EXHIBIT 6
INTEROIL CORPORATION
10th Floor
Brunswick House
44 Chipman Hill
Saint John, NB
Canada E2L 4S6
MANAGEMENT INFORMATION CIRCULAR
SOLICITATION OF PROXIES
The information contained in this management information circular (the
"Circular") is furnished in connection with the solicitation of proxies to be
used at the annual and special meeting (the "Meeting") of shareholders of
InterOil Corporation (the "Corporation") to be held on June 29, 2004 at 10:30
a.m. (Toronto, Canada time) in the Sheraton Centre Hotel, and at all
adjournments of the Meeting, for the purposes set forth in the accompanying
Notice of Meeting. It is expected that the solicitation will be made primarily
by mail but proxies may also be solicited personally by employees of the
Corporation. THE SOLICITATION OF PROXIES BY THIS CIRCULAR IS BEING MADE BY OR ON
BEHALF OF THE MANAGEMENT OF THE CORPORATION and the total cost of the
solicitation will be borne by the Corporation. The information contained herein
is given as at May 10, 2004 except where otherwise noted.
APPOINTMENT OF PROXIES
THE PERSONS NAMED IN THE ENCLOSED FORM OF PROXY ACCOMPANYING THIS CIRCULAR
ARE DIRECTORS AND/OR OFFICERS OF THE CORPORATION. A SHAREHOLDER OF THE
CORPORATION HAS A RIGHT TO APPOINT A PERSON OTHER THAN THE PERSONS SPECIFIED IN
SUCH FORM OF PROXY AND WHO NEED NOT BE A SHAREHOLDER, DIRECTOR OR OFFICER OF THE
CORPORATION TO ATTEND AND ACT FOR HIM AND ON HIS BEHALF AT THE MEETING. SUCH
RIGHT MAY BE EXERCISED BY STRIKING OUT THE NAMES OF THE PERSONS SPECIFIED IN THE
FORM OF PROXY, INSERTING THE NAME OF THE PERSON TO BE APPOINTED IN THE BLANK
SPACE PROVIDED IN THE FORM OF PROXY, SIGNING THE FORM OF PROXY AND RETURNING IT
IN THE REPLY ENVELOPE IN THE MANNER SET FORTH IN THE ACCOMPANYING NOTICE OF THE
MEETING.
TO BE VALID, PROXIES MUST BE SIGNED, DATED AND DEPOSITED WITH THE
CORPORATION, C/O COMPUTERSHARE INVESTOR SERVICES, 100 UNIVERSITY AVENUE, 9TH
FLOOR, TORONTO, ONTARIO, M5J 2Y1 (ATTENTION: PROXY DEPARTMENT), OR BY FAX TO
1-416-263-9524 OR 1-866-249-7775 (ATTENTION: PROXY DEPARTMENT), FOR SHAREHOLDERS
WHOSE SHARES ARE RECORDED ON THE NORTH AMERICAN REGISTER), OR C/O COMPUTERSHARE
REGISTRY SERVICES, LEVEL 3, 60 CARRINGTON STREET, SYDNEY, NSW, 2000, AUSTRALIA
(FOR SHAREHOLDERS WHOSE SHARES ARE RECORDED ON THE AUSTRALIAN OR PAPUA NEW
GUINEA REGISTER) AT ANY TIME UP TO 9:00 AM (LOCAL TIME) ON THE SECOND LAST
BUSINESS DAY PRECEDING THE DATE OF THE MEETING. PROXIES MAY ALSO BE DEPOSITED
WITH THE SCRUTINEERS AT THE MEETING, TO THE ATTENTION OF THE CHAIR OF THE
MEETING, AT ANY TIME PRIOR TO THE COMMENCEMENT OF THE MEETING, OR ANY
ADJOURNMENT OR POSTPONEMENT THEREOF. AN UNDATED PROXY WILL BE DEEMED TO BE DATED
THE DATE IT IS MAILED.
