UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: April 13, 2000
--------------
INDO-PACIFIC ENERGY LTD.
- ------------------------------------------------------------ ----------------
(Exact name of registrant as specified in its charter)
Yukon Territory, Canada 000-29344 Not applicable
(State or other jurisdiction (Commission (I.R.S Employer
of incorporation) File Number) Identification No.)
Suite 1200, 1090 West Pender Street, Vancouver, B.C., Canada V6E 2N7
- ------------------------------------------------------------ ----------------
(Address of principal executive offices) (Postal Code)
Registrant's Telephone number including area code: (604) 682-6496
Item 2 Acquisition or Disposition of Assets
On January 30, 2000, Indo-Pacific Energy Ltd. ("Indo") entered into a letter of
intent with Trans- Orient Petroleum Ltd. ("Trans-Orient"). Pursuant to the
terms of the letter of intent, Indo and Trans-Orient agreed to restructure their
jointly held oil and gas properties. The parties agreed that Trans-Orient would
transfer its interest in those properties to Indo and would receive well-head
royalties, Indo shares and warrants and other consideration. When the parties
entered into this letter of intent, the directors of Indo were Alex Guidi, David
J. Bennett, Brad Holland and Ronald Bertuzzi and the directors of Trans-Orient
were Alex Guidi, David J. Bennett, Bernhard J. Zinkhofer and Michael Hart .
The oil and gas assets consisted of interests in unproven oil & petroleum
licenses and permits located in New Zealand, Australia and Papua New Guinea.
Trans-Orient's interest in these licenses and permits ranged from 5% to 50%.
The parties established a purchase price in the letter of intent on the basis of
1.2 times the capitalized petroleum expenditures of the assets which appeared on
the books of Trans-Orient as at December 31, 1999.
The letter of intent was formalized by a formal agreement of purchase and sale
(the "Agreement"), which further added detailed clauses of the transaction and
the parties involved, including the subsidiaries of Indo and Trans-Orient.
The terms of the Agreement established that the formal closing was expected to
occur on or about March 30, 2000. However, the effective date of the Agreement
<PAGE>
was established at January 1, 2000. The Agreement is subject to ratification by
Trans-Orient's shareholders at the Annual General Meeting which will be held on
May 23, 2000. Pending shareholder approval, the parties agreed that they will
not deal with the exchanged consideration in a way which would make effective
rescission of the Agreement impossible. In particular, Trans-Orient agreed not
to deal with the securities received from Indo, and Indo agreed not to sell,
transfer, mortgage or otherwise encumber the interests in the oil and gas
properties, except with the Trans-Orient's consent. Trans-Orient has agreed to
give its consent for all transactions which can be said to be in the ordinary
course of business. If the Trans-Orient's shareholders do not approve the
Agreement by a requisite extraordinary majority, or if a sufficient number of
Trans-Orient's shareholders exercise dissent rights making the transaction
financially impractical, then Trans-Orient will have the right to elect to
rescind the transactions contemplated by the Agreement, or alternatively, seek
judicial direction as to those elements of the transaction which can be
completed without requiring shareholders consent. While Indo believes that the
transaction will be completed, there can be no guarantee that the acquisition of
Trans-Orient's interest in the oil and gas properties will be completed because
of the necessity of shareholder ratification of this transaction.
Pursuant to the Agreement, Indo purchased all the shares of Trans-Orient
Petroleum (PNG) Limited ("Top PNG") and Trans-Orient Petroleum (Aust) Pty Ltd.
("Top Australia"). Prior to the transaction, both Top PNG and Top Australia
were wholly owned subsidiaries of Trans-Orient. At the time of this
transaction, the directors of Top PNG were Jennifer Margaret Lean and Phillip
Cridge , and the director of Top Australia was Jeffrey Phillip Lean. By the
terms of the Agreement, Trans-Orient agreed to sell the shares of Top PNG and
Top Australia to Indo for 4 common shares of Indo. These shares were given a
deemed price of $0.50 per share.
The assets of Top PNG and Top Australia consisted of petroleum, natural gas,
sulphur, all other minerals or substances and the right to explore (the
"Petroleum Substances"). The right to explore was granted pursuant to leases,
licenses, permits and other documents of title (the "Leases") which permitted
the holder to drill for, win, take, own or remove the Petroleum Substances, or
entitled the holder to a share of the Petroleum Substances removed from the
lands underlying the Leases. The following tables provide further details of
the assets of Top PNG and Top Australia:
- --------------------------------------------------------------------------------
Permit Equity % Royalty % Expiry Date
Australia and ZOCA (First Term)
- --------------------------------------------------------------------------------
ZOCA 96-16 10% [1] 1 November 14, 2002
- --------------------------------------------------------------------------------
AC/P 26 35 1 February 26, 2004
- --------------------------------------------------------------------------------
[1] Interests confirmed by Timor Gap Joint Authority on February 11, 2000.
- --------------------------------------------------------------------------------
Permit Equity % Royalty % Expiry Date
Papua New Guinea (First Term)
- --------------------------------------------------------------------------------
PPL 192 20 1 January 28, 2003
- --------------------------------------------------------------------------------
PPL 157 7.5 1 December 22, 2004
- --------------------------------------------------------------------------------
PPL 215 40 1 May 6, 2005
- --------------------------------------------------------------------------------
PPL 213 5 1 February 11, 2005
- --------------------------------------------------------------------------------
Further to the terms of the Agreement, Indo-Pacific Energy (NZ) Limited ("Indo
NZ") purchased the assets of Trans-Orient Petroleum (NZ) Limited ("Top NZ").
Indo NZ is a wholly owned subsidiary of Indo, and Top NZ is a wholly owned
subsidiary of Trans-Orient. At the time of this transaction, the directors of
<PAGE>
Indo NZ were David J. Bennett and Jennifer Margaret Lean , and the directors of
Top NZ were David J. Bennett , Jennifer Margaret Lean and Robert C. Rantucci .
The purchased assets of Top NZ consist of exploration concessions and its
interest in and to the Leases. Pursuant to the terms of the Leases, the holder
is entitled to drill for, win, take, own or remove the Petroleum Substances, or
to a share of the Petroleum Substances removed from the lands underlying the
Leases. The purchased assets of Top NZ's also consisted of other miscellaneous
interests including the following:
a) all contracts, agreements and documents, to the extent that they related
directly to the Petroleum Substances or to Top NZ's interest in and to the
Leases;
b) all subsisting rights to enter upon, use and occupy the surface of any of
the lands underlying the Leases; and
c) copies of engineering records, files, reports and data that relate
directly to the Petroleum Substances or Top NZ's interest in and to the
Leases.
The following table provides further details of the assets purchased from Top
NZ's:
- --------------------------------------------------------------------------------
Permit Equity % Royalty % Expiry Date
New Zealand (First Term)
- --------------------------------------------------------------------------------
PEP 38328 22.5% 2 [1] July 1, 2001
- --------------------------------------------------------------------------------
PEP 38332 20 2 June 24, 2002
- --------------------------------------------------------------------------------
PEP 38335 15 2 November 29, 2003
- --------------------------------------------------------------------------------
PEP 38339 50 2 November 26, 2003
- --------------------------------------------------------------------------------
PEP 38720 50 2 September 2, 2001
- --------------------------------------------------------------------------------
PEP 38723 40 2 October 30, 2002
- --------------------------------------------------------------------------------
PEP 38256 35 [2][3] 2 August 25, 2002
- --------------------------------------------------------------------------------
[1] Except becomes 5% on Petroleum pool of Whakatu prospect area.
[2] Subject to AMG option, which can reduce to 10% equity.
[3] Subject to permit requirement to relinquish 50% of lands by August 25,
2000.
Pursuant to the Agreement, Indo also purchased by way of assignment, two
inter-corporate loans (the "Top Loans") owing to Trans-Orient by Top Australia
and Top PNG. The loans were in the amount of $747,851 and $1662,575
respectively.
The purchase price for the assets of Top NZ and the Top Loans was $4,097,360
which was allocated as follows:
a) $1,686,934 for the Top NZ's assets;
b) $747,851 representing the loan from Trans-Orient to Top Australia; and
c) $1,662,575 representing the loan from Trans-Orient to Top PNG.
The purchase price of $4,097,360 for the assets of Top NZ and the Top Loans was
paid or is payable by Indo as follows:
a) Source Rock Holdings Ltd. ("Source Rock"), Indo's wholly owned
Subsidiary, transferred 1.8 million shares and an option to purchase
200,000 shares exercisable at $.50 per share of AMG Oil Ltd. at an agreed
value of $720,000 to Reservoir Rock Holdings Ltd. ("Reservoir Rock"),
Trans-Orient's wholly owned subsidiary. At the time of this transaction,
<PAGE>
the directors of both Source Rock and Reservoir Rock were David J. Bennett
and Jennifer Margaret Lean;
b) Source Rock transferred 600,000 shares of Gondwana Energy, Ltd. at an
agreed value of $20,000 to Reservoir Rock;
c) Indo transferred 517,020 shares of Trans-Orient which Indo held at an
agreed value of $222,319 to Trans-Orient for cancellation;
d) Indo reserving in favour of Trans-Orient, a 1% gross overriding royalty
("GORR") on the interest transferred on any hydrocarbon production from
ZOCA 96-19, AC/P 26, PPL 192, PPL 157, PPL 213, PPL 215 and a 2% GORR on
any hydrocarbon production from : PEP 38328, PEP 38332, PEP 38335, PEP
38339, PEP 38720, PEP 38723, PEP 38256, and a 5% GORR on any wells drilled
within one kilometer of the Whakatu-1 well located on License PEP 38328 in
Hawkes Bay, New Zealand;
e) Indo issued 4,184,224 units to Trans-Orient at a deemed price of $0.50
per unit. Each unit consists of a common share and a two-year common share
purchase warrant (the "A Warrant") exercisable at a price of $0.50 in the
first year and $0.75 in the second year from the closing date;
f) Indo agreed to issue B Warrants to Trans-Orient provided the following
conditions are met: Trans-Orient exercises any A Warrant and a commercial
discovery occurs on any of the oil and petroleum properties mentioned
above. Indo will issue one B Warrant to Trans-Orient for every A Warrant
that Trans-Orient exercises. The B Warrants will be exercisable at a price
of $1.50 for a period of one year from their issue;
g) Indo agreed to issue additional units to Trans-Orient, if within 12
months from the closing date of this transaction, Indo completes equity
financings in the aggregate amount of not less than $500,000, at an average
price per share or unit issued of less than $0.50 per share or unit;
h) Indo granted to Trans-Orient the right to participate to a level of 25%
in any equity financing made by Indo up to December 31, 2001;
i) Indo acknowledged to Trans-Orient that Trans-Orient has satisfied and
paid inter-company loan from Indo to Trans-Orient in the amount of
$1,042,928 and;
j) Indo agreed to meet all ongoing costs accruing to Trans-Orient's account
after December 31, 1999, and will hold Trans-Orient harmless from any loss
or claim arising out of activities on the oil and gas properties after the
closing date of the transaction.
In connection with the transaction the parties obtained a fairness opinion from
Evans & Evans, Inc., an independent business valuator. The fairness opinion
provided by the business valuator confirmed that the transaction was within the
range of values considered to be fair to the shareholders of Indo and
Trans-Orient.
The transaction closed on March 30, 2000. The purpose of this transaction was
to allow Indo greater control and leverage over exploration of its projects, but
it also ensures that Trans-Orient would retain some benefit in the event of an
oil and petroleum discovery. This transaction allows both companies to focus on
their respective assets and streamlines the organizations.
<PAGE>
Item 7. Pro Forma Financial Information
The pro forma balance sheet noted below has been compiled by management to
reflect the impact of the transaction on the Company's consolidated balance
sheet, effective January 1, 2000, assuming approval by the shareholders of
Trans-Orient Petroleum Ltd. Under the terms of the Agreement, the Company will
receive the following equity interests in petroleum exploration permits in New
Zealand, Australia and Papua New Guinea. Also disclosed is the approximate
expenditure transfer value of the permits effective January 1, 2000:
Equity % Equity % Combined Expenditure
Indo-Pacific Trans-Orient Equity % Transfer Value
Licence ------------ ------------
NEW ZEALAND
- ------------
PEP 38328 40% 22.50% 62.5% $ 774,184
PEP 38332 42.50% 20% 62.5% 120,898
PEP 38335 10% 15% 25% 118,076
PEP 38339 50% 50% 100% 42,568
PEP 38720 50% 50% 100% 554,902
PEP 38723 60% 40% 100% 22,910
PEP 38256 35% * 35% * 70% * 50,153
Total New Zealand 1,683,691
AUSTRALIA (& ZOCA)
ZOCA 96-16 - 33.33%** 603,767
AC/P 26 - 35% 35% 144,084
Total Australia 747,851
PAPUA NEW GUINEA
- ----------------
PPL 192 60% 20% 80% 250,506
PPL 157 - 7.50% 7.5% 1,224,522
PPL 215 40% 40% 80% 187,549
Total Papua New Guinea 1,662,577
Other Misc Costs 3,242
TOTAL $4,097,362
- - * reducing to 10% if AMG Oil exercises drilling option
** reducing to 10% upon Phillips Petroleum Ltd. drilling Coleraine-1
<PAGE>
Pro Forma Consolidated Balance Sheet
(Prepared in Accordance with United States Generally Accepted Accounting
Principles)
(Expressed in United States Dollars)
As at January 1, 2000
Unaudited - Prepared by Management
Pro Forma
Indo-Pacific Pro Forma Indo-Pacific
Energy Ltd. Adjustments Energy Ltd.
- --------------------------------------------------------------------------------
Assets
Current
Cash and short-term deposits $ 4,863,254 19,280(1) $ 4,882,534
Accounts receivable 148,419 148,419
Loan receivable from
related party 1,062,211 (1,062,211)(2) -
Marketable securities 222,319 (222,319)(3) -
Due from related parties 62,667 62,667
Prepaid expenses 50,110 50,110
- --------------------------------------------------------------------------------
6,408,980 5,143,730
Investments 740,000 (740,000)(4) -
Property and equipment 143,961 143,961
Oil and gas properties 3,656,224 4,097,362 (5) 7,753,586
- --------------------------------------------------------------------------------
Total Assets $10,949,165 $13,041,277
================================================================================
Liabilities
Current
Accounts payable and accrued
liabilities $ 277,983 $ 277,983
- --------------------------------------------------------------------------------
Total Liabilities 277,983 277,983
- --------------------------------------------------------------------------------
Stockholders' Equity
Common stock without par value;
100,000,000 shares authorized;
Issued and outstanding
on a pro forma basis:
32,446,622 shares 18,245,867 2,092,112(6) 20,337,979
Accumulated deficit (7,644,685) (7,644,685)
Cumulative comprehensive
adjustment 70,000 70,000
- --------------------------------------------------------------------------------
Total Stockholders' Equity 10,671,182 12,763,294
- --------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $10,949,165 $13,041,277
================================================================================
The pro forma consolidated balance sheet as at January 1, 2000 has been compiled
assuming the transactions relating to the Agreement occurring effective January
1, 2000 and gives effect to the following adjustments:
1. Cash and short-term deposits - $19,280 is anticipated to be the final
cash adjustment resulting from differences related to currency conversion
adjustments between the two companies of the $1,042,928 loan to Trans-
Orient.
<PAGE>
2. Loan receivable from related party - The loan of $1,062,211 to
Trans-Orient is repaid as partial consideration for the purchase. The
amount includes the $19,280 currency translation adjustment described in
(1) above. The net agreed loan repayment amount is $1,042,928 .
3. Marketable securities - 517,020 shares of Trans-Orient having an agreed
value of $222,319 are returned to Trans-Orient for cancellation
4. Investments - 1,800,000 common shares and 200,000 options of AMG Oil Ltd.
and 600,000 common shares of Gondwana, Energy Ltd. are transferred from
foreign subsidiaries of the Company to Trans-Orient. The agreed values are
$720,000 and $20,000 respectively.
5. Oil and gas properties - Oil and gas permits, licenses and capitalized
development expenditures valued at $4,097,362 described in the proceeding
table are purchased from Trans-Orient.
6. Represents the issuance of 4,184,224 common shares and attached warrants
of the company at a price of $.50 per share representing an aggregate value
of $2,092,112
The anticipated work obligation cost for the combined interests is $6,174,500
over the 2000 fiscal year. Please refer ITEM 1. "BUSINESS" and ITEM 2.
"DESCRIPTION OF PROPERTIES" forming part of the Company's Form 10K filed on
April 11, 2000 for further information.
<PAGE>
Index to Exhibits
Exhibit Description
- ------- -----------
2 Agreement of Purchase and Sale dated for reference January 29, 2000
between Trans-Orient Petroleum Ltd., Indo-Pacific Energy Ltd., Trans-Orient
Petroleum (AUST) PTY Ltd., Trans-Orient Petroleum (PNG) Limited, Trans-
Orient Petroleum (NZ) Limited, and Indo-Pacific Energy (NZ) Limited
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Indo Pacific Energy Ltd.
