Document:

exv4w12

Exhibit 4.12

InterOil Corporation

U.S. GAAP reconciliation

Reconciliation to accounting principles generally accepted in the United States

The un-audited consolidated financial statements of the Company for the six month periods ended
June 30, 2008 and 2007, and the audited consolidated financial statements for the year ended
December 31, 2007 have been prepared in accordance with generally accepted accounting principles in
Canada (“Canadian GAAP”) which, in most respects, conforms to generally accepted accounting
principles in the United States (“U.S. GAAP”). The reconciliations and other information presented
in this Exhibit are solely in relation to the consolidated financial statements. The significant
differences between Canadian GAAP and U.S. GAAP as they relate to the Company are presented
throughout this Exhibit. Additionally, where there is no significant conflict with Canadian GAAP
requirements some of the additional U.S. GAAP disclosure requirements have been incorporated
throughout the Canadian GAAP financial statements.

 

 

Reconciliation to accounting principles generally accepted in the United States (cont’d)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Consolidated Balance Sheets	 	As at
	 	 	June 30, 2008	 	December 31, 2007	 	June 30, 2007
	 	 	$ (Un-audited)	 	$	 	$ (Un-audited)
	 	 	Canadian GAAP	 	US GAAP	 	Canadian GAAP	 	US GAAP	 	Canadian GAAP	 	US GAAP
	 
	Assets
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Current assets:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash and cash equivalents (5)
	 	 	28,811,249	 	 	 	25,491,803	 	 	 	43,861,762	 	 	 	40,152,026	 	 	 	22,406,039	 	 	 	22,406,039	 
	Cash restricted (5)
	 	 	26,016,420	 	 	 	25,925,851	 	 	 	22,002,302	 	 	 	21,916,736	 	 	 	20,055,745	 	 	 	20,055,745	 
	Trade receivables
	 	 	127,615,875	 	 	 	127,615,875	 	 	 	63,145,444	 	 	 	63,145,444	 	 	 	57,535,357	 	 	 	57,535,357	 
	Other assets (5)
	 	 	225,009	 	 	 	197,191	 	 	 	146,992	 	 	 	120,460	 	 	 	373,110	 	 	 	373,110	 
	Inventories
	 	 	74,880,778	 	 	 	74,880,778	 	 	 	82,589,242	 	 	 	82,589,242	 	 	 	116,046,492	 	 	 	116,046,492	 
	Prepaid expenses (5)
	 	 	5,423,470	 	 	 	5,337,963	 	 	 	5,102,540	 	 	 	5,076,006	 	 	 	521,773	 	 	 	521,773	 
	 
	Total current assets
	 	 	262,972,801	 	 	 	259,449,461	 	 	 	216,848,282	 	 	 	212,999,914	 	 	 	216,938,516	 	 	 	216,938,516	 
	Cash restricted
	 	 	361,881	 	 	 	361,881	 	 	 	382,058	 	 	 	382,058	 	 	 	1,215,798	 	 	 	1,215,798	 
	Deferred financing costs (4), (6)
	 	 	—	 	 	 	1,522,136	 	 	 	—	 	 	 	1,395,066	 	 	 	—	 	 	 	1,606,209	 
	Investment in LNG Project (5)
	 	 	—	 	 	 	5,311,078	 	 	 	—	 	 	 	5,848,612	 	 	 	—	 	 	 	—	 
	Plant and equipment (1), (5)
	 	 	228,201,543	 	 	 	215,048,359	 	 	 	232,852,222	 	 	 	219,117,006	 	 	 	238,661,407	 	 	 	227,432,110	 
	Oil and gas properties (2)
	 	 	102,072,439	 	 	 	101,659,133	 	 	 	84,865,127	 	 	 	84,865,127	 	 	 	61,848,939	 	 	 	61,848,939	 
	Future income tax benefit
	 	 	2,819,591	 	 	 	2,819,591	 	 	 	2,867,312	 	 	 	2,867,312	 	 	 	1,583,767	 	 	 	1,583,767	 
	 
	Total assets
	 	 	596,428,255	 	 	 	586,171,639	 	 	 	537,815,001	 	 	 	527,475,095	 	 	 	520,248,427	 	 	 	510,625,339	 
	 
	Liabilities and shareholders’ equity
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Current liabilities:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accounts payable and accrued liabilities (6), (5)
	 	 	67,160,639	 	 	 	66,626,058	 	 	 	60,427,607	 	 	 	59,682,621	 	 	 	109,002,771	 	 	 	109,055,065	 
	Commodity derivative contracts
	 	 	11,847,200	 	 	 	11,847,200	 	 	 	1,960,300	 	 	 	1,960,289	 	 	 	46,800	 	 	 	46,789	 
	Working capital facility — crude feedstock
	 	 	74,058,565	 	 	 	74,058,565	 	 	 	66,501,372	 	 	 	66,501,372	 	 	 	29,522,326	 	 	 	29,522,326	 
	Current portion of secured loan
	 	 	9,000,000	 	 	 	9,000,000	 	 	 	136,776,760	 	 	 	136,810,093	 	 	 	142,616,909	 	 	 	142,700,242	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Current portion of indirect participation interest
— PNGDV
	 	 	540,002	 	 	 	540,002	 	 	 	1,080,004	 	 	 	1,080,004	 	 	 	1,518,229	 	 	 	1,518,229	 
	 
	Total current liabilities
	 	 	162,606,406	 	 	 	162,071,825	 	 	 	266,746,043	 	 	 	266,034,379	 	 	 	282,707,035	 	 	 	282,842,651	 
	Accrued financing costs
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	362,500	 	 	 	362,500	 
	Secured loan (6)
	 	 	56,753,361	 	 	 	58,000,000	 	 	 	61,141,389	 	 	 	62,500,000	 	 	 	56,529,417	 	 	 	58,000,000	 
	8% subordinated debenture liability (4)
	 	 	76,516,300	 	 	 	80,851,022	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	Preference share liability (3)
	 	 	7,797,312	 	 	 	—	 	 	 	7,797,312	 	 	 	—	 	 	 	—	 	 	 	—	 
	Deferred gain on contributions to LNG project (5)
	 	 	12,203,867	 	 	 	—	 	 	 	9,096,537	 	 	 	—	 	 	 	—	 	 	 	—	 
	Indirect participation interest (2)
	 	 	87,877,831	 	 	 	106,477,912	 	 	 	96,086,369	 	 	 	115,926,369	 	 	 	96,086,369	 	 	 	115,926,369	 
	Indirect participation interest — PNGDV
	 	 	844,490	 	 	 	844,490	 	 	 	844,490	 	 	 	844,490	 	 	 	406,265	 	 	 	406,265	 
	 
	Total liabilities
	 	 	404,599,567	 	 	 	408,245,249	 	 	 	441,712,140	 	 	 	445,305,238	 	 	 	436,091,586	 	 	 	457,537,785	 
	 
	Non-controlling interest (8)
	 	 	6,151	 	 	 	6,294	 	 	 	4,292	 	 	 	4,388	 	 	 	5,764,521	 	 	 	5,422,208	 
	Preference shares (3)
	 	 	—	 	 	 	14,250,000	 	 	 	—	 	 	 	14,250,000	 	 	 	—	 	 	 	—	 
	 
	Shareholders’ equity:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Share capital
	 	 	324,855,607	 	 	 	324,855,607	 	 	 	259,324,133	 	 	 	259,324,133	 	 	 	235,327,636	 	 	 	235,327,636	 
	Preference shares (3)
	 	 	6,842,688	 	 	 	—	 	 	 	6,842,688	 	 	 	—	 	 	 	—	 	 	 	—	 
	8% subordinated debentures (4)
	 	 	13,036,434	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	 	 
	Contributed surplus (4)
	 	 	12,512,478	 	 	 	21,313,373	 	 	 	10,337,548	 	 	 	10,337,548	 	 	 	7,159,462	 	 	 	7,159,462	 
	Warrants
	 	 	2,119,034	 	 	 	2,119,034	 	 	 	2,119,034	 	 	 	2,119,034	 	 	 	2,119,034	 	 	 	2,119,034	 
	Accumulated Other Comprehensive Income
	 	 	7,800,935	 	 	 	7,800,935	 	 	 	6,025,019	 	 	 	6,025,019	 	 	 	1,731,116	 	 	 	1,731,116	 
	Conversion options (2)
	 	 	19,840,000	 	 	 	—	 	 	 	19,840,000	 	 	 	—	 	 	 	19,840,000	 	 	 	—	 
	Accumulated deficit
	 	 	(195,184,639	)	 	 	(192,418,853	)	 	 	(208,389,853	)	 	 	(209,890,265	)	 	 	(187,784,928	)	 	 	(198,671,902	)
	 
	Total shareholders’ equity
	 	 	191,822,537	 	 	 	163,670,096	 	 	 	96,098,569	 	 	 	67,915,469	 	 	 	78,392,320	 	 	 	47,665,346	 
	 