REVOCATION OF PROXIES
A shareholder who has given a proxy may revoke it by depositing an
instrument in writing revoking the proxy or another completed form of proxy,
executed by him or his attorney authorised in writing, at the registered office
of the Corporation, 10th Floor, Brunswick House, 44 Chipman Hill, Saint John,
NB, Canada E2L 4S6 at any time up to and including the last business day
preceding the day of the Meeting, or any adjournment thereof, or with the
Chairman of the Meeting prior to the commencement of the Meeting on the day of
the Meeting or any adjournment thereof. A shareholder who has given a proxy may
also revoke it in any other manner permitted by law.
VOTING OF SHARES REPRESENTED BY MANAGEMENT PROXIES
The persons named in the enclosed form of proxy will vote the shares in
respect of which they are appointed as proxy on any ballot that may be called
for in accordance with the instructions of the
shareholder who appointed them. IN THE ABSENCE OF SUCH INSTRUCTIONS, SUCH SHARES
WILL BE VOTED IN FAVOUR OF EACH MATTER REFERRED TO HEREIN.
THE ENCLOSED FORM OF PROXY, WHEN PROPERLY COMPLETED AND SIGNED, CONFERS
DISCRETIONARY AUTHORITY UPON THE PERSONS APPOINTED TO VOTE AS THEY SEE FIT WITH
RESPECT TO AMENDMENTS TO OR VARIATIONS OF MATTERS IDENTIFIED IN THE NOTICE OF
MEETING AND WITH RESPECT TO OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE
MEETING.
At the date of this circular, the management of the Corporation knows of no
such amendments, variations or other matters. However, if any other matters that
are not known to management should properly come before the Meeting, the proxy
will be voted on such matters in accordance with the best judgment of the named
proxy.
RECORD DATE AND ENTITLEMENT TO VOTE
In accordance with the Business Corporations Act (New Brunswick), the
Corporation will prepare a list of shareholders as of the close of business on
May 10, 2004, the record date established for notice of the Meeting. Each holder
of record of common shares named in the list so prepared will be entitled to one
vote for each common share held on all matters proposed to come before the
Meeting (except for the election of directors as described below under "Business
of the Meeting -- Election of Directors"), except to the extent that the holder
has transferred any common shares after the record date and the transferee of
such common shares establishes ownership of them and demands in writing, not
later than 10 days before the Meeting or any adjournment thereof, to be included
in the list of shareholders entitled to vote at the Meeting, in which case the
transferee will be entitled to vote such common shares at the Meeting.
VOTING SHARES
On May 10, 2004 the Corporation had outstanding 24,831,461 common shares.
To the knowledge of the directors and officers of the Corporation, persons or
corporations who beneficially own, directly or indirectly, or exercise control
or direction over, more than 10% of the issued and outstanding common shares of
the Corporation are as follows:
<Table>
<Caption>
PERCENTAGE OF
NUMBER OF COMMON
NAME AND ADDRESS COMMON SHARES SHARES
- ---------------- ------------- -------------
Phil Mulacek.............................................. 7,139,147 28.47%
PO Box 3787
The Woodlands, Texas
</Table>
BUSINESS OF THE MEETING
ELECTION OF DIRECTORS
The Articles of the Corporation provide that the Corporation shall have a
minimum of four and a maximum of twelve directors as determined by resolution of
the board of directors. The number of directors of the Corporation is presently
set at six (6).
Directors elected at the Meeting serve until the next annual meeting of
shareholders or, subject to the Corporation's by-laws and to applicable laws,
until their successors are elected or appointed. IT IS THE INTENTION OF THE
PERSONS NAMED IN THE ENCLOSED FORM OF PROXY, UNLESS INSTRUCTED OTHERWISE, TO
VOTE FOR THE ELECTION AS A DIRECTOR OF EACH PROPOSED NOMINEE LISTED BELOW.