By /s/ David J. Bennet
----------------------
Chief Executive Officer, Director
Date: April 13, 2000
<PAGE>
AGREEMENT OF PURCHASE AND SALE
THIS AGREEMENT dated for reference the 29th day of January, 2000
BETWEEN:
TRANS-ORIENT PETROLEUM LTD., a company duly existing under the laws
of the Yukon Territory, Canada and having an office address c/o 1500
- 1055 West Georgia Street, Vancouver, B.C., V6E 4N7 ("Top Canada")
AND: INDO-PACIFIC ENERGY LTD., a company duly existing under the laws of
the Yukon Territory, Canada and having its head office at 1200 - 1090
West Pender Street, Vancouver, B.C. V6E 2N7 ("Indo Canada")
AND: TRANS-ORIENT PETROLEUM (AUST) PTY LTD., a company duly incorporated
under the laws of Australia and having a registered office at 15th
Floor, AMP Building, 1 King William Street, Adelaide, SA ("Top
Australia")
AND: TRANS-ORIENT PETROLEUM (PNG) LIMITED, a company duly incorporated
under the laws of Papua New Guinea and having a registered and records
office at Level 1, Mogoru Moto Building, Allotment 6, Seat 20,
Granville, Champion Pole, Port Moresby N.C.D., Papua New Guinea (Top
PNG")
AND: TRANS-ORIENT PETROLEUM (NZ) LIMITED, a company duly incorporated under
the laws of New Zealand and having a registered office at 284 Karori
Road, Karori, Wellington, New Zealand ("Top NZ")
AND: INDO-PACIFIC ENERGY (NZ) LIMITED, a company duly incorporated under
the laws of New Zealand and having a registered office at 284 Karori
Road, Karori, Wellington, New Zealand ("Indo NZ")
WHEREAS Top Canada and Indo Canada have entered into a letter of intent (the
"Letter") whereby Indo Canada has expressed its intent to acquire, from Top
Canada, certain assets and shares owned by Top Canada or its wholly owned
Subsidiaries (as defined hereunder);
In accordance with the terms of the Letter, the parties wish to enter into a
formal agreement for the purchase and sale of certain assets of Top NZ and all
of the issued and outstanding shares of Top Australia and Top PNG;
<PAGE>
Page 2
NOW THEREFORE in consideration of the premises and the mutual covenants and
warranties herein contained, the parties agree as follows:
1. INTERPRETATION
--------------
1.1 Definitions
-----------
For the purposes of this Agreement, including the recitals and the Schedules,
the following terms shall have the respective meanings hereby assigned to them:
"AGREEMENT" means this document, together with the attached Schedules.
"AMG SECURITIES" means 1.8 million common shares of AMG Oil Ltd. and an option
to purchase an additional 200,000 common shares of AMG Oil Ltd. at $0.50, which
option expires on July 31, 2000.
"ASSETS" means those exploration concessions of Top NZ, the Top NZ Petroleum and
Natural Gas Rights, and other Miscellaneous Interests including those interests
of Top NZ more particularly described in Schedule "A" attached hereto.
"CLOSING" means the exchange of conveyance documents, the delivery by Indo
Canada to Top Canada of the Purchase Price, the assignment by Top Canada of
the Top Canada Loans to Indo Canada, the transfer of the Assets by Top NZ to
Indo NZ and the transfer of the Shares by Top Canada to Indo Canada on the
Closing Date.
"CLOSING DATE" means February 29, 2000 or such other date as Top Canada and
Indo Canada may mutually determine.
"DEED" means the deed of assignment and covenant attached hereto as Schedule "C"
which shall have the effect of conveying the Assets from Top NZ to Indo NZ;
"ENVIRONMENTAL MATTERS" MEANS :
(a) any orders or directives pursuant to Regulations which relate to
environmental matters and which require any work, repairs, construction or
capital expenditures with respect to the Assets or the Subsidaries'
Assets, where such orders or directives have not been complied with in all
material respects; or
(b) any demand or notice pursuant to the Regulations with respect to the
breach of any environmental, health or safety law applicable to the Assets
or the Susidiaries'Assets, including, without limitation, any Regulations
respecting the use, storage, treatment, transportation or disposition of
<PAGE>
Page 3
environmental contaminants, which demand or notice remains outstanding as
of the date hereof.
"GONDWANA SHARES" means 600,000 common shares of Gondwana Energy Ltd.
"GORR" means a gross overriding royalty;
"GORR AGREEMENTS" means the gross overriding royalty agreements, the forms of
which are attached as Schedule "D" hereto;
"LEASES" means the leases, licenses, permits and other documents of title
pertaining to the Assets and the Subsidiaries' Assets, by virtue of which the
holder thereof is entitled to drill for, win, take, own or remove the Petroleum
Substances or by virtue of which the holder thereof is deemed to be entitled to
a share of Petroleum Substances removed from the lands underlying the Leases,
and includes all renewals and extensions of such documents and all documents
issued in substitution thereof.
"LOAN" means the outstanding intercompany loan from Indo Canada to Top Canada
in the amount of $1,042,928.
"MISCELLANEOUS INTERESTS" means Top NZ's interest in and to all property, assets
and rights, other than Top NZ's Petroleum and Natural Gas Rights, to the extent
that such assets and rights pertain to Top NZ Petroleum and Natural Gas Rights,
or any rights relating thereto, including, without limiting the generality of
the foregoing:
a) all contracts, agreements and documents, to the extent that they relate
directly to the Petroleum Substances or Top NZ's Petroleum and Natural Gas
Rights , including agreements for the construction, ownership and operation
of any facilities and agreements for the sale , processing or
transportation of Petroleum Substances;
b) all subsisting rights of Top NZ to enter upon, use and occupy the surface
of any of the lands underlying the Leases; and
c) copies of engineering records, files, reports and data that, in Top
Canada's reasonable judgement, relate directly to the Petroleum Substances
or Top NZ Petroleum and Natural Gas Rights, including geographical data, if
any.
"OPINION" means a jointly addressed fairness opinion prepared by Evans & Evans,
Inc. confirming that the Transaction, from a financial point of view, is within
a range of values which can be considered fair to the shareholders of each of
Top Canada and Indo Canada.
<PAGE>
Page 4
"PARTY" means a person, partnership or corporation who is bound by this
Agreement.
"PETROLEUM SUBSTANCES" means petroleum, natural gas, sulphur and all other
minerals or substances, the right to explore for which, or an interest in which,
is granted pursuant to the Leases.
"PURCHASE PRICE" means the amount payable by Indo Canada to Top Canada for the
Assets and the Top Canada Loans which amount the Parties agree has a monetary
value of $4,097,360 as more particularly described herein.
"REGULATIONS" means all statutes, laws, rules, orders and regulations in
effect form time to time and made by governments or governmental boards or
agencies having jurisdiction over the Assets and the Shares.
"RESERVOIR ROCK" means Reservoir Rock Holdings Ltd., a wholly owned subsidiary
of Top Canada.
"SHARE PURCHASE PRICE" means the issuance by Indo Canada of 4 common shares of
Indo Canada, at a deemed price of $0.50 per share, to Top Canada as more
particularly described herein;
"SHARES" means the Top Australia Shares and the Top PNG Shares.
"SOURCE ROCK" means Source Rock Holdings Ltd., a wholly owned subsidiary of Indo
Canada.
"SUBSIDIARIES" means collectively Top NZ, Top Australia and Top PNG.
"SUBSIDIARIES' ASSETS" means the those exploration concessions, Petroleum and
Natural Gas Rights and other Miscellaneous Interests of Top Australia and Top
PNG more particularly described in Schedule "B" attached hereto.
"SUBSIDIARIES' PETROLEUM AND NATURAL GAS RIGHTS" means Top PNG's and Top
Australia's respective interests in and to the Leases;
"TITLE DEFECT" means a defect, deficiency or discrepancy in or affecting the
title of Top NZ in and to any of the Assets, or the title of Top PNG or Top
Australia to their respective Subsidiary's Assets, which is sufficiently
material and adverse to the enforcement of title that it would not be acceptable
to a knowledgeable, prudent purchaser buying similar oil and gas properties,
acting reasonably.
"TOP AUSTRALIA LOAN" means the loan from Top Canada to Top Australia in the
amount of $748,100 as at December 31, 1999.
<PAGE>
Page 5
"TOP AUSTRALIA SHARES" means 1 ordinary share of Top Australia issued at $1
(Australian).
"TOP CANADA LOANS" means the Top Australia Loan and the Top PNG loan.
"TOP CANADA SHARES" means 517,020 common shares of Top Canada owned by Indo
Canada.
"TOP NZ PETROLEUM AND NATURAL GAS RIGHTS" means Top NZ's interest in and to the
Leases.
"TOP PNG LOAN" means the loan from Top Canada to Top PNG in the amount of
$2,172,800 as at December 31, 1999.
"TOP PNG SHARES" means 2 ordinary shares of Top PNG issued at 1 Kina each.
"TRANSACTION" means the assignment by Top Canada of the Top Canada Loans to Indo
Canada, sale and transfer by Top NZ of the Assets to Indo NZ , and the sale by
Top Canada of the Shares to Indo Canada in consideration for the issuance of the
Units, the transfer of the AMG Shares and the Gondwana Shares, the cancellation
of the Top Canada Shares, the granting of the GORR, and the satisfaction and
payment of the Loan.
"UNITS " means 4,184,224 Units of Indo Canada granted to Top Canada, each Unit
having a value of $0.50 per unit and consisting of one common share and one "A"
Warrant. Each "A" Warrant will entitle the holder to purchase one additional
common share of Indo Canada in consideration for $0.50 per common share
exercisable for one year from the Closing Date and thereafter for one year in
consideration for $0.75 per common share. In addition to Top Canada receiving
the additional common share upon the exercise of the "A" Warrants and subject to
a commercial discovery having occurred on the Assets or the Subsidaries' Assets,
Indo Canada shall issue to Top Canada one "B" Warrant for each "A" Warrant
exercised. The "B" Warrants shall be exercisable at a price of $1.50 for a
period of one year from the date of issue of the "B" Warrants.
"WELLS" means all producing, shut-in, water source, disposal, injection,
suspended, abandoned and similar wells located on the Leases.
1.2 Schedules
---------
The following Schedules are attached to this Agreement and made part of this
Agreement:
Schedule A - Top NZ Assets
Schedule B - Subsidiaries'Assets
<PAGE>
Page 6
Schedule C - Deed of Assignment and Covenant for the Transfer of Top NZ Assets
including GORR provisions
Schedule D - Gross Overriding Royalty Agreements granted by Indo Canada to Top
Canada
Schedule E - Lonman Agreement
Schedule F - Definition of "US Person"
1.3 References
----------
The references to "hereunder", "herein" and "hereof" refer to the provisions of
this Agreement, and any references to sections, clauses, paragraphs or Schedules
refer to the sections, clauses, paragraphs or Schedules contained in and
attached to this Agreement. Any reference to time shall refer to Vancouver
time.
1.4 Headings
--------
The headings of the sections, clauses, paragraphs, Schedules and any other
headings are for convenience of reference only and shall not be used in any way
in construing or interpreting any provision of this Agreement.
1.5 Singular/Plural
---------------
Whenever the singular or masculine is used in this Agreement, it shall be
interpreted as meaning the plural or feminine or body political or corporate,
and vice versa, as the context requires.
1.6 Currency
--------
All references to monetary amounts in this Agreement shall refer to U.S. funds
except as otherwise stated.
1.7 Derivatives
-----------
Where a term is defined herein, a capitalized derivative of such term shall have
a corresponding meaning unless the context otherwise requires.
1.8 Interpretation if Closing does not Occur
----------------------------------------
In the event that Closing does not occur, each provision of this Agreement which
presumes that Indo Canada has acquired the Assets and the Shares hereunder shall
be construed as having been contingent upon Closing having occurred.
<PAGE>
Page 7
1.9 Conflicts
---------
If there is any conflict or inconsistency between a provision of the body of
this Agreement and that of a Schedule, the provision of the body of this
Agreement shall prevail. If any term or condition of this Agreement conflicts
with a term or condition of a Lease or the Regulations, the term or condition of
such Lease or the Regulations shall prevail, and this Agreement shall be deemed
to be amended to the extent required to eliminate such conflict.
2.0 PURCHASE AND SALE
-----------------
2.1 Agreement of Purchase and Sale of the Shares
--------------------------------------------
Top Canada hereby agrees to sell the Shares to Indo Canada in consideration for
the payment by Indo Canada of the Share Purchase Price to Top Canada pursuant to
the terms and conditions set forth in this Agreement. The parties agree that
the Shares and the Share Purchase Price have a value of $2.
2.2 Agreement of Purchase and Sale of the Assets and the Top Canada Loans
---------------------------------------------------------------------
Top Canada agrees to cause Top NZ to sell the Assets to Indo NZ and assign the
Top Canada Loans to Indo Canada in consideration for the payment of the Purchase
Price by Indo Canada to Top Canada pursuant to the terms and conditions set
forth in this Agreement.
2.3 Allocation of Purchase Price
----------------------------
The Parties agree that the Purchase Price shall be allocable and payable more
particularly as follows:
(a) $1,686,934 for the Assets;
(b) $747,851 for the Top Australia Loan;
(c) $1,662,575 for the Top PNG Loan.
2.4 Satisfaction of Total Purchase Price
------------------------------------
Indo Canada will pay the Purchase Price by:
a) causing Source Rock to transfer or assign the AMG Securities to Reservoir
Rock at a value agreed by the parties to be $720,000;
<PAGE>
Page 8
b) causing Source Rock to transfer the Gondwana Shares to Reservoir Rock at
a value agreed by the parties to be $20,000;
c) delivering the Top Canada Shares to Top Canada for cancellation at a
value agreed by the parties to be $222,319;
d) reserving or causing its wholly owned subsidiary to reserve, in favour
of Top Canada, a GORR on any hydrocarbon production from the properties
listed on Schedule "A" and "B" hereto. These royalties shall be in the
amounts and in the form set out in the GORR Agreements and the Deed
respectively, registered against the properties listed in the attached
schedules, where possible, and will be binding upon any assignees. The
parties agree that the GORR's referred to in this paragraph have an
agreed value of $1;
e) allotting and issuing the Units to Top Canada, the Units having an agreed
value of $2,092,112;
f) acknowledging to Top Canada that Top Canada has satisfied and paid the
Loan which has an agreed value of $1,042,928;
Indo Canada shall deliver the Purchase Price to Top Canada at Closing, subject
to any reductions and any adjustments as provided in this Agreement
3. INDO CANADA'S REVIEW
--------------------
3.1 Top Canada to Provide Access
----------------------------
Subject to the Regulations and all contractual and fiduciary obligations and
limits, Top Canada and the Subsidiaries shall provide Indo Canada and its
nominees, reasonable access to their respective records, files and documents
directly relating to the Assets, the Subsidiaries and the Subsidaries' Assets
for the purpose of Indo Canada's review of the Assets, the Subsidaries', and the
Subsidaries' Assets, title thereto, including, without limitation, the Leases
and applicable operating agreements, overriding royalty agreements and
production sale contacts.
4. ADJUSTMENTS
-----------
4.1 Benefits and Obligations to be Apportioned
------------------------------------------
a) All benefits and obligations of any kind and nature accruing, payable,
paid, received or receivable, with respect to the Assets, the Shares or the
Subsidaries' Assets, shall be paid for and received by or for the account
of Indo Canada after December 31, 1999.
<PAGE>
Page 9
4.2 Adjustment to Accounts
------------------------
a) For the purpose of determining the benefits and obligations set out
above, Indo Canada may perform an interim accounting, and an adjustment may
be conducted for Closing, based on Top Canada's good faith estimate of all
adjustments to be made for the transactions herein pursuant to this
section, and a final accounting and adjustment shall be conducted within
four (4) months after the Closing Date. Subject to paragraph b) of this
section, the Parties shall not be obligated to make any adjustments after
such four (4) month period (excluding any amount owing to a Party pursuant
to a final accounting adjustment) unless such adjustment has been
specifically requested, by notice, within such four (4) month period. All
adjustments shall be settled by payment by the Party required to make
payment hereunder within thirty (30) days of being notified of the
determination of the amount owing.
b) During the four (4) month period following the Closing Date, Indo Canada
may audit the books, records and accounts of Top Canada or the
Subsidiaries, for the purpose of effecting adjustments pursuant to this
Section. Such audit shall be conducted upon reasonable notice to Top Canada
or the Subsidiaries during Top Canada's or the Subsidaries' normal business
hours, and shall be conducted at the sole expense of Indo Canada. Any
claims of discrepancies disclosed by such audit shall be made in writing to
Top Canada within two (2) months following the completion of such audit,
and Top Canada shall respond in writing to any claims of discrepancies
within six (6) months of the receipt of such claims. To the extent that the
Parties are unable to resolve any outstanding claims of discrepancies
disclosed by such audit within two (2) months of Top Canada's response
thereto, such audit exceptions shall be resolved pursuant to Section 12 of
this Agreement.
