Bontan Corporation Inc.
Consolidated Statements of Cash Flows
(Canadian Dollars)
For the Years Ended March 31, 2005, 2004 and 2003
Page 5 Financial Statements
2005
2004
2003
Cash flows from operating activities
Net loss for year
$
(5,056,576)
$ (1,360,958)
$ (319,363)
Write off of product development costs
88,831
Unrealized loss on investments
16,348
-
-
Provision for rent reversed
(34,287)
-
-
Loss from discontinued operations
179,678
-
-
Other non-cash expenses
4,815,922
703,702
Loss from discontinued operations
(179,678)
-
-
Prepaid and other receivable
27,732
(45,862)
11,769
Accounts payable and accrued liabilities
(206,667)
281,552
3,145
(437,528)
(421,566)
(215,618)
Investing Activities
Short term investments
275,632
-
-
Interest in gas properties
(216,568)
-
-
Advances
(2,530,353)
-
Product development costs
-
-
49,460
59,064
(2,530,353)
49,460
Financing Activities
Net advances from shareholders
(500,961)
241,517
138,298
Common shares issued
1,239,214
3,191,095
-
738,253
3,432,612
138,298
Increase (decrease) in cash during year
359,789
480,693
(27,860)
Cash at beginning of year
500,541
19,848
47,708
Cash at end of year
$
860,330
$ 500,541
$ 19,848
Supplemental disclosures
Non-cash operating activities
Consulting fees settled for common
shares and options
$
4,815,922
$ 148,675
$ -
Consulting fees accruals to be settled for
common shares
555,027
Consulting fees prepaid in shares
1,732,929
-
-
$
6,548,851
$ 703,702
$ -
Non-cash investing activities
Advances converted into interest in oil
properties and investment
$
2,530,353
$ -
$ -
Interest in oil properties acquired by
converting advances
(2,161,986)
-
-
Investments acquired by converting advances
(368,367)
-
-
$
-
$ -
$ -
Bontan Corporation Inc.
47 Avenue Road, Suite 200
Toronto, Ontario, Canada M5R 2G3
T: 416-860-0211
F: 416-361-6228
April 1, 2005
Mr. John Robinson
President
Current Capital Corp.
47 Avenue Road
Suite 200
Toronto, ON
M5R 2G3
Dear John:
Following our discussions, we are pleased to confirm that the following two agreements relating to investor relations and media relations services respectively, have been extended for further two year term up to April 1, 2007 on the same terms and conditions outlined therein, unless revised by a written agreement between the two parties:
Investor relations contract dated April 1, 2003
Media relation contract dated April 1, 2003
Please sign on a copy of this letter as your agreement to the details as outlined above.
Sincerely,
/s/Kam Shah
Kam Shah
Chief Executive Officer
We confirm and accept the terms outlined above.
/s/John Robinson
John Robinson
President
Current Capital Corp.
CURRENT CAPITAL CORP.
SUITE 200, 47 AVENUE ROAD
TORONTO, ONTARIO M5R 2G3
April 1, 2003
Mr. Terence Robinson
Chief Executive Officer
Dealcheck.com Inc.
47 Avenue Road, Suite 200
Toronto, Ontario M5R 2G3
Dear Mr. Robinson:
RE: Investor Relations Contract
This letter confirms the terms of the agreement (“Agreement”) between Bontan Corporation Inc. (“Corporation”) and Current Capital Corp. (“CCC”).
1.
Recitals.
The Corporation has agreed to engage CCC as an independent contractor and consultant to provide Investor Relations service solutions to the Corporation, and CCC has agreed to provide these services to the Corporation, subject to the terms and conditions described in this letter.
2,
Terms.
The initial term of the engagement is for a period of 12 months from the date of this letter. This agreement will be automatically renewed at the end of the initial term for an additional 12 months. Either party may cancel this Agreement by delivering a 30-day written notice.
3.
Services.
CCC will provide to the Corporation the following Investor Relations service solution package:
Shareholder Conversion/Identification Program
Outbound Correspondence and Email Communications
Introduction and on-going communications support for existing shareholders
Broker Communications
Corporate Introduction to Canadian and US institutions and fund managers
Inbound/Outbound Correspondence and Email Communications
Daily contact with retail brokers on behalf of Bontan to introduce and update
Ongoing Development of Investment Highlights Strategy
Press Release Consulting and Archive
Disseminate press releases to shareholders and increase awareness of the company’s profile among brokers, institutions and analysts
4.
Costs.
The Corporation will be responsible for all printing and distribution, press release and/or advertising costs recommended by CCC. The Corporation will also be responsible for all travel related costs incurred by CCC when providing its services as determined by CCC when pre-approved and prepaid by the Corporation. An additional 15% administration cost will be included on the development and implementation of special events presentations subject to pre-approval.
5.
Compensation for Services. The Corporation will pay CCC a monthly fee of USD$5,000.00, plus applicable taxes, on signing and on the 1st (first) of every month thereafter.
Please sign this Letter of Agreement in the space provided below to indicate your agreement with the terms stated in this letter.
Sincerely,
CURRENT CAPITAL CORP.
By: /s/Robert Kennedy
President
AGREED AND ACCEPTED
DEALCHECK.COM
By: /s/Terence Robinson
Chief Executive Officer
CURRENT CAPITAL CORP.
SUITE 200, 47 AVENUE ROAD
TORONTO, ONTARIO M5R 2G3
April 1, 2003
Mr. Terence Robinson
Chief Executive Officer
Dealcheck.com Inc.
47 Avenue Road, Suite 200
Toronto, Ontario M5R 2G3
Dear Mr. Robinson:
RE: Media Relations Contract
This letter confirms the terms of the agreement (“Agreement”) between Bontan Corporation Inc. (“Corporation”) and Current Capital Corp. (“CCC”).
1.
Recitals.
The Corporation has agreed to engage CCC as an independent contractor and consultant to provide Media Relations service solutions to the Corporation, and CCC has agreed to provide these services to the Corporation, subject to the terms and conditions described in this letter.
2,
Terms.
The initial term of the engagement is for a period of 12 months from the date of this letter. This agreement will be automatically renewed at the end of the initial term for an additional 12 months. Either party may cancel this Agreement by delivering a 30-day written notice.
3.
Services.
CCC will provide to the Corporation the following Investor Relations service solution package:
Media Relations
Media Relations Marketing Strategy Overview written on a Quarterly Basis and Reviewed Respectively
Interest development, stewardship and ongoing opportunities researched, developed and implemented with targeted media sources consistent with the Corporation’s media marketing strategy
Ongoing inbound/outbound correspondence and email communications relevant to media relations as well as daily updates surrounding news from the Corporation will be updated on CCC’s website
Communications
News Releases; writing and content development
Profile Page: a 1-2 page supplement for both Investor Relations and Media Relations
Coordination for all levels of online, press, television and radio interviews
Assistance in Press and IR packages and will include content development
Phone, e-mail and fax exposure to journalists and editors of financial newspapers, magazines, newsletters, websites, trade publications, etc.
Development and monitoring of online discussion forums
Introduction to 3rd Party Management Conference Call/Webcast Opportunities
CCC will provide the Corporation with monthly updates that represent the media relation’s activity
Regular distribution to the subscribers of the Current Capital News newsletter, all-corporate announcements and earnings announcements of the Corporation inclusive
Financial Marketing Programs
Introduction to Sponsored Newsletter Writers
Introduction to Sponsored Analyst Reports
Expansion of Internet Marketing Initiatives (as budget permits)
Coordination and Management of Print Marketing Opportunities (as budget permits)
4.
Costs.
The Corporation will be responsible for all printing and distribution, press release and/or advertising costs recommended by CCC. The Corporation will also be responsible for all travel related costs incurred by CCC when providing its services as determined by CCC when pre-approved and prepaid by the Corporation. An additional 15% administration cost will be included on the development and implementation of special events presentations subject to pre-approval.
5.
Compensation for Services. The Corporation will pay CCC a monthly fee of USD$5,000.00, plus applicable taxes, on signing and on the 1st (first) of every month thereafter.
Please sign this Letter of Agreement in the space provided below to indicate your agreement with the terms stated in this letter.
Sincerely,
CURRENT CAPITAL CORP.
By: /s/Robert Kennedy
President
AGREED AND ACCEPTED
DEALCHECK.COM
By: /s/Terence Robinson
Chief Executive Officer
CONSULTING AGREEMENT
THIS AGREEMENT made as of the 1st day of April 1, 2005 (the “EFFECTIVE DATE”).
BETWEEN
KAM SHAH
(hereinafter referred to as the “CONSULTANT”)
OF THE FIRST PART
-and-
BONTAN CORPORATION INC., a corporation incorporated
under the laws of the province of Ontario,
(hereinafter referred to as the “CORPORATION”)
OF THE SECOND PART
WHEREAS the Consultant has certain considerable expertise in the area of accounting, treasury, statutory compliances, and business management
AND WHEREAS the Corporation is engaged in the resource sector the “CORPORATION’S BUSINESS”);
AND WHEREAS the Corporation desires to obtain and apply the expertise of the Consultant to the Corporation’s Business:
THIS AGREEMENT WITNESSES that in consideration of Ten Dollars ($10.00) paid by each party to the other, the receipt and sufficiency of which is hereby acknowledged by each, together with the covenants and agreements herein contained, the parties hereto agree as follows:
1.
CONSULTING SERVICES – The Corporation hereby retains the services of the Consultant, on a non-exclusive basis, and the Consultant hereby agrees to provide the consulting services to the Corporation described in this Agreement.
2.
SCOPE OF SERVICES – The Consultant shall act in a dual capacity as CHIEF FINANCIAL OFFICER and CHIEF EXECUTIVE OFFICER of the Corporation until the duration of this agreement and render all the services usually associated with such titles.
3.
QUALIFICATIONS – The Consultant represents that he has all the necessary knowledge, experience, abilities, qualifications and contracts to effectively perform the Services. The Consultant represents that he shall provide the Services in such manner as to permit the Corporation to have full benefit of the Consultant’s knowledge, experience, abilities, qualifications and contacts and that it shall provide the Services in strict compliance with all applicable laws and regulations.
4.
TERM OF AGREEMENT – The provision of services by the Consultant to the Corporation hereunder shall commence on the Effective Date and shall, subject to Section 14 of this Agreement, remain in force until March 31, 2010. Thereafter, the Corporation may in its sole discretion extend this Agreement for a further 5 – year term, with any additional extensions subject to Section 14.
5.
COMPENSATION – In full consideration of the Consultant’s performance of the Services after the Effective Date the Corporation and the Consultant have agreed to the allotment of 450,000 Stock Options vesting immediately during the first year of this agreement. The consultant’s fee for the remaining years of the term shall be mutually agreed at the beginning of each of the years. In addition, the Corporation shall grant to the Consultant options (the CONSULTANT OPTIONS) pursuant to and in accordance with the Option Plan that may be approved by the shareholders from time to time. The number and price of options will be decided by the Board of Directors of the Corporation.
6.
REIMBURSEMENT OF EXPENSES – Consultant shall be entitled to full reimbursement of expenses incurred by him in connection with the affairs of the Corporation including travel, entertainment, parking and cellular phone expenses.
7.
CONFIDENTIAL INFORMATION –
As used herein the words “CONFIDENTIAL INFORMATION” include:
1.
such information as a director, officer or senior employee of the Corporation may from time to time designate to the Consultant as being included in the expression “Confidential Information”;
2.
any secret or trade secret or know how of the Corporation or any information relating to the Corporation or to any person, firm or other entity with which the Corporation does business which is not known to persons outside the Corporation including, without limitation, the commission of or results from any exploration conducted or authorized by the Corporation or its agents in connection with any of the Corporation’s mining properties or claims;
3.
any information, process or idea that is not generally known outside of the Corporation;
4.
all proprietary information relating to the Corporation; and
5.
all investor information now existing or currently under development by the Corporation.
(1)
The Consultant acknowledges that the foregoing is intended to be illustrative and that other Confidential information may currently exist or arise in the future.
(2)
The Corporation and the Consultant acknowledge and agree that the relationship between them is one of mutual trust and reliance.
(3)
The Consultant acknowledges that he may be exposed from time to time to information and knowledge, including Confidential Information relating to all aspects of the business of the Corporation, the disclosure of any of which to the Corporation’s competitors, customers, or the general public may be highly detrimental to the best interests of the Corporation.
(4)
The Consultant acknowledges that the business of the Corporation cannot be properly protected from adverse consequences of the actions of the Consultant other than by restrictions as hereinafter set forth.
(5)
The Consultant agrees that he will not disclose at any time during the term of this Agreement or after termination of this Agreement any of the Confidential Information (whether or not conceived, originated, discovered or developed in whole or in part by the Consultant) it being expressly acknowledged and agreed by the Consultant that the Confidential Information shall be kept strictly confidential at all times. The Confidential Information shall not include any information, which is already in the public domain or becomes so through no fault of the Consultant.
(6)
In the event this Agreement is terminated for any reason whatsoever, whether by passage of time or otherwise, the Consultant shall forthwith upon such termination return to the Corporation each and every copy of any Confidential Information (including all notes, records and documents pertaining thereto) in the possession or under the control of the consultant at that time, and the Consultant shall continue to be subject to the restrictions of this Section 7 notwithstanding termination of this Agreement.
(7)
The Consultant hereby acknowledges that, as between the Consultant and the Corporation, the Corporation is and shall remain the sole owner of all right, title and interest in the Confidential Information, including, but not limited to any and all rights and copyright, patent, trade secret and trademark. In the event this Agreement is terminated for any reason whatsoever, whether by affluxion of time or otherwise, the Consultant shall forthwith upon such termination return to the Corporation each and every copy of any Confidential Information (including all notes, records and documents pertaining thereto) in the possession or under the control of the Consultant at that time.
8.
NON – COMPETITION – The Consultant agrees with the Corporation that the Consultant will not, for the period commencing on the Effective Date and until six (6) months following the date of termination of this Agreement, participate directly or indirectly, in any business which is substantially similar to the Corporation’s Business or competitive with the Corporation’s Business anywhere within Canada whether:
(1)
as a principal or partner;
(2)
in conjunction or association with any incorporated or unincorporated entity as an officer, director or similar official of any incorporated or unincorporated entity (including, without restricting the generality of the foregoing any corporation, partnership, joint venture, association syndicate or trust) engaged in any of the activities included as part of the Corporation’s Business (each of which entities is hereinafter referred to as the “OTHER ENTITY”);
(3)
as the consultant or advisor to or agent of any Other Entity be engaged in any manner whatsoever, directly or indirectly, in the vermiculite industry;
(4)
as a holder of shares in any Other Entity engaged in a vermiculite – related business in such number which, together with all shares in such Other Entity which are subject to an agreement to, or which in fact, vote (or otherwise act) in concert with the Consultant, exercise the effective control of any such Other Entity;
(5)
by canvassing or soliciting on behalf of the Other Entity orders for the Corporation’s Business; or
(6)
by providing, directly or indirectly, financial or other assistance to a business which is substantially similar to or competitive with the Corporation’s Business.
9.
