EXHIBIT 3
AMENDED AND RESTATED INDIRECT PARTICIPATION INTEREST AGREEMENT
BY AND AMONG
INTEROIL CORPORATION
AND
THE
INVESTORS
(LISTED ON EXHIBIT A)
FEBRUARY 25, 2005
TABLE OF CONTENTS
PAGE
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ARTICLE I. DEFINED TERMS 1
Section 1.1 Definitions..................................................................... 1
Section 1.2 Construction.................................................................... 6
ARTICLE II. PURCHASE OF INDIRECT PARTICIPATION INTEREST 6
Section 2.1 Payment by Investor............................................................. 6
Section 2.2 Terms of Payment................................................................ 6
Section 2.3 Payments to Investor Upon State Election........................................ 6
Section 2.4 Distributions................................................................... 7
ARTICLE III. EXPLORATION PROGRAM 8
Section 3.1 Exploration Program............................................................. 8
Section 3.2 Designated Exploration Xxxxx.................................................... 8
Section 3.3 Optional Exploration Xxxxx...................................................... 8
Section 3.4 InterOil Services............................................................... 9
Section 3.5 Substitute Xxxxx................................................................ 10
Section 3.6 InterOil to Pay Costs........................................................... 10
Section 3.7 Timing; Drilling to Total Depth................................................. 10
Section 3.8 Reports......................................................................... 10
Section 3.9 Disclosure...................................................................... 11
ARTICLE IV. DISCOVERIES 11
Section 4.1 Activities after Total Depth.................................................... 11
Section 4.2 Completion Elections............................................................ 11
Section 4.3 PDL............................................................................. 12
Section 4.4 Participation in PDL............................................................ 12
ARTICLE V. SUBSEQUENT OPERATIONS; NON-CONSENT; FEES 13
Section 5.1 Subsequent Work Programs........................................................ 13
Section 5.2 Non-Consent Operations.......................................................... 13
Section 5.3 Debt Financing.................................................................. 14
Section 5.4 Incentive Discovery Fee......................................................... 14
Section 5.5 Infrastructure Fee.............................................................. 15
ARTICLE VI. STOCK ISSUANCE 15
Section 6.1 Conversion Right................................................................ 15
Section 6.2 Restrictive Legend.............................................................. 15
Section 6.3 No Rights as Shareholder until Issuance......................................... 16
Section 6.4 Certain Adjustments............................................................. 16
Section 6.5 Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets........................................................... 16
Section 6.6 Other Distributions............................................................. 17
Section 6.7 Representations and Warranties of Investors..................................... 17
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Section 6.8 Registration Rights Agreement................................................... 18
ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF INTEROIL 18
Section 7.1 Representations and Warranties.................................................. 18
ARTICLE VIII. ASSIGNMENT 21
Section 8.1 Generally....................................................................... 21
Section 8.2 Binding Effect.................................................................. 21
Section 8.3 Ability to Encumber............................................................. 21
Section 8.4 Tag-Along Right................................................................. 22
ARTICLE IX. CALL OPTION 22
Section 9.1 Reduction of IPI Percentage..................................................... 22
Section 9.2 Conditions for Reduction of IPI Percentage...................................... 23
ARTICLE X. CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS 23
Section 10.1 Confidentiality................................................................. 23
ARTICLE XI. TERM AND TERMINATION 24
Section 11.1 Term............................................................................ 24
ARTICLE XII. FORCE MAJEURE 25
Section 12.1 Force Majeure................................................................... 25
Section 12.2 Notice.......................................................................... 25
Section 12.3 Obligations Reinstated.......................................................... 25
ARTICLE XIII. NOTICES 25
Section 13.1 Address......................................................................... 25
Section 13.2 Address......................................................................... 26
Section 13.3 Change of Address............................................................... 26
ARTICLE XIV. MISCELLANEOUS 26
Section 14.1 Amendment....................................................................... 26
Section 14.2 Waiver.......................................................................... 26
Section 14.3 Entire Agreement................................................................ 26
Section 14.4 Costs........................................................................... 26
Section 14.5 Accounts........................................................................ 26
Section 14.6 Governing Law................................................................... 27
Section 14.7 Relationship.................................................................... 27
Section 14.8 Standard of Performance......................................................... 27
Section 14.9 Counterparts.................................................................... 27
Section 14.10 Dispute Resolution.............................................................. 27
Section 14.11 Additional Investors............................................................ 28
Section 14.12 Previous Agreements............................................................. 28
Section 14.13 Other Agreements................................................................ 28
Section 14.14 Tax Matters..................................................................... 28
Section 14.15 Completion Cost Cap............................................................. 29
ii
List of Investors......................................................................................... Exhibit A
Accounting Procedures..................................................................................... Exhibit B
Registration Rights Agreement............................................................................. Exhibit C
iii
AMENDED AND RESTATED INDIRECT PARTICIPATION INTEREST AGREEMENT
THIS AGREEMENT is made as of the 25th day of February 2005, by and among
INTEROIL CORPORATION, a New Brunswick, Canada corporation ("INTEROIL"), and the
persons who have executed this Agreement and whose names are listed on Exhibit A
(individually an "INVESTOR" and collectively, "INVESTORS").
RECITALS
WHEREAS, InterOil, through its subsidiaries ("SUBSIDIARIES"), is
conducting an exploration drilling program in Papua New Guinea;
WHEREAS, Subsidiaries currently own PPLs numbers PPL 236, PPL 237 and PPL
238, and may acquire additional Licences in Papua New Guinea;
WHEREAS, InterOil is seeking investors to participate in funding an eight
(8) well exploration program on the Licences (as defined herein) to test
independent Zones, and, if the exploration program discovers oil or gas in
commercial quantities, to develop the Fields discovered;
WHEREAS, certain of the Investors previously entered into indirect
participation interest agreements ("PREVIOUS AGREEMENTS") related to the eight
(8) well exploration program on the Licences contemplated by this Agreement;
WHEREAS, InterOil and the Investors desire to enter into this Agreement to
amend and restate such Previous Agreements in their entirety.
NOW THIS AGREEMENT WITNESSES that the parties hereby covenant and agree as
follows:
ARTICLE I.
DEFINED TERMS
SECTION 1.1 DEFINITIONS. The following terms have the meanings ascribed to
them below, unless the context clearly requires otherwise:
"ABANDONMENT SECURITY" means an amount of funds retained from amounts
otherwise distributable to Investors, determined by InterOil in its reasonable
discretion in accordance with the Operator Standard, to be necessary to pay
costs to plug, abandon and restore the site of a well or xxxxx in compliance
with applicable governmental regulations.
"ACCOUNTING PROCEDURE" means the procedures attached as Exhibit B.
"AGREED INTEREST RATE" means interest compounded on a monthly basis at the
rate per annum equal to the one (1) month term, London Interbank Offer Rate
("LIBOR") for U.S. Dollar deposits, as published by The Wall Street Journal or,
if not published, then by the Financial
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Times of London, plus five percent (5%), applicable on the due date of payment
and thereafter on the first business day of each succeeding one (1) month term.
If the aforesaid rate is contrary to any applicable usury law, the rate of
interest to be charged is the maximum rate permitted by such applicable law.
"AFE" means an authorization for expenditure submitted by InterOil
pursuant to Section 5.2.
"AFFILIATE" means, in relation to a person, any person controlled by,
controlling or under common control with, such person.
"BARREL" means that quantity of petroleum, which will occupy a volume of
42 U.S. standard gallons measured at 60 degrees Fahrenheit (which volume shall
be deemed equivalent to 0.158987 cubic metres when measured at 15.55 degrees
Celsius).
"BLOCK" means a block constituted as provided by Section 17 of the Oil and
Gas Act.
"BOE" means a barrel of oil equivalent, converting natural gas to oil on
the basis of 6 Mcf of gas to 1 BOE. An Mcf of natural gas shall be 1,000 cubic
feet of natural gas measured by InterOil in accordance with the Operator
Standard using temperature, pressure and other factors generally acceptable in
the industry for the area of production.
"COMMON SHARES" means the common shares, no par value, of InterOil.
"COMPLETION" has the meaning set forth in Section 4.1.
"CONFIDENTIAL INFORMATION" has the meaning set forth in Section 10.1.
"CONVERSION RIGHT" means the unilateral right of an Investor to convert
its IPI Percentage interest into Common Shares as described in Section 6.1.
"CONVERSION RIGHT PERIOD" means the period commencing on the earlier of
(A) June 15, 2006 (which date shall not be subject to extension by reason of
Force Majeure) and (B) the date, if any, on which InterOil provides notice of a
proposed reduction in an IPI Percentage under Section 9.1, and ending on the
later of the following:
(a) December 15, 2006,
(b) ninety (90) days after the drilling to Total Depth, and, if
applicable, Completion of the eighth (8th) Exploration Well drilled
by InterOil or its Subsidiaries hereunder has been concluded.
"CORPORATIONS LAW" means the Business Corporations Act (New Brunswick) as
amended.
"DRILLING PROGRAM" means the drilling program prepared by InterOil for
each well hereunder at least in the level of detail as set out in section 104 of
the Regulation.
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"EXPLORATION WELL" means any one of the xxxxx designated by InterOil as
provided in Section 3.1.
"EXTENDED WELL TEST" means a Subsequent Work Program that consists
primarily of drilling and completing up to four appraisal xxxxx for the purpose
of determining whether an Exploration Well has discovered commercial Petroleum
deposits or for delineating the geographic extent or size of a Field or Zone
believed discovered by an Exploration Well.
