable
because distance to market makes their utilization uneconomical.
Syntroleum's strategy for commercializing the Syntroleum Process involves
the following key elements: (1) entering into agreements with oil and gas
industry participants to license the Syntroleum Process for use in GTL plants
designed to produce synthetic crude oil and liquid fuels; (2) establishing joint
ventures with oil and gas industry partners and/or financial partners to design,
construct and operate GTL plants designed to produce specialty products; (3)
making available mobile GTL plants to customers on a contract basis through
efforts with industry partners and others; and (4) continuing to reduce costs
and develop process improvements through research and development activities and
acquisitions. To date, Syntroleum has entered into master license agreements
with Texaco, Inc. ("Texaco"), ARCO, and Marathon Oil Company ("Marathon"), and
has entered into volume license agreements with YPF International, Ltd., an
affiliate of Argentina-based Yacimientos Petroliferos Fiscales, S.A. ("YPF"),
Enron Capital & Trade Resources Corp. ("Enron"), and Kerr-McGee Corporation
("Kerr-McGee"). Syntroleum received an aggregate of $11 million and rights to
certain technologies in connection with these license agreements. Syntroleum is
currently in discussions with several other oil and gas companies and others
with respect to joint ventures to develop specialty product GTL plants.
Syntroleum has formed a joint venture with Enron with respect to the development
of a specialty products plant and Syntroleum is currently evaluating different
potential international sites, including a possible site in Australia. The
schedule for construction of this proposed plant has not yet been finally
determined.
Syntroleum has entered into joint development arrangements with Texaco, ARCO,
Marathon, Bateman Engineering, Inc. ("Bateman"), AGC Manufacturing Services,
Inc. ("AGC"), GE Power Systems ("GE Power Systems"), DaimlerChrysler AG
("DaimlerChrysler"), Catalytica Combustion Systems, Inc. ("Catalytica Combustion
Systems"), and AMEC Process and Energy Limited ("AMEC").
Because Syntroleum is incurring costs with respect to developing and
commercializing the Syntroleum Process and does not anticipate recognizing any
revenues from licensing its technology in the near future, the Company expects
to operate at a loss unless and until sufficient revenues are recognized from
licensing activities, specialty product GTL plants or real estate sales.
OPERATING REVENUES
General. During the periods discussed below, Syntroleum's revenues were
generated from (1) sales of real estate holdings owned by SLH prior to the
merger with SLH, (2) reimbursement for research and development activities
associated with the Syntroleum Process and (3) other sources, including rent
generated by real estate holdings owned by SLH prior to the merger with SLH.
Because SLH had substantially reduced its real estate inventory prior to the
merger with SLH, and Syntroleum had sold several properties since the merger,
Syntroleum expects to receive lower levels of revenues from these sources in
following periods. In the future, Syntroleum expects to receive revenue
relating to the Syntroleum Process from five sources: licensing; catalyst sales;
sales of products from specialty product GTL plants in which Syntroleum owns an
equity interest; revenues from providing mobile GTL plants on a contract basis;
and revenues from research and development activities carried out with industry
partners. Until the commencement of commercial operation of GTL plants in which
Syntroleum owns an interest, Syntroleum expects that its cash flow relating to
the Syntroleum Process will consist primarily of license fee deposits, site
license fees, catalysts sales and revenues associated with joint development
activities. Syntroleum will not receive any cash flow from GTL plants in which
it owns an equity interest until the first such plant is constructed.
Syntroleum's future operating revenues will depend on the successful commercial
construction and operation of GTL plants based on the Syntroleum Process, the
success of competing GTL technologies and other competing uses for natural gas.
Syntroleum's results of operations and cash flows are expected to be affected by
changing gas, crude oil, fuel and specialty product prices. If the price of
these products increases (decreases), there could be a corresponding increase
(decrease) in operating revenues.