CONSULTANT NOT AN EMPLOYEE – The parties acknowledge and agree that the Consultant shall provide the Services to the Corporation as an independent contractor and not as an employee of the Corporation and that an employer – employee relationship is not created by this Agreement. The Consultant shall have no power or authority to bind the Corporation or to assume or create any obligation or responsibility, expressed or implied, on the Corporation’s behalf, or in its name, nor shall it represent to anyone that it has such power or authority, except as expressly provided in this Agreement. As the Consultant is not an employee of the Corporation, he shall not be entitled to receive from the Corporation any benefits whatsoever and the Corporation shall not be required to make contributions for unemployment insurance, Canada Pension, workers compensation and other similar lev ies in respect of any fee for services to be paid to the Consultant pursuant to this Agreement.
10.
NO DEROGATORY REMARKS – The Consultant agrees with the Corporation that from and after the Effective Date the Consultant and the Corporation shall not make any derogatory remarks regarding the Corporation and the Consultant, respectively, and that the Consultant will not take any act as a result of which the relations between the Corporation and its suppliers, customers, employees or others may be impaired or which act may otherwise be detrimental to the business of the Corporation as the same is now or may hereafter be carried on by the Corporation. The Corporation shall be affixed with the same policy as the Consultant in this regard.
11.
CONSULTANT SHALL NOT CONTRACT ON BEHALF OF CORPORATION – The Consultant shall not enter into any contract or commitment in the name of or on behalf of the Corporation or bind the Corporation in any respect whatsoever, nor shall he represent to anyone that he has such power or authority other than the powers and authority vested in him under the terms of this agreement.
12.
USE OF CONSULTANT’S WORK – Notwithstanding any other provisions of this Agreement, the Corporation shall not be bound to act or otherwise utilize the Consultant’s advice or materials produced by the Consultant in the performance of the Services.
13.
TERMINATION –
(1)
This Agreement shall, if not previously terminated as provided for herein, automatically be terminated at the close of business March 31, 2010, subject to the sole discretion of the Corporation to extend the Agreement for a further 5 – year term. Thereafter, unless either party has given 10 days prior written notice, the Agreement will be automatically extended for further 5 – year terms. Any options not exercised at the time of notice of termination shall expire fourteen (14) days after the date of the written notice of termination.
(2)
This Agreement may be immediately terminated by mutual consent of the parties at any time during the term of this Agreement, except that if the agreement is terminated by the Corporation before the expiry of the term without any cause, Consultant shall be entitled to a lump sum compensation of $250,000.
(3)
The Corporation or the consultant may immediately terminate this Agreement in the event that the other party is in breach of any of the terms or conditions of the Agreement applicable to that other party.
(4)
This Agreement shall be terminated automatically and with immediate effect if at any time either the Corporation or the Consultant becomes insolvent or voluntarily or involuntarily bankrupt, or makes an assignment for the benefit of either party’s creditors.
(5)
Notwithstanding any other provision hereon, upon termination of this Agreement by the Corporation pursuant to subsections 14 (a), (c), or (d) above,
14.
INDEMNIFICATION – The Corporation hereby agrees to indemnify the Consultant and save him harmless from and against any and all losses, expenses, liabilities, claims (including fines, penalties and interest thereon), costs (including legal costs on a solicitor – client basis) and damages for or by reason of or in any way arising out of the Consultant’s compliance with the terms of this Agreement.
15.
AMENDMENTS AND WAIVERS – No amendment to this Agreement shall be valid or binding unless set forth in writing and duly executed by both of the parties hereto. No waiver of any breach of any term or provision of this Agreement shall be effective or binding unless made in writing and signed by the party purporting to give the same and, unless otherwise provided in the written waiver, shall be limited to the specific breach waived.
16.
ASSIGNMENT – The Consultant shall not assign, transfer, sub-contract or pledge this Agreement or any rights or the performance of any obligation arising under this Agreement, without the prior written consent of the Corporation.
17.
SURVIVAL – Without limitation, the parties acknowledge that Sections 7, 8 and 14 shall survive the termination of this Agreement.
18.
SEVERABILITY – If any provision of this Agreement is determined to be invalid or unenforceable in whole or in part, such invalidity or unenforceability shall attach only to such provision or part thereof and the remaining part of such provision and all other provisions hereof shall continue in full force and effect.
19.
FURTHER ASSURANCES – Each party hereto agrees from time to time, subsequent to the date hereof, to execute and deliver or cause to be executed and delivered to the other of them such instruments or further assurances as may, in the reasonable opinion of the other of them, be necessary or desirable to give effect to the provisions of this Agreement.
20.
GOVERNING LAW – This Agreement and the rights and obligations and relations of the parties hereto shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein (but without giving effect to any conflict of laws rules). The parties hereto agree that the courts of Ontario shall have jurisdiction to entertain any action or other legal proceedings based on any provisions of this Agreement. Each party hereto does hereby attorn to the jurisdiction of the courts of the Province of Ontario.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day and year first above written.
SIGNED, SEALED AND DELIVERED
)
)
)
by: /s/Kam Shah
)
Kam Shah
)
Consultant
)
)
by: /s/Kevin Markland
)
Bontan Corporation Inc.
)
Per:
)
Name: Kevin Markland
)
Title: Director
)
)
by: /s/Dean Bradley
)
Bontan Corporation Inc.
)
Per:
)
Name: Dean Bradley
)
Title: Director
EXPLORATION AGREEMENT
BELL CITY, SOUTH AREA
Calcasieu Parish, Louisiana
This agreement (the “Agreement”), when executed by the parties hereto in the manner provided herein, will constitute the entire agreement by and between Keystone Oil Company, Inc. (“Keystone”), a Texas Corporation, whose address is 5646 Milton Street, Suite 713, Dallas, TX 75206 and Bontan Oil and Gas Corporation (“Bontan”), a Canadian Corporation, whose address is 47 Avenue Road, Suite 200, Toronto, Ontario, Canada M5R2G3 (individually a “Party”, or collectively the “Parties”). This Agreement will control the acquisition of oil and gas leases and the drilling and testing of a well or wells for the purpose of producing oil and natural gas located within the Bell City, South Prospect (the “Prospect”) in Calcasieu Parish, Louisiana. The Prospect consists of all lands included within the Area of Mutual Interest (the “AMI”) as defined on the attac hed Exhibit A which by reference is incorporated herein and made a part hereof.
Keystone represents that, based on its own geological and geophysical evaluation of the AMI, it has identified areas within the AMI which warrant further evaluation by drilling. Also Keystone has identified portions of the AMI which, pending results of the initial test well, warrant further evaluation by acquiring additional seismic data subsequent to drilling, testing and completion of the initial test well. Bontan hereby represents that it has obtained a technical report, through the services of a qualified, consulting geophysicist who is not an employee of, or contractor to, Keystone, which describes the geo-scientific aspects of the AMI. On the basis of this report and on business and financial considerations, Bontan has determined that its participation in the Prospect is appropriate for, and suitable to, Bontan.
THEREFORE,
The Parties agree as follows:
1. Regardless of the date of execution, the effective date of this Agreement is May 1, 2004, and the Agreement will remain in force and effect for so long as the oil and gas leases within the AMI continue in force, unless earlier terminated, or extended, by written consent of both Parties.
2. In consideration for its interest acquired in the Prospect as set forth in Paragraph 3 hereof, Bontan will pay to Keystone a geological fee of $19,600 and a prospect fee (for recovery of Keystone’s cost) of $124,950. $5,000 of said geological fee is to be paid upon execution of the Agreement by Bontan with the balance of $14,600 to be paid upon completion of lease acquisition in the area described in Exhibit A as the initial prospect area (the “Initial Prospect Area”). Said prospect fee is to be paid upon completion of lease acquisition in the Initial Prospect Area of a minimum of 1,300 net and gross mineral acres or such larger position within the Initial Prospect Area as Keystone determines, in its sole determination, is a sufficient leasehold position to drill a test well (the “Initial Well”) on the Initial Prospect Exploration Agreement
page 2 of 6
Area. Without the prior written consent of Bontan, no lease shall be taken within the Initial
Prospect Area (I) naming any person or entity other than Keystone as lessee or (ii) containing restrictions on assignability of the lessee’s interest.
3. Bontan will own an undivided forty-nine percent (49 %) lessee interest in any lease acquired within the Initial Prospect Area by paying forty-nine percent (49 %) of the cost of lease acquisition. For leases acquired outside the Initial Prospect Area, but within the AMI, Bontan will own forty-one and sixty-five hundredths percent (41.65%) undivided lessee interest by paying forty-one and sixty-five hundredths percent (41.65%) of the cost of lease acquisition. The cost of lease acquisition will include lessor bonus, brokerage, title examination and curative, recording and any other costs or fees incidental to lease acquisition and maintenance, all subject to the other terms hereof. Subject to the terms of any lease acquired hereunder, Bontan will receive a recorded assignment of its undivided interest in said lease within sixty (60) days subsequent to the completion of the Initial Well as a well capable of production. Bontan will bear the cost of preparing and recording said assignment. If the Initial Well is a dry hole, Bontan will receive said assignment only if Bontan commits to pay its proportionate share of any delay rentals that may become due under the leases within the Initial Prospect Area within the next year. The decision to pay, and each owner’s elections regarding the paying of delay rentals will be made in accordance with the Operating Agreement (herein so-called), attached hereto as Exhibit B, but if Bontan elects to pay delay rentals on leases within the Initial Prospect Area, it will pay forty-nine percent (49 %) of any such delay or other rentals for leases acquired within the Initial Prospect Area. Bontan’s leasehold interest will be subject to a proportionally reduced overriding royalty interest in favor of Keystone and its assigns in each lease equal to the lesser of (I) 4% and (ii) the difference between lessor royalty and thirty percent (30 %), in any event proportionall y reduced if the respective lease covers less than all of the minerals in any tract covered by such lease. As used herein, lease acquisition will include any renewal or extension of a lease taken within two (2) years of the expiration of such lease, or a top lease of same.
The cost of lease acquisition in the Initial Prospect Area will not exceed the gross amount of $400,000 (8/8 lessee interest) without the prior written approval of Bontan. If Bontan elects not to participate in acquisition of leases costing in excess of $400,000, or fails to respond within 15 business days to a written proposal for said lease acquisition, then Bontan will have no interest in, or rights to, said leases. Keystone will not acquire any lease providing lessor royalty equal to more than thirty percent (30 %) without the prior written consent of Bontan.
4. Pending acquisition of the adequate leasehold required by Section 2 above, Bontan will participate in drilling the Initial Well by paying forty-nine percent (49 %) of the actual cost for drilling and completion to earn a forty-nine percent (49 %) working interest before payout. The Initial Well will be drilled at a location selected by Keystone in Sec.12-T11S-R7W to a sufficient depth, estimated to be 15,300 feet, to test the sand (or its stratigraphic Exploration Agreement
page 3 of 6
equivalent) encountered in the Tee No.2 Richard well (Sec.13-T11S-R7W) in the depth
interval 15,050 to 15,130 feet as measured by electric log. The failure by Bontan or Keystone to participate in drilling the Initial Well will result in the forfeiture of rights as provided in the Operating Agreement.
5. The Initial Well only will be subject to a proportionally reduced fifteen percent (15 %) of 8/8 working interest backin after payout in favor of Keystone and its assigns. Costs included for the purpose of calculating payout will be the geological fee of $19,600, the prospect fee of $124,950, and Bontan’s actual costs for leasehold acquisition, including brokerage expense, title examination, drilling, testing and completion, unitization expense, lease operating expense, and state and local taxes. Keystone will be responsible for preparing, or causing the preparation of, monthly payout status reports and will provide said record to the Parties monthly until payout occurs.
6. Subject to the non-consent provisions of the Operating Agreement, Bontan will have the right, but not the obligation, to participate in any well drilled subsequent to the Initial Well (a “Subsequent Well”) with a working interest equal to forty-one and sixty-five hundredths percent (41.65 %) which is equal to the initial working interest of forty-nine percent (49 %) less a backin after payout equal to fifteen percent (15 %) proportionally reduced, whether or not the Initial Well has paid out at the time when any Subsequent Well may be proposed. The Operating Agreement contains provisions requiring Bontan and Keystone successors and assigns to offer to each other the right to participate in acquisitions within the AMI, and neither Bontan nor Keystone will transfer any interest in any leases acquired under Section 2 above or in this Agreement unless the transfer is made expressly subject to this Agreement an d the Operating Agreement.
7. With respect to the currently licensed 3-D seismic data (five square miles), any future expenditures for geological and/or geophysical studies that may be deemed by Keystone as necessary to select the drillsite location for any Subsequent Well will be charged to the cost of the respective Subsequent Well. Said expenditures are restricted to actual costs incurred by Keystone, including, but not limited to, rental of a computer work station, seismic processing and travel expenses, but will not include compensation for time required for such studies by Keystone personnel. However, if additional seismic data are acquired within the AMI (“After Acquired Seismic”), in addition to the costs enumerated above, Keystone will receive compensation in the amount of $250 (8/8 basis) per day for services rendered pursuant to processing and interpreting said seismic data. However, nothing contained herein will requi re Bontan to participate in acquisition of After Acquired Seismic without Bontan’s prior written approval.
8. All drilling, testing, completion, producing and marketing operations, whether for the Initial Well or for a Subsequent Well, will be conducted subject to the Operating Agreement (and attached COPAS, Gas Balancing Agreement and other Exhibits). A Division Order Exploration Agreement
page 4 of 6
identifying the interest owned by each Party will be executed by each Party; subsequent to
said execution each Party will be paid any proceeds that may be due from the sale of oil and/or natural gas directly by the holder of the Division Order or by the first purchaser of production as applicable.
9. Keystone will make periodic and timely cash calls to Bontan pursuant to funding the
lease and seismic acquisitions contemplated herein, and Bontan will timely respond by providing the required funds to Keystone within seven (7) business days. Failure by Bontan to so remit funds following thirty (30) days written notice of non-payment by Keystone will result in Bontan’s forfeiture of its rights to, and interest in, the proposed acquisition. Pre-billing for drilling cost and accounting for other operational matters will be covered by the Operating Agreement.
10. Keystone, at its sole option, may assign any portion of its compensation and/or interest created in and under this Agreement to a third party, or parties.
11. Bontan acknowledges and represents to Keystone that: (I) it is able to bear the economic, operational and geo-scientific risks of the investment(s) contemplated herein; (ii) its interest acquired hereunder is for its own account and not for the direct distribution or sale thereof; (iii) it has no intention of distributing or selling any interests in violation of the Securities Act of 1933 or any other applicable federal or state securities law or regulations; (iv) it is acting solely for its own account in making any evaluation of the AMI.
12. The terms and provisions hereof are binding upon and inure to the benefit of the Parties and their respective legal representatives, successors and, to the extent permitted by this Agreement, their assigns.
13. Nothing contained herein shall be construed as creating or forming a partnership, a mining partnership or similar association or entity whatever. In no event will the Parties be liable as partners. Each Party is responsible only for its own obligations and is liable only for its proportionate share of the costs hereunder.