4.3 Price Adjustment Units
----------------------
Indo Canada hereby agrees to issue additional units ( the "Price Adjustment
Units"), to Top Canada, if within 12 months from the Closing Date, Indo Canada
completes equity financings (the "Equity Financings"), in the aggregate amount
of not less than $500,000, at an average price (the "Average Price") of less
than $0.50 per unit. If Indo Canada completes the Equity Financings, then Indo
Canada will issue such number of Price Adjustment Units, each Price Adjustment
Unit to be identical to the Units in composition, excluding the "B" Warrants,
as Top Canada would have been entitled to receive had the Units been issued to
Top Canada at the Average Price.
4.4 Right to Participate in Equity Financing
----------------------------------------
<PAGE>
Page 10
Indo Canada hereby grants, to Top Canada, the right for Top Canada to
participate in up to 25% of any Equity Financing made by Indo Canada up until
December 31, 2001, provided that such right is not in contradiction to any
condition of a third party arms-length Equity Financing. Top Canada shall not
be entitled to Additional Units with respect to its own participation in such
Equity Financing. A convertible security shall be an Equity Financing, with the
exception of incentive stock options of up to 10% of the issued shares on
Closing Date and 10% additional per annum for each of the two years following
the Closing Date.
5. INTERIM PROVISIONS
------------------
5.1 Assets to be Maintained in Proper Manner
----------------------------------------
Possession of the Assets and the Shares shall not pass from Top Canada to Indo
Canada until the Closing Date. Top Canada and the Subsidiaries shall continue
to maintain the Assets and the Subsidaries' Assets on behalf of Indo Canada in a
proper and prudent manner in accordance with good oil field practice and the
Regulations until the Closing Date. Either Top Canada or the Subsidiaries shall
maintain insurance respecting the Assets and the Subsidaries' Assets until the
Closing Date.
6. REPRESENTATIONS AND WARRANTIES OF THE PARTIES
---------------------------------------------
6.1 Top Canada's Representations and Warranties
-------------------------------------------
Top Canada represents and warrants to Indo Canada the following:
a) Top Canada is a valid and subsisting corporation duly incorporated under
the laws of Yukon Territory;
b) Top NZ is a valid and subsisting corporation duly incorporated under the
laws of New Zealand;
c) Top Australia is a valid and subsisting corporation duly incorporated
under the laws of Australia;
d) Top PNG is a valid and subsisting corporation duly incorporated under the
laws of Papua New Guinea;
e) The Shares have been validly allotted and issued as fully paid and
non-assessable, free and clear of all claims and encumbrances;
<PAGE>
Page 11
f) Top Canada has the requisite capacity, power and authority to enter into
and perform its obligations under this Agreement;
g) The execution and delivery of this Agreement and the completion of the
sale of the Assets and the Shares in accordance with the terms of this
Agreement are not and will not be in violation or breach of, or be in
conflict with:
i) any term or provision of the constating or other governing documents of
Top Canada or the Subsidiaries;
ii) any agreement, instrument, permit or authority to which Top Canada
and/or the Subsidiaries is a party or by which Top Canada and/or the
Subsidiaries are bound; or
iii) the Regulations or any judicial order, judgement or decree applicable
to Top Canada, the Subsidiaries, the Assets or the Subsidaries' Assets.
h) Top Canada and the Subsidiaries have taken all actions necessary to
authorize the execution and delivery of this Agreement, and, as of the
Closing Date, Top Canada and the Subsidiaries shall have taken all actions
necessary to authorize and complete the sale of the Assets and the
Subsidaries' Assets in accordance with the provisions of this Agreement.
This Agreement has been validly executed and delivered by Vendor and the
Subsidiaries. This Agreement and all other documents executed and delivered
on behalf of Top Canada or the Subsidiaries hereunder shall constitute
valid and binding obligations of Top Canada or the Subsidiaries,
enforceable in accordance with their respective terms and conditions;
i) Top Canada is not a non-resident of Canada within the meaning of the
Income Tax Act (Canada);
j) there are no obligations or liabilities contingent or otherwise, for
brokers' or finders' fees with respect to the transactions contemplated in
this Agreement;
k) there are no unsatisfied judgements, claims, proceedings, actions,
governmental investigations or lawsuits in existence, contemplated or
threatened against or with respect to the Assets, the Subsidaries' Assets,
Top Australia, Top PNG or the Shares and no particular circumstance exists
which Top Canada or the Subsidaries reasonably believe will give rise to
such a claim, proceeding, action, governmental investigation or lawsuit;
<PAGE>
Page 12
l) to the best of Top Canada's knowledge, no act or omission has occurred
whereby Top Canada is, or would be, in default under the terms of the
Regulations, any Lease or any agreement pertaining to the Assets or the
Subsidaries' Assets, where such a default would impact materially or
adversely affect the Assets or the Subsidaries' Assets;
m) to the best of the Top Canada's knowledge, all royalties, property,
production, severance and similar taxes and assessments based on the Assets
or the Subsidaries' Assets, the production of Petroleum Substances from the
Leases or the receipt of proceeds therefrom that are payable by Top Canada
or the Subsidiaries and which accrued prior to December 31,1999 have been
or will be properly and fully paid and discharged by the Closing Date;
n) Top NZ's interest in the Assets is not subject to reduction by payout ,
or subject to modification in size or nature by virtue of any right or
interest granted by, through or under Top Canada except for any such rights
and interest identified in this Agreement;
o) each of Top PNG's and Top Australia's interest in their respective
Subsidaries' Assets is not subject to reduction by payout , or subject to
modification in size or nature by virtue of any right or interest granted
by, through or under Top PNG, Top Australia or Top Canada except for any
such rights and interest identified in this Agreement;
p) Top NZ has title to the Assets free and clear of any and all liens,
mortgages, pledges, claims, options, encumbrances, overriding royalties,
net profits or other burdens created by, through or under Top Canada or Top
NZ;
q) Top PNG and Top Australia each have title to their respective Subsidaries'
Assets free and clear of any and all liens, mortgages, pledges, claims,
options, encumbrances, overriding royalties, net profits or other burdens
created by, through or under Top Canada or either of the Subsidiaries save
and except as follows:
Top Australia has an agreement in principle, which agreement remains
unsigned, the form of which is attached hereto as Schedule "E". Pursuant to
this agreement, if Top Australia enters into a farmout agreement, with
respect to AC/P26 , through the efforts of the individual named in the
agreement, then that individual will be entitled to 5% of the free carried
interest which Top Australia would be entitled to under that farmout
agreement.
r) there are no Title Defects affecting the title of the Subsidiaries in and
to any of the Assets or the Subsidaries' Assets respectively;
<PAGE>
Page 13
s) none of the Petroleum and Natural Gas Rights are subject to a
preferential right of purchase or similar restriction, except for Top PNG's
interest in License PPL157, which preferential right of purchase has been
waived;
t) the Petroleum Substances are not subject to any agreements for the sale
of Petroleum Substances which are not terminable on thirty (30) days'
notice or less (without an early termination penalty or other cost);
u) Top Canada is not aware of and has not received:
i) any orders or directives pursuant to the Regulations which relate to
environmental matters and which require any work, repair, construction
or capital expenditures with respect to the Assets or the Subsidaries'
Assets;
ii) any demand or notice issued pursuant to the Regulations with respect to
the breach of any environmental, health or safety law applicable to the
Assets or the Subsidaries' Assets, including, without limitation, any
Regulations respecting the use, storage, treatment, transportation or
disposition of environmental contaminants;
v) to the best of Top Canada's knowledge, any Wells on the Leases have been
drilled and, if completed, completed and operated in accordance with good
oil and gas field practices and the material requirements of the
Regulations;
w) there are no outstanding authorizations for expenditure or outstanding
financial commitments respecting the Assets or the Subsidaries' Assets,
pursuant to which expenditures are or may be required by Indo Canada or in
respect of which any amount is outstanding, other than as set out in
Schedule "E" hereto;
x) none of the Leases are subject to an agreement which provides for an area
of mutual interest;
y) the Assets comprise all or substantially all of Top NZ's assets;
z) subject at all times to Top Canada's other representations and warranties
made pursuant to this section and the satisfaction of the obligations
required to maintain the Assets in good standing, Indo Canada may, for the
remainder of the term of the Leases, hold and utilize the Assets for Indo
Canada's own use and benefit without any interruption by Top Canada or any
other person claiming by, through or under Top Canada; and
<PAGE>
Page 14
aa) in order for the offer and sale of the Units to be effected pursuant to
the securities registration exemption afforded by Rule 903(b)(2) of
Regulation S, as promulgated by the U.S. Securities and Exchange Commission
("SEC") pursuant to the U.S Securities Act of 1933, as amended (the "1933
Act"), Top Canada hereby makes the following representations and warranties
(i) That during the 40-day period following its acquisition of the Units
it will not offer or sell any interest in the Units (or their
underlying securities) to, or solicit any offer to buy any such
interest from, a U.S. person or for the account or benefit of a U.S.
person (as defined in SEC Rule 902(k), a copy of which is set forth as
Schedule "F" to this Agreement);
(ii) that each "A" Warrant and "B" Warrant issued pursuant to the Units
must bear a legend stating that the warrant and the securities to be
issued upon its exercise have not been registered under the 1933 Act
and that the warrant may not be exercised by or on behalf of any U.S.
person unless registered under the 1933 Act or an exemption from such
registration is available;
(iii) that each person exercising an "A" Warrant or a "B" Warrant is
required to give:
(A) written certification that it is not a U.S. person and the "A"
Warrants or "B" Warrants, as the case may be, are not being
exercised on behalf of a U.S. person; or
(B) a written opinion of counsel to the effect that the "A" Warrants
or "B" Warrants, as the case may be, and the securities delivered
upon exercise thereof have been registered under the 1933 Act and
applicable state securities laws or are exempt from registration
thereunder;
(iv) that it understands and agrees that Indo Canada's transfer agent will
be instructed that the "A" Warrants and the "B" Warrants may not be
exercised within the United States, and that the securities may not be
delivered within the United States upon exercise, other than in
offerings deemed to meet the definition of "offshore transaction"
pursuant to Rule 902(h) of SEC Regulation S, unless registered under
the 1933 Act and applicable state securities laws, or an exemption
from such registration is available.
(v) that it understands and agrees that the Units and their underlying
securities have not been registered under the 1933 Act and may not be
offered or sold in the United States or to U.S. persons unless the
securities are registered under the 1933 Act and applicable state
securities laws, or an exemption from the registration requirements of
the 1933 Act and applicable state securities laws is available;
<PAGE>
Page 15
(vi) that it understands and agrees that any and all press releases or
other public notices required by applicable laws and with respect to
the transactions provided for in this Agreement shall contain the
following statement: "The Units and their underlying securities were
not registered under the U.S. Securities Act of 1933, as amended, and
may not be offered or sold in the United States or to U.S. persons
unless the securities are registered under such Act and applicable
state securities laws, or an exemption from the registration
requirements of such Act and applicable state securities laws is
available;" and
(vii) insofar as concern it, no offers, negotiations or acceptances with
respect to this Agreement have occurred within the United States, its
territories or possession.
6.2 Indo Canada's Representations and Warranties
--------------------------------------------
Indo Canada represents and warrants to Top Canada the following:
a) Indo Canada is a valid and subsisting corporation duly incorporated and
in good standing under the laws of the Yukon Territory;
b) Indo NZ is a valid and subsisting corporation duly incorporated and in
good standing under the laws of New Zealand
c) each of Indo Canada and Indo NZ have the requisite capacity, power and
authority enter into and perform their respective obligations under this
Agreement;
d) the execution and delivery of this Agreement and the completion of the
sale of the Assets and the Shares in accordance with the terms of this
Agreement are not and will not be in violation or breach of, or be in
conflict with:
i) any term or provision of the constating or other governing documents of
either Indo Canada or Indo NZ;
ii) any agreement, instrument, permit or authority to which either Indo
Canada or Indo NZ is a party or by which either of them are bound; or
<PAGE>
Page 16
iii) the Regulations or any judicial order, judgement or decree applicable
to either Indo Canada or Indo NZ.
e) Each of Indo Canada and Indo NZ have taken all actions necessary to
authorize the execution and delivery of this Agreement. This Agreement has
been validly executed and delivered by each of Indo Canada and Indo NZ, and
this Agreement and all other documents executed and delivered on behalf of
either Indo Canada or Indo NZ hereunder shall constitute valid and binding
obligations of each of Indo Canada and Indo NZ, enforceable in accordance
with their respective terms and conditions;
f) Both the AMG Securities and the Gondwana shares are fully paid and free
and clear of all actual or threatened liens, charges, options,
encumbrances, voting agreements, voting trusts, demands, limitations and
restrictions of any nature whatsoever;
g) Indo Canada will allot and issue the common shares required by the
issuance of Units to Top Canada on the Closing Date as fully paid and
non-assessable in the capital of Indo Canada, free and clear of all actual
or threatened liens, charges, options, encumbrances, voting agreements,
voting trusts, demands, limitations and restrictions of any nature
whatsoever, other than the general restrictions under the Securities Act
(Yukon);
h) Indo Canada is not a non-resident of Canada within the meaning of the
Income Tax Act (Canada);
i) Indo Canada and Indo NZ have not incurred any obligation or liability,
contingent or otherwise, for brokers' or finders' fees with respect to the
transactions contemplated in this Agreement for which Top Canada or the
Subsidiaries shall have any responsibility;
j) Indo Canada and Indo NZ are not aware of anything that would prohibit
either of them from obtaining or holding any well licences, authorizations
or other permits or licences related to the Assets with the relevant
governmental authorities.
6.3 Survival of Representations and Warranties
------------------------------------------
Each Party acknowledges that the other may rely on the representations and
warranties made by such party pursuant to Section 6.1 or 6.2. The
representations and warranties in Section 6.1 and 6.2 shall be true on the
Closing Date, and such representations and warranties shall continue in full
force and effect and shall survive the Closing Date for a period of one year ,
<PAGE>
Page 17
for the benefit of the Party for which such representations and warranties were
made.
6.4 No Additional Representations or Warranties by Top Canada
---------------------------------------------------------
Top Canada makes no representations or warranties to Indo Canada in addition to
those expressly set out in Section 6.1. Except and to the extent provided in
Section 6.1, Top Canada does not warrant title to the Assets or make
representations or warranties with respect to:
a) the quantity, quality or recoverability of Petroleum Substances
respecting the Leases;
b) any estimates of the value of the Shares, Assets, Subsidaries' Assets or
the revenues applicable to the future production from the Leases;
c) any engineering, geological or other interpretations or economic
evaluations respecting the Assets or the Subsidaries' Assets;
d) the rates of production of Petroleum Substances from the Leases;
e) the quality, condition or serviceability of the Assets or the
Subsidaries' Assets; or
f) the suitability of the use of the Assets or the Subsidaries' Assets for
any purpose.
7. LIABILITY AND INDEMNIFICATION
-----------------------------
7.1 Responsibility of Indo Canada
-----------------------------
Provided that the Closing has occurred, Indo Canada shall:
a) be liable to Top Canada for all losses, costs, damages and expenses
whatsoever which Top Canada may suffer, sustain, pay or incur; and
b) indemnify and save Top Canada and its directors, officers, servants,
agents, consultants and employees harmless from and against all claims,
liabilities, actions, proceedings, demands, losses, costs, damages and
expenses whatsoever which may be brought against or suffered by the Top
Canada, its directors, officers, servants, agents, consultants or
employees or which they may sustain, pay or incur;
<PAGE>
Page 18
as a direct result of any matter or thing arising out of, resulting from,
attributable to or connected with the Shares, Assets or Subsidaries' Assets and
occurring or accruing subsequent to December 31, 1999, including the
Environmental Matters, except any losses, costs, damages, expenses, claims,
liabilities, actions, proceedings and demands to the extent that the same either
are reimbursed or reimbursable by insurance maintained by Top Canada or the
Subsidiaries or are caused by the gross negligence or wilful misconduct of Top
Canada, the Subsidiaries, their directors, officers, servants, agents,
consultants, employees or assigns.
7.2 Responsibility of Top Canada
----------------------------
Subject to Section 7.3 and provided that Closing has occurred, Top Canada
shall:
a) be liable to Indo Canada for all losses, costs, damages and expenses
whatsoever which Indo Canada may suffer, sustain, pay or incur; and
b) indemnify and save Indo Canada and its directors, officers, servants,
agents, consultants and employees harmless from and against all claims,
liabilities, actions, proceedings, demands, losses, costs, damages and
expenses whatsoever which may be brought against or suffered by Indo
Canada, its directors, officers, servants, agents, consultants or
employees or which they may sustain, pay or incur;
as a direct result of any matter or thing arising out of, resulting from,
attributable to or connected with the Assets or the Subsidaries' Assets and
occurring or accruing prior to January 1, 2000, including the Environmental
Matters, except any losses, costs, damages, expenses, claims, liabilities,
actions, proceedings and demands to the extent that the same either are
reimbursed or reimbursable by insurance maintained by Indo Canada or are caused
by the gross negligence or wilful misconduct of Indo Canada, its directors,
officers, servants, agents, consultants, employees or assigns.