	Total liabilities and shareholders’ equity
	 	 	596,428,255	 	 	 	586,171,639	 	 	 	537,815,001	 	 	 	527,475,095	 	 	 	520,248,427	 	 	 	510,625,339	 
	 

2

 

Reconciliation to accounting principles generally accepted in the United States (cont’d)

Consolidated statements of operations

The following table presents the consolidated statements of operations under U.S. GAAP compared to
Canadian GAAP:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Six month period ended	 	Year ended	 	Six month period ended
	 	 	June 30, 2008	 	December 31, 2007	 	June 30, 2007
	 	 	$ (Un-audited)	 	$ (restated) (1)	 	$ (Un-audited)
	 
	 	 	Canadian GAAP	 	U.S. GAAP	 	Canadian GAAP	 	U.S. GAAP	 	Canadian GAAP	 	U.S. GAAP
	 
	Revenue
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Sales and operating revenues
	 	 	435,029,765	 	 	 	435,029,765	 	 	 	625,526,068	 	 	 	625,526,068	 	 	 	265,238,868	 	 	 	265,238,868	 
	Interest income
	 	 	756,279	 	 	 	—	 	 	 	2,180,285	 	 	 	—	 	 	 	1,233,327	 	 	 	—	 
	Other income
	 	 	1,641,404	 	 	 	—	 	 	 	2,666,890	 	 	 	—	 	 	 	963,574	 	 	 	—	 
	 
	 
	 	 	437,427,448	 	 	 	435,029,765	 	 	 	630,373,243	 	 	 	625,526,068	 	 	 	267,435,769	 	 	 	265,238,868	 
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Expenses
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cost of sales and operating expenses (excluding
depreciation shown below)
	 	 	383,197,441	 	 	 	383,197,441	 	 	 	573,609,441	 	 	 	573,609,441	 	 	 	241,877,559	 	 	 	241,877,559	 
	Administrative and general expenses (5)
	 	 	27,094,351	 	 	 	25,477,632	 	 	 	39,270,348	 	 	 	38,153,126	 	 	 	12,738,105	 	 	 	12,738,105	 
	Legal and professional fees (5)
	 	 	5,956,524	 	 	 	4,194,958	 	 	 	6,532,646	 	 	 	4,471,684	 	 	 	2,014,451	 	 	 	2,014,451	 
	Exploration costs, excluding exploration impairment
	 	 	(154,077	)	 	 	(154,077	)	 	 	13,305,437	 	 	 	13,305,437	 	 	 	7,839,550	 	 	 	7,839,550	 
	Exploration impairment
	 	 	11,279	 	 	 	11,279	 	 	 	1,242,606	 	 	 	1,242,606	 	 	 	20,251	 	 	 	20,251	 
	Short term borrowing costs
	 	 	3,493,733	 	 	 	3,493,733	 	 	 	13,212,112	 	 	 	13,212,112	 	 	 	4,227,074	 	 	 	4,227,074	 
	Long term borrowing costs (3), (4)
	 	 	8,485,202	 	 	 	8,017,436	 	 	 	9,536,162	 	 	 	9,061,915	 	 	 	6,180,195	 	 	 	6,180,195	 
	Depreciation and amortization (1), (5)
	 	 	6,924,442	 	 	 	6,656,021	 	 	 	13,024,258	 	 	 	12,529,892	 	 	 	7,078,887	 	 	 	6,841,388	 
	Gain on LNG shareholder agreement
	 	 	—	 	 	 	—	 	 	 	(6,553,080	)	 	 	(6,553,080	)	 	 	(6,553,080	)	 	 	(6,553,080	)
	Gain on equity accounted investment (5)
	 	 	—	 	 	 	283,798	 	 	 	—	 	 	 	(5,561,684	)	 	 	—	 	 	 	—	 
	Gain on sale of oil and gas properties (2)
	 	 	(10,245,533	)	 	 	(11,072,146	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	Foreign exchange loss/(gain) (5)
	 	 	(4,784,214	)	 	 	(4,725,292	)	 	 	(5,078,338	)	 	 	(5,099,651	)	 	 	(228,428	)	 	 	(228,428	)
	Non-controlling interest (8)
	 	 	1,859	 	 	 	1,907	 	 	 	(22,333	)	 	 	(22,236	)	 	 	5,331	 	 	 	5,379	 
	Interest income (5)
	 	 	—	 	 	 	(724,133	)	 	 	—	 	 	 	(2,146,183	)	 	 	—	 	 	 	(1,233,327	)
	Other income
	 	 	—	 	 	 	(1,641,404	)	 	 	—	 	 	 	(2,666,890	)	 	 	—	 	 	 	(963,574	)
	 
	 
	 	 	419,981,007	 	 	 	413,017,153	 	 	 	658,079,259	 	 	 	643,536,489	 	 	 	275,199,895	 	 	 	272,765,543	 
	 
	Loss before income taxes
	 	 	17,446,441	 	 	 	22,012,612	 	 	 	(27,706,016	)	 	 	(18,010,421	)	 	 	(7,764,126	)	 	 	(7,526,675	)
	 
	Income tax expense (5), (7)
	 	 	(4,241,227	)	 	 	(4,168,249	)	 	 	(1,206,892	)	 	 	(1,194,227	)	 	 	(543,857	)	 	 	(543,857	)
	 
	Net loss
	 	 	13,205,214	 	 	 	17,844,363	 	 	 	(28,912,908	)	 	 	(19,204,648	)	 	 	(8,307,983	)	 	 	(8,070,532	)
	 

	(1)	 	Comparative results for the year ended December 31, 2007 have been adjusted to rectify
for misclassification of the following items in the U.S. GAAP Consolidated statement of operations
as per the December 31, 2007 consolidated financial statements:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	December 31, 2007 (as per U.S. GAAP reconciliation)	 	Original	 	Restated	 	Adjustments
	 
	Expenses
	 	 	 	 	 	 	 	 	 	 	 	 
	Legal and professional fees
	 	 	6,038,280	 	 	 	4,471,684	 	 	 	1,566,596	 
	Short term borrowing costs
	 	 	11,151,150	 	 	 	13,212,112	 	 	 	(2,060,962	)
	Long term borrowing costs
	 	 	9,536,162	 	 	 	9,061,915	 	 	 	474,247	 
	Depreciation and amortization
	 	 	12,550,011	 	 	 	12,529,892	 	 	 	20,119	 
	 
	Net impact to the U.S. GAAP Statement of Operations
	 	 	 	 	 	 	 	 	 	 	—	 
	 

3

 

Reconciliation to accounting principles generally accepted in the United States (cont’d)

Reconciliation of Canadian GAAP net income/(loss) to U.S. GAAP net income/(loss)

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Six Month	 	 	 	 	 	Six Month
	 	 	period ended	 	Year ended	 	period ended
	 	 	June 30,	 	December 31,	 	June 30,
	 	 	2008	 	2007	 	2007
	 	 	$ (Un-audited)	 	$	 	$ (Un-audited)
	 
	Net profit/(loss) as shown in the Canadian GAAP financial statements
	 	 	13,205,214	 	 	 	(28,912,908	)	 	 	(8,307,983	)
	Description of items having the effect of increasing reported income
	 	 	 	 	 	 	 	 	 	 	 	 
	Decrease in depreciation and amortization due to
difference in date of commencement of operations of
refinery (1)
	 	 	237,488	 	 	 	478,935	 	 	 	237,498	 
	Decrease in non-controlling interest expense (8)
	 	 	(47	)	 	 	(96	)	 	 	(47	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Increase in reporting income due to reversal of
proportionate consolidation of LNG Project and equity
accounting the investment (5)
	 	 	3,107,329	 	 	 	9,097,535	 	 	 	—	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Decrease in long term borrowing costs relating to
financing costs on preference shares expensed
	 	 	—	 	 	 	390,000	 	 	 	—	 
	Decrease in long term borrowing costs relating to
dividends paid to preference share holders expensed
under Canadian GAAP (3)
	 	 	372,951	 	 	 	84,247	 	 	 	—	 
	Decrease in long term borrowing costs relating to
reduced accretion expense on increased 8% subordinated
debentures liability (4)
	 	 	94,815	 	 	 	—	 	 	 	—	 
	Increase in gain on sale of oil and gas properties
arising from conveyance accounting due to the initial
IPI proceeds not being bifurcated under U.S. GAAP (2)
	 	 	826,613	 	 	 	—	 	 	 	—	 
	Description of items having the effect of decreasing reported income
	 	 	 	 	 	 	 	 	 	 	 	 
	Reduced gain on sale of minority interest under U.S. GAAP
	 	 	—	 	 	 	(342,361	)	 	 	—	 
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Net profit/(loss) according to US GAAP
	 	 	17,844,363	 	 	 	(19,204,648	)	 	 	(8,070,532	)
	 