The Corporation's by-laws and governing statute, the Business Corporations
Act (New Brunswick) (the "Act"), provide for cumulative voting for the election
of directors such that each shareholder entitled to vote for the election of
directors has the right to cast a number of votes equal to the number of votes
attached to the common shares held by such shareholder multiplied by the number
of directors to be elected, and may cast all such votes in favour of one
candidate or distribute them among the candidates in any manner. For this proxy,
the shareholder will cast the number of votes equal to the number of common
shares held by the shareholder multiplied by six (6). The distribution of votes
among the nominees shall be designated on the proxy instrument. A vote in favour
of the election of more than one nominee without an indication as to how the
votes are to be distributed among the nominees shall mean that the votes are to
be distributed equally among all nominees voted for by the shareholder. If no
specification is made for any nominee, it shall mean that the proxy nominees are
instructed to vote FOR all of the nominees with the votes distributed equally
among all nominees. There is no condition precedent to exercise the right to
vote cumulatively. The by-laws and Act further provide that a separate vote of
shareholders shall be taken with respect to each proposed director unless a
resolution is passed unanimously permitting two or more persons to be elected by
a single resolution. It is expected that at the Meeting a motion will be made in
favour of such a resolution in order to permit the election of all six (6)
directors by way of a single resolution.
Management does not expect that any of the proposed nominees will be unable
to serve as a director. However, if any of the proposed nominees are for any
reason unable to serve as a director, the persons named in the enclosed form of
proxy will use their discretion in voting for an alternative nominee.
The following table sets forth certain information with respect to all
persons proposed to be nominated by management for election as directors.
<Table>
<Caption>
NUMBER OF COMMON
POSITION WITH THE DIRECTOR SHARES BENEFICIALLY
NAME CORPORATION PRINCIPAL OCCUPATION SINCE OWNED
- ---- ----------------- -------------------- -------- --------------------
Phil E. Mulacek......... Chairman of the Chairman of the Board and 1997 6,676,907 (Indirect)
Board, President Chief Executive Officer 462,240 (Direct)
and Chief of the Corporation. 7,139,147
Executive Officer
Christian M. Vinson..... Director and Vice Managing Director of 1997 168,000 (Direct)
President of the InterOil Limited and Vice
Corporation President of the
Corporation.
G. Michael Folie........ Director and Vice Director & CEO of Acacia 2001 20,000 (Direct)
Chairman Resources Ltd. of
Australia from 1994 to
2000. Director of EFIC
Australia from 1994 to
2000
Roger N. Grundy......... Director Managing Director of 1997 62,000 (Direct)
Breckland Ltd, a UK based
engineering consulting
firm.
Gaylen J. Byker......... Director President of Calvin 1997 959,025 (Indirect)
College, a liberal arts 122,000 (Direct)
college in Grand Rapids, 1,081,025
Michigan.
Edward Speal............ Director Managing Director, BNP 2003 2,300 (Direct)
Paribas (Canada), since
June 2000; prior thereto,
President and CEO of
Paribas Bank of Canada.
</Table>
During the past five years, each person listed above has held the principal
occupation listed opposite his name, or other positions within the listed
corporate groups.
APPOINTMENT OF AUDITORS
Unless the shareholder has specified in the enclosed form of proxy that the
shares represented by such proxy are to be withheld from voting for the
appointment of auditors, the persons named in the enclosed form of proxy intend
to vote FOR the reappointment of KPMG, Chartered Accountants, as auditors of the
Corporation to hold office until the next meeting of shareholders.
KPMG was first appointed auditors of the Corporation in 1997.
APPROVAL OF STOCK OPTIONS ISSUED TO DIRECTORS
Under Chapter 10 of the Listing Rules of the Australian Stock Exchange
Limited ("ASX") issues of securities to directors must be approved by
shareholders.
The details of these options are as follows:
<Table>
<Caption>
EXERCISE PRICE EXPIRY DATE OF IN RESPECT OF YEAR
NAME NUMBER PER SHARE (US$) OPTIONS ENDED
- ---- ------ --------------- --------------- ------------------------
Phil Mulacek............... 15,000 $24.00 May 11, 2009 December 31, 2004
Christian Vinson........... 15,000 $24.00 May 11, 2009 December 31, 2004
Roger Grundy............... 15,000 $24.00 May 11, 2009 December 31, 2004
Gaylen Byker............... 15,000 $24.00 May 11, 2009 December 31, 2004
Geoffrey Folie............. 15,000 $24.00 May 11, 2009 December 31, 2004
Edward Speal............... 15,000 $24.00 May 11, 2009 December 31, 2004
</Table>
The options are subject to the Corporation's Incentive Stock Option Plan
adopted by the Corporation at the Annual and Special Meeting of Shareholders
held on June 25, 2003 ("Option Plan"), and all the directors of the Corporation
referred to above are entitled to participate in the Option Plan. The options
will be issued for nil consideration within 12 months after date of the Meeting.
