MINING USUFRUCT AGREEMENT
This Agreement is entered into this 16th day of October, 1997 by and between the
STATE TREASURY OF THE REPUBLIC OF POLAND (herein the "Treasury"), represented by
the Minister of Environmental Protection, Natural Resources and Forestry Mr.
Xxxxxxxxx Xxxxxxxxxxx (herein the "Minister'), acting through Xx. Xxxxxxxxx
Xxxxxxxx Secretary of State
and
[Entity Named on attached Schedule], a Polish commercial partnership (spolka
jawna) with its seat at Wal Miedzeszyuski 000, 00-000 Xxxxxxxx, Xxxxxx, entered
into the Commercial Register kept by the District Court in Warsaw, under number
RHA (herein the "Partnership"), represented by Xx. Xxxxx X. Xxxxxx.
WHEREAS, the Partnership desires to explore for Gold in the Republic of Poland;
and
WHEREAS, the Partnership, through its partners and their parent companies, has
the experience, financial and technical ability and resources, and professional
expertise efficiently to explore for Gold; and
WHEREAS, the ownership of all Gold existing in its natural condition within the
territory of the Republic of Poland belongs to the Treasury,
NOW, THEREFORE, the Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 The following terms when used in this Agreement shall have the meaning
ascribed to them in the Geological and Mining Law as in effect on the date
of this Agreement:
Prospecting
Exploration
Exploitation
Geological Documentation
Mineral Deposit
Mining Area
Geological Works
Geological Works Plan
1.2 The following terms when used in this Agreement shall have the meaning
ascribed to them hereunder:
1.2.1 "Block" means any of the areas designated by the Minister as
prospective concession areas for the purposes of granting concessions
regarding the Prospecting for and Exploration of Gold. At its
effective date, this Agreement covers one (1) Block identified and
described in Schedule "A" as [Block identified on attached Schedule].
1.2.2 "Concession" means a Prospecting Concession or an Exploitation
Concession.
1.2.3 "Prospecting and Exploration Concession" means the Concession granted
under the Geological and Mining Law for the Prospecting for and
Exploration of Gold, of the type referred to in Article 15.1 of the
Geological and Mining Law.
1.2.4 "Exploitation Concession" means the Concession granted under the
Geological and Mining Law for the Exploitation of Gold of the type
referred to in Article 15.2 of the Geological and Mining Law.
1.2.5 "Concession Effective Date" as to any particular Concession means the
date on which the Minister signs the Concession.
1.2.6 "Concession Operations" means all or any of the operations undertaken
pursuant by the applicable Concession.
1.2.7 "Exploration Period" means the six (6) years beginning on the
Concession Effective Date of the Prospecting and Exploration
Concession issued to the Partnership for the Block specified in
Schedule "A", provided that such period may be extended by agreement
of both Parties.
1.2.8 "Mining Usufruct Area " means the Block described in Schedule "A"
excluding any portion thereof in respect of which the Partnership's
rights hereunder are from time to time relinquished or surrendered by
thc Partnership.
1.2.9 "Designated Entity" means an entity designated by the Minister to
represent it for certain purposes under this Agreement as set forth in
Article XVII.
1.2.10 "Parties" means the Treasury and the Partnership, and "Party " means
either of the Parties.
1.2.11 "Geological and Mining Law" means the Act of February 4th, 1994.
1.2.12 "Gold" means gold in any quantity and form existing in the soil or
rock, whether as natural or anthropogenic, separately or in
combination with any other metals or metal ores. For the purposes of
this Agreement the term "Gold" shall also include deposits of any
other precious metals or other minerals which can. be discovered by
methods used in gold exploration.
1.2.13 "Affiliate" shall mean any party which, directly or indirectly,
controls, is controlled by or is under common control with the
Partnership or any of its partners. For the purposes of this Agreement
"control" shall mean the ability to direct strategic decisions of
another entity, whether by exercising voting rights at the
shareholders meeting, appointing members of governing bodies or
otherwise.
ARTICLE II
ESTABLISHMENT OF MINING USUFRUCT
2.1 The Minister acting on behalf of the Treasury, as the sole owner of the
Mineral Deposits, hereby establishes in favor of the Partnership a mining
usufruct in the Mining Usufruct Area regarding the Prospecting for and
Exploration of Gold. Such right is of an exclusive nature.
2.2 The mining usufruct regarding the Prospecting for and Exploration with
respect to the Block is subject to the Partnership obtaining a Prospecting
and Exploration Concession covering the Block.