Statements of comprehensive income/(loss), net of tax

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Six Month	 	 	 	 	 	Six Month
	 	 	period ended	 	Year ended	 	period ended
	 	 	June 30,	 	December 31,	 	June 30,
	 	 	2008	 	2007	 	2007
	 	 	$	 	$	 	$
	 
	Net profit/(loss) in accordance with U.S. GAAP
	 	 	17,844,363	 	 	 	(19,204,648	)	 	 	(8,070,532	)
	Foreign currency translation reserve
	 	 	5,262,965	 	 	 	4,532,150	 	 	 	238,247	 
	Deferred hedge gain
	 	 	(3,487,049	)	 	 	(1,389	)	 	 	(1,389	)
	 
	Total other comprehensive income
	 	 	1,775,916	 	 	 	4,530,761	 	 	 	236,858	 
	 
	Comprehensive profit/(loss)
	 	 	19,620,279	 	 	 	(14,673,887	)	 	 	(7,833,674	)
	 

4

 

Reconciliation to accounting principles generally accepted in the United States (cont’d)

Consolidated Statements of Shareholders’ Equity

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Six month period ended	 	Year ended	 	Six month period ended
	 	 	June 30, 2008	 	December 31, 2007	 	June 30, 2007
	 	 	$ (Un-audited)	 	$	 	$ (Un-audited)
	 	 	Canadian GAAP	 	US GAAP	 	Canadian GAAP	 	US GAAP	 	Canadian GAAP	 	US GAAP
	 
	Share capital
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At beginning of period
	 	 	259,324,133	 	 	 	259,324,133	 	 	 	233,889,366	 	 	 	233,889,366	 	 	 	233,889,366	 	 	 	233,889,366	 
	Issue of capital stock
	 	 	65,531,474	 	 	 	65,531,474	 	 	 	25,434,767	 	 	 	25,434,767	 	 	 	1,438,270	 	 	 	1,438,270	 
	 
	At end of period
	 	 	324,855,607	 	 	 	324,855,607	 	 	 	259,324,133	 	 	 	259,324,133	 	 	 	235,327,636	 	 	 	235,327,636	 
	 
	Preference Shares
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At beginning of period
	 	 	6,842,688	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	Issue of preference shares
	 	 	—	 	 	 	—	 	 	 	6,842,688	 	 	 	—	 	 	 	—	 	 	 	—	 
	 
	At end of period
	 	 	6,842,688	 	 	 	—	 	 	 	6,842,688	 	 	 	—	 	 	 	—	 	 	 	—	 
	 
	8% subordinated debentures
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At beginning of period
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	Issue of debentures
	 	 	13,036,434	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	 
	At end of period
	 	 	13,036,434	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	 
	Contributed surplus
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At beginning of period
	 	 	10,337,548	 	 	 	10,337,548	 	 	 	4,377,426	 	 	 	4,377,426	 	 	 	4,377,426	 	 	 	4,377,426	 
	Stock compensation
	 	 	2,174,930	 	 	 	2,174,930	 	 	 	5,960,122	 	 	 	5,960,122	 	 	 	2,782,036	 	 	 	2,782,036	 
	8% Debenture issue BCF (note 4)
	 	 	—	 	 	 	8,800,895	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	 
	At end of period
	 	 	12,512,478	 	 	 	21,313,373	 	 	 	10,337,548	 	 	 	10,337,548	 	 	 	7,159,462	 	 	 	7,159,462	 
	 
	Warrants
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At beginning of period
	 	 	2,119,034	 	 	 	2,119,034	 	 	 	2,137,852	 	 	 	2,137,852	 	 	 	2,137,852	 	 	 	2,137,852	 
	Movement for period
	 	 	—	 	 	 	—	 	 	 	(18,818	)	 	 	(18,818	)	 	 	(18,818	)	 	 	(18,818	)
	 
	At end of period
	 	 	2,119,034	 	 	 	2,119,034	 	 	 	2,119,034	 	 	 	2,119,034	 	 	 	2,119,034	 	 	 	2,119,034	 
	 
	Accumulated Other Comprehensive Income
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At beginning of period
	 	 	6,025,019	 	 	 	6,025,019	 	 	 	1,492,869	 	 	 	1,494,258	 	 	 	1,492,869	 	 	 	1,494,258	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Deferred hedge gain recognised
on transition
	 	 	—	 	 	 	—	 	 	 	1,385	 	 	 	—	 	 	 	1,385	 	 	 	—	 
	Deferred hedge (loss)/gain
movement for period, net of
tax
	 	 	(3,487,049	)	 	 	(3,487,049	)	 	 	(1,385	)	 	 	(1,389	)	 	 	(1,385	)	 	 	(1,389	)
	Foreign currency translation
adjustment movement for
period, net of tax
	 	 	5,262,965	 	 	 	5,262,965	 	 	 	4,532,150	 	 	 	4,532,150	 	 	 	238,247	 	 	 	238,247	 
	 
	At end of period
	 	 	7,800,935	 	 	 	7,800,935	 	 	 	6,025,019	 	 	 	6,025,019	 	 	 	1,731,116	 	 	 	1,731,116	 
	 
	Conversion options
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At beginning of period
	 	 	19,840,000	 	 	 	—	 	 	 	20,000,000	 	 	 	—	 	 	 	20,000,000	 	 	 	—	 
	Movement for period
	 	 	—	 	 	 	—	 	 	 	(160,000	)	 	 	—	 	 	 	(160,000	)	 	 	—	 
	 
	At end of period
	 	 	19,840,000	 	 	 	—	 	 	 	19,840,000	 	 	 	—	 	 	 	19,840,000	 	 	 	—	 
	 
	Accumulated deficit
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At beginning of period
	 	 	(208,389,853	)	 	 	(209,890,265	)	 	 	(179,476,945	)	 	 	(190,601,370	)	 	 	(179,476,945	)	 	 	(190,601,370	)
	Net profit/(loss) for period
	 	 	13,205,214	 	 	 	17,844,363	 	 	 	(28,912,908	)	 	 	(19,204,648	)	 	 	(8,307,983	)	 	 	(8,070,532	)
	Deduct:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Preference Share Dividends
	 	 	—	 	 	 	(372,951	)	 	 	—	 	 	 	(84,247	)	 	 	—	 	 	 	—	 
	 
	At end of period
	 	 	(195,184,639	)	 	 	(192,418,853	)	 	 	(208,389,853	)	 	 	(209,890,265	)	 	 	(187,784,928	)	 	 	(198,671,902	)
	 
	Shareholders’ equity at end of period
	 	 	191,822,537	 	 	 	163,670,096	 	 	 	96,098,569	 	 	 	67,915,469	 	 	 	78,392,320	 	 	 	47,665,346	 
	 

5

 

Reconciliation to accounting principles generally accepted in the United States (cont’d)

Reconciliation of Canadian GAAP Statement of cash flows to U.S. GAAP:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Six Month period ended	 	Year ended	 	Six Month period ended
	 	 	June 30, 2008	 	December 31, 2007	 	June 30, 2007
	 	 	$	 	$ (restated) (1)	 	$
	 
	Cash flows provided by (used in):
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Operating activities — Canadian GAAP (as per
consolidated cash flows)(restated)(2)
	 	 	(22,554,955	)	 	 	(31,619,907	)	 	 	(113,507	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Reconciling items:
	 	 	 	 	 	 	 	 	 	 	 	 
	Reclass exploration costs expensed including
exploration impairment as operating activity
for US GAAP
	 	 	142,798	 	 	 	(14,548,043	)	 	 	(7,859,801	)
	Being LNG project related operating cash
flows reversed for US GAAP cash
flow statement
	 	 	4,200,887	 	 	 	2,892,220	 	 	 	 —	 
	 
	Operating activities — U.S. GAAP
	 	 	(18,211,270	)	 	 	(43,275,730	)	 	 	(7,973,308	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Investing activities — Canadian GAAP (as per
consolidated cash flows) 
(restated)(2)
	 	 	(27,913,289	)	 	 	(34,369,871	)	 	 	(11,169,025	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Reconciling items:
	 	 	 	 	 	 	 	 	 	 	 	 
	Reclass exploration costs expensed including
exploration impairment as operating activity
for US GAAP
	 	 	(142,798	)	 	 	14,548,043	 	 	 	7,859,801	 
	Being reversal of
LNG Project expenditure for US GAAP
cash flows
	 	 	(313,600	)	 	 	2,762,786	 	 	 	—	 
	Being reversal of movement in restricted cash
held relating to LNG Project for US GAAP cash
flows
	 	 	5,003	 	 	 	85,566	 	 	 	—	 
	 
	Investing activities — U.S. GAAP
	 	 	(28,364,684	)	 	 	(16,973,476	)	 	 	(3,309,224	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Financing activities — Canadian GAAP (as per
consolidated cash flows)
	 	 	35,417,731	 	 	 	78,170,105	 	 	 	2,007,136	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Reconciling items:
	 	 	 	 	 	 	 	 	 	 	 	 