"FIELD" means the minimum subsurface area required to contain the maximum
subsurface area of a Zone as reasonably determined by InterOil as the most
likely petroleum-water fluid contact or contacts on a structural map delineating
the single structural closure of each Zone. For the avoidance of doubt:
(a) where two or more Zones include a common Petroleum Pool these
structures comprise a single Field; and
(b) where two or more Zones are found adjacent to, above or below each
other, with separate interpreted structural, spill points, different
pressures or stratigraphic closures and which do not include a common
Petroleum Pool, such structures are separate Fields.
"GROSS NEGLIGENCE" means any act or failure to act (whether sole, joint or
concurrent) by a party which was intended to cause, or which was in reckless
disregard of or wanton indifference to, harmful and avoidable consequences such
party knew, or should have known, such act or failure to act would have had on
the safety or property of another person or entity.
"INTEROIL REFINERY" means the oil refinery at Napa Napa near Port Moresby
in Papua New Guinea owned by InterOil Limited.
"IPI PERCENTAGE" means, for each Investor, the percent interest set forth
on Exhibit A hereto, opposite such Investor's name under the column labelled IPI
Percentage. The total of all IPI Percentages shall equal the total set forth on
Exhibit A. Each Investor's IPI Percentage is subject to reduction as provided in
Article IX.
"JOINT ACCOUNT" one or more bank accounts established by InterOil or one
of its Affiliates to receive deposit of the Purchase Price and other amounts
attributable to operations under this Agreement and from which disbursements to
fund operations under this Agreement will be made in accordance with the
Accounting Procedure.
"JVOA" means a form of Joint Venture Operating Agreement agreed to by
InterOil and a Majority Interest of the Investors in such JVOA. Such JVOA shall
be substantially based on the 2002 AIPN Model Form International Operating
Agreement, with such provisions as shall be necessary to comply with applicable
law and the Regulations. Such JVOA shall provide that all decisions made with
respect to work programs and budgets will be made by holders of a majority of
the Participation Interests in such JVOA and for payment of the fees payable to
InterOil under Sections 5.4 and 5.5 of this Agreement. InterOil and the
Investors who will be a party to such JVOA will each negotiate reasonably and in
good faith regarding the terms of such JVOA.
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"LICENCE" means PPL 236, PPL 237 or PPL 238 in Papua New Guinea or any PDL
that may be issued or granted out of any such PPL, and includes any extension,
renewal or variation of such Licence.
"LICENCE AREAS" means the area covered by any or all of PPL 236, PPL 237
and PPL 238 in Papua New Guinea, and includes the area covered by any extension,
renewal or variation of such Licence.
"MAJORITY INTEREST" means the vote or consent of Investors whose IPI
Percentage represents a majority of the IPI Percentage.
"MATERIAL ADVERSE EFFECT" means any adverse effect on the business,
operations, properties, prospects or financial condition of InterOil and its
Subsidiaries and which is (either alone or together with all other adverse
effects) material to InterOil and its Subsidiaries taken as a whole, and any
material adverse effect on the transactions contemplated under this Agreement,
the Transaction Documents, or any other agreement or document contemplated
hereby or thereby.
"NON-CONSENT RISK PENALTY" means for any Subsequent Work Program an amount
to be deducted by InterOil from Quarterly Distributions otherwise payable to
Investor in accordance with Section 5.2(a)(ii), equal to:
(a) 800% of the total amount InterOil paid on behalf of Investor's IPI
Percentage of the costs of any Subsequent Work Program in which
Investor did not elect to participate; and
(b) interest on the unrecovered balance of such amount accruing daily at
the Agreed Interest Rate.
"OIL AND GAS ACT" means the Oil and Gas Xxx 0000 (No. 49 of 1998) of Papua
New Guinea, as amended from time to time.
"OPERATOR" means InterOil or its wholly owned subsidiary, designated by
InterOil to act as Operator under the terms of the JVOA.
"OPERATOR STANDARD" has the meaning set forth in Section 14.8.
"OPERATOR'S DIRECT CHARGES" has the meaning set forth in the Accounting
Procedure.
"OPERATOR'S INDIRECT CHARGES" has the meaning set forth in the Accounting
Procedure.
"PARTICIPATION AREA" has the meaning set forth in Section 4.3.
"PARTICIPATION INTEREST" means, with respect to a party to the JVOA, that
party's undivided interest, expressed as a percentage and determined in
accordance with the JVOA, in all rights, interests, benefits, obligations and
liabilities derived under and by virtue of the JVOA.
"PDL" means a Petroleum Development Licence granted under the Oil and Gas
Act.
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"PETROLEUM" means:
(a) any naturally occurring hydrocarbons, whether in a gaseous, liquid,
or solid state; or
(b) any naturally occurring mixture of hydrocarbons, whether in a
gaseous, liquid, or solid state; or
(c) any naturally occurring mixture of one or more hydrocarbons, whether
in a gaseous, liquid, or solid state and any other substance; or
(d) any fraction, mixture or product derived from sub-paragraphs (a),
(b) or (c) as a result of Production or processing; or
(e) any Petroleum as defined in sub-paragraphs (a), (b), (c) or (d)
which has been returned to a natural reservoir, but does not include
coal or any other substance which can only be recovered by
mechanical mining processes.
"PETROLEUM AGREEMENT" means an agreement entered into between the holders
of a PDL and the State to provide for the State's participation in the PDL.
"PETROLEUM POOL" means a naturally occurring discrete accumulation of
Petroleum.
"PPL" means a Petroleum Prospecting Licence granted under the Oil and Gas
Act.
"PPL 236" means Petroleum Prospecting Licence 236 granted under the Oil
and Gas Act.
"PPL 237" means Petroleum Prospecting Licence 237 granted under the Oil
and Gas Act.
"PPL 238" means Petroleum Prospecting Licence 238 granted under the Oil
and Gas Act.
"PURCHASE PRICE" has the meaning set forth in Section 2.2.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
among InterOil and the Investors in substantially the form attached hereto as
Exhibit C, providing for registration under the Securities Act of the resale of
Common Shares issuable on exercise of the Conversion Right.
"REGULATION" means the Oil and Gas Regulation 2002 (No. 10 of 2002) of
Papua New Guinea.
"SECURITIES ACT" means the United States Securities Act of 1933, as
amended from time to time, and the rules and regulations of the United States
Securities and Exchange Commission promulgated thereunder.
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"STATE" means the Independent State of Papua New Guinea, unless the
context otherwise requires.
"SUBSEQUENT WORK PROGRAM" has the meaning set forth in Section 5.1.
"TOTAL DEPTH" means the true vertical depth to which each Exploration Well
will be drilled, as determined pursuant to this Agreement.
"TRANSACTION DOCUMENTS" means this Agreement and the Registration Rights
Agreement.
"WILFUL MISCONDUCT" means, in relation to InterOil, an intentional and
conscious act or omission not justified by any special circumstances as amounts
to an utter disregard of any provision of this Agreement or the JVOA.
"ZONE" means a discrete stratigraphic interval within a geological
structure containing or thought to contain a Petroleum Pool, or other common
accumulation of Petroleum separately producible from any other common
accumulation of Petroleum. For the avoidance of doubt, where two or more porous
zones are found adjacent to each other, with separate interpreted structural,
spill points, different pressures or stratigraphic closures such zones are
separate Zones.
SECTION 1.2 CONSTRUCTION. The parties agree that:
(a) reference to a clause means a clause of this Agreement; and
(b) reference to legislation or any document includes any amendments or
replacements to the legislation or document.
ARTICLE II.
PURCHASE OF INDIRECT PARTICIPATION INTEREST
SECTION 2.1 PAYMENT BY INVESTOR. In consideration of InterOil entering
into this Agreement, Investor agrees to pay to InterOil the amount set forth
next to the Investor's name on Exhibit A under the column labelled Purchase
Price.
SECTION 2.2 TERMS OF PAYMENT. Each Investor agrees to wire transfer the
amounts set forth in Section 2.1 to InterOil's account one business day after
the date hereof ("PURCHASE PRICE"); provided, however, that the Investors
indicated on Exhibit A shall pay one half of their purchase price prior to the
execution of this Agreement and the balance on or before March 15, 2005. The
Purchase Price paid by Investors to InterOil hereunder shall be deposited in the
Joint Account and shall only be used in accordance with Section 14.5.
SECTION 2.3 PAYMENTS TO INVESTOR UPON STATE ELECTION. If the State or its
nominee elects under the Petroleum Agreement to participate in a PDL by taking a
Participation Interest of up to 22.5% (or any other State reversionary interest
entitlement whether resulting in State participation in excess of 22.5% or
otherwise), InterOil will pay to each Investor such Investor's IPI Percentage
multiplied by any amount paid by the State to InterOil in connection with such
6
participation. If the State so elects to participate, the Investors and InterOil
must contribute a portion of their Participation Interest, in proportion to
their respective Participation Interest, to the interest to be acquired by the
State or its nominee and must execute such documents as are necessary to effect
such transfer of interest. The Participation Interest of InterOil and each
Investor will be reduced proportionally.
SECTION 2.4 DISTRIBUTIONS.
(a) As soon as practical following the end of each fiscal quarter,
InterOil shall calculate for each Investor, the amount of such
Investor's Quarterly Distribution. Within 45 days following the end
of each of the first three fiscal quarters of each year, and within
90 days following the end of each fiscal year, subject to Section
5.2 regarding the payment to InterOil of the Non-Consent Risk
Penalty, InterOil shall pay, or cause Subsidiaries to pay, to each
Investor, the amount (if positive) of such Investor's Quarterly
Distribution by wire transfer to an account specified by Investor
(or if no account has been specified, by company check mailed to
Investor).
