Document:

exv4w10

 

  Exhibit 4.10

	FORM51-I02F3

	material change report

	1. name and address of Company:

	InterOil Corporation
(“InterOil”) 60-92 Cook Street
Portsmith, Queensland 4870
Australia

	2. Date of Material Change:

	August 24, 2007

	3. News Release:

	Press release disclosing in detail (he material sumrnarized in this Material Change Report
was disseminated through the facilities of Martketwire on Compex on August 28, 2007.

	4. Summary of Material Change:

	On August 24, 2007, InterOil announced that it hud completed its continuance into the Yukon
Territory Business Corporations Act from New Brunswick. In connection with this continuance,
InterOil adopted new by-laws and articles. The newly adopted by-laws and articles of
continuance of InterOil are now more typical of public company articles, in that they do not
include restrictions on the issuances of securities by InterOil or pre-emptive rights
Granted to PI I; Group, LLC or Commodities Trading International Corporation. Such
provisions were included in Inter-Oil’s previous articles. A copy of the new Articles of
Continuance and by-laws of InterOil are attached at Schedule “A”.

	5. Full Description of Material Change:

	The material change is described in more detail in the attached press release at Schedule
“IV.

	6. Reliance on Subsection 7.1(2) or (3) of National Instrument 51-102:

	Not applicable.

	7. Omitted Information:

	No! applicable,

	8. Executive Officer:

	The name and business telephone number of the executive officer of the Corporation who is
knowledgeable about the material change and This report is:

	Phil Mulacek

	Chairman & Chief Executive Officer

	+61 7 4046 4600

 

 

	9. Date of Report:

	August 31. 2007

	InterOil Corporation

	William Jaspor

	President & Chief Operating Officer

 

 

	SCHEDULE“A”

	ARTICLES OF CONTINUANCE

	AND BY-LAWS OF INTEROIL CORPORATION

 

 

	SCHEDULE “B” PRESS RELEASE

 

 

	Yukon

	Community Services            BUSINESS CORPORATIONS ACT

	FORMS

	Certificate of Continuance

	INTEROIL CORPORATION

	I hereby certify that the above-mentioned corporation was continued into Yukon,
as set out in the attached Articles of Continuance, under section 190 of the
Business Corporations Act.

	iii
—
Corporate Access Number:32478 fa- Frederik J. Pretorius

	Date of Continuance:2007-08-24 Registrar of Corporations

 

 

	ARTICLES OF CONTINUANCE

	YUKON BUSINESS CORPORATION ACT

	(Section 190)

	Form 3-01 ARTICLES OF
CONTI NUANCE

	1. Name of Corporation:

	INTEROIL CORPORATION

	2. The classes and any maximum number of shares that the Corporation is

	authorized to issue:

	The attached Schedule “A” is incorporated in In and forms part of these
Articles ol Continuance.

	3. Restrictions, if any, on share transfers:

	There arc no restrictions on share
transfers.

	4. Number (or minimum and maximum number) of Directors:

	Not less than three (3), nor more than fifteen (15)

	5. Restrictions, if any, on business the Corporation may carry on:

	None.

	6. If change of Name effected, previous name:

	Not applicable.

	7. Details of Incorporation;

	Amalgamation of South Pacific Interoil Limited and Cybermind Group Inc., under
the New Brunswick Business Corporations Act on May 29, 1997, under the name
InterOil Corporation.

	8. Other provisions, if any;

	The attached Schedule “B” is incorporated into and forms part of these
Articles of Continuance.

	9. Date: /V            August. 2007

	Signature: J%ftJS f Chairman & Chief Executive Officer

	f

	Title

	FILED

	AUG 2 4 2QO7

	H-1

	DEPUTY REGISTRAR

 

 

	INTEROIL CORPORATION SCHEDULE “A”

	The classes and any maximum number of shares that the Corporation is authorized to issue:

	The Corporation is authorized to issue an unlimited number of shares without nominal or par value
and the authorized capital of the Corporation is to be divided into:

	1. Common shares which shall have attached thereto the following preferences, rights,
conditions,

	restrictions, limitations, or prohibitions:

	(a) Voting

	Holders of Common shares shall be entitles to vote at any meeting of the shareholders of
the Corporation and have one vote in respect of each Common share held by them.

	(b) Dividends

	Holders of Common shares shall be entitled to receive, out of all profits or surplus
available for dividends, any dividend declared by the Corporation on the Common shares,

	(c) Participation in Assets on Dissolution

	In the event of liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary, holders of Common shares shall be entitled to receive the remaining property
of the Corporation.

	2. Preferred shares which .shall have attached thereto the following rights, privileges,
restrictions and

	conditions:

	(a) the Preferred Shares may at any time and from time to time be issued in one or
more series, each

	series to consist of such number of shares as may, before the issue thereof, be
determined by

unanimous resolution of the directors of the Corporation; and

	(b) subject to the provisions of the Business Corporation* Act (Yukon), the
directors of the Corporation

	may by unanimous resolution fix from lime to time before the issue thereof the
designation,

rights, privileges, restrictions and conditions attaching to each series of the
Preferred Shares

 

 

	INTEROIL CORPORATION SCHEDULE “B”

	Other provisions, if any:

	1. A meeting of the shareholders of the Corporation may, in the directors’ unfettered
discretion, be held at

	any location in North America, Europe, Asia, South America, Australia and Africa specified by the
directors in the notice of such meeting.
2, The directors may, between meetings of the shareholders, appoint one or more additional directors of the

	Corporation to serve until the next annual meeting of shareholders, but the number of
additional
directors shall not at any time exceed one third of the number of directors who held office
at the
expiration of the last annual meeting of the shareholders, provided that the total number of
directors shall
not exceed the maximum number of directors fixed pursuant to the Articles.

 

 

	BY-LAW

	BY-LAW NO. 1

	A By-law relating generally to the transaction of the business and affairs of INTEROTL

	CORPORATION (the “Corporation”)

	SECTION ONE — INTERPRETATION

	1.1 Interpretation. Words and expressions defined in the Business Corporations Act, Revised
Statutes of the

	Yukon 2002, Chapter 20 as amended as of the date hereof (the “Act”) have the same meanings when used in the By
laws. Words importing the singular number include the plural and vice versa and words importing gender include
masculine, feminine and neuter genders as required by the context.
1.2 Conflict with Act or Articles, The By-laws are subject to the provisions of the Act and the articles of the

	Corporation and in the event of conflict between the provisions of any By-laws and the provisions of the Act or the
articles, the provisions of the Act or the articles shall prevail over the By-laws.
1.3 Readings. The headings and indices used in the By-laws are inserted for convenience of reference only

	and do not affect the interpretation of the by-laws or any part thereof.

	SECTION TWO — BUSINESS OF THE CORPORATION

	2.1 Corporate Seal. The Board of Directors of the Corporation (the “Board”) may adopt and change
a

	corporate seal which shall contain the name of the Corporation and the Board may cause to be created as many
duplicates thereof as the Board shall determine.
2.2 Execution of Instruments. The Board may from time to time direct the manner in which, and the person

	or persons by whom, any particular document or class of documents may or shall be signed and
delivered. In the

absence of a directors’ resolution concerning the execution of any particular documents, documents
shall be signed

	and delivered on behalf of the Corporation by any one director or officer.
2.3 Banking and Financial Arrangements. The banking and financial business of the Corporation including,

	without limitation, the borrowing of money and the giving of security therefore, shall be transacted with such
banks, trust companies or other bodies corporate or organizations as may from time to time be designated by or
under the authority of the Board. Such banking and financial business or any part thereof shall be transacted under
such agreements, instructions and delegations of powers as the Board may from time to time prescribe or authorize.
2.4 Voting Rights in other Bodies Corporate. Any director or officer of the Corporation may execute and

	deliver proxies and arrange for the issuance of voting certificates or other evidence of the right
to exercise the
voting rights attaching to any securities held by the Corporation, Such instruments, certificates
or other evidence
shall be in favour of such person or persons as may be determined by the person executing such
proxies or
arranging for the issuance of voting certificates or such other evidence of the right to exercise
such voting rights. In

	addition, the Board may from time to time direct the manner in which and the person or persons by whom any
particular voting rights or class of voting rights may or shall be exercised.
2.5 Withholding Information from Shareholders. Subject to the provisions of die Actor other applicable law,

	no shareholder shall be entitled to discovery of any information respecting any details or conduct
of the
Corporation’s business which, in the opinion of the Board, it would be inexpedient in the
interests of the
shareholders or the Corporation to communicate to the public. Subject to the Act and applicable
law, the Board
may from time to determine whether and to what extent and at what time and place and under what
conditions or
regulations the accounts, records and documents of the Corporation shall be open to
the inspection of
shareholders and no shareholder shall have any right of inspection of any account, record or
document of the

	2.1

 

 

	Corporation except as conferred by the Act, other applicable law or authorized by the Board or by
resolution passed at a general meeting of shareholders.

