There are accusations in the market place which suggest that members of the board and management of InterOil Corporation
(InterOil, IOC, or the Company) acted improperly related to transactions in shares of the Company and related entities. We assume
our clients are familiar with these accusations.
• We have done some additional research of the public filings from the nonprofit mentioned, interviewed management and reviewed
the early InterOil filings related to ownership interest.
• We do not believe there were improper actions by IOC management or board members and maintain our BUY
recommendation and $115 Price Target.
o We understand the Fuller Foundation (Foundation) ownership in IOC was from its original investment as part of a group
to purchase the refinery in Alaska, which was refurbished and moved to Papua New Guinea to form the original core of
InterOil. This led to the Fuller Foundation receiving a significant position in IOC that was held in a US entity, which was
necessary to secure the debt financing from the Overseas Private Investment Corp (OPIC).
o We understand from multiple independent sources that the Foundation did not purchase interests in IOC from any of the
Company officers or directors. We understand that the Foundation did not purchase any IOC shares or related instruments
in its client accounts or investment funds. The Foundation was audited by Deloitte and Touche during the years that we
reviewed, and we believe this firm would have reviewed for conflicts of interests and ensured appropriate policies were in place.
o The budgetary issues at Calvin College are similar to issues at many other college endowments: (NY Times, Moody’s).
o Mr. Samuel Delcamp is a recent addition to the InterOil Board and was previously the Executive Director of the Fuller
Foundation. His average total compensation for 2001-2011 of ~$536,000/yr is inline with our expectations for somebody
heading a foundation managing ~$450MM and living in a high cost area such as southern California. For reference, media
reports put the compensation of the ~$2 billion University of North Carolina endowment CEO at ~$665,000 in 2006 (link).
o The recently published summary report from Calvin College indicates that the primary issues related to building new
infrastructure in anticipation of additional gifts and investment returns (link). Both gifts and investment returns
underperformed expectations during the recent recession. Given Calvin College’s location in Michigan, we suspect industries
supporting its alumni were particularly hard hit.
• We believe this story has been an overhang on the stock for some time. We originally saw a similar story on March 22
. We began reviewing the public filings and were able to engage with management on March 25 about the potential issues. Management has
been diligent in responding to our questions with written correspondence that clarifies many of the issues.
• We are working to communicate directly with Calvin College, but they seem overwhelmed by the recent influx of calls.
• Please refer to our initiation piece on March 13, 2013 for more discussion of the Company, our investment thesis, and risks.