(b) As used herein, for each Investor, "QUARTERLY DISTRIBUTION" for any
fiscal quarter means the following amount multiplied by the
Investor's IPI Percentage:
(i) all cash representing the proceeds of the sale of Petroleum
during such Quarter produced from xxxxx in Fields (including,
without limitation, Exploration Xxxxx and any xxxxx that are
part of a Subsequent Work Program) in which Investor has not
forfeited its rights under Section 4.2; less the sum of the
following:
(A) Operator's Direct Charges allocable to operations in
such Fields;
(B) Operator's Indirect Charges allocable to operations in
such Fields;
(C) Any amounts, including principal, interest and fees to
repay loans solely pursuant to the provision therefore
in Section 5.3; and
(D) Royalties, taxes, imposts, levies and other amounts and
taxes, including income taxes, value added, goods and
services taxes or dividend withholding taxes paid or
payable with respect to such cash proceeds or production
during the quarter with respect to such Fields (provided
that any such amounts subsequently recovered by InterOil
shall be distributed to the appropriate Investors).
(c) Notwithstanding the provisions of paragraph (a) of this Section,
InterOil may retain from an Investor's Quarterly Distribution the
following amounts:
(i) Investor's IPI Percentage of Abandonment Security for
operations in Fields in which Investor has not forfeited its
interest under Section 4.2; and
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(ii) The incentive fee payable under Section 5.4 and the
infrastructure fee payable under Section 5.5.
Amounts withheld under paragraph (c)(i) shall be deposited by
InterOil in a segregated account and used only to fund Investor's
IPI Percentage share of abandonment costs or paid to Investor to the
extent InterOil reasonably determines such amounts are not necessary
to pay Investor's IPI Percentage of abandonment costs. InterOil
shall timely provide to Investors reasonably detailed backup
regarding the amount of such abandonment costs.
(d) Notwithstanding any other provision of this Agreement, InterOil and
Subsidiaries shall have the right to offset any amounts payable to
an Investor hereunder against amounts Investor owes to InterOil or
Subsidiaries under this Agreement.
ARTICLE III.
EXPLORATION PROGRAM
SECTION 3.1 EXPLORATION PROGRAM. The Exploration Program to be conducted
under this Agreement shall consist of six Exploration Xxxxx designated by
InterOil as provided in Section 3.2 (the "DESIGNATED EXPLORATION XXXXX") and two
Exploration Xxxxx determined by InterOil with the consent or participation of a
Majority Interest as provided in Section 3.3 (the "OPTIONAL EXPLORATION XXXXX").
SECTION 3.2 DESIGNATED EXPLORATION XXXXX. InterOil shall designate one (1)
Designated Exploration Well location in each of PPL 236 and PPL 237, and four
(4) Designated Exploration Well locations in PPL 238. Each Designated
Exploration Well location shall be selected by InterOil to test a separate Zone,
and shall be based on such topographical, geological, geophysical, engineering,
seismic and other data as InterOil reasonably determines in accordance with the
Operator Standard. InterOil shall select the Designated Exploration Xxxxx in a
manner to provide sufficient time to comply with the drilling schedule set forth
in Section 3.7.
SECTION 3.3 OPTIONAL EXPLORATION XXXXX. InterOil shall designate the
location and Total Depth of two Optional Exploration Well locations on licenses
owned by InterOil designed to test separate Zones. Upon selection of the
location and total depth of an Optional Exploration Well, InterOil will give
written notice to Investors ("LOCATION AND TOTAL DEPTH OF OPTIONAL EXPLORATION
WELL(S)") of its decision and proposing the location(s) and Total Depth(s) for
the Optional Exploration Well(s), together with a Drilling Program and all
relevant topographical, geological, geophysical, engineering, seismic and other
information that InterOil determines is reasonably necessary for making an
election for the proposed well(s). Within 15 days of giving such notice, an
Investor may give notice to InterOil and the other Investors ("ACCEPTANCE OF
LOCATION AND TOTAL DEPTH OF OPTIONAL EXPLORATION WELL(S)") whether it elects to
accept the location(s) and Total Depth(s) proposed by InterOil or to provide
notice of an alternate location(s) and/or Total Depth(s) (it being understood
that an Investor's selection of a Zone shall suffice as Investor's selection of
a location hereunder). Any alternate location and Total Depth proposed by an
Investor must be located on a license owned by InterOil in an area that InterOil
determines to be reasonably accessible by InterOil for the purpose of drilling
the Optional Exploration Well to the Total Depth proposed. Any proposed Total
Depth must be no deeper
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than is, in the judgment of InterOil, technically feasible given the drilling
conditions and equipment reasonably available to InterOil at the drilling
location and in no event deeper than 3,500 meters. If an Investor does not give
notice of an alternative location (which may be a Zone) within such 15 day
period, the Investors shall be deemed to have accepted the locations and Total
Depth of the Optional Exploration Xxxxx proposed by InterOil. If an alternate
location and/or Total Depth is proposed by an Investor, then InterOil shall
request that such Investor provide InterOil with notice of the location (which
may be a Zone) and Total Depth that such Investor desires to drill, which may be
the location and Total Depth selected by InterOil or one of the Investors. If a
location (which may be a Zone) and Total Depth is approved by the vote of a
Majority Interest, such location (which may be a Zone) and/or Total Depth shall
be the location and Total Depth of the Optional Exploration Well. If an
alternate location or Total Depth is not approved by such a Majority Interest,
then the Optional Exploration Well shall be drilled at the location and to the
Total Depth proposed by InterOil. If such location is not specific as to precise
latitude and longitude position, InterOil shall determine a precise latitude and
longitude position for the Exploration Well within such location.
SECTION 3.4 INTEROIL SERVICES. In accordance with the Operator Standard,
InterOil will or cause its Subsidiaries to use commercially reasonable efforts
to perform, or cause to be performed, all work necessary to cause the Designated
Exploration Xxxxx and Optional Exploration Xxxxx to be drilled to Total Depth.
Without limiting the foregoing, InterOil will:
(a) Acquire all permits, consents and other governmental approvals
necessary to drill such xxxxx to Total Depth, and otherwise exercise
commercially reasonable efforts in accordance with the Operator
Standard to comply with the applicable PPL and other governmental
laws and regulations, including without limitation, the Oil and Gas
Act and the Regulation;
(b) Construct access roads, clear and prepare the drill site;
(c) Arrange for a drilling rig reasonably capable of drilling the
Exploration Well to the proposed Total Depth;
(d) Spud and drill to Total Depth the Exploration Well;
(e) Provide all materials, services and labor reasonably necessary for
drilling the Exploration Well to Total Depth in a good and
workmanlike manner in accordance with customary oilfield practice
and the Operator Standard;
(f) Make reasonable tests of formations encountered during drilling
which give indication of containing oil and gas in quantities
sufficient, in the opinion of InterOil, to test;
(g) If the well is unsuccessful, plug and abandon the well location, and
restore the surrounding area as required by the applicable Licence
and governmental regulations;
(h) Retain and pay for such supervisory and technical employees having
engineering, geological or other professional skills necessary for
operations hereunder;
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(i) Receive, approve and timely pay, before they are delinquent,
invoices for materials, services and labor provided hereunder;
(j) Pay or cause to be paid all taxes imposed on or with respect to
production or handling of each party's share of Petroleum produced
under the terms of this Agreement;
(k) Handle, settle or otherwise discharge at the joint expense of the
parties hereto any claim or suit arising out of operations
hereunder; and
(l) Prepare and file on behalf of the parties hereunder such operational
notices, reports, applications or certifications as may be required
by any governmental or quasi-governmental body having jurisdiction
of the Licence Areas.
SECTION 3.5 SUBSTITUTE XXXXX. If a Designated Exploration Well cannot
successfully be drilled to Total Depth, because of mechanical difficulties or
because of encountering a formation or anomalous condition which is customarily
considered in the industry to be impenetrable or which would make further
drilling impracticable, or for any other cause reasonably beyond the control of
InterOil, then InterOil shall, at its option, either (i) drill a substitute well
at a location in the immediate vicinity of the location and to the Total Depth
established for the Designated Exploration Well whose drilling was abandoned, or
(ii) shall designate as a substitute well one of the other Designated
Exploration Well(s) or Optional Exploration Well(s) and such substitute well
shall be a Designated Exploration Well, as provided herein. If InterOil elects
to designate as a substitute well one of the other Designated Exploration
Well(s) or Optional Exploration Well(s), then InterOil shall designate an
additional Designated Exploration Well or Optional Exploration Well, as
appropriate, in accordance with the provisions of Section 3.2 or Section 3.3,
respectively.
SECTION 3.6 INTEROIL TO PAY COSTS. InterOil will be responsible for, and
shall pay promptly when due, all costs incurred to drill each of the Designated
Exploration Xxxxx and Optional Exploration Xxxxx to Total Depth, including,
without limitation, any costs incurred for materials, services and labor in
connection the drilling of each such well. For further clarification, InterOil
shall not charge to the Investors any Operator Direct Charges or Operator
Indirect Charges attributable to any operations with respect to the drilling of
the Exploration Xxxxx.
SECTION 3.7 TIMING; DRILLING TO TOTAL DEPTH. InterOil may drill the
Designated Exploration Xxxxx in any order according to a schedule of its
choosing subject, however, to the following. In accordance with the Operator
Standard, InterOil will use commercially reasonable efforts to cause all
Exploration Xxxxx to be drilled with reasonable diligence and in a good and
xxxxxxx-like manner, each to its designated Total Depth on or before September
30, 2006.
SECTION 3.8 REPORTS. Pursuant to the written request of an Investor,
InterOil will provide monthly drilling reports to such Investor in respect of
all xxxxx in which such Investor has not forfeited its interest, and all such
well information will be available at InterOil's office in Cairns, Queensland
upon reasonable request for review by or on behalf of such Investor. InterOil
agrees
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to use commercially reasonable efforts in accordance with the Operator Standard
to make as much relevant well information as possible available in electronic
media accessible by Investor.