	Being reversal of PNG LNG cash calls from
unrelated joint venture partners
proportionately consolidated in Canadian GAAP
cash flow statement
	 	 	(3,502,000	)	 	 	(9,450,308	)	 	 	—	 
	 
	Financing activities — U.S. GAAP
	 	 	31,915,731	 	 	 	68,719,797	 	 	 	2,007,136	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	(Decrease)/increase in cash and cash equivalents
	 	 	(14,660,223	)	 	 	8,470,591	 	 	 	(9,275,396	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Cash and cash equivalents, beginning of period
(U.S. GAAP)
	 	 	40,152,026	 	 	 	31,681,435	 	 	 	31,681,435	 
	 
	 
	Cash and cash equivalents, end of period (U.S.
GAAP)
	 	 	25,491,803	 	 	 	40,152,026	 	 	 	22,406,039	 
	 

Under Canadian GAAP, InterOil’s share in the LNG Joint venture project is proportionately
consolidated and InterOil’s share of the JV cash flows will be taken up in InterOil consolidated
cash flow statement. The cash flows would be classified between operating, investing and financing
as per the nature of the transaction. Under U.S. GAAP, when an investment in an entity is accounted
for by use of the equity method, an investor restricts its reporting in the cash flow statement to
the cash flows between itself and the investee, for example, to dividends and advances. The above
cash and cash equivalents is different to the Canadian cash and cash equivalents balance due to the
proportionate take up of the cash balance under Canadian GAAP, but equity accounting of the LNG
investment in U.S. GAAP (refer (8) below).

	(1)	 	Comparative results for the year ended December 31, 2007 have been adjusted to correctly
reflect the reconciling items related to the LNG Project. For details of adjustments made to the
Reconciliation of Canadian GAAP Statement of cash flows to U.S. GAAP as per the December 31, 2007
consolidated financial statements, refer to the following table:

6

 

Reconciliation to accounting principles generally accepted in the United States (cont’d)

	 	 	 
	(1)	 	Year ended December 2007 US GAAP cash flows have been
adjusted to correctly reflect the reconciling items related to the
LNG project. For details of adjustments made to the reconciliation,
refer to the following table:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Operating activities	 	Investing activities	 	Financing activities	 	Total
	 	 	$	 	$	 	$	 	$
	 
	Cash flows provided
by/(used in) — (as
per original U.S.
GAAP
reconciliation)
	 	 	(57,062,320	)	 	 	(12,637,194	)	 	 	78,170,105	 	 	 	8,470,591	 
	Adjustments:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Transfer of
reversal of PNG
LNG cash call
proportionately
consolidated in
cash flow
statement
reconciling item
from Investing
activities to
Financing
activities (at
amount originally
disclosed in
reconciliation)
	 	 	—	 	 	 	(65,072	)	 	 	65,072	 	 	 	—	 
	Adjust reversal
of PNG LNG cash
call
proportionately
consolidated in
cash flow
statement
reconciling item
to correct amount
	 	 	9,515,380	 	 	 	—	 	 	 	(9,515,380	)	 	 	—	 
	Add reversal
of movement in
non-cash working
capital relating
to LNG Project
(increase in
accounts payable
and accrued
liabilities)
	 	 	7,119,562	 	 	 	(7,119,562	)	 	 	—	 	 	 	—	 
	
  Add reconciling item for reversal of expenditure on plant and equipment relating to LNG Project
	 	 	(2,762,786	)	 	 	2,762,786	 	 	 	—	 	 	 	—	 
	Add reconciling
item for reversal
of movement in
restricted cash
held relating to
LNG Project
	 	 	(85,566	)	 	 	85,566	 	 	 	—	 	 	 	—	 
	 
	Cash flows provided
by/(used in) — (as
per adjusted U.S.
GAAP
reconciliation)
	 	 	(43,275,730	)	 	 	(16,973,476	)	 	 	68,719,797	 	 	 	8,470,591	 
	 

	 	 	 
	(2)	 	Three month and nine month period ended September 30, 2008, six month period ended June 30,
2008 and year ended December 31, 2007 Canadian GAAP cash flows have been adjusted to correctly
reflect the classification of deferred gain in relation to the LNG project. For details of
adjustments made to the previously published financial statements, refer to the following table:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Three Month	 	 	Nine Month	 	 	Six Month	 	 	 	 
	 	 	period ended	 	 	period ended	 	 	period ended	 	 	Year ended	 
	 	 	September 30, 2008	 	 	September 30, 2008	 	 	June 30, 2008	 	 	December 31, 2007	 
	 	 	$ (restated)	 	 	$ (restated)	 	 	$ (restated)	 	 	$ (restated)	 
	 
	Cash flows provided by (used in):
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Operating activities — Canadian GAAP (as per
published financial statements)
	 	 	2,637,711	 	 	 	(23,024,574	)	 	 	(25,662,285	)	 	 	(40,716,444	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Restatement made:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Being restatement due to movement in Deferred
gain in relation to the LNG Project wrongly
classified in Investing activities as compared
to Operating activities.
	 	 	5,293,243	 	 	 	8,400,573	 	 	 	3,107,330	 	 	 	9,096,537	 
	 
	Operating activities — Canadian GAAP (restated)
	 	 	7,930,954	 	 	 	(14,624,001	)	 	 	(22,554,955	)	 	 	(31,619,907	)
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Investing activities — Canadian GAAP (as per
published financial statements)
	 	 	5,776,129	 	 	 	(19,029,830	)	 	 	(24,805,959	)	 	 	(25,273,334	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Restatement made:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Being restatement due to movement in Deferred
gain in relation to the LNG Project wrongly
classified in Investing activities as compared
to Operating activities.
	 	 	(5,293,243	)	 	 	(8,400,573	)	 	 	(3,107,330	)	 	 	(9,096,537	)
	 
	Investing activities — Canadian GAAP (restated)
	 	 	482,886	 	 	 	(27,430,403	)	 	 	(27,913,289	)	 	 	(34,369,871	)
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Financing activities — Canadian GAAP (as per
published financial statements)
	 	 	9,741,009	 	 	 	45,158,740	 	 	 	35,417,731	 	 	 	78,170,105	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Restatement made:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	None
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	 
	Financing activities —  Canadian GAAP (restated)
	 	 	9,741,009	 	 	 	45,158,740	 	 	 	35,417,731	 	 	 	78,170,105	 
	 

Per share amounts

Basic per share amounts are computed by dividing net income available to shareholders by the
weighted average number of shares outstanding for the reporting period. Diluted per share amounts
reflects the potential dilution that could occur if options or contracts to issue shares were
exercised or converted into shares. The method of calculating diluted per share amounts under US
GAAP is similar to the Canadian GAAP for the periods noted below.

For the calculation of diluted per share amounts, the basic weighted average number of shares is
increased by the dilutive effect of stock options determined using the treasury method. Preferred
stock, warrants, conversion options and stock options totaling 8,772,029 common shares at prices
ranging from $13.67 to $43.22 were outstanding as at June 30, 2008 and were included in the
computation of the diluted earnings per share at 30 June 2008. However, the dilutive instruments
outstanding at June 30, 2007 were not included in the computation of the diluted loss per share
because they caused the loss per share to be anti-dilutive.

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Number of	 	 
	 	 	Number of	 	shares	 	Number of
	 	 	shares June 30,	 	December 31,	 	shares June 30,
	Potential dilutive instruments outstanding	 	2008	 	2007	 	2007
	 
	Preferred stock
	 	 	517,777	 	 	 	517,777	 	 	 	—	 
	Employee stock options
	 	 	1,352,000	 	 	 	1,200,500	 	 	 	1,313,750	 
	IPI Indirect Participation interest — conversion options
	 	 	2,760,000	 	 	 	3,306,667	 	 	 	3,306,667	 
	8% Convertible debentures
	 	 	3,800,000	 	 	 	—	 	 	 	—	 
	Warrants
	 	 	337,252	 	 	 	337,252	 	 	 	337,252	 
	Others
	 	 	5,000	 	 	 	5,000	 	 	 	5,000	 
	 
	Total stock options/shares outstanding
	 	 	8,772,029	 	 	 	5,367,196	 	 	 	4,962,669	 
	 

The reconciliation between the income available to the common shareholders and the income available
to the dilutive holders, used in the calculation of the numerator in the EPS calculation is as
follows:

7

 

Reconciliation to accounting principles generally accepted in the United States (cont’d)

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Six month	 	Year ended	 	Six month
	 	 	period ended	 	December 31,	 	period ended
	 	 	June 30, 2008	 	2007	 	June 30, 2007
	 	 	$	 	$	 	$
	 