8. CLOSING
-------
Unless otherwise agreed in writing by the Parties, Closing shall take place at
the offices of Indo NZ in Wellington, New Zealand on the Closing Date.
8.1 Conditions to Closing
---------------------
It is a condition precedent to the Closing that both Parties are in receipt of
the Opinion .
8.2 Conditions for the Benefit of Indo Canada
-----------------------------------------
<PAGE>
Page 19
The obligation of Indo Canada to complete the purchase hereunder is subject to
the following conditions precedent:
a) There shall have been no damage to or alteration of any of the
Assets or the Subsidiaries' Assets from January 1, 2000 to the Closing
Date which, in Indo Canada's reasonable opinion, would materially and
adversely affect the value of the Assets or the Shares, except and to
the extent approved in writing by Indo Canada, provided that a change in
the prices at which Petroleum Substances may be sold shall, in no event,
be regarded as material damage to or an alteration of the Assets or the
Shares ;
b) Top Canada shall have performed or complied in all material respects
with each of the terms, covenants and conditions of this Agreement to be
performed or complied with by Top Canada prior to the Closing Date;
c) Top Canada shall have delivered to Indo Canada a certificate of a
senior officer of Top Canada; and
d) Top Canada shall have delivered the following to Indo Canada:
(i) the Deed , which has been executed by Top NZ;
(ii) all specific assignments, registerable transfers, novation
agreements, trust agreements and other instruments required to
convey the Assets and the Top Canada Loans to Indo Canada unless
and to the extent that Indo Canada allows Top Canada to deliver
such documents to Indo Canada at a later date;
(iii) the Shares duly executed for transfer by Top Canada to Indo Canada;
and
(iv) copies of all consents to disposition and waivers of preferential
rights of purchase or any similar restrictions obtained by Indo
Canada with respect to the sale of the Assets and the Shares to
Indo Canada;
(v) all rights of first refusal or other restrictions on the transfer,
sale or assignment of the Assets and the Shares shall have been
waived or complied with;
8.3 Conditions for Benefit of Top Canada
------------------------------------
The obligation of Top Canada to complete the sale hereunder is subject to the
following conditions precedent:
<PAGE>
Page 20
a) Indo Canada shall have performed or complied in all material respects
with each of the terms, covenants and conditions of this Agreement to be
performed or complied with by Indo Canada at or prior to the Closing Date;
b) Indo Canada shall have tendered to Top Canada the Purchase Price
including the GORR Agreements subject to any adjustments and any
alterations provided for herein;
c) Indo Canada shall have delivered to Top Canada a certificate of a senior
officer of Indo Canada;
d) Indo Canada shall have delivered the following to Top Canada:
(i) copies of all consents to disposition and waivers of preferential
rights of purchase or any similar restrictions obtained by Indo Canada
with respect to the AMG Securities, the Gondwana Shares, the Top
Canada Shares, and the Units to Top Canada; and
(ii) all rights of first refusal or other restrictions on the transfer,
sale or assignment of the AMG Securities, the Gondwana Shares, the Top
Canada Shares and the Units shall have been waived or complied with;
(iii) an exemption order of the Yukon Securities Commission permitting the
issuance of the Units; and
e) Indo Canada shall have delivered an opinion from Yukon counsel that
shareholder approval is not required to complete the sale of the Assets.
8.4 Waiver of Conditions
--------------------
The conditions contained in Sections 8.2 and 8.3 are for the sole benefit of
Indo Canada and Top Canada respectively. The Party for the benefit of which
such conditions have been included may waive any of them, in whole or in part,
by written notice to the other Party, without prejudice to any of the rights of
the Party waiving such condition
8.5 Failure to Satisfy Conditions
-----------------------------
If any of the conditions in Sections 8.2 or 8.3 have not been satisfied at or
before the Closing Date and such condition has not been waived by the Party for
the benefit of which such condition has been included, such Party may terminate
this Agreement by written notice to the other Party. A Party may not terminate
this Agreement in such a manner after Closing has occurred, and its remedies
<PAGE>
Page 21
thereafter, if any, with respect to the failure to satisfy such condition shall
be limited to damages.
9. POST-CLOSING ADMINISTRATION AND REQUIREMENT FOR TOP CANADA SHAREHOLDER
----------------------------------------------------------------------
APPROVAL
--------
9.1 Registration of Documents
-------------------------
Top Canada shall register promptly after Closing all documents in Section 8.2
which require registration. Indo Canada shall reimburse Top Canada for all
costs incurred in registering such documents and shall bear all costs of
preparing and registering any further assurances required to convey the Assets
to Indo Canada.
9.2 Indo Canada's Access to Documents
---------------------------------
Top Canada shall deliver to Indo Canada promptly after Closing originals of Top
Canada's and Top NZ's records, files, reports and data pertaining to the Assets
and the Subsidaries' Assets.
9.3 Top Canada Shareholder Approval
-------------------------------
The parties hereto acknowledge that TOP Canada has been advised that there is
uncertainty as to the legal requirement under theBusiness Corporations
Act(Yukon) for TOP Canada to obtain the approval of its shareholders and to
offerthem a dissent right with regards to the transactions contemplated by this
Agreement. Accordingly, the parties hereby agree that notwithstanding closing
of the transactions, TOP Canada shall forthwith seek ratification of this
Agreement at a general meeting of its shareholders and that in the event the TOP
Canada shareholders do not approve this Agreement by a requisite extraordinary
majority or in the event that a sufficient number of TOP Canada shareholders
exercise dissent rights which, in the opinion of TOP Canada acting reasonably,
makes the transaction financially impractical then the parties agree that TOP
Canada and its affiliates who are parties hereto shall have the right,
exercisable for seven days, to elect to rescind the transactions contemplated by
this Agreement or alternatively to seek judicial direction as to those elements
of the transaction which can be completed without requiring shareholders
consent. In such event the parties shall negotiate to replace this Agreement
with one that does actually receive either TOP Canada shareholders approval, an
unqualified legal opinion to the effect that it does not require TOP Canada's
shareholders' approval or judicial approval. TOP Canada agrees to use its best
efforts to promptly seek and obtain the approval of its shareholders for the
transactions contemplated hereby at a meeting to be convened for May 23, 2000.
Pending May 23, 2000 the parties shall not deal with the exchanged consideration
hereunder in a way which makes effective rescission hereof impossible and in
particular TOP Canada shall not deal with the Indo securities received and Indo
shall not sell, transfer, mortgage or otherwise encumber the Assets except with
<PAGE>
Page 22
the consent of TOP Canada which TOP Canada will give for all transactions which
can be said to be in the ordinary course of business.
10. CONFIDENTIALITY
---------------
10.1 Obligation to Maintain Confidential Information
-----------------------------------------------
Prior to the Closing Date and subject to the Regulations, Indo Canada and Top
Canada shall retain in confidence all information respecting the Assets and the
Subsidaries' Assets.
11. ARBITRATION
-----------
a) Insofar as the Parties are unable to agree on any matter which expressly
may be referred to arbitration hereunder, either Party may serve the other
Party written notice that it wishes such matter be referred to arbitration.
b) The Parties shall meet within 10 days of the receipt of a notice issued
pursuant to this section to attempt to agree on a single arbitrator
qualified by experience, education and training to hear the matter in
dispute. If the Parties are unable to agree on the selection of the
arbitrator, then each party shall select an arbitrator and the selected
arbitrators will select a third arbitrator. A decision of a majority of the
arbitrators shall be binding upon the Parties.
c) The arbitration shall proceed as soon as is practicable to hear and
determine the matter in dispute. The arbitrators will determine the manner
in which the arbitration is to be conducted.
d) The Parties shall provide such assistance and information as may be
reasonably necessary to enable the arbitrator to determine such matter.
12. ASSIGNMENT
----------
Prior to the Closing, neither Party may assign its interest in or under this
Agreement or to the Shares, the Assets or the Subsidaries' Assets without the
prior written consent of the other Party.
13 NOTICE
------
13.1 Service of Notice
-----------------
Notwithstanding anything to the contrary contained herein, all notices required
or permitted under this Agreement shall be in writing. Any notice to be given
<PAGE>
Page 23
hereunder shall be deemed to be served properly if served in any of the
following manners:
a) personally, by delivering the notice to the Party at the Party's address
for delivery. Personal service shall be deemed to be received by the
addressee when actually delivered, provided that such delivery shall be
during normal business hours on any day other than a Saturday, Sunday or a
statutory holiday in the Yukon. If delivery takes place on such a day or
outside of normal business hours, such notice shall be deemed to have been
received at the commencement of the addressee's first business day
following the time of the delivery;
b) by fax or telex directed to the Party on which it is being served at the
Party's address for delivery. A notice so served shall be deemed to
received by the addressee when actually received, if received during normal
business hours on any day other than a Saturday, Sunday or a statutory
holiday in the Yukon or at the commencement of the next ensuing business
day following transmission if receive during normal business hours;
c) by mailing it first class, registered post, postage prepaid, directed to
the Party on which it is to be served at that Party's address for delivery.
Notices so served shall be deemed to be received by the addressee at noon,
local time, on the earlier of the actual date received or the fourth (4th)
day following the mailing thereof (excluding Saturdays, Sundays and
statutory holidays in the Yukon).
14. PUBLIC ANNOUNCEMENTS
---------------------
14.1 Approval Required for Press Releases
------------------------------------
Subject to Section 11.1, the Parties shall cooperate with each other in
relaying to third parties information concerning this Agreement and shall
receive written approval from the other Party of all press releases and other
releases of information prior to publication which approval may not be
unreasonably withheld. However, nothing in this Section shall prevent a Party
from furnishing any information to any governmental agency, regulatory
authority, stock exchange on which the Party's securities are listed, or to the
public, insofar only as is required by the Regulations, securities laws, or
stock exchange requirements applicable to such Party. The Party which proposes
to make such a public disclosure shall, to the extent reasonably possible,
provide the other Party with a draft of such statement at a sufficient time
prior to its release to enable such other Party to review such draft and advise
that Party of any comments it may have with respect thereto.
<PAGE>
Page 24
15. MISCELLANEOUS PROVISIONS
------------------------
15.1 Further Assurances
------------------
At the Closing Date and thereafter as may be necessary, the Parties shall
execute, acknowledge and deliver such instruments and take such other actions as
may be reasonably necessary to fulfil their respective obligations under this
Agreement. Top Canada shall cooperate with Indo Canada as reasonably required to
secure execution by third parties of the documents referred to in Paragraph 9.2.
15.2 Governing Law
-------------
This Agreement shall be subject to and be interpreted, construed and enforced in
accordance with the laws of the Province of British Columbia.
15.3 Time
----
Time shall be of the essence in this Agreement.
15.4 No Amendment Except in Writing
------------------------------
This Agreement may be amended only by written instrument executed by the Parties
hereto.
15.5 Waiver Must be in Writing
-------------------------
No waiver by any Party of any breach of any of the terms, conditions,
representations or warranties contained in this Agreement shall take effect or
be binding upon that Party unless the waiver is expressed in writing under the
authority of that Party. Any waiver so given shall extend only to the
particular breach so waived and shall not limit or affect any rights with
respect to any other or future breach.
15.6 Consequences of Termination
---------------------------
If this Agreement is terminated in accordance with its terms prior to Closing,
then, except for the provisions of Section 10, the Parties shall be released
from all of their obligations under this Agreement. If this Agreement is so
terminated, Indo Canada shall promptly return to Top Canada all materials
delivered to Indo Canada by Top Canada hereunder, together with all copies of
them that may have been made by or for Indo Canada.
15.7 Supersedes Prior Agreements
---------------------------
<PAGE>
Page 25
This Agreement supersedes and replaces all other agreements between the Parties
with respect to the Assets and expresses the entire agreement of the Parties
with respect to the transactions contained in this Agreement.
15.8 Enurement
---------
The provisions of this Agreement shall be binding upon and enure to the benefit
of the Parties and their respective successors and permitted assigns.
15.9 Counterparts
------------
This Agreement may be executed in counterparts and/or by facsimile, which, when
taken together, shall form a binding agreement.
<PAGE>
Page 26
15.10 Income Tax Elections
--------------------
With respect to the sale of the Shares from Top Canada to Indo Canada, the
parties agree to execute and file appropriate elections under the Income Tax
----------
Act, Canada, in the manner and within the time frames specified in the Income
- ----------- ------
Tax Act, Canada and including such elected amount as is determined by Top
- -------
Canada.
IN WITNESS WHEREOF the Parties have duly executed this Agreement.
INDO-PACIFIC ENERGY LTD. TRANS ORIENT PETROLEUM LTD.
Per: /s/David J. Bennett Per: /s/Bernhard J. Zinkhofer
---------------------------- -------------------------
March 30, 2000
Per: /s/Jennifer Lean Per:
---------------------------- -------------------------
TRANS-ORIENT PETROLEUM TRANS-ORIENT PETROLEUM
(AUST) PTY LTD. (PNG) LIMITED
Per: /s/Jennifer Lean Per: /s/Jennifer Lean
---------------------------- -------------------------
Per: Per:
---------------------------- -------------------------
TRANS-ORIENT PETROLEUM INDO-PACIFIC ENERGY (NZ)
(NZ) LIMITED LIMITED
Per: /s/Jennifer Lean Per: /s/Jennifer Lean
---------------------------- -------------------------
Per: Per:
---------------------------- -------------------------
<PAGE>
SCHEDULE "A"
Schedule of Trans-Orient Permits and Royalties
- --------------------------------------------------------------------------------
PERMIT EQUITY % ROYALTY % EXPIRY DATE
NEW ZEALAND (FIRST TERM)
- --------------------------------------------------------------------------------
PEP 38328 22.5% 2 [1] July 1, 2001
- --------------------------------------------------------------------------------
PEP 38332 20 2 June 24, 2002
- --------------------------------------------------------------------------------
PEP 38335 15 2 November 29, 2003
- --------------------------------------------------------------------------------
PEP 38339 50 2 November 26, 2003
- --------------------------------------------------------------------------------
PEP 38720 50 2 September 2, 2001
- --------------------------------------------------------------------------------
PEP 38723 40 2 October 30, 2002
- --------------------------------------------------------------------------------
PEP 38256 35 [2][3] 2 August 25, 2002
- --------------------------------------------------------------------------------
[1] Except becomes 5% on Petroleum pool of Whakatu prospect area.
[2] Subject to AMG option, which can reduce to 10% carried equity.
[3] Subject to permit requirement to relinquish 50% of land by August 25,
2000.
<PAGE>
SCHEDULE "B"
Schedule of Trans-Orient Permits and Royalties
- --------------------------------------------------------------------------------
PERMIT EQUITY % ROYALTY % EXPIRY DATE
AUSTRALIA AND ZOCA (FIRST TERM)
- --------------------------------------------------------------------------------
ZOCA 96-16 10% [1] 1 November 14, 2002
- --------------------------------------------------------------------------------
AC/P 26 30 1 February 26, 2004
- --------------------------------------------------------------------------------
[1] Interests confirmed by Timor Gap Joint Authority on February 11, 2000.
- --------------------------------------------------------------------------------
PERMIT EQUITY % ROYALTY % EXPIRY DATE
PAPUA NEW GUINEA (FIRST TERM)
- --------------------------------------------------------------------------------
PPL 192 20 1 January 28, 2003
- --------------------------------------------------------------------------------
PPL 157 7.5 1 December 22, 2004
- --------------------------------------------------------------------------------
PPL 215 40 1 May 6, 2005
- --------------------------------------------------------------------------------
PPL 213 5 1 February 11, 2005
- --------------------------------------------------------------------------------
<PAGE>
Dated 2000
SCHEDULE C
INDO-PACIFIC ENERGY (NZ) LIMITED
TRANS-ORIENT PETROLEUM COMPANY (NZ)
LIMITED
DEED OF ASSIGNMENT AND COVENANT
TRANS-ORIENT ASSETS (NEW ZEALAND)
<PAGE>
THIS DEED is made 2000
BETWEEN TRANS-ORIENT PETROLEUM COMPANY (NZ) LIMITED of 284 Karori Road,
Wellington, New Zealand ("TOP(NZ)")
AND INDO-PACIFIC ENERGY (NZ) LIMITED of 284 Karori Road,
Wellington, New Zealand ("Indo-Pacific")
RECITALS
A. Indo-Pacific and TOP(NZ) and certain other parties have entered into an
Agreement for Sale and Purchase dated the same date as this Deed, by which
agreement TOP(NZ) agrees to transfer all its interests in New Zealand
petroleum exploration permits ("Assigned Interests") to Indo-Pacific,
being:
PEP 38256 35%
PEP 38328 22.5%
PEP 38332 20%
PEP 38335 15%
PEP 38339 50%
PEP 38720 50%
PEP 38723 40%
B. As part of the transfer of the Assigned Interests, Indo-Pacific has
agreed to grant back to TOP(NZ) a 2% overriding royalty over each Assigned
Interest, and a 5% overriding royalty over a certain area of PEP 38328.