14. KEYSTONE WILL NOT HAVE ANY LIABILITY TO BONTAN HEREUNDER ON ANY BASIS, WHETHER IN CONTRACT, TORT JOINTLY, CONCURRENTLY, SEVERALLY OR OTHERWISE, FOR ANY LOSSES, DIRECT OR INDIRECT, EXCEPT AS MAY RESULT FROM INTENTIONAL GROSS
NEGLIGENCE OR WILLFUL CRIMINAL CONDUCT OF KEYSTONE.
15. This Agreement may be amended only in writing executed by both Parties.
16. Due to the proprietary nature of operations contemplated herein, the Parties will hold all information regarding the status of, or results from, any operation conducted hereunder in Exploration Agreement
page 5 of 6
strictest confidence. No public disclosure of said information is to be made except as may be
required by law, rule or regulation promulgated by a governing authority or authorities.
17. Any dispute among the Parties which has not been resolved within twenty (20) days shall be submitted to binding arbitration in Dallas, Texas in accordance with the Rules of the American Arbitration Association. Any award rendered by the arbitrator or arbitration panel shall be final and enforceable in a court of competent jurisdiction. The prevailing Party shall be entitled to recover costs and attorney’s fees incurred in connection with the arbitration proceeding. The arbitrator (s) shall permit reasonable discovery, enforce relevant production by subpoena, and may award equitable as well as legal relief. Any Party may apply to the courts in Dallas, Texas for the appointment of an impartial arbitrator (or, in the discretion of the court, a panel of impartial arbitrators) to hear and resolve any dispute arising between the Parties concerning the impartiality of the arbitrator. The costs associated with any such application to such court shall be divided equally among the Parties. The fees of the arbitrator shall be paid by the Party against whom the award is rendered. Any arbitration award shall be appealable on the ground that it is erroneous as a matter of law. Nothing contained herein shall preclude the Parties from stipulating to mediation as a less expensive and more expeditious means of resolving disputes between them or from obtaining injunctive relief from a Texas court pending arbitration or mediation.
18. This Agreement is governed by and constructed in accordance with the laws of the State of Texas to the fullest extent possible.
19. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions will nevertheless continue in full force and effect without being impaired or invalid in any manner.
20. In the event that any terms of this Agreement conflict with any concurrent terms or provisions of the Operating Agreement the terms of the Exploration Agreement will prevail.
21. If, because of force majeure any Party is rendered unable, in whole or in part, to carry out its obligations, other than obligations to pay money, the affected Party will give the other Party prompt notice describing the force majeure situation in reasonable detail, whereupon the obligations will be suspended during, and to the extent prevented by, the force majeure. As used herein, the phrase “Force Majeure” means strike, lockout or other industrial disturbance; act of a public enemy, war, blockade, riot; lightening, fire, storm, flood or explosion; government action or inaction, restraint or delay; unavailability of drilling rigs or other facilities or equipment or transportation thereof including inability to secure workers, lease brokers, title abstracts; inability to obtain ingress or egress to conduct operations; or any other cause, whether similar or dissimilar, which is not reasonably within the c ontrol of the effected Party, provided, however, the effected Party will exercise all reasonable diligence to remove the cause of the force majeure.
Exploration Agreement
page 6 of 6
22. All first notices shall be in writing and delivered in person or by U.S. or Canadian Mail,
Fax or other agreed upon methods. However, if a drilling rig is on location and standby
charges are accumulating, or will begin accumulating, such notices will be given by telephone and immediately confirmed in writing. Notices will be deemed given only when received by the Party whom such notice is directed. Each Party’s response to a proposal will be in writing to the other Party. Failure of either Party to respond to a notice within the required period will be deemed to be a negative vote. All notices will be sent to the Parties or their appointed representative at the above address. Each Party will have the right to change its designated representative and/or address by giving thirty (30) days prior notice to the effective date of the change.
23. All monetary references stated herein, and all monetary transactions contemplated herein are in United States Dollars.
Agreed to and Executed this 16 Day of June , 2004, but effective as of May 1, 2004,
Keystone Oil Company, Inc.
By: /s/ Robert O. Gross
Robert O. Gross, President
Agreed to and Executed this 21 Day of JUNE , 2004, but effective as of May 1, 2004,
Bontan Oil and Gas Corporation
By: /s/ Kam Shah
Kam Shah
EXECUTION COPY
INDIRECT PARTICIPATION INTEREST
PURCHASE AGREEMENT
BETWEEN
BONTAN CORPORATION INC.,
AS SELLER,
AND
KINGS ROAD INVESTMENTS LIMITED
AS PURCHASER,
July 5, 2005
EXECUTION COPY
- i -
TABLE OF CONTENTS
ARTICLE 1 PURCHASE AND SALE
Section 1.1
Purchase and Sale
Section 1.2
Certain Definitions
ARTICLE 2 PURCHASE PRICE
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER
Section 3.1
Existence and Qualification
Section 3.2
Power
Section 3.3
Authorization and Enforceability
Section 3.4
No Conflicts
Section 3.5
Consents to Assignment and Preferential Rights
Section 3.6
Bontan IPI
Section 3.7
Completion Election
Section 3.8
Litigation
Section 3.9
Liability for Brokers’ Fees
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 4.1
Existence and Qualification
Section 4.2
Power
Section 4.3
Authorization and Enforceability
Section 4.4
No Conflicts
Section 4.5
Litigation
Section 4.6
Liability for Brokers’ Fees
ARTICLE 5 COVENANTS OF THE PARTIES
Section 5.1
Public Announcements
Section 5.2
Assumption of Obligations
Section 5.3
Further Assurances
ARTICLE 6 CONDITIONS TO CLOSING
Section 6.1
Conditions of Seller to Closing
Section 6.2
Conditions of Purchaser to Closing
ARTICLE 7 CLOSING
Section 7.1
Time and Place of Closing
Section 7.2
Obligations of Seller at Closing
Section 7.3
Obligations of Purchaser at Closing
ARTICLE 8 TAX MATTERS
ARTICLE 9 INDEMNIFICATION; LIMITATIONS
Section 9.1
Indemnification
Section 9.2
Indemnification Actions
Section 9.3
Survival; Limitation on Actions
ARTICLE 10 TERMINATION
Section 10.1
Termination
Section 10.2
Notice of Termination
Section 10.3
Effect of Termination
ARTICLE 11 MISCELLANEOUS
Section 11.1
Counterparts
Section 11.2
Notices
Section 11.3
Expenses
Section 11.4
Governing Law
Section 11.5
Captions
Section 11.6
Waivers
Section 11.7
Assignment
Section 11.8
Records
Section 11.9
Entire Agreement
Section 11.10
Amendment
Section 11.11
No Third-Person Beneficiaries
Section 11.12
References
Section 11.13
Construction
Section 11.14
Dispute Resolution
1
INDIRECT PARTICIPATION INTEREST PURCHASE AGREEMENT
This Indirect Participation Interest Purchase Agreement (this “Agreement”) is dated as of July 5, 2005 (the “Effective Date”), by and between Bontan Corporation Inc., an Ontario corporation (“Seller”) and Kings Road Investments Limited, a Cayman Islands limited liability company (“Purchaser”). Seller and Purchaser are sometimes referred to collectively as the “Parties” and individually as a “Party.”
RECITALS
WHEREAS, Seller, as successor in interest to Advisory Group Limited, is a party to that certain Indirect Participation Interest Agreement (the “Bontan IPI Agreement”) with PNG Drilling Ventures Limited (“PNGDV”) dated July 21, 2003, whereby Seller agreed to participate in funding certain of PNGDV’s drilling obligations in connection with an exploration program on the Licenses (as defined herein) pursuant to that certain Drilling Participation Agreement between PNGDV’s parent corporation, InterOil Corporation (“InterOil”) and PNGDV in exchange for a .75% Indirect Participation Interest Percentage in the Participation Area (as defined in the Bontan IPI Agreement) (the “Bontan IPI” or the “Contract Interests”); and
WHEREAS, Seller wishes to sell, transfer, convey, assign and deliver, and Purchaser wishes to acquire, purchase and pay for, all of Seller’s right, title and interest in and to the Bontan IPI.
NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants, conditions and agreements contained herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE 1 PURCHASE AND SALE
Section 1.1
Purchase and Sale
. On the terms and conditions contained in this Agreement, Seller agrees to sell, transfer, convey, assign and deliver to Purchaser and Purchaser agrees to agrees to acquire, purchase and pay for, the Contract Interests.
Section 1.2
Certain Definitions
. As used herein:
(a)
“AAA” shall have the meaning given to such term in Section 11.14(b).
(b)
“Affiliate” means, with respect to any Person, a Person that directly or indirectly controls, is controlled by or is under common control with such Person, with control in such context meaning the ability to direct the management or policies of a Person through ownership of voting shares or other securities, pursuant to a written agreement, or otherwise.
(c)
“Agreement” shall have the meaning given to such term in the Preamble.
(d)
“Assignment” shall have the meaning given to such term in Section 7.2(a)(i).
(e)
“Bontan IPI” is defined in the first Recital.
(f)
“Claim” shall have the meaning given to such term in Section 9.2(b).
(g)
“Claim Notice” shall have the meaning given to such term in Section 9.2(b).
(h)
“Closing” shall have the meaning given to such term in Section 7.1.
(i)
“Closing Date” shall have the meaning given to such term in Section 7.1.
(j)
“Contract Interests” is defined in the first Recital.
(k)
“Damages” shall have the meaning given to such term in Section 9.1(c).
(l)
“Dispute” shall have the meaning given to such term in Section 11.14(a).
(m)
“Effective Date” shall have the meaning given to such term in the Preamble.
(n)
“Governmental Authority” means any government and/or any political subdivision thereof, including departments, courts, commissions, boards, bureaus, ministries, agencies or other instrumentalities.
(o)
“Indemnified Person” shall have the meaning given to such term in Section 9.2(a).
(p)
“Indemnifying Person” shall have the meaning given to such term in Section 9.2(a).
(q)
“InterOil” is defined in the first Recital.
(r)
“Laws” means all constitutions, laws, statutes, rules, regulations, ordinances, orders, decrees, requirements, judgments and codes of Governmental Authorities.
(s)
“Licenses” means, individually and collectively, PPL 236, PPL 237 and PPL 238 in Papua New Guinea or any PDL that may be issued out of any such PPL, and includes any extension, renewal or variation of such License.
(t)
“Oil and Gas Act” means the Oil and Gas Act 1998 (No. 49 of 1998) of Papua New Guinea, as amended from time to time.
(u)
“Party” and “Parties” shall have the meaning given to such terms in the Preamble.
(v)
“PDL” means a Petroleum Development License granted under the Oil and Gas Act.
(w)
“Person” means any individual, corporation, partnership, limited liability company, trust, estate, Governmental Authority or any other entity.
(x)
“PPL” means a Petroleum Prospecting License granted under the Oil and Gas Act.
(y)
“Purchase Price” shall have the meaning given to such term in Article 2.
(z)
“Purchaser” shall have the meaning given to such term in the Preamble.
(aa)
“Records” means all documents, books, records, technical information and other data in the possession of or otherwise obtainable by Seller reasonably related to Contract Interests, excluding any materials that are privileged.
(bb)
“Seller” shall have the meaning given to such term in the Preamble.
(cc)
“Tax” means all taxes, including income tax, surtax, remittance tax, presumptive tax, net worth tax, special contribution, production tax, pipeline transportation tax, value added tax, withholding tax, gross receipts tax, windfall profits tax, profits tax, severance tax, personal property tax, real property tax, sales tax, service tax, transfer tax, use tax, excise tax, premium tax, customs duties, stamp tax, motor vehicle tax, entertainment tax, insurance tax, capital stock tax, franchise tax, occupation tax, payroll tax, employment tax, social security, unemployment tax, disability tax, alternative or add-on minimum tax, estimated tax, and any other assessments, duties, fees, levies or other charges imposed by a Governmental Authority together with any interest, fine or penalty thereon, or addition thereto.
ARTICLE 2 PURCHASE PRICE
The “Purchase Price” for the Contract Interests shall be Three Million Two Hundred Thousand United States Dollars (U.S. $3,200,000).
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to the Purchaser as of the date of this Agreement and, except as otherwise expressly provided, as of the Closing Date, that:
Section 3.1
Existence and Qualification
. Seller is a corporation duly organized and validly existing under the laws of Ontario, Canada and is duly qualified to do business as a foreign corporation in each jurisdiction in which it is required to qualify in order to conduct its business.
Section 3.2
Power
. Seller has the corporate power to enter into and perform this Agreement (and all documents required to be executed and delivered by Seller at Closing) and to consummate the transactions contemplated by this Agreement (and such documents).
Section 3.3
Authorization and Enforceability
. The execution, delivery and performance of this Agreement (and all documents required to be executed and delivered by Seller at Closing), and the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary corporate action on the part of Seller. This Agreement has been duly executed and delivered by Seller (and all documents required to be executed and delivered by Seller at Closing shall be duly executed and delivered by Seller) and this Agreement constitutes, and at the Closing such documents shall constitute, the valid and binding obligations of Seller, enforceable in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy or other similar Laws affecting the rights and remedies of creditors generally as well as by general principles of equity (regardless of whether suc h enforceability is considered in a proceeding in equity or at law).
Section 3.4
No Conflicts
. The execution, delivery and performance of this Agreement by Seller, and the consummation of the transactions contemplated by this Agreement shall not (A) violate any provision of the articles of incorporation, by-laws or other organizational documents of Seller, (B) result in default (with due notice or lapse of time or both) or the creation of any lien or encumbrance or give rise to any right of termination, cancellation or acceleration under any material note, bond, mortgage, indenture, license or agreement to which Seller is a party or by which it is bound, (C) violate any judgment, order, ruling, or decree applicable to Seller as a party in interest or (D) violate any Laws applicable to Seller.
Section 3.5
Consents to Assignment and Preferential Rights
. No third Person has any preferential right, right of first opportunity or any similar right to purchase the Contract Interests and the consummation of the transactions contemplated herein will not require the consent of, or the provision of notice of such transactions to, any third Persons other than InterOil and/or PNGDV.
Section 3.6
Bontan IPI
. Seller owns and has valid title to the Contract Interests free and clear of all liens, charges and encumbrances. Seller and PNGDV are the only parties to the Bontan IPI Agreement and neither Seller nor, to the knowledge of Seller, PNGDV has assigned, delegated or otherwise encumbered any its rights or duties under the Bontan IPI Agreement. Neither Seller nor, to the knowledge of Seller, PNGDV is in breach of or default under the Bontan IPI Agreement. To the knowledge of the Seller, the Bontan IPI Agreement is a valid, binding and enforceable agreement of Seller and PNGDV in accordance with its terms. The Bontan IPI Agreement has not been modified, amended or supplemented, either orally or in writing. Seller has not received any notice alleging any breach or default under the Bontan IPI Agreement on the part of any party thereto, and Seller is not awa re of any existing facts or circumstances which with the giving of notice or the lapse of time, or both, would constitute a breach or default under the Bontan IPI Agreement. There is no dispute between the current or any prior parties to the Bontan IPI Agreement as to the interpretation thereof or as to whether any party is or was in breach or default thereunder, and no party to the Bontan IPI Agreement has given notice of its intention to, or its evaluation of whether to, terminate the Bontan IPI Agreement.