SECTION 3.9 DISCLOSURE.
(a) Within two business days of the date of this Agreement, InterOil
shall make "public disclosure" (as defined in Regulation FD under
the U.S. Securities Exchange Act of 1934) of this Agreement.
(b) If InterOil or any of its Affiliates provides material information
to an Investor that such Investor did not request, InterOil shall,
within 10 business days following a subsequent written request from
such Investor, make "public disclosure" (as defined in Regulation FD
under the U.S. Securities Exchange Act of 1934) of such material
information.
(c) If InterOil or any of its Affiliates provides material information
to an Investor that is material to any election to be made under
this Agreement (including an election pursuant to Section 4.2 or
Section 5.2), InterOil shall (whether or not the providing of such
information was requested by such Investor) within 10 business days
following a subsequent written request from such Investor, make
"public disclosure" (as defined in Regulation FD under the U.S.
Securities Exchange Act of 1934) of such material information.
(d) Within two business days of a written request of an Investor,
InterOil shall confirm to such Investor whether or not all material
information furnished to it by InterOil has been publicly disclosed
(as defined in Regulation FD under the U.S. Securities Exchange Act
of 1934).
ARTICLE IV.
DISCOVERIES
SECTION 4.1 ACTIVITIES AFTER TOTAL DEPTH. If, upon reaching Total Depth in
any Exploration Well, InterOil, in its discretion, decides to continue
operations on such a well, it will design a work program which may include
logging or other evaluation or analysis, setting casing or running tubing,
perforating and testing the well ("COMPLETION") and/or a Subsequent Work Program
as described in Section 5.1.
SECTION 4.2 COMPLETION ELECTIONS. If InterOil proposes the Completion of
an Exploration Well, the following will occur:
(a) InterOil shall give each Investor written notice of the intent to
proceed with Completion, together with technical, geological and
other logging data and a proposal for such Completion, including
cost estimates, that can reasonably be supplied which is relevant to
Investor making its decision in Section 4.2(b). Such notice shall
prominently state that a response is due from the Investor within 48
hours of receipt of the notice. InterOil shall confirm each
Investor's receipt of such notice by return fax or by return e-mail.
11
(b) Within 48 hours of any confirmation of receipt of notice from
InterOil pursuant to Section 4.2(a), Investor must give written
notice to InterOil that either:
(i) Investor agrees to pay its IPI Percentage of the costs
incurred with respect to the aforementioned Completion; or
(ii) that Investor will not to pay its IPI Percentage of the costs
of the aforementioned Completion, and forfeit (A) Investor's
rights to that well and the development of any Field
discovered from such well and (B) Investor's rights to convert
its IPI Percentage into Common Shares as contemplated by
Section 6.1.
If Investor fails to timely respond to InterOil's notice as provided
above, then the Investor shall be deemed to have elected pursuant to
Section 4.2(b)(ii).
(c) If an Investor agrees to pay its IPI Percentage of costs incurred
with respect to Completion, Investor must make its payment to
InterOil of such costs of Completion not later than 30 days after
such election. If Investor fails to pay such Completion costs within
the 30-day period as provided for in the preceding sentence,
InterOil may give written notice to Investor of such failure to pay,
and if Investor fails to pay such amounts owing within five (5) days
after actual receipt and confirmation of such notice by InterOil,
(i) Investor shall be deemed to have elected pursuant to Section
4.2(b)(ii) and will forfeit its right in such well and any Field
discovered by such well and (ii) Investor shall
forfeit any right to convert its IPI Percentage into Common Shares
under Section 6.1.
(d) For greater clarity, the non-consent provisions of Section 5.2 shall
not apply to Completion operations under Section 4.2.
SECTION 4.3 PDL. If InterOil determines that the requirements for the
issuance of a PDL covering a Field into which an Exploration Well was drilled
have been met, InterOil will request the declaration of a location under the Oil
and Gas Act, which will include Blocks or portions of Blocks sufficient, in
InterOil's judgment, to cover fully the Field(s) to the extent that such Blocks
are in the Licence Areas (a "PARTICIPATION AREA").
SECTION 4.4 PARTICIPATION IN PDL. An Investor may elect to have its IPI
Percentage under this Agreement in respect of the relevant Participation Area
become a Participation Interest under the relevant JVOA and a registered legal
interest in the relevant PDL with a Participation Interest equal to its IPI
Percentage in the Participation Area, subject to InterOil's consent not to be
unreasonably withheld, and Investor's rights under the JVOA and in the relevant
PDL shall be parri passu with all other Participation Interest holders,
including but not limited to, participation in the relevant Participation Area.
If Investor elects to make such an election, InterOil shall directly assign to
such Investor such Participation Interest in the PDL, subject to all necessary
State consent, and shall take all such further reasonable action necessary in
connection therewith.
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ARTICLE V.
SUBSEQUENT OPERATIONS; NON-CONSENT; FEES
SECTION 5.1 SUBSEQUENT WORK PROGRAMS. If, upon reaching Total Depth in any
Exploration Well, InterOil, in its discretion, decides to continue operations on
such a well, regardless of whether InterOil pursues Completion of such well,
then it will design a work program which may include an Extended Well Test,
appraisal drilling, other operations and full field development and production
operations ("SUBSEQUENT WORK PROGRAM"). The drilling of a well after the first
Exploration Well on a structure or in a prospective Field in an area subject to
this Agreement, which is designed to test the same target formations as the
first Exploration Well for that Field, is deemed to be part of a Subsequent Work
Program.
SECTION 5.2 NON-CONSENT OPERATIONS. Before an Investor can be billed for
any commitment or any expenditure incurred by InterOil for a Subsequent Work
Program, the following must occur:
(a) InterOil must submit an AFE for that Subsequent Work Program to
Investor for its consideration. If the Subsequent Work Program
described in the AFE is an Extended Well Test, Investor must, within
15 days after receipt of the AFE, or (ii) if the Subsequent Work
Program described in the AFE is not an Extended Well Test, the
Investor must, within 60 days after receipt of that AFE, which
receipt shall be confirmed by each Investor by return fax or by
return e-mail, give written notice to InterOil that either:
(i) Investor agrees to pay its IPI Percentage of the costs
incurred or to be incurred with respect to a proposed
Subsequent Work Program proposed by InterOil; or
(ii) that Investor intends not to pay its IPI Percentage of such
costs of the aforementioned Subsequent Work Program and to
relinquish its IPI Percentage of the revenues attributable to
the xxxxx affected by the Subsequent Work Program until
InterOil has recovered the Non-Consent Risk Penalty from
Quarterly Distributions that would otherwise have been payable
to such Investor from the revenues attributable to the xxxxx
affected by the Subsequent Work Program had Investor elected
to pay its IPI Percentage share of the costs associated with
such Subsequent Work Program.
If Investor fails to timely respond to InterOil's AFE as provided
above, then the Investor shall be deemed to have elected pursuant to
Section 5.2(a)(ii).
(b) If an Investor agrees to pay its IPI Percentage cost of a Subsequent
Work Program pursuant to Investor's election under Section
5.2(a)(i), such Investor must make its payment to InterOil of all of
the costs of such Subsequent Work Program not
later than 30 days after such election. If Investor fails to pay
such costs within the 30-day period as provided for in the preceding
sentence, InterOil may give written notice to Investor of such
failure to pay, and if Investor fails to pay such amounts owing
within five (5) days after receipt and confirmation of such notice
by InterOil, Investor shall be deemed to have elected pursuant to
Section 5.2(a)(ii) to incur the
13
Non-Consent Risk Penalty and shall forfeit its right to convert its
IPI Percentage into Common Shares under Section 6.1.
SECTION 5.3 DEBT FINANCING. In connection with production and development
activities with respect to any Fields located in a Participation Area, InterOil
or one of its Affiliates may elect to borrow funds on terms it deems in good
faith to be commercially reasonable to pay the costs of such operations. If
InterOil or one of its Affiliates borrows funds as provided for in this Section
5.3, InterOil shall offer the same loan terms to the Investors. InterOil shall
provide Investors the proposed loan documentation prior to requesting Investor
to accept or decline the terms of the loan. If an Investor accepts the terms of
any such loan, InterOil may deduct from each Investor's Quarterly Distribution
under Section 2.4 such Investor's allocable share to repay such borrowings,
including fees, principal and interest. InterOil or its Affiliate may mortgage,
pledge or otherwise hypothecate its interest in the applicable Licence or any
rights thereunder, to secure such borrowings to the extent reasonable and
customary. All funds from such borrowings shall only be used for production,
development or other operations on or in connection with Fields located in a
Participation Area. Whether or not an Investor participates in such borrowings,
InterOil shall cause the documentation for such loan to permit the Quarterly
Distributions to such Investor contemplated by this Agreement; provided,
however, that amounts to repay an Investor its share of such borrowings may be
deducted from such Investor's Quarterly Distributions.
SECTION 5.4 INCENTIVE DISCOVERY FEE.
(a) Each Investor's "SHARE OF PRODUCTION" shall mean, at any time, the
sum of (i) the aggregate production attributable to Investor's
direct interest in any Field assigned to Investor under Section 4.4
plus (ii) the aggregate production allocable to Investor's IPI
Percentage in any Field owned by InterOil in which Investor has an
indirect interest under this Agreement. Investor's Share of
Production will include production attributable to an Investor's
direct or indirect interest in a Field in which Investor has
exercised non-consent rights under this Agreement or an applicable
JVOA as if such non-consent rights had not been exercised. Investor
shall pay to InterOil an incentive discovery fee of US $0.20 per BOE
of Investor's Share of Production produced and sold in excess of the
product of (i) 50 million BOE multiplied by (ii) Investor's IPI
Percentage. Such fee shall be payable at the end of each calendar
quarter. Such fee may be deducted by InterOil from Quarterly
Distributions payable under Section 2.4 and any JVOA entered into
under Section 4.4 shall provide for the deduction of such fee.