C. In order to comply with the terms of the Sale and Purchase Agreement and
of the joint venture agreements governing the Assigned Interests, the
Parties have entered into this Deed.
AGREEMENT
1.1 DEFINITIONS AND INTERPRETATION
DEFINITIONS: In this Deed (including the Recitals), unless the context otherwise
requires:
"Act" means the Crown Minerals Act (NZ) 1991 and any regulations made thereto.
"Assigned Interest" means, in relation to each Permit, the percentage interest
owned by TOP(NZ) in the Permit and the unincorporated joint venture formed to
explore the Permit Area.
"Deed" means this deed between the Parties.
<PAGE>
"EFFECTIVE DATE" means settlement of the Sale and Purchase Agreement, intended
to be 29 February 2000.
"JOINT VENTURE PARTIES" means, in relation to each Permit, the parties other
than TOP(NZ) in the unincorporated joint venture formed to explore the Permit
Area.
"MINISTER" means the Minister of Energy as defined under the Act who administers
the approval and registration procedure under the Act.
"Parties" means each of Indo-Pacific and TOP(NZ).
"PERMIT" means each petroleum exploration permit listed in Recital A or any
renewal or extension thereof and any mining permit granted pursuant thereto.
"PERMIT AREA" means, in relation to each Permit, the land for the time being
comprising the Permit.
"Royalty" means, in relation to each Permit, the right to receive the value from
Petroleum produced from the Permit Area, created by clause 5 of this Deed.
1.2 INTERPRETATION: In this Deed, unless a contrary intention appears:
(a) a reference to this Deed is a reference to this Deed as amended,
varied, novated or substituted from time to time;
(b) a reference to any legislation or any provision of any legislation
includes:
(i) all regulations, orders or instruments issued under the
legislation or provision; and
(ii) any modification, consolidation, amendment, re-enactment,
replacement or codification of such legislation or provision;
(c) a word:
(i) importing the singular includes the plural and vice versa; and
(ii) denoting an individual includes corporations, firms,
unincorporated bodies, authorities and instrumentalities;
(d) a reference to a Party to this Deed or any other instrument includes
that Party's executors, administrators, successors and permitted
assigns;
(e) words and expressions used in this Deed which are used in the Act
shall where the context admits have the same meaning as they have in
the Act.
<PAGE>
2. APPROVAL
2.1 THIS DEED AND the assignments and the grant of Royalties provided for by
it are conditional upon the consent of the Minister being given to this
Deed and the assignments and royalties pursuant to the Act. The assignment
and the grant of Royalties evidenced by this Deed will take effect on and
from the Effective Date, and will relate back to that date if the date of
obtaining approval for such dealings in accordance with the Act, is later
than settlement of the Sale and Purchase Agreement.
2.2 The Parties must use all reasonable endeavours to have all dealings
evidenced by this Deed approved as contemplated by clause 2.1 as
expeditiously as possible.
2.3 If any dealing evidenced by this Deed is not approved and registered in
accordance with clause 2.1 within 12 months from the Effective Date (or
such other date as the Parties may agree), any Party may terminate this
Deed at any time by notice to the other Parties and this Deed will
terminate on the receipt of that notice.
2.4 On termination of this Deed under clause 2.3, the Parties must execute
all documents and do all other things necessary or desirable to place each
other in the same position as they would have been had this Deed not been
executed or acted upon.
3. ASSIGNEE
3.1 With effect on and from the Effective Date, TOP(NZ) assigns to Indo-
Pacific and Indo-Pacific assumes the obligations and liabilities in
respect of the Assigned Interests arising on and from the Effective Date
(excluding liabilities and obligations arising prior to the Effective
Date) and shall be entitled to the full benefit and advantage of
Assigned Interests and all rights thereunder to the same extent to which
TOP(NZ) would have been so entitled had the Assigned Interests not been
assigned to Indo-Pacific.
3.2 Indo-Pacific covenants to each other Joint Venture Party to indemnify
and keep indemnified such other Joint Venture Parties against all
liability which each of them may incur by reason of any breach or non-
observance by Indo-Pacific of any of the provisions of this Deed.
4. ASSIGNOR
4.1 TOP(NZ) covenants and agrees with the Joint Venture Parties including
Indo-Pacific to duly and punctually discharge all liabilities and perform
all obligations incurred in respect of the Assigned Interests prior to the
Effective Date (excluding liabilities and obligations scheduled for
performance on or after the Effective Date) regardless of whether such
liability and obligations arise before or after the Effective Date.
4.2 TOP(NZ) shall indemnify and hold the Joint Venture Parties harmless from
and against all liability which each of them may incur by reason of any
breach or non-observance by TOP(NZ) of this Deed.
5. GRANT OF ROYALTY
<PAGE>
5.1 UPON AND FROM THE EFFECTIVE DATE, INDO-PACIFIC grants back to TOP(NZ),
without FURTHER FORMAL ACTION THAN THIS DEED, and agrees to pay on a
monthly basis to TOP(NZ), its successors and assigns, an overriding
royalty over each Assigned Interest, in the amount of:
(a) 2% of the Petroleum Value as defined in Section 6 produced from the
relevant Permit Area;
(b) except, in relation to any well drilled within one kilometre of the
well known as Whakatu-I in the Permit Area of PEP 38328, 5% of the
Petroleum Value as defined in Clause 6 produced from such well(s)
to which Indo Pacific is entitled by virtue of the relevant Assigned
Interest in the Permit excluding that Petroleum which is-
(c) flared or unavoidably lost, or
(d) used in the operations for the purposes of production, transport or
transmission to point of sale (which shall be the same point of sale as
is used for valuation purposes under Clause 6); or
(e) returned to a natural reservoir.
5.2 TOP(NZ) may not take the Royalty in kind.
5.3 Notwithstanding that different Petroleum may be valued by different
methods, the Royalty shall be calculated as a single royalty on the value
of all Petroleum to which it applies.
6. DETERMINATION OF PETROLEUM VALUE
6.1 The value of Petroleum produced is the market value of that Petroleum as
if sold to an arm's length purchaser at the wellhead during the month in
which such Petroleum was produced. The value of Petroleum produced shall
be calculated according to the nature of that Petroleum and the manner in
which it is sold in accordance with the following provisions of this
Clause 6.
6.2 For oil, distillate, condensate and other liquid hydrocarbons:
(a) the value of the Petroleum at the wellhead shall be calculated on the
basis of the FOB price (as defined in Incoterms 1980) received by
Indo-Pacific at the point of sale, less costs attributable to that
Petroleum for treating, and for transporting, handling and storing the
Petroleum between the wellhead and the FOB point of sale, less any
Crown Royalty required to be paid to the Government and less an
administration fee of 2.5% of the FOB price received by Indo-Pacific.
Where any oil, distillate, condensate or other liquid hydrocarbons
are sold by a Grantor otherwise than on an FOB basis, such adjustments
shall be made to the actual price received by Indo-Pacific to
correctly reflect the FOB price which would have been received by
Indo-Pacific had those hydrocarbons sold by Indo-Pacific on an FOB
basis; and
<PAGE>
(b) in calculating the value of the Petroleum at the wellhead, reference
shall be made to the price received by Indo-Pacific in arm's length
sales to non-affiliated third parties during the applicable month (on
an FOB basis or adjusted, if necessary, to an FOB basis). If no such
sales were made by Indo-Pacific during the applicable month, reference
shall be made to arm's length sales transactions between other
participation interest holders in the mining permit and non-affiliated
third parties. If there were no such sales as described above,
reference shall be made to the value of the Petroleum as agreed or
determined in accordance with applicable legislation for the purposes
of the payment of any applicable government royalty netted back to a
wellhead value by deduction of all costs attributable to treating,
transporting, handling and delivering the Petroleum between the
wellhead and the point at which the value of the Petroleum is agreed
or determined for the purpose of calculation of the applicable
government royalty, and less any Crown Royalty required to be paid to
the Government and less an administration fee of 2.5% of the FOB
price received by Indo-Pacific.
6.3 For natural gas, natural gas liquids and other Petroleum produced in a
gaseous state:
(a) the value of that Petroleum at the wellhead shall be calculated on the
basis of the price received by Indo-Pacific lesscosts of treating,
transporting, handling and delivering that Petroleum between the wellhead
and the point of sale and less any Crown Royalty required to be paid to
the Government and less an administration fee of 2.5% of the price
received by Indo-Pacific; and
in calculating the value of that Petroleum at the wellhead, reference shall be
made to the price received by Indo-Pacific in arm's length sales to non-
affiliated third parties during the applicable month. If no such sales were
made by Indo-Pacific during the applicable month, reference shall be made to
arm's length sales transactions between other participating interest holders in
the mining permit and non-affiliated third parties. If there were no such sales
as described above, reference shall be made to the value of such Petroleum as
agreed or determined in accordance with applicable legislation for the purposes
of the payment of any applicable government royalty netted back to a wellhead
value by deduction of all costs attributable to treating, transporting, handling
and delivering the Petroleum between the wellhead and the point at which the
value of the Petroleum is agreed or determined for the purpose of the
calculation of the applicable government royalty, and less any Crown Royalty
required to be paid to the Government and less an administration fee of 2.5% of
the agreed or determined value of such Petroleum. 6.4 For natural gas liquids,
the value of that Petroleum at the wellhead shall be calculated on the basis of
the price received by Indo-Pacific less:
(a) any costs to be deducted by virtue of Clause 6.3; and
(b) any further costs attributable to the treating, extraction, storing,
handling and delivery of those natural gas liquids between the wellhead
and the point of sale.
7. OTHER COSTS
7.1 In determining the value of Petroleum produced, no deduction shall be
made for the cost and expense of exploring for, exploiting and producing
the Petroleum to which it applies, except as expressly permitted by the
provisions of Clause 6.
<PAGE>
7.2 TOP(NZ) shall pay income tax, other taxes, government royalties (other
than the royalty payable to the Government of New Zealand as grantor of
the Permit in terms OF THE ACT ("Crown Royalty")) and other government
levies (other than production related levies, if any) assessed against
the royalties payable to TOP(NZ) under this Deed.
7.3 Indo-Pacific shall be responsible for payment of the Crown Royalty
payable in respect of the Petroleum produced from the Permit Area to which
Indo-Pacific is entitled by virtue of the relevant Assigned Interest in
the Permit.
7.4 New Zealand Goods and Services Tax, if payable in respect of the Royalty
amounts payable to TOP(NZ), shall be paid by Indo-Pacific in addition to
the amount payable determined in accordance with this clause 7.
8. ACCOUNTS AND PAYMENT
8.1 Not later than 45 days after the end of each month during which the
production occurred of Petroleum for which payment of the Royalty is due,
Indo-Pacific shall pay to TOP(NZ) the Royalty payable in relation to that
Petroleum in United States dollars, or where so requested (on not less
than 15 days prior to written notice by TOP(NZ)) in the equivalent in New
Zealand currency calculated at the date of payment.
8.2 At the time of making any payment under Clause 8. 1, Indo-Pacific shall
provide TOP(NZ) with a written report in such form as TOP(NZ) may
reasonably require detailing the volume of the Petroleum attributable to
the Assigned Interest purchased, sold or retained by Indo-Pacific and the
value of such Petroleum determined in accordance with Clause 6 and details
of the basis of determination of such value.
8.3 Indo-Pacific shall keep or cause to be kept proper records and accounts
in relation to all Petroleum attributable to the Assigned Interest
retained, purchased or sold by it. TOP(NZ) shall be entitled at all
reasonable times during the term of this Deed and for a period of twelve
months after its termination to have such records and accounts audited by
a chartered accountant nominated by it for the purpose of verifying the
correctness of the payments made to TOP(NZ) by Indo-Pacific under this
Deed.
8.4 Except as provided otherwise in this Deed or by consent between the
parties, all payments, prices and calculations under this Deed shall be in
United States dollars.
9. DEALINGS WITH PERMIT
9.1 Nothing in this Deed shall limit the rights of Indo-Pacific, subject to
the following provisions of Clause 9, to release or transfer any or all of
its rights in the Permit or to enter into any agreement with respect to
the Permit permitted by law.
9.2 The Royalty created by this Deed attaches to the Assigned Interest of
Indo-Pacific and its successors in interest in the Permit. Any transfer of
the rights of Indo-Pacific to any third party shall be subject to the
Royalty and shall be subject to the assignee covenanting with TOP(NZ) to
assume and perform all obligations on Indo-Pacific's part to be performed
under this Deed. No transfer shall result in any reduction of the Royalty
or derogate in any way from the terms and conditions upon which it is
granted. However, any assignment or transfer that is made subject to this
Deed shall relieve any assignor or transferor from any and all obligations
provided for in this Deed that attach to the interest assigned or
<PAGE>
transferred, except that the assignor or transferor shall remain liable
for all Royalties payable under this Deed in respect of Petroleum produced
up to the date of the assignment or transfer.
9.3 If Indo-Pacific or any assignee of Indo-Pacific elects to surrender or
withdraw from the Permit then:
(a) it shall give notice of that intention to TOP(NZ) to be received at
least forty-five (45) days before the date upon which the surrender is
to become effective; and
(b) if TOP(NZ) notifies Indo-Pacific within twenty (20) days after receipt
of Indo-Pacific's notice, that TOP(NZ) wishes to receive an assignment
of Indo-Pacific's interest, Indo-Pacific will, within ten (10) days
after receiving TOP(NZ)'s notice, tender an assignment in a form
acceptable to TOP(NZ) and in accordance with this Deed.
9.4 An assignment pursuant to Clause 9.3 shall:
(a) be subject to pro-rata assignments to other Royalty holders (if any)
which may in like manner request such an assignment; and
(b) be subject to pro-rata assignments to the other holders of interests
in the Permit upon exercise of any pre-emptive rights applying upon
assignment of Indo-Pacific's interest pursuant to the provisions of
any joint venture operating agreement governing operations in relation
to the Permit Area; and
(c) provide that the assignee shall assume all obligations under the
Permit not previously fulfilled by Indo-Pacific (if any); and
(d) be subject to such approvals as may be required under the Act and
other applicable laws and regulations.
9.5 On assignment of any interest of Indo-Pacific in the Permit to TOP(NZ),
TOP(NZ) will give an indemnity to Indo-Pacific, holding Indo-Pacific
harmless from any future responsibility in respect of the Permit to the
extent of the interest so assigned to TOP(NZ).
10. TERMINATION
10.1 The Royalty granted by this Deed shall terminate upon termination or
expiry of the Permit.
11. NATURE OF AGREEMENT
11.1 This Deed shall not be construed as creating any kind of partnership,
joint venture or undertaking between the Parties and shall be binding on
and inure to the benefit of each of the Parties, their respective
successors and assigns. All references to Indo-Pacific and TOP(NZ) shall
be deemed to include references to their respective successors and
assigns.
12. REPORTS ON PERMIT
<PAGE>
12.1 Indo-Pacific shall furnish to TOP(NZ) upon request such information as
TOP(NZ) may reasonably request from time to time regarding the work
carried out in the Permit Area, except that Indo-Pacific shall not be
obliged to disclose to TOP(NZ) any information which is not generally
available to parties other than the parties to the Permit and the
disclosure of which to TOP(NZ) could prejudice the financial interests of
Indo-Pacific. Notwithstanding anything else in this Deed, if Indo-Pacific
elects to surrender or withdraw from the Permit, it shall provide to TOP
(NZ) all information TOP(NZ) may require for the purpose of deciding
whether to exercise its pre-emptive rights under Clause 9.3(b) of this
Deed.
12.2 The data and information coming into TOP(NZ)'s possession under this
Deed shall be deemed confidential and shall not be disclosed to third
parties without the consent of Indo-Pacific except as required by law.
13. NOTICES
13.1 The address of Indo-Pacific and the address of TOP(NZ) for the purpose
of this Deed shall be the respective addresses specified on the first page
of this Deed.
13.2 Notices between the Parties shall be in writing (including facsimile
transmission) unless otherwise agreed and shall be sent or delivered to
the other Party at its specified address or such other address as may be
notified by that Party.
14. DISPUTE RESOLUTION
14.1 If there is a dispute between the Parties as to the value of any
Petroleum produced or the allowances for costs to be made under Clause 6
of this Deed then, at the option of either Party, the dispute may be
referred to and determined by arbitration in New Zealand before one
arbitrator to be appointed by the parties if they can agree on one.