License Revenues. The revenue earned from licensing the Syntroleum Process
is expected to be generated through four types of contracts: master license
agreements, volume license agreements, regional license agreements and site
license agreements. Master, volume and regional license agreements provide the
licensee with the right to enter into site license agreements for individual GTL
plants. A master license agreement grants broad geographic and volume rights,
while volume license agreements limit the total production capacity of all GTL
plants constructed under the agreement to specified amounts, and regional
license agreements limit the geographical rights of the licensee. Master,
volume and regional license agreements require an up-front cash deposit that may
offset or partially offset license fees for future plants payable under site
licenses. Syntroleum has acquired technology, commitment of funds for joint
development activities, services or other consideration in lieu of the initial
cash deposit in cases where Syntroleum believed such technologies or commitments
had a greater value.
Syntroleum's site license agreements require fees to be paid in increments
when certain milestones during the plant design and construction process are
achieved. The amount of the license fee under Syntroleum's existing master and
volume license agreements is determined pursuant to a formula based on the
present value of the product of (1) the yearly maximum design capacity of the
plant, (2) an assumed life of the plant and (3) Syntroleum's per barrel rate,
which currently is approximately $.50 per barrel of daily capacity, regardless
of plant capacity. Syntroleum's licensee fees may change from time to time
based on the size of the plant, improvements that reduce plant capital cost and
competitive market conditions. Syntroleum's accounting policy is to defer all
up-front deposits under master, volume and regional license agreements and
license fees under site license agreements and recognize 50% of such deposits
and fees as revenue in the period in which the engineering process design
package for a plant licensed under the agreement is delivered and recognize 50%
of the deposits and fees when the plant has passed certain performance tests.
The amount of license revenue Syntroleum earns will be dependent on the
construction of plants by licensees, as well as the number of licenses it sells
in the future.
Catalyst Revenues. Syntroleum expects to earn revenue from the sale of its
proprietary catalysts to its licensees. Syntroleum's license agreements require
Syntroleum's catalyst to be used in the initial fill for the licensee to receive
Syntroleum's process guarantee. After the initial fill, the licensee may use
other catalyst vendors if appropriate catalysts are available. The price for
catalysts purchased from Syntroleum pursuant to license agreements is equal to
Syntroleum's cost plus a specified margin. Syntroleum will receive revenue from
catalyst sales if and when its licensees purchase catalysts. Syntroleum expects
that catalysts will need to be replaced every three to five years.
Specialty Product GTL Plant Revenues. Syntroleum intends to develop
several specialty product GTL plants in which it intends to retain significant
equity interests. These plants will enable Syntroleum to gain experience with
the commercial operation of the Syntroleum Process and, if successful, are
expected to provide ongoing revenues. The anticipated specialty products of
these plants (i.e., synthetic lube base oils, synthetic drilling fluid, waxes
and liquid normal paraffins) have historically been sold at premium prices and
are expected to result in relatively high margins for these plants. Syntroleum
anticipates forming several joint ventures with oil and gas industry and
financial partners in order to finance and operate these plants. Syntroleum
anticipates that its specialty GTL plants will include partners who have
low-cost gas reserves in strategic locations and/or have distribution networks
in place for the specialty products to be made in each plant.
Revenues from Providing GTL Plants on a Contract Basis. Through joint
efforts with industry partners and others, Syntroleum intends to make mobile GTL
plants available to customers on a contract basis. Syntroleum believes that
there is a significant market for users who need GTL plants for applications
that do not justify the capital investment of a dedicated GTL plant. Such
applications include: extended well testing in areas with stringent flaring
regulations; conversion of small associated gas fields that are not large enough
to justify the capital investment of a permanent GTL plant; and short-term use
of a GTL plant on large fields to generate cash flow for the customer while a
permanent GTL plant is being built or while awaiting pipeline hookup. The
Company is currently doing preliminary design work for these types of plants.
Joint Development Revenue. Syntroleum continually conducts research and
development activities in order to reduce the capital and operating costs of GTL
plants based on the Syntroleum Process. Syntroleum conducts its research and
development activities primarily through two initiatives: (1) independent
development utilizing its own resources and (2) formal joint development
arrangements with its licensee partners and others. Through these joint
development agreements, Syntroleum may receive revenue as reimbursement for
certain research and development expenses. Under certain agreements, the joint
development partner may receive credits against future license fees for monies
expended on joint research and development.
