Document:

ex10_14.htm

Exhibit 10.14

 

PARTICIPATION AGREEMENT

JDZ Block 2

This Participation Agreement (“Agreement”) made and entered into this 2nd day of March, 2006 by and between

Sinopec International Petroleum Exploration and Production Co. Nigeria Limited, a company incorporated in the federal republic
of Nigeria (hereinafter referred to as “SIPEC”) and Sinopec International Petroleum Exploration and Production Corporation, a company incorporated in China (hereinafter referred to as “SIPEC Parent”);

Addax Energy Nigeria Limited, a company incorporated in the Federal Republic of Nigeria (hereinafter referred to as “Addax”) and Addax
Petroleum Corporation, a company incorporated in Canada (hereinafter referred to as “Addax Parent”); and

ERHC Energy, Inc., a corporation organized and existing under the laws of the State of Colorado, U.S.A. (hereinafter referred to as “ERHC”).

Each of ERHC, Addax and Sinopec is individually a “Party” and they are collectively the “Parties” to this Agreement

 

 

WITNESSETH:

WHEREAS, ERHC holds rights under certain agreements between itself, the Government of São Tomé e Príncipe and the Joint Development Authority (the “JDA”) of the Nigeria-São Tomé e Príncipe Joint Development Zone (the “JDZ”), to
wit:

	 	
•
	
The Memorandum of Agreement between the Democratic Republic of São Tomé e Príncipe and ERHC dated May 21,2001; and

	 	
•
	
Option Agreement between the Democratic Republic of São Tomé e Príncipe and ERHC dated April 2,2003; and

	 	
•
	
Administration Agreement between the JDA and ERHC dated April 7, 2003 (collectively hereinafter referred to as the “Option Agreements”); and

WHEREAS, the Option Agreements allow ERHC to elect to acquire from the JDA participating interests in certain Blocks within the JDZ; and

 

WHEREAS, the Parties acknowledge that under the terms of the Option Agreements ERHC has elected to acquire and was awarded a Participating Interest of thirty percent (30%) in Block 2, subject to the terms of a Production Sharing Contract that will be negotiated between the JDA and
all of the non-Government acquiring parties to Block 2 (“PSC”) (“Option Interest”); and

  

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WHEREAS, The Parties acknowledge that Pioneer/Devon/ERHC submitted a bid and was awarded a thirty-five (35%) participating interest in Block 2, subject to the terms of a PSC that will be negotiated between all of the acquiring parties to Block 2 (“Bid Interest”); and

WHEREAS, Devon withdrew from the Devon/Pioneer/ERHC consortium as of 22 June 200S and Pioneer has withdrawn from the Pioneer/ERHC consortium and from further participation in the negotiation of the Block 2 PSC as of 6 February 2006 and therefore ERHC owns all of the rights to the
Bid Interest; and

WHEREAS, ERHC desires to assign, transfer, or otherwise convey such rights owned by ERHC that will enable SIPEC to acquire a total Participating Interest of twenty eight point sixty-seven one hundredths percent (28.67%), comprised of eighteen and sixty-seven one hundredths percent (18.67%) of Bid
Interest plus ten percent (10%) of Option Interest, and SIPEC agrees to accept such rights for the consideration and upon the terms and conditions contained herein; and

WHEREAS, ERHC desires to assign, transfer, or otherwise convey such rights owned by ERHC that will enable Addax to acquire a total Participating Interest of fourteen and thirty-three one hundredths percent (14.33%), comprised of nine and thirty-three one hundredths percent (9.33%)
of Bid Interest plus five percent (5%) of Option Interest, and Addax agrees to accept such rights for the consideration and upon the terms and conditions contained herein.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereto agree as follows:

 

	
1.
	
Definitions

“Addax Assigned interest” means the fourteen and thirty-three one hundredths percent (14.33%) Participating Interest, comprised of five percent (5%) Option Interest and nine and thirty-three
one hundredths percent (9.33%) Bid Interest, to be assigned to Addax in accordance with the Agreement.

 

“Affiliate” means a legal entity which controls, or is controlled by, or which is controlled by an entity which controls, a Party. For the purposes of this definition, control means the ownership directly
or indirectly of more than fifty percent (50%) of the voting rights in a legal entity. “Controls,” “controlled by" and other derivatives shall be construed accordingly.

 

“Assigned Interest” means the aggregate of the Addax Assigned Interest and the SIPEC Assigned Interest.

  

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 “Assignment” means the transfer, conveyance or assignment of the Assigned Interest from ERHC to Addax
and SIPEC

“Bid Interest” has the meaning ascribed to it in the Recitals.

“Block 2” means that geographical area designated as Block 2 of the JDZ designated by the coordinates promulgated by the JDA in accordance with the 2004 JDZ Licensing Round.

 

“Carried Costs” has the meaning ascribed to it in Section 3 (a)(iii).

 

“Contractor” means the combination of all non-Government parties to the PSC for Block 2.

 

“Cost Oil” means the quantity of crude oil allocated to the Contractor in accordance with the terms of the PSC for the recovery of allowable Costs by Contractor.

 

“Costs” means the costs incurred by the Parties to perform Petroleum Operations and described in the PSC as “Operating Costs”.

 

“Earning Period” means the period beginning on the Effective Date and ending on the date that each of Addax and SIPEC has recovered one hundred percent (100%) of the Carried Costs as provided in Sections 3(aXiii), 3(b),
and 3(c) hereof

 

“Effective Date” means the date first above written.

 

“Government” and “Governmental Authority” means any nation
or any political subdivision of such nation, including the JDA, and any department, court, commission, board, bureau, ministry, agency, or other instrumentality of such a nation or political subdivision, that exercises or is entitled to exercise administrative, executive, judicial, legislative, police, regulatory or taxing authority.

 

“Joint Development Authority” or “JDA” means
the Joint Development Authority established by Part Three of the Treaty.

 

“Joint Development Zone” or "JDZ” means,
subject to Article 5 and Article 31 (paragraph 5) of the Treaty, the area of seabed and subsoil, together with the superjacent waters, established as a joint development zone under Article 2 of the Treaty.

 

“Joint Operating Agreement” or “JOA” means
the Joint Operating Agreement to be entered into between all of the non-governmental parties in respect of Block 2 no later than the Transfer Date. Such JOA will be based on similar Joint Operating Agreements in place for other Blocks in the JDZ in existence at the time of this agreement.

 

“LIBOR” means the London Interbank Offered United States Dollar rate for one month as quoted in the London edition of the Financial
Times. In the event that such rate is not published in the Financial Times, LIBOR shall mean the London Interbank Offered US Dollar rate for one month for the nearest day quoted by a London branch of Citybank.

 

“Operator” means the operator appointed in accordance with the terms
of the PSC.

  

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“Option Interest” has the meaning ascribed to it in the Recitals.

“Petroleum Operations” means all operations conducted in accordance with the PSC for the purposes of exploring for, developing, exploiting and producing crude oil and/or natural gas from Block
2.

“Participating Interest” means as to any party to the PSC, the undivided interest of such party expressed as a percentage of the total interest of all parties in the rights and obligations
derived from the PSC.

“Petroleum Regulations” means the Petroleum Regulations 2003 enacted by the JDA, including any amendments thereto.

“Profit Oil” has the meaning ascribed to it in the PSC.

“Proportionate Obligation Share” means the respective share of costs and obligations to be borne by Addax and SIPEC in the proportions of sixty-six and sixty-seven one hundredths (66.67%)
for SIPEC and thirty-three and thirty-three one hundredths (33.33%) for Addax, which shall be the several, not joint, obligation and liability of each.

“PSC” has the meaning ascribed to it in the Recitals.

“Retained Interest” means twenty-two percent (22%) total Participating Interest retained by ERHC after giving effect to the Assignment.

“SIPEC Assigned Interest” means the twenty-eight and sixty-seven one hundredths percent (28.67%) Participating Interest, comprised of ten percent (10%) of Option Interest and eighteen and
sixty-seven one-hundredths percent (18.67%) of Bid Interest, to be assigned to SIPEC in accordance with the terms of this Agreement.

“Transfer Date” means the date that the PSC is executed.

“Treaty” means the Treaty signed on 21 February 2001 by the government of Nigeria and the government of São Tomé e Príncipe in respect of the joint development of petroleum
and other resources in the areas of the Exclusive Economic Zones of the two countries.

“Work Program” means the Petroleum Operations committed to be carried out by Contractor in Block 2 in accordance with the PSC.

	
2.
	
Assignment

	 	
(a)
	
Each of Addax and SIPEC will respectively acquire the Addax Assigned Interest and SIPEC Assigned Interest by direct execution of the PSC.

  

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(b) 
	
Conditions Precedent

Notwithstanding anything provided herein to the contrary, ERHC's obligation to convey and Addax's and SIPEC's obligation to accept, the Assigned Interest as provided above in Section 2(a), is subject to the occurrence of each of the following conditions precedent:

	 	
(i) 
	
A PSC covering Block 2 is executed by the JDA, Addax, SIPEC and ERHC.

	 	
(ii) 
	
The Representations and Warranties of Addax, Addax Parent, SIPEC and SIPEC Parent contained in Section 5 hereof are true as of the Effective Date and the Transfer Date;

	 	
(iii) 
	
The JOA is signed by all of the parties to the PSC on or prior to the Transfer Date; and

	 	
(iv) 
	
SIPEC is appointed Operator under the PSC.

 

	 	
(c)
	
If an Assignment is not made because the conditions precedent are not fulfilled (orwaived by the affected Party) by 31 December 2006, then all or any two of the Parties may
elect to extend the Agreement for mutually agreeable periods or, a Party by written notice to the other Party, may terminate this Agreement (and any financial obligations associated therewith) in which case neither Party shall have any further obligations to the
other Party. If either Addax or SIPEC terminate this Agreement, but not the other, then this Agreement will remain in force in respect of the other Parties.

	
3.
	
Addax and SIPEC Obligations

	 	
(a)
	
After the Transfer Date Addax and SIPEC shall pay the following Costs in accordance with their respective Proportionate Obligation Share:

	 	
(i) 
	
 All Costs and other obligations attributable to the Assigned Interest in accordance with the PSC, the JOA and any other applicable agreements.

	 	
(ii)
	
All taxes, fees and other similar costs assessed by the Government in connection with the transfer, conveyance or assignment of the PSC to Addax and/or SIPEC (but specifically excluding income taxes owed by ERHC as provided in Section 6 hereof) and Addax and SIPEC agree to indemnify and hold ERHC harmless from any such taxes, fees or other costs relating to the Assignment.

  

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(iii)
	
ERHC's share of all (i) Costs and (ii) other costs and obligations that are chargeable to the Joint Account under the JOA whether subject to cost recovery under the PSC or not, attributable to the Retained Interest during the Earning Period (the “Carried Costs”).

	 	
(iv)
	
Any signature bonus payable in respect of the Assigned Interest and the Retained Interest.

	 	
(v)
	
Furnish all financial guarantees required by the PSC, the JOA or other laws and regulations of the JDZ and JDA in respect of the Assigned Interest and the Retained Interest, and shall continue to maintain such guarantees in place during the Earning Period.

	 	
(vi)
	
In the event ERHC is required to obtain a licensing agreement with PGS for its seismic data set (“Licensed Data”), ERHC will be responsible for obtaining a separate licensing agreement for the Licensed Data, and Addax and SIPEC will reimburse ERHC for one hundred percent (100%) of the costs associated with said licensing agreement and all of such costs will be deemed Carried Costs incurred by Addax and
SIPEC pursuant to Section 3(a)(iii).

	 	
(b)
	
The Carried Costs paid by SIPEC shall carry interest at the rate of LIBOR+2% from the date SIPEC makes such payment, provided that the cumulative amount of the interest charged thereon by SIPEC shall in no event exceed Thirty Five Million United States Dollars (US $35,000,000).

 

	 	
(c)
	
Addax and SIPEC shall each be entitled to receive its Proportionate Obligation Share of up to one hundred percent (100%) of the allocation of Cost Oil attributable to Costs properly allocable to Cost Oil under the PSC until it has recovered all of the Carried Costs recoverable under the PSC that are attributable to the Retained Interest.

 

	 	
(d)
	
In addition, Addax and SIPEC shall be entitled to receive its Proportionate Obligation Share of an additional amount up to fifty percent (50%) of the allocation of Profit Oil attributable to the Retained Interest until it has recovered all of the Carried Costs and the interest thereto that are not recoverable under the PSC, but are incurred as Joint Account costs under the JOA (specifically excluding any amounts
incurred by Addax and SIPEC pursuant to Sections 3(aXiv), 4(a) and 4(b) hereof.