	Income available to the common shareholders
	 	 	17,844,363	 	 	 	(19,204,648	)	 	 	(8,070,532	)
	Interest expense on debentures
	 	 	1,055,556	 	 	 	—	 	 	 	—	 
	Accretion expense on debentures
	 	 	372,342	 	 	 	—	 	 	 	—	 
	Non-controlling interest
	 	 	1,907	 	 	 	—	 	 	 	—	 
	 
	Income available to dilutive holders
	 	 	19,274,168	 	 	 	(19,204,648	)	 	 	(8,070,532	)
	 

The reconciliation between the ‘Basic’ and ‘Basic & Diluted’ shares, used in the calculation of the
denominator in the EPS calculation is as follows:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Six month	 	Year ended	 	Six month
	 	 	period ended	 	December 31,	 	period ended
	 	 	June 30, 2008	 	2007	 	June 30, 2007
	 
	Basic
	 	 	31,873,424	 	 	 	29,998,133	 	 	 	29,901,733	 
	Employee options
	 	 	132,122	 	 	 	—	 	 	 	—	 
	Warrants
	 	 	10,874	 	 	 	—	 	 	 	—	 
	Preference shares
	 	 	517,777	 	 	 	—	 	 	 	—	 
	Debentures
	 	 	1,106,593	 	 	 	—	 	 	 	—	 
	Indirect Participation interest
	 	 	3,135,458	 	 	 	—	 	 	 	—	 
	Other
	 	 	5,000	 	 	 	—	 	 	 	—	 
	 
	Basic and diluted
	 	 	36,781,249	 	 	 	29,998,133	 	 	 	29,901,733	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Six month	 	 	 	 	 	Six month
	 	 	period ended	 	Year ended	 	period ended
	 	 	June 30,	 	December 31,	 	June 30,
	Net income/(loss) per share in accordance with U.S. GAAP	 	2008	 	2007	 	2007
	 
	Basic
	 	 	0.56	 	 	 	(0.64	)	 	 	(2.15	)
	 
	Diluted
	 	 	0.52	 	 	 	(0.64	)	 	 	(2.15	)
	 

	(1)	 	Operations
	 
	 	 	The Company determined that refinery operations commenced under U.S. GAAP at December 1,
2004, which is the date management assessed that construction of the refinery was
substantially complete and ready for its intended use. The Company ceased capitalization of
certain costs to the refinery project at this date and recognized one month’s results from
sales, related costs of sales and operating expenses and administrative and general expenses
in the statement of operations for the year ended December 31, 2004.
As disclosed in note 3(q) in the consolidated financial statements, operations commenced on
January 1, 2005 under Canadian GAAP. Therefore, the Company continued to capitalize December
2004’s results to the refinery project. Due to the difference in the cost basis of the
refinery, the depreciation expense recorded under U.S. GAAP differs from that recorded under
Canadian GAAP.
The useful life for the refinery under U.S. GAAP is the same as that disclosed under Canadian
GAAP.
	 
	(2)	 	Indirect participation interest
	 
	 	 	As disclosed in note 18 in the unaudited consolidated financial statements, the Company
entered into an indirect participation interest agreement in exchange for proceeds of
$125,000,000. Under Canadian GAAP, this amount was apportioned between non financial
liabilities and equity. Under U.S. GAAP, the Company has not bifurcated the amount as the
Company has opted to utilize the scope exception under SFAS 133 Para 10(f) for ‘derivatives
that serve as impediments to sales accounting’.
	 
	 	 	As explained in note 18, on May 5, 2008, one of the investors who has a 4.1% interest in the
eight well drilling program waived its right to convert its IPI percentage into 546,667
common shares. This waiver has resulted in conveyance being triggered on this portion of the
IPI agreement for the quarter ended June 30, 2008. As the initial IPI proceeds were not
bifurcated under U.S. GAAP, the total conveyance proceeds

8

 

Reconciliation to accounting principles generally accepted in the United States (cont’d)

	 	 	available for the conveyed interest is $9,448,458 (higher by $1,239,919 from the CGAAP
balance), the amounts offset against oil and gas properties is $4,876,313 (higher by $413,306
from CGAAP balance), and the gain recognised in the statement of operations is $4,572,146
(higher by $826,613 from CGAAP balance).
	 
	(3)	 	Preference shares
	 
	 	 	As disclosed in Note 21 in the unaudited consolidated financial statements, 517,777
preference shares were issued to an investor in November 2007 for $15,000,000.
	 
	 	 	Under Canadian GAAP, the preference shares were assessed based on the rights attached to
those shares and Management valued the equity and liability component of the instrument using
the residual value basis.
	 
	 	 	As the Preference share agreement has contractual redemption provisions under ‘Fundamental
change’ section mainly relating to listing requirements, shareholding etc, under U.S. GAAP,
the preference shares needs to be classified under temporary equity classification in
accordance with ASR 268.
	 
	 	 	In addition to the above, the 5% dividend paid for the six month period amounting to $372,950
has been included within long term borrowing costs within Canadian GAAP, but has been treated
as a reduction to retained earnings under U.S. GAAP.
	 
	(4)	 	8% subordinated debentures
	 
	 	 	As disclosed in Note 22 in the unaudited consolidated financial statements, on May 13, 2008,
the Company completed the issue of $95,000,000 unsecured 8% subordinated convertible
debentures with a maturity of five years. Under Canadian GAAP, these debentures were assessed
based on the rights attached to the instrument and Management valued the equity and liability
component of the instrument using the residual value basis.
	 
	 	 	Under U.S. GAAP, Management assessed the debentures following the guidance under FAS 133 to
decide whether the embedded conversion option needs to be bifurcated and disclosed
separately. The embedded conversion option did not satisfy the condition of embedded
derivatives that requires separation due to the scope exception under FAS 133 Para 11(a) as
the option is indexed to the Company’s own stock and would have been classified in
Shareholder’s equity if it had been separated.
	 
	 	 	As FAS 133 bifurcation is not applicable, the provisions of EITF 00-27 requires that the
instrument be assessed for any ‘Beneficial Conversion Features (‘BCF’)’ included in the
instrument, which should be separated using the intrinsic value method as noted in EITF 98-5.
Based on the guidance, the BCF has been valued at $8,821,320 which will be separate and
classified separately under equity as Contributed Surplus. After separation, the liability
component would be accreted over the life of the debentures, being 5 years till May 2013. If
the conversion occurs prior to the stated redemption date, the entire unamortized value
related to the converted portion would be immediately recognized in the Statement of
operations as an ordinary interest expense.
	 
	 	 	The accretion expense of the liability component for the period ending June 30, 2008 was
$372,342 (accretion expense under US GAAP is less due to the higher liability component of
the instrument).
	 
	 	 	In addition to the above, deferred financial costs are offset against the respective
liabilities under Canadian GAAP; however, the same is disclosed as a separate item on the
face of the balance sheet under US GAAP. As at June 30, 2008, there was $193,998 of deferred
finance costs which were not amortized in relation to the 8% convertible debentures.
	 
	(5)	 	Investment in LNG Project/Deferred gain on contributions to LNG Project
	 
	 	 	As disclosed in Note 13 in the unaudited consolidated financial statements, a Shareholders
Agreement was signed on July 30, 2007 which converted PNG LNG Inc. and its subsidiaries into
a joint venture project from being a subsidiary of InterOil. Under Canadian GAAP, joint
ventures are proportionately consolidated into the Company’s consolidated financials based on
the shareholding in the joint venture.
	 
	 	 	Applying the guidance under APB 18, a corporate joint venture has to be equity accounted
under U.S. GAAP. InterOil has also followed the guidance under SAB Topic 5H wherein a gain on
contributions to the joint venture is not recognised, however, a gain is recognised as a
result of a change in economic interest.

9

 

Reconciliation to accounting principles generally accepted in the United States (cont’d)

InterOil will account for the joint venture using equity accounted method. In addition to the
gain or loss recognised as part of the operations, InterOil will also recognise any
difference between the Investment carried in its balance sheet and the underlying equity in
net assets of the joint venture in the statement of operations and the investment balance
will increase/decrease in line with this difference.

The adjustments to reflect the reversal of proportionately consolidated balances and take-up
of equity accounted balances have been summarised below. Given below is the Midstream —
liquefaction consolidated balance sheet and statement of operations under Canadian GAAP and
U.S. GAAP. The statement of operations incorporates results for the six month period ended
June 30, 2008. PNG LNG Inc. was a subsidiary of InterOil until the date of the Shareholder’s
Agreement and has been proportionately consolidated subsequent to that date.