	SECTION THREE — DIRECTORS AND BOARD

	3.1 Calling of Meeting. Meetings of the Board shall be held from time to time and at such place .is
the Board,

	the Chairman of the Board, the Chief Executive Officer, any officer designated by the Board or any two directors
may determine.
3.2 Notice of Meetings. Notice of the time and place of Board meetings shall be given to each director in the

	manner provided by this By-law not less than <48 hours before the time of the meeting.
3.3 Waiver of Notice. Notice of any meeting of directors or of any committee of directors or the time for tin1

	giving of any such notice or any irregularity in any meeting or in the notice thereof may be waived by any director
in writing or by tax address to the Corporation or in any other manner, and any such waiver may be validly
given either before or after the meeting to which such waiver relates. Attendance of a director at any meeting of
directors or of any committee of directors is a waiver of notice of such meeting, except when a director attends a
meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is
not lawfully called.
3.4 Omission of Notice. The accidental omission to give notice of any meeting of directors or of any

	committee of directors to or the non-receipt of any notice by any person shall not invalidate any resolution passed
or any proceeding taken at such meeting,
3.5 Telecommunication. A director may participate in a Board meeting or a meeting of a committee of

	directors by means of telephone or other communication facilities that permit all directors participating in the
meeting to hear each other
3.6 Quorum. A quorum for Board meetings shall be a majority of the directors present in person or by

	telecommunication. If a quorum is not present within 15 minutes of the time fixed for the holding of the meeting,
the meeting shall be adjourned for not less than 24 hours and notice of the time and place of the adjourned meeting
shall be given to each director not less than 12 hours before the time of the adjourned meeting. If a quorum is not
present within 15 minutes of the time fixed for the holding of the adjourned meeting, those directors present in
person or by telecommunication shall constitute a quorum for the purpose of the adjourned meeting.
3.7 First Meeting of New Board. Provided a quorum of directors is present, each newly elected Board may,

	without notice, hold its first meeting immediately following the meeting of shareholders at which such Hoard is
Elected,
3.8 Regular Meetings. The Board may appoint a day or days in any month or months and a place and hour

	for regular meetings of the Board. A copy of any resolution of the Hoard fixing the day or days, the place and time
of such regular meetings shall be sent to each director forthwith after being passed, but no other notice shall be
required for any such regular meeting except where the Act requires the purpose thereof or the business to be
transacted thereat to be specified.
3.9 Casting Vole. At all Board meetings, each director shall have one vole and every question shall be

	decided by a majority of votes cast on each question. In the case of an equality of votes, the chairman of the
meeting shall not be entitled to a second or casting vote in addition to the vote to which In- may be entitled as a
director.
3.10 Chairman. The chairman of any meeting of the Board shall be the first mentioned of such of the following

	officers as have been appointed and who is also a director and who is present at the meeting:

3.8

 

 

	(a) the Chairman of the Board;
(b) Chief Executive Officer;
(c) the President;
(d) the Chief Operating Officer; or

	(e) any Vice-President (and where more than one Vice-President is present at the
meeting, then the

	priority to act as chairman as between them shall be in the order of the seniority of
the office of

Vice-President).

	If no such officer (as have been appointed and who is also a director) is present within 15
minutes from the time fixed for the holding of the meeting of the Board, the persons present shall
choose one of their number then present to be chairman of that meeting.

	3.11 Committees of Directors. Unless otherwise ordered by the Board each committee of directors
shall have

	power to fix its quorum at not less than .1 majorities of its members, to elect its chairman and to regulate its
procedure.
3.12 Remuneration and Expenses. The directors shall be paid such remuneration for their services as the

	Board may from time to time determine. The directors shall also be entitled to be reimbursed for travel expenses
and other expenses properly Incurred by them in attending meetings of the Board or any committee thereof.
Nothing herein contained shall preclude any director from serving the Corporation in any other capacity and
receiving remuneration therefore.
3.13 Resolution in Lieu of Meeting. A resolution in writing, signed (or otherwise authorized in a manner

	approved by the Board) by all the directors entitled to vote on that resolution at a meeting of
directors or
committee of directors, is as valid as if it had been passed at a meeting of directors or committee
of directors. A
resolution in writing dealing with all matters required by the Act or this by-law to be dealt with
at a meeting of
directors, and signed by all the directors entitled to vote at that meeting, satisfies all the
requirements of the Act
and this by-law relating to meetings of directors,

	SECTION FOUR — OFFICERS

	4.1 Appointment. The Board may, from time to time, appoint any or all of a Chairman of the Board, a
Chief

Executive Officer, a President, a Chief Operating Officer, a Chief Financial Officer, one or more
Vice-Presidents (to which title may be added words indicating seniority or function), a Secretary,
a Treasurer and such other officers as the Board may determine, including one or more assistants
to any of the officers so appointed, Subject to those powers and authority which pursuant to the
Act may only be exercised by the directors, tried officers of the Corporation may exercise,
respectively, such powers and authority and shall perform such duties, in addition to those
specified in the By-laws, as may from time to time be prescribed by the Board. Except for the
Chairman of the Board an officer may, but need not be, a director.

	4.2 Delegation, to case of the absence of any officer or employee of the Corporation or for any
other reason

	that the Board may deem sufficient, the Board may delegate the powers and authority of such officer or employee
to any other officer or employee or to any director of the Corporation.
4.3 Agents and Attorneys. The Board, the Chairman of the Board or the Chief Executive Officer may also

	from time to time appoint other agents, attorneys, officers and employees of the Corporation within
or without
Canada, who may be given such titles and who may exercise such powers and authority (including the
power of
4.2

 

 

	sub delegation) and shall perform Midi Juries of management or otherwise*, as the Board may from
time to time prescribe.

	4.4 Chairman of the Board, Die Chairman of the Board shall be a director of the Corporation, The
Chairman

	of the Hoard shall preside at till meetings of the Board and meetings of shareholders .11 which he is present and may
exercise such other powers and authority and shall perform the duties which may from time to time be prescribed
by the Board,
4.5 Chief Executive Officer. The Chief Executive Officer shall, except as may be otherwise specified by tin-

	Board, and, subject to the authority of the Hoard, be responsible for the general supervision of the business and
affairs of the Corporation and shall have such other powers and duties us the Hoard may specify. During the
absence or disability of the Chairman of the Board, or if no Chairman (if the Board has been appointed, in the event
the Chief Executive Officer is a director of the Corporation, the Chief Executive Officer shall, when present,
preside as chairman at all meetings of directors and at all meetings of shareholders,
4.6 Vice-Presidents and Other Officers. The Vice-President and other officers of the Corporation may

	exercise such powers and authority and shall perform such duties as may from time to time be prescribed by the
Board.
4.7 Secretary. Except as may be otherwise determined from time to time by the Board, the Secretary shall

	attend and be the secretary to all meetings of the Board, shareholders and committees of the Board
and shall enter
or cause to be entered in records kept for that purpose minutes of all proceedings at such
meetings. The Secretary
shall give or cause to he given as and when instructed all notices to shareholders, directors,
officers, auditors and

	members of committees of the Board. The Secretary shall be the custodian of the corporate seal, if any, of the
Corporation and shall have charge of all books, papers, reports, certificates, records, Documents, registers and
instruments belonging lo the Corporation, except when some other officer or agent has been appointed for that
purpose and may exercise such other powers and authority and shall perform such other duties as may from lime
to time be prescribed by the Board or by the Chief Executive Officer.
4.8 Variation of the Powers and Duties, The Board may from lime to time vary, add to or limit the powers,

	authority and duties of any officer
4.9 Removal and Discharge. The Board may remove any officer of the Corporation, with or without cause, at

	any meeting called for that purpose and mav elect or appoint others in their place or places.
4.10 Term of Office. Each officer appointed by the Board shall hold office until a successor is appointed, or

	until his earlier resignation or removal by the Board.