14.2 If the parties cannot agree on an arbitrator, one shall be appointed by
the President of the Wellington District Law Society. The provisions of
the Arbitration Act 1996 shall apply to any arbitration under this Clause
14 except that in every case the arbitrator shall give reasons in writing
for his decision and as part of his award.
15. MISCELLANEOUS
15.1 This Deed will be binding upon and enure to the benefit of the Parties,
the Joint Venture Parties, and their respective successors and each person
who derives from them title to an interest in a Permit.
15.2 This Deed will be governed by and construed in accordance with laws of
New Zealand for the time being in force.
15.3 The Parties submit to the non-exclusive jurisdiction of the Courts of
New Zealand and all courts competent to hear appeals therefrom.
15.4 The Parties will bear their own legal costs arising out of the
preparation of this Deed, but Indo-Pacific will bear all consent fees
payable on this Deed and any document directly related to or consequential
upon this Deed.
<PAGE>
15.5 Each of the Parties must take all such steps, execute all such documents
and do all such acts and things as may be reasonably required by any other
Party to give effect to the intent of this Deed.
15.6 If any party executes this Deed by means of an attorney then such attorney
states that he or she has no notice of the revocation of that power of
attorney.
EXECUTED by the parties as a Deed.
Executed for and on
behalf of INDO-PACIFIC
ENERGY (NZ) LIMITED by
its duly authorised
representatives in
the presence of-
- ----------------------------------- ----------------------------------
Signature of witness Signature of representative
- ----------------------------------- ----------------------------------
Name of witness Name of representative
Executed for and on
behalf of TRANS-ORIENT
PETROLEUM COMPANY (NZ)
LIMITED by its duly
authorized representative
in the presence of:
- ----------------------------------- ----------------------------------
Signature of witness Signature of representative
- ----------------------------------- ----------------------------------
Name of witness Name of representative
<PAGE>
Dated 2000
SCHEDULE D
INDO-PACIFIC ENERGY LTD.
TRANS-ORIENT PETROLEUM LIMITED
GROSS OVERRIDING ROYALTY
AUSTRALIA
<PAGE>
THIS AGREEMENT is made effective 2000
BETWEEN TRANS-ORIENT PETROLEUM LTD. of Suite 1200,1090 West
Pender Street, Vancouver BC V6E2N7, Canada ("TOP")
AND INDO-PACIFIC ENERGY LTD. of Suite 1200,1090 West Pender
Street, Vancouver BC V6E2N7, Canada ("INDO CANADA")
RECITALS
A. Indo-Canada and TOP and certain other parties have entered into an
Agreement of Purchase and Sale dated for reference January 30, 2000, by
which agreement TOP agreed to transfer all its shareholder interest in
Trans-Orient Petroleum (Aust) Pty Ltd ACN 076 410 994 ("Top Aust") to
Indo-Canada;
B. As part of the transfer contained in the Agreement of Purchase and Sale,
Indo Canada has agreed to grant to TOP a 1 % overriding royalty (limited to
Top's interest in these properties at the Effective Date) over each of the
properties known as AC/P 26 and Zoca 96-16 (held by Top Aust's wholly owned
subsidiary Zoca 96-16 Pty Ltd. ACN 076 878 236 ("Zoca") .
C. In order to comply with the terms of the Agreement of Purchase and Sale
the Parties have entered into this Agreement.
AGREEMENT
1.1 DEFINITIONS AND INTERPRETATION
DEFINITIONS: In this Agreement (including the Recitals), unless the context
otherwise requires:
"Agreement" means this gross overriding royalty agreement between the Parties.
"Crown Royalty" means any royalty payable to a government pursuant to
legislation applicable in Australia.
"Effective Date" means settlement of the Agreement of Purchase and Sale,
intended to be 29 February 2000 or such other date as Top and Indo Canada may
mutually determine.
"INDO-PACIFIC" means collectively Indo-Canada and its subsidiary resulting
from the performance of the said Agreement of Purchase and Sale, namely Top Aust
and the subsidiary of Top Aust namely Zoca 96-16 Pty Ltd (both Top Aust and Zoca
96-16 Pty Ltd being incorporated in Australia).
<PAGE>
"LEGISLATION" means the Petroleum (Submerged Lands) Act 1967 of Australia
and any regulations made thereto and the Zone of Co-operation Treaty governing
Petroleum activities in the Timor Sea between Australia and Timor and any
regulations made thereto.
"MINISTER" means, where applicable, any Minister of the Crown in right of
the Commonwealth or a State of Australia and the Joint Authority administering
the Zone of Co-operation Treaty governing the asset held by Zoca in each case
being the responsible authority defined under the Legislation which administers
the approval and registration procedure under the Legislation.
"PARTIES" means each of TOP and Indo-Pacific.
"PERMIT" means each Petroleum exploration permit listed in Recital B or any
renewal or extension thereof and any production permit granted pursuant thereto.
"PERMIT AREA" means, in relation to each Permit, the geographic area for the
time being comprising the Permit.
"PETROLEUM" means petroleum, natural gas, sulphur and all other minerals or
substances the right to explore for which, or an interest in which is granted
pursuant to the Permit.
"PETROLEUM VALUE" means the market value of that Petroleum as if sold to an
arm's length purchaser at the wellhead during the month in which such Petroleum
was produced. The value of Petroleum produced shall be calculated according to
the nature of that Petroleum and the manner in which it is sold in accordance
with the following provisions of this definition.
For oil, distillate, condensate and other liquid hydrocarbons:
(a) for the value of the Petroleum at the wellhead shall be calculated on
the basis of the FOB price (as defined in Incoterms 1980) received by
Indo-Pacific at the point of sale, less costs attributable to that
Petroleum for treating, and for transporting, handling and storing the
Petroleum between the wellhead and the FOB point of sale, less any Crown
Royalty required to be paid to any applicable regulatory authority and
under the Legislation and less an administration fee of 2.5% of the FOB
price received by Indo-Pacific. Where any oil, distillate, condensate or
other liquid hydrocarbons are sold by Indo Pacific other than on an FOB
basis, such adjustments shall be made to the actual price received by
Indo-Pacific to correctly reflect the FOB price which would have been
received by Indo-Pacific had those hydrocarbons sold by Indo-Pacific on an
FOB basis; and
(b) in calculating the value of the Petroleum at the wellhead, reference
shall be made to the price received by Indo-Pacific in arm's length sales
to non-affiliated third parties during the applicable month (on an FOB
basis or adjusted, if necessary, to an FOB basis). If no such sales were
made by Indo-Pacific during the applicable month, reference shall be made
to arm's length sales transactions between other participation interest
holders in the Permit and non-affiliated third parties. If there were no
such sales as described above, reference shall be made to the value of the
Petroleum as agreed or determined in accordance with applicable
<PAGE>
legislation for the purposes of the payment of any applicable regulatory
authority royalty netted back to a wellhead value by deduction of all
costs attributable to treating, transporting, handling and delivering the
Petroleum between the wellhead and the point at which the value of the
Petroleum is agreed or determined for the purpose of calculation of the
applicable regulatory royalty, and less any Crown Royalty required to be
paid to that regulatory authority and under the Legislation and less an
administration fee of 2.5% of the FOB price received by Indo-Pacific.
For natural gas, natural gas liquids and other Petroleum produced in a gaseous
state:
the value of that Petroleum at the wellhead shall be calculated on the basis
of the price received by Indo-Pacific less costs of treating, transporting,
handling and delivering that Petroleum between the wellhead and the point of
sale and less any Crown Royalty required to be paid to the applicable
regulatory authority and under the Legislation and less an administration
fee of 2.5% of the price received by Indo-Pacific; and
in calculating the value of that Petroleum at the wellhead, reference shall be
made to the price received by Indo-Pacific in arm's length sales to
non-affiliated third parties during the applicable month. If no such sales
were made by Indo-Pacific during the applicable month, reference shall be made
to arm's length sales transactions between other participating interest
holders in the Permits and non-affiliated third parties. If there were no such
sales as described above, reference shall be made to the value of such
Petroleum as agreed or determined in accordance with applicable legislation
for the purposes of the payment of any applicable government royalty netted
back to a wellhead value by deduction of all costs attributable to treating,
transporting, handling and delivering the Petroleum between the wellhead and
the point at which the value of the Petroleum is agreed or determined for the
purpose of the calculation of the applicable government royalty, and less any
Crown Royalty required to be paid to the Government and under the Legislation
and less an administration fee of 2.5% of the agreed or determined value of
such.
For natural gas liquids, the value of that Petroleum at the wellhead shall be
calculated on the basis of the price received by Indo-Pacific less:
(a) any costs to be deducted by virtue of this definition; and
(b) any further costs attributable to the treating, extraction, storing,
handling and delivery of those natural gas liquids between the wellhead
and the point of sale.
"ROYALTY" means, in relation to each Permit, the right to receive the value from
Petroleum produced from the Permit Area, created by clause 3 of this Agreement.
1.2 INTERPRETATION: In this Agreement, unless a contrary intention appears:
(a) a reference to this Agreement is a reference to this Agreement as
amended, varied, novated or substituted from time to time;
(b) a reference to any legislation or any provision of any legislation
includes:
<PAGE>
(i) all regulations, orders or instruments issued under the
legislation or provision; and
(ii) any modification, consolidation, amendment, re-enactment,
replacement or codification of such legislation or provision;
(c) a word:
(i) importing the singular includes the plural and vice versa; and
(ii) denoting an individual includes corporations, firms,
unincorporated bodies, authorities and instrumentalities;
(d) a reference to a Party to this Agreement or any other instrument
includes that Party's executors, administrators, successors and
permitted assigns;
(e) words and expressions used in this Agreement which are used in the
Legislation shall where the context admits have the same meaning as
they have in the Legislation.
2. APPROVAL
2.1 This Agreement and the grant of Royalties provided for by it are
conditional upon the consent of each Minister being given to this
Agreement and the assignments and royalties pursuant to the Legislation.
The grant of Royalties evidenced by this Agreement will take effect on and
from January 1, 2000 and will relate back to that date if the date of
obtaining approval for such dealings in accordance with the Legislation,
is later than settlement of the Sale and Purchase Agreement.
2.2 The Parties must use all reasonable endeavours to have all dealings
evidenced by this Agreement approved as contemplated by clause 2.1 as
expeditiously as possible.
2.3 If any dealing evidenced by this Agreement is not approved and
registered in accordance with clause 2.1 within 12 months from the
Effective Date (or such other date as the Parties may agree), any Party
may terminate this Agreement at any time by notice to the other Parties
and this Agreement will terminate on the receipt of that notice.
2.4 On termination of this Agreement under clause 2.3, the Parties must
execute all documents and do all other things necessary or desirable to
place each other in the same position as they would have been had this
Agreement not been executed or acted upon.
3. GRANT OF ROYALTY
3.1 On and from January 1, 2000, Indo Canada grants back to TOP, its
successors and assigns, without further formal action other than this
Agreement, and agrees to pay on a monthly basis, an overriding royalty
over each Permit in the amount of I% of the Petroleum Value produced from
the relevant Permit Area excluding that Petroleum which is:
<PAGE>
(a) flared or unavoidably lost, or
(b) used in the operations for the purposes of production, transport or
transmission to point of sale (which shall be the same point of sale
as is used for valuation purposes under the definition of Petroleum
Value); or
(c) returned to a natural reservoir.
3.2 TOP may not take the Royalty in kind.
3.3 Nothwithstanding that different Petroleum may be valued by different
methods, the Royalty shall be calculated as a single royalty on the all
Petroleum Value to which it applies.
4. OTHER COSTS
4.1 In determining the Petroleum Value produced, no deduction shall be made
for the cost and expense of exploring for, exploiting and producing the
Petroleum to which it applies, except as expressly permitted by the
definition of Petroleum Value.
4.2 TOP shall pay income tax, other taxes, government royalties (other than
the royalty payable to the Government of Australia and under the
Legislation as grantor of the Permit in terms of the Legislation ("Crown
Royalty")) and other government levies (other than production related
levies, if any) assessed against the royalties payable to TOP under this
Agreement.
4.3 Indo-Canada shall be responsible for payment of the Crown Royalty
payable in respect of the Petroleum produced from the Permit Area to which
Indo-Pacific is entitled (whether directly or indirectly) by virtue of the
Agreement of Purchase and Sale.
4.4 Australian Goods and Services Tax, if payable in respect of the Royalty
amounts payable to TOP, shall be paid by Top in addition to the amount
payable determined in accordance with this clause 4.
5. ACCOUNTS AND PAYMENT
5.1 Except as provided otherwise in this Agreement or by consent between the
parties, all payments, prices and calculations under this Agreement shall
be in United States dollars, or where so requested (on not less than 15
days prior written notice by TOP) in the equivalent of another
internationally tradable currency calculated at the date of payment.
5.2 Not later than 45 days after the end of each month during which the
production of Petroleum occurred for which payment of the Royalty is due,
Indo-Canada shall pay to TOP the Royalty payable in relation to that
Petroleum.
5.3 At the time of making any payment under Clause 5.2, Indo-Canada shall
provide TOP with a written report in such form as TOP may reasonably
require detailing the volume of the Petroleum attributable to a Permit,
the Petroleum Value, and details of the basis of determination of such
value.
<PAGE>
5.4 Indo-Pacific shall keep or cause to be kept proper records and accounts
in relation to all Petroleum attributable to the Permits. TOP shall be
entitled at all reasonable times during the term of this Agreement and for
a period of twelve months after its termination to have*such records and
accounts audited by a chartered accountant nominated by it for the purpose
of verifying the correctness of the payments made to TOP by Indo Canada
under this Agreement.
6. DEALINGS WITH PERMIT
6.1 Nothing in this Agreement shall limit the rights of Indo Canada, subject
to the following provisions of Clause 6, to release or transfer any or all
of its rights in Top Aust or in Zoca 96-16 Pty Ltd or in either Permit or
to enter into any agreement with respect to any of those items permitted
by law.
6.2 The Royalty created by this Agreement attaches to both of the Permits
and its successors in interest in each Permit. Any transfer of the rights
of Indo Canada to any third party shall be subject to the Royalty (or if
not then Indo Canada's remaining interest in that Permit will assume that
burden such that Top receives the same benefit from the Royalty as if such
third party were subject to the Royalty) and shall be subject to the
assignee covenanting with TOP to assume and perform all obligations on
Indo-Pacific's part to be performed under this Agreement. No transfer
shall result in any reduction of the Royalty or derogate in any way from
the terms and conditions upon which it is granted. However, any
assignment or transfer that is made subject to this Agreement shall
relieve any assignor or transferor from any and all obligations provided
for in this Agreement that attach to the interest assigned or transferred,
except that the assignor or transferor shall remain liable for all
Royalties payable under this Agreement in respect of Petroleum produced up
to the date of the assignment or transfer.
6.3 If Indo-Pacific or any assignee of Indo-Pacific elects to surrender or
withdraw from a Permit then:
(a) it shall give notice of that intention to TOP to be received at least
forty-five (45) days before the date upon which the surrender is to
become effective; and
(b) if TOP notifies Indo-Pacific within twenty (20) days after receipt of
Indo-Pacific's notice, that TOP wishes to receive an assignment of
Indo-Pacific's interest, Indo-Pacific will, within ten (10) days after
receiving TOP's notice, tender an assignment in a form acceptable to
TOP and in accordance with this Agreement.
6.4 An assignment pursuant to Clause 6.3 shall:
(a) be subject to pro-rata assignments to other Royalty holders (if any)
which may in like manner request such an assignment; and
(b) be subject to pro-rata assignments to the other holders of interests
in a Permit upon exercise of any pre-emptive rights applying upon
assignment of Indo-Pacific's interest pursuant to the provisions of
any joint venture operating agreement governing operations in relation
to a Permit Area; and
(c) provide that the assignee shall assume all obligations under a Permit
not previously fulfilled by Indo-Pacific (if any); and
<PAGE>
(d) be subject to such approvals as may be required under the Legislation
and other applicable laws and regulations.
6.5 On assignment of any interest of Indo-Pacific in a Permit to TOP, TOP
will give an indemnity to Indo-Pacific, holding Indo-Pacific harmless from
any future responsibility in respect of the Permit to the extent of the
interest so assigned to TOP.
7. TERMINATION -
7.1 The Royalty granted by this Agreement shall terminate in respect of a
Permit upon termination or expiry of the Permit.
8. NATURE OF AGREEMENT
8.1 This Agreement shall not be construed as creating any kind of
partnership, joint venture or undertaking between the Parties and shall
be binding on and enure to the benefit of each of the Parties, their
respective successors and assigns. All references to Indo-Pacific and TOP
shall be deemed to include references to their respective successors and
assigns.