 

	 	
(e)
	
Each of Addax and SIPEC accept the terms and conditions set by the JDA for the awards of Block 2 and specifically acknowledge and agree to fulfill the minimum work program attributable to the Assigned Interest and the Retained Interest.

 

	 	
(f)
	
Neither Addax nor SIPEC may withdraw from the PSC after the Transfer Date prior to the completion of the Work Program for Phase I of the Exploration Period of the PSC (“Phase I”). However, after the completion of the Work Program for Phase I, nothing contained in this Section 3 shall prevent Addax and/or SIPEC from relinquishing its Participating Interest and withdrawing from the PSC in its sole discretion
in accordance with the terms of the PSC and the JOA. The Parties agree to support the position in the JOA that if Addax and/or SIPEC elect to relinquish its Participating Interest and withdraw entirely from the PSC and the JOA after the completion of the Work Program for Phase I, any preemption rights, preferential purchase rights, or similar provisions shall not apply to Addax's and/or SIPEC's interest and Addax and/or SIPEC will convey hack to ERHC, free of all costs and encumbrances, the Assigned Interest
and all Addax and/or SIPEC obligations provided in this Agreement shall terminate (except for obligations incurred prior to the withdrawal) and neither Party shall have any further obligations to the other Party.

  

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4.
	
Undertaking of the Parties

	 	
(a)
	
Addax shall pay to ERHC by wire transfer of readily available funds, no later than ten (10) business days in Geneva, Switzerland after the execution of the PSC in respect of Block 2, the sum of Six Million Eight Hundred Thousand US dollars (US$6,800,000).

	 	
(b)
	
SIPEC shall pay to ERHC by wire transfer of readily available funds, no later than ten (10) business days in China after the execution of the PSC in respect of Block 2 the sum of Thirteen Million Four Hundred Thousand US dollars (US$13,600,000)

	 	
(c)
	
If either of Addax or SIPEC fail to timely make the respective payment due under Sections 4(a) and 4(b) above, interest at the rate of LIBOR plus 4% for a period of thirty (30) days from the date such amount is due shall be added to the amount due. If the total amount due, plus interest is not paid within thirty (30) days from the due date, then this Agreement shall immediately terminate as to the Party defaulting
on the payment. In the event the defaulting Party is SIPEC it shall be obligated to pay ERHC, as liquidated damages, the sum the default amount plus Ten Million United States Dollars (US$10,000,000). In the event the defaulting Party is Addax it shall be obligated to pay ERHC, as liquidated damages, the sum the default amount plus Five Million United States Dollars (US$5,000,000). If ERHC is forced to submit the nonpayment default to arbitration for resolution, the defaulting Party shall be obligated to pay the
costs and expenses in connection with the arbitration according to the tribunal's award.

	 	
(d)
	
All Parties shall participate in the negotiation of the PSC and SIPEC, in consultation with ERHC and Addax, shall act as the lead negotiator for the Parties during such negotiation. Each party shall appoint negotiators who shall be authorized to participate in the PSC negotiations on behalf of the Parties. All Parties shall be advised of upcoming meetings with the JDA and consult regarding strategy, contract terms
and conditions, and the progress of negotiations. Each of the Parties shall be entitled to be present at and participate in all negotiations with the JDA, if possible.

	 	
(e)
	
No Party shall have the right to bind the other Party without such Party's prior written approval.

  

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(f)
	
Notwithstanding anything to the contrary contained herein, each Party shall bear its own costs related to the negotiation and execution of this Agreement, the PSC and the JOA.

	 	
(g)
	
Except as provided in the next sentence, if Addax and/or SIPEC terminate this Agreement for any reason prior to the Transfer Date, and subsequently acquire an interest in Block 2, it shall immediately notify the other Parties, and upon request, execute such documentation as is necessary to vest ERHC and the other Party(ies) with an interest consistent with the terms and conditions of this Agreement. However, if the
JDA withdraws all awards in respect of Block 2 and places Block 2 in a subsequent bid round, then the Parties shall execute a mutually acceptable bidding agreement (using the AIPN Bidding Agreement Form as a model) and submit a joint bid for Block 2. If the bid is successful, this Agreement shall then apply to any bid interest awarded to the Parties. If the bid is not successful and no Party is awarded an interest in Block 2, then any Party may acquire an interest in Block 2 from one or more of the successful
bidders without any further obligations to the other Parties.

	 	
(h)
	
During the Earning Period, ERHC shall vote its Participating Interest in all matters requiring a vote of the Parties under the JOA as directed by Addax and SIPEC for each of their respective Proportionate Obligation Share as the case may be.

	 	
(i) 
	
SIPEC as Operator agrees that a joint operations team shall be established as agreed between SIPEC, ERHC and Addax with participation of ERHC and Addax in the Petroleum Operations of Block 2.

	
5.
	
Representation and Warranties

	 	
(a)
	
ERHC hereby represents and warrants that as of the Effective Date:

	 	
(i) 
	
It is a corporation duly formed and currently existing in good standing under the laws of the State of Colorado, U.S.A. and that it has full power and authority to execute and deliver this Agreement;

	 	
(ii) 
	
The execution and delivery of this Agreement has been authorized by sufficient corporate action and that the person executing on behalf of ERHC has all necessary corporate power and authority to execute the Agreement and the other agreements contemplated by this Agreement;

 

	 	
(iii)
	
Neither the execution of this Agreement nor the consummation of the transactions contemplated herein will be or was in conflict with or result in the breach of any provision of, or constitute a default under the Option Agreements, any judgment, decree, law, regulation, ordinance or other governmental order applicable to ERHC or the interests
to be assigned hereunder;

  

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(iv)
	
It has not received any notice of default and is not, to the best of its knowledge, in default under any order, writ, injunction or decree of any court, or any agreement or obligation, to which it is a party or by which it is bound or to which it may be subject, affecting Block 2 or ERHC's right to enter into this Agreement or the Assignment or to carry out the transactions contemplated herein;

	 	
(v)  
	
It has not gone into liquidation, made an assignment for the benefit of creditors, declared itself or been declared bankrupt or insolvent by a competent court or had a receiver appointed in respect of the whole or any part of its assets and has no plans to do so;

	 	
(vi)  
	
The Assigned Interests are not subject to any material adverse contractual obligations or to any net profits interests, overriding royalty interests, production payments or any mortgages, pledges, liens, burdens or other encumbrances whether created by ERHC or otherwise, and there is no agreement to create the same;

 

	 	
(vii)  
	
ERHC owns the rights granted under the Option Interest and such rights have not been revoked or terminated, nor, to ERHC's knowledge, has there been any claims by any Government Authority to terminate such rights;

	 	
(viii)  
	
As of the Transfer Date, ERHC shall have the authority to assign the Assigned Interest to Addax and SIPEC, but only as permitted and authorized by the JDA and any other appropriate Governmental Authorities;

	 	
(ix)
	
To ERHC's knowledge, ERHC has furnished to Addax and SIPEC correct copies of all documents in its possession that have been requested by either Addax and/or SIPEC and are relevant to the Assigned Interest except for documents that cannot be disclosed to Addax and SIPEC because of existing confidentiality agreements; and

	 	
(x)
	
There are no claims, actions, suits, audits, demands, arbitrations, mediations, formal investigations, or proceedings (“Actions”) pending, or to ERHC's knowledge, threatened, before any Governmental authority, mediator or arbitrator with respect to the Block 2 or Actions pending, or, to ERHC's knowledge, threatened, before any Governmental Authority, mediator or arbitrator against ERHC that will impair
ERHC's ability to perform its respective obligations under this Agreement and the documents required to be executed and delivered by ERHC.

	 	
(b) 
	
Each of Addax and SIPEC hereby severally represent and warrant that as of the Effective Date:

 

	 	
(i)
	
Addax is a corporation that has been duly formed and currently exists in good standing under the laws of Nigeria and SIPEC is a corporation thatbeen duly formed and currently exists in good standing under the laws of Nigeria and that both have full power and authority to execute this Agreement;

  

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(ii)  
	
The execution and delivery of this Agreement has been authorized by sufficient corporate action and the person executing on behalf of Addax and SIPEC has all necessary corporate power and authority to execute and accept the Agreement;

	 	
(iii)  
	
The Addax Parent and SIPEC Parent will execute this Agreement solely for the purpose of asserting that either they or their wholly owned subsidiaries will satisfy all of their respective obligations hereunder;

	 	
(iv)  
	
Each of Addax and SIPEC has not gone into liquidation, made an assignment for the benefit of creditors, declared itself or been declared bankrupt or insolvent by a competent court or had a receiver appointed in respect of the whole or any part of its assets and has no plans to do so;

	 	
(v)  
	
Neither the execution of this Agreement or the relevant Assignment nor the consummation of the transactions contemplated herein will be, or was, in conflict with or result in the breach of any provision of, or constitute a default under, any judgment, decree, law, regulation, ordinance or other governmental order applicable to Addax, SIPEC or the Assigned
Interest;

	 	
(vi)  
	
It has not received any notice of default and is not, to the best of its knowledge, in default under any order, writ, injunction or decree of any court, or any agreement or obligation, to which it is a party or by which it is bound or to which it may be subject, affecting Block 2 or its right to enter into this Agreement or the Assignment or to carry out
the transactions contemplated herein; and

	 	
(vii)
	
There are no claims, actions, suits, audits, demands, arbitrations, mediations, formal investigations, or proceedings (“Actions”) pending, or to Addax's or SIPEC's knowledge, threatened, before any Governmental Authority, mediator or arbitrator with respect to the Block 2 or Actions pending, or, to Addax's and SIPEC's knowledge, threatened, before any Governmental Authority, mediator or arbitrator against
Addax or SIPEC that will impair Addax's or SIPEC's ability to perform its respective obligations under this Agreement and the documents required to be executed and delivered by Addax or SIPEC.

	 	
(c) 
	
Mutual Representations and Warranties

  

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(i)  
	
Each Party warrants that it and its Affiliates and any of their respective directors, officers, employees or agents acting on behalf of such Party havenot made, offered, or authorized and will not make, offer, or authorize with respect to the matters which are the subject of this Agreement, any payment, gift, promise or other advantage, whether directly
or through any other person or entity, to or for the use or benefit of any public official (i.e., any person holding a legislative, administrative or judicial office, including any person employed by or acting on behalf of a public agency, a public enterprise or a public international organization) or any political party or political patty official or candidate for office, where such payment, gift, promise or advantage would violate (i) the applicable laws of the United States of America, Nigeria, São Tomé
e Príncipe or the JDA (ii) the laws of the country of incorporation of such Party or such Party's ultimate parent company and of the principal place of business of such ultimate parent company; or (iii) the principles described in the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, signed in Paris on December 17, 1997, which entered into force on February 15, 1999, and the Convention's Commentaries. Each Party shall in good time (i) respond in reasonable
detail to any notice from any other Party reasonably connected with the above-stated warranty; and (ii) furnish applicable documentary support for such response upon request from such other Party. Each Party agrees to (i) maintain adequate internal controls; (ii) properly record and report all transactions; and (iii) comply with the laws applicable to it. Each Party must rely on the other Parties' system of internal controls, and on the adequacy of full disclosure of the facts, and of financial and other data
regarding the joint operations undertaken under this Agreement. No Party is in any way authorized to take any action on behalf of another Party that would result in an inadequate or inaccurate recording and reporting of assets, liabilities or any other transaction, or which would put such Party in violation of its obligations under the laws applicable to the operations under this Agreement.

	 	
(ii)  
	
The execution of this Agreement by one of the Parties shall not trigger any liability or obligation as to any other Party other than those contained in this Agreement.

	 	
(iii)  
	
All representations and warranties made under this Article 5 shall be deemed repeated and valid, true and correct as of the Transfer Date, and each Party agrees to inform the other Party of any material changes to the facts in the representations and warranties prior to the Transfer Date.

  

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(d) 
	
Indemnities

	 	
(i)  
	
Each Party shall defend, indemnify and hold the other Parties harmless from any and all claims, damages, losses, penalties, costs and expenses arising from or related to, any breach by such Party in respect of the warranties made in Section 5(c)(i) hereof. Such indemnity obligation shall survive termination or expiration of this Agreement

	 	
(ii)  
	
From and after the Transfer Date for the period specified in Section 5(d)(v), ERHC agrees to indemnify and hold Addax and SIPEC harmless from and against any claims, causes of action, losses, damages, or liabilities of any kind or character (“Damages”) that arise out of the breach by ERHC occurring prior to the Transfer Date of any of its warranties,
representations and covenants under this Agreement.