	4.1.1 Terms of Employmenl and Remuneration. The terms of employment and the remuneration of
officers appointed by the Board shall lie settled by the Hoard from time to time.

	4.12 Fidelity Bonds. The Board, the Chairman of the Board or the Chief Executive Officer may
require such officers, employees and agents of the Corporation as it deems advisable to furnish
bonds for the faithful performance of their powers and duties, in such form and with such surety
as it may from time to time determine.

	SECTION FIVE- INDEMNIFICATION

	5.1 Indemnification of Directors and Officers Against Actions by Third Parties. Except in respect
of an

	action by or on behalf of the Corporation or body corporate to procure a judgment in Gils favour,
the Corporation shall indemnify a director or officer of the Corporation, a former director or
officer of the Corporation or a person who acts or acted at the Corporation’s request as a
director or officer of a body corporate of which the Corporation is or was a shareholder or
creditor, or a person who undertakes or has undertaken any liability on behalf of the

 

 

	Corporation or any such body corporate, and his heirs and legal representatives, against all
costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment,
reasonably incurred by him in respect of any civil, criminal or administrative action or
proceeding to which he is made a party by reason of being or having been a director or officer of
that Corporation or body corporate, if:

	(a) He acted honestly and in good faith with a view to the best interests of the
Corporation; and

	(b) In the case of a criminal or administrative action or proceeding that is
enforced by a monetary

	penalty, he had reasonable grounds for believing that his conduct was lawful.

	5.2 Indemnification of Directors and Officers Against Actions by the Corporation. The Corporation
shall,

	with the approval of the Supreme Court of the Yukon Territory, indemnify a person referred to in paragraph 5.1 in
respect of tin action by or on behalf of the Corporation or body corporate to procure a judgment in its favour, to
which he is made a party by reason of being or having been a director or an officer of the Corporation or body
corporate, against all costs, charges and expenses reasonably incurred by him in connection with the action if he
fulfills the conditions set out in subparagraphs 5.1{a) and (b).
5.3 Right of Indemnity not Exclusive. The provisions for indemnification contained in the By-laws shall not

	be deemed exclusive of any other rights to which a person seeking indemnification may be entitled under any By
law, agreement, vote of shareholders or disinterested directors or otherwise, both as to an action in his official
capacity and as to an action in any other capacity while holding such office. This section shall also apply to a
person who has ceased to be a director or officer, and shall ensure to the benefit of the heirs and legal
representatives of such person.
5.4 Insurance. Subject to the limitations contained in the Act, the Corporation may purchase and maintain

	such insurance for the benefit of its directors and officers as the Board may from time to time
determine.

	SECTION SIX — SHARES

	6.! Options. The Board may from time to time grant options to purchase the whole or any
part of the

	authorized and unissued shares of the Corporation at such times and to such persons and tor such
consideration as die Board shall determine, provided that no share shall be issued until it is
fully paid as provided in the Act.

	6.2 Non-recognition of Trusts. The Corporation shall treat as absolute owner of any share the
person in

whose name the share is registered in the securities register as if that person had full legal
capacity and authority to

	exercise a right of ownership, irrespective of any indication to the contrary through knowledge or notice or
description in the Corporation’s records or on the share certificate.
6.3 Joint Shareholders. If two or more persons are registered as joint holders of any share, any one of such

	persons may give effectual receipts for the certificate issued in respect thereof or for any
dividend, bonus, return

	of capital or other money payable or warrant issuable in respect of such share.
6.4 Agent. The directors may from time to time by resolution appoint or remove (i) one or more trust

	companies registered under the relevant law as its agent or agents to maintain a central securities register or
registers or (ii) an agent or agents to maintain a branch securities register or registers for the Corporation.
6.5 Dealings with Registered Holder. Subject to the Act, the Corporation may treat the registered owner of a

	security as the person exclusively entitled to vote, to receive notices, to receive any interest,
dividend or other payments in respect of the security, and otherwise to exercise all the rights
and powers of an owner of the security.

 

 

	SECTION SEVEN — DIVIDENDS AND RIGHTS

	7.1 Dividend Cheques. A dividend payable in cash shall be paid by cheque drawn on the
Corporation’s

bankers or one of them to the order of each registered holder of shares of the class or series in
respect of which a

	dividend has been declared, and mailed by prepaid ordinary mail to such registered holder at the address shown
in the records of the Corporation, unless such holder otherwise directs. The mailing of such cheque as aforesaid,
unless the same is not paid on due presentation, shall satisfy and discharge the liability for the dividend to the
extent of the sum represented thereby plus the amount of any tax which the Corporation is required to and does
withhold.
7.2 Join! Shareholders. In the case of joint holders, a cheque for payment of dividends, bonuses, returns of

	capital or other money payable, shall, unless such joint holders otherwise direct, be made payable
to the order of

all of such joint holders and mailed to them at the address shown in the records of the
Corporation.

	7.3 Non-Receipt of Cheques. In the event of non-receipt of any dividend cheque by the person to
whom it is
sent as aforesaid, the Corporation shall issue to such person a replacement cheque for a like
amount on such terms
as to indemnity, reimbursement of expenses and evidence of non-receipt and of title as the Board
may from time to
time prescribe, whether generally or in any particular case.

	7.4 Unclaimed Dividends. Any dividend unclaimed after a period of six (6) years from the date on
which the

same has been declared to be payable shall be forfeited and shall revert to the Corporation.

	SECTION EIGHT — MEETINGS OF SHAREHOLDERS

	8.1 Annual Meetings. The annual meeting of shareholders shall be held at such time in each year
and, subject

to the articles of the Corporation, at such place as the Board, or failing it, the Chairman of the
Board or the Chief

	Executive Officer, may from time to time determine.

	8.2 Time for Deposit of Proxies, ‘[’he Board may specify in a notice calling a meeting of
shareholders a time,

	preceding the time of such meeting by not more than 48 hours exclusive of non-business days, before which
proxies to be used at such meeting must be deposited. A proxy shall be acted upon only if, print to the time so
specified, it shall have been deposited with the Corporation or an agent thereof specified in such notice, or if no
such time is specified in such notice, unless it has been received by the Secretary of the Corporation or by the
chairman of the meeting or any adjournment thereof prior to the time of voting.
8.3 Persons Entitled to be Present. The only persons entitled to be present at a meeting of the shareholders

	shall be those persons entitled to vote thereat, the directors and auditor (if any) of the
Corporation and others who, although not entitled to vote, are entitled or required under any
provision of the Act or the articles or By-laws to be present at the meeting. Any other persons
may be admitted only on the invitation of the chairman of the meeting or with the consent of the
meeting.

	8.4 Quorum. A quorum of shareholders is present at a meeting of shareholders, irrespective of the
number of
persons actually present at the meeting, if the holder or holders of five percent (5%) of the
shares entitled to vote
at the meeting are present in person or represented by proxy. No business shall be transacted at
any meeting
unless the requisite quorum is present at the time of the transaction of such business.