(b) If an Investor proposes to sell a direct interest under a JVOA or an
indirect interest represented by Investor's IPI Percentage,
including sales subject to Article VIII and Article IX of this
Agreement, InterOil shall cause an internationally recognized
independent petroleum engineering firm to prepare an estimate of the
proved and probable oil and gas reserves attributable to the direct
interests and indirect interests owned by such Investor. Such
reserve report shall be prepared as of a date selected by InterOil
that is reasonably close to the anticipated date of sale. Such
reserve report shall be prepared using definitions of proved and
probable reserves
14
promulgated by Canadian regulatory authorities, and otherwise in
accordance with generally accepted reserve engineering practices.
Assuming that future production occurs as forecast in the reserve
report, at the Closing of such sale Investor shall pay InterOil a
fee equal to US $0.20 multiplied by the number of BOE estimated in
the reserve report as being subject to the sale and which would, in
the future, be subject to the fee provided in Section 5.4(a). No
further fee shall be payable under Section 5.4(a) by Investor or any
transferee of Investor on production attributable to the interest
purchased by transferee.
SECTION 5.5 INFRASTRUCTURE FEE. InterOil shall deduct from each Investor's
Quarterly Distribution an infrastructure fee of US $0.45 per barrel of oil and
US $0.08 per Mcf of gas produced and sold from any Field hereunder and
attributable in whole but not in part to such Investor's IPI Percentage in such
Field.
ARTICLE VI.
STOCK ISSUANCE
SECTION 6.1 CONVERSION RIGHT. InterOil hereby grants to each Investor the
right to convert, at any time or from time to time during the Conversion Right
Period, all or any portion of such Investor's IPI Percentage interest into fully
paid and non-assessable Common Shares. For purposes of this Section 6.1, if an
Investor's IPI Percentage has been reduced in a Subject Field under Article IX,
then the Investor's IPI Percentage for purposes of this Section 6.1, shall be
the smallest IPI Percentage in any Subject Field less any IPI Percentage
previously converted. The number of Common Shares issuable on any exercise of
the Investor's Conversion Right will equal the quotient of (x) the product of
(A) the IPI Percentage being converted and (B) US $500,000,000 and (y)
U.S.$37.50. Immediately following any such conversion, the Investor's IPI
Percentage interest will be reduced to reflect such conversion and any other
prior conversions by the Investor. Notwithstanding the foregoing, an Investor
may not exercise the conversion right granted in this Section 6.1 if the
Investor has forfeited its right as provided in Sections 4.2(b)(ii)(B),
4.2(c)(ii) and 5.2(b). InterOil will use its commercially reasonable best
efforts to issue the Common Shares to the Investor within five (5) days of
receipt of notice from the Investor that the Investor is exercising its
Conversion Right.
SECTION 6.2 RESTRICTIVE LEGEND.
(a) Common Shares issued to Investor under Section 6.1 will bear the
following legend:
THESE COMMON SHARES HAVE NOT BEEN REGISTERED WITH THE U.S.
SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR (ii) IF AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT IS AVAILABLE.
(b) InterOil may require, as a condition of allowing any transfer of the
Common Shares (i) that the holder or transferee of the Common
Shares, as the case may be,
15
furnish to InterOil a written opinion of counsel (which opinion
shall be in form, substance and scope reasonably satisfactory to
InterOil) to the effect that such transfer may be made without
registration under the Securities Act and under applicable state
securities or blue sky laws and without the necessity to prepare a
prospectus under provincial securities law in Canada, (ii) that the
holder or transferee execute and deliver to InterOil an investment
letter in form and substance reasonably acceptable to InterOil and
(iii) that the transferee be an "accredited investor" as defined in
Rule 501(a) under the Securities Act or a "qualified institutional
buyer" as defined in Rule 144A(a) under the Securities Act.
SECTION 6.3 NO RIGHTS AS SHAREHOLDER UNTIL ISSUANCE. This Agreement does
not entitle the Investor to any voting rights or, except as provided in this
Agreement, other rights as a shareholder of InterOil prior to the issuance of
the Common Shares as provided in Section 6.1, including the right to participate
in new issuances of shares in InterOil. Upon the issuance of the Common Shares,
if any, under Section 6.1, the Common Shares so issued shall be and be deemed to
be issued to such Investor as the record owner of such shares as of the close of
business on the date of such issuance.
SECTION 6.4 CERTAIN ADJUSTMENTS. The number and kind of securities
issuable pursuant to Section 6.1 on exercise of the Conversion Right shall be
subject to adjustment from time to time upon the happening of any of the
following. In case InterOil shall (i) pay a dividend in Common Shares or make a
distribution in Common Shares to holders of its outstanding Common Shares, (ii)
subdivide its outstanding Common Shares into a greater number of shares, (iii)
combine its outstanding Common Shares into a smaller number of Common Shares, or
(iv) issue any shares of its capital stock in a reclassification of the Common
Shares, then the number of Common Shares issuable pursuant to Section 6.1 shall
be adjusted so that Investor shall be entitled to receive the kind and number of
Common Shares and other securities of InterOil which it would have owned or have
been entitled to receive had Common Shares been issued to the Investor under
Section 6.1 on full exercise of its Conversion Right immediately prior to the
occurrence of an event specified in this sentence. Upon each such adjustment of
the kind and number of Common Shares and other securities of InterOil which are
issuable on exercise of the Conversion Right, the Investor shall thereafter be
entitled, on exercise of the Conversion Right, to receive the number of Common
Shares and other securities resulting from such adjustment. An adjustment made
pursuant to this Section shall become effective immediately after the effective
date of such event retroactive to the record date, if any, for such event.
SECTION 6.5 REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS. If InterOil shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another corporation or entity
(where InterOil is not the surviving corporation or where there is a change in
or distribution with respect to the Common Shares of InterOil) or sell, transfer
or otherwise dispose of all or substantially all its property, assets or
business to another corporation or other entity (such successor or acquiring
corporation or entity, an "ACQUIRING ENTITY"), and, pursuant to the terms of
such reorganization, reclassification, merger, consolidation or disposition of
assets, common shares of the Acquiring Entity, or any cash, shares of stock or
other securities or property of any nature whatsoever (including warrants or
other subscription or purchase rights) in addition to or in lieu of common
shares of the Acquiring
16
Entity ("OTHER PROPERTY"), are to be received by or distributed to the holders
of Common Shares of InterOil, then the Investor shall have the right thereafter
to receive in lieu of the Common Shares described in Section 6.1, the number of
common shares of the Acquiring Entity or Common Shares of InterOil, if it is the
surviving corporation, and Other Property receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of assets
by a holder of the number of Common Shares that Investor would have owned or
been entitled to receive had Common Shares been issued to Investor under Section
6.1 on full exercise of its Conversion Right were satisfied immediately prior to
such event. In case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the Acquiring Entity (if other than
InterOil) shall expressly assume all the obligations and liabilities of InterOil
hereunder, subject to such modifications as may be deemed appropriate (as
determined in good faith by resolution of the board of directors of InterOil) in
order to provide for adjustments of Common Shares issuable under Section 6.1
which shall be as nearly equivalent as practicable to the adjustments provided
for in this Section 6.5. For purposes of this Section 6.5, "common shares of the
Acquiring Entity" shall include shares or other ownership interests of such
Acquiring Entity of any class which is not preferred as to dividends or assets
over any other class of stock or other ownership interests of such Acquiring
Entity and which is not subject to redemption and shall also include any
evidences of indebtedness, shares or other securities which are convertible into
or exchangeable for any such shares or other ownership interests, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock or other ownership interests. The foregoing provisions of this
Section 6.5 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations, spin-offs, or dispositions of
assets.
SECTION 6.6 OTHER DISTRIBUTIONS. If at any time after the date hereof
InterOil distributes to holders of its Common Shares, other than as part of its
dissolution, liquidation or the winding up of its affairs, any shares of its
capital stock, (other than Common Shares), any evidence of indebtedness or any
of its assets not covered by Section 6.5 then, as part of such distribution,
InterOil shall make lawful provision so that there shall thereafter be
deliverable under Section 6.1, in addition to the number of Common Shares
issuable on full exercise of the Conversion Right under Section 6.1, the amount
of the dividend or other distribution to which the Investor would have been
entitled to receive had the exercise occurred as of the record date for such
dividend or distribution.
SECTION 6.7 REPRESENTATIONS AND WARRANTIES OF INVESTORS. Each Investor
severally, but not jointly, represents and warrants to InterOil as follows:
(a) It is acquiring its interest under this Agreement represented by its
IPI Percentage and any Common Shares issuable under this Agreement
for its own account for investment and not with a view towards the
resale, transfer or distribution thereof, nor with any present
intention of distributing the interest represented by the IPI
Percentage or the Common Shares. Investor understands that the
Common Shares are "restricted securities" as defined in Rule 144
under the Securities Act.
(b) It has full power and legal right to execute and deliver this
Agreement and all other documents contemplated by this Agreement and
to perform its obligations hereunder and thereunder.
17
(c) If such Investor is a limited partnership, limited liability company
or corporation, it is a validly existing limited partnership,
limited liability company or corporation, as the case may be, duly
formed, organized or incorporated under the laws of its jurisdiction
of formation, organization or incorporation.