 

	 	
(iii)  
	
From and after the Transfer Date for the period specified in Section 5(dXv), Addax agrees to indemnify and hold ERHC and SIPEC harmless from and against any Damages that arise out of the breach by Addax occurring prior to the Transfer Date of any of its warranties, representations and covenants under this Agreement.

	 	
(iv)
	
From and after the Transfer Date for the period specified in Section 5(d)(v), SIPEC agrees to indemnify and hold ERHC and Addax harmless from and against any Damages that arise out of the breach by SIPEC occurring prior to the Transfer Date of any of its warranties, representations and covenants under this Agreement.

	 	
(iv)  
	
Except as otherwise provided in Section 5(d)(i), from and after the Transfer Date, this Section 5(d) contains the Parties' exclusive remedy against each other with respect to breaches of the representations, warranties, covenants, and agreements of the Parties that occur prior to the Transfer Date. Except as otherwise provided in Section 5(c)(i), any claim
for indemnity hereunder must be made prior to the expiration of two (2) years from the Transfer Date.

	 	
(vi)
	
Between the Effective Date and the Transfer Date, in the event of a breach by any Party of any of the representations, warranties, covenants, and agreements contained herein, that cannot be cured to the satisfaction of the non-breaching Party(ies) within a reasonable period not to exceed ninety (90) days, each non-breaching Party has the additional remedy of terminating this Agreement only as to the breaching Party
in its sole discretion (and any financial obligations associated therewith) in which case the terminating Party(ies) shall have no further obligations to the other Party(ies). If the right of termination is exercised by either SIPEC or Addax it will only terminate the Agreement in respect its own benefits rights liabilities and obligations and the Agreement will remain in force in respect of the other Party.

  

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(vii)
	
The indemnity to which each Party is entitled under this Section 5 shall be for the benefit of and extend to such Party's present and former Affiliates, and its and their respective directors, officers, employees, and agents. Any claim for indemnity under this Section 5 by any such Affiliate, director, officer, employee, or agent must be brought and administered by the applicable Party to this Agreement

	 	
(e)  
	
Disclaimer of Other Representations and Warranties.

Except for the representation and warranties provided in this section, ERHC, SIPEC and Addax make no, and disclaim any, warranty or representation of any kind, either express, implied, statutory, or otherwise, including, without limitation, the accuracy or completeness of any data, reports, records, projections, information or materials
now, heretofore, or hereafter furnished or made available to ERHC, SIPEC and Addax in connection with this Agreement.

	
6.
	
Tax

 

	 	
(a)
	
Each Party shall be responsible for reporting and discharging its own tax measured by the profit or income of such Party and the satisfaction of such Party's share of all
obligations under the PSC and under this Agreement Each Party shall protect, defend and indemnify the other Party from any and all loss, cost or liability arising from the indemnifying
Party's failure to report and discharge such taxes or satisfy such obligations. The Parties intend that all income and all tax benefits (including deductions, depreciation, credits
and capitalization) with respect to the expenditures made by the Parties hereunder will be allocated by the JDA tax authorities to the Parties based on the share of each tax item
actually received or borne by each Party. If such allocation is not accomplished due to the application of the laws, regulations or other Government action, the Parties shall attempt
to adopt mutually agreeable arrangements that will allow the Parties to achieve the financial results intended. Operator shall provide each Party, in a timely manner and
at such Party's sole expense, with such information with respect to joint operations as such Party may reasonably request for preparation of its tax returns or responding to any
audit or other tax proceeding.

	 	
(b)
	
If interpretation or enforcement of the PSC by the Government imposes joint and several liability on the Parties for any levy, charge or tax, the Parties agree to cross indemnify each other to the extent that such levy, charge or tax is owed by one Party individually.

	 	
(c) 
	
United States Tax Election.

 

	 	
(i)
	
If, for United States federal income tax purposes, this Agreement and the operations under this Agreement are regarded as a partnership, each Party elects to be excluded from the application of all of the provisions of Subchapter “K”, Chapter 1, Subtitle “A” of the United States Internal Revenue Code of 1986, as amended (the “Code”),
to the extent permitted andauthorized by Section 761(a) of the Code and the regulations promulgated under the Code. Operator, if it is a U.S. Party, is authorized and directed to execute and file for each Party such evidence of this election as may be required by the Internal Revenue Service, including all of the returns, statements, and data required by United States Treasury Regulations Sections 1.761-2 and 1.6031(a)-1 (b)(5) and shall provide a copy thereof to each U.S. Party. However, if Operator is not a
U.S. Party, the Party who holds the greatest Participating Interest among the U.S. Parties shall fulfill the obligations of Operator under this Section. Should there be any requirement that any Party give further evidence of this election, each Party shall execute such documents and furnish such other evidence as may be required by the Internal Revenue Service or as may be necessary to evidence this election.

  

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(ii)
	
No Party shall give any notice or take any other action inconsistent with the foregoing election. If any income tax laws of any state or other political subdivision of the United States or any future income tax laws of the United States or any such political subdivision contain provisions similar to those in Subchapter “K”, Chapter 1, Subtitle “A” of the Code, under which an election similar
to that provided by Section 761(a) of the Code is permitted Operator (or each U.S. Party if required for such purpose) shall make such election as may be permitted or required by such laws and each Non-U.S. Party shall join therein to the least extent necessary to permit such election to be effectively made. In making the foregoing election or elections, each U.S. Party states that the income derived by it from operations under this Agreement can be adequately determined without the computation of partnership
taxable income.

 

	 	
(iii) 
	
Unless approved by every non-U.S. Party, no activity shall be conducted under this Agreement that would cause any non-U.S. Party to be deemed to be engaged in a trade or business within the United States under United States income tax laws and regulations or to be subject to any U.S. tax reporting or payment obligations that it would not otherwise be subject to.

	
7.
	
Notices

All notices authorized or required between the Parties by any of the provisions of this Agreement shall be in writing (in English) and delivered in person or by mail, courier service or by facsimile and properly addressed to the other Party. Verbal and email communication does not constitute notice for purposes of this Agreement, and telephone
numbers for the Parties are listed below as a matter of convenience only. A notice given under any provision of this Agreement shall be deemed delivered only when received by the Party to whom such notice is directed, and the time for such Party to deliver any notice in response to such originating notice shall run from the date the originating notice is received. “Received” for purposes of this Article shall mean actual delivery of the notice to the address of the Party specified hereunder.

  

14

  

	
Addresses
	
Names of Representatives

	 	 
	
ERHC Energy, Inc
	
Walter F. Brandhuber

	
5444 Westheimer, Suite 1570
	
President & CEO

	
Houston, TX 77056
	  
	
Phone: 1-713- 626-4700
	  
	
Facsimile: 1-713- 626-4704
	  

	
Addax Energy Nigeria Limited
	
Leslie Blair

	
No. 10 Bishop Aboyade Cole Street
	
Managing Director

	
Victoria Island, Lagos
	  
	
Nigeria
	  

	
Phone:
	234 (1) 461 2400	
 

	
Fax:
	234 (1) 262 1915	
 

 

	
Sinopec International Petroleum Exploration
	
Lian Mingxiang

	
and Production Co. Nigeria Limited
	
Managing Director

	
12 Oyinkan Abayomi Dr.
	  
	
Ikoyi, Lagos
	  
	
Nigeria
	  

	
Phone:
	
234 (I) 269 2841
	 
	
Fax:
	
 234(1)269 4286
	 

	
8.
	
Governing Law; Dispute Resolution

	 	
(a) 
	
Governing Law

The substantive law of England and Wales, exclusive of any conflicts of laws principles that could require the application of any other law, shall govern this Agreement for all purposes, including the resolution of disputes between or among Parties.

	 	
(b) 
	
Waiver of Sovereign Immunity

Each of the Parties hereto agrees that it is subject to civil and commercial law with respect to its obligations under this Agreement, and the signing and performance of this Agreement by each Party constitutes private and commercial acts rather than governmental and public acts. Each of the Parties irrevocably represents, warrants and
agrees that this Agreement is a commercial rather than a public or governmental activity and that it is not entitled to claim immunity from legal proceedings with respect to itself or any of its assets on the grounds of sovereignty or otherwise under any law or in any jurisdiction where an action may be brought for the enforcement of any of the obligations arising under or relating to this Agreement. To the extent that any of the Parties or any of their assets has or hereafter may acquire any right to immunity
from set-off, legal proceedings, attachment prior to judgment, otherattachment or execution of judgment on the grounds of sovereignty or otherwise, such Party hereby irrevocably waives such rights to immunity in respect of its obligations arising under or relating to this Agreement. Any Party that now or hereafter has a right to claim sovereign immunity for itself or any of its assets hereby waives any such immunity to the fullest extent permitted by the laws of any applicable jurisdiction. Each Party acknowledges
that its rights and obligations hereunder are of a commercial and not a governmental nature.

  

15

  

	 	
(c)
	
Dispute Resolution

	 	
(i) 
	
The Parties agree, as a severable and independent arbitration agreement separately enforceable from the remainder of this Agreement, that any dispute, controversy or claim arising out of or in relation to or in connection with this Agreement, including, without limitation, any dispute as to the construction, validity, interpretation, enforceability,
or breach of this Agreement, or of any guaranty issued pursuant to or in connection with this Agreement, that cannot be settled through good-faith discussions between the senior management of the Parties shall be exclusively and finally settled by arbitration in accordance with this Section 8.

	 	
(ii) 
	
Any Party may submit such a dispute, controversy, or claim to arbitration by notice to the other Party and the administrator for the London Court of International Arbitration (“LCIA”).

	 	
(iii) 
	
The arbitration proceedings shall be conducted in London, England in the English language in accordance with the Rules of the LCIA as in effect on the date of this Agreement (“Rules”). The applicable authorities in respect to procedural matters, in order of precedence for purposes of the arbitration, shall be this Agreement, the Rules, and laws of England and Wales.

	 	
(iv)
	
The arbitration shall be heard and determined by three (3) arbitrators.

	 	
(v) 
	
Each Party shall appoint an arbitrator of its choice within twenty (20) days of the submission of the notice of arbitration. If there are more than two Parties to the arbitration, the Party(ies) initiating the arbitration shall choose one arbitrator and the respondent Party(ies) shall choose one arbitrator.

	 	
(vi) 
	
The Party appointed arbitrators shall in turn appoint a presiding arbitrator for the tribunal within twenty (20) days following the appointment of the second Party appointed arbitrator.

	 	
(vii) 
	
If any Party fails to appoint its Party appointed arbitrator and/or the Party appointed arbitrators cannot reach agreement on a presiding arbitrator for the tribunal within the applicable period, the LCIA shall act as appointing authority to appoint an independent arbitrator with at least ten (10) years (including at least five (5) years experience international) experience in the legal and/or commercial aspects
of the petroleum industry.

  

16

  

	 	
(viii) 
	
None of the arbitrators shall have been an employee of or consultant to any Party to this Agreement or any of its Affiliates within the five (5) year period preceding the arbitration, or have any financial interest in the dispute, controversy, or claim.

	 	
(ix) 
	
The arbitrators shall not be bound by the rules of evidence and civil procedure. If a Party fails or refuses to appear at and participate in an arbitration hearing after due notice, the arbitrators may hear and determine the dispute on evidence produced by the Party or Parties that do(es) appear. The arbitrators shall be required to give written reasons for their decision.

	 	
(x) 
	
The award shall be issued in writing within sixty (60) days after the later of the close of the hearing, or the last day for submittal of information or other documents as requested for submittal by the arbitrators.

	 	
(xi) 
	
The decision of the majority of the arbitrators shall constitute an award and said award shall be final and binding upon the Parties, and shall be without right of appeal.

	 	
(xii) 
	
The award of the arbitrators shall take the form of an order to pay money damages in US Dollars, shall not include consequential, punitive or other special damages, and shall include interest from the date of dispute until paid.

	 	
(xiii) 
	
The fees of the arbitrators and costs incidental to arbitration proceedings, including legal expenses of the Parties, shall be borne in accordance with the award of the arbitrators.

	 	
(xiv) 
	
Any arbitration award rendered pursuant to this Agreement shall be enforceable in accordance with the provisions of the 1958 Convention on the Enforcement of Foreign Arbitration Awards of the United Nations to which the United States of America and Nigeria are signatories, and may be entered and confirmed in any court having jurisdiction.