	8.5 Adjournment. Should a quorum not be present at any meeting of shareholders, those present in
person or
by proxy and entitled to vote shall have power to adjourn the meeting for a period of not more than
30 days
without notice other than announcement at the meeting. At any such adjourned meeting, provided a
quorum is
present, any business may be transacted which might have been transacted al the meeting adjourned.
Notice of
meetings adjourned for more than 30 days and for more than an aggregate of 90 days shall be given
as required by
theAct

	8.4

 

 

	8.6 Chairman. The chairman of any meeting of the shareholders shall be the first mentioned of such
of the

following officers as have been appointed, who is a shareholder and who is present at the meeting:

	(a) the Chairman of the Board;

	(b) the Chief Executive Officer;

	(c) any Vice-President (and where more than one Vice-President is present at the
meeting, then the

	priority to act as chairman as between them shall be in die order the seniority of
their office of Vice-

P resident).

	If no such officer is present within 15 minutes from the lime fixed for the holding of the meeting
of the shareholders, the persons present and entitled to vote shall choose one of their number
then present to be chairman of that meeting.

	8.7 Secretary of Meeting. If the Secretary of the Corporation is absent, the chairman of a
meeting of

	shareholders shall appoint some person, who need not be a shareholder or proxy holder, to act as secretary of the
meeting.
8.8 Chairman’s Casting Vote. At any meeting of shareholders every question shall be determined by the

	majority o( the votes cast on the question. In the case of an equality of votes at a meeting of shareholders, the
chairman of the meeting shall not be entitled to a second or casting vote in addition to the vote or votes to which he
may be entitled as a shareholder.
8.9 Chairman’s Declaration. Al any meeting of shareholders, unless a ballot is demanded, a declaration by

	the chairman of the meeting that a resolution has been carried or carried unanimously or by a particular majority
Or lost or not carried by a particular majority shall be conclusive evidence of the fact without proof of the number
or proportion of votes recorded in favour of or against the motion.
8.10 Voting by Ballot. If a ballot is demanded by a shareholder or proxy holder entitled to vote at a

	shareholder’s meeting and the demand is not withdrawn, the ballot upon the motion shall be taken in such manner
as die chairman of the meeting shall direct. Upon a ballot each shareholder who is present in person or represented
by proxy shall be entitled, in respect of the shares which he is entitled to vote at the meeting upon the question, to
that number of votes provided by the Act or the articles. The declaration by the Chairman of the meeting that the
vote upon the question has been carried, or carried unanimously or by a particular majority, or lost or not carried
by a particular majority and an entry in the minutes of the meeting shall be prima facie evidence of the fact without
proof of the number or proportion of votes recorded in favour of or against any resolution or question.
8.11 Scrutineers. The chairman or the secretary at any meeting of the shareholders or the shareholders or

	proxyholders then present may appoint one or more scrutineers, who need not be shareholders or
proxyholders, to

count and report upon the results of the voting which is done by ballot.

	SECTION NINE — NOTICES

	9.1 Notices. In addition to any other method of service permitted by the Act, any notice or
document required by die Act, the regulations, the articles or die By-laws may lie sent to any
person entitled to receive same in the manner set out in the Act for service upon a shareholder or
director and by email or by any means of” telecommunication with respect to which a written record
is made. A notice sent by means of email or telecommunication shall be deemed to have been given
on the business day upon which the written record is made.

 

 

	9.2 Notice to Joint Shareholders. If two or more1 persons hold shares jointly, notice
may be given to one of

	such persons and such notice shall be sufficient notice to all of them.
9.3 Change of Address. The Secretary or Assistant Sec rotary may change or cause to be changed the address

	in the records of the Corporation of any shareholder, director, officer, auditor or member of a committee of the
Hoard in accordance with any information believed by him to be reliable
9.4 Signature on Notice. The signature on any notice to be given by the Corporation may be lithographed,

	written, printed or otherwise mechanically reproduced.
9.5 Proof of Service. A certificate of any officer of the Corporation in office at the time of the making of the

	certificate or of an agent of the Corporation «is to fat Is in relation to the sending of any
notice or document to any
shareholder, director, officer or auditor or publication of any notice or document shall be
conclusive evidence
thereof and shall he binding on every shareholder, director, officer or auditor of the Corporation,
as the case may
be.

	SFCTION TEN — EFEFXT1VE DATE AND AMENDMENT

	111.1 Effective Date. This By-law is effective from the dale of the resolution of the Board
adopting same and shall continue to be effective, unless amended by I he Hoard, unit! the next
meeting of shareholders of the Corporation, whereupon if same is confirmed or confirmed as
amended, this By-law shall continue in effect in the form in which it was so confirmed.

	10.2 Amending By-law. The Board may by resolution amend or repeal this By-taw and such amendment
or repeal shall have force and effect unless rejected by ordinary resolution of the shareholders
entitled to vote at an annual general meeting.

 

 

	LJ.J.&.WJL V^AA

	NEWS RELEASE

	INTEROIL COMPLETES CONTINUANCE FROM NEW BRUNSWICK TO YUKON

	TORONTO — August 28, 2007 — InterOil Corporation (TSX:IOL) (AMEX:IOC) (POMSoX:IOC) today
announced that the Corporation is now domiciled in Yukon Territory, Canada having completed its
continuance from New Brunswick, Canada. The rationale for undertaking the continuance is that the
Business Corporations Act (Yukon Territory) is considered to be more modern and flexible, while at
the same time does not impose any residency restrictions on the Corporation’s directors. The lack
of such restrictions is important given that InterOil’s operations are principally located outside
of Canada, in Papua New Guinea and InterOil may require the appointment of directors who are not
ordinarily resident in Canada.

	The newly adopted by-laws and article of continuance of InterOil are now more typical of
public company articles, in that they do not include restrictions on the issuances of securities
by InterOil or pre-emptive rights granted to PIE Group, LLC or Commodities Trading International
Corporation. Such provisions were included in InterOil’s previous articles.

	The continuance was approved by special resolution at the annual and special meeting of
InterOil’s shareholders held on June 25, 2007.

	COMPANY DESCRIPTION

	InterOil Corporation is developing a vertically integrated energy business whose primary
focus is Papua New Guinea and the surrounding region. InterOil’s assets consist of petroleum
licenses covering about 9 million acres, an oil refinery, and retail and commercial distribution
facilities, all located in Papua New Guinea. During 2006, the company announced a gas and
condensate discovery, completed an optimization program at the refinery, and doubled the
downstream business by acquiring Shell’s distribution assets in Papua New Guinea. In addition,
InterOil is a shareholder in PNG LNG Inc., a Joint Venture with Merrill Lynch Commodities and

	InterOil News Release Page 1 of2

 

 

	Pacific LNG established to construct Papua New Guinea’s first LNG plant on a site adjacent to
InterOil’s refinery in Port Moresby.

	InterOil’s common shares trade on the Toronto Stock Exchange under the symbol IOL in Canadian
dollars and on the American Stock Exchange under the symbol IOC in US dollars. For more
information please see the InterOil website at: www.interoil.com.

	FOR FURTHER INFORMATION
North America            Australasia
——  —
David Larson            Anesti Dermedgoglou
david.larson@interoil.com            anesti@interoil.com
——  —
+1 281 292 1800 +61 7 4046 4600

	CAUTIONARY STATEMENTS

	This news release contains projections and other forward-looking statements within the meaning of
United States and Canadian securities laws. These projections and statements reflect the company’s
current views with respect to future events and financial performance. No assurances can be given,
however, that these events will occur or that these projections will be achieved and actual results
could differ materially from those projected as a result of certain factors. Some of the factors
which could affect our future results and could cause results to differ materially from those
expressed in our forward-looking statements include: the ability of our refinery to operate at full
capacity and to operate profitability; the success of our exploration activities; political, legal
and economic risks related to our operations in Papua New Guinea; our ability to market refinery
output; our dependence on exclusive relationships with our suppliers and customers; our ability to
obtain necessary licenses; our ability to renew our petroleum licenses with the Papua New Guinea
government; adverse weather, explosions, fires, natural disasters and other operating hazards, some
of which may not be insured; the impact of competition; the enforceability of legal rights; the
volatility of prices for crude oil and the volatility of the difference between our purchase price
of oil feedstock and the sales price of our refined products; the uncertainty of our ability to
attract capital; uninsured operations; covenants in our financing and other agreements that may
limit our ability to engage in business activities, raise additional financing or respond to
changes in markets or competition; and the risk factors discussed in our filings with the
Securities and Exchange Commission, including but not limited to those in our Annual Report for the
year ended December 31,2006 on Form 40-F.