Real Estate Sales Revenues. As of June 30, 1999, Syntroleum's real estate
inventory consisted of (1) a seven-story parking garage in Reno, Nevada; (2) a
49.9% interest in a community shopping center in Gillette, Wyoming; (3) land
under development in Houston, Texas (341 acres comprising the "Houston Project")
and nine acres in Corinth, Texas, and (4) an equity investment in a hotel
located in Tulsa, Oklahoma. This real estate inventory was owned by SLH prior
to Syntroleum's merger with SLH and reflects the remaining assets of a real
estate development business that was conducted by SLH. The total real estate
inventory had an aggregate carrying value at June 30, 1999 of approximately $8.3
million. All of the real estate inventory is held for sale except for the
investment in the hotel located in Tulsa, Oklahoma and the Houston Project,
which is being developed for commercial and residential use. The timing of real
estate sales will create variances in period-to-period earnings recognition.
Syntroleum does not intend to acquire additional real estate holdings for
development and/or sale outside its core business interests, and real estate
sales revenues should decrease as the current real estate inventory is
liquidated.
OPERATING EXPENSES
Syntroleum's operating expenses historically have consisted primarily of
pilot plant, engineering and research and development expenses and general and
administrative expenses, which include costs associated with general corporate
overhead, compensation expense, legal and accounting expense and other related
administrative functions. Syntroleum's policy is to expense pilot plant,
engineering and research and development costs as incurred. All of these
research and development expenses are associated with Syntroleum's development
of the Syntroleum Process. Syntroleum has also recognized depreciation and
amortization expense primarily related to office and computer equipment.
Following the merger with SLH, Syntroleum's operating expenses have also
included costs of real estate sold and real estate operating expense.
Syntroleum's general and administrative expenses have increased substantially as
it has expanded its research and development, engineering and commercial
operations, and these expenses are expected to continue to increase. Syntroleum
also expects to continue to incur higher pilot plant, engineering and research
and development expenses as it continues to develop and improve its GTL
technology. In May 1998, Syntroleum acquired a 16,500-square-foot laboratory
(known as Syntroleum's "technology center") located on approximately 100 acres
at which it intends to increase its laboratory and pilot plant operations.
Syntroleum expects to incur significant expenses in connection with the
start-up of its GTL plants. For example, Syntroleum expects that its expenses
will increase at the time of commencement of construction of specialty products
plants in which it owns an interest. Upon the commencement of commercial
operation of GTL plants in which Syntroleum owns an equity interest, Syntroleum
will incur cost-of-sales expense relating primarily to the cost of natural gas
feedstocks for its specialty plants and will incur operating expenses relating
to such plants, including labor, supplies and maintenance. Due to the
substantial capital expenditures associated with the construction of GTL plants,
Syntroleum expects to incur significant depreciation and amortization expense in
the future.
REINCORPORATION MERGER
Effective June 17, 1999, the Company completed its reincorporation as a
Delaware corporation. In the reincorporation, the Company merged (the
"Reincorporation Merger") with the Company's predecessor, Syntroleum
Corporation, a Kansas corporation ("Syntroleum-Kansas"), with the Company being
the surviving corporation and the successor to Syntroleum-Kansas. The
Reincorporation Merger has been accounted for as a combination of entities
under common control using the historical cost basis of the combining companies
as if it were a pooling of interests.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30,
1998
Joint Development Revenue. Revenues from joint research and development
and pilot plant operations were $548,000 in the second quarter of 1999, up
$82,000 from the second quarter of 1998 when they were $466,000. The increase
was primarily due to revenue from ARCO in connection with research and
development activities related to the construction and preparation for start-up
of a GTL pilot plant at ARCO's Cherry Point, Washington refinery under a joint
development agreement with ARCO. This increase is partially offset by the
completion during 1998 of construction of the hybrid, multiphase (HMX) reactor
at the Company's pilot plant that was funded by Texaco under the joint
development agreement with Texaco.
Real Estate Sales. Real estate sales were $520,000 in the second quarter
of 1999, up from zero in the second quarter of 1998, when Syntroleum had no real
estate operations. Real estate sales in the second quarter of 1999 reflect the
sale of two acres in the Kansas City metropolitan area.