	 	
(xv) 
	
Any governmental body, agency, or government-owned entity which is or becomes a Party to this Agreement agrees to waive all sovereign immunity by whatever name or title with respect to disputes, controversies or claims arising out of or in relation to or in connection with this Agreement, including without limitation, the jurisdiction of the arbitration panel, the enforcement and execution of any arbitration decision
and award, and the issuance of any attachment or other interim remedy.

	 	
(xvi) 
	
Privileges protecting attorney-client communications and attorney work product from compelled disclosure or use in evidence, as recognized by the jurisdiction in which each Party's parent is located, shall apply to and be binding in any arbitration proceeding conducted under this Section 8.

  

17

  

	
9.
	
Force Majeure

If as a result of Force Majeure, any Party is rendered unable, wholly or in part, to carry out its obligations under this Agreement, other than the obligation to pay any amounts due, then the obligations of the Party giving such notice, so far as and to the extent that the obligations are affected by such Force Majeure, shall be suspended
during the continuance of any inability so caused and for such reasonable period thereafter as may be necessary for the Party to put itself in the same position that it occupied prior to the Force Majeure, but for no longer period. The Party claiming Force Majeure shall notify the other Parties of the Force Majeure within a reasonable time after the occurrence of the facts relied on and shall keep ail Parties informed of all significant developments. Such notice shall give reasonably full particulars of the Force
Majeure and also estimate the period of time which the Party will probably require to remedy the Force Majeure. The affected Party shall use all reasonable diligence to remove or overcome the Force Majeure situation as quickly as possible in a commercially reasonable manner but shall not be obligated to settle any labor dispute except on terms acceptable to it All such disputes shall be handled within the sole discretion of the affected Party. The term “Force Majeure” as employed herein shall mean
acts of God, acts of public authorities, strikes, lockouts, labor boycotts (including those affecting the applicable Party's suppliers, contractors or transportation carriers), differences with workmen or failure of carriers to transport or furnish facilities for transportation, or other industrial disturbances, acts of the public enemy, war declared or undeclared, blockades, insurrections, riots, arrests, restraints of government and people, civil disturbances, epidemics, landslides, lightning, earthquakes,
fires, storms, floods, washouts, explosions, breakage or accident to machinery or lines of pipe, the necessity for making repairs to or allocations of machinery or lines of pipe, freezing of wells or lines of pipe, partial or entire failures of wells, the inability to acquire equipment and materials at reasonable cost and after the exercise of reasonable diligence, litigation, arbitration, laws, orders, rules, regulations, requisitions or necessity of any governmental authority (including delays to obtain any
necessary governmental approvals or authorizations on terms reasonably acceptable to the applicable Party or caused by the necessity to cooperate with any Government authority), and any other causes, whether of the kind herein enumerated or otherwise, not within the control of the Party claiming suspension and which, by the exercise of due diligence, such Party is unable to prevent or overcome.

	
10. 
	
Subsequent Transfer of Interest

	 	
(a)
	
No Party shall assign or transfer all or any of its rights or obligations hereunder except in accordance with this Agreement and, if applicable, subject to any necessary consents of the JDA under the terms of the PSC and any other relevant regulations. Except as specifically provided herein, any transfer after the effectiveness of the JOA
shall be subject to the provisions of the JOA.

	 	
(b)
	
Addax and/or SIPEC may assign or transfer all or any of its rights or obligations hereunder to an Affiliate after sending the other Parties advance written notice of its intention to assign such interest. Addax, SIPEC and their respective Parents shall guarantee the performance of the Affiliate's obligations under this Agreement. Addax and/or SIPEC may assign or transfer all or any of its rights or obligations hereunder
to a third party not an Affiliate of Addax and/or SIPEC respectively that is capable of fully assuming and fulfilling the financial and technical obligations corresponding to the interest being transferred, but such transfer shall not be effective until the other Parties have given their written consent (which consent shall not be unreasonably or arbitrarily withheld) and such assignee has executed documentation satisfactory to the other Parties assuming all of the obligations and/of Addax or SIPEC under this
Agreement and the JOA with respect to the interest so assigned. Addax and/or SIPEC agree that any attempt to assign an interest to a third party that is subject to sanctions by the United States government that would prohibit ERHC from owning its Participating Interest in Block 2 shall be null and void and of no effect.

  

18

  

 

	 	
(c)
	
ERHC may assign or transfer all or any of its rights or obligations hereunder to an Affiliate after sending Addax and SIPEC advance written notice of its intention to assign such interest ERHC may assign or transfer all or any of its rights and obligations hereunder to a third party not an Affiliate corresponding to the interest being assigned in accordance with the provisions of the JOA and to any necessary consents
of the JDA under the terms of the PSC and any other relevant regulations. No assignment by ERHC to a third party not an Affiliate of ERHC shall be effective until each of Addax and SIPEC have given their written consent (which consent shall not be unreasonably or arbitrarily withheld) and assignee has executed documentation satisfactory to Addax and SIPEC assuming all of the obligations of ERHC under this Agreement and the JOA with respect to the interest so assigned.

 

	
11.
	
Liability

	 	
(a)
	
Notwithstanding any other provision of this Agreement, in no event shall any Party be liable to the other Party(ies) for special, indirect or consequential damages in connection with this Agreement or with respect to any operations related thereto.

	 	
(b)
	
If Addax and/or SIPEC fail to pay any of the amounts due under this Agreement by the applicable due dates, such amounts shall accrue interest at the interest rate provided in the JOA calculated from the due date until the date of payment.

	 	
(c)
	
If Addax and/or SIPEC fail to pay any of the amounts due under Section 3(a) of this Agreement by the applicable due dates, and such amount(s) remain(s) unpaid for a period of ten (10) days, the Party failing to pay any such amounts shall be deemed to be in default of this Agreement Upon being informed of such default, ERHC shall send to the Party in default a written notice stating the amount and cause of such default
and such Party shall have no more than ten (10) days after receiving such notice to remedy such default The liabilities and obligations of SIPEC and Addax under this Agreement are several and not joint and several and without prejudice to the provisions of the JOA neither SIPEC nor Addax shall be liable under this Agreement for the default of the other howsoever occurring. Inthe unlikely event that both Addax and SIPEC simultaneously become defaulting Parties under this Agreement which causes ERHC to become a
defaulting party under the JOA, then in addition to all rights that ERHC may have against Addax and SIPEC, each of Addax and SIEPC shall be liable to pay to ERHC as liquidated damages the amount of Five Million Dollars (US$5,000,000) and Ten Million Dollars (US$10,000,00) respectively.

  

19

  

 

	
12. 
	
Confidentiality

The Parties have executed a Confidentiality Agreement dated 12 December 2005 that will remain effective and binding on the Parties for the period provided in the Confidentiality Agreement. The Parties agree that the terms and conditions of this Agreement shall be deemed to be “Confidential Information” as such term is defined
in the Confidentiality Agreement Notwithstanding any other provision of this Agreement, neither Party may disclose the Agreement or any of the terms and conditions of the Agreement to any other entity without the written consent of the other Party during the term of this Agreement and for a period of one year thereafter.

	
13. 
	
Miscellaneous

	 	
(a) 
	
Relationship of Parties.

 

The rights, duties, obligations and liabilities of the Parties under this Agreement shall be individual, not joint or several. It is not the intention of the Parties to create, nor shall this Agreement be deemed or construed to create, a mining or other partnership, joint venture or association or (except as explicitly provided in this
Agreement) a trust. This Agreement shall not be deemed or construed to authorize any Party to act as an agent, servant or employee for any other Party for any purpose whatsoever except as explicitly set forth in this Agreement In their relations with each other under this Agreement, the Parties shall not be considered fiduciaries except as expressly provided in this Agreement.

	 	
(b) 
	
Further Assurances.

 

Each of the Parties shall do all such acts and execute and deliver all such documents as shall be reasonably required in order to fully perform and carry out the terms of this Agreement.

	 	
(c) 
	
Waiver.

 

No waiver by any Party of any one or more defaults by another Party in the performance of any provision of this Agreement shall operate or be construed as a waiver of any future default or defaults by the same Party whether of a like or of a different character. Except as expressly provided in this Agreement, no Party shall be deemed to
have waived, released or modified any of its right under this Agreement unless such Party has expressly stated, in writing, that it does waive, release or modify such right.

  

20

  

 

	 	
(d) 
	
Joint Preparation.

 

Each provision of this Agreement shall be construed as though all Parties participated equally in the drafting of the same. Consequently, the Parties acknowledge and agree that any rule of construction that a document is to be construed against the drafting party shall not be applicable to this Agreement.

	 	
(e) 
	
Severance of Invalid Provisions.

 

If and for so long as any provision of this Agreement shall be deemed to be judged invalid for any reason whatsoever, such invalidity shall not affect the validity or operation of any other provision of this Agreement except only so far as shall be necessary to give effect to the construction of such invalidity, and any such invalid provision
shall be deemed severed from this Agreement without affecting the validity of the balance of this Agreement.

 

	 	
(f) 
	
Modifications.

 

There shall be no modification of this Agreement except by written consent of all Parties.

 

	 	
(g) 
	
Priority of Agreement

 

In the event of any conflict between this Agreement and the JOA, this Agreement shall prevail.

 

	 	
(h) 
	
Interpretation.

	 	
i)
	
Headings. The topical headings used in this Agreement are for convenience only and shall not be construed as having any substantive significance or as indicating that all of the provisions of this Agreement relating to any topic are to be found in any particular Section.

	 	
ii) 
	
Singular and Plural. Reference to the singular includes a reference to the plural and vice versa.

	 	
iii)
	
Gender. Reference to any gender includes a reference to all other genders.

	 	
iv)
	
Article. Unless otherwise provided, reference to any Section or Annex means a Section or Annex of the Agreement

Include. “include” and “including” shall mean to be inclusive without limiting the generality of the description preceding such term and are used in an illustrative sense and not a limiting sense.

  

21

  

	 	
(i) 
	
Counterpart Execution,

This Agreement may be executed in any number of counterparts and each such counterpart shall be deemed an original Agreement for all purposes; provided that no Party shall be bound to this Agreement unless and until all Parties have executed a counterpart. For purposes of assembling all counterparts into one document, ERHC is authorized
to detach the signature page from one or more counterparts and, after signature thereof by the respective Party, attach each signed signature page to a counterpart. For the purposes of this Agreement, execution of the Agreement by facsimile shall be considered as an original signature.

 

	 	
(j) 
	
Public Announcements.

No press release concerning any of the terms hereof or the existence of this Agreement shall be made without the prior written approval of the other Party. Any Party desiring to issue a press release shall provide a written copy of the proposed press release to the other Party and the other Party shall advise the releasing Party of any
changes it proposes before the elapse of forty-eight (48) hours from the date such notice is received. If no written response is received within the time specified above, the press release shall be deemed approved. Nothing contained in this Section, however, shall be construed to require any Party to obtain approval of the other Party to disclose information with respect to the transaction contemplated by this Agreement to any governmental authority or agency to the extent required by applicable law or by any
applicable rules, regulations or orders of any governmental authority or agency having jurisdiction or necessary to comply with disclosure requirements of any applicable securities laws. Even where no approval is required from the other Parties under this Section 13(j) the Party making the announcement shall give prior notice to the other Parties of the contents of such announcement prior to its publication.

 

	 	
(k) 
	
Entirety.

With respect to the subject matter contained herein, this Agreement (i) is the entire agreement of the Parties; and (ii) supersedes all prior understandings and negotiations of the Parties.

 

	 	
(1) 
	
Term

The Agreement shall be deemed effective on the Effective Date and shall continue in effect until (i) terminated as provided herein or until (ii) the Parties have fully performed their obligations hereunder, whichever first occurs.

IN WITNESS WHEREOF, the duly authorized representatives of the Parties hereto have executed this Agreement on the day, month and year first above written.

  

22

  

 

	 	ERHC Energy, Inc.
	 	 	 	 