The Corporation will seek approval of the issuance of the options to each
director by a separate resolution. Under the rules of the ASX, no director, or
an associate of a director, can vote shares controlled by him in favour of the
resolution to grant that director options, nor can a director vote on any
resolution for the issuance of options to any other director.
The Corporation is required by Rules 10.15 and 14.11 of the Listing Rules
of the Australian Stock Exchange (ASX) and those of the Port Moresby Stock
Exchange (POMSoX) to disregard any votes cast on any resolution to issue options
to any director by:
(a) a director of the Corporation; and
(b) an associate of that person.
However, the Corporation will not disregard a vote if:
(a) it is cast by a person as proxy for a person who is entitled to vote,
in accordance with the directions on the proxy form; or
(b) it is cast by the person chairing the meeting as proxy for a person who
is entitled to vote, in accordance with a direction on the proxy form to vote as
the proxy decides.
The details of the options granted to the directors of the Corporation who
received options under the Option Plan since the last approval at the Meeting on
June 25, 2003 are as follows:
<Table>
<Caption>
EXERCISE PRICE IN RESPECT OF YEAR
NAME NUMBER PER SHARE (US$) EXPIRY DATE OF OPTIONS ENDED
- ---- ------ --------------- ---------------------- ------------------------
Phil Mulacek.......... 15,000 $11.50 December 31, 2005 December 31, 2003
Christian Vinson...... 15,000 $11.50 December 31, 2005 December 31, 2003
Roger Grundy.......... 15,000 $11.50 December 31, 2005 December 31, 2003
Gaylen Byker.......... 15,000 $11.50 December 31, 2005 December 31, 2003
Geoffrey Folie........ 15,000 $11.50 December 31, 2005 December 31, 2003
Edward Speal.......... 15,000 $11.50 December 31, 2005 December 31, 2003
</Table>
OPTION PLAN
In order that the Corporation may be able to continue to provide incentives
for directors, officers, employees, consultants and other persons who provide
ongoing services to the Corporation or any of its
affiliates ("Eligible Participants") to participate in the growth and
development of the Corporation by providing them with the opportunity through
stock options to acquire an ownership interest in the Corporation, the
Corporation established the Option Plan.
It is proposed to amend the Option Plan to ensure that there are sufficient
common shares available to be issued in satisfaction of further options that may
be issued in the coming year. The maximum number of common shares which were
reserved for issuance pursuant to the options granted under the Option Plan was
initially 2,000,000 common shares (representing 8.2% of the number of issued and
outstanding common shares at that time). As at the effective date of the Option
Plan, there were 1,516,500 common shares subject to options, with the number
effectively available to be issued being 106,237 common shares. It is proposed
to amend the Option Plan to provide that the number reserved for issuance
thereunder be 2,500,000. Accordingly, shareholders are being asked to consider
and, if they deem it to be appropriate, to pass a resolution approving an
increase in the number of common shares reserved for issuance under the Option
Plan to 2,500,000.
APPROVAL OF FUTURE ISSUES OF SECURITIES
Management is also seeking approval for the issuance of securities during
three months following the date of the Meeting (or the adjourned or postponed
Meeting) that are, or are convertible into, up to 2,500,000 common shares.
The Listing Rules of the Australian Stock Exchange provide that
shareholders must approve the issuance of shares or securities convertible into
common shares ("Equitable Securities") exceeding 15% of the Corporation's
outstanding common shares during any twelve-month period (the "15% Rule).
Management believes it is in the best interests of the Corporation to have the
flexibility to issue additional Equitable Securities in the future and that as
further such issuances as described in the Appendix may exceed this limit,
management recommends that shareholders vote in favour of a resolution approving
the issue of these further Equitable Securities. Further details regarding this
proposal are set out in Appendix "A".