Section 3.7
Completion Election
. Seller has elected, or will do so prior to Closing, to participate in the completion of the Black Bass well currently being drilled as part of the exploration program under the Bontan IPI Agreement.
Section 3.8
Litigation
. There are no actions, suits or proceedings pending, or to such Seller’s knowledge, threatened before any Governmental Authority or arbitrator against Seller or any of its Affiliates which are reasonably likely to impair Seller’s ability to perform its obligations under this Agreement.
Section 3.9
Liability for Brokers’ Fees
. Purchaser shall not directly or indirectly have any responsibility, liability or expense, as a result of undertakings or agreements of Seller for brokerage fees, finder’s fees, agent’s commissions or other similar forms of compensation to an intermediary in connection with the negotiation, execution or delivery of this Agreement or any agreement or transaction contemplated hereby.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as follows:
Section 4.1
Existence and Qualification
. Purchaser is a company organized, validly existing and in good standing under the laws of the Cayman Islands.
Section 4.2
Power
. Purchaser has the corporate power to enter into and perform this Agreement (and all documents required to be executed and delivered by Purchaser at Closing) and to consummate the transactions contemplated by this Agreement (and such documents).
Section 4.3
Authorization and Enforceability
. The execution, delivery and performance of this Agreement (and all documents required to be executed and delivered by Purchaser at Closing), and the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary corporate action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser (and all documents required to be executed and delivered by Purchaser at Closing will be duly executed and delivered by Purchaser) and this Agreement constitutes, and at the Closing such documents will constitute, the valid and binding obligations of Purchaser, enforceable in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy or other similar laws affecting the rights and remedies of creditors generally as well as by general principles of equity (regardles s of whether such enforceability is considered in a proceeding in equity or at law).
Section 4.4
No Conflicts
. The execution, delivery and performance of this Agreement by Purchaser, and the consummation of the transactions contemplated by this Agreement, will not (i) violate any provision of the memorandum and articles of association, articles of incorporation, by-laws or other organizational documents of Purchaser, (ii) result in a default (with due notice or lapse of time or both) or the creation of any lien or encumbrance or give rise to any right of termination, cancellation or acceleration under any material note, bond, mortgage, indenture, license or agreement to which Purchaser is a party or by which it is bound, (iii) violate any judgment, order, ruling, or decree applicable to Purchaser as a party in interest or (iv) violate any Laws applicable to Purchaser or any of its assets, except any matters described in clauses (ii), (iii) or (iv) above which would not have a material adverse effect on Purchaser or its properties.
Section 4.5
Litigation
. There are no actions, suits or proceedings pending, or to such Purchaser’s knowledge, threatened before any Governmental Authority or arbitrator against Purchaser or any of its Affiliates which are reasonably likely to impair Purchaser’s ability to perform its obligations under this Agreement.
Section 4.6
Liability for Brokers’ Fees
. Seller shall not directly or indirectly have any responsibility, liability or expense, as a result of undertakings or agreements of Purchaser, for brokerage fees, finder’s fees, agent’s commissions or other similar forms of compensation to an intermediary in connection with the negotiation, execution or delivery of this Agreement or any agreement or transaction contemplated hereby.
ARTICLE 5 COVENANTS OF THE PARTIES
Section 5.1
Public Announcements
. No Party shall make any press release or other public announcement regarding the existence of this Agreement, the contents hereof or the transactions contemplated hereby without the prior written consent of the other Party; provided, however, the foregoing shall not restrict disclosures (a) that are required by applicable securities or other Laws or the applicable rules of any stock exchange having jurisdiction over the disclosing Party or its Affiliates, or (b) to Governmental Authorities, provided, however, that the other Party shall have the right to review and provide reasonable comment prior to any disclosure under this Section. Notwithstanding the foregoing exceptions, Seller shall not make any press release or other public announcement using the name of Purchaser or Polygon Investment Partners, LP or any of their respective Affiliates unless Seller provides Purchaser a written opinion of counsel stating that such disclosure is required by applicable securities or other Laws or the applicable rules of any stock exchange having jurisdiction over Seller or its Affiliates. Purchaser hereby acknowledges that upon the closing of the transactions contemplated by this Agreement, Seller will file a 6-K with the U.S. Securities and Exchange Commission disclosing the transactions reflected hereunder. Seller shall not identify the name of Purchaser if in Seller’s counsel’s reasonable determination such disclosure is not necessary to comply with Seller’s SEC reporting obligations.
Section 5.2
Assumption of Obligations
. Effective at Closing, and without limiting the obligations of any Party under Article 9, Purchaser agrees to assume and pay, perform, and discharge all obligations of Seller with respect to the Contract Interests, that, by the terms of such Contract Interests, arise after Closing, relate to periods following the Closing and are to be observed, paid, discharged or performed, as the case may be, in each case at any time after Closing, excluding any obligation to the extent it constitutes a violation of a representation or warranty made by Seller in this Agreement.
Section 5.3
Further Assurances
. After Closing, Seller and Purchaser agree to take such further actions and to execute, acknowledge and deliver all such further documents as are reasonably requested by the other Party for carrying out the purposes of this Agreement or of any document delivered pursuant to this Agreement.
ARTICLE 6 CONDITIONS TO CLOSING
Section 6.1
Conditions of Seller to Closing
. The obligations of Seller to consummate the transactions contemplated by this Agreement are subject, at the option of Seller, to the satisfaction on or prior to Closing of each of the following conditions:
(a)
Representations. The representations and warranties of Purchaser set forth in Article 4 shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date;
(b)
Performance. Purchaser shall have performed and observed, in all material respects, all covenants and agreements to be performed or observed by it under this Agreement prior to or on the Closing Date;
(c)
No Action. On the Closing Date, no suit, action, or other proceeding (excluding any such matter initiated by Seller or its Affiliates) shall be pending or threatened before any Governmental Authority or body of competent jurisdiction seeking to enjoin or restrain the consummation of the transactions contemplated by this Agreement or recover substantial damages from Seller or any Affiliate of Seller resulting therefrom, and no temporary restraining order, preliminary or permanent injunction or other order which would prevent the consummation of the transactions contemplated by this Agreement shall have been issued by any competent Governmental Authority or arbitrator; and
(d)
Consents and Waivers. All material consents and approvals required for the consummation of the transactions contemplated by this Agreement shall have been granted.
Section 6.2
Conditions of Purchaser to Closing
. The obligations of Purchaser to consummate the transactions contemplated by this Agreement are subject, at the option of Purchaser, to the satisfaction on or prior to Closing of each of the following conditions:
(a)
Representations. The representations and warranties of Seller set forth in Article 3 shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date;
(b)
Performance. Seller shall have performed and observed, in all material respects, all covenants and agreements to be performed or observed by it under this Agreement prior to or on the Closing Date;
(c)
No Action. On the Closing Date, no suit, action, or other proceeding (excluding any such matter initiated by Purchaser or any of its Affiliates) shall be pending or threatened before any Governmental Authority or body of competent jurisdiction seeking to enjoin or restrain the consummation of the transactions contemplated by this Agreement or recover substantial damages from Purchaser or any Affiliate of Purchaser resulting therefrom, and no temporary restraining order, preliminary or permanent injunction or other order which would prevent the consummation of the transactions contemplated by this Agreement shall have been issued by any competent Governmental Authority or arbitrator; and
(d)
Consents and Waivers. All consents and approvals required for the consummation of the transactions contemplated by this Agreement shall have been granted.
(e)
Execution of Amended And Restated Indirect Participation Interest Agreement. Simultaneously with the Closing, InterOil shall enter into an Amended and Restated Indirect Participation Interest Agreement with Purchaser or its designee, in form and substance acceptable to Purchaser in its sole and absolute discretion.
(f)
Material Adverse Change. There shall not have occurred, in Purchaser’s reasonable discretion, since the Effective Date, an event, circumstance, change or effect that is reasonably likely to have a material adverse effect on the value or condition (financial or otherwise) of, or prospects arising from, the Contract Interests.
ARTICLE 7 CLOSING
Section 7.1
Time and Place of Closing
. The consummation of the assignment and purchase of the Contract Interests contemplated by this Agreement (the “Closing”) shall, unless otherwise agreed to in writing by Purchaser and Seller, take place at a time and location to be agreed among the Parties after all conditions in Article 6 to be satisfied prior to Closing have been satisfied or waived, subject to the provisions of Article 9. The date on which the Closing occurs is referred to herein as the “Closing Date.”
Section 7.2
Obligations of Seller at Closing
. At the Closing, upon the terms and subject to the conditions of this Agreement, and subject to the simultaneous performance by Purchaser of its obligations pursuant to Section 7.3.
(a)
Seller shall deliver or cause to be delivered to Purchaser the following:
(i)
An assignment and assumption agreement (an “Assignment”) with respect to the Contract Interests, duly executed by an authorized officer of Seller;
(ii)
A certificate duly executed by the secretary or any assistant secretary of Seller, dated as of the Closing, attaching and certifying on behalf of Seller (A) complete and correct copies of the articles of incorporation and bylaws of Seller, each as in effect as of the Closing, (B) the resolutions of the Board of Directors of Seller authorizing the execution, delivery and performance by Seller of this Agreement and the transactions contemplated hereby, (C) the incumbency of each officer of Seller executing this Agreement or any other documents in connection with the Closing, and (D) any required approval by the stockholders of Seller of this Agreement and the transactions contemplated hereby; and
(iii)
Any additional assignments or other documents reasonably required to consummate the transactions contemplated by this Agreement.
Section 7.3
Obligations of Purchaser at Closing
. At the Closing, upon the terms and subject to the conditions of this Agreement, and subject to the simultaneous performance by Seller of its obligations pursuant to Section 7.2, Purchaser shall deliver or cause to be delivered to Seller, among other things, the following:
(a)
Wire transfers of the Purchase Price in immediately available funds in U.S. Dollars to Seller;
(b)
An Assignment with respect to the Contract Interests duly executed by an authorized officer of Purchaser; and
(c)
Any additional assignments or other documents reasonably required to consummate the transactions contemplated by this Agreement.
ARTICLE 8 TAX MATTERS
Seller shall be responsible for all Taxes based upon or measured by gross proceeds, income, profits or capital gains of such Seller, including without limitation income Taxes arising as a result of any gain recognized by such Seller on the transfer of the Contract Interests. Seller shall pay 100% of any sales, use, excise, real property transfer or gain, gross receipts, goods and services, registration, documentary, stamp or transfer Taxes, recording fees or other Taxes and fees incurred and imposed upon, or with respect to, the transfer of the Contract Interests contemplated hereby.
ARTICLE 9 INDEMNIFICATION; LIMITATIONS
Section 9.1
Indemnification
.
(a)
From and after Closing, Purchaser shall indemnify, defend and hold harmless Seller from and against all Damages incurred or suffered by Seller
(i)
caused by or arising out of or resulting from Purchaser’s breach of any covenants or agreements contained herein, or
(ii)
caused by or arising out of or resulting from any material breach of any representation or warranty made by Purchaser contained in Article 4 of this Agreement or in the certificate delivered by Purchaser at Closing pursuant to Section 7.3(c),
but excepting in each case Damages suffered by Seller against which Seller would be required to indemnify Purchaser under Section 9.1(b) at the time the claim notice is presented as a consequence of a breach of Seller’s representations, warranties, covenants or agreements.
(b)
From and after Closing, Seller shall indemnify, defend and hold harmless Purchaser from and against all Damages incurred or suffered by Purchaser
(i)
caused by or arising out of or resulting from ownership of the Contract Interests prior to or on the Closing Date,
(ii)
caused by or arising out of or resulting from Seller’s breach of any covenants or agreements contained herein, or
(iii)
caused by or arising out of or resulting from any material breach of any representation or warranty made by the indemnifying Seller contained in Article 3 of this Agreement, or in the certificate delivered by Seller at Closing pursuant to Section 7.2(a),
but excepting in each case Damages suffered by Purchaser against which Purchaser would be required to indemnify Seller under Section 9.1(a) at the time the claim notice is presented as a consequence of a breach of Purchaser’s representations, warranties, covenants or agreements.
The foregoing indemnity obligations of the parties shall include claims alleging or involving joint, concurrent or comparative negligence, but such indemnity shall not extend to liability resulting from the negligence or act of an Indemnified Party (including its employees, agents and independent contractors) where such negligence or act is the primary cause of the liability for which indemnity is sought.
(c)
“Damages”, for purposes of this Article 9, shall mean the amount of any actual liability, loss, cost, expense, claim, award or judgment incurred or suffered by any Indemnified Person arising out of or resulting from the indemnified matter, whether attributable to personal injury or death, property damage, contract claims, torts or otherwise including reasonable fees and expenses of attorneys, consultants, accountants or other agents and experts reasonably incident to matters indemnified against, and the costs of investigation and/or monitoring of such matters, and the costs of enforcement of the indemnity.
(d)
The indemnity to which each Party is entitled under this Section 9.1 shall be for the benefit of and extend to such Party’s present and former Affiliates, and its and their respective directors, officers, employees, and agents. Any claim for indemnity under this Section 9.1 by any such Affiliate, director, officer, employee or agent must be brought and administered by the applicable Party to this Agreement. No Indemnified Person other than Seller and Purchaser shall have any rights against either Seller or Purchaser under the terms of this Section 9.1 except as may be exercised on its behalf by Purchaser or Seller, as applicable, pursuant to this Section 9.1(d). Each of Seller and Purchaser may elect to exercise or not exercise indemnification rights under this Section on behalf of the other Indemnified Persons affiliated with i t in its sole discretion and shall have no liability to any such other Indemnified Person for any action or inaction under this Section.
Section 9.2
Indemnification Actions
. All claims for indemnification under Section 9.1 shall be asserted and resolved as follows:
(a)
For purposes of this Article 9, the term “Indemnifying Person” when used in connection with particular Damages shall mean the Person having an obligation to indemnify another Person or Persons with respect to such Damages pursuant to this Article 9, and the term “Indemnified Person” when used in connection with particular Damages shall mean a Person having the right to be indemnified with respect to such Damages pursuant to this Article 9.
(b)
To make claim for indemnification under Section 9.1, an Indemnified Person shall notify the Indemnifying Person of its claim, including the specific details of and specific basis under this Agreement for its claim (the “Claim Notice”). In the event that the claim for indemnification is based upon a claim by a third Person against the Indemnified Person (a “Claim”), the Indemnified Person shall provide its Claim Notice promptly after the Indemnified Person has actual knowledge of the Claim and shall enclose a copy of all papers (if any) served with respect to the Claim; provided that the failure of any Indemnified Person to give notice of a Claim as provided in this Section 9.2 shall not relieve the Indemnifying Person of its obligations under Section 9.1 except to the extent such failure results in insufficient time being available to permit the Indemnifying Person to effectively defend against the Claim or otherwise prejudices the Indemnifying Person’s ability to defend against the Claim. In the event that the claim for indemnification is based upon an inaccuracy or breach of a representation, warranty, covenant or agreement, the Claim Notice shall specify the representation, warranty, covenant or agreement that was inaccurate or breached.