	 	By:	/s/ Walter F [ILLEGIBLE]	 
	 	 	 Walter F. [ILLEGIBLE]	 
	 	 	 President and Chief Executive Officer	 
	 	 	 	 
	 	 	 	 
	 	Addax Energy Niagra Limited	 
	 	 	 	 
	 	 	/s/ L.L Blair	 
	 	By:	 L. L. Blair	 
	 	 	Director	 
	 	 	 	 
	 	 	 	 
	 	Sinopec International Petroleum Exploration and Production Co. Niagra Limited
	 	 	 	 
	 	 	/s/ Ling Ming Xiang	 
	 	 	Ling Ming Xiang	 
	 	 	Managing Director	 
	 	 	 	 
	 	 	 	 
	 	Signed by Addax Petroleum Corporation and Sinopec International Petroleum Exploration and Production Corporation only for the purposes of affirming the provisions of section 5(a)([ILLEGIBLE]).
	 	 	 	 
	 	 	 	 
	 	For and on Behalf of Addax Petroleum Corporation
	 	 	 	 
	 	By:	/s/ Jean Claude Gandur	 
	 	 	Jean Claude Gandur	 
	 	 	 	 
	 	 	 	 
	 	Sinopec International Petroleum Exploration and Production Corporation
	 	 	 	 
	 	 	/s/ Zhou [ILLEGIBLE]	 
	 	By:	Zhou [ILLEGIBLE]	 
	 	 	 	 

 

 

23ex10_15.htm

Exhibit 10.15

 

EXECUTION VERSION

PARTICIPATION AGREEMENT

 

This Participation Agreement (“Agreement”) is made and entered into this 11th day of August, 2004 by and between

Environmental Remediation Holding Corporation, a corporation organized and existing under the laws of the State of Colorado, U.S.A. (hereinafter referred to as “ERHC”), and

Pioneer Natural Resources USA, Inc. a company incorporated in Delaware (hereinafter referred to as “Pioneer”).

Each of ERHC and Pioneer is individually a “Party” and they are collectively the “Parties” to this Agreement.

 

 

WITNESSETH:

WHEREAS, ERHC holds rights under certain agreements between itself, the Government of São Tomé e Príncipe and the Joint Development Authority (the “JDA”) of the Nigeria-São Tomé e Príncipe Joint Development Zone (the “JDZ”), to
wit:

	 	
•
	
The Memorandum of Agreement between the Democratic Republic of Sao Tome e Principe and ERHC dated May 21, 2001; and

  

	 	
•
	
Option Agreement between the Democratic Republic of São Tomé e Príncipe and ERHC dated April 2, 2003; and

  

	 	
•
	
Administration Agreement between the JDA and ERHC dated April 7, 2003 (collectively hereinafter referred to as the “Option Agreements”); and

 

WHEREAS, the Option Agreements allow ERHC to elect to acquire from the JDA participating interests in certain Blocks within the JDZ;

WHEREAS, the Parties acknowledge that ERHC has, by exercising its Choice 4 option under the Option Agreements, elected to acquire a Participating Interest of thirty percent (30%) in Block 2, subject to the terms of a Production Sharing Contract that will be negotiated between the
JDA and all of the non-Governmental acquiring parties to Block 2 (“PSC”), and that, pursuant to the terms of the Option Agreements, such interest will not include an obligation to pay a pro-rata share of the applicable signature bonus (“the Option Interest”);

WHEREAS, the Parties acknowledge that ERHC has submitted a bid in accordance with the rules of the JDZ bid round that occurred in October 2003 that, if successful, will entitle ERHC to acquire an additional Participating Interest in Block 2 subject to the terms of a PSC that will be
negotiated between the JDA and all of the non-Governmental acquiring parties to Block 2, and that such interest will include an obligation to pay a pro-rata share of the applicable signature bonus (“the Bid Interest”);

  

1

  

EXECUTION VERSION

WHEREAS, the Parties acknowledge that the terms and conditions applicable to the PSC for Block 2, including but not limited to the Work Program, have not yet been agreed between the JDA and the non-Governmental parties to the PSC;

WHEREAS, Pioneer desires to acquire fifty percent (50%) of the Option Interest and ninety percent (90%) of the Bid Interest for the consideration and upon the terms and conditions contained herein; and

WHEREAS, ERHC desires to assign, transfer, or otherwise convey to Pioneer such rights owned by ERHC that will enable Pioneer to acquire fifty percent (50%) of the Option Interest and ninety percent (90%) of the Bid Interest for the consideration and upon the terms and conditions contained
herein.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereto agree as follows:

	
1.
	
Definitions

“Affiliate” means a legal entity which controls, or is controlled by, or which is controlled by an entity which controls, a Party. For the purposes of this definition, control means the ownership
directly or indirectly of more than fifty percent (50%) of the voting rights in a legal entity. “Controls,” “controlled by” and other derivatives shall be construed accordingly.

“Application” means the bid submitted to the JDA by ERHC in respect of the Bid Interest, a summary of which is attached hereto as Annex 1.

“Assigned Interest” means fifty percent (50%) of the Option Interest and ninety percent (90%) of the Bid Interest and all related rights and obligations pertaining thereto, including but not
limited to copies of all data, interpretations thereof and other information owned by ERHC in respect of Block 2.

“Assignment” means either (i) the acquisition by Pioneer of the Assigned Interest by its execution of a PSC covering Block 2 or (ii) the transfer, conveyance or assignment of the Assigned
Interest to Pioneer from ERHC by written document duly approved by the relevant Governmental authorities.

“Bid Interest” has the meaning ascribed to it in the Recitals.

“Block 2” means that geographical area of the JDZ designated by the coordinates promulgated by the JDA in accordance with the JDZ bid round that occurred in October, 2003.

  

2

  

  EXECUTION VERSION

“Carried Costs” has the meaning ascribed to it in Section 3(c).

“Contractor” means the combination of all non-Government parties to the PSC for Block 2.

“Cost Oil” means the quantity of crude oil allocated to the Contractor in accordance with the terms of the PSC for the recovery of allowable Costs by Contractor.

“Costs” means the costs incurred by the Parties to perform Petroleum Operations, including costs for Operator's overhead properly charged in accordance with the JOA.

“Declaration of Commerciality” means the date that the Contractor under the PSC has completed all of the appraisal work for a commercial discovery and notifies the JDA that it intends to develop
the field and will submit for approval a proposal for a field development program.

“Earning Period” means the period beginning on the Transfer Date and ending on the date that the first Declaration of Commerciality is made under the PSC in respect of Block 2.

“Effective Date” means the date first above written. The Agreement shall be effective after execution by the Parties as of the Effective Date and shall continue in effect (i) until terminated
as provided herein or (ii) until the Parties have fully performed their obligations hereunder, whichever first occurs.

“Government” means any nation or any political subdivision of such nation, including the JDA, and any department, court, commission, board, bureau, ministry, agency, or other instrumentality
of such a nation or political subdivision, that exercises or is entitled to exercise administrative, executive, judicial, legislative, police, regulatory or taxing authority.

“Joint Development Authority” or “JDA” means
the Joint Development Authority established by Part Three of the Treaty.

“Joint Development Zone” or “JDZ” means,
subject to Article 5 and Article 31 (paragraph 5) of the Treaty, the area of seabed and subsoil, together with the superjacent waters, established as a joint development zone under Article 2 of the Treaty.

 

“Joint Operating Agreement” or “JOA” means
the Joint Operating Agreement to be entered into between the parties owning a Participating Interest in respect to Block 2. The Parties will use their reasonable efforts to negotiate and sign such JOA within 120 days from the Effective Date, but in any event no later than the date the PSC is executed. Such JOA will be based on the 1995 AIPN Model Form International Operating Agreement and the AIPN 2000 Model Form Accounting Procedure.

“Operator” means the operator appointed in accordance with the terms of the JOA and the PSC.

“Option Interest” has the meaning ascribed to it in the Recitals.

  

3

  

 

EXECUTION VERSION

“Participating Interest'' means as to any party to the PSC, the undivided interest of such party expressed as a percentage of the total interest of all parties in the rights and obligations derived
from the PSC.

“Petroleum Operations” means all operations conducted in accordance with the PSC and the JOA for the purposes of exploring for, developing, exploiting and producing crude oil and/or natural
gas from Block 2.

“Petroleum Regulations” means the Petroleum Regulations 2003 enacted by the JDA.

“Profit Oil” means the balance of crude oil remaining after the allocation of Royalty Oil, Cost Oil, and Tax Oil in accordance with the provisions of the PSC.

“PSC” has the meaning ascribed to it in the Recitals.

“Retained Bid Interest” means the remaining portion of the Bid Interest owned by ERHC after the Assignment of the Assigned Interest to Pioneer.

“Retained Option Interest” means the remaining portion of the Option Interest owned by ERHC after the Assignment of the Assigned Interest to Pioneer.

“Royalty” means the amount payable as Royalties to the JDA as defined in the Petroleum Regulations.

“Royalty Oil” means the quantity of crude oil that will generate an amount of revenues from the sale of crude oil equal to the actual amount necessary to pay Royalty and concession rentals.

“Tax” means the taxes payable pursuant to the Tax Regulations.

“Tax Regulations” means the Tax Regulations 2002 enacted by the JDA, and any amendments thereto.

“Tax Oil” means the quantity of crude oil allocated to the JDA in accordance with the terms of the PSC that will generate an amount of revenues from the sale of crude oil equal to the actual
amount necessary to pay the Tax.

“Transfer Date” means the date the PSC is effective in accordance with the regulations of the JDA.

“Treaty” means the Treaty signed on 21 February 2001 by the government of Nigeria and the government of São Tomé e Príncipe in respect of the joint development of petroleum
and other resources in the areas of the Exclusive Economic Zones of the two countries.

“Work Program” means the Petroleum Operations committed to be carried out by Contractor in Block 2 in accordance with the PSC.

  

4

  

EXECUTION VERSION

 

	
2.
	
Assigned Interest

	 	
(a)
	
ERHC agrees to use its reasonable efforts to cause Pioneer to acquire the Assigned Interest by direct execution of the PSC. However, in the event Pioneer does not execute the
PSC directly, then subject to the satisfaction or waiver of the conditions precedent contained in Section 2 (b) hereof, ERHC hereby agrees to grant, convey, assign and transfer, effective as of the Transfer Date, and no later than ten (10) days after the satisfaction
or waiver of the conditions precedent contained in Section 2 (b), the Assigned Interest.

 

	 	
(b)
	
Conditions Precedent

Notwithstanding anything provided herein to the contrary, the obligations of Pioneer under this Agreement are subject to the satisfaction or Pioneer's waiver of each of the following conditions precedent:

	 	
(i)
	
The Parties and the JDA execute the PSC;

	 	
(ii)
	
Any necessary approval(s) by the relevant Governmental authorities to the transfer of the Assigned Interest to Pioneer are obtained;

	 	
(iii)
	
The Assigned Interest is, in the aggregate, no less than fifteen percent (15%) of the total Participating Interest in Block 2;

	 	
(iv)
	
The Option Interest is equal to at least thirty percent (30%) Participating Interest in Block 2; and

	 	
(v)
	
Pioneer is appointed Operator under the PSC.

	 	
(c) 
	
If the conditions precedent are not fulfilled, or waived by Pioneer, within two years after the Effective Date, either Party may elect by written notice to the other Party,
to terminate this Agreement and neither Party shall have any further obligations to the other Party.

 

	
3.
	
Pioneer's Obligations

	 	
(a) 
	
After the Transfer Date, Pioneer shall be obligated to pay all Costs and other obligations attributable to the Assigned Interest in accordance with the PSC, the JOA and
any other applicable agreements.

	 	
(b)
	
Pioneer shall bear and pay for all taxes, fees and other similar costs assessed by the Government in connection with the transfer, conveyance or assignment of the PSC to Pioneer
and Pioneer agrees to indemnify and hold ERHC harmless from any such taxes, fees or other costs relating to the Assignment.

  

5

  

  EXECUTION VERSION

	 	
(c) 
	
In addition to the obligations contained in Sections 3(a) and 3(b), Pioneer agrees to pay on behalf of ERHC, subject to the limitations contained in this Section 3, ERHC's Participating Interest share of all Costs attributable to the Retained Option Interest and the Retained Bid Interest (“ERHC PI”) during the Earning Period as follows (the “Carried Costs”):

	 	
(i) 
	
Costs incurred to perform the Petroleum Operations necessary to fulfill the minimum work commitment during Phase I as provided in the PSC up to ERHC PI's share of forty million US dollars (US$40,000,000); plus

	 	
(ii) 
	
All Costs attributable to ERHC PI's share over forty million US dollars (US$40,000,000), but still incurred in respect of the minimum work commitment under Phase I of the PSC, shall be paid by Pioneer, but shall be subject to the additional obligation set forth in Section 3(c)(v) below; plus

	 	
(iii) 
	
If Pioneer, at its sole option, decides to perform additional Petroleum Operations after satisfying the minimum work commitment for Phase I as provided in the PSC, Pioneer will pay ERHC PI's share of such Costs up to ERHC PI's share of ten million US dollars (US$10,000,000); plus

	 	
(iv) 
	
All Costs attributable to ERHC PI's share over ten million US dollars (US$10,000,000), but incurred during the Earning Period shall be paid by Pioneer, but shall be subject to the additional obligation set forth in Section 3(c)(v) below.