	 	 	 	 	 	 	 	 	 	 	 	 	 
	Midstream - liquefaction	 	 	 	 	 	GAAP	 	 
	Consolidated Balance Sheet	 	Canadian GAAP	 	Adjustments	 	US GAAP
	Cash and cash equivalents
	 	 	3,319,546	 	 	 	(3,319,446	)	 	 	100	 
	Cash restricted
	 	 	90,569	 	 	 	(90,569	)	 	 	—	 
	Other assets
	 	 	27,818	 	 	 	(27,818	)	 	 	—	 
	Prepaid expenses
	 	 	4,008	 	 	 	(4,008	)	 	 	—	 
	 
	Current assets
	 	 	3,441,941	 	 	 	(3,441,841	)	 	 	100	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Investment in PNG LNG Inc.
	 	 	—	 	 	 	5,311,078	 	 	 	5,311,078	 
	Plant and equipment
	 	 	2,402,822	 	 	 	(2,402,822	)	 	 	—	 
	 
	Total assets
	 	 	5,844,763	 	 	 	(533,585	)	 	 	5,311,178	 
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Accounts payable and accrued liabilities
	 	 	534,585	 	 	 	(534,585	)	 	 	—	 
	Intercompany payables
	 	 	3,020,558	 	 	 	—	 	 	 	3,020,558	 
	 
	Current liabilities
	 	 	3,555,143	 	 	 	(534,585	)	 	 	3,020,558	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Deferred gain on contributions to LNG project
	 	 	12,203,867	 	 	 	(12,203,867	)	 	 	—	 
	 
	Total non-current liabilities
	 	 	12,203,867	 	 	 	(12,203,867	)	 	 	—	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Share capital
	 	 	1	 	 	 	—	 	 	 	1	 
	Accumulated deficit
	 	 	(9,914,248	)	 	 	12,204,867	 	 	 	2,290,619	 
	 
	Shareholders’ Equity
	 	 	(9,914,247	)	 	 	12,204,867	 	 	 	2,290,620	 
	 
	Total liabilities and Shareholders’ equity
	 	 	5,844,763	 	 	 	(533,585	)	 	 	5,311,178	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	Midstream - liquefaction	 	 	 	 	 	GAAP	 	 
	Consolidated Statement of Operation	 	Canadian GAAP	 	Adjustments	 	US GAAP
	Interest income
	 	 	32,146	 	 	 	(32,146	)	 	 	—	 
	 
	Total revenues
	 	 	32,146	 	 	 	(32,146	)	 	 	—	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Office and Administrative expenses
	 	 	1,788,800	 	 	 	(1,616,719	)	 	 	172,081	 
	Depreciation
	 	 	30,933	 	 	 	(30,933	)	 	 	—	 
	Professional fees
	 	 	1,722,641	 	 	 	(1,761,566	)	 	 	(38,925	)
	Exchange (Gain) loss
	 	 	(58,922	)	 	 	58,922	 	 	 	—	 
	Gain on equity accounted investment
	 	 	—	 	 	 	283,798	 	 	 	283,798	 
	Income taxes
	 	 	72,978	 	 	 	(72,978	)	 	 	—	 
	 
	Total expenses
	 	 	3,556,430	 	 	 	(3,139,476	)	 	 	416,954	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	Net gain/(loss)
	 	 	(3,524,284	)	 	 	3,107,330	 	 	 	(416,954	)
	 

	(6)	 	Deferred Financing costs
	 
	 	 	Deferred financial costs are offset against the respective liabilities under Canadian GAAP;
however, the same is disclosed as a separate item on the face of the balance sheet under US
GAAP in accordance with guidance under APB 21.

10

 

Reconciliation to accounting principles generally accepted in the United States (cont’d)

	(7)	 	Income tax effect of adjustments
	 
	 	 	The income tax effect of U.S. GAAP adjustments was a reduction to the future tax asset of
$1,604,676 (year ended December 31, 2007 — $3,403,154) for the six month period ended June
30, 2008 due to a decrease in the loss carry-forwards. A corresponding decrease in the
valuation allowance was recorded.
	 
	(8)	 	Non controlling interest
	 
	 	 	The non-controlling interest movements are the result of the U.S. GAAP adjustments relating
to the midstream operations described in point 1 above.

Recent Accounting Pronouncements

Fair value measurements

In September 2006, the FASB issued FAS 157 which defines fair value, establishes a framework for
measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. The
standard is effective for fiscal years beginning after November 15, 2007 and all interim periods
within those fiscal years. The Company does not expect that the application of FAS 157 will have a
material impact on the financial statements.

Fair Value Option for Financial Assets and Financial Liabilities

In February 2007, the FASB issued FAS 159 which permits entities to choose to measure many
financial instruments and certain other items at fair value. The objective is to improve financial
reporting by providing entities with the opportunity to mitigate volatility in reported earnings
caused by measuring related assets and liabilities differently without having to apply complex
hedge accounting provisions. This Statement is expected to expand the use of fair value
measurement, which is consistent with the Board’s long-term measurement objectives for accounting
for financial instruments. This Statement is effective as of the beginning of an entity’s first
fiscal year beginning after November 15, 2007. The Company does not expect that the application of
FAS 159 will have a material impact on the financial statements.

Business combinations

In December 2007, the FASB issued FAS 141 (revised 2007) to improve the relevance, representational
faithfulness, and comparability of the information that a reporting entity provides in its
financial reports about a business combination and its effects. This Statement applies
prospectively to business combinations for which the acquisition date is on or after the beginning
of the first annual reporting period beginning on or after December 15, 2008. This will have no
impact unless the Company undertakes a business combination subsequent to adoption of this
standard.

Non-controlling interests in consolidated financial statements

In December 2007, the FASB issued FAS 160. The objective of this Statement is to improve the
relevance, comparability, and transparency of the financial information that a reporting entity
provides in its consolidated financial statements by establishing accounting and reporting
standards. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in
the consolidated entity that should be reported as equity in the consolidated financial statements.
This Statement changes the way the consolidated income statement is presented. It requires
consolidated net income to be reported at amounts that include the amounts attributable to both the
parent and the noncontrolling interest. It also requires disclosure, on the face of the
consolidated statement of income, of the amounts of consolidated net income attributable to the
parent and to the noncontrolling interest. Previously, net income attributable to the
noncontrolling interest generally was reported as an expense or other deduction in arriving at
consolidated net income. This Statement applies prospectively to business combinations for which
the acquisition date is on or after the beginning of the first annual reporting period beginning on
or after December 15, 2008. This will have no impact unless the Company undertakes a business
combination involving a non-controlling interest subsequent to adoption of this standard.

Disclosures about derivative instruments and hedging activities

In March 2008, the FASB issued FAS 161. This statement requires enhanced disclosures about an
entity’s derivative and hedging activities and thereby improves the transparency of financial
reporting. Entities are required to provide enhanced disclosures about how and why an entity uses
derivative instruments, how derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and how derivative

11

 

Reconciliation to accounting principles generally accepted in the United States (cont’d)

instruments and related hedged items affect an entity’s financial position, financial performance,
and cash flows. The statement requires that objectives for using derivative instruments be
disclosed in terms of underlying risk and accounting designation. This disclosure better conveys
the purpose of derivative use in terms of the risk that the entity is intending to manage.
Disclosing the fair values of derivative instruments and their gains and losses in a tabular format
should provide a more complete picture of the location in an entity’s financial statements of both
the derivative positions existing at period end and the effect of using derivatives during the
reporting period. Disclosing information about credit-risk-related contingent features should
provide information on the potential effect on an entity’s liquidity from using derivatives. This
statement is effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. The Company does not expect that the application of FAS 161
will have a material impact on the financial statements.

Hierarchy of generally accepted accounting principles

In May 2008, the FASB issued FAS 162. This statement identifies the sources of accounting
principles and the framework for selecting the principles to be used in the preparation of
financial statements by nongovernmental entities that are presented in accordance with the US GAAP.
This statement is effective 60 days following the SEC’s approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles. The SEC approved the amendments on September 16, 2008.
The Company does not expect that the application of FAS 161 will have a material impact on the
financial statements.

Accounting for financial guarantee insurance contracts

In May 2008, the FASB issued FAS 163 which clarifies how FAS 60 applies to financial guarantee
insurance contracts, including the recognition and measurement to be used to account for premium
revenue and claim liabilities. The statement requires recognition of a claim liability prior to an
event of default when there is evidence that credit deterioration has occurred in an insured
financial obligation. The statement also required expanded disclosures about financial guarantee
insurance contracts. This statement is effective for years beginning after December 15, 2008 and
interim periods within those years, except for certain disclosure requirements which are effective
for the first period (including interim periods) beginning after May 23, 2008. The Company does
not expect that the application of FAS 163 will have any impact on the financial statements.

12exv10w7

EXHIBIT 10.7

Grantee:       <Name>

Employee Number:       <Employee Number>

Grant ID:       <ID>

Grant Date:       <GrantDate>

Grant Expiration (10-years from Grant Date):       <Expiration>

Grant Price:       $<GrantPrice>

Grant Type: Time-Based Restricted Stock Units

Total Restricted Stock Units:       <Total Units>

	 	 	 	 	 	 	 
	 	 	Vesting Date	 	Units	 	 
	 
	 	<VestDate1>
	 	<Installment1>
	 	 
	 
	 	<VestDate2>
	 	<Installment2>	 	 
	 
	 	<VestDate3>
	 	<Installment3>	 	 
	 
	 	<VestDate4>
	 	<Installment4>	 	 
	 
	 	 	 	 	 	 
	 
	 	              Total
	 	<Total Units>	 	 

SMITH INTERNATIONAL, INC.