	Any forward-looking statement speaks only as of the date on which such statement is made and the
company undertakes no obligation to correct or update any forward-looking statement, whether as a
result of new information, future events or otherwise.

	InterOil currently has no reserves as defined in Canadian National Instrument 51-101 Standards of
Disclosure for Oil and Gas Activities (“NI 51-101”). Any information contained herein regarding
resources are references to undiscovered resources under NI 51-101, whether stated or not.

	InterOil News Release Page 2 of 2exv4w12

 

Exhibit 4.12

Appendix — 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 nine month periods ended
September 30, 2007 and 2006, and the audited consolidated financial statements for the years ended
December 31, 2006 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 note 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 note. 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
	 	 	September 30, 2007	 	December 31, 2006	 	September 30, 2006
	 	 	$ (Un-audited)	 	$	 	$ (Un-audited)
	 	 	Canadian GAAP	 	US GAAP	 	Canadian GAAP	 	US GAAP	 	Canadian GAAP	 	US GAAP
	 
	Assets
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Current assets:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash and cash equivalents (8)
	 	11,928,674	 	 	 	10,200,333	 	 	 	31,681,435	 	 	 	31,681,435	 	 	 	30,597,797	 	 	 	30,597,797	 
	Cash restricted
	 	 	26,672,843	 	 	 	26,672,843	 	 	 	29,301,940	 	 	 	29,301,940	 	 	 	35,652,911	 	 	 	35,652,911	 
	Trade receivables
	 	 	54,530,040	 	 	 	54,530,040	 	 	 	67,542,902	 	 	 	67,542,902	 	 	 	33,353,429	 	 	 	33,353,429	 
	Commodity derivative contracts
	 	 	—	 	 	 	—	 	 	 	1,759,575	 	 	 	1,759,575	 	 	 	1,703,100	 	 	 	1,703,100	 
	Other assets (8)
	 	 	2,931,626	 	 	 	134,098	 	 	 	2,954,946	 	 	 	2,954,946	 	 	 	95,265	 	 	 	95,265	 
	Inventories
	 	 	125,269,818	 	 	 	125,269,818	 	 	 	67,593,558	 	 	 	67,593,558	 	 	 	103,125,128	 	 	 	103,125,128	 
	Prepaid expenses (8)
	 	 	3,964,060	 	 	 	3,946,099	 	 	 	880,640	 	 	 	880,640	 	 	 	1,509,444	 	 	 	1,509,444	 
	Deposit on business acquisition
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	30,639,000	 	 	 	30,639,000	 
	 
	Total current assets
	 	 	225,297,061	 	 	 	220,753,231	 	 	 	201,714,996	 	 	 	201,714,996	 	 	 	236,676,074	 	 	 	236,676,074	 
	Cash restricted
	 	 	1,229,726	 	 	 	1,229,726	 	 	 	3,217,284	 	 	 	3,217,284	 	 	 	3,158,378	 	 	 	3,158,378	 
	Deferred financing costs (7)
	 	 	—	 	 	 	1,500,949	 	 	 	1,716,757	 	 	 	1,716,757	 	 	 	1,831,073	 	 	 	1,831,073	 
	Investment in LNG Project (8)
	 	 	—	 	 	 	5,429,862	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	Plant and equipment (1), (8)
	 	 	237,671,816	 	 	 	225,432,318	 	 	 	242,642,077	 	 	 	231,175,281	 	 	 	236,989,837	 	 	 	225,352,161	 
	Oil and gas properties
	 	 	71,205,570	 	 	 	71,205,570	 	 	 	54,524,347	 	 	 	54,524,347	 	 	 	44,781,951	 	 	 	44,781,951	 
	Future income tax benefit
	 	 	2,251,626	 	 	 	2,251,626	 	 	 	1,424,014	 	 	 	1,424,014	 	 	 	1,203,600	 	 	 	1,203,600	 
	 
	Total assets
	 	 	537,655,799	 	 	 	527,803,282	 	 	 	505,239,475	 	 	 	493,772,679	 	 	 	524,640,913	 	 	 	513,003,237	 
	 
	Liabilities and shareholders’ equity
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Current liabilities:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accounts payable and accrued liabilities
(7),(8)
	 	 	132,626,075	 	 	 	132,408,209	 	 	 	76,095,369	 	 	 	76,095,369	 	 	 	75,855,550	 	 	 	75,855,553	 
	Commodity derivative contracts
	 	 	562,725	 	 	 	562,714	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	Working capital facility — crude feedstock
	 	 	27,948,185	 	 	 	27,948,185	 	 	 	36,873,508	 	 	 	36,873,508	 	 	 	66,425,433	 	 	 	66,425,433	 
	Deferred hedge gain (2)
	 	 	—	 	 	 	—	 	 	 	1,385	 	 	 	—	 	 	 	959,687	 	 	 	—	 
	Deferred liquefaction project liability
	 	 	—	 	 	 	—	 	 	 	6,553,080	 	 	 	6,553,080	 	 	 	5,092,097	 	 	 	5,092,097	 
	Current
portion of secured loan (7)
	 	 	144,187,210	 	 	 	144,245,543	 	 	 	13,500,000	 	 	 	13,500,000	 	 	 	—	 	 	 	—	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Current portion of indirect participation
interest — PNGDV
	 	 	580,775	 	 	 	580,775	 	 	 	730,534	 	 	 	730,534	 	 	 	1,961,867	 	 	 	1,961,867	 
	 
	Total current liabilities
	 	 	305,904,970	 	 	 	305,745,426	 	 	 	133,753,876	 	 	 	133,752,491	 	 	 	150,294,634	 	 	 	149,334,950	 
	Accrued financing costs
	 	 	—	 	 	 	—	 	 	 	1,087,500	 	 	 	1,087,500	 	 	 	1,450,000	 	 	 	1,450,000	 
	Secured loan
(7)
	 	 	58,000,000	 	 	 	58,000,000	 	 	 	184,166,433	 	 	 	184,166,433	 	 	 	186,053,775	 	 	 	186,053,775	 
	Deferred gain on contributions to LNG
project (8)
	 	 	8,910,293	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	Indirect participation interest (5)
	 	 	96,086,369	 	 	 	115,926,369	 	 	 	96,861,259	 	 	 	116,861,259	 	 	 	96,861,259	 	 	 	116,861,259	 
	Indirect participation interest — PNGDV
	 	 	1,343,719	 	 	 	1,343,719	 	 	 	1,190,633	 	 	 	1,190,633	 	 	 	—	 	 	 	—	 
	 
	Total liabilities
	 	 	468,830,754	 	 	 	481,015,514	 	 	 	417,059,701	 	 	 	437,058,316	 	 	 	434,659,668	 	 	 	453,699,984	 
	 
	Non-controlling interest (6)
	 	 	5,692,678	 	 	 	5,354,150	 	 	 	5,759,206	 	 	 	5,416,831	 	 	 	5,726,684	 	 	 	5,374,388	 
	Shareholders’ equity:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Share capital
	 	 	235,327,634	 	 	 	235,327,634	 	 	 	233,889,366	 	 	 	233,889,366	 	 	 	232,678,088	 	 	 	232,678,088	 
	Contributed surplus
	 	 	9,148,271	 	 	 	9,148,271	 	 	 	4,377,426	 	 	 	4,377,426	 	 	 	4,196,247	 	 	 	4,196,247	 
	Warrants
	 	 	2,119,034	 	 	 	2,119,034	 	 	 	2,137,852	 	 	 	2,137,852	 	 	 	2,137,852	 	 	 	2,137,852	 
	Induced Conversions of Convertible Debt
(4)
	 	 	—	 	 	 	6,899,211	 	 	 	—	 	 	 	6,899,211	 	 	 	—	 	 	 	6,899,211	 
	Accumulated Other Comprehensive Income
	 	 	2,374,528	 	 	 	2,374,528	 	 	 	1,492,869	 	 	 	1,494,258	 	 	 	1,343,294	 	 	 	2,313,448	 
	Conversion options (5)
	 	 	19,840,000	 	 	 	—	 	 	 	20,000,000	 	 	 	—	 	 	 	20,000,000	 	 	 	—	 
	Accumulated deficit
	 	 	(205,677,100	)	 	 	(214,435,060	)	 	 	          (179,476,945	)	 	 	(197,500,581	)	 	 	        (176,100,920	)	 	 	(194,295,981	)
	 