	 	
(v) 
	
All Costs incurred by Pioneer pursuant to Sections 3(c)(ii) and 3(c)(iv) hereof shall be charged interest compounded on a monthly basis until all Costs and interest have been recovered by Pioneer in accordance with Section 4(h) hereof, at the greater of:

	 	
(y) 
	
the rate of 10% per annum to begin on the first day of the month succeeding the month in which the Cost is incurred. If the aforesaid rate is contrary to any applicable usury law, the rate of interest shall be the maximum rate permitted by such applicable law; or

	 	
(z) 
	
the rate per annum equal to the to the one (1) month term, London Interbank Offered Rate for U.S. dollar deposits, as published in London by the Financial times or if not published, then by The Wall Street Journal, plus six (6) percentage points, applicable on the first day of the month succeeding the month in which the Cost is incurred and thereafter on the first day of each succeeding calendar month. If the aforesaid
rate is contrary to any applicable usury law, the rate of interest shall be the maximum rate permitted by such applicable law.

	 	
(vi)
	
Notwithstanding anything to the contrary in this Agreement, during the period of time after the Declaration of Commerciality but before the commencement of the field development programme, Costs (including allocated Operator's overhead charges) shall continue to be paid by Pioneer in accordance with Sections 3(c)(iii) and (iv); except that
ERHC will pay its Participating Interest share of all Costs (including Operator's allocated overhead charges) incurred by the joint account in respect of the preparation and approval of the field development programme in accordance with the provisions of the JOA.

  

6

  

 

  EXECUTION VERSION

	 	
(d)
	
Pioneer agrees to pay any signature bonus related to the Bid Interest and the Retained Bid Interest.

	 	
(e)
	
Pioneer shall pay to ERHC, no later than ten (10) days after the execution of the PSC in respect of Block 2, the sum of one hundred thousand US dollars ($100,000) for each percentage point or part thereof of Participating Interest acquired by Pioneer in respect of the Bid Interest.

	 	
(f)
	
Pioneer shall furnish all financial guarantees required by the PSC or other laws and regulations of the JDZ and JDA in respect of the Retained Option Interest and the Retained Bid Interest, and shall continue to maintain such guarantees in place during the Earning Period.

	 	
(g)
	
After the completion of the minimum work commitment for Phase I of the PSC, nothing contained in this Section 3 shall prevent Pioneer from withdrawing from the PSC in its sole discretion in accordance with the terms of the PSC and the JOA. If Pioneer elects to withdraw entirely from the PSC and the JOA, all Pioneer obligations provided in this Agreement shall terminate (except for obligations incurred prior to the
withdrawal) and neither Party shall have any further obligations to the other Party.

 

	
4.
	
Undertakings of the Parties

	 	
(a)
	
If in the course of processing the Application, the JDA requests the Parties to revise the terms offered under such Application, the Parties shall endeavor to agree unanimously on a response to the proposed revisions within the time frame allowed under the circumstances. If the Parties are unable to so agree, then Pioneer may propose such terms as it deems most likely to satisfy the JDA and may proceed with negotiations.

	 	
(b)
	
If the Application is successful, the Parties thereto shall proceed to negotiate in good faith and execute a PSC with the JDA. Pioneer shall act as the lead negotiator for the Parties during the negotiation of the PSC. Pioneer shall promptly advise ERHC of upcoming meetings with the JDA, consult with ERHC regarding strategy, and otherwise advise ERHC of the progress of negotiations. Each of such Parties shall be
entitled to be present at and participate in all negotiations with the JDA. Nothing contained herein shall be deemed to obligate Pioneer to execute the PSC if, in its sole discretion, it decides not to. However, if Pioneer notifies ERHC in writing that it will not accept the Assignment, and ERHC notifies Pioneer in writing that it desires to execute the PSC, Pioneer shall assign all of its rights under this Agreement to ERHC, free and clear of any encumbrances of any sort created by Pioneer, and this Agreement
shall terminate and neither Party shall have any further obligations to the other Party.

  

7

  

EXECUTION VERSION

 

	 	
(c)
	
Neither Party shall have the right to bind the other Party without such Party's prior written approval.

	 	
(d)
	
Each Party shall bear its own costs related to the negotiation and execution of the agreements contemplated by this Agreement.

	 	
(e)
	
Neither Party nor any of its Affiliates shall, for a period of two (2) years after the Effective Date, enter into any agreement with any entity or person pursuant to which a Party acquires an interest in Block 2 other than through the PSC, JOA and other agreements that are contemplated by this Agreement. Without prejudice to any other remedies either Party may have, if any Party acquires such an interest in violation
of this undertaking, it shall forthwith notify the other Party and, upon request, assign or cause to be assigned all of the interest so acquired to the other Party for the same consideration paid by such Party or its Affiliate to the entity from whom such interest was acquired.

	 	
(f)
	
During the Earning Period Pioneer shall be entitled to vote on behalf of ERHC the Participating Interest share attributable to the Retained Option Interest in all matters requiring a vote of the Parties under the JOA, except that for matter requiring a unanimous vote under the JOA, Pioneer shall be entitled to vote ERHC's entire Participating Interest in Block 2.

	 	
(g) 
	
ERHC agrees to support Pioneer as Operator of Block 2 under both the PSC and JOA.

	 	
(h)
	
Pioneer shall be entitled to receive fifty percent (50%) of the allocation of Cost Oil attributable to Costs properly allocable to Cost Oil under the PSC in respect of the Retained Option Interest and the Retained Bid Interest until it has recovered all of the Carried Costs (the “Cost Recovery”). In
addition, Pioneer shall be entitled to receive an additional (i) twenty percent (20%) of the allocation of Cost Oil and (ii) twenty percent (20%) of the allocation of Profit Oil attributable to the Retained Option Interest and the Retained Bid Interest until it has recovered all of the:

	 	
(x)
	
Carried Costs that are not recoverable under the PSC, but are incurred as joint account costs under the JOA (specifically excluding any amounts incurred by Pioneer pursuant to Sections 3(d) and 3(e) hereof); and

	 	
(y)
	
interest that has accrued in accordance with Section 3(c)(v) (collectively the “Interest Recovery”).

  

8

  

  EXECUTION VERSION

If the total aggregate amount to be received in any accounting period by ERHC, after giving effect to this Section 4(h), is less than the amount that ERHC would be obligated to pay in respect of non-capital operating costs for the same accounting period, Pioneer's entitlement to the recovery amounts hereunder shall be reduced to allow
ERHC to pay such non-capital operating costs in the current period and the amount so reduced shall be carried forward to the next accounting period(s). Cost Recovery and Interest Recovery will continue as provided herein until completed, after which ERHC shall be entitled to one hundred percent (100%) of the Cost Oil and Profit Oil attributable to the Retained Option Interest and the Retained Bid Interest. In addition, Pioneer shall be entitled to all deductions which are allowable against Tax in respect to such
Carried Costs and shall also be entitled to receive any R-factor and other benefits under the PSC attributable to the Carried Costs. In the event the Government does not allow the assignment of such Cost Oil and Profit Oil rights from ERHC to Pioneer, ERHC shall make other arrangements that will place Pioneer in the same economic position as if such assignment had been allowed.

	 	
(i)
	
It is anticipated that the minimum work commitment for Phase I of the PSC will include an obligation to acquire seismic data. If any or all of such seismic data are licensed or otherwise acquired by Pioneer from a non-Affiliate third party and are subject to restrictions on disclosure by Pioneer to ERHC (“Licensed Data”), ERHC will be responsible for obtaining a separate agreement with such third party
allowing said disclosure, and Pioneer will reimburse ERHC for one hundred percent (100%) of the costs associated with said licensing agreement and all of such costs will be deemed Carried Costs incurred by Pioneer pursuant to Sections 3(c)(i) and (c)(ii). In no event will Pioneer be responsible for obtaining any rights in regard to the Licensed Data for ERHC.

	
5.
	
Representation and Warranties

	 	
(a)
	
ERHC hereby represents and warrants that:

	 	
(i) 
	
It is a corporation duly formed and currently existing in good standing under the laws of the State of Colorado and that is has full power and authority to hold the Assigned Interests and to execute and deliver this Agreement;

	 	
(ii) 
	
The execution and delivery of this Agreement has been authorized by sufficient corporate action and that the person executing on behalf of ERHC has all necessary corporate power and authority to execute the Assignment;

	 	
(iii) 
	
Neither the execution of this Agreement or the Assignment nor the consummation of the transactions contemplated herein will be or was in conflict with or result in the breach of any provision of, or constitute a default under, any judgment, decree, law, regulation, ordinance or other governmental order applicable to ERHC or the Assigned Interest;

  

9

  

  EXECUTION VERSION

	 	
(iv)
	
It has not received any notice of default and is not, to the best of its knowledge, in default under any order, writ, injunction or decree of any court, or any agreement or obligation, to which it is a party or by which it is bound or to which it may be subject, affecting Block 2 or ERHC's right to enter into this Agreement or the Assignment or to carry out the transactions contemplated herein;

	 	
(v)
	
It has not gone into liquidation, made an assignment for the benefit of creditors, declared itself or been declared bankrupt or insolvent by a competent court or had a receiver appointed in respect of the whole or any part of its assets and has no plans to do so;

	 	
(vi)
	
The Assigned Interests are not subject to any material adverse contractual obligations, net profits interests, overriding royalty interests, production payments or any mortgages, pledges, liens, burdens or other encumbrances and there is no agreement to create the same; and

	 	
(vii)
	
No Work Program or commitment in excess of that disclosed to Pioneer in writing prior to the date of this Agreement has been proposed to the JDA by ERHC, nor will be so proposed without the Pioneer's prior written agreement.

	 	
(viii)
	
The Application contained in Annex 1 is a true summary of the bid submitted to the JDA by ERHC in respect of Block 2 in accordance with the rules of the JDZ bid round that occurred in October 2003 and such bid has not been amended or revoked.

	 	
(b) 
	
Pioneer hereby represents and warrants that:

	 	
(i)
	
It is a corporation that has been duly formed and currently exists in good standing under the laws of Delaware and that it has full power and authority to execute this Agreement;

	 	
(ii)
	
The execution and delivery of this Agreement has been authorized by sufficient corporate action and the person executing on behalf of Pioneer has all necessary corporate power and authority to execute and accept the Agreement;

	 	
(iii) 
	
It has the ability to meet all of its financial obligations hereunder;

	 	
(iv)
	
It has not gone into liquidation, made an assignment for the benefit of creditors, declared itself or been declared bankrupt or insolvent by a competent court or had a receiver appointed in respect of the whole or any part of its assets and has no plans to do so;

	 	
(v) 
	
Neither the execution of this Agreement or the relevant Assignment nor the consummation of the transactions contemplated herein will be, or was, in conflict with or result in the breach of any provision of, or constitute a default under, any judgment, decree, law, regulation, ordinance or other governmental order applicable to the company
or the Assigned Interest; and

  

10

  

 

  EXECUTION VERSION

	 	
 (vi)
	
It has not received any notice of default and is not, to the best of its knowledge, in default under any order, writ, injunction or decree of any court, or any agreement or obligation, to which it is a party or by which it is bound or to which it may be subject, affecting Block 2 or its right to enter into this Agreement or the Assignment or to carry out the transactions contemplated herein.