EXECUTIVE COMPENSATION
The following table (presented in accordance with the regulation (the
"Regulation") made under the Securities Act (Ontario)) sets forth all annual and
long-term compensation for services in all capacities to the Corporation and its
subsidiaries for the three fiscal years ended December 31, 2003, December 31,
2002 and December 31, 2001 (to the extent required by the Regulation) in respect
of the individuals who were, at December 31, 2003, the Chief Executive Officer
and the three (3) other most highly compensated executive officers whose total
salary and bonus exceeded C$100,000 (approximately US$72,000) (the "Named
Executive Officers"):
<Table>
<Caption>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------- ---------------------------------
AWARDS PAYOUTS
----------------------- -------
RESTRICTED
SECURITIES SHARES OR
UNDER RESTRICTED
OTHER ANNUAL OPTIONS SHARE LTIP ALL OTHER
SALARY BONUS COMPENSATION GRANTED UNITS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR (US$) (US$) (US$) (#) (US$) (US$) (US$)
- --------------------------- ---- ------- ------ ------------ ---------- ---------- ------- ------------
PHIL MULACEK.............. 2003 181,543 90,000 Nil 15,000 Nil Nil Nil
Chairman, President and 2002 197,925 Nil Nil 355,000 Nil Nil Nil
Chief Executive Officer 2001 120,393 Nil Nil 20,000 Nil Nil Nil
CHRISTIAN VINSON.......... 2003 140,573 30,000 Nil 15,000 Nil Nil Nil
Vice President and 2002 135,923 Nil Nil 30,000 Nil Nil Nil
Chief Operating Officer 2001 141,663 Nil Nil 20,000 Nil Nil Nil
GRAEME ALEXANDER.......... 2003 127,940 35,000 Nil Nil Nil Nil Nil
Corporate Counsel 2002 106,625 Nil Nil Nil Nil Nil Nil
and Corporate Secretary 2001 41,550 Nil Nil 95,000 Nil Nil Nil
THOMAS DONOVAN............ 2003 115,250 Nil Nil 30,000 Nil Nil Nil
Chief financial 2002 68,680 Nil Nil 30,000 Nil Nil Nil
officer 2001 Nil Nil Nil Nil Nil Nil Nil
</Table>
<Table>
<Caption>
MARKET VALUE
OF SECURITIES
% OF UNDERLYING
SECURITIES TOTAL OPTIONS OPTIONS
UNDER GRANTED TO EXERCISE OR ON THE DATE
OPTIONS EMPLOYEES BASE PRICE OF GRANT
GRANTED IN FINANCIAL US$ US$ EXPIRATION
NAME (#) YEAR ($/SECURITY) ($/SECURITY) DATE
- ---- ---------- ------------- ------------ --------------- --------------------
Phil Mulacek.............. 15,000 5.8 11.50 11.50 December 31, 2005
Christian Vinson.......... 15,000 5.8 11.50 11.50 December 31, 2005
Graeme Alexander.......... Nil Nil Nil Nil Nil
Thomas Donovan............ 30,000 11.6 10.25 10.25 April 10, 2006
</Table>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FINANCIAL YEAR-END OPTION VALUES
<Table>
<Caption>
VALUE(1) OF
UNEXERCISED UNEXERCISED IN-
COMMON OPTIONS THE-MONEY OPTIONS AT
SHARES AGGREGATE AT FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED ON VALUE (#) (US$)
EXERCISE REALISED(1) EXERCISABLE/ EXERCISABLE/
NAME (#) (US$) UNEXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ------------------ --------------------
Phil Mulacek........................ 145,000 2,765,157 245,000/Nil 4,604,112/Nil
Christian Vinson.................... 65,000 1,171,503 Nil/Nil Nil/Nil
Graeme Alexander.................... 8,000 154,720 72,000/15,000 1,392,484/290,101
Thomas Donovan...................... Nil Nil 10,000/50,000 175,901/774,503
</Table>
Note:
(1) For all options held by an individual, value equals the product of (a) the
difference, if positive, between the market value of the common shares at
year-end minus the exercise price and (b) the number of options with that
exercise price. The closing price on the TSX Venture Exchange on December
31, 2003 was C$31.50, equivalent to US$24.34 per common share.