(d) It has taken all action necessary for the authorization, execution,
delivery, and performance of this Agreement and all other documents
contemplated by this Agreement, and its obligations hereunder and
thereunder, and, upon execution and delivery by the InterOil, this
Agreement and the other documents shall constitute the valid and
binding obligation of such Investor, enforceable against such
Investor in accordance with its terms, except that such enforcement
may be limited by bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium, liquidation or other similar law now or
hereafter in effect relating to creditors' rights and general
principles of equity.
(e) It has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of its
investment represented by the IPI Percentage and in the Common
Shares as contemplated by this Agreement, and is able to bear the
economic risk of such investment for an indefinite period of time.
It has been furnished access to such information and documents as it
has requested and has been afforded an opportunity to ask questions
of and receive answers from representatives of InterOil concerning
the terms and conditions of this Agreement and the Common Shares.
(f) It is an "accredited investor" as defined in Rule 501(a) promulgated
under the Securities Act and has such knowledge and experience in
financial and business matters that it is fully capable of
evaluating the risks and merits of its investment under this
Agreement and in the Common Shares.
SECTION 6.8 REGISTRATION RIGHTS AGREEMENT. To cover resales of Common
Shares issuable on exercise of the Conversion Right, the parties agree to enter
into the Registration Rights Agreement on the date of this Agreement.
ARTICLE VII.
REPRESENTATIONS AND WARRANTIES OF INTEROIL
SECTION 7.1 REPRESENTATIONS AND WARRANTIES. InterOil hereby makes the
following representations and warranties to the Investors as follows:
(a) InterOil is a corporation duly incorporated and existing in good
standing under the laws of the Province of New Brunswick and has the
requisite corporate power to own its properties and to carry on its
business as now being conducted. Each of InterOil and its
Subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary other than those in which the failure so to
qualify would not have a Material Adverse Effect.
18
(b) (i) InterOil has all requisite corporate power and authority to
enter into and perform the Transaction Documents and to issue the
interest represented by the IPI Percentages in accordance with the
terms hereof, (ii) the execution and delivery of the Transaction
Documents by InterOil and the consummation by it of the transactions
contemplated thereby, including the issuance of the interest
represented by the IPI Percentages, have been duly authorized by all
necessary corporate action, and no further consent or authorization
of InterOil or its Board of Directors (or any committee or
subcommittee thereof) or stockholders, other than stockholder
consent that has been obtained or effected on or prior to the date
hereof, is required, (iii) when delivered, the Transaction Documents
will have been duly executed and delivered by InterOil, (iv) when
delivered, the Transaction Documents will constitute valid and
binding obligations of InterOil enforceable against InterOil in
accordance with their terms, except (A) as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting
generally the enforcement of creditors' rights and remedies, the
discretion that a court may exercise in the granting of equitable
remedies or by other equitable principles of general application,
and (B) to the extent the indemnification provisions contained in
this Agreement and the Registration Rights Agreement may be limited
by applicable law and (v) the interest represented by the IPI
Percentages and the Common Shares issuable upon the conversion
and/or exercise thereof have been duly authorized and, upon issuance
thereof and payment therefor in accordance with the terms of this
Agreement, the interest represented by the IPI Percentages will be
validly issued, free and clear of any and all liens, claims and
encumbrances, except for restrictions on transfer imposed by
applicable securities laws and referenced in Section 6.2.
(c) The authorized capital stock of InterOil consists of an unlimited
number of Common Shares, of which as of the date hereof prior to
giving effect to this transaction, 28,418,009 shares are issued and
outstanding and 2,577,985 shares are issuable and reserved for
issuance pursuant to InterOil's stock option plans or securities
exercisable or exchangeable for, or convertible into, Common Shares.
All of such outstanding shares have been, or upon issuance will be,
validly issued, fully paid and nonassessable. As of the date hereof,
except as disclosed in Section 7.1(c), (i) no shares of InterOil's
capital stock are subject to pre-emptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by
InterOil, (ii) there are no outstanding debt securities, (iii) there
are no outstanding options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock
of InterOil or any of its Subsidiaries, or contracts, commitments,
understandings or arrangements by which InterOil or any of its
Subsidiaries is or may become bound to issue additional shares of
capital stock of InterOil or any of its subsidiaries or options,
warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of InterOil or any of
its Subsidiaries, (iv) there are no agreements or arrangements under
which InterOil or any of its Subsidiaries is obligated to register
or qualify the sale of any of their securities the
19
applicable securities laws and regulations of any jurisdiction
("SECURITIES LAWS") other than pursuant to the Registration Rights
Agreement, (v) there are no outstanding securities of InterOil or
any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings
or arrangements by which InterOil or any of its Subsidiaries is or
may become bound to redeem a security of InterOil or any of its
Subsidiaries, (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the
issuance, exercise or conversion of the IPI Percentages or the
Warrants as described in this Agreement and (vii) InterOil does not
have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement.
(d) Upon issuance in accordance with this Agreement, the Common Shares
will be validly issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof.
(e) Except as disclosed in Section 7.1(e), the execution, delivery and
performance of the Transaction Documents by InterOil and the
consummation by InterOil of the transactions contemplated hereby and
thereby and issuance of the interest represented by the IPI
Percentages and the Common Shares will not (i) result in a violation
of InterOil's Articles of Amalgamation or the By-laws; (ii) conflict
with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument to
which InterOil or any of its Subsidiaries is a party, or (iii)
result in a violation of any material law, rule, regulation, order,
judgment or decree (including United States federal and state
securities laws and regulations and the rules and regulations of the
American Stock Exchange, Canadian and provincial securities laws and
regulations and the rules and regulations of the Toronto Stock
Exchange or other securities exchange or trading market on which the
Common Shares are traded or listed) applicable to InterOil or any of
its Subsidiaries or by which any property or asset of InterOil or
any of its Subsidiaries is bound or affected. Except as disclosed in
Section 7.1(e), neither InterOil nor its Subsidiaries is in
violation of any term of, or in default under, (x) its articles of
incorporation, any certificate of designations, preferences and
rights of any outstanding series of preferred stock or by-laws or
their organizational charter or by-laws, respectively, (y) any
material contract, agreement, mortgage, indebtedness, indenture,
instrument, or (z)(i) any judgment, decree or order or (ii) any
statute, rule or regulation applicable to InterOil or its
Subsidiaries, the non-compliance with which, would be material to
InterOil or its Subsidiaries or interfere with the performance of
its obligations under the Transaction Documents. Except as set forth
on Section 7.1(e) or as specifically contemplated by this Agreement
and as required under Securities Laws and the rules of the Toronto
Stock Exchange and the American Stock Exchange, InterOil is not
required to obtain any consent, authorization or order of, or make
any filing or registration with, any court, governmental agency or
any regulatory or self-regulatory agency in order for it to execute,
deliver or perform any of its obligations under, or contemplated by,
the Transaction Documents or the issuance of the interest
represented by the IPI Percentages and the Common Shares, in
20
accordance with the terms hereof or thereof. Except as disclosed in
Section 7.1(e), all consents, authorizations, orders, filings and
registrations which InterOil is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the
date hereof.
(f) Each of SPI (210) Limited, SPI (220) Limited and SPI (208) Limited
are indirect, wholly-owned subsidiaries of InterOil. Each Licence (a
true and complete copy of which has been provided to the Investors
who requested a copy thereof) is in full force and effect and is in
good standing, and each of SPI (210) Limited, SPI (220) Limited and
SPI (208) Limited is the holder of a one hundred percent (100%)
legal and beneficial interest in PPL 236, PPL 237 and PPL 238,
respectively, free and clear of all mortgages, charges, pledges,
liens, options, pre-emptive rights and other claims or encumbrances
other than royalties or other entitlements of the State pursuant to
the laws and regulations of Papua New Guinea. The execution and
delivery of this Agreement is not in violation of or otherwise
conflict with or cause a default under any provision of a Licence.
ARTICLE VIII.
ASSIGNMENT
SECTION 8.1 GENERALLY. Subject to applicable securities laws, a party to
this Agreement may assign or transfer or purport to assign or transfer any of
its interests, rights and obligations in and under this Agreement to a person or
entity without the prior written consent of any other party to this Agreement,
provided that (a) without the prior consent of InterOil, not to be unreasonably
withheld, such assignment unless made to an Affiliate shall not relieve Investor
of its obligation to make the payments called for under this Agreement, and (b)
if as a result of any proposed direct or indirect assignment or transfer by
InterOil of its interest herein, InterOil would no longer be Operator of the
Licences, then no such proposed assignment or transfer shall be effective
without the prior written consent of a Majority Interest of the Investors, not
to be unreasonably withheld.
SECTION 8.2 BINDING EFFECT. An assignment or transfer pursuant to the
provisions of Section 8.1 shall not be effective until the assignee or
transferee executes a counterpart of this Agreement and is bound by the
provisions of this Agreement. InterOil shall timely provide notice to Investors
of any and all transfers of its interest hereunder.
SECTION 8.3 ABILITY TO ENCUMBER. Nothing contained in this Article VIII
shall be deemed or construed so as to:
(a) prevent InterOil from freely mortgaging or encumbering its share of
production and transferring or assigning to such mortgagee or lender
the rights to the proceeds of sale of any Petroleum sold hereunder
on behalf of InterOil as security for such debt. The provisions of
this Article VIII shall not apply to the granting of any such
security interest; or
(b) prevent Investor from freely mortgaging or encumbering its rights,
subject to its obligations, under this Agreement and assigning to
such mortgagee or lender the
21
rights to the distributions as defined in this Agreement as security
for such debt, subject to Article VIV.