	 	
(c)
	
Mutual Representations and Warranties

	 	
(i)
	
Each Party warrants that it and its Affiliates have not made, offered, or authorized and will not make, offer, or authorize with respect to the matters which are the subject of this Agreement, any payment, gift, promise or other advantage, whether directly or through any other person or entity, to or for the use or benefit of any public official (i.e., any person holding a legislative, administrative or judicial
office, including any person employed by or acting on behalf of a public agency, a public enterprise or a public international organization) or any political party or political party official or candidate for office, where such payment, gift, promise or advantage would violate (i) the applicable laws of the United States of America, Nigeria, São Tomé e Príncipe and the JDA (ii) the laws of the country of incorporation of such Party or such Party's ultimate parent company and of the principal place
of business of such ultimate parent company; or (iii) the principles described in the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, signed in Paris on December 17, 1997, which entered into force on February 15, 1999, and the Convention's Commentaries. Each Party shall defend, indemnify and hold the other Parties harmless from and against any and all claims, damages, losses, penalties, costs and expenses arising from or related to, any breach by such Party
of such warranty. Such indemnity obligation shall survive termination or expiration of this Agreement. Each Party shall in good time (i) respond in reasonable detail to any notice from any other Party reasonably connected with the above-stated warranty; and (ii) furnish applicable documentary support for such response upon request from such other Party. Each Party agrees to (i) maintain adequate internal controls; (ii) properly record and report all transactions; and (iii) comply with the laws applicable to it.
Each Party must rely on the other Parties' system of internal controls, and on the adequacy of full disclosure of the facts, and of financial and other data regarding the joint operations undertaken under this Agreement. No Party is in any way authorized to take any action on behalf of another Party that would result in an inadequate or inaccurate recording and reporting of assets, liabilities or any other transaction, or which would put such Party in violation of its obligations under the laws applicable to
the operations under this Agreement.

	 	
(ii) 
	
The Parties covenant that neither they nor any of their Affiliates or any of their respective officers, directors, employees, agents or stockholders acting on behalf of such Party will pay, promise to pay, or authorize or permit the direct or indirect payment of, by such Party or by any affiliate or agent thereof, any money or anything
of value to any person for the purpose of illegally or improperly inducing that person to take any action or omit to take any action in connection with the Option Interest or the Bid Interest. Each of the Parties shall indemnify the other and its officers, directors, employees, agents or stockholders acting on behalf of such party from and against any claim, loss, damage, liability, expense and cost of whatever nature arising out of or connected with a Party's non­compliance.

  

11

  

EXECUTION VERSION

	 	
(iii)
	
The execution of this Agreement by one of the Parties shall not trigger any liability or obligation as to any other Party other than those contained in this Agreement.

	 	
(iv)
	
All representations and warranties given under this Section 5 shall, for the contractual term set forth herein, be deemed repeated and valid, true and correct as of the Transfer Date, and each Party agrees to inform the other Party of any material changes to the facts in the representations and warranties prior to the Transfer Date.

	 	
(v) 
	
ERHC agrees to indemnify and hold Pioneer harmless from and against:

	 	
(1)
	
any claims, causes of action, or liabilities of any kind or character which arise out of the breach by ERHC of any of its warranties, representations and covenants under this Agreement; and

	 	
(2)
	
any costs, expenses, or other liabilities of any kind or character arising in connection with (x) the Assigned Interest or any operations that are attributable to the period of time prior to the Transfer Date and (y) the Retained Option Interest and the Retained Bid Interest or any operations relating thereto that are attributable to the period of time after the Transfer Date.

	 	
(vi) 
	
Pioneer agrees to indemnify and hold ERHC harmless from and against

	 	
(1)
	
any claims, causes of action, or liabilities of any kind or character which arise out of the breach by Pioneer of any of its warranties, representations and covenants under this Agreement; and

 

	 	
(2)
	
any costs, expenses, or other liabilities of any kind or character arising in connection with the Assigned Interest or any operations relating thereto that are attributable to the period of time after the Transfer Date.

	 	
(d) 
	
The respective indemnities, representations and warranties of the Parties as setforth in this Agreement shall remain in full force and effect, and shall survive the Transfer Date without limitation as to time.

  

12

  

EXECUTION VERSION

	 	
(e) 
	
Disclaimer of Other Representations and Warranties.

 

EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES PROVIDED IN THIS SECTION, ERHC AND PIONEER MAKE NO, AND DISCLAIM ANY, WARRANTY OR REPRESENTATION OF ANY KIND, EITHER EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, THE ACCURACY OR COMPLETENESS OF ANY DATA, REPORTS, RECORDS, PROJECTIONS, INFORMATION,
OR MATERIALS NOW, HERETOFORE, OR HEREAFTER FURNISHED OR MADE AVAILABLE TO PIONEER IN CONNECTION WITH THIS AGREEMENT.

 

	
6.
	
Tax

	 	
(a)
	
Each Party shall be responsible for reporting and discharging its own tax measured by the profit or income of the Party and the satisfaction of such Party's share of all obligations
under the PS C and under this Agreement. Each Party shall protect, defend and indemnify each other Party from any and all loss, cost or liability arising from the indemnifying Party's
failure to report and discharge such taxes or satisfy such obligations. The Parties intend that all income and all tax benefits (including deductions, depreciation, credits and capitalization)
with respect to the expenditures made by the Parties hereunder will be allocated by the JDA tax authorities to the Parties based on the share of each tax item actually received or borne
by each Party. If such allocation is not accomplished due to the application of the laws, regulations or other Government action, the Parties shall adopt mutually agreeable arrangements
that will allow the Parties to achieve the financial results intended. Operator shall provide each Party, in a timely manner and at such Party's sole expense, with such information
with respect to joint operations as such Party may reasonably request for preparation of its tax returns or responding to any audit or other tax proceeding.

	 	
(b)
	
If interpretation or enforcement of the PSC by the Government imposes joint and several liability on the Parties for any levy, charge or tax, the Parties agree to cross indemnify each other to the extent that such levy, charge or tax is owed by one Party individually.

	 	
(c) 
	
United States Tax Election.

	 	
(i) 
	
If, for United States federal income tax purposes, this Agreement and the operations under this Agreement are regarded as a partnership, each Party elects to be excluded from the application of all of the provisions of Subchapter “K”, Chapter 1, Subtitle “A” of the United States Internal Revenue Code of 1986, as
amended (the “Code”), to the extent permitted and authorized by Section 761(a) of the Code and the regulations promulgated under the Code. Operator, if it is a U.S. Party, is authorized and directed to execute and file for each Party such evidence of this election as may be required by the Internal Revenue Service, including all of the returns, statements, and data required by United States Treasury Regulations Sections 1.761-2 and 1.6031(a)-1(b)(5) and shall provide a copy thereof to each U.S. Party.
However, if Operator is not a U.S. Party, the Party who holds the greatest Participating Interest among the U.S. Parties shall fulfill the obligations of Operator under this Section. Should there be any requirement that any Party give further evidence of this election, each Party shall execute such documents and furnish such other evidence as may be required by the Internal Revenue Service or as may be necessary to evidence this election.

  

13

  

  EXECUTION VERSION

	 	
(ii)
	
No Party shall give any notice or take any other action inconsistent with the foregoing election. If any income tax laws of any state or other political subdivision of the United States or any future income tax laws of the United States or any such political subdivision contain provisions similar to those in Subchapter “K”, Chapter 1, Subtitle “A” of the Code, under which an election similar
to that provided by Section 761(a) of the Code is permitted Operator (or each U.S. Party if required for such purpose) shall make such election as may be permitted or required by such laws and each Non-U.S. Party shall join therein to the least extent necessary to permit such election to be effectively made. In making the foregoing election or elections, each U.S. Party states that the income derived by it from operations under this Agreement can be adequately determined without the computation of partnership
taxable income.

	 	
(iii)
	
Unless approved by every non-U.S. Party, no activity shall be conducted under this Agreement that would cause any non-U.S. Party to be deemed to be engaged in a trade or business within the United States under United States income tax laws and regulations or to be subject to any U.S. tax reporting or payment obligations that it would not otherwise be subject to.

	
7. 
	
Notices

All notices authorized or required between the Parties by any of the provisions of this Agreement shall be in writing (in English) and delivered in person or by courier service or by any electronic means of transmitting written communications which provides written confirmation of complete transmission, and properly addressed to the other
Party. Verbal communication does not constitute notice for purposes of this Agreement, and e-mail addresses and telephone numbers for the Parties are listed below as a matter of convenience only. A notice given under any provision of this Agreement shall be deemed delivered only when received by the Party to whom such notice is directed, and the time for such Party to deliver any notice in response to such originating notice shall run from the date the originating notice is received. “Received” for
purposes of this Section shall mean actual delivery of the notice to the address of the Party specified hereunder.

  

14

  

EXECUTION VERSION

	
Addresses
	
Names of Representatives

	 	 
	
ERHC:
	  
	
Environmental Remediation Holding Corp.
	  
	
5444 Westheimer, Suite 1570
	
President & CEO

	
Houston, TX 77056
	  
	
Phone: (713)626-4700
	  
	
Facsimile: (713) 609-4704
	  
	  	  
	 	 
	
Pioneer:
	  
	
Pioneer Natural Resources USA, Inc.
	
Director, International Negotiations

	
5205 N. O'Connor Blvd., Suite 1400
	  
	
Irving, Texas 75039
	  
	
Phone: (972)444-9001
	  
	
Fax: (972) 969-3552
	  

	
8. 
	
Governing Law; Dispute Resolution

	 	
(a) 
	
Governing Law

 

The substantive law of Texas, exclusive of any conflicts of laws principles that could require the application of any other law, shall govern this Agreement for all purposes, including the resolution of disputes between or among Parties.

	 	
(b) 
	
Dispute Resolution

	 	
(i)
	
The Parties agree, as a severable and independent arbitration agreement separately enforceable from the remainder of this Agreement, that any dispute, controversy or claim arising out of or in relation to or in connection with this Agreement, including, without limitation, any dispute as to the construction, validity, interpretation, enforceability, or breach of this Agreement, or of any guaranty issued pursuant
to or in connection with this Agreement, that cannot be settled through good-faith negotiations shall be exclusively and finally settled by arbitration in accordance with this Section 8.

	 	
(ii)
	
Any Party may submit such a dispute, controversy, or claim to arbitration by notice to the other Party and the administrator for the American Arbitration Association (“AAA”).

	 	
(iii)
	
The arbitration proceedings shall be conducted in Houston, Texas in the English language in accordance with the International Arbitration Rules of the AAA as in effect on the date of this Agreement. The applicable authorities in order of precedence for purposes of the arbitration shall be this Agreement, such Arbitration Rules, and laws of New York.

  

15

  

  EXECUTION VERSION

	 	
(iv) 
	
The arbitration shall be heard and determined by three (3) arbitrators.

	 	
(v)
	
Each Party shall appoint an arbitrator of its choice within twenty (20) days of the submission of the notice of arbitration.

	 	
(vi)
	
The Party appointed arbitrators shall in turn appoint a presiding arbitrator for the tribunal within twenty (20) days following the appointment of the second Party appointed arbitrator.

	 	
(vii)
	
If any Party fails to appoint its Party appointed arbitrator and/or the Party appointed arbitrators cannot reach agreement on a presiding arbitrator for the tribunal within the applicable period, the AAA shall act as appointing authority to appoint an independent arbitrator with at least ten (10) years experience in the legal and/or commercial aspects of the petroleum industry.

	 	
(viii)
	
None of the arbitrators shall have been an employee of or consultant to either Party to this Agreement or any of its Affiliates within the five (5) year period preceding the arbitration, or have any financial interest in the dispute, controversy, or claim.

	 	
(ix)
	
The arbitrators shall not be bound by the rules of evidence and civil procedure. If a Party fails or refuses to appear at and participate in an arbitration hearing after due notice, the arbitrators may hear and determine the dispute on evidence produced by the Party that does appear. The arbitrators shall be required to give written reasons for their decision.

	 	
(x)
	
The award shall be issued in writing within sixty (60) days after the later of the close of the hearing, or the last day for submittal of information or other documents as requested for submittal by the arbitrators.

	 	
(xi)
	
The decision of the majority of the arbitrators shall constitute an award and said award shall be final and binding upon the Parties, and shall be without right of appeal.

	 	
(xii)
	
The award of the arbitrators shall take the form of an order to pay money damages in US Dollars, shall not include consequential, punitive or other special damages, and shall include interest from the date of dispute until paid.

	 	
(xiii)
	
The fees of the arbitrators and costs incidental to arbitration proceedings, including legal expenses of the Parties, shall be borne in accordance with the award of the arbitrators.

	 	
(xiv)
	
Any arbitration award rendered pursuant to this Agreement shall be enforceable in accordance with the provisions of the 1958 Convention on the Enforcement of Foreign Arbitration Awards of the United Nations to which the United States of America is a signatory, and may be entered and confirmed in any court having jurisdiction.

  

16

  

EXECUTION VERSION

	 	
(xv)
	
Any governmental body, agency, or government-owned entity which is or becomes a Party to this Agreement agrees to waive all sovereign immunity by whatever name or title with respect to disputes, controversies or claims arising out of or in relation to or in connection with this Agreement, including without limitation, the jurisdiction of the arbitration panel, the enforcement and execution of any arbitration decision
and award, and the issuance of any attachment or other interim remedy.