INDEBTEDNESS OF DIRECTORS AND OFFICERS
There was no indebtedness owing to the Corporation, or any of its
subsidiaries by any officer, director, employee, or any former officer, director
or employee of the Corporation, or any of its subsidiaries at any time during or
since the financial year ended December 31, 2003.
COMPENSATION OF DIRECTORS
Directors of the Corporation receive an annual retainer of US$18,000,
except for Dr. Folie who received US$50,000 and Mr. Vinson who received no
retainer respectively, for the year ended December 31, 2003. Directors were also
reimbursed for travel and other out-of-pocket expenses incurred in connection
with attending board and committee meetings. Each director was also granted, in
connection with his duties as a director, options to purchase 15,000 shares as
described in last year's information circular.
INTERESTS OF INSIDERS
Mr. Grundy, a director of the Corporation, is also the Managing Director
and a shareholder of Breckland Ltd., an engineering consulting firm based in the
United Kingdom. The Corporation has retained Breckland Ltd. to provide
engineering services to it on an ongoing basis in connection with the
Corporation's proposed oil refinery in Papua New Guinea. Those services are
provided by several individuals, one of whom is Mr. Grundy. Total payments to
Breckland Ltd. were US$131,250 for the year ended December 31, 2003.
Mr Speal, a director of the Corporation, is also Vice President of BNP
Paribas (Canada). The Corporation is negotiating a working capital facility of
up to US$60 million through BNP Paribas (Singapore) to fund the purchase of the
crude oil required for the Corporation's refinery operations in Papua New
Guinea. The Corporation's Board has determined that Mr Speal's independence is
not adversely affected by the Corporation's transaction and that therefore Mr
Speal remains as an independent director of the Corporation. Based on the
consideration of the relationship between BNP Paribas (Canada) and BNP Paribas
(Singapore) and consideration of Multilateral Instrument 52-110 Audit
Committees, the Board concluded that Mr Speal has no relationship (including his
employment) that could reasonably interfere with the exercise of his independent
judgement.
COMPOSITION OF THE COMPENSATION COMMITTEE
The Corporation had a compensation committee, referred to as the
Remuneration and Nomination Committee, during its financial year ended December
31, 2003. All material compensation matters during the year were dealt with by
the Remuneration and Nomination Committee. The members of the Remuneration and
Nomination Committee in 2003 were Mr. Mulacek, Dr. Byker and Dr. Folie. Mr.
Mulacek is the only member of the committee who is also an officer of the
Corporation.
REPORT ON EXECUTIVE COMPENSATION
The Corporation's compensation package for senior management is composed of
three elements: base salaries, annual bonuses and options to acquire common
shares of the Corporation.
The fact that the Project is in its development stage and has generated
minimal revenue has been a significant factor in determining the Corporation's
approach to compensating its senior management, including the CEO. Essentially,
the Corporation's philosophy is twofold: first, base salaries and cash bonuses
should be kept to a minimum in order to conserve the Corporation's cash; and
second, management should participate in the equity ownership of the Corporation
in order to align their interests with the Corporation's shareholders.
The Corporation believes that the salaries it pays to its senior management
(through its arrangements with Direct Employment Services Corp ("DESC")
described below) are consistent with this approach in that they are adequate but
not generous. The Corporation paid no bonuses to any member of senior management
in 2003. Any bonuses that may be paid in the future while the Project is under
development and construction will be relatively modest.
The Corporation believes that equity ownership in the Corporation by its
senior management is an essential feature of its compensation program. Equity
ownership in a development-stage company such as the Corporation provides
management with a strong incentive to increase the equity value of the
Corporation, which benefits all shareholders.
As Submitted by the Remuneration and
Nomination Committee:
Phil Mulacek
Gaylen Byker
G. Michael Folie
CORPORATE GOVERNANCE
The Toronto Stock Exchange requires each listed company incorporated in
Canada to disclose on an annual basis its approach to corporate governance, with
such disclosure specifically including an explanation of any differences between
the Toronto Stock Exchange's corporate governance guidelines and the practices
of the listed company.
<Table>
<Caption>
DOES THE
CORPORATION
CORPORATE GOVERNANCE GUIDELINE CONFORM? COMMENT
- ------------------------------ ----------- -------
1. Board should explicitly assume
responsibility for stewardship of the
Company, and specifically for:
(a) adoption of a strategic planning Yes Board is involved in strategic
process; planning.