(c)
In the case of a claim for indemnification based upon a Claim, the Indemnifying Person shall have thirty (30) days from its receipt of the Claim Notice to notify the Indemnified Person whether it admits or denies its obligation to defend the Indemnified Person against such Claim under this Article 9. If the Indemnifying Person does not notify the Indemnified Person within such thirty (30) day period regarding whether the Indemnifying Person admits or denies its obligation to defend the Indemnified Person, the Indemnifying Person shall conclusively be deemed obligated to provide the requested indemnification hereunder. The Indemnified Person is authorized, prior to and during such thirty (30) day period, to file any motion, answer or other pleading that it shall deem necessary or appropriate to protect its interests or those of the Indemnif ying Person and that is not prejudicial to the Indemnifying Person.
(d)
If the Indemnifying Person admits its obligation to indemnify the Indemnified Person, it shall have the right and obligation to diligently defend, at its sole cost and expense, the Claim. The Indemnifying Person shall have full control of such defense and proceedings, including any compromise or settlement thereof. If requested by the Indemnifying Person, the Indemnified Person agrees to cooperate in contesting any Claim which the Indemnifying Person elects to contest (provided, however, that the Indemnified Person shall not be required to bring any counterclaim or cross-complaint against any Person). The Indemnified Person may participate in, but not control, any defense or settlement of any Claim controlled by the Indemnifying Person pursuant to this Section 9.2(d). An Indemnifying Person shall not, without the written consent of the Indemnified Person, settle any Claim or consent to the entry of any judgment with respect thereto that (i) does not result in a final resolution of the Indemnified Person’s liability with respect to the Claim (including, in the case of a settlement, an unconditional written release of the Indemnified Person from all liability in respect of such Claim) or (ii) may adversely affect the Indemnified Person (other than as a result of money damages covered by the indemnity).
(e)
If the Indemnifying Person does not admit its obligation to indemnify the Indemnified Person or admits its obligation but fails to diligently defend or settle the Claim, then the Indemnified Person shall have the right to defend against the Claim (at the sole cost and expense of the Indemnifying Person, if the Indemnified Person is entitled to indemnification hereunder), with counsel of the Indemnified Person’s choosing, subject to the right of the Indemnifying Person to admit its obligation to indemnify the Indemnified Person and assume the defense of the Claim at any time prior to settlement or final determination thereof. If the Indemnifying Person has not yet admitted its obligation to indemnify the Indemnified Person, the Indemnified Person shall send written notice to the Indemnifying Person of any proposed settlement and the Indemnif ying Person shall have the option for five (5) days following receipt of such notice to (i) admit in writing its obligation for indemnification with respect to such Claim and (ii) if its obligation is so admitted, assume the defense of the Claim, including the power to reject the proposed settlement. If the Indemnified Person settles any Claim over the objection of the Indemnifying Person after the Indemnifying Person has timely admitted its obligation for indemnification in writing and assumed the defense of the Claim, the Indemnified Person shall be deemed to have waived any right to indemnity therefor.
Section 9.3
Survival; Limitation on Actions
.
(a)
The representations and warranties and the covenants and agreements of the Parties shall survive the Closing for a period of two (2) years), except as may otherwise be expressly provided herein.
(b)
The amount of any Damages for which an Indemnified Person is entitled to indemnity under this Article 9 shall be reduced by the amount of insurance proceeds realized by the Indemnified Person or its Affiliates with respect to such Damages (net of any collection costs, and excluding the proceeds of any insurance policy issued or underwritten by the Indemnified Person or its Affiliates).
ARTICLE 10 TERMINATION
Section 10.1
Termination
. This Agreement may be terminated at any time prior to the Closing:
(a)
by mutual agreement of the Parties;
(b)
if all the conditions for Closing have not been satisfied or waived on or prior to July 7, 2005, by 5 p.m. Eastern Standard Time, this Agreement will be null and void; or
(c)
by any Party, if a permanent injunction or other order by a Governmental Authority shall have been issued and shall have become final and nonappealable which would make illegal or otherwise restrain in any material respect or prohibit the consummation of the Agreement.
Section 10.2
Notice of Termination
. Any termination of this Agreement under Section 10.1 will be effective upon the delivery of written notice by the terminating Party to the other Parties.
Section 10.3
Effect of Termination
. If this Agreement is terminated pursuant to Section 10.1, this Agreement shall become void and of no further force or effect (except for the provisions of Sections 3.9, 4.6, 11.3, 11.4, 11.11, 11.12, 11.13 and 11.14, all of which shall continue in full force and effect). Notwithstanding anything to the contrary in this Agreement, the termination of this Agreement under Section 10.1 shall not relieve any Party from liability (including liability for consequential damages) for any failure to perform or observe in any material respect any of its agreements or covenants contained herein which are to be performed or observed at or prior to Closing.
ARTICLE 11 MISCELLANEOUS
Section 11.1
Counterparts
. This Agreement may be executed in counterparts, each of which shall be deemed an original instrument, but all such counterparts together shall constitute but one agreement.
Section 11.2
Notices
. All notices that are required or may be given pursuant to this Agreement shall be sufficient in all respects if given in writing, in English and delivered personally, by telecopy or by recognized courier service, as follows:
If to Seller:
47 Avenue Road, Suite 200
Toronto, Ontario, M5R 2G3 Canada
Attention: Kam Shah
(416)361-6228 (fax)
If to Purchaser:
Kings Road Investments Ltd.
c/o Polygon Investment Partners LP
598 Madison Avenue, NY, NY 10128
Attn:
Erik Caspersen and Brandon Jones
Fax:
(212) 359-7303
Either Party may change its address for notice by notice to the other in the manner set forth above. All notices shall be deemed to have been duly given at the time of receipt by the Party to which such notice is addressed.
Section 11.3
Expenses
. All expenses incurred by Seller in connection with or related to the authorization, preparation or execution of this Agreement, and the Exhibits and Schedules hereto and thereto, and all other matters related to the Closing, including without limitation, all fees and expenses of counsel, accountants and financial advisers employed by the Seller incurring such expense, shall be borne solely and entirely by such Seller, and, except as provided in Article 8, all such expenses incurred by Purchaser shall be borne solely and entirely by Purchaser.
Section 11.4
Governing Law
. THIS AGREEMENT AND THE LEGAL RELATIONS BETWEEN THE PARTIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS THAT WOULD DIRECT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
Section 11.5
Captions
. The captions in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement.
Section 11.6
Waivers
. Any failure by either Party to comply with any of its obligations, agreements or conditions herein contained may be waived by the Party to whom such compliance is owed by an instrument signed by the Party to whom compliance is owed and expressly identified as a waiver, but not in any other manner. No waiver of, or consent to a change in, any of the provisions of this Agreement shall be deemed or shall constitute a waiver of, or consent to a change in, other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.
Section 11.7
Assignment
. No Party shall assign or otherwise transfer all or any part of this Agreement without the prior written consent of the other Party and any transfer made without such consent shall be void. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns.
Section 11.8
Records
. At Closing, Seller shall deliver or cause to be delivered to Purchaser copies of the Records, provided that Seller may retain copies of the Records.
Section 11.9
Entire Agreement
. This Agreement and the documents to be executed hereunder and the Exhibits and Schedules attached hereto constitute the entire agreement between the Parties pertaining to the subject matter hereof, and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties pertaining to the subject matter hereof.
Section 11.10
Amendment
. This Agreement may be amended or modified only by an agreement in writing signed by both Parties and expressly identified as an amendment or modification.
Section 11.11
No Third-Person Beneficiaries
. Nothing in this Agreement shall entitle any Person other than Purchaser and Seller to any claim, cause of action, remedy or right of any kind, except the rights expressly provided to the Persons described in Section 9.1(d).
Section 11.12
References
. In this Agreement:
(a)
References to any gender includes a reference to all other genders;
(b)
References to the singular includes the plural, and vice versa;
(c)
Reference to any Article or Section means an Article or Section of this Agreement;
(d)
Reference to any Exhibit or Schedule means an Exhibit or Schedule to this Agreement, all of which are incorporated into and made a part of this Agreement;
(e)
Unless expressly provided to the contrary, “hereunder”, “hereof”, “herein” and words of similar import are references to this Agreement as a whole and not any particular Section or other provision of this Agreement; and
(f)
“Include” and “including” shall mean include or including without limiting the generality of the description preceding such term.
Section 11.13
Construction
. The language this Agreement uses is the language that the Parties, represented by counsel, have chosen to express their mutual intent, and the rule of contra proferentum shall not be applied against either Party.
Section 11.14
Dispute Resolution
.
(a)
On the request of any Party hereto, whether made before or after the institution of any legal proceeding, any action, dispute, claim or controversy of any kind now existing or hereafter arising between any of the Parties hereto in any way arising out of, pertaining to or in connection with this Agreement (a "Dispute") shall be resolved by binding arbitration in accordance with the terms hereof. Any Party may, by summary proceedings, bring an action in court to compel arbitration of any Dispute.
(b)
Any arbitration shall be administered by the American Arbitration Association (the “AAA”) in accordance with the terms of this Section, the Commercial Arbitration Rules of the AAA, and, to the maximum extent applicable, the Federal Arbitration Act. Judgment on any award rendered by an arbitrator may be entered in any court having jurisdiction.
(c)
Any arbitration shall be conducted before one arbitrator. The arbitrator shall be a practicing attorney licensed to practice in the State of New York who is knowledgeable in the subject matter of the Dispute selected by agreement between the Parties hereto. If the Parties cannot agree on an arbitrator within 30 days after the request for an arbitration, then any Party may request the AAA to select an arbitrator. The arbitrator may engage engineers, accountants or other consultants that the arbitrator deems necessary to render a conclusion in the arbitration proceeding.
(d)
To the maximum extent practicable, an arbitration proceeding hereunder shall be concluded within 180 days of the filing of the Dispute with the AAA. Arbitration proceedings shall be conducted in New York, New York. Arbitrators shall be empowered to impose sanctions and to take such other actions as the arbitrators deem necessary to the same extent a judge could impose sanctions or take such other actions pursuant to the Federal Rules of Civil Procedure and applicable law. At the conclusion of any arbitration proceeding, the arbitrator shall make specific written findings of fact and conclusions of law. The arbitrator shall have the power to award recovery of all costs and fees to the prevailing Party. Each Party agrees to keep all Disputes and arbitration proceedings strictly confidential except for disclosure of informat ion required by applicable law.
(e)
All fees of the arbitrator and any engineer, accountant or other consultant engaged by the arbitrator shall be paid equally by the Parties involved in the dispute, unless otherwise awarded by the arbitrator.
[SIGNATURE PAGE FOLLOWS]
EXECUTION COPY
- 2 -
IN WITNESS WHEREOF, this Agreement has been signed by both Parties as of the date first above written.
BONTAN CORPORATION INC.
Name:
Title:
KINGS ROAD INVESTMENTS LIMITED
Name:
Title:
EXECUTION COPY
- 3 -
MINUTES OF UNANIMOUS ACTION OF THE BOARD OF DIRECTORS OF BONTAN CORPORATION INC.
The undersigned, being all of the members of the Board of Directors of Bontan Corporation Inc., an Ontario corporation (the “Company”), in lieu of a meeting of the Board of Directors, do hereby take the following actions effective as of the 1st day of May, 2004:
AMENDMENT TO THE 1999 STOCK OPTION PLAN
WHEREAS, in May 2003, the Company registered on Form S-8 the original issuance of the shares of Common Stock underlying its 1999 Stock Option Plan (the “Option Plan”) with a view to compensate certain consultants and directors from time to time for services rendered in lieu of any cash fee payments;
WHEREAS, by a separate resolution of this date, the Board of Directors authorized the grant of stock options under the Option Plan to a group of optionees (the “Option Grants”) with exercise prices ranging between US$0.35 and US$1.00 (the “Actual Exercise Prices”);
WHEREAS, Section 5 of the Option Plan requires that the exercise price of options granted thereunder be not less than the closing price of the Common Stock on the OTC Bulletin Board on the first date preceding the date of grant or alternatively the weighted average price of the five preceding days, which exercise price as to the Option Grants would be computed at US$1.15 (the “Formula Exercise Price”);
WHEREAS, the Board of Directors authorized the Actual Exercise Prices after determining that such prices better reflected the fair value of the Company’s Common Stock, given the stock’s limited trading volume and high volatility; and
WHEREAS, subsequently, the shareholders in the annual and special meeting of September 20, 2003 authorized the Board of Directors to amend the Option Plan at its discretion;
NOW, THEREFORE, IT IS:
RESOLVED: That Section 5 of the Option Plan be and is hereby replaced, retroactively effective as of May 1, 2004, by the following:
5.
EXERCISE PRICE
“At the time of grant of a Stock Option, the exercise price of such Stock Option shall be such price as is determined by the directors.”
RESOLVED FURTHER: That the officers of the Company are hereby authorized and directed, in the name and on behalf of this Company, to take any and all action which they may deem necessary or advisable to carry out the foregoing resolution as they may deem necessary or advisable.
IN WITNESS WHEREOF, the undersigned have hereunto affixed their signatures.
/s/Terence Robinson
/s/Dean Bradley
/s/Kam Shah
Bontan Corporation Inc.
Consolidated Financial Statements
For the Years Ended March 31, 2005 and 2004
(Canadian Dollars)
1.
AUDITORS’ REPORT
To the Shareholders of
Bontan Corporation Inc.
We have audited the consolidated balance sheets of Bontan Corporation Inc. as at March 31, 2005 and 2004, and the consolidated statements of income, retained earnings and cash flows for the years then ended. These consolidated financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all materials respects, the financial position of the company as at March 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.
The consolidated financial statements for the year ended March 31, 2003 were audited by another firm of Chartered Accountants, who expressed an opinion without reservation on those consolidated financial statements in their report dated June 16, 2003.
By: /s/Sloan Partners LLP
July 27, 2005
Chartered Accountants
Thornhill, Ontario
2.
COMMENTS BY AUDITORS FOR U.S READERS ON CANADA - U.S. REPORTING DIFFERENCES
In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the consolidated financial statements are affected by conditions and events that cast substantial doubt on the Company's ability to continue as a going concern, such as those described in Note 1 to the consolidated financial statements.
The opinion on page 1 is expressed in accordance with Canadian reporting standards, which do not permit a reference to such events and conditions in the auditors' report when these are adequately disclosed in the consolidated financial statements.
By: /s/Sloan Partners LLP
July 27, 2005
Chartered Accountants
Thornhill, Ontario
3.
Bontan Corporation Inc.