9. REPORTS ON PERMITS
9.1 Indo-Pacific shall furnish to TOP upon request such information as TOP
may reasonably request from time to time regarding the work carried out in
a Permit Area, except that Indo-Pacific shall not be obliged to disclose
to TOP any information which is not generally available to parties other
than the parties to the Permit and the disclosure of which to TOP could
prejudice the financial interests of Indo-Pacific. Notwithstanding
anything else in this Agreement, if Indo-Pacific elects to surrender or
withdraw from the Permit, it shall provide to TOP all information TOP may
require for the purpose of deciding whether to exercise its pre-emptive
rights under Clause 6.3(b) of this Agreement.
9.2 The data and information coming into TOP's possession under this
Agreement shall be deemed confidential and shall not be disclosed to third
parties without the consent of Indo-Pacific except as required by law.
10. NOTICES
10.1 The address of Indo-Pacific and the address of TOP for the purpose of
this Agreement shall be the addresses of Indo Canada and Top respectively
as specified on the first page of this Agreement,
10.2 Notices between the Parties shall be in writing (including facsimile
transmission) unless otherwise agreed and shall be sent or delivered to
the other Party at its specified address or such other address as may be
notified by that Party.
11. DISPUTE RESOLUTION
11.1 If there is a dispute between the Parties as to the value of any Petroleum
produced or the allowances for costs to be made under the definition of
Petroleum Value contained in this Agreement, then, at the option of either
Party, the dispute may be referred to and determined by arbitration in
Australia before one arbitrator to be appointed by mutual agreement of the
Parties.
<PAGE>
11.2 If the Parties cannot agree on an arbitrator, one shall be appointed by
the President of the Australian Petroleum Producers and Explorers
Association ('APPEA'). The provisions of the Arbitration Act of the home
jurisdiction of the appointed arbitrator in Australia shall apply to any
arbitration under this Clause I I except that in every case the arbitrator
shall give reasons in writing for his decision and as part of his award.
12. MISCELLANEOUS
12.1 This Agreement will be binding upon and enure to the benefit of the
Parties, and their respective successors and each person who derives from
them title to an interest in a Permit.
12.2 This Agreement will be governed by and construed in accordance with
laws of Australia for the time being in force.
12.3 The Parties submit to the non-exclusive jurisdiction of the Courts of
South Australia and the Commonwealth of Australia and all courts competent
to hear appeals therefrom.
12.4 The Parties will bear their own legal costs arising out of the
preparation of this Agreement, but Indo-Pacific will bear all consent fees
and government assessed stamp duty (if any) payable on this Agreement and
any document directly related to or consequential upon this Agreement.
12.5 Each of the Parties must take all such steps, execute all such documents
and do all such acts and things as may be reasonably required by any other
Party to give effect to the intent of this Agreement.
12.6 If any party executes this Agreement by means of an attorney then such
attorney states that he or she has no notice of the revocation of that
power of attorney.
12.7 This Agreement may be executed in counterparts or by facsimile, which
when taken together shall form a binding agreement.
<PAGE>
EXECUTED by the parties as an Agreement.
Executed for and on
behalf of INDO-PACIFIC
ENERGY LTD. by its duly
authorized representatives
in the presence of-
- ----------------------------------- ----------------------------------
Signature of witness Signature of representative
- ----------------------------------- ----------------------------------
Name of witness Name of representative
Executed for and on
behalf of TRANS-ORIENT
PETROLEUM LTD. by its
duly authorised
representative in the
presence of-
- ----------------------------------- ----------------------------------
Signature of witness Signature of representative
- ----------------------------------- ----------------------------------
Name of witness Name of representative
<PAGE>
INDO-PACIFIC ENERGY LTD.
TRANS-ORIENT PETROLEUM LIMITED
----------------------------------------
OVERRIDING ROYALTY DEED
PAPUA NEW GUINEA
----------------------------------------
Rudd Watts & Stone
<PAGE>
DEED dated 2000
PARTIES
INDO-PACIFIC ENERGY LTD.(" INDO-PACIFIC")
TRANS-ORIENT PETROLEUM LIMITED ("TOP")
RECITALS
A. Indo-Pacific and TOP, Trans-Orient Petroleum (PNG) Limited ("TOP(PNG)")
and certain other parties have entered into an Agreement for Purchase and
Sale (the "Purchase Agreement") dated the same date as this Deed, by which
agreement TOP agreed to transfer all its shares in TOP(PNG) to Indo-
Pacific. TOP(PNG) owns interests in certain petroleum prospecting licences
in Papua New Guinea, as described in Item 3 of the Schedule.
B. As part of the transfer of the shares, Indo-Pacific has agreed to grant
back to TOP a 1 % overriding royalty over the aforementioned interests.
C In order to comply with the terms of the Purchase Agreement and of the
joint venture agreements governing the aforementioned interests, the Parties
have entered into this Deed.
DEED
1. DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS: In this Deed, unless the context otherwise requires:
"Act" means the Oil & Gas Act (PNG) 1998 and any regulations made under it;
"Deed" means this Deed between the parties;
"MINISTER" means the Minister of Petroleum and Energy as defined under the
Act who administers the approval and registration procedure under the Act;
"LICENCE" means each petroleum prospecting licence described in Item 3 of
the Schedule or any renewal, variation or extension of it or any licence issued
in substitution for it, and any petroleum development or retention licence
granted by virtue of it for the whole or part of the Licence Area;
"LICENCE AREA" means the land for the time being comprising the Licence;
"PETROLEUM" means petroleum, natural gas, sulphur and all other minerals or
substances the right to explore for which , or an interest in which is granted
pursuant to the Licence;
"PETROLEUM VALUE" means the market value of that Petroleum as if sold to an
arm's length purchaser at the wellhead during the month in which such Petroleum
was produced. The value of Petroleum produced shall be calculated according to
the nature of that Petroleum and the manner in which it is sold in accordance
with the following provisions of this definition.
<PAGE>
For oil, distillate, condensate and other liquid hydrocarbons:
(a) the value of the Petroleum at the wellhead shall be calculated on the
basis of the FOB price (as defined in Incoterms 1980) received by Indo-
Pacific at the point of sale, less costs attributable to that Petroleum
for treating, and for transporting, handling and storing the Petroleum
between the wellhead and the FOB POINT OF sale, less any Government
Royalty required to be paid to the Government of Papua New Guinea and
less an administration fee of 2.5% of the FOB price received by TOP(PNG).
Where any oil, distillate, condensate or other liquid hydrocarbons are
sold by TOP(PNG) otherwise than on an FOB basis, such adjustments shall be
made to the actual price received to correctly reflect the fob price which
would have been received had those hydrocarbons sold on an FOB basis; and
(b) in calculating the value of the Petroleum at the wellhead, reference shall
be made to the price received in arm's length sales to non-affiliated
third parties during the applicable month (on an FOB basis or adjusted, if
necessary, to an FOB basis). If no such sales were made by TOP(PNG) during
the applicable month, reference shall be made to arm's length sales
transactions between other participation interest holders in the
development licence and non-affiliated third parties. If there were no
such sales as described above, reference shall be made to the value of the
Petroleum as agreed or determined in accordance with applicable
legislation for the purposes of the payment of any applicable government
royalty netted back to a wellhead value by deduction of all costs
attributable to treating, transporting, handling and delivering the
Petroleum between the wellhead and the point at which the value of the
Petroleum is agreed or determined for the purpose of calculation of the
applicable government royalty, and less any Government Royalty required to
be paid to the Government of Papua New Guinea and less an administration
fee of 2.5% of the FOB price received by TOP(PNG).
For natural gas, natural gas liquids and other Petroleum produced in a gaseous
state:
(c) the value of that Petroleum at the wellhead shall be calculated on the
basis of the price received by TOP(PNG) less costs of treating,
transporting, handling and delivering that Petroleum between the
wellhead and the point of sale, less any Government Royalty required to be
paid to the Government of Papua New Guinea and less an administration fee
of 2.5% of the FOB price received by TOP(PNG); and
(d) in calculating the value of that Petroleum at the wellhead, reference
shall be made to the price received in arm's length sales to non-
affiliated third parties during the applicable month. If no such sales
were made during the applicable month, reference shall be made to arm's
length sales transactions between other participating interest holders in
the development licence and non-affiliated third parties. If there were
no such sales as described above, reference shall be made to the value of
such Petroleum as agreed or determined in accordance with applicable
legislation for the purposes of the payment of any applicable government
royalty netted back to a wellhead value by deduction of all costs
attributable to treating, transporting, handling and delivering the
Petroleum between the wellhead and the point at which the value of the
Petroleum is agreed or determined for the purpose of the calculation of
the applicable government royalty, less any Government Royalty required to
be paid to the Government of Papua New Guinea and less an administration
fee of 2.5% of the FOB price received by TOP(PNG).
<PAGE>
For natural gas liquids, the value of that Petroleum at the wellhead shall be
calculated on the basis of the price received by TOP(PNG) less:
(e) any costs to be deducted by virtue of clause 3.3; and
(f) any further costs attributable to the treating, extraction, storing,
handling and delivery of those natural gas liquids between the wellhead
and the point of sale.
"RELEVANT INTEREST" MEANS THE percentage interest, as set out in Item 3 of
the Schedule, owned by TOP(PNG) in the Licence and the unincorporated joint
venture formed to explore the Licence Area;
"ROYALTY" means the right to receive the value from Petroleum produced from
the Licence Area, created by clause 2 of this Deed.
1.2 INTERPRETATION: In this Deed, unless a contrary intention appears:
(a) a reference to this Deed is a reference to this Deed as amended, varied,
novated or substituted from time to time;
(b) a reference to any legislation or any provision of any legislation
includes:
(i) all regulations, orders or instruments issued under the legislation or
provision; and
(ii) any modification, consolidation, amendment, re-enactment, replacement
or codification of such legislation or provision;
(c) a word:
(i) importing the singular includes the plural and vice versa; and
(ii) denoting an individual includes corporations, firms, unincorporated
bodies, authorities and instrumentalities;
(d) a reference to a party to this Deed or any other instrument includes
that party's executors, administrators, successors and permitted assigns;
(e) words and expressions used in this Deed which are used in the Act shall,
where the context admits have the same meaning as they have in the Act.
2. GRANT OF ROYALTY
2.1 For good and valuable consideration paid to Indo-Pacific by TOP,
Indo-Pacific grants and agrees to pay on a monthly basis to TOP, its
successors and assigns, without further formal action than this Deed, an
overriding royalty over the Relevant Interest of 1 % of the Petroleum
Value as defined in clause 3 produced from each Licence Area to which
TOP(PNG) is entitled by virtue of each Relevant Interest in the Licence,
excluding that Petroleum which is:
(a) flared or unavoidably lost, or
(b) used in the operations for the purposes of production, transport or
transmission to point of sale (which shall be the same point of sale as is
used for valuation purposes under clause 3); or
<PAGE>
(c) returned to a natural reservoir.
2.2 TOP MAY NOT TAKE THE ROYALTY in kind.
(a) Notwithstanding that different Petroleum may be valued by different
methods, the Royalty shall be calculated as a single royalty on the
value of all Petroleum to which it applies.
3. OTHER COSTS
3.1 In determining the value of Petroleum produced, no deduction shall be
made for the cost and expense of exploring for, exploiting and producing
the Petroleum to which it applies, except as expressly permitted by the
definition of Petroleum Value.
3.2 TOP shall pay income tax, other taxes, government royalties (other than
the royalty payable to the Government of Papua New Guinea as grantor of
the Licence in terms of the Act ("Government Royalty")) and other
government levies (other than production related levies, if any) assessed
against the amounts payable to TOP under this Deed.
3.3 As between the parties, Indo-Pacific shall be responsible for payment of
the Government Royalty payable in respect of the Petroleum produced from
the Licence Area to which TOP(PNG) is entitled by virtue of each Relevant
Interest in each Licence.
3.4 Goods and Services Tax, if payable in respect of the Royalty amounts
payable to TOP, shall be paid (as between the parties) by Indo-Pacific in
addition to the amount payable determined in accordance with this clause
3.
4. ACCOUNTS AND PAYMENT
4.1 Not later than 45 days after the end of each month during which the
production occurred of Petroleum for which payment of the Royalty is due,
Indo-Pacific shall pay to TOP the Royalty payable in relation to that
Petroleum in United States dollars, or where so requested (on not less
than 15 days prior to written notice by TOP) in the equivalent in another
internationally tradable currency calculated at the date of payment.
4.2 At the time of making any payment under clause 4.1, Indo-Pacific shall
provide TOP with a written report in such form as TOP may reasonably
require detailing the volume of the Petroleum purchased, sold or retained
by TOP(PNG) which is attributable to each Relevant Interest and the value
of such Petroleum determined in accordance with the definition of
Petroleum Value and details of the basis of determination of such value.
4.3 Indo-Pacific shall keep or cause to be kept proper records and accounts
in relation to all Petroleum retained, purchased or sold by it, which is
attributable to each Relevant Interest. TOP shall be entitled at all
reasonable times during the term of this Deed and for a period of twelve
months after its termination to have such records and accounts audited by
a chartered accountant nominated by it to verify the correctness of the
payments made to TOP by Indo-Pacific under this Deed.
4.4 Except as provided otherwise in this Deed or by consent between the
parties, all payments, prices and calculations under this Deed shall be in
United States dollars.
5. DEALINGS WITH LICENCE
<PAGE>
5.1 Nothing in this Deed shall limit the rights of Indo-Pacific, subject to
the following provisions of this clause, to release or transfer any or all
of its rights in the Licence or to enter into any agreement with respect
to the Licence permitted by law.
5.2 The Royalty created by this Deed attaches to each Relevant Interest of
TOP(PNG) in each Licence. Indo-Pacific covenants with TOP to use its best
endeavours to ensure that every transfer of the rights of TOP(PNG) in any
Relevant Interest to any third party shall be subject to the Royalty (or
if not then Indo-Pacific's remaining interest in that relevant interest
will assume that burden such that top receives the same benefit from the
royalty as if such third party were subject to the royalty, and shall be
subject to the assignee covenanting with TOP to assume and perform all
obligations on Indo-Pacific's part to be performed under this Deed. No
transfer shall result in any reduction of the Royalty or derogate in any
way from the terms and conditions upon which it is granted. However, any
assignment or transfer that is made subject to this Deed shall relieve any
assignor or transferor from any and all obligations provided for in this
Deed that attach to the interest assigned or transferred, except that the
assignor or transferor shall remain liable for all Royalties payable under
this Deed in respect of Petroleum produced up to the date of the
assignment or transfer.
5.3 If TOP(PNG) or any assignee of TOP(PNG) elects to surrender or withdraw
from the Licence then Indo-Pacific covenants with TOP to use its best
endeavours to ensure that:
(a) It gives notice of that intention to TOP to be received at least
forty-five (45) days before the date upon which the surrender is to
become effective; and
(b) if TOP notifies Indo-Pacific within twenty (20) days after receipt of
Indo-Pacific's notice, that TOP wishes to receive an assignment of the
Relevant Interest, Indo-Pacific will, within ten (10) days after
receiving TOP's notice, tender an assignment in a form acceptable to
TOP and in accordance with this Deed.
5.4 An assignment pursuant to clause 5.3 shall:
(a) be subject to pro-rata assignments to other Royalty holders (if any)
who may in like manner request such an assignment; and
(b) be subject to pro-rata assignments to the other holders of interests
in the Licence upon exercise of any pre-emptive rights applying upon
assignment of the Relevant Interest pursuant to the provisions of any
joint venture operating agreement governing operations in relation to
the Licence Area: and
(c) provide that the assignee shall assume all obligations under the
Licence not previously fulfilled by Indo-Pacific or TOP(PNG) (if any);
and
(d) be subject to such approvals as may be required under the Act and
other applicable laws and regulations.
5.5 On assignment of any interest in a Licence to TOP, TOP will give an
indemnity to Indo-Pacific, holding Indo-Pacific harmless from any future
responsibility in respect of that Licence to the extent of the interest so
assigned to TOP.
6. TERMINATION
6.1 The Royalty granted by this Deed shall terminate upon termination or
expiry of the Licence.
<PAGE>
7. NATURE OF AGREEMENT
7.1 This Deed shall not be construed as creating any kind of partnership,
joint venture or undertaking between the parties and shall be binding on
and inure to the benefit of each of the parties, their respective
successors and assigns. All references to Indo-Pacific and TOP shall be
deemed to include references to their respective successors and assigns.
8. REPORTS ON LICENCE
8.1 Indo-Pacific covenants with TOP to use its best endeavours to ensure
that it furnishes, or causes to be furnished, to TOP upon request such
information as TOP may reasonably request from time to time regarding the
work carried out in the Licence Area, except that Indo-Pacific shall not
be obliged to disclose to TOP any information which is not generally
available to parties other than the parties to the Licence and the
disclosure of which to TOP could prejudice the financial interests of
Indo-Pacific or TOP(PNG). Notwithstanding anything else in this Deed, if
TOP(PNG) elects to surrender or withdraw from the Licence, Indo-Pacific
covenants with TOP to use its best endeavours to ensure that TOP(PNG)
provides to TOP all information TOP may require for the purpose of
deciding whether to exercise its pre-emptive rights under clause 6.3(b) of
this Deed.