RESTRICTED STOCK UNIT AGREEMENT

     THIS
RESTRICTED STOCK UNIT AGREEMENT (this “Agreement”) is made and entered into by and
between Smith International, Inc., a Delaware corporation (the “Company”) and the individual named
above, an individual and Employee of the Company or one of its Subsidiaries (“Grantee”), on the
issue date (or grant date) indicated above, subject to the terms and provisions of the Smith
International, Inc., Third Amended and Restated 1989 Long-Term Incentive Compensation Plan, as
amended from time to time (the “Plan”). The Plan is hereby incorporated herein in its entirety by
this reference. Capitalized terms not otherwise defined in this Agreement shall have the meaning
given to such terms in the Plan.

     WHEREAS, Grantee is an Employee of the Company or one of its Subsidiaries, and in connection
therewith, the Company desires to grant to Grantee restricted stock units (“Units”), subject to the
terms and conditions of this Agreement and the Plan, with a view to increasing Grantee’s interest
in the Company’s success and growth; and

     WHEREAS, Grantee desires to be the holder of such Units subject to the terms and conditions of
this Agreement;

     NOW, THEREFORE, in consideration of the premises, mutual covenants and agreements contained
herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

     1. Grant of Units. Subject to the terms and conditions of this Agreement and the Plan, the
Company hereby grants to Grantee the number of units indicated above. On any date, the value of
each Unit shall be the Fair Market Value of one share of the Company’s Common Stock (“Share”),
$1.00 par value, as determined pursuant to the Plan. Each Unit represents an unsecured promise of
the Company to deliver Shares to Grantee pursuant to the terms and conditions of the Plan and this
Agreement. As a holder of Units, Grantee has only the rights of a general unsecured creditor of
the Company.

     2. Transfer Restrictions. Grantee shall not sell, assign, transfer, exchange, pledge,
encumber, gift, devise, hypothecate or otherwise dispose of (collectively, “Transfer”) any Units
granted hereunder. Any purported Transfer of
Units in breach of this Agreement shall be void and ineffective, and shall not operate to
Transfer any interest or title in the purported transferee.

62

 

     3. Vesting and Payment of Units.

          (a) Vesting Generally. Grantee’s interest in the Units granted hereunder shall vest
in accordance with the schedule above, conditioned on Grantee’s continued employment with the
Company or one of its Subsidiaries as of each such vesting date (the “Vesting Date"), except as
provided in Section 4 hereof; provided, however, that within thirty (30) days after the
Units granted above become vested, Grantee must open a brokerage account with the brokerage firm or
third-party administrator designated by the Company to receive the Shares obtained pursuant to
Section 3(b), or such Units shall be forfeited and lapse without further notice.

          (b) Settlement of Units. Subject to Section 6 hereof, the Company shall grant
to Grantee within thirty (30) days after each Vesting Date, or such other date upon which Units
become vested as provided in this Agreement, a number of Shares equal to the number of such vested
Units (provided Grantee has not terminated employment prior to such Vesting Date), unless otherwise
provided under Section 4 hereof. Each vested Unit shall thus be exchanged by the Company
for one Share, and such Unit shall be cancelled as of the effective time of such exchange as
reflected on the Company’s stock records. All Shares delivered to or on behalf of Grantee in
exchange for vested Units shall be free of any further vesting, transfer or other restrictions,
except as may otherwise be required by securities law or other applicable law as determined by the
Company.

          (c) Dividends, Splits and Voting Rights. If the Company (i) declares a stock dividend
or makes a distribution on Common Stock in Shares, (ii) subdivides or reclassifies outstanding
Shares into a greater number of Shares or (iii) combines or reclassifies outstanding Shares into a
smaller number of Shares, then the number of Units granted under this Agreement shall be
proportionately increased or reduced, as applicable, so as to prevent the enlargement or dilution
of Grantee’s rights and duties hereunder. The determination of the Compensation and Benefits
Committee (the “Committee”) of the Company’s Board of Directors regarding such adjustments shall be
binding. Until such time as Shares are actually delivered to Grantee in exchange for vested Units
pursuant to Section 3(b) (above), Grantee shall have no voting, dividend or other ownership
rights in such Shares.

     4. Forfeiture.

          (a) Termination Due to Death or Disability. If Grantee’s employment with the Company
or one of its Subsidiaries is terminated due to death or Disability of Grantee, then, in either
such event, all outstanding Units hereunder shall become fully vested as of such termination date
and payable to Grantee in Shares within thirty (30) days after such date.

          For purposes of this Section 4(a), “Disability” means, as determined by the Committee
in its discretion exercised in good faith, a physical or mental condition of Grantee that would
entitle Grantee to payment of disability income payments under the Company’s long-term disability
insurance policy or plan for employees, as then effective, if any; or in the event that Grantee is
not covered, for whatever reason, under the Company’s long-term disability insurance policy or
plan, “Disability” means a permanent and total disability as defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended (the “Code”). A determination of Disability may be made
by a physician selected or approved by the Committee and, in this respect, Grantee must submit to
any reasonable examination(s) required by such physician upon request in order to render an opinion
regarding whether there is a Disability.

          (b) Termination Other than Death or Disability. If Grantee’s employment with the
Company or one of its Subsidiaries is voluntarily or involuntarily terminated by the Company or one
of its Subsidiaries or Grantee for any reason other than due to death or Disability, then Grantee
shall immediately forfeit all Units which are not already vested as of such date. Upon the
forfeiture of any Units hereunder, Grantee shall cease to have any rights in connection with such
Units as of the date of such forfeiture. A transfer of employment by Grantee, without an
interruption of employment service, between or among the Company and any Subsidiary of the Company
shall not be considered a termination of employment for purposes of this Agreement.

     5. Grantee’s Representations. Notwithstanding any provision hereof to the contrary, Grantee
hereby agrees and represents that Grantee will not acquire any Shares, and that the Company will
not be obligated to issue any Shares to Grantee hereunder, if the issuance of such Shares
constitutes a violation by Grantee or the Company of any law or regulation of any governmental
authority. Any determination in this regard that is made by the Committee, in good faith, shall be
final and binding. The rights and obligations of the Company and Grantee are subject to all
applicable laws and regulations.

63

 

     6. Tax Withholding. To the extent that the receipt of Shares hereunder results in
compensation income to Grantee for local income tax purposes under applicable law, the Company, in
its complete discretion, is authorized to (a) withhold, at such time as determined by the Company,
from any cash or other remuneration (including withholding from delivery to Grantee a number of
Shares, based on the market value of such Shares, as of the applicable Vesting Date), or a
combination thereof, then or thereafter payable to Grantee, the sum that the Company requires to
meet its tax withholding obligations under applicable law or regulation (the “Withholding
Liability”); (b) require Grantee to pay an amount, at such time as the Company shall specify, equal
to the Withholding Liability in cash, by certified or cashier’s check payable to the Company, or in
any other form acceptable to the Company; or (c) cause a sale or sales of Shares on behalf of
Grantee pursuant to which all or a portion of the proceeds are paid to the Company to satisfy the
Withholding Liability and all remaining proceeds (if any) are delivered to Grantee, and Grantee
agrees to take all such action as may be necessary or appropriate to effect such sales. Further,
the Company’s obligation to deliver vested Shares, or any stock certificate or certificates
representing vested Shares, to Grantee shall be subject to, and conditioned upon, payment of the
Withholding Liability.

     7. Par Value Paid Consideration for Shares. In addition to the valuable services rendered by
Grantee for the Company, upon the issuance of any Shares after they become vested hereunder, to the
extent permitted by applicable law, a portion of the resulting compensation that is includible in
Grantee’s income for income tax purposes under applicable law shall represent consideration paid by
Grantee for such Shares in an amount equal to the aggregate par value of such vested Shares.

     8. Miscellaneous.

          (a) No Fractional Shares. All provisions of this Agreement concern whole Shares. If
the application of any provision hereunder would yield a fractional Share, such fractional Share
shall be rounded down to the next whole Share.

          (b) No Effect on Employment or Service. Grantee acknowledges and agrees that the
vesting of the Units pursuant to Section 3 hereof is earned only by continuing as an
employee. Grantee further acknowledges and agrees that this Agreement, the transactions
contemplated hereunder and the vesting schedule set forth herein do not constitute an express or
implied promise of continued engagement as an employee for the vesting period, for any period, or
at all, and will not interfere with Grantee’s right, or the Company’s or Subsidiary’s right, to
terminate Grantee’s relationship as an employee at any time.