	 	
(xvi)
	
Privileges protecting attorney-client communications and attorney work product from compelled disclosure or use in evidence, as recognized by the jurisdiction in which each Party's parent is located, shall apply to and be binding in any arbitration proceeding conducted under this Section 8.

	
9. 
	
FORCE MAJEURE

If as a result of Force Majeure, any Party is rendered unable, wholly or in part, to carry out its obligations under this Agreement, other than the obligation to pay any amounts due, then the obligations of the Party giving such notice, so far as and to the extent that the obligations are affected by such Force Majeure, shall be suspended
during the continuance of any inability so caused and for such reasonable period thereafter as may be necessary for the Party to put itself in the same position that it occupied prior to the Force Majeure, but for no longer period. The Party claiming Force Majeure shall notify the other Parties of the Force Majeure within a reasonable time after the occurrence of the facts relied on and shall keep all Parties informed of all significant developments. Such notice shall give reasonably full particulars of the Force
Majeure and also estimate the period of time which the Party will probably require to remedy the Force Majeure. The affected Party shall use all reasonable diligence to remove or overcome the Force Majeure situation as quickly as possible in a commercially reasonable manner but shall not be obligated to settle any labor dispute except on terms acceptable to it. All such disputes shall be handled within the sole discretion of the affected Party. The term “Force Majeure” as employed herein shall mean
acts of God, acts of public authorities, strikes, lockouts, labor boycotts (including those affecting the applicable Party's suppliers, contractors or transportation carriers), differences with workmen or failure of carriers to transport or furnish facilities for transportation, or other industrial disturbances, acts of the public enemy, war declared or undeclared, blockades, insurrections, riots, arrests, restraints of government and people, civil disturbances, epidemics, landslides, lightning, earthquakes,
fires, storms, floods, washouts, explosions, breakage or accident to machinery or lines of pipe, the necessity for making repairs to or allocations of machinery or lines of pipe, freezing of wells or lines of pipe, partial or entire failures of wells, the inability to acquire equipment and materials at reasonable cost and after the exercise of reasonable diligence, litigation, arbitration, laws, orders, rules, regulations, requisitions or necessity of any governmental authority (including delays to obtain any
necessary governmental approvals or authorizations on terms reasonably acceptable to the applicable Party or caused by the necessity to cooperate with any Governmental Authority), and any other causes, whether of the kind herein enumerated or otherwise, not within the control of the Party claiming suspension and which, by the exercise of due diligence, such Party is unable to prevent or overcome.

  

17

  

EXECUTION VERSION

	
10. 
	
ASSIGNMENT

	 	
(a)
	
No Party shall assign or transfer all or any of its rights or obligations hereunder except in accordance with this Agreement and, if applicable, subject to any necessary consents of the JDA under the terms of the PSC and any other relevant regulations.

	 	
(b)
	
Pioneer may assign or transfer all or any of its rights or obligations hereunder to a third party (including an Affiliate) that is capable of fully assuming and fulfilling the financial and technical obligations corresponding to the interest being assigned in accordance with the provisions to the JOA and to any necessary consents of the JDA under the terms of the PSC and any other relevant regulations. No assignment
by Pioneer to a third party not an Affiliate of Pioneer shall be effective until ERHC has given its written consent (which consent shall not be unreasonably or arbitrarily withheld) and assignee has executed documentation satisfactory to ERHC assuming all of the obligations of Pioneer under this Agreement and the JOA with respect to the interest so assigned. Any assignment by Pioneer hereunder shall be subject to the following limitations:

	 	
(i)
	
Pioneer may not assign more than 75% of its total Participating Interest until the approval of the first field development programme;

	 	
(ii)
	
After the approval of the first field development programme, Pioneer may assign one hundred percent (100%) of its Participation Interest; and

	 	
(iii) 
	
Pioneer may not assign less than 5% to any one entity.

	 	
(c)
	
ERHC may assign or transfer all or any of its rights and obligations hereunder to a third party (including an Affiliate) that is capable of fully assuming
and fulfilling the financial and technical obligations corresponding to the interest being assigned in accordance with the provisions of the JOA and to any necessary consents of
the JDA under the terms of the PSC and any other relevant regulations. No assignment by ERHC to a third party not an Affiliate of ERHC shall be effective until
Pioneer has given its written consent (which consent shall not be unreasonably or arbitrarily withheld) and assignee has executed documentation satisfactory to Pioneer assuming all
of the obligations of ERHC under this Agreement and the JOA with respect to the interest so assigned. Any assignment by ERHC hereunder shall be subject to the following limitations:

	 	
(i)
	
ERHC may not assign any of its Participating Interest prior to the Transfer Date;

	 	
(ii)
	
After the Transfer Date but prior to the completion of the minimum work commitment of Phase I of the PSC, ERHC may not assign more than fifty percent (50%) of its total Participating Interest; and

  

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  EXECUTION VERSION

	 	
(iii)
	
After the completion of the minimum work commitment of Phase I of the PSC but prior to the approval of the first field development programme, ERHC may not assign more than seventy-five percent (75%) of its total Participating Interest;

	 	
(iv)
	
After the approval of the first field development programme, ERHC may assign one hundred percent (100%) of its Participation Interest.

	 	
(v) 
	
ERHC may not assign less than 5% to any one entity.

	
11. 
	
Liability

	 	
(a)
	
Notwithstanding any other provisions of this Agreement, in no event shall any Party be liable to the other Party for special, indirect, punitive or consequential damages in connection with this Agreement.

	 	
(b)
	
If either Party fails to pay any of the amounts due under this Agreement (that are not otherwise due and payable under the JOA) by the applicable due dates, and such amount(s) remain unpaid for a period of thirty (30) days, any such amounts shall be deemed to be in default. At any time after a default, the non-defaulting Party shall have the right to send the defaulting Party a written notice stating the amount and
cause of such default and the defaulting Party shall have no more than thirty (30) days after receiving such notice to remedy such default or send a written counter-notice to the non-defaulting Party stating the reasons why defaulting Party disputes such default. If the Parties do not reach agreement on the disposition of the default within 30 days after receipt of either such notice, then the non-defaulting Party shall be entitled to all remedies that would be available to a non-defaulting party under the JOA,
applied mutatis mutandis to this Agreement, as if ERHC and the Pioneer were the only parties to the JOA.

	
12. 
	
Confidentiality

	 	
(a)
	
No disclosure or press release concerning any of the terms hereof shall be made without the prior written consent of both Parties. Nothing contained in this Section, however, shall be construed to require any Party to obtain approval of the other Party to disclose information with respect to the transaction contemplated by this Agreement to any governmental authority or agency to the extent required by applicable
law or by any applicable rules, regulations or orders of any governmental authority or agency having jurisdiction or necessary to comply with disclosure requirements of any applicable securities laws.

	 	
(b) 
	
The Parties have executed a Confidentiality Agreement dated 16 June 2004 that will remain effective and binding on the Parties until the execution of the JOA. In the event that Pioneer terminates its participation in this Agreement pursuant to Section 4 hereof, both Pioneer and ERHC shall remain bound the terms of such Confidentiality Agreement
for a period of two (2) years after the Effective Date.

  

19

  

  EXECUTION VERSION

	
13. 
	
Miscellaneous

	 	
(a) 
	
Relationship of Parties,

 

The rights, duties, obligations and liabilities of the Parties under this Agreement shall be individual, not joint or collective. It is not the intention of the Parties to create, nor shall this Agreement be deemed or construed to create, a mining or other partnership, joint venture or association or (except as explicitly provided in this
Agreement) a trust. This Agreement shall not be deemed or construed to authorize any Party to act as an agent, servant or employee for any other Party for any purpose whatsoever except as explicitly set forth in this Agreement. In their relations with each other under this Agreement, the Parties shall not be considered fiduciaries except as expressly provided in this Agreement.

	 	
(b) 
	
Further Assurances.

 

Each of the Parties shall do all such acts and execute and deliver all such documents as shall be reasonably required in order to fully perform and carry out the terms of this Agreement.

	 	
(c) 
	
Waiver.

 

No waiver by any Party of any one or more defaults by another Party in the performance of any provision of this Agreement shall operate or be construed as a waiver of any future default or defaults by the same Party whether of a like or of a different character. Except as expressly provided in this Agreement, no Party shall be deemed to
have waived, released or modified any of its right under this Agreement unless such Party has expressly stated, in writing, that it does waive, release or modify such right.

	 	
(d) 
	
Joint Preparation.

 

Each provision of this Agreement shall be construed as though all Parties participated equally in the drafting of the same. Consequently, the Parties acknowledge and agree that any rule of construction that a document is to be construed against the drafting party shall not be applicable to this Agreement.

	 	
(e) 
	
Severance of Invalid Provisions.

 

If and for so long as any provision of this Agreement shall be deemed to be judged invalid for any reason whatsoever, such invalidity shall not affect the validity or operation of any other provision of this Agreement except only so far as shall be necessary to give effect to the construction of such invalidity, and any such invalid provision
shall be deemed severed from this Agreement without affecting the validity of the balance of this Agreement.

  

20

  

EXECUTION VERSION

	 	
(f) 
	
Modifications.

 

There shall be no modification of this Agreement except by written consent of all Parties.

	 	
(g) 
	
Priority of Agreement.

In the event of any conflict between this Agreement and the JOA, this Agreement shall prevail. In the event of any conflict between this Agreement and the PSC, this Agreement shall prevail unless such would be in violation of the applicable laws and/or the terms of the PSC.

	 	
(h) 
	
Interpretation.

	 	
(i) 
	
Headings. The topical headings used in this Agreement are for convenience only and shall not be construed as having any substantive significance or as indicating that all of the provisions of this Agreement relating to any topic are to be found in any particular Section.

	 	
(ii) 
	
Singular and Plural. Reference to the singular includes a reference to the plural and vice versa.

	 	
(iii)
	
Gender. Reference to any gender includes a reference to all other genders.

	 	
(iv)
	
 Section. Unless otherwise provided, reference to any Section or Annex means a Section or Annex of the Agreement.

	 	
(v)
	
 Include. “include” and “including” shall mean to be inclusive without limiting the generality of the description preceding such term and are used in an illustrative sense and not a limiting sense.

	 	
(i) 
	
Counterpart Execution.

This Agreement may be executed in any number of counterparts and each such counterpart shall be deemed an original Agreement for all purposes; provided that no Party shall be bound to this Agreement unless and until all Parties have executed a counterpart. For purposes of assembling all counterparts into one document, ERHC is authorized
to detach the signature page from one or more counterparts and, after signature thereof by the respective Party, attach each signed signature page to a counterpart. For the purposes of this Agreement, execution of the Agreement by facsimile shall be considered as an original signature.

	 	
(j) 
	
Public Announcements.

No public announcement or statement regarding the terms or existence of this Agreement shall be made without prior written consent of all Parties; provided that, notwithstanding any failure to obtain such approval, no Party shall be prohibited from issuing or making any such public announcement or statement to the extent it is necessary
to do so in order to comply with the applicable laws, rules or regulations of any government, legal proceedings or stock exchange having jurisdiction over such Party or its Affiliates, however, any such required public announcement shall include only that portion information which the disclosing Party is advised by written opinion of counsel (including in-house counsel) is legally required. Such opinion shall be delivered to the other Parties prior to any such public announcement.

  

21

  

EXECUTION VERSION

	 	
(k) 
	
Entirety.

With respect to the subject matter contained herein, this Agreement (i) is the entire agreement of the Parties; and (ii) supersedes all prior understandings and negotiations of the Parties.

IN WITNESS WHEREOF, the duly authorized representatives of the Parties hereto have executed this Agreement on the day, month and year first above written.

ENVIRONMENTAL REMEDIATION HOLDING CORPORATION

	  	  	/s/ Ali Memon	  
	 	 	 	 
	
By:
	  	
Ali Memon
	  
	 	 	 	 
	
Title:
	  	
President and Chief Executive Officer
	  

 

 

PIONEER NATURAL RESOURCES USA, INC.

	  	  	/s/ Scott D. Sheffield	  
	 	 	 	 
	
By:
	  	
Scott D. Sheffield
	  
	 	 	 	 
	
Title:
	  	
President
	  
	 	 	 	 
	 	 	 	 
	Annex 1    	 	ERHC's Bid for Block 2	 

 

 

22

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