Other Revenues. Other revenues were $162,000 in the second quarter of
1999, up from zero in the second quarter of 1998. The increase resulted
primarily from parking and retail rentals at Syntroleum's parking garage in
Reno, Nevada.
Cost of Real Estate Sales and Real Estate Operating Expense. The cost of
real estate sales was $404,000 in the second quarter of 1999, up from zero in
the second quarter of 1998. The increase resulted from costs associated with
the sale of two acres of real estate in the Kansas City metropolitan area. Real
estate operating expenses were $233,000 in the second quarter of 1999 compared
to zero in the second quarter of 1998. These expenses include operating
expenses relating to the development or disposal of the remaining SLH real
estate.
Pilot Plant, Engineering and R&D. Expenses from pilot plant, engineering
and research and development activities were $2,206,000 in the second quarter of
1999, up $1,226,000 from the second quarter of 1998 when these expenses were
$980,000. The increase occurred as a result of ongoing expansion at the pilot
plant facility and the renovation of the recently acquired technology center,
both in Tulsa, Oklahoma.
General and Administrative Expenses. General and administrative expenses
were $3,205,000 in the second quarter of 1999, up $914,000 from the second
quarter of 1998 when these expenses were $2,291,000. The increase is
attributable to higher wages, salaries and other overhead costs resulting from
higher staffing levels as well as higher rent expense.
Investment, Interest and Other Income (Expense). Investment, interest and
other income increased to $759,000 in the second quarter of 1999, up $665,000
from the second quarter of 1998 when this income was $94,000. The increase was
primarily attributable to interest income from higher cash balances following
the merger with SLH.
Provision for Income Taxes. Syntroleum incurred a loss in both the second
quarter of 1999 and the second quarter of 1998 and did not recognize an income
tax benefit for such loss.
Net Income (loss). In the second quarter of 1999, Syntroleum experienced a
loss of $4,059,000. The loss was $1,348,000 higher than the second quarter of
1998 when Syntroleum experienced a loss of $2,711,000. The increase in the loss
is a result of the factors described above.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Joint Development Revenue. Revenues from joint research and development
and pilot plant operations were $1,151,000 in the first six months of 1999, up
$300,000 from the first six months of 1998 when they were $851,000. The
increase was primarily due to revenue from ARCO in connection with research and
development activities related to the construction and preparation for start-up
of a GTL pilot plant at ARCO's Cherry Point, Washington refinery under a joint
development agreement with ARCO. This increase is partially offset by the
completion during 1998 of construction of the hybrid, multiphase (HMX) reactor
at the Company's pilot plant that was funded by Texaco under the joint
development agreement with Texaco.
Real Estate Sales. Real estate sales were $520,000 in the first six months
of 1999, up from zero in the first six months of 1998, when Syntroleum had no
real estate operations. Real estate sales in the first six months of 1999
reflect the sale of two acres in the Kansas City metropolitan area.
Other Revenues. Other revenues were $324,000 in the first six months of
1999, up from zero in the first six months of 1998. The increase resulted
primarily from parking and retail rentals at Syntroleum's parking garage in
Reno, Nevada.
Cost of Real Estate Sales and Real Estate Operating Expense. The cost of
real estate sales was $404,000 in the first six months of 1999, up from zero in
the first six months of 1998. The increase resulted from costs associated with
the sale of two acres of real estate in the Kansas City metropolitan area. Real
estate operating expenses were $390,000 in the first six months of 1999 compared
to zero in the first six months of 1998. These expenses include operating
expenses relating to the development or disposal of the remaining SLH real
estate.
Pilot Plant, Engineering and R&D. Expenses from pilot plant, engineering
and research and development activities were $3,194,000 in the first six months
of 1999, up $1,148,000 from the first six months of 1998 when these expenses
were $2,046,000. The increase occurred as a result of ongoing expansion at the
pilot plant facility and the renovation of the recently acquired technology
center, both in Tulsa, Oklahoma.
General and Administrative Expenses. General and administrative expenses
were $6,021,000 in the first six months of 1999, up $1,364,000 from the first
six months of 1998 when these expenses were $4,657,000. The increase is
attributable to higher wages, salaries and other overhead costs resulting from
higher staffing levels as well as higher rent expense.