	Total shareholders’ equity
	 	 	63,132,367	 	 	 	41,433,618	 	 	 	82,420,568	 	 	 	51,297,532	 	 	 	84,254,561	 	 	 	53,928,865	 
	 
	Total liabilities and shareholders’ equity
	 	 	537,655,799	 	 	 	527,803,282	 	 	 	505,239,475	 	 	 	493,772,679	 	 	 	524,640,913	 	 	 	513,003,237	 
	 

 

 

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:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Nine month period ended	 	 	Year ended	 	 	Nine month period ended	 
	 	 	September 30, 2007	 	 	December 31, 2006	 	 	September 30, 2006	 
	 	 	$ (Un-audited)	 	 	$	 	 	$ (Un-audited)	 
	 	 	Canadian GAAP	 	 	U.S. GAAP	 	 	Canadian GAAP	 	 	U.S. GAAP	 	 	Canadian GAAP	 	 	U.S. GAAP	 
	 
	Revenue
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Sales and operating revenues (1)
	 	 	453,603,730	 	 	 	453,603,730	 	 	 	511,087,934	 	 	 	511,189,438	 	 	 	340,758,419	 	 	 	340,758,419	 
	Interest income
	 	 	1,734,361	 	 	 	—	 	 	 	3,223,995	 	 	 	—	 	 	 	2,375,543	 	 	 	—	 
	Other income
	 	 	2,202,510	 	 	 	—	 	 	 	3,747,603	 	 	 	—	 	 	 	2,149,562	 	 	 	—	 
	 
	 
	 	 	457,540,601	 	 	 	453,603,730	 	 	 	518,059,532	 	 	 	511,189,438	 	 	 	345,283,524	 	 	 	340,758,419	 
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Expenses
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cost of sales and operating expenses (excluding
depreciation shown below) (1)
	 	 	423,976,643	 	 	 	423,976,643	 	 	 	499,494,540	 	 	 	499,584,532	 	 	 	339,958,342	 	 	 	339,980,788	 
	Administrative and general expenses (1), (2), (8)
	 	 	23,348,650	 	 	 	23,339,627	 	 	 	20,728,618	 	 	 	20,762,574	 	 	 	16,129,026	 	 	 	16,129,026	 
	Depreciation and amortization (1)
	 	 	10,037,606	 	 	 	9,679,389	 	 	 	12,352,672	 	 	 	11,591,513	 	 	 	8,799,170	 	 	 	8,208,891	 
	Exploration costs, excluding exploration
impairment
	 	 	12,071,133	 	 	 	12,071,133	 	 	 	6,176,866	 	 	 	6,176,866	 	 	 	6,226,731	 	 	 	6,226,731	 
	Exploration impairment
	 	 	525,741	 	 	 	525,741	 	 	 	1,647,185	 	 	 	1,647,185	 	 	 	1,528,495	 	 	 	1,528,495	 
	Legal and professional fees (1), (8)
	3,742,659	 	 	 	3,307,433	 	 	 	3,937,517	 	 	 	3,937,517	 	 	 	2,803,935	 	 	 	2,803,935	 
	Short term borrowing costs
	 	 	8,773,023	 	 	 	8,773,023	 	 	 	8,478,540	 	 	 	8,478,540	 	 	 	6,625,549	 	 	 	6,625,549	 
	Long term borrowing costs (1)
	7,621,055	 	 	 	7,621,055	 	 	 	11,856,872	 	 	 	11,856,872	 	 	 	7,247,211	 	 	 	7,247,211	 
	Loss on amendment of indirect participation
interest —  PNGDV
	 	 	—	 	 	 	—	 	 	 	1,851,421	 	 	 	1,851,421	 	 	 	1,851,421	 	 	 	1,851,421	 
	Gain on LNG shareholder agreement
	 	 	(6,553,080	)	 	 	(6,553,080	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	Loss on proportionate consolidation of LNG
Project (8)
	 	 	2,432,652	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	Gain on equity accounted investment (8)
	 	 	—	 	 	 	(6,043,353	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	Foreign exchange loss/(gain) (2), (8)
	 	 	(2,239,613	)	 	 	(2,238,875	)	 	 	(4,744,810	)	 	 	(4,744,810	)	 	 	(4,493,566	)	 	 	(4,493,566	)
	Non-controlling interest (6)
	 	 	(66,513	)	 	 	(62,679	)	 	 	(263,959	)	 	 	(265,865	)	 	 	(306,943	)	 	 	(308,307	)
	Interest income (8)
	 	 	—	 	 	 	(1,726,138	)	 	 	—	 	 	 	(3,223,995	)	 	 	—	 	 	 	(2,375,543	)
	Other income
	 	 	—	 	 	 	(2,202,510	)	 	 	—	 	 	 	(3,747,603	)	 	 	—	 	 	 	(2,149,562	)
	 
	 
	 	 	483,669,956	 	 	 	470,467,409	 	 	 	561,515,462	 	 	 	553,904,747	 	 	 	386,369,370	 	 	 	381,275,069	 
	 
	Loss before income taxes
	 	 	(26,129,355	)	 	 	(16,863,679	)	 	 	(43,455,930	)	 	 	(42,715,309	)	 	 	(41,085,846	)	 	 	(40,516,650	)
	 
	Income tax expense (3)
	 	 	(70,800	)	 	 	(70,800	)	 	 	(2,342,873	)	 	 	(2,342,873	)	 	 	(1,336,932	)	 	 	(1,336,932	)
	 
	Net loss
	 	 	(26,200,155	)	 	 	(16,934,479	)	 	 	(45,798,803	)	 	 	(45,058,182	)	 	 	(42,422,778	)	 	 	(41,853,582	)
	 

 

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)

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Nine Month	 	 	 	Nine Month
	 	 	period ended	 	Year ended	 	period ended
	 	 	September 30,	 	December 31,	 	September 30,
	 	 	2007	 	2006	 	2006
	 	 	$ (Un-audited)	 	$	 	$ (Un-audited)
	 
	Net loss as shown in the Canadian GAAP financial statements
	 	 	(26,200,155	)	 	 	(45,798,803	)	 	 	(42,422,778	)
	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)
	 	 	358,217	 	 	 	761,159	 	 	 	590,279	 
	Decrease in non-controlling interest expense (6)
	 	 	(3,833	)	 	 	1,907	 	 	 	1,365	 
	Increase in reporting income due to reversal of proportionate
consolidation of LNG Project and equity accounting the
investment (8)
	 	 	8,911,292	 	 	 	—	 	 	 	—	 
	Increase in sales from ineffective portion of hedges (2)
	 	 	—	 	 	 	101,504	 	 	 	—	 
	Description of items having the effect of decreasing reported income
	 	 	 	 	 	 	 	 	 	 	 	 
	Increase in cost of sales from ineffective portion of hedges (2)
	 	 	—	 	 	 	(89,992	)	 	 	(22,448	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Increase in administrative and general expenses from
ineffective portion of hedges (2)
	 	 	—	 	 	 	(33,956	)	 	 	—	 
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Net loss according to US GAAP
	 	 	(16,934,479	)	 	 	(45,058,182	)	 	 	(41,853,582	)
	 

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

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Nine months	 	 	 	Nine months
	 	 	period ended	 	Year ended	 	period ended
	 	 	September 30,	 	December 31,	 	December 31,
	 	 	2007	 	2006	 	2005
	 	 	$ (Un-audited)	 	$	 	$ (Un-audited)
	 