Consolidated Balance Sheets
(Canadian Dollars)
March 31, 2005 and 2004
Note | 2005 | 2004 | |||||
Assets | |||||||
Current | |||||||
Cash | $860,330 | $500,541 | |||||
Short term investments | 3 | 76,387 | - | ||||
Interest in oil properties | 6(i) | 2,161,986 | - | ||||
Deferred stock based compensation | 4 | 1,732,929 | - | ||||
Prepaid and other receivables | 26,958 | 54,690 | |||||
4,858,590 | 555,231 | ||||||
Advances | 5 | - | 2,530,353 | ||||
Interest in gas properties | 6 (ii) | 216,568 | - | ||||
$5,075,158 | $3,085,584 | ||||||
Liabilities | |||||||
Current | |||||||
Accounts payable and accrued liabilities | $109,710 | $350,664 | |||||
Advances from shareholders, non-interest bearing | 14,611 | 515,572 | |||||
124,321 | 866,236 | ||||||
Shareholders' Equity | |||||||
Capital stock | 8 | 28,280,890 | 24,287,903 | ||||
Contributed surplus | 9 (iii) | 3,795,078 | - | ||||
Deficit | (27,125,131) | (22,068,555) | |||||
4,950,837 | 2,219,348 | ||||||
$5,075,158 | $3,085,584 | ||||||
Commitments and Contingent Liabilities (Note 9) | |||||||
Related Party Transactions (Note 10) | |||||||
Approved by the Board ”Kam Shah” Director ”Dean Bradley” Director
(signed) (signed)
The accompanying notes are an integral part of these financial statements
4.
Bontan Corporation Inc.
Consolidated Statements of Operations
(Canadian Dollars)
For the Years Ended March 31, 2005, 2004 and 2003
Note | 2005 | 2004 | 2003 | ||||
Income | |||||||
Gain on disposal of investments | $417,255 | $- | $- | ||||
Interest | 1,606 | 251 | 1,880 | ||||
Exchange (loss)gain | (17,898) | 46,707 | 13,376 | ||||
400,963 | 46,958 | 15,256 | |||||
Expenses | |||||||
Stock based compensation | 11 | 4,815,922 | 703,702 | - | |||
Travel, promotion and consulting | 201,803 | 402,321 | 105,555 | ||||
Shareholders information | 127,205 | 165,431 | 63,657 | ||||
Professional fees | 116,479 | 110,547 | 45,339 | ||||
Communication | 17,985 | 4,105 | 2,521 | ||||
Office and general | 12,993 | 4,886 | 8,150 | ||||
Transfer agents fees | 8,323 | 7,821 | 13,175 | ||||
Bank charges and interest | 3,922 | 3,713 | 1,449 | ||||
Project development costs | - | - | 88,831 | ||||
Rent | 14(a) | (26,771) | 5,390 | 5,942 | |||
5,277,861 | 1,407,916 | 334,619 | |||||
Loss from continuing operations | (4,876,898) | (1,360,958) | (319,363) | ||||
Discontinued operations | 13 | (179,678) | - | - | |||
Net loss for year | (5,056,576) | (1,360,958) | (319,363) | ||||
Basic and diluted loss per share information | |||||||
Loss from continuing operations | $(0.42) | $(0.26) | $(0.31) | ||||
Loss form discontinued operations | $(0.02) | - | - | ||||
Net Loss per share | 10 | $(0.43) | $(0.26) | $(0.31) | |||
The accompanying notes are an integral part of these financial statements
5.
6.
Bontan Corporation Inc.
Consolidated Statement of Shareholders’ Equity
(Canadian Dollars)
For the Years Ended March 31, 2005, 2004 and 2003
Number of Shares | Share Capital | Contributed surplus | Accumulated Deficit | Shareholders' Equity(Deficit) | |
Balance March 31, 2002 | 7,226,030 | $20,393,106 | $- | $(20,388,234) | $4,872 |
Net loss | - | - | - | (319,363) | (319,363) |
Balance March 31, 2003 | 7,226,030 | 20,393,106 | - | (20,707,597) | (314,491) |
7:1 reverse stock split | (6,193,746) | - | - | - | - |
Buy-back of fractional shares | (465) | (939) | - | - | (939) |
Issued under a private placement | 6,705,015 | 3,153,591 | - | - | 3,153,591 |
Subscribed under a private placement | 831,429 | 393,113 | - | - | 393,113 |
Finder's fee paid on private placement | - | (354,670) | - | - | (354,670) |
Issued under 2001 Consultant Stock Compensation Plan | 225,000 | 148,675 | - | - | 148,675 |
Issued subsequent to the year end to consultants under 2001 Stock Compensation Plan in settlement of services rendered during the year | 806,190 | 555,027 | - | - | 555,027 |
Net loss | - | - | - | (1,360,958) | (1,360,958) |
Balance March 31, 2004 | 9,599,453 | 24,287,903 | - | (22,068,555) | 2,219,348 |
Issued under private placement | 1,343,124 | 649,679 | - | - | 649,679 |
Finder's fee paid on private placement | - | (35,237) | - | - | (35,237) |
Options granted under 1999 and 2001 stock option plans | - | - | 5,265,240 | - | 5,265,240 |
1999 Stock options exercised | 1,100,000 | 624,773 | - | - | 624,773 |
Value transferred from contributed surplus to the extent exercised | - | 1,470,162 | (1,470,162) | - | - |
Issued under 2001 Consultant stock compensation plan | 174,524 | 119,695 | - | - | 119,695 |
Issued under 2003 Consultant stock compensation plan | 754,619 | 1,163,915 | - | - | 1,163,915 |
Net loss | - | - | - | (5,056,576) | (5,056,576) |
Balance March 31, 2005 | 12,971,720 | $28,280,890 | $3,795,078 | $(27,125,131) | $4,950,837 |
The accompanying notes are an integral part of these financial statements
7.
Bontan Corporation Inc.
Notes to Consolidated Financial Statements
(Canadian Dollars)
March 31, 2005 and 2004
1.
NATURE OF OPERATIONS
Bontan Corporation Inc. (“the Company”) is a diversified natural resource company that operates and invests in major exploration and exploitation projects in countries around the globe through its subsidiaries by acquiring joint venture, indirect participation interest and working interest in those projects.
GOING CONCERN
The Company’s new business strategy, which evolved in fiscal 2004 involves activities in the exploration and development of oil, gas and mineral resources. The business of exploring for minerals and oil and gas involves a high degree of risk, and few properties that are explored are ultimately developed into producing mines and wells. Significant expenditures may be required to establish proven reserves, to develop recovery processes, and to construct mining, drilling and processing facilities at a particular site. It is not possible to ensure that the current exploration programs in which the Company holds interests will result in profitable commercial operations.
Although the Company has taken steps to verify title to resource properties in which it plans to acquire interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company's title. Property title may be subject to prior agreements and non-compliance with regulatory requirements.
The Company expects to selectively explore and develop the portfolio, through joint venture arrangements or otherwise. The scheduling and scale of such future activities will depend on results and market conditions. Repatriation of earnings and capital from overseas countries is subject to compliance with registration requirements. There can be no assurance that restrictions on repatriation will not be imposed in the future.
The Company has experienced negative cash flows from operating activities in recent years. The Company estimates that it will have adequate funds available from current working capital, operations, and committed and prospective financing to meet its existing corporate, administrative and operational obligations in the coming year. If adequate funds are not available from the sources noted above, then the Company may be required to raise additional financing through equity issuance, borrowings and /or sale of its assets. While the Company has been successful in the past in raising financing there is no assurance that the Company will be able to raise the necessary funding to meet its obligations.
These consolidated financial statements have been prepared on a going concern basis and do not include any adjustments that might be necessary should the Company be unable to continue as a going concern and, therefore, be required to realize its assets and discharge its liabilities in other than the normal course of business.
8.
Bontan Corporation Inc.
Notes to Consolidated Financial Statements
(Canadian Dollars)
March 31, 2005 and 2004
2.
SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada, which do not materially differ from accounting principles generally accepted in the United States (U.S. GAAP) except as described in Note 18 “Differences from United States Generally Accepted Accounting Principles”.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries as detailed below. All inter-company balances and transactions have been eliminated on consolidation.
Subsidiary | Date of incorporation / acquisition | Comments on current status |
Foodquest Inc. | Inactive since 1998 | |
1388755 Ontario Inc. | Inactive since April 2003 | |
Bontan Diamond Corporation | 20-Feb-04 | Business discontinued in December 2004. No further activities. |
Bontan Oil & Gas Corporation | 20-Feb-04 | Interests in oil and gas exploration projects. |
Bontan Gold Corporation | 20-Feb-04 | Not yet active |
Bontan Mineral Corporation | 20-Feb-04 | Not yet active |
Bontan Trading Corporation | 20-Feb-04 | Not yet active |
9.
Bontan Corporation Inc.
Notes to Consolidated Financial Statements
(Canadian Dollars)
March 31, 2005 and 2004
2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Mineral Properties
The cost of each mineral property, or interest therein, together with exploration costs are capitalized until the properties to which they relate are placed into production, sold or abandoned. These costs will be amortized on the basis of units produced in relation to the proven reserves available on the related property following commencement of production. Costs of abandoned properties are written off to operations.
The costs capitalized do not necessarily reflect present or future values. The ultimate recovery of such amounts depends on the discovery of economically recoverable reserves, successful commercial development of the related properties, availability of financing and future profitable production or proceeds from the disposition of the properties.
Although the Company has taken steps to verify the title to resource properties in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company’s title. Property title may be subject to unregistered prior agreements, transfers or aboriginal land claims and title may be affected by undetected defects.
Oil and Gas Properties Interest
Interests held in oil and gas properties are recorded on the basis of successful efforts method of accounting for oil and gas exploration and development activities under which direct acquisition costs of development properties, geological and geophysical costs associated with these properties and costs of development and exploratory wells that result in additions to proven reserves are capitalized. When the carrying value of a property exceeds its net recoverable amount that may be estimated by quantifiable evidence of an economic geological resource or reserve, joint venture expenditure commitments or the Company’s assessment of its ability to sell the property for an amount exceeding the deferred costs, provision is made for the impairment in value.
Short-term Investments
Short-term investments are investments that are either highly liquid or are to be disposed of within a one year period and are recorded at lower of cost and market value.
Foreign Currency Translation
The functional currency of the Company is the Canadian dollar. Monetary assets and liabilities are translated at exchange rates in effect at the balance sheet date. Non-monetary assets are translated at exchange rates in effect when they were acquired. Revenue and expenses are translated at the approximate average rate of exchange for the year, except that amortization is translated at the rates used to translate related assets. The resulting gains or losses on translation are included in the consolidated statement of operations.
10.
Bontan Corporation Inc.
Notes to Consolidated Financial Statements
(Canadian Dollars)
March 31, 2005 and 2004
2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Future Income Taxes
The Company follows the asset and liability method of accounting for income taxes. Under this method, future income tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities, as well as for the benefit of losses available to be carried forward to future years for tax purposes. Future income tax assets and liabilities are measured using substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse. Future income tax assets are recognized in the financial statements if realization is considered more likely than not.
Stock-Based Compensation Plan
The Company follows a fair value based method of accounting for all Stock-based Compensation and Other Stock-based Payments to employees and non-employees. The fair value of all share purchase options is expensed over their vesting period with a corresponding increase to contributed surplus. Upon exercise of share purchase options, the consideration paid by the option holder, together with the amount previously recognized in contributed surplus, is recorded as an increase to share capital. The Company uses the Black-Scholes option valuation model to calculate the fair value of share purchase options at the date of grant.
The market value of the Company’s share on the date of issuance of shares under any stock compensation plan is considered as fair value of the shares issued.
Loss Per Share
Basic loss per share is calculated by dividing net loss (the numerator) by the weighted average number of common shares outstanding (the denominator) during the period. Diluted loss per share reflects the dilution that would occur if outstanding stock options and share purchase warrants were exercised or converted into common shares using the treasury stock method and are calculated by dividing net loss applicable to common shares by the sum of the weighted average number of common shares outstanding and all additional common shares that would have been outstanding if potentially dilutive common shares had been issued.
The inclusion of the Company’s stock options and share purchase warrants in the computation of diluted loss per share would have an anti-dilutive effect on loss per share and are therefore excluded from the computation. Consequently, there is no difference between basic loss per share and diluted loss per share.
3.
SHORT TERM INVESTMENTS
Short-term investments comprise marketable securities. The net cost of the securities on hand at March 31, 2005 of $ 92,735 was written down to its fair market value and an unrealized loss of $16,348 was adjusted against gain on disposal of investments in the consolidated statements of operations.
11.
Bontan Corporation Inc.
Notes to Consolidated Financial Statements
(Canadian Dollars)
March 31, 2005 and 2004
4.
DEFERRED STOCK BASED COMPENSATION
Deferred stock option compensation relates to the fair value of shares and options issued under the Company’s Option Plans to consultants for services that will be performed during the period subsequent to the balance sheet date. Changes during the year were as follows:
Balance at April 1, 2004 | Deferred during year | Expensed during year | Balance at March 31, 2005 | Balance at March 31, 2004 | |
Options | $- | $1,145,152 | $- | $1,145,152 | $- |
Stocks | - | 587,777 | - | 587,777 | - |
$- | $1,732,929 | $- | $1,732,929 | $- |
5.
ADVANCES
The advances comprised funds provided to a non-affiliated corporation from time to time during the previous year for the purpose of acquiring an indirect participation interest (IPI) of approximately 0.88% in phase one of an oil exploration program in Papua New Guinea.
The advances carried no interest, and were secured by a first charge on the IPI and were convertible into such IPI at the option of the Company pursuant to the terms of the loan agreement dated July 21, 2003.
On July 9, 2004, the Company exercised its option and converted its advances into IPI. (See Note 6 )
6.
OIL AND GAS PROPERTIES INTERESTS
31-Mar-04 | Exploration costs | Amortization | Write-down | 31-Mar-05 | |
Interest in oil properties (i) | $- | $2,161,986 | $- | $- | $2,161,986 |
Interest in gas properties (ii) | - | 216,568 | - | - | 216,568 |
$- | $2,378,554 | $- | $- | $2,378,554 |
12.
Bontan Corporation Inc.
Notes to Consolidated Financial Statements
(Canadian Dollars)
March 31, 2005 and 2004
6.
OIL AND GAS PROPERTIES INTERESTS (Continued)
(i)
On July 9, 2004, the Company converted its advances to a non-affiliated corporation (note 5) for the purpose of acquiring an Indirect Participation Interest (IPI) in a Phase One oil exploration program in Papua New Guinea into (i) US$270,900 into 15,262 shares of InterOil Corporation according to the terms of the IPI agreement and (ii) the balance of the advances of approximately US$1.6 million for a 0.75% IPI. Under the IPI Agreement terms, the funds paid towards IPI would be used for exploration program involving maximum of 16 wells. The program is managed by InterOil Corporation, a non related public company. Should the aggregate of all discoveries resulting from Phase One Exploration Program be less than 5 million barrels of recoverable Petroleum, the Company would receive 89,577 common shares of InterOil Corporation at an agreed valuation of US$17.75 per share un der a backstop payment clause in the IPI agreement. Further, until InterOil Corporation elects to proceed with a completion program, the Company will have an option to opt out of the program and convert its IPI into 89,577 common shares of InterOil Corporation at an agreed valuation of US$17.75 per share.
Subsequent to the year-end, the Company sold its IPI to a non-related privately held institutional investor for US$ 3.2 million (see Note 15). As a result, cost of the interest in the oil properties is included under current assets in the financial statements as at March 31, 2005.