Investment, Interest and Other Income (Expense). Investment, interest and
other income increased to $1,151,000 in the first six months of 1999, up
$947,000 from the first six months of 1998 when this income was $204,000. The
increase was primarily attributable to interest income from higher cash balances
following the merger with SLH.
Provision for Income Taxes. Syntroleum incurred a loss in both the first
six months of 1999 and the first six months of 1998 and did not recognize an
income tax benefit for such loss.
Net Income (loss). In the first six months of 1999, Syntroleum experienced
a loss of $6,863,000. The loss was $1,215,000 greater than the first six months
of 1998 when Syntroleum experienced a loss of $5,648,000. The increase in the
loss is a result of the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
As of June 30, 1999, Syntroleum had $35,481,000 in cash and short-term
investments and $1,734,000 in current liabilities. Syntroleum does not
currently have any material outstanding debt or lines of credit. Prior to
Syntroleum's merger with SLH, Old Syntroleum's primary sources of liquidity were
equity capital contributions and prepaid license fees and its principal
liquidity needs were to fund expenditures relating to research and development
and pilot plant activities and to fund working capital. At June 30, 1999, the
Company had $853,000 in accounts receivable and notes receivable outstanding
which are primarily related to joint development activities with the Company's
joint development partners.
Cash flows (used in) provided by operations were $(8,054,000) in the first
six months of 1999 compared to $(5,924,000) during the first six months of 1998.
The increase in cash flows used in operations during the first six months of
1999 compared to the first six months of 1998 was primarily the result of an
increase in expenditures on real estate under development in Houston, Texas
and continued expenditures on pilot plant, engineering and research and
development activities. The increase was partially offset by the Company's
sale during the first six months of 1999 of the remaining two acres of
real estate in Kansas City.
Cash flows provided by (used in) investment activities were $(581,000) in
the first six months of 1999 compared to $(1,611,000) in the first six months of
1998. The decrease in cash flows used in investing activities in the first six
months of 1999 compared to the first six months of 1998 resulted from lower
spending on property and equipment.
Cash flows provided by financing activities were $5,983,000 in the first
six months of 1999 compared to $992,000 in the first six months of 1998. The
increase was primarily due to the receipt of approximately $6.0 million in
satisfaction of a judgment in favor of Syntroleum which was a contingency of the
merger with SLH and has been recorded as additional paid in capital. Cash flows
in 1998 primarily reflected the investment by Enron in Syntroleum/Sweetwater
Company, LLC.
The construction of Syntroleum's specialty product GTL plants will require
significant capital expenditures. Syntroleum's other efforts to commercialize
the Syntroleum Process will also involve significant expenditures. Syntroleum
intends to obtain additional funding through joint ventures, partnerships,
license agreements and other strategic alliances, as well as various other
financing arrangements. Syntroleum may also seek debt or equity financing in
the capital markets. In the event such capital resources are not available to
Syntroleum, its GTL plant development and other activities may be curtailed.
INITIAL SPECIALTY PRODUCT GTL PLANT
In May 1997, Syntroleum formed a joint venture through which Syntroleum
intends to develop an 8,000 to 10,000 barrel-per-day specialty product GTL
plant.
Syntroleum has issued a site license and contributed a total of $2 million
to the joint venture formed to own and operate this plant. Syntroleum intends
to contribute an additional $15 million at the closing of the financing for the
plant and, based on current plans, would retain a majority interest. In January
1998, Enron contributed $1 million in exchange for a four percent interest in
this joint venture and agreed to contribute an additional approximately $14
million in exchange for an additional seven percent interest upon the
satisfaction of certain conditions, including the execution of agreements which
provide for the remaining equity and debt financing for construction of the
plant, the execution of fixed price engineering and construction contracts, and
the execution of acceptable agreements for the sale of products produced at the
plant. The capital costs of this plant are currently expected to be funded by a
combination of project senior and subordinated debt and additional equity
financing. Actual ownership percentages may vary from current estimates
depending on the terms of subsequent financings. Additionally, Enron and
Syntroleum entered into an option agreement which provides that, in the event of
the completion of an underwritten public offering and the repayment of at least
50% of the senior term loan financing for this joint venture, Enron may elect
during a period of two years to exchange its interest in this joint venture for
a number of shares of Syntroleum's common stock equal to the quotient of the
amount of Enron's contributions to this joint venture and 130% of the average
market price of the common stock during the first 30 trading days following an
underwritten public offering. The option agreement also provides that, if such
repayment does not occur by the eighth year after plant start up, Enron may
elect to purchase, during the 180-day period following such date, such number of
shares in exchange for the amount of Enron's contributions to this joint
venture. In addition, the option agreement provides that, if an underwritten
public offering has not yet occurred following the later to occur of the fourth
year after the plant passes certain performance tests and the repayment of at
least 50% of the senior term loan financing for this joint venture, Enron may
elect during a period of up to 10 years to require Syntroleum to purchase its
interest in this joint venture for a price equal to three times the annual
average cash distributions made to Enron by this joint venture during the
preceding three-year period.