	Net loss in accordance with U.S. GAAP, net of tax
	 	 	(16,934,479	)	 	 	(45,058,182	)	 	 	(41,853,582	)
	Foreign currency translation reserve, net of tax
	 	 	880,270	 	 	 	1,015,426	 	 	 	865,851	 
	Deferred hedge gain, net of tax
	 	 	(1,389	)	 	 	(993,153	)	 	 	(24,388	)
	 
	Total other comprehensive income, net of tax
	 	 	878,881	 	 	 	22,273	 	 	 	841,463	 
	 
	Comprehensive loss, net of tax
	 	 	(16,055,598	)	 	 	(45,035,909	)	 	 	(41,012,119	)
	 

 

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

Consolidated
Statements of Shareholders’ Equity

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Nine month Period ended	 	Year ended	 	Nine month Period ended
	 	 	September 30, 2007	 	December 31, 2006	 	September 30, 2006
	 	 	$ (Un-audited)	 	$	 	$ (Un-audited)
	 	 	Canadian GAAP	 	US GAAP	 	Canadian GAAP	 	US GAAP	 	Canadian GAAP	 	US GAAP
	 
	Share capital
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At beginning of period
	 	 	233,889,366	 	 	 	233,889,366	 	 	 	223,934,500	 	 	 	223,934,500	 	 	 	223,934,500	 	 	 	223,934,500	 
	Issue of capital stock
	 	 	1,438,268	 	 	 	1,438,268	 	 	 	9,954,866	 	 	 	9,954,866	 	 	 	8,743,588	 	 	 	8,743,588	 
	 
	At end of period
	 	 	235,327,634	 	 	 	235,327,634	 	 	 	233,889,366	 	 	 	233,889,366	 	 	 	232,678,088	 	 	 	232,678,088	 
	 
	Contributed surplus
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At beginning of period
	 	 	4,377,426	 	 	 	4,377,426	 	 	 	2,933,586	 	 	 	2,933,586	 	 	 	2,933,586	 	 	 	2,933,586	 
	Stock compensation
	 	 	4,770,845	 	 	 	4,770,845	 	 	 	1,443,840	 	 	 	1,443,840	 	 	 	1,262,661	 	 	 	1,262,661	 
	 
	At end of period
	 	 	9,148,271	 	 	 	9,148,271	 	 	 	4,377,426	 	 	 	4,377,426	 	 	 	4,196,247	 	 	 	4,196,247	 
	 
	Warrants
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At beginning of period
	 	 	2,137,852	 	 	 	2,137,852	 	 	 	2,137,852	 	 	 	2,137,852	 	 	 	2,137,852	 	 	 	2,137,852	 
	Movement for period
	 	 	(18,818	)	 	 	(18,818	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	 
	At end of period
	 	 	2,119,034	 	 	 	2,119,034	 	 	 	2,137,852	 	 	 	2,137,852	 	 	 	2,137,852	 	 	 	2,137,852	 
	 
	Accumulated Other Comprehensive Income
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At beginning of period
	 	 	1,492,869	 	 	 	1,494,258	 	 	 	477,443	 	 	 	1,471,985	 	 	 	477,443	 	 	 	1,471,985	 
	Deferred hedge gain recognised on transition
	 	 	1,385	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	Deferred hedge (loss)/gain movement for period, net of tax
	 	 	(1,385	)	 	 	(1,389	)	 	 	—	 	 	 	(993,153	)	 	 	—	 	 	 	(24,388	)
	Foreign currency translation adjustment movement for period, net of tax
	 	 	881,659	 	 	 	881,659	 	 	 	1,015,426	 	 	 	1,015,426	 	 	 	865,851	 	 	 	865,851	 
	 
	At end of period
	 	 	2,374,528	 	 	 	2,374,528	 	 	 	1,492,869	 	 	 	1,494,258	 	 	 	1,343,294	 	 	 	2,313,448	 
	 
	Induced Conversions of Convertible Debt
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At beginning of period (4)
	 	 	—	 	 	 	6,899,211	 	 	 	—	 	 	 	6,899,211	 	 	 	—	 	 	 	6,899,211	 
	Movement for the period
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	 
	 
	 	 	—	 	 	 	6,899,211	 	 	 	—	 	 	 	6,899,211	 	 	 	—	 	 	 	6,899,211	 
	 
	Conversion options
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At beginning of period
	 	 	20,000,000	 	 	 	—	 	 	 	20,000,000	 	 	 	—	 	 	 	20,000,000	 	 	 	.	 
	Movement for period
	 	 	(160,000	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	 
	At end of period
	 	 	19,840,000	 	 	 	—	 	 	 	20,000,000	 	 	 	—	 	 	 	20,000,000	 	 	 	—	 
	 
	Accumulated deficit
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At beginning of period
	 	 	(179,476,945	)	 	 	(197,500,581	)	 	 	(133,678,142	)	 	 	(152,442,399	)	 	 	(133,678,142	)	 	 	(152,442,399	)
	Net loss for period
	 	 	(26,200,155	)	 	 	(16,934,479	)	 	 	(45,798,803	)	 	 	(45,058,182	)	 	 	(42,422,778	)	 	 	(41,853,582	)
	Deduct:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Preference Share Dividends
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	At end of period
	 	 	(205,677,100	)	 	 	(214,435,060	)	 	 	(179,476,945	)	 	 	(197,500,581	)	 	 	(176,100,920	)	 	 	(194,295,981	)
	 
	Shareholders’ equity at end of period
	 	 	63,132,367	 	 	 	41,433,618	 	 	 	82,420,568	 	 	 	51,297,532	 	 	 	84,254,561	 	 	 	53,928,865	 
	 

 

 

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

Consolidated Statement of Cash Flows

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Nine month period	 	 	 	Nine month period
	 	 	ended	 	 Year ended	 	ended
	 	 	September 30, 2007	 	December 31, 2006	 	September 30, 2006
	 	 	$ (Un-audited)	 	$	 	$ (Un-audited)
	 
	Cash flows provided by (used in):
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Operating activities — Canadian GAAP (as per consolidated cash flows)
	 	 	(19,781,769	)	 	 	2,187,462	 	 	 	(15,926,643	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Reconciling items:
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Exploration costs expensed including exploration impairment
	 	 	(12,596,874	)	 	 	(7,824,051	)	 	 	(7,755,226	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Being LNG project equity accounted under US GAAP as opposed to proportionate consolidation under Canadian GAAP
	 	 	6,912,669	 	 	 	—	 	 	 	—	 
	 
	Operating activities — U.S. GAAP
	 	 	(25,465,974	)	 	 	(5,636,589	)	 	 	(23,681,869	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Investing activities — Canadian GAAP (as per consolidated cash flows)
	 	 	1,172,609	 	 	 	(97,071,319	)	 	 	(97,193,271	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Reconciling items:
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Exploration costs expensed including exploration impairment
	 	 	12,596,874	 	 	 	7,824,051	 	 	 	7,755,226	 
	Being cash investment in LNG Project
	 	 	(1,976,975	)	 	 	—	 	 	 	—	 
	Being reversal of PNG LNG cash call proportionately consolidated in cash flow statement
	 	 	(6,664,035	)	 	 	—	 	 	 	—	 
	 
	Investing activities — U.S. GAAP
	 	 	5,128,473	 	 	 	(89,247,268	)	 	 	(89,438,045	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Financing activities — Canadian and U.S. GAAP
	 	 	(1,143,601	)	 	 	66,963,485	 	 	 	84,115,904	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	(Decrease)/increase in cash and cash equivalents
	 	 	(21,481,102	)	 	 	(27,920,372	)	 	 	(29,004,010	)
	Cash and cash equivalents, beginning of period
	 	 	31,681,435	 	 	 	59,601,807	 	 	 	59,601,807	 
	 
	Cash and cash equivalents, end of period (U.S. GAAP)
	 	 	10,200,333	 	 	 	31,681,435	 	 	 	30,597,797	 
	 

Under Canadian GAAP, InterOil 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).

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.