(b) identification of principal risks Yes The Board requires Management to
of the Company's business and identify and report on principal
ensuring implementation of risks of the Corporation's business
risk-management systems; and ensures that Management
implements risk management systems.
(c) succession planning, including Yes The Board is involved in the
appointing, training and selection, monitoring and development
monitoring senior management; of senior management.
(d) communications policy; Yes The Board maintains a management
structure that ensures proper
communication between Management and
the Board; between members of
Management themselves; and between
Management and staff.
(e) integrity of internal control and Yes The Board ensures that the
management information systems. Corporation invests in modern
fit-for-purpose management
information systems and appropriate
management expertise to implement,
maintain and run such systems and
provide proper internal controls.
2. Majority of directors should be No Three (3) out of the six (6) current
"unrelated" (free from conflicting directors are unrelated
interests). non-management directors.
3. Disclose for each director whether he Yes Phil E Mulacek -- related; President,
or she is related, and how that CEO & Chairman; major shareholder
conclusion was reached. Christian M Vinson -- related; COO,
VP; shareholder
Roger Grundy -- related based on
interest in contract with
Corporation; non-management
Michael Folie -- unrelated; Vice
Chairman; non-management
Gaylen Byker -- unrelated; non-
management.
Edward Speal -- unrelated; non-
management
4. (a) Appoint a committee responsible Yes The Board has formed the Remuneration
for the appointment/assessment of and Nomination Committee, a committee
directors. responsible for, amongst other
things, appointment, assessment and
remuneration of directors.
</Table>
<Table>
<Caption>
DOES THE
CORPORATION
CORPORATE GOVERNANCE GUIDELINE CONFORM? COMMENT
- ------------------------------ ----------- -------
(b) Composed exclusively of non- No The Remuneration and Nomination
management directors, the Committee is composed of a majority
majority of whom are unrelated. of non-management directors.
5. Implement a process for assessing the No Neither the Corporation nor the Board
effectiveness of the Board, its is of the appropriate size or
committees and the contribution of maturity to warrant such a process.
individual directors.
6. Provide orientation and education No Neither the Corporation nor the Board
programs for new directors. is of the appropriate size or
maturity to warrant formal programs.
7. Examine size of Board and consider Yes The size of the Board has been
reducing the size of Board, with a examined and it has been determined
view to improving effectiveness to be of appropriate size for the
development of the Corporation.
8. Review compensation of directors in Yes This is one of the functions of the
light of risks and responsibilities. Remuneration and Nomination
Committee.
9. Committees should generally be Yes The Committees (except the Audit
composed of non-management directors, Committee) are composed of a majority
a majority of whom are unrelated. of unrelated, non-management
directors.
10. Assume responsibility for or appoint Yes The Board assumes responsibility for
a committee responsible for approach overseeing the Corporation's approach
to corporate governance issues. to corporate governance issues.
11. (a) Define limits to management's Yes The Board monitors the mandates for
responsibilities by developing the Board, CEO and Senior Management.
mandates for:
(i) the Board;
(ii) the CEO.
(b) Board should approve CEO's Yes The Board has oversight over the
corporate objectives. CEO's corporate objectives.
12. Establish procedures to enable the No The Board's depends on access to
Board to function independently of up-to- date and detailed reporting
management. from Senior Management.
13. (a) Establish an audit committee with Yes The Board has established an Audit
a specifically defined mandate. Committee with specific mandate.
(b) All members of audit committee Yes All members are non-management
should be non-management directors.
directors.
(c) Audit committee should have Yes Audit Committee has direct access to
direct communication channels to and meetings with external auditors.
internal and external auditors.
(d) Audit committee duties should Yes Audit Committee oversees management
include oversight responsibility for reporting on internal controls.
management reporting on internal
control.
14. Implement a system to enable Yes Executive directors are able to
individual directors to engage engage outside advisers, within their
outside advisers, at the Company's individual mandates. Otherwise, Board
expense, subject to approval of approval is required.
appropriate committee of the Board.