          (c) Dispute Resolution. To the extent permitted by applicable law, any dispute or
controversy arising out of or relating to this Agreement, or any breach hereof, shall be resolved
by binding arbitration in accordance with (i) the Commercial Arbitration Rules (the “Rules”) of the
American Arbitration Association (“AAA”) before a single arbitrator (unless otherwise mutually
agreed by the parties) as selected pursuant to the Rules and (ii) the Federal Arbitration Act.
Judgment on any award rendered by the arbitrator may be entered in any court of competent
jurisdiction. The venue for any arbitration proceeding shall be in Harris or Montgomery County,
Texas, except if otherwise mutually agreed by the parties. The fees of the AAA and the arbitrator
shall be split equally by the parties. All other costs and expenses, including attorneys’ fees,
relating to the resolution of any such dispute shall be borne by the party incurring such costs and
expenses.

          (d) Tax Consultation. Grantee understands that he or she may suffer adverse tax
consequences as a result of the grant, vesting or settlement of the Units granted hereunder.
Grantee represents that he or she has consulted with any tax consultants he or she deems advisable
in connection with the acquisition or disposition of the Units and that he or she is not relying on
the Company or Subsidiary for any tax advice.

          (e) Nature of the Grant. In accepting this Agreement, Grantee acknowledges that:

               (i) the Plan is established voluntarily by the Company, it is discretionary in nature and may
be modified, amended, suspended or terminated by the Company at any time, unless otherwise provided
in the Plan and this Agreement;

               (ii) the grant of the Units is voluntary and occasional and does not create any contractual or
other right to receive future awards of Units, or benefits in lieu of Units, even if Units have
been awarded repeatedly in the past;

               (iii) all decisions with respect to future grants of Units, if any, will be at the sole
discretion of the Company;

64

 

               (iv) Grantee’s participation in the Plan is voluntary;

               (v) Units are an extraordinary item that do not constitute compensation of any kind for
services of any kind rendered to the Company or any Subsidiary, and Units are outside the scope of
Grantee’s employment contract, if any;

               (vi) Units are not part of normal or expected compensation or salary for any purpose,
including, but not limited to, calculation of any severance, resignation, termination, redundancy,
end of service payments, bonuses, long-service awards, pension or retirement benefits or similar
payments and in no event should be considered as compensation for, or relating in any way to, past
services for the Company or any Subsidiary;

               (vii) the future value of the underlying Shares is unknown and cannot be predicted with
certainty;

               (viii) the value of the Shares acquired upon settlement of the Units may increase or decrease
in value; and

               (ix) in consideration of the grant of the Units, no claim or entitlement to compensation or
damages arises from termination of the Units or diminution in value of the Units or Shares acquired
upon settlement of the Units resulting from termination of Grantee’s employment by the Company or
any Subsidiary (for any reason whatsoever and whether or not in breach of local labor laws), and
Grantee irrevocably releases the Company and each Subsidiary from any such claim that may arise;
if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to
have arisen, then, by signing this Agreement, Grantee shall be deemed irrevocably to have waived
his or her entitlement to pursue such claim.

          (f) Data Privacy Notice and Consent. Grantee hereby explicitly and unambiguously
consents to the collection, use and transfer, in electronic or other form, of his or her personal
data as described in this Agreement by and among, as applicable, the Company and its Subsidiaries
and other affiliates for the exclusive purpose of implementing, administering and managing
Grantee’s participation in the Plan.

               Grantee understands that the Company and its Subsidiaries may hold certain personal
information about Grantee, including, but not limited to, Grantee’s name, home address and
telephone number, date of birth, social insurance number or other identification number, salary,
nationality, job title, any shares of stock or directorships held in the Company and its
Subsidiaries, details of all Units or any other entitlement to Shares awarded, canceled, vested,
unvested or outstanding in Grantee’s favor, for the purpose of implementing, administering and
managing the Plan (“Data”).

               Grantee understands that Data may be transferred to any third parties assisting in the
implementation, administration and management of the Plan, that these recipients may be located in
Grantee’s country or elsewhere, and that the recipients’ countries may have different data privacy
laws and protections than Grantee’s country. Grantee understands that he or she may request a list
with the names and addresses of any potential recipients of the Data by contacting his or her local
human resources representative. Grantee authorizes the recipients to receive, possess, use, retain
and transfer the Data, in electronic or other form, for the purposes of implementing, administering
and managing Grantee’s participation in the Plan, including any requisite transfer of such Data as
may be required to a broker, escrow agent or other third party with whom the Shares received upon
settlement of the Units may be deposited. Grantee understands that Data will be held only as long
as is necessary to implement, administer and manage his or her participation in the Plan. Grantee
understands that he or she may, at any time, view Data, request additional information about the
storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the
consent herein, in any case without cost, by contacting in writing his or her local human resources
representative. Grantee understands, however, that refusal or withdrawal of consent may affect his
or her ability to participate in the Plan and, to the extent permitted by applicable law, may void
this Agreement. For more information on the consequences of his or her refusal to consent or
withdrawal of consent, Grantee understands that he or she may contact his or her local human
resources representative.

          (g) Language. If Grantee has received this Agreement or any other document related to
the Plan translated into a language other than English and if the translated version is different
than the English version, the English version will control.

65

 

          (h) Delivery of Documents and Notices. Any document relating to participating in the
Plan and/or notice required or permitted hereunder shall be given in writing and shall be deemed
effectively given (except to the extent that this Agreement provides for effectiveness only upon
actual receipt of such notice) upon personal delivery, by telegram, telex, telecopy or similar
facsimile means, electronic delivery, or upon deposit in the U.S. Post Office or foreign postal
service, by certified or registered mail, return receipt requested, with postage and fees prepaid,
addressed to the Company at its then-current main corporate address or by electronic mail to
StockLink@smith.com, and to Grantee at his or her address indicated on the Company’s records, at
the e-mail address, if any, provided for Grantee by the Company or its Subsidiary, or at such other
address and number as a party has previously designated in writing from time to time to the other
party.

               (i) Description of Electronic Delivery. The Plan documents, which may include but do not
necessarily include the Plan Prospectus, this Agreement and U.S. financial reports of the Company,
may be delivered to Grantee electronically. Such means of delivery may include but do not
necessarily include the delivery of a link to a Company intranet or the internet site of a third
party involved in administering the Plan, the delivery of the document via electronic mail or such
other delivery determined at the Company’s discretion.

               (ii) Consent to Electronic Delivery. Grantee acknowledges that Grantee has read this
Section 8(h) of this Agreement and consents to the electronic delivery of the Plan
documents. Grantee acknowledges that he or she may receive from the Company a paper copy of any
documents delivered electronically at no cost if Grantee contacts the Company by telephone, through
a postal service or electronic mail at StockLink@smith.com. Grantee further acknowledges that
Grantee will be provided with a paper copy of any documents delivered electronically if electronic
delivery fails; similarly, Grantee understands that Grantee must provide the Company or any
designated third party with a paper copy of any documents delivered electronically by Grantee if
electronic delivery fails. Grantee understands that Grantee’s consent may be revoked or changed,
including any change in the electronic mail address to which documents are delivered (if Grantee
has provided an electronic mail address), at any time by notifying the Company of such revised or
revoked consent by telephone, postal service or electronic mail at StockLink@smith.com. Finally,
Grantee understands that he or she is not required to consent to electronic delivery but that, to
the extent permitted by applicable law, such refusal may affect Grantee’s ability to participate in
the Plan.

          (i) Amendment, Termination and Waiver. This Agreement may be amended, modified,
terminated or superseded only by written instrument executed by or on behalf of the Company and by
Grantee. Any waiver of the terms or conditions hereof shall be made only by a written instrument
executed and delivered by the party waiving compliance. Any waiver granted by the Company shall be
effective only if executed and delivered by a duly authorized executive officer of the Company
other than Grantee. The failure of any party at any time or times to require performance of any
provisions hereof shall in no manner affect the right to enforce the same. No waiver by any party
of any term or condition herein, or the breach thereof, in one or more instances shall be deemed to
be, or construed as, a further or continuing waiver of any such condition or breach or a waiver of
any other condition or the breach of any other term or condition.

          (j) Governing Law and Severability. This Agreement shall be governed by the internal
laws, and not the laws of conflict, of the State of Texas. The invalidity of any provision of this
Agreement shall not affect any other provision of this Agreement, which shall remain in full force
and effect.

          (k) Successors and Assigns. This Agreement shall bind, be enforceable by, and inure
to the benefit of, the Company and its successors and assigns, and Grantee and Grantee’s permitted
assigns under the Plan in the event of death or Disability.

[Signature page follows]

66

 

     IN WITNESS WHEREOF, this Restricted Stock Unit Agreement is approved, granted and executed as
of the date first written above.

SMITH INTERNATIONAL, INC.

	 	 	 	 	 	 	 
	 

	 	By:
	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 

67

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00154-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00154-of-00352.parquet"}]]