SECTION 8.4 TAG-ALONG RIGHT. If InterOil assigns or transfers any of its
interests or rights under this Agreement or its Participation Interest, whereby
InterOil holds less than a 50% Participation Interest after completion of such
transaction, Investor may with 15 days notice to InterOil, elect to participate
on the same terms in such transaction by assigning, for the same pro-rata value
to its account, the same proportion of its IPI Percentage to the same assignee
or transferee. In no event will InterOil own less than 50% of any PPL in a
Subject Field.
ARTICLE IX.
CALL OPTION
SECTION 9.1 REDUCTION OF IPI PERCENTAGE. InterOil may reduce the IPI
Percentage of an Investor in one or more Fields, or on a portion of a Field, as
follows:
(a) In connection with a sale to a purchaser not affiliated with
InterOil ("PURCHASER") of a direct or indirect interest in a PPL or
PDL covering a Field into which an Exploration Well or another well
has been drilled under this Agreement ("SUBJECT FIELD"), InterOil
may elect to reduce pro rata the IPI Percentage in the Subject Field
of each Investor ("SUBJECT FIELD INVESTOR") which has not forfeited
its interest in the Subject Field in an amount up to 50% of the
direct or indirect interest being acquired by Purchaser from
InterOil, subject to subsection (e) and Section 9.2 hereof. For
example, if InterOil proposed to sell a direct or indirect 10%
interest in a Subject Field, InterOil could reduce the IPI
Percentage in the relevant Subject Field of the Subject Field
Investors by up to 5% (e.g., from 15.0% to 10.0%).
(b) If InterOil proposes to sell a direct or indirect interest to a
Purchaser in any PPL or PDL covering a Subject Field and InterOil
proposes to reduce the IPI Percentages of the Subject Field
Investors with respect to the Subject Field, InterOil shall notify
Subject Field Investors of the proposed sale by InterOil at least 15
days prior to the anticipated closing date of such sale. Such notice
shall include the anticipated amount to be paid to such Subject
Field Investor, the anticipated amount of the reduction in the IPI
Percentage as a result of the sale and the anticipated closing date
of the sale. InterOil shall provide each Subject Field Investor such
information about the terms of the proposed sale as such Investor
may reasonably request and which is in InterOil's possession and not
subject to a confidentiality agreement.
(c) On the closing date of the sale of InterOil's direct or indirect
interest to a Purchaser in the PPL or PDL in the Subject Field, or
as soon thereafter as practicable, InterOil shall pay each Subject
Interest Investor an amount equal to the consideration received by
InterOil from the Purchaser multiplied by a fraction the numerator
of which is the reduction in such Investors IPI Percentage and the
denominator of which is the total interest acquired by Purchaser and
such Investor's IPI Percentage in the Subject Field shall be reduced
as provided in the notice.
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(d) Without the prior written consent of the Subject Field Investors
which own a majority of the IPI Percentages owned by Subject Field
Investors in the relevant Subject Field, InterOil shall not sell an
interest in the Subject Field other than for cash or securities
listed on the New York, American or Toronto Stock Exchange, traded
over the National Association of Securities Dealers, Inc. Automated
Quotation System, or listed on another internationally recognized
securities market. If the consideration received by InterOil in
connection with the sale of an interest in the Subject Field to a
Purchaser is other than cash, InterOil shall take all commercially
reasonable efforts to distribute the appropriate portion of such
consideration or an interest therein to the Subject Field Investors
entitled thereto. If InterOil is unable to distribute such non-cash
consideration to the Subject Field Investors, InterOil shall retain
such non-cash consideration and shall convert it to cash as soon as
reasonably practicable and distribute such cash to Investors
entitled thereto promptly thereafter.
(e) InterOil may not cause the IPI Percentage of an Investor in a
Subject Field to decrease by more than 50% of such Investor's
initial IPI Percentage pursuant to this Section.
(f) InterOil shall adjust the amount payable to each Subject Field
Investor under this Section to account for the effective date of any
sale, so that the Subject Field Investors and InterOil are treated
substantially the same taking into account any purchase price
adjustments with respect to an effective date and Distributions
payable to the Investor under this Agreement.
(g) InterOil and Subsidiaries may offset amounts payable to a Subject
Field Investor under this Section against any Non-Consent Penalty or
other amount owed by such Subject Field Investor to InterOil or
Subsidiaries.
SECTION 9.2 CONDITIONS FOR REDUCTION OF IPI PERCENTAGE. Notwithstanding
the provisions of Section 9.1, InterOil may not cause the reduction in the IPI
Percentage of a Subject Field Investor in such Subject Field pursuant to Section
9.1 unless (i) the consideration received by such Subject Field Investor is
equal to or greater than US $50 million per each one (1) percentage point
reduction in the IPI Percentage, or (ii) the consideration received by such
Subject Field Investor is equal to or greater than US $25 million per each one
(1) percentage point reduction in the IPI Percentage and InterOil receives the
consent of Subject Field Investors in such Subject Field which own a majority of
the IPI Percentages owned by Subject Field Investors in the Subject Field. For
purposes of this Section 9.2, the value of non-cash consideration received by a
Subject Field Investor shall be determined in good faith and in accordance with
reasonable and customary valuation methodologies, taking into account, inter
alia, appropriate discounts for illiquidity, tax consequences of receipt of the
consideration, any costs associated with holding or disposing of such property,
and any other factors.
ARTICLE X.
CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS
SECTION 10.1 CONFIDENTIALITY. InterOil and each Investor agrees to treat
confidentially any information identified as confidential (whether prepared by
InterOil, Subsidiaries, or
23
Investor, or their advisors, agents, or otherwise, and whether oral or written)
that InterOil or an Investor or their respective agents or advisors, furnish to
the other (which shall include each party's directors, officers, employees,
Affiliates, agents, advisors, representatives and potential financing sources)
(such information being collectively referred to herein as the "CONFIDENTIAL
INFORMATION"). Confidential Information acquired or received by any party under
this Agreement shall be held confidential during the continuance of this
Agreement plus a period of 2 years thereafter and shall not be divulged in any
way to any third party, without the prior written approval of all the affected
parties which shall not be unreasonably withheld provided that any party to this
Agreement may, without such approval, disclose Confidential Information:-
(a) to any Affiliate or bona fide intended assignee of such party upon
obtaining a similar undertaking of confidentiality from such
Affiliate or assignee in favor of all affected parties;
(b) to any outside consultants, upon obtaining a similar undertaking of
confidentiality from such consultants in favor of all affected
parties;
(c) to any bank or financial institution from whom such party is seeking
or obtaining finance, upon obtaining a similar undertaking of
confidentiality from such bank or institution;
(d) to the extent required by the Act, the Licence, any other applicable
laws or regulations or the having jurisdiction over a party to this
Agreement or the regulations of any recognised stock exchange on
which are listed for quotation shares in the capital of such party
or any Affiliate of such party;
(e) in a prospectus registered by a stock exchange, or any delegate
thereof, where such disclosure is required by law;
(f) to the extent that the same has become generally available to the
public; or
(g) to the extent acquired independently from a third party whom the
disclosing party believed on reasonable grounds was under no
obligation of confidentiality relating thereto.
ARTICLE XI.
TERM AND TERMINATION
SECTION 11.1 TERM. The term of this Agreement shall be for the period
commencing on the date as of which this Agreement is made (notwithstanding later
execution hereof) and shall continue to be effective until the earlier of: (a)
as to any Investor, on the date such Investor has converted its entire IPI
Percentage interest into Common Shares as provided in Article VI, (b) as to any
Investor, on the date that such Investor has had its interest in each
Exploration Well and any Field discovered thereby converted into a PDL as
contemplated by Section 4.4 and (c) until the final Distributions after
cessation of commercial production of Petroleum from the last Field discovered
by an Exploration Well drilled hereunder. Termination of this Agreement shall
not affect the representations and warranties of Investors herein, which shall
survive termination. In addition, the provisions in Article X shall not
terminate until the time periods specified therein.
24
ARTICLE XII.
FORCE MAJEURE
SECTION 12.1 FORCE MAJEURE. The duties and obligations of each Party,
other than the obligation for the payment of money due hereunder (unless the
obligation for payment of money is prevented or delayed by applicable currency
or governmental investment controls or restrictions through no fault of that
Party), are suspended and deferred during such time only that such Party is
prevented or hindered from complying in whole or in part with its duties and
obligations hereunder because of an event of Force Majeure. For purposes hereof,
the term "FORCE MAJEURE" means acts of God, war, blockade, seizure, riot, acts
of a public enemy of the State or of the nation in which the affected Party is
incorporated or chartered, strikes, lockouts or other labor disturbances,
condemnation or action of priority or control by any governmental authority for
any governmental purpose, regulations or directives of the State or of the
nation in which the affected Party is incorporated or chartered (whether
promulgated in the form of a law or otherwise), unavoidable or inevitable
accident, delays in transportation, impossibility to obtain or delay in
obtaining necessary materials or equipment in the open market, lack of or
inadequate labor, or any other cause, other than the financial inability of any
Party to meet its obligations, similar or dissimilar from those above described,
which is not reasonably within the control of the Party claiming suspension,
which is not due to the fault or negligence of that Party, and which by the
exercise of due diligence, that Party is unable, wholly or in part, to prevent
or overcome. The term "FORCE MAJEURE" likewise includes (i) in those instances
where InterOil is required to obtain permits, licences or permission from any
government to enable InterOil to fulfil its obligations hereunder, the inability
of InterOil to acquire, or the delays on the part of InterOil in acquiring, such
permits, licences or permission; and (ii) in those instances where InterOil is
required to secure or furnish drilling equipment, materials, supplies, equipment
and labor for conducting Joint Operations, the inability of InterOil to so
secure or furnish, upon not unreasonable prices and terms, such drilling
equipment, materials, supplies, equipment and labor.