(ii)
On October 15, 2004, the Company entered into an exploration agreement with a private investors group in the United States under which it acquired 49% gross working interest in a gas exploration project in the State of Louisiana, USA. The total estimated project cost is approximately US$ 7 million. Up to March 31, 2005, several cash calls were made by the Operators of the project to pay for the seismographic costs and leases secured on the land targeted for exploratory drilling. The Company’s share of these cash calls is included above under exploration costs. Exploratory drilling on this project has not yet begun. Management does not believe that there has been an impairment in the value of the interest, therefore there is no need for any write off or reduction in the capitalized costs.
Bontan Corporation Inc.
Notes to Consolidated Financial Statements
(Canadian Dollars)
March 31, 2005 and 2004
7.
MINERAL PROPERTIES
March 31, 2004 | Acquisition costs | Deferred exploration | Write-down | March 31, 2005 | |
Joint venture interest in Brazilian properties | |||||
Rio Abaete | $- | $9,374 | $18,455 | $(27,829) | $- |
Coromandel-MG and Goiandira-GO | - | 27,570 | - | (27,570) | - |
$- | $36,944 | $18,455 | $(55,399) | $- | |
Rio Abaeté
- On September 2, 2004, Astrogemas Mineraçāo Ltd. (AML), a subsidiary of Bontan Diamond Corporation, which in turn was a wholly owned subsidiary of the Company entered into a joint venture agreement with a Brazilian corporation to mine for diamonds on two claim areas totalling to 1,593 hectares situated in Rio Abaeté in the State of Mina Gerais in Brazil. Under the agreement, the Company would own a 95% interest and would also be entitled to royalties ranging from 2.5% to 5% on the gross proceeds of diamonds, which might be mined in areas licensed to 40 freelance garimpeiros.
Under the terms of the agreement, the Company was committed to incur a further sum of approximately US$57,000 on plant instalment and licence cost and responsible for the operational costs subject to the land licencee who was also the holder of the remaining 5% interest obtaining the environmental permits.
Environmental permits were not available until December 30, 2004, when the parties to the agreement determined that the risks were excessive and decided to abandon the project. The Company therefore closed its Brazilian operations and Brazilian office accordingly cancelled the agreement and discontinued further work on this project. The acquisition costs and exploration costs, which were deferred, were, as a result, fully written off at December 31, 2004.
Coromandel–MG and Goiandira–GO - On September 22, 2004 AML signed a six-month option agreement originally contracted in June 2004 and expiring in December 2004 with another Brazilian corporation to re-examine at least 18 known intrusives of kimberlitic affinity for their diamond content. The kimberlitoids are covered by 12 claim areas totalling 2,322 hectares, located in the vicinities of Goiandira (Goiás state) and Coromandel (Minas Gerais state).
The option agreement provided for AML to acquire 60% interest in any or all claims should the exploration prove positive within the overall 1-year option period and also a first right of refusal to buy back the 40% interest retained by the claim holder. The option could be extended at the discretion of the Company by paying a further sum of US$30,000 to the claim holder.
However, the Company decided to discontinue its Brazilian operations on December 30, 2004 and chose not to renew the above option. Accordingly, the cost of acquisition of the option was fully written off at December 31, 2004.
13.
Bontan Corporation Inc.
Notes to Consolidated Financial Statements
(Canadian Dollars)
March 31, 2005 and 2004
8.
CAPITAL STOCK
(a)
Authorized
Unlimited number of common shares
(b)
Issued
As at March 31 | 2005 | 2004 | ||||
Common | Common | |||||
Shares | Amount | Shares | Amount | |||
Beginning of year | 9,599,453 | $24,287,903 | 7,226,030 | $20,393,106 | $41,113,386 | |
Reverse stock split | - | - | (6,193,746) | - | ||
Buy-back of fractional shares | - | (465) | (939) | |||
Issued under a private placement | ii | 1,343,124 | 649,679 | 6,705,015 | 3,153,591 | |
Subscribed under a private placement | - | - | 831,429 | 393,113 | ||
Expenses relating to private placement | ii | (35,237) | (354,670) | |||
Issued under 2001 Consultant Stock Compensation Plan | ii | 174,524 | 119,695 | 225,000 | 148,675 | |
Issued subsequent to the year end to consultants under 2001 Stock Compensation Plan in settlement of services rendered during the year | - | - | 806,190 | 555,027 | ||
Issued under 2003 Consultant Stock Compensation Plan | iii | 754,619 | 1,163,915 | - | - | |
Options excercised | iv | 1,100,000 | 2,094,935 | |||
12,971,720 | $28,280,890 | 9,599,453 | $24,287,903 | |||
(i)
On April 28, 2003, the Company reached an agreement with certain accredited investors for a private placement of up to 7,143,000 Units at US$0.35 per Unit for a gross proceeds of about US$2.5 million. Each Unit includes one common share and one common share purchase warrant. Each warrant entitles its holder to acquire one common share of the company at a price of US$1.00 within twenty-four months of the date of issuance of the Unit. The shares issued under this private placement would be restricted in terms of their transferability and salability in accordance with the relevant regulatory requirements. Private placement was closed on May 26, 2004. The actual number of Units subscribed under the private placement was 8,879,571 of which 1,343,124 were subscribed and paid for between April 1, 2004 and May 26, 2004 and the balance of 7,536,447 was subscribed and paid for in the fiscal 2004.
Expenses relating to the private placement represented finder’s fee of 10% of the subscription.
None of the warrants were exercised or expired as at March 31, 2005
14.
Bontan Corporation Inc.
Notes to Consolidated Financial Statements
(Canadian Dollars)
March 31, 2005 and 2004
8.
CAPITAL STOCK (b) (Continued)
(ii)
174,524 shares were issued to four independent consultants under 2001 Consultant Stock Compensation Plan for services rendered during fiscal 2005, which were valued at fair market value on the date of issue.
(iii)
754,619 shares were issued to seven independent consultants under 2003 Consultant Stock Compensation Plan for services, valued at the fair market value of shares on the dates of issue. 290,500 shares of the issued shares valued at $566,426 were issued to Mr. Terence Robinson, the former chief executive officer of the Company, for services as a consultant between July 2004 and December 2005, which otherwise were to be paid for in a cash fee of $10,000 per month as per the terms of his consulting contact.
347,404 shares at a fair market valuation of $587,777 relate to the services to be rendered in fiscal 2006. The amount is therefore included under deferred stock compensation on the consolidated balance sheet. (Note 4)
9.
STOCK OPTION PLANS
(a)
The Company has two option plans as follows:
(i)
On April 30, 2003, the Company registered 3 million stock options under “1999 stock option plan” exercisable at option prices ranging from US$0.35 to US$1 with Securities and Exchange Commission of the United States of America (SEC) as required under the Securities Act of 1933.
(ii)
On July 22, 2004, the Company registered 2.5 million stock options under “2003 stock option plan” exercisable at option prices ranging from US$0.50 and US$ 1.75 with SEC as required under the Securities Act of 1933.
(b)
At March 31, 2005, 4.4 million common shares were reserved for issuance under the Company’s stock option plans as follows:
Number of options | Weighted average exercise price in US$ | |
Outstanding at beginning of year | - | - |
Granted | 5,500,000 | 0.48 |
Exercised | (1,100,000) | 0.47 |
Expired | - | - |
Outstanding at end of year | 4,400,000 | 0.48 |
Options exercisable at year end | 3,592,500 | |
Weighted average fair value of options granted during the year | $0.96 |
15.
Bontan Corporation Inc.
Notes to Consolidated Financial Statements
(Canadian Dollars)
March 31, 2005 and 2004
9.
STOCK OPTION PLANS (Continued)
Options outstanding | Options exercisable | |||
exercise price in US$ | Number | weighted average remaining contractual life (years) | Number | weighted average remaining contractual life (years) |
0.35 | 1,740,000 | 4.34 | 932,500 | 4.31 |
0.50 | 2,325,000 | 4.37 | 2,325,000 | 4.37 |
0.75 | 140,000 | 3.96 | 140,000 | 3.96 |
1.00 | 125,000 | 0.92 | 125,000 | 0.92 |
1.50 | 50,000 | 0.84 | 50,000 | 0.84 |
1.75 | 20,000 | 0.17 | 20,000 | 0.17 |
0.48 | 4,400,000 | 4.19 | 3,592,500 | 4.15 |
All options were granted to consultants and vested immediately on the date of the grant except for 1,615,000 options which vest in four equal instalments of 403,750 at the end of each quarter beginning from the date of the grant. The options can be exercised at any time after vesting within the exercise period in accordance with the applicable option agreement. The exercise price was less than the market price of the stock on the date of the grants. Upon expiry or termination of the contracts, vested options must be exercised within 30 days for consultants and 90 days for directors.
(c)
The fair value of the options granted has been estimated at the date of grant in the amount of $5,265,240 using a Black-Scholes option price model with the following weighted average assumptions:
Risk free interest rate
3.71%
Expected dividends
nil
Expected volatility
170
Expected life
4.1 years
Option pricing models require input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the models do not necessarily provide a reliable single measure of the fair value of the Company’s stock options.
The amount of $4,120,088 has been recorded in the consolidated statement of operations as stock based compensation and the balance of $1,145,152 has been included in the deferred stock based compensation in the consolidated balance sheet representing value of services yet to be provided with corresponding contributed surplus recorded in shareholders’ equity. $1,470,162 representing the value of the options exercised during the year was transferred from contributed surplus to capital stock.
16.
Bontan Corporation Inc.
Notes to Consolidated Financial Statements
(Canadian Dollars)
March 31, 2005 and 2004
10.
LOSS PER SHARE
Loss per share is calculated on the weighted average number of common
shares outstanding during the year, which were 11,700,303 shares for the year ended March 31, 2005 (2004 – 5,221,071).
11.
STOCK BASED COMPENSATION
2005 | 2004 | |
Shares issued as compensation | $695,834 | $703,702 |
Options granted | $4,120,088 | |
$4,815,922 | $703,702 |
.
12.
INCOME TAXES
The effective tax rate of nil (2004 – nil) for income taxes varies from the statutory income tax rate of approximately 36 % (2004 – 36%) due to the fact that no tax recoveries have been recorded for losses incurred, as management has not determined whether it is more likely than not that the losses will be utilized before they expire.
The temporary differences that give rise to future income tax assets and future income tax liabilities are presented below:
2005 | 2004 | |||||
Amounts related to tax loss and credit carry forwards | $1,424,000 | $1,582,000 | ||||
Net future tax assets | 1,424,000 | 1,582,000 | ||||
Less: valuation allowance | (1,424,000) | (1,582,000) | ||||
$- | $- | |||||
The Company has carry forward tax losses of approximately $4 million, which may be applied against future taxable income and expire as detailed below. The benefit arising from these losses has not been included in the financial statements.
2006 | 460,000 | ||
2007 | 687,000 | ||
2008 | 202,000 | ||
2009 | 1,007,000 | ||
2010 | 232,000 | ||
2011 | 1,337,000 | ||
2015 | 30,000 | ||
$3,955,000 |
17.
Bontan Corporation Inc.
Notes to Consolidated Financial Statements
(Canadian Dollars)
March 31, 2005 and 2004
13.
DISCONTINUED OPERATIONS
On December 30, 2004, the Company decided to close its operations in Brazil and discontinue further participation in any diamond mining activities. It had only one existing joint venture which was dissolved due to the failure of the local partner to obtain the environmental permit for exploratory drilling, which was a pre-condition to the Company’s commitment to invest more money into the program. The Company also had option to acquire mining rights in another program. The option expired on December 31, 2004 and was not renewed (see Note 7 for further details).
The following are the details relating to the discontinued operations:
Operating costs
$
121,279
Assets and deferred costs written off (Note 6)
55,399
$
176,678
14.
COMMITMENTS AND CONTINGENT LIABILITIES
(a)
The Company received a Notice of Termination dated February 6, 2003 from a previous landlord, wherein the landlord claimed rent arrears of $28,924 and current plus next three months rent and damage for the loss of rent for the remaining term of the lease. The management is of the opinion that they have a strong case against the landlord for not paying such rent and penalty. No further communication has been received from the previous landlord since February 6, 2003. The management therefore reversed the provision of $34,287 made earlier against rent expense in the consolidated statements of operations and believes that the Company has no further liability in the matter.
(b)
The Company entered into media relations and investor relations contracts with Current Capital Corp., a shareholder corporation, effective July 1, 2004 initially for a period of one year and renewed automatically unless cancelled in writing by a 30-day notice for a total monthly fee of US$10,000.
(c)
The Company entered into a new consulting contract with Mr. Kam Shah, the Chief Executive Officer and Chief Financial Officer on April 1, 2005 for a five-year term up to March 31, 2010. The contract provides for payment of the fee, which covered the period from November 2004 to December 31, 2005 by allotment of 450,000 options at prices varying from US$.35 and US$.75 plus reimbursement of expenses. The fee for the remaining period in the fiscal 2006 and subsequent years will be decided at the board meeting after the end of the third quarter of the fiscal 2006. Further, the contract provides for a lump sum compensation of US$250,000 for early termination of the contract without cause. The contract also provides for entitlement to stock compensation and stock options under appropriate plans as may be decided by the board of directors from time to time.
(d)
The Company entered into a consulting contract with Mr. Terence Robinson, the Chief Executive Officer on April 1, 2003 for a six-year term up to March 31, 2009. The contract provides for a monthly fee of $10,000 inclusive of taxes plus reimbursement of expenses and a lump sum compensation of $250,000 for early termination of the contract without cause. Mr. Robinson resigned as chief executive officer effective May 17, 2004, but continued as consultant under the same terms and conditions.
18.
Bontan Corporation Inc.
Notes to Consolidated Financial Statements
(Canadian Dollars)
March 31, 2005 and 2004
14.
COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
(e)
On February 19, 2004, the Company’s subsidiary, Bontan Diamond Corporation, entered into a Memorandum of Understanding (MOU) with Mr. Francis Guardia and Astrogemas Mineração Ltda (AML), a Brazilian corporation owned by Francis Guardia to acquire the said corporation and invest up to US$200,000 required to exercise the option in a Brazilian Joint venture to explore and mine diamonds in Brazil and also to explore opportunities for more licenses and/or joint ventures for diamond exploration in Brazil. The MOU also provided opportunity for Mr. Guardia to earn back up to 40% of the equity interest in Bontan Diamond Corporation on achievements of certain agreed milestones.
On February 17, 2004 the Company’s subsidiary, Bontan Diamond Corporation, entered into a five-year exclusive consulting contract with Mr. Francis Guardia to act as Chief Geologist for the company for a monthly fee of US$4,000 plus expenses and bonus.
However, on November 25, 2004, Mr. Guradia resigned and on December 30, 2004, Brazilian office and operations were discontinued. The Company has not received and does not expect any further costs other than the ones already incurred and written off.
(g)
The Company acquired 49% working interest in a gas exploration project in the State of Louisiana, USA. Under the terms of the exploration agreement, the Company is committed to provide funds against cash calls made by the Operators of the program within 15 days or as may be extended by the Operators. Total estimated drilling and completion cost of the project to the Company is approximately US$3.7 million. Subsequent to the year end, the Company paid the drilling costs of approximately US$3.1 million (note19 (c)) and is now committed to pay a further US$ 600,000 upon successful completion of the exploratory drilling based on the Authority for Expenditure provided by the Contractor.