</Table>
PERFORMANCE GRAPH UPDATE
The following performance graph compares the Corporation's cumulative total
shareholder return (assuming an initial investment of $100) on its common shares
as of year-end for the five years prior to the end of the Corporation's 2003
financial year, with the cumulative total shareholder return on the S&P/ TSX
Composite Index, assuming the reinvestment of dividends, where applicable, for
the comparable period.
COMPARISON OF THE FIVE YEAR CUMULATIVE
TOTAL SHAREHOLDER RETURN ON COMMON SHARES
(PERFORMANCE GRAPH)
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
- ----------------------------------------------------------------------------------------------
INTEROIL C$100.00 C$141.81 C$384.22 C$409.44 C$680.70 C$1,864.51
S&P/TSX COMPOSITE
INDEX C$100.00 C$129.72 C$137.74 C$118.54 C$101.98 C$ 126.75
</Table>
MANAGEMENT CONTRACTS
The services of certain executive officers and senior management of the
Corporation are provided under a management services agreement with DESC. DESC
is a U.S. private company administered by executive officers of the Corporation
and which was established for the purpose of providing non-profit management
services to the Corporation. During 2003, the services of seven (7) individuals
(including Mr. Mulacek and Mr. Vinson) were provided to the Corporation and its
subsidiaries under this agreement, and DESC was paid US$738,375 for those
services. Each of these persons who acted as an officer of the Corporation was
duly appointed as an officer.
The Corporation also pays a management fee to PIE Corp. of US$150,000 per
annum, which serves as sole general manager of SPI InterOil LDC. Under Bahamian
corporate law, a sole general manager of a company is appointed by the members
(shareholders) of the company and has the authority to manage the business and
affairs of the company. The sole General Manager of a company exercises all
powers that would typically be exercised by a board of directors. PIE Corp. is
owned by Mr. Mulacek, Chairman, President and Chief Executive Officer of the
Corporation, and members of his family.
The contents of this Circular and its sending to shareholders of the
Corporation have been approved by the directors of the Corporation.
By order of the Board of Directors
(signed) Phil E. Mulacek
Chairman and Chief Executive Officer
May 10, 2004
APPENDIX "A"
FUTURE ISSUANCES
ISSUANCE: The issuance of further securities during three months following
the date of the Meeting (or the adjourned or postponed Meeting) that are, or are
convertible or exchangeable into, up to 2,500,000 common shares.
TERMS: The issue price of the securities must be a minimum of 80% of the
average closing market price for the Corporation's common shares, calculated
over the last 5 days on which sales in the common shares were recorded before
the day on which the issue may be made. The common shares issued will rank pari
passu with the Corporations outstanding common shares and may be subject to hold
periods under applicable securities laws.
ALLOTTEES: Expected to be clients of underwriters or brokers, which have
not yet been identified.
USE OF PROCEEDS: The intended use of the funds raised from this issuance
will be for the Corporation's general corporate purposes.
VOTING: The Corporation is required by Rules 7.1 and 14.11 of the Listing
Rules of the Australian Stock Exchange (ASX) and those of the Port Moresby Stock
Exchange (POMSoX) to disregard any votes cast on this resolution by:
(a) those persons who may participate in this proposed issue or who
may obtain a benefit from this issuance, except a benefit solely in the
capacity of a holder of common shares, if the resolution is passed; and
(b) associates of those persons.
However, the Corporation will not disregard a vote if:
(a) it is cast by a person as proxy for a person who is entitled to
vote, in accordance with the directions on the proxy form; or
(b) it is cast by the person chairing the meeting as proxy for a
person who is entitled to vote, in accordance with a direction on the proxy
form to vote as the proxy decides.
No persons are at the date of this Circular, or are expected at the date of
the Meeting to be, known to the Corporation to be obtaining any benefit from the
issuance of securities of the Corporation to be thus approved at the Meeting.
RESOLUTION: It be resolved that for the purposes of Listing Rule 7.1 of
the Listing Rules of the ASX and POMSoX, the Corporation be authorised to issue
further securities during three months following the date of the Meeting (or the
adjourned or postponed Meeting) that are, or are convertible or exchangeable
into, up to 2,500,000 common shares.
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