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. No
potential shares in options or warrants on issue were dilutive for the nine month period ended
September 30, 2007, year ended December 31, 2006 and nine month period ended September 30, 2006.

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

 

 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Nine month	 	 	 	 	 	Nine month
	 	 	period ended	 	Year ended	 	period ended
	Weighted average number of shares on which earnings per	 	September 30,	 	December 31,	 	September 30,
	share calculations are based in accordance with U.S. GAAP	 	2007	 	2006	 	2006
	 
	Basic
	 	 	29,908,847	 	 	 	29,602,360	 	 	 	29,523,026	 
	Effect of dilutive options
	 	 	—	 	 	 	—	 	 	 	—	 
	 
	Diluted
	 	 	29,908,847	 	 	 	29,602,360	 	 	 	29,523,026	 
	 
	Net income/(loss) per share in accordance with U.S. GAAP
	 	(Restated)	 	(Restated)	 	(Restated)
	Basic
	 	 	(0.57	)	 	 	(1.52	)	 	 	(1.42	)
	 
	Diluted
	 	 	(0.57	)	 	 	(1.52	)	 	 	(1.42	)
	 

	(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)	 	Derivative instruments and hedging
	 
	 	 	The Company accounts for derivatives and hedging activities in accordance with FASB
Statement No. 133, “Accounting for Derivative Instruments and Certain Hedging Activities”,
as amended (“SFAS No. 133”), which requires that all derivative instruments be recorded on
the balance sheet at their respective fair values.
	 
	 	 	The Canadian Institute of Chartered Accountants issued Accounting Guideline 13 “Hedging
Relationships” (“AcG-13”), which became effective January 1, 2004. This guideline was
issued to align certain accounting principles under Canadian GAAP with SFAS No. 133,
including hedge documentation and assessing hedge effectiveness. The Company adopted the
hedge accounting provisions in AcG-13 and SFAS No. 133 in respect of the commodity forward
contracts it transacted beginning in July 2004. Under Canadian GAAP, the Company included
hedges which are unsettled at period end in current liabilities based on a marked to market
calculation. Under SFAS No. 133 the marked to market amount for the unsettled hedges is
included in other comprehensive income to the extent that they are effective. The
ineffective portion is expensed.
	 
	 	 	Effective January 1, 2007, CICA 3865 – Hedges came into effect as explained under Note 3(c).
This revision brings Canadian accounting treatment of hedges in line with the U.S. GAAP
treatment and the Company has followed the transition provisions as per guidance under the
new standard to reclassify the marked to market amount for the unsettled hedges from current
liabilities to other comprehensive income. Details of hedge accounting are disclosed in note
8 of the unaudited consolidated financial statements of the Company for the nine month
period ended September 30, 2007.
	 
	(3)	 	Income tax effect of adjustments
	 
	 	 	The income tax effect of U.S. GAAP adjustments was a reduction to the future tax asset of
$277,175 (years ended December 31, 2006 — $259,957) for the nine month period ended
September 30, 2007. A corresponding decrease in the valuation allowance was recorded. No
income tax expense was recorded in the periods disclosed due to the tax holiday period in
Papua New Guinea through five years after the refinery commences operations.

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

 

 

	(4)	 	Debt conversion expense
	 
	 	 	100% of the outstanding convertible debentures were converted before December 31, 2004. The
Company issued an additional 180,000 shares to induce conversion before the end of the year.
Under Canadian GAAP, the fair value of these shares was recorded as an increase in share
capital of $6,976,800 with offsetting adjustments to retained earnings of $6,899,211 and a
conversion expense of $77,589.
	 
	 	 	FASB Statement No. 84, “Induced Conversions of Convertible Debt” requires an expense to be
recorded when convertible debt is converted under an inducement. The Company recognized the
entire fair value of the inducement shares of $6,976,800 as a conversion expense under U.S.
GAAP.
	 
	(5)	 	Indirect participation interest
	 
	 	 	As disclosed in note 2 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, 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’.
	 
	(6)	 	Non controlling interest
	 
	 	 	The non-controlling interest movements are the result of the U.S. GAAP adjustments relating
to the midstream operations described in points 1 to 3 above.
	 
	(7)	 	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.
	 
	(8)	 	Investment in LNG Project/Deferred gain on contributions to LNG Project:
	 
	 	 	As disclosed in Note 13 of the unaudited consolidated financial statements for the nine
month period ended September 30, 2007, 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 recognised as a result of a change in economic
interest of the entity. For Canadian GAAP this gain is deferred and recognised over the
life of the contributed assets..
	 
	 	 	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 to account for this
difference 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 nine month period ended
September 30, 2007. PNG LNG Inc. was a subsidiary of InterOil till the date of the
Shareholder’s Agreement and has been proportionately consolidated subsequent to that date.

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

 

 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	Midstream - liquefaction	 	 	 	 	 	GAAP	 	 
	Consolidated Balance Sheet	 	Canadian GAAP	 	Adjustments	 	US GAAP
	Cash and cash equivalents
	 	 	1,728,341	 	 	 	(1,728,341	)	 	 	—	 
	Cash restricted
	 	 	—	 	 	 	—	 	 	 	—	 
	Other assets
	 	 	2,797,528	 	 	 	(2,797,528	)	 	 	—	 
	Prepaid expenses
	 	 	17,961	 	 	 	(17,961	)	 	 	—	 
	 
	Current assets
	 	 	4,543,830	 	 	 	(4,543,830	)	 	 	—	 
	 
	Investment in PNG LNG Inc.
	 	 	—	 	 	 	5,429,862	 	 	 	5,429,862	 
	Plant and equipment
	 	 	1,130,919	 	 	 	(1,130,919	)	 	 	—	 
	 
	Total assets
	 	 	5,674,749	 	 	 	(244,887	)	 	 	5,429,862	 
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Accounts payable and accrued liabilities
	 	 	268,949	 	 	 	(245,886	)	 	 	23,063	 
	Intercompany payables
	 	 	2,060,598	 	 	 	—	 	 	 	2,060,598	 
	 
	Current liabilities
	 	 	2,329,547	 	 	 	(245,886	)	 	 	2,083,661	 
	 
	Deferred gain on contributions to LNG project
	 	         8,910,293	 	 	(8,910,293	)	 	 	—	 
	 
	Total liabilities
	 	 	8,910,293	 	 	 	(8,910,293	)	 	 	—	 
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Share capital
	 	 	1	 	 	 	—	 	 	 	1	 
	Accumulated deficit
	 	 	(5,565,092	)	 	 	8,911,293	 	 	 	3,346,201	 
	 
	Shareholders’ Equity
	 	 	(5,565,091	)	 	 	8,911,293	 	 	 	3,346,202	 
	 
	Total liabilities and Shareholders’ equity
	 	 	5,674,749	 	 	 	(244,886	)	 	 	5,429,863	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	Midstream - liquefaction	 	 	 	 	 	GAAP	 	 
	Consolidated Statement of Operation	 	Canadian GAAP	 	Adjustments	 	US GAAP
	Interest income
	 	 	15,336	 	 	 	(8,223	)	 	 	7,113	 
	 
	Total revenues
	 	 	15,336	 	 	 	(8,223	)	 	 	7,113	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Office and Administrative expenses
	 	 	1,502,726	 	 	 	(9,023	)	 	 	1,493,703	 
	Professional fees
	 	 	952,950	 	 	 	(435,226	)	 	 	517,724	 
	Exchange (Gain) loss
	 	 	(2,097	)	 	 	738	 	 	 	(1,359	)
	Loss on
proportionate consolidation of PNG LNG Inc
	 	 	         2,432,652	 	 	 	(2,432,652	)	 	 	—	 
	Gain on equity accounted investment
	 	 	—	 	 	 	(6,043,353	)	 	 	(6,043,353	)
	 
	Total expenses
	 	 	4,886,231	 	 	 	(8,919,516	)	 	 	(4,033,285	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	Net gain/(loss)
	 	 	(4,870,895	)	 	 	8,911,293	 	 	 	4,040,398	 
	 

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.

 

 

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

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.

Non-controlling interests in consolidated financial statements

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.

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