Syntroleum plans to fund the remaining estimated capital cost of this plant
through project equity and debt financing. During the first six months of 1999,
Syntroleum continued to pursue development of the project. Syntroleum is
currently reviewing preliminary design and cost estimates for the plant and
exploring sources of debt and equity capital to fund final design and
construction. However, there can be no assurance that the necessary capital for
this project will be obtained and the schedule for construction of this plant
has not yet been finally determined.
YEAR 2000 COMPLIANCE
Historically, certain computerized systems have used two digits rather than
four digits to define the applicable year, causing them to not properly
recognize a year that does not begin with "19." This could result in major
failures or miscalculations and is generally referred to as the "Year 2000
issue." Syntroleum recognizes that the impact of the Year 2000 issue extends
beyond traditional computer hardware and software to automated systems and
instrumentation, as well as to third parties such as vendors, suppliers,
customers, banks and securities markets.
Syntroleum's computer hardware and software and automated systems and
instrumentation were acquired during the past two years. Based on the recent
date of purchase and assertions made by the vendors of these systems, Syntroleum
believes these systems are Year 2000 compliant.
With respect to external parties, Syntroleum is in the process of
completing its assessment of the level of risk to Syntroleum of non-compliance
by the external parties and, to the extent it deems necessary, has contacted
those external parties deemed to be significant to Syntroleum's operations.
Based on assertions made by these external parties, Syntroleum does not believe
that a material uncertainty exists of noncompliance by an external party which
would significantly affect Syntroleum's operations.
Because of the number of external risks involved, Syntroleum believes there
is likely to be some disruption in its business as a result of noncompliance by
third parties. Of all the external risks, Syntroleum believes that the most
reasonably likely worse case scenario would be a business disruption resulting
from lack of utilities such as electric power, gas and water service as well as
failure of telephone service. Based on Syntroleum's information regarding the
readiness of third parties, Syntroleum expects that any Year 2000 disruption
would be of short duration. However, Syntroleum is unable to determine the
potential business interruption costs that might be incurred as a result of Year
2000 disruptions.
Syntroleum is currently exploring contingency plans in the event of possible
business interruptions. Syntroleum intends to address possible emergency
situations such as the need for security, power outages and telecommunications
failures. Syntroleum expects that its contingency planning will continue to the
end of 1999 and the beginning of 2000.
The total cost of Year 2000 activities to date has not been, and future costs
are not expected to be, material to Syntroleum's operations, liquidity or
capital resources. Despite Syntroleum's assessment to date, there can be no
assurance as to the ultimate effect that the Year 2000 issues will have on
Syntroleum.
Syntroleum's assessment of its Year 2000 issues involves many assumptions,
and Syntroleum's assumptions may prove to be inaccurate and actual results could
differ significantly from these assumptions. In conducting its Year 2000
compliance efforts, Syntroleum has relied primarily on seller representations
with respect to its internal computerized systems and representations from third
parties with which Syntroleum has business relationships and has not
independently verified these representations. These representations might not
prove to be accurate. Syntroleum could be adversely affected by business
disruptions of a greater magnitude than anticipated or from a failure of its
contingency plans to adequately address problems. Syntroleum is also continuing
to monitor Year 2000 risks and compliance and expects this work to continue
through 2000.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement. Companies must formally document, designate and
assess the effectiveness of transactions that receive hedge accounting. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999, however,
companies may implement the statement as of the beginning of any fiscal quarter
beginning June 16, 1998. SFAS No. 133 cannot be applied retroactively and must
be applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the company's election, before January
1, 1998). As of June 30, 1999, the Company had no outstanding derivative
instruments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Syntroleum had short-term investments in the form of U.S. Treasury
securities as of June 30, 1999. The majority of these securities mature in less
than 90 days. The Company's policy is to hold short-term securities to maturity
which minimizes interest rate risk. The average interest rate on these
investments at June 30, 1999 was approximately 4.8%.