SECTION 12.2 NOTICE. Any Party subject to Force Majeure, as above
described, must immediately give all other Parties written notice thereof with
reasonably full particulars concerning it and must use all possible diligence to
remove the cause of Force Majeure as soon as possible.
SECTION 12.3 OBLIGATIONS REINSTATED. Any of the Parties whose obligations
have been suspended as aforesaid must resume the performance of such obligations
as soon as reasonably possible after the removal of the cause and must so notify
all the other Parties.
ARTICLE XIII.
NOTICES
SECTION 13.1 ADDRESS. Any notice (including invoices) given under this
Agreement shall be given to a party in writing at its nominated address, and
sent whenever practicable and possible by post, facsimile transmission, personal
delivery or email. Such notices shall be effective upon receipt which shall be
deemed to have occurred on the working day following dispatch, except in the
case of emails, receipt of which shall occur when confirmation of receipt has
been received from the recipient. Such confirmation may be a reply to or
acknowledgement
25
of the notice sent by the recipient himself, or a return message automatically
generated by the recipient's system.
SECTION 13.2 ADDRESS. The addresses of the parties to this Agreement for
notice at the date hereof are as follows:
PARTY ADDRESS
InterOil Corporation and its subsidiaries
INTEROIL c/o InterOil Australia Pty Ltd.
Xxxxx 0 Xxxxx 0 Xxxxxx Xxxxx
00 Xxxxxx Xxxxxx
Xxxxxx XXX 0000
INVESTOR As set forth on Exhibit A
SECTION 13.3 CHANGE OF ADDRESS. Any party to this Agreement may at any
time by notice to the other party notify any change of address, facsimile number
or email address and, upon receipt of the notice, such address shall become the
address of that party for the purposes of this Agreement.
ARTICLE XIV.
MISCELLANEOUS
SECTION 14.1 AMENDMENT. This Agreement may be amended only by written
agreement of all of the parties to this Agreement.
SECTION 14.2 WAIVER. No waiver of any breach of this Agreement or of any
provisions hereof shall be effective unless such waiver is in writing and signed
by the party to this Agreement from whom such waiver is requested. No waiver of
any breach shall be deemed to be a waiver of any other or subsequent breach.
SECTION 14.3 ENTIRE AGREEMENT. The Transaction Documents contain the
entire agreement among the parties and supersedes and replaces all earlier
agreements, documents, correspondence and conduct by the parties with respect to
the subject matter hereof.
SECTION 14.4 COSTS. Each Party's costs of negotiating and entering into
the Agreement, and any costs associated with obtaining authorisation or approval
of this Agreement from any government or regulatory body shall be borne by the
Party accruing such costs.
SECTION 14.5 ACCOUNTS. InterOil will hold funds paid to it pursuant to
Section 2.2 in the Joint Account or Joint Accounts and will only use funds to
pay or reimburse exploration, geology, geophysical, general and administrative
and all other support costs, drilling, logging and testing costs paid since
September 1, 2004, with respect to the eight (8) well Drilling Program
contemplated by this Agreement; provided, however, (i) InterOil may pay to
itself from the Joint Account any amount of the Purchase Price (plus interest
thereon) remaining in such Joint Account after the drilling of 8 Exploration
Xxxxx to Total Depth as contemplated herein and
26
(ii) InterOil may pay to itself from such Joint Account any amount of the
Purchase Price (plus interest thereon) attributable to an Investor which has
exercised its right to convert its IPI Percentage into Common Shares as
contemplated herein. InterOil shall not transfer, mortgage, charge, pledge,
create a lien on or otherwise encumber a Joint Account.
SECTION 14.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, U.S.A, WITHOUT
GIVING EFFECT TO ANY CONFLICTS OF LAWS PROVISIONS THEREUNDER.
SECTION 14.7 RELATIONSHIP. The obligations of each Investor under this
Agreement are several and not joint with the obligations of any other Investor.
Neither this Agreement nor any rights or obligations of any party under this
Agreement shall constitute any of the parties as partners or joint venturers or
otherwise cause one party to be directly or indirectly liable for the debts or
obligations of another party.
SECTION 14.8 STANDARD OF PERFORMANCE. InterOil shall conduct all
operations hereunder (including the incurrence of costs and expenses) as would a
reasonable and prudent operator in Papua New Guinea under the same or similar
circumstances, in a good and workmanlike manner, in accordance with this
Agreement or the JVOA and good oilfield practice and in compliance with
applicable law and regulations (the "OPERATOR STANDARD"). Further, InterOil
hereby agrees and covenants that all information, reports and other data
provided to Investors hereunder shall be true and correct in all material
respects as of the date provided to Investors. In accordance with the foregoing,
InterOil shall designate any and all xxxxx hereunder in a manner which InterOil
determines in its reasonable good faith judgment is in the commercial interests
of the parties to this Agreement.
SECTION 14.9 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each such Agreement so executed shall have the effect of an
original, but all such counterparts shall together constitute but one and the
same instrument and this Agreement shall be binding on the Parties.
SECTION 14.10 DISPUTE RESOLUTION.
(a) On the request of any party hereto, whether made before or after the
institution of any legal proceeding, any action, dispute, claim or
controversy of any kind now existing or hereafter arising between
any of the parties hereto in any way arising out of, pertaining to
or in connection with this Agreement (a "Dispute") shall be resolved
by binding arbitration in accordance with the terms hereof. Any
party may, by summary proceedings, bring an action in court to
compel arbitration of any Dispute.
(b) Any arbitration shall be administered by the American Arbitration
Association (the "AAA") in accordance with the terms of this
Section, the Commercial Arbitration Rules of the AAA, and, to the
maximum extent applicable, the Federal Arbitration Act. Judgment on
any award rendered by an arbitrator may be entered in any court
having jurisdiction.
27
(c) Any arbitration shall be conducted before one arbitrator. The
arbitrator shall be a practicing attorney licensed to practice in
the State of Texas who is knowledgeable in the subject matter of the
Dispute selected by agreement between the parties hereto. If the
parties cannot agree on an arbitrator within 30 days after the
request for an arbitration, then any party may request the AAA to
select an arbitrator. The arbitrator may engage engineers,
accountants or other consultants that the arbitrator deems necessary
to render a conclusion in the arbitration proceeding.
(d) To the maximum extent practicable, an arbitration proceeding
hereunder shall be concluded within 180 days of the filing of the
Dispute with the AAA. Arbitration proceedings shall be conducted in
Houston, Texas. Arbitrators shall be empowered to impose sanctions
and to take such other actions as the arbitrators deem necessary to
the same extent a judge could impose sanctions or take such other
actions pursuant to the Federal Rules of Civil Procedure and
applicable law. At the conclusion of any arbitration proceeding, the
arbitrator shall make specific written findings of fact and
conclusions of law. The arbitrator shall have the power to award
recovery of all costs and fees to the prevailing party. Each party
agrees to keep all Disputes and arbitration proceedings strictly
confidential except for disclosure of information required by
applicable law.
(e) All fees of the arbitrator and any engineer, accountant or other
consultant engaged by the arbitrator shall be paid equally by the
parties involved in the dispute, unless otherwise awarded by the
arbitrator.
SECTION 14.11 ADDITIONAL INVESTORS. From time to time prior to June 15,
2005, InterOil may add additional Investors to this Agreement by having them
execute a counterpart of this Agreement, and amending Exhibit A. Each such party
added pursuant to this Section 14.11 shall be deemed an Investor for all
purposes of this Agreement.
SECTION 14.12 PREVIOUS AGREEMENTS. The Previous Agreements are hereby
amended and restated in their entirety by this Agreement.
SECTION 14.13 OTHER AGREEMENTS. In the event InterOil or any of its
Affiliates enters into an agreement subsequent to the date hereof and prior to
June 15, 2005 with an Investor or another investor with respect to the proposed
exploration and drilling program on the Licences as more particularly set forth
in this Agreement, and such agreement with such Investor or third party investor
is on more favorable terms and conditions to such investor than those contained
in this Agreement for the Investors, including without limitation, the Purchase
Price paid hereunder and the Common Shares price of U.S. $37.50 per share as set
forth in Section 6.1 of this Agreement, the Investors will have the right to
impose on InterOil those terms and conditions which are more favorable, and
InterOil will accept such terms and conditions. For purposes of this Section
14.13, an investor shall not include an entity engaged in the oil and gas
exploration and production business.
SECTION 14.14 TAX MATTERS. InterOil shall, and shall cause its Affiliates
to, use commercially reasonable efforts to structure any payments to be made to
Investors hereunder in the most tax efficient manner available.
28
SECTION 14.15 COMPLETION COST CAP. Any time prior to receiving a notice
from InterOil of its intent to proceed with Completion of an Exploration Well
pursuant to Section 4.2, an Investor may deposit in an account designated by
InterOil an amount equal to 12% of its portion of the Purchase Price. Each
Investor which makes such a deposit shall be deemed to agree to pay its share of
costs of Completion as set forth in Section 4.2(a)(i). InterOil will use the
amounts deposited by such Investor to pay the costs of Completion allocable to
such Investor. If the costs of Completion allocable to such an Investor exceeds
the amount deposited by the Investor, such excess will be paid by InterOil. If,
following the drilling and, if applicable, Completion of eight Exploration Xxxxx
under this Agreement, the aggregate costs of Completion allocated to such
Investor is less than the amounts deposited by the Investor, InterOil will
promptly pay such difference to such Investor, less a fee of US$50,000 per each
1% IPI Percentage held by such Investor.
[Signature Page Follows]
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