15.
RELATED PARTY TRANSACTIONS
Transactions with related parties are incurred in the normal course of business and are measured at the exchange amount. Related party transactions and balances have been listed below, unless they have been disclosed elsewhere in the financial statements.
(i)
Included in shareholders information expense is $117,053 (2004 – $160,627; 2003 – $60,000) to Current Capital Corp, (CCC) for media relations services. CCC is a shareholder corporation and a director of the Company provides accounting services as a consultant.
(ii)
CCC charged approximately $24,000 for rent, telephone, consultants’ fees and other office expenses (2004: $62,000 and 2003: $34,000).
(iii)
Finders fee of $35,238 (2004: $352,000, 2003: nil) was charged by CCC in connection with the private placement.
(iv)
Included in professional and consulting fees are fees of $36,000 (2004: $112,150; 2003: $nil) paid to directors of the Company and $28,037 (2004: $111,377, 2003 :$nil) paid to a former director for consulting services.
19.
Bontan Corporation Inc.
Notes to Consolidated Financial Statements
(Canadian Dollars)
March 31, 2005 and 2004
15.
RELATED PARTY TRANSACTIONS (Continued)
(v)
Business expenses of $15,205 (2004 - $56,485; 2003 - $nil) were reimbursed to directors of the corporation and $93,244 to a former director who provides consulting services to the Company.
(vi)
Shares issued to director under Consultant’s stock compensation plan – 2005: nil (2004: 100,000 valued at $65,525, 2003: nil). Shares issued to a former director under the Consultant stock compensation plan – 2005: 290,500 valued at $ 566,426 (2004 and 2003: nil).
(vii)
Options issued to directors under Stock option plans – 2005: 485,000 valued at $541,910 (2004 and 2003: nil). Options issued to a former director under Stock option plans – 2005: 2,090,000 valued at $1,002,738 (2004 and 2003: nil)
(viii)
Consulting fees include amounts to Snapper Inc., a shareholder corporation of $12,786 (2004 - $267,894; 2003 - $92,682).
16.
SEGMENTED INFORMATION
As at March 31, 2005, the Company had only one major business segment-
Energy sector: This segment includes the Company’s acquisition of interests in joint ventures and projects relating to exploration and commercial drilling of oil and gas and related products.
The Company discontinued its mineral activities effective December 30, 2004.
The accounting policies of the segments are same as those described in Note 2. The Company evaluates each segment’s performance based on its contribution to consolidated net earnings. There are no inter-segmental charges or transactions. The following table presents summarised financial information for the fiscal years ended March 31, 2005 and 2004.
Geographic Information
The Company operates from one location in Canada. Its assets are located as follows:
2005 | 2004 | |
Canada | $2,464,594 | $547,363 |
Papua New Guinea | 2,161,986 | 2,530,353 |
USA | 216,568 | - |
Brazil | - | 7,868 |
$4,843,148 | 3,085,584 |
20.
Bontan Corporation Inc.
Notes to Consolidated Financial Statements
(Canadian Dollars)
March 31, 2005 and 2004
16.
SEGMENTED INFORMATION (Continued)
Business Segments | ||||||
Energy | Mineral | |||||
2005 | sector | sector | ||||
Total revenue | $- | $- | ||||
Earnings (losses) from operations | $(3,910) | $- | ||||
Total assets | $2,378,554 | $- | ||||
Total liabilities | $- | $- | ||||
2004 | Energy sector | Mineral sector | ||||
Total revenue | $- | $- | ||||
Earnings (losses) from operations | $- | $- | ||||
Total assets | $2,530,353 | $7,868 | ||||
Total liabilities | $- | $- | ||||
Reconciliation to Financial Statements | ||||||
2005 | 2004 | |||||
Revenue | ||||||
Total revenue from reportable segments | $- | $- | ||||
Other | 418,861 | 46,958 | ||||
$418,861 | $46,958 | |||||
Net loss | ||||||
Total losses from continuing operations | ||||||
for reportable segments | $(3,910) | $- | ||||
Other | (4,872,988) | (1,360,958) | ||||
$(4,876,898) | $(1,360,958) | |||||
Assets | ||||||
Total assets used for reportable segments | $2,378,554 | $2,538,221 | ||||
Other | 2,696,604 | 547,368 | ||||
$5,075,158 | $3,085,584 | |||||
Liabilities | ||||||
Total liabilities used for reportable segments | $- | $- | ||||
Other | 124,321 | 866,236 | ||||
$124,321 | $866,236 | |||||
21.
Bontan Corporation Inc.
Notes to Consolidated Financial Statements
(Canadian Dollars)
March 31, 2005 and 2004
17.
FINANCIAL INSTRUMENTS
The fair value for all financial assets and liabilities are considered to approximate their carrying values due to their short-term nature.
18.
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These financial statements have been prepared in accordance with generally accepted accounting principles in Canada ("Canadian GAAP"). Material variations in the accounting principles, practices and methods used in preparing these consolidated financial statements from principles, practices and methods used in the United States ("US GAAP") and in SEC Regulation S-X are described and quantified below.
2005 | 2004 | |||||
Balance under Canadian GAAP | Adjustment | Balance under US GAAP | Balance under Canadian GAAP | Adjustment | Balance under US GAAP | |
Balance Sheets | ||||||
Current assets | $4,858,590 | $4,858,590 | $555,231 | $555,231 | ||
Long term assets | 216,568 | (216,568) | - | 2,530,353 | 2,530,353 | |
Total assets | $5,075,158 | $(216,568) | $4,858,590 | $3,085,584 | $3,085,584 | |
Current Liabilities | 124,321 | 124,321 | 866,236 | 866,236 | ||
Capital stock | 28,280,890 | 28,280,890 | 24,287,903 | 24,287,903 | ||
Contributed surplus | 3,795,078 | 3,795,078 | ||||
Deficit | (27,125,131) | (216,568) | (27,341,699) | (22,068,555) | (22,068,555) | |
Liabilities and shareholders' equity | $5,075,158 | $(216,568) | $4,858,590 | $3,085,584 | $3,085,584 | |
22.
Bontan Corporation Inc.
Notes to Consolidated Financial Statements
(Canadian Dollars)
March 31, 2005 and 2004
18.
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)
The impact of significant US GAAP variations on the Consolidated Statement of Operations are as follows:
Year ended March 31 | 2005 | 2004 | 2003 |
Net Loss for year, Canadian GAAP | (5,056,576) | (1,360,958) | (319,363) |
Exploration interests expensed | (216,568) | ||
Write down of product development costs | 88,831 | ||
Reclassification of unrealized losses on short term investments | 16,348 | ||
Reclassification of exchange loss(gain) on yea end translation of foreign currency items and balances | 17,898 | (46,707) | (13,376) |
Loss for year US GAAP | (5,238,898) | (1,407,665) | (243,908) |
Reclassification of exchange gain(loss) on period end translation of foreign currency items and balances | (17,898) | 46,707 | 13,376 |
Reclassification of unrealised losses on short term investments | (16,348) | - | |
Comprehensive loss for year, US GAAP | (5,273,144) | (1,360,958) | (230,532) |
Basic and diluted loss per share, US GAAP | (0.45) | (0.26) | (0.22) |
23.
Diluted loss per share under US GAAP
The Company had approximately 8.9 million warrants and 4.4 million options, which were not exercised as at March 31, 2005. Inclusion of these warrants and options in the computation of diluted loss per share would have an anti-dilutive effect on loss per share and are therefore excluded from the computation. Consequently, there is no difference between loss per share and diluted loss per share.
24.
Bontan Corporation Inc.
Notes to Consolidated Financial Statements
(Canadian Dollars)
March 31, 2005 and 2004
18.
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)
The impact of the above differences between Canadian GAAP and US GAAP on the consolidated statements of cash flows would be as follows:
Year ended March 31 | 2005 | 2004 | 2003 |
Cashflows used in continuing operating activities, Canadian GAAP | (257,850) | (421,566) | (215,618) |
Adjustment to oil & gas properties interests | (216,568) | - | |
Cashflows used in continuing operating activities, US GAAP | (474,418) | (421,566) | (215,618) |
Cashflows used in discontinued operating activities, Canadian & US GAAP | (179,678) | - | |
Cashflows used in operating activities, US GAAP | (654,096) | (421,566) | (215,618) |
Cashflows used in investing activities, Canadian GAAP | 59,064 | (2,530,353) | 49460 |
Adjustment to oil & gas properties interests | 216,568 | - | |
Cashflow provided by (used) in investing activities | 275,632 | (2,530,353) | 49,460 |
Cashflow provided by financing activities, Canadian and US GAAP | 738,253 | 3,432,612 | 138,298 |
Increase(decrease) in cash during period, Canadian and US GAAP | 359,789 | 480,693 | (27,860) |
Cash at beginning of year | 500,541 | 19,848 | 47708 |
Cash at end of year | 860,330 | 500,541 | 19,848 |
25.
26.
Bontan Corporation Inc.
Notes to Consolidated Financial Statements
(Canadian Dollars)
March 31, 2005 and 2004
18.
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)
(i)
Short-term Marketable securities
In accordance with Canadian GAAP, short-term marketable securities are carried at the lower of aggregate cost and current market values, with unrealized losses being included in the determination of net income (loss) for the year. Statement of Financial Accounting Standard (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, requires that equity securities that have readily determinable fair values be classified as either available-for-sale or trading securities, and that they be reported at fair market values. For available-for-sale securities, unrealized gains or losses are to be reported as other comprehensive income, a separate component of shareholders’ equity, until realized.
There is no difference between Canadian GAAP and United States GAAP on the accounting for short-term marketable securities for the years ended March 31, 2005, 2004 and 2003.
(ii)
Oil and gas properties interests
Under Canadian GAAP, mineral properties, including exploration, development and acquisition costs, are carried at cost until the properties to which they relate are placed into production, sold or where management has determined there to be a permanent impairment in value.
Under U.S. GAAP, mineral property expenditures are expensed as incurred. Once a final feasibility study has been completed however, additional costs incurred to bring the mine into production are capitalized as development costs.
As the Company’s interests in gas project is currently at exploratory stages as explained in Note 5, it has been decided to expense the cost of acquiring the interests and its contribution to exploration costs under the US GAAP. No adjustment is considered necessary as regards the Company’s interest in oil properties since the interest was subsequently sold at a profit and was therefore not considered held for exploration as at March 31, 2005.
(iii)
Stock based compensation
Under United States GAAP, Statement of Financial Accounting Standards No. 123, “Accounting for Stock-based Compensation (“SFAS 123”) recommends, but does not require, companies to establish a fair market value based method of accounting for stock-based compensation plans. The Company has elected for the years ended March 31, 2005 and 2004 to account for stock-based compensation using SFAS 123. Accordingly, compensation cost for stock options is measured at the fair value of options granted.
Under Canadian GAAP, the Company accounts for stock based compensation as disclosed in Note 2. Accordingly, there is no difference between Canadian GAAP and United States GAAP on the accounting for stock-based compensation for the years ended March 31, 2005, 2004 and 2003.
27.
28.
Bontan Corporation Inc.
Notes to Consolidated Financial Statements
(Canadian Dollars)
March 31, 2005 and 2004
18.
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)
New accounting pronouncements
In January 2003, the Financial Accounting Standard Board(the “FASB”) released Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”) that requires the primary beneficiary of a variable interest entity (“VIE”) to consolidate such entity. In December 2003, the FASB published a revision to FIN 46 (“FIN 46R”) to clarify some of the provisions of the interpretation and to defer the effective date of implementation for certain entities. Under the guidance of FIN 46R, entities that do not have interests in structures that are commonly referred to as special purpose entities are required to apply the provisions of the interpretation in financial statements for periods ending after March 14, 2004. The Company does not have interests in any variable interest entities.
In December 2004, the FASB SFAS 123 (Revised 2004), “Share-Based Payment” [“Statement 123(R)"], which is a revision of SFAS. 123, “Accounting for Stock-Based Compensation” [“Statement 123"]. Statement 123(R) supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” and amends SFAS. 95, “Statement of Cash Flows”. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. Effective April 1, 2003, the Company has adopted the fair value accounting method provided for under Statement 123 to apply recognition provisions to its stock options granted, modified or settled after February 1, 2003. St atement 123(R) will have no impact on the consolidated financial statements of the Company.
In December 2004, FASB issued SFAS 153, “Exchanges of Non-Monetary Assets – an amendment of APB Opinion No. 29, “Accounting for Nonmonetary Transactions”. SFAS 123 is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. SFAS 153 eliminates the narrow exception for nonmonetary exchanges of similar productive assets and replaces it with a broader exception for exchanges of nonmonetray assets that do not have commercial substance. SFAS 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The provisions of SFAS 153 should be applied prospectively. The Company does not anticipate that the application of SFAS 153 will have an impact on the consolidated financial statements of the Company.
In May 2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and SFAS 3, which applies to all voluntary changes in accounting principle. This Statement requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This Statement is effective for fiscal years beginning after December 15, 2005. The Company does not anticipate that this guidance will impact the consolidated financial statements of the Company.
29.
Bontan Corporation Inc.
Notes to Consolidated Financial Statements
(Canadian Dollars)
March 31, 2005 and 2004
19.
USE OF ESTIMATES
The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
20.
SIGNIFICANT POST BALANCE SHEET EVENTS
The following is a summary of key corporate changes and other significant events that occurred subsequent to March 31, 2005:
(a)
On May 25, 2005, the Company’s registration statement in Form F-3 under the Securities Act of 1933 became effective. The registration statement covered 3,654,699 restricted shares and 5,841,726 common shares issuable upon exercise of outstanding warrants, which were issued under the private placement initiated on April 28, 2003. the registration will enable the Company to have the restrictive legends removed from these shares.
(b)
At the time of the registration of the shares issuable upon exercise of warrants, as explained in 1 above, the Company made to its warrant holders an offer to reduce warrant exercise price to US$ 0.60 from US$1 for a limited period of four days. Five warrant holders took advantage of the offer and exercised 739,524 warrants for a total sum of US$ 443,714.
(c)
On July 5, 2005, the Company sold its .75% Indirect Participation Interest in an oil exploration project in Papua New guinea for a sum of US$ 3.2 million to an independent institutional investor under an IPI purchase agreement dated July 5, 2005. The Company received the funds on July 7, 2005. Under the agreement, the Company will no longer be responsible for any future cash calls and other obligations of the Project, which have been taken over by the buyer.
(d)
The Company received two cash calls relating to its 49% working interest in a gas project in the State of Louisiana, USA from the project operator. The two cash calls dated May 15, 2005 and June 20, 2005 totalled US$ 3,052,700 representing the Company’s 49% of the total estimated drilling and equipment leasing costs of US$6,230,000. The Company met both the cash calls within the deadlines agreed with the project operator. The funds remitted by the Company have been deposited in an escrow account and will be released against the actual work.
(e)
On April 12, 2005, one of the independent directors, Mr. Kevin Markland resigned and was replaced by Mr. Damian Lee as an independent director.
21.
PRESENTATION
Certain prior year’s amounts have been reclassified to conform to current presentation
30.