Syntroleum does not currently conduct any material operations in foreign
markets. Accordingly, Syntroleum does not have market risk related to foreign
exchange rates.
Syntroleum does not purchase futures contracts nor does it purchase or hold
any derivative financial instruments.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Effective June 17, 1999, the Company completed the Reincorporation Merger.
A description of the Reincorporation Merger and of the Company's common stock
and associated preferred share purchase rights is included in the Company's
Proxy Statement filed with the Securities and Exchange Commission on May 12,
1999 and its Current Report on Form 8-K dated June 17, 1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1999 annual meeting of the stockholders of the Company was held on June
17, 1999. Set forth below are the results of the voting with respect to each
matter acted upon at the meeting.
VOTES
VOTES CAST VOTES BROKER
MATTER CAST FOR AGAINST WITHHELD ABSTENTIONS NON-VOTES
--------- ------- -------- ----------- ----------
Approval of the Reincorporation Merger and
the transactions contemplated thereby. . . 15,758,676 315,138 __ 17,565 4,778,661
Election of Directors:
Alvin R. Albe, Jr.. . . . . . . . . . . 20,683,112 __ 186,928 __ __
J. Edward Sheridan. . . . . . . . . . . 20,682,812 __ 187,228 __ __
Ratification of the Appointment of Arthur
Andersen LLP as independent public
accountants for the 1999 fiscal year. . . 20,823,011 20,364 __ 26,665 __
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Reports on Form 8-K. On June 17, 1999, Syntroleum filed with the
Securities and Exchange Commission a Current Report on Form 8-K dated June 17,
1999 containing information with respect to the Reincorporation Merger under
Item 5, Other Events.
Exhibits. The following exhibits are filed as part of this quarterly
report:
*2.1 Agreement and Plan of Merger dated as of May 7, 1999 by and between Syntroleum-Kansas
and the Company (incorporated by reference to Appendix A to the Proxy Statement of
Syntroleum-Kansas filed with the Securities and Exchange Commission on May 12, 1999).
*3.1 Certificate of Incorporation of the Company (incorporated by reference to Appendix B
to the Proxy Statement of Syntroleum-Kansas filed with the Securities and Exchange
Commission on May 12, 1999).
*3.2 Bylaws of the Company (incorporated by reference to Appendix C to the
Proxy Statement of Syntroleum-Kansas filed with the Securities and Exchange
Commission on May 12, 1999).
*3.3 Certificate of Designations of Series A Junior Participating Preferred Stock of
Syntroleum, dated June 16, 1999 (incorporated by reference to Exhibit 4.5 to the
Company's Current Report on Form 8-K dated June 17, 1999 and filed with the
Securities and Exchange Commission on June 17, 1999).
*3.4 Certificates of Merger filed on June 17, 1999 (incorporated by reference to Exhibit 4.2
to the Company's Current Report on Form 8-K dated June 17, 1999 and filed with the
Securities and Exchange Commission on June 17, 1999).
*4.1 Amended and Restated Rights Agreement dated as of January 31, 1997 and Amended
and Restated as of June 17, 1999 (incorporated by reference to Exhibit 4.4 to the
Company's Current Report on Form 8-K dated June 17, 1999 and filed with the
Securities and Exchange Commission on June 17, 1999).
10.1 Form of Employment Agreement between Syntroleum and its executive officers
dated June 17, 1999.
10.2 Form of Indemnification Agreement between Syntroleum and its directors and executive
officers dated June 17, 1999.