8.2 The data and information coming into TOP's possession under this Deed
shall be deemed confidential and shall not be disclosed to third parties
except as required by law,
9. NOTICES
9.1 The addresses of each of the parties for the purpose of this Deed shall
be as follows:
Grantor: Indo Pacific Energy Limited,
1200 - 1090 West Pender Street,
Vancouver, B.C. V6E 2N7
Grantee: Trans-Orient Petroleum Ltd.,
C/O 1500 - 1055 West Georgia Street,
Vancouver, B.C., WE 4N7
9.2 Notices between the parties shall be in writing (including facsimile
transmission) unless otherwise agreed and shall be sent or delivered to
the other party at its specified address or such other address as may be
notified by that party.
10. DISPUTE RESOLUTION
10.1 If there is a dispute between the parties as to the value of any
Petroleum produced or the allowances for costs to be made under clause 3
or the definition of Petroleum Value in this Deed then, at the option of
either party, the dispute may be referred to and determined by arbitration
before one arbitrator to be appointed by the parties if they can agree on
one.
10.2 If the parties cannot agree on an arbitrator, one shall be appointed by
[the President of the Wellington District Law Society]. The provisions of
the [Arbitration Act 1996] shall apply to any arbitration under this
clause 10 except that in every case the arbitrator shall give reasons in
writing for his decision and as part of his award.
11. MISCELLANEOUS
<PAGE>
11.1 This Deed will be binding upon and enure to the benefit of the parties
and their respective successors and each person who derives from them
title to an interest in the Licence.
11.2 This Deed will be governed by and construed in accordance with laws of
British Columbia for the time being in force.
11.3 The parties submit to the non-exclusive jurisdiction of the Courts of
[New Zealand] and all courts competent to hear appeals therefrom.
11.4 The parties will bear their own legal costs arising out of the
preparation of this Deed.
11.5 Each of the parties must take all such steps, execute all such
documents and do all such acts and things as may be reasonably be
reasonably required by the other party to give effect to the intent of
this Deed.
11.6 If a party executes this Deed by means of an attorney then such
attorney states that he or she has no notice of the revocation of that
power of attorney.
11.7 This Agreement may be executed in counterparts and/or by facsimile,
which when taken together shall form a binding agreement.
EXECUTED by the parties as an Deed.
SIGNED BY INDO-PACIFIC ENERGY LTD.
by its duly authorised representative in the presence of:
- ----------------------------------- ----------------------------------
Signature of witness Signature of representative
- ----------------------------------- ----------------------------------
Name of witness Name of representative
SIGNED BY TRANS-ORIENT PETROLEUM LIMITED by its duly authorised representative
in the presence of:
- ----------------------------------- ----------------------------------
Signature of witness Signature of representative
- ----------------------------------- ----------------------------------
Name of witness Name of representative
<PAGE>
SCHEDULE
1. Grantor - Indo Pacific Energy Limited
2. Grantee - Trans-Orient Petroleum Limited
3. Relevant Interests in Licences (Recital A)
Percentage Interest Petroleum Prospecting Licence No.
20% PPL192
7.5% PPL157
5% PPL 213
40% PPL 215
<PAGE>
LONMAN9marOO.txt
SCHEDULE E
AC/P26
THE LONMAN AGREEMENT
THIS AGREEMENT is dated the day of 2000
----------- -------------------
BETWEEN
LONMAN PTY LTD (A.C.N. 002 674 919) of 19 Ku-ring-gai Ave, Turramurra
NSW 2074 ("Lonman").
AND
MOSAIC OIL N.L. (ACN 003 329 084) of Level 3, 6-8 Underwood Street,
Sydney, New South Wales, 2000 ("Mosaic");
TRANS-ORIENT PETROLEUM (AUS) PTY. LTD. (ACN 076 410 994)of 284 Karori Road,
Wellington, New Zealand ( "Trans-Orient"); and
WEST OIL NL.(ACN 077 105 429) a company having its principal office at
3rd Floor, 41-43 Ord St., West Perth WA 6005 ("West Oil")
<PAGE>
Page 2
LONMAN9MAROO.TXT
WHEREAS
A. The original Parties are the registered holders and legal and
beneficial owners of Petroleum Exploration Licence Area AC/P26 issued under
the Petroleum (Submerged Lands) Act 1967 of the Commonwealth of Australia.
B. The Original Parties have agreed Lonman has the right to a Working
Interest in the Licence or the right to a Carried To Production Interest
(CTPI) in the Licence under the terms of this Agreement.
C The right to a Working Interest in the Licence or the right to a
Carried To Production Interest (CTPI) in the Licence under the terms of
this Agreement are granted to Lonman on the basis that the principal of
Lonman, Dr. John Conolly, will undertake all endeavors to accomplish a
farmout of the first well in the Licence on behalf of the Original Parties
and that Dr John Conolly remains a Director of Lonman. After the first well
is drilled, Lonman will have earned either a direct working interest or a CTPI,
or would have relinquished its rights to have an interest in the licence
1. DEFINITIONS AND INTERPRETATION
"Act" means the Petroleum (Submerged Lands) Act 1967 of the Commonwealth
of Australia and any Act with which that Act is incorporated, together with
all regulations, directions, determinations and administrative procedure
under any of those Acts.
<PAGE>
Page 3
LONMAN9MAROO.TXT
"Carried to Production Interest" (CTPI") means an interest in this Licence
whose costs are met prior to production by the Original Parties under the
terms and conditions of this agreement and which can be converted to a
Working Interest under the terms and conditions of this agreement in the
period after the execution of a farm-in agreement to drill the first well
in the Licence and up to or before the First Production Date.
"Effective Date" means the date this agreement is dated namely;
"Free Carried Equity if means that part of the equity in the Licence which the
Original Parties retain which is free carried through the drilling of the
first well in the Licence.
"First Production Date" means the first date upon which commercial production of
Petroleum from the Licence commences.
"Joint Operating Agreement" means that Agreement governing the relation of the
parties in the Licence.
"Operator" describes a Party elected to operate the Licence on behalf of the
Parties in the Licence.
"Party" describes a holder of a Working Interest in the Licence.
<PAGE>
Page 4
LONMAN9marOO.txt
"LICENCE" MEANS EXPLORATION Licence for Petroleum Area AC/P26 and includes any
renewal or substitution of it, and any Retention Lease of Production Licence
derived therefrom if
"Original Parties" describes the initial holders of this Licence who provide
certain rights to Lonman, namely;-
Mosaic 35.00%
Trans-Orient 35.00%
West Oil 30.00%
"Working Interest" describes an interest in a Joint Venture where a Party pays
its pro rata share of Joint Venture Costs.
2. LONMAN'S RIGHTS TO A WORKING INTEREST IN THE LICENCE.
A Right to a Working Interest in the Licence prior to drilling.
1. With effect on and from the Effective Date, the Original Parties hereby
grant to Lonman in the period prior to the first well being drilled in the
Licence and prior to Lonman's knowledge of any firm intent to farm-into the
Licence and drill a well, the right to take up to a 5% Working Interest from
the Original Parties. This would be up to (on a pro rata basis): from Mosaic
- -1.75%, from Trans-Orient 1.75%, from West Oil 1.5%
2. From the date that Lonman gives notice it is taking up to a 5% Working
Interest in the Licence as per 2.1, Lonman must pay its pro rata share of
Joint Venture costs incurred from that date. However, Joint Venture costs
<PAGE>
Page 5
LONMAN9MAROO.TXT
PRIOR TO THAT DATE MUST BE REIMBURSED from production by Lonman.
A Right to a Carried to Production Interest (CTPI) and its conversion to a
Working Interest in the Licence.
4. Upon the execution of a farm-in agreement to drill the first wel1 in this
Licence, (provided that intention is carried through to a firm agreement and the
drilling of a well) the right of Lonman to take up to a 5% Working Interest in
the Licence (if not already previously exercised under 2.1 of this Agreement)
ceases.
5. Upon the execution of a farm-in agreement to drill the first wel1 in this
Licence, then Lonman (only if it has not exercised its rights under 2.1)
has the right to a CTPI in the Licence, being 5% of the Free Carried Equity
retained by the Original Parties during the drilling of the first well.
Example:-(based on a farminee or farminees earning 70% equity in the licence by
funding the first well)
ORIGINAL FREE CARRIED LONMAN
PARTIES EQUITY CTPI
Mosaic 10.5% 0.525%
Trans-Orient 10.5% 0.525%
West Oil 9.0% 0.45%
TOTALS 30% 1.5%
<PAGE>
Page 6
LONMAN9marOO.txt
6. At any time upto the first First Production Date, Lonman may by due notice
to the Parties elect to allow its CTPI to lapse or may convert this CTPI
into a Working Interest in the Licence on the condition that prior costs
will be paid out from production as per Section 4 of this agreement.
3. LONMAN'S RIGHT TO ASSIGN ITS INTERESTS
1. Any sale of Lonman P/L must take into account that DR J CONOLLY remains a
Director of Lonman prior to the execution of a farm-out agreement according
to 2.4.
2. If at any time Lonman (according to Lonman's rights under Section 2 of this
Agreement) receives an offer from a third party for:-
i) its right to take up a Working Interest in the Licence prior to drilling
the first well, or
ii) its CTPI prior to First Production Date
then each of the Original Parties will be entitled to match such third party
offer (offers) on a pro rata basis within 30 days of receiving due notice from
Lonman of the offer (offers).
3. If at any time after having previously attained a Working Interest in the
Licence, Lonman receives an offer from a third party for its Working
Interest in the Licence, Lonman shall be free to deal with its Working
Interest in the Licence subject to the terms and conditions of the Joint
<PAGE>
Page 7
LONMAN9marOO.txt
Operating Agreement which governs the relationships of the parties with
interests in the Licence.
4. Any such third party referred to in Clause 3.2 and 3.3 shall reimburse the
Original Parties all past expenditures as required by Section 4 of this
Agreement.
4. COST RECOVERY ASSOCIATED WITH ANY LONMAN WORKING INTEREST.
1. Prior to Lonman earning a Working Interest in the Licence by
i) exercising its right to take a 5% Working Interest in the Licence prior
to the drilling of the first well, or
ii) converting its CTPI to a Working Interest prior to the First Production
Date,
according to the terms of Section 2 of this Agreement, the original Parties will
bear and pay for all costs associated with the Licence in proportion to their
interest as expended by the Operator with Joint Venture Approval.
2. With effect on and from the Production Date, Lonman will pay or the
Original Parties will be entitled to take in kind) , from the Lonman
entitlement to production of Petroleum, an amount equal to 50% of the net
cash proceeds from such entitlement, after deduction of all relevant taxes,
<PAGE>
Page 8
LONMAN9marOO.txt
royalties, operating costs and any other costs not otherwise incurred pursuant
to clause 4.1, until the costs incurred pursuant to clause 4.1 are fully
recovered inclusive of CPI adjustments. The accrual of such costs will
commence from and relate back to the date the Parties first formed the East
Vulcan study group and will be subject to adjustment by the Australian CPI for
the period between when such costs were incurred and the date of payment.
5. LONMAN'S ACCESS TO INFORMATION
1. Lonman shall have the right of access to all technical data with respect to
the Licence, at all reasonable times. Lonman will also have the right to
attend the statutory TCM/OCM which will be defined in the Joint Operating
Agreement to be agreed between the Parties, but will not have a right to
vote until the Lonman has a Working Interest in the Licence. Such a vote
will be equal to Lonman's Working Interest even before all past costs are
recovered.
2. Lonman agrees to keep all information obtained from the data or the
TCM/OCM meetings confidential.
3. The Original Parties agree that, in the process of agreeing to the terms
and conditions of a Joint Operating Agreement, Lonman shall be included as
a participating party to that process.
6. NOTICES
<PAGE>
Page 9
LONMAN9marOO.txt
1. Any notice required under this Agreement must be in writing, in the
English language, and sent by registered mail or facsimile transmission to
the address of the receiving party as stated in this Agreement, or to such
other address as a Party may advise from time to time.
2. A notice sent by registered mail is effective upon receipt in business
hours.
3. A notice sent by facsimile transmission is effective upon transmission
unless it is transmitted after the close of normal business hours, or on a
Saturday, Sunday or public holiday, in which case it is effective on the
opening of business on the next business day at the intended place of
receipt.
7. UNTIMELY DEATH OF CONOLLY PRIOR TO DRILLING
In the event of Conolly's death prior to drilling of the exploration well,
then the shareholders of Lonman have the right to replace Conolly with a
nominated geologist to continue with the farmout efforts
8. INDEMNITY
1. If Lonman does not take up its rights under this Agreement under Section 2
then the Original Parties agree that Lonman has no liability with respect
<PAGE>
Page 10
LONMAN9MAROO.TXT
to any costs in THE LICENCE AND so indemnify Lonman. The Original Parties note
under this Agreement that Lonman has no obligation to exercise its rights to a
Working Interest in the Licence and may allow those rights to lapse.
2. Prior to giving notice or considering to give notice under Clauses 2.2
or 2.5 of this Agreement to attain a Working Interest, Lonman may request
from the Operator an estimate of past costs attributable to such a Working
Interest. This information is to be provided by the Operator within 30
days.
3. The indemnity in clause 7.1 will cease to apply on and from the date upon
which the Lonman has a Working Interest in the Licence pursuant to this
Agreement.
9. GOVERNING LAW AND JURISDICTION
1. This Agreement and all questions arising in connection with it are
governed by and will be construed according to the laws from time to time
in force in the State of NSW and the Parties irrevocably submit to the
authority of the Courts in and of that State.
10. MISCELLANEOUS
Any approval and registration of this Agreement in accordance with the
provisions of the Act shall be obtained by Lonman, subject to clauses 3 and 4.
<PAGE>
Page 11
LONMAN9marOO.txt
IN WITNESS WHEREOF the Parties have executed this Agreement
Agreed and accepted by Agreed and accepted by
- ------------------------------- -----------------------------
For and on Behalf of For and on Behalf of
- ------------------------------- -----------------------------
Lonman Pty. Ltd. Mosaic Oil N.L.
- ------------------------------- -----------------------------
Agreed and accepted by Agreed and accepted by
- ------------------------------- -----------------------------
For and on Behalf of For and on Behalf of
Trans-Orient Petroleum (AUS) Pty. Ltd. West Oil N.L.
<PAGE>
SCHEDULE "F"
RULE 902(K). U.S. PERSON.
(1) "U.S. person" means:
(i) Any natural person resident in the United States;
(ii) Any partnership or corporation organized or incorporated under the laws
of the United States;
(iii) Any estate of which any executor or administrator is a U.S. person;
(iv) Any trust of which any trustee is a U.S. person;
(v) Any agency or branch of a foreign entity located in the United States;
(vi) Any non-discretionary account or similar account (other than an estate
or trust) held by a dealer or other fiduciary for the benefit or account of a
U.S. person;
(vii) Any discretionary account or similar account (other than an estate or
trust) held by a dealer or other fiduciary organized, incorporated, or (if an
individual) resident in the United States; and
(viii) Any partnership or corporation if:
(A) Organized or incorporated under the laws of any foreign jurisdiction;
and
(B) Formed by a U.S. person principally for the purpose of investing in
securities not registered under the Act, unless it is organized or
incorporated, and owned, by accredited investors (as defined in 230.501
(a)) who are not natural persons, estates or trusts.
(2) The following are not "U.S. persons":
(i) Any discretionary account or similar account (other than an estate or
trust) held for the benefit or account of a non-U.S. person by a dealer or other
professional fiduciary organized, incorporated, or (if an individual) resident
in the United States;
(ii) Any estate of which any professional fiduciary acting as executor or
administrator is a U.S. person if:
(A) An executor or administrator of the estate who is not a U.S. person has
sole or shared investment discretion with respect to the assets of the estate;
and
(B) The estate is governed by foreign law;
<PAGE>
(iii) Any trust of which any professional fiduciary acting as trustee is a
U.S. person, if a trustee who is not a U.S. person has sole or shared investment
discretion with respect to the trust assets, and no beneficiary of the trust
(and no settlor if the trust is revocable) is a U.S. person;
(iv) An employee benefit plan established and administered in accordance
with the law of a country other than the United States and customary practices
and documentation of such country;
(v) Any agency or branch of a U.S. person located outside the United States
if:
(A) The agency or branch operates for valid business reasons; and
(B) The agency or branch is engaged in the business of insurance or banking
and is subject to substantive insurance or banking regulation, respectively, in
the jurisdiction where located; and
(vi) The International Monetary Fund, the International Bank for
Reconstruction and Development, the Inter-American Development Bank, the Asian
Development Bank, the African Development Bank, the United Nations, and their
agencies, affiliates and pension plans, and any other similar international
organizations, their agencies, affiliates and pension plans.
RULE 902(L) United States. "United States" means the United States of America,
its territories and possessions, any State of the United States, and the
District of Columbia.
<PAGE>