*10.3 Amendment Number 1 dated June 17, 1999 to the Stock Option Plan for Outside
Directors of Syntroleum-Kansas (incorporated by reference to Exhibit 4.10 to Post-
Effective Amendment No. 1 to the Company's Registration Statement on Form S-8
(Registration No. 333-64231)).
*10.4 Amendment Number 1 dated June 17, 1999 to the 1993 Stock Option and Incentive
Plan of Syntroleum-Kansas (incorporated by reference to Exhibit 4.9 to Post-Effective
Amendment No. 1 to the Company's Registration Statement on Form S-8 (Registration
No. 333-64231)).
*10.5 Amendment Number 1 dated June 17, 1999 to the 1997 Stock Incentive Plan of
Syntroleum-Kansas (incorporated by reference to Exhibit 4.6 to Post-Effective
Amendment No. 1 to the Company's Registration Statement on Form S-8 (Registration
No. 333-33345)).
27 Financial Data Schedule and Restated Financial Data Schedule.
____________________
* Incorporated by reference as indicated.
5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYNTROLEUM CORPORATION, a Delaware
corporation (Registrant)
Date: August 12, 1999 By: /s/ Mark A. Agee
----------------
Mark A. Agee
President and Chief Operating Officer
(Principal Executive Officer)
Date: August 12, 1999 By: /s/ Randall M. Thompson
-----------------------
Randall M. Thompson
Chief Financial Officer (Principal
Financial Officer)
6
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ---------------------------------------------------------------------------------------
*2.1 Agreement and Plan of Merger dated as of May 7, 1999 by and between Syntroleum-
Kansas and the Company (incorporated by reference to Appendix A to the Proxy
Statement of Syntroleum-Kansas filed with the Securities and Exchange Commission
on May 12, 1999).
*3.1 Certificate of Incorporation of the Company (incorporated by reference to Appendix B
to the Proxy Statement of Syntroleum-Kansas filed with the Securities and Exchange
Commission on May 12, 1999).
*3.2 Bylaws of the Company (incorporated by reference to Appendix C to the
Proxy Statement of Syntroleum-Kansas filed with the Securities and Exchange
Commission on May 12, 1999).
*3.3 Certificate of Designations of Series A Junior Participating Preferred Stock of
Syntroleum, dated June 16, 1999 (incorporated by reference to Exhibit 4.5 to the
Company's Current Report on Form 8-K dated June 17, 1999 and filed with the
Securities and Exchange Commission on June 17, 1999).
*3.4 Certificates of Merger filed on June 17, 1999 (incorporated by reference to Exhibit 4.2
to the Company's Current Report on Form 8-K dated June 17, 1999 and filed with the
Securities and Exchange Commission on June 17, 1999).
*4.1 Amended and Restated Rights Agreement dated as of January 31, 1997 and Amended
and Restated as of June 17, 1999 (incorporated by reference to Exhibit 4.4 to the
Company's Current Report on Form 8-K dated June 17, 1999 and filed with the
Securities and Exchange Commission on June 17, 1999).
10.1 Form of Employment Agreement between Syntroleum and its executive officers
dated June 17, 1999.
10.2 Form of Indemnification Agreement between Syntroleum and its directors and executive
officers dated June 17, 1999.
*10.3 Amendment Number 1 dated June 17, 1999 to the Stock Option Plan for Outside
Directors of Syntroleum-Kansas (incorporated by reference to Exhibit 4.10 to Post-
Effective Amendment No. 1 to the Company's Registration Statement on Form S-8
(Registration No. 333-64231)).
*10.4 Amendment Number 1 dated June 17, 1999 to the 1993 Stock Option and Incentive
Plan of Syntroleum-Kansas (incorporated by reference to Exhibit 4.9 to Post-Effective
Amendment No. 1 to the Company's Registration Statement on Form S-8 (Registration
No. 333-64231)).
*10.5 Amendment Number 1 dated June 17, 1999 to the 1997 Stock Incentive Plan of
Syntroleum-Kansas (incorporated by reference to Exhibit 4.6 to Post-Effective
Amendment No. 1 to the Company's Registration Statement on Form S-8 (Registration
No. 333-33345)).
27 Financial Data Schedule and Restated Financial Data Schedule.
____________________
* Incorporated by reference as indicated.