2.3 Subject to the fulfillment by the Partnership of the requirements set forth
by law, upon request of the Partnership the Treasury shall enter with it
into a mining usufruct agreement regarding the Exploitation of Gold, on
terms and conditions agreed by the Parties and enabling continuation of
activities regarding exploitation of gold within a given block.
ARTICLE III
GRANT OF RIGHTS AND EFFECTIVENESS
3.1 This Agreement shall come into effect when signed by the Parties. If the
Prospecting and Exploration Concession referred to in Article 2.2 is not
granted within four (4) months after the Partnership submits the concession
application, then the Partnership shall have the right to immediately
terminate this Agreement by written notice within sixty (60) days'
following the expiration of the four-month period.
3.2 The Partnership shall submit application for the Prospecting and
Exploration Concession within ninety (90) days from the date hereof.
ARTICLE IV
WORK PROGRAM
The Partnership shall implement the work program described in Schedule B. The
Partnership will commence its work program not later than thirty (30) days after
the beginning of the Exploration Period. The Partnership shall expend not less
than US$20,000 during the first eighteen (18) months of the Exploration Period
in carrying out the work program Unless the Partnership shall have relinquished
the Mining usufruct Area at the end of the first part of the Exploration Period
lasting eighteen (18) months, the Partnership shall expend not less than
US$40,000 during months nineteen (19) through forty two (42) of the Exploration
Period in carrying out the work program Unless the Partnership shall have
relinquished the Mining usufruct Area at the end of the second part of the
Exploration Period, lasting 24 months, the Partnership shall expend not less
than US$100,000 during months forty three (43) through seventy two (72) of the
Exploration Period in carrying out the work program.
ARTICLE V
DESIGNATION OF MINING AREAS
5.1 During the term of this Agreement, if the Partnership discovers deposits of
Gold or Gold and other minerals which it believes can be extracted
profitably, the Partnership may elect to prepare appropriate documents and
requests:
5.1.1 approval of the Geological Documentation by the appropriate agency of
the state geological administration; and
5.1.2 establishing of mining usufruct regarding Exploitation and granting an
Exploitation Concession.
5.2 The Mining Area shall be designated based on geological documentation and
it will include the entire surface area within the contour of the deposit
of Gold, as demonstrated by the Geological Documentation.
ARTICLE VI
OWNERSHIP OF DATA AND GOLD
6.1 Ownership of all information and data obtained as a result of Concession
Operations shall be vested in the Partnership. The Partnership shall,
however, provide the Minister with the information and reports described in
Article 5.5 and 8.6.
6.2 Ownership of all Gold produced by the Partnership from the Mining Usufruct
Area shall pass to the Partnership upon separation from the soil or rock in
which it is deposited.
6.3 After the Concession Effective Date of the Prospecting and Exploration
Concession, the Partnership will have access to and the right to copy, free
of cost other than reasonable costs of reproduction and handling, all
geological, geophysical, geochemical, drilling, engineering, well log, and
other information and data relating to Gold owned or possessed by the
Treasury or the Minister in relation to the Block or to the work program
referred to in Article IV.
ARTICLE VII
RELINQUISHMENT
7.1 The Partnership may relinquish any part or all of the Mining Usufruct Area
at any time, but shall complete the expenditure of funds in carrying out
the then current work program which has accrued before such relinquishment.
7.2 Any areas to be relinquished under this Article shall be determined by the
Partnership, provided that areas to be relinquished shall be of sufficient
size and convenient shape to enable activities to be carried out thereon by
others. The Partnership shall give notice in writing to the Minister of
said area(s) no later than thirty (30) days prior to the intended
relinquishment, including a map showing said area(s) with the geographic
location and the coordinates of the connecting points of the boundary
lines. The Minister shall advise the Partnership within fifteen (15) days
of such notice whether it agrees with the area(s) selected for
relinquishment.
The Minister shall not refuse or withhold its consent if the aforementioned
criteria relating to size and shape are fulfilled and if the Partnership
meets the requirements set forth by regulations of law regarding protection
of the environment in respect to the areas to be relinquished.
ARTICLE VIII
CONDUCT OF OPERATIONS
8.1 The Partnership is responsible for the conduct of the Concession Operations
contemplated by this Agreement and the applicable Concession. All capital,
machinery, equipment, technology and personnel which is necessary for the
Partnership to conduct Concession Operations will be for ten account of the
Partnership.
8.2 The Partnership shall conduct the Concession Operations diligently and in
accordance with the laws of Poland and good international mining sector
practices as designed to permit the economic, efficient and safe
exploration for and development of Gold.
8.3 The Minister will endeavor to provide the Partnership with assistance as
described below when the Minister believes it is in the best interest of
the Partnership to do so, but failure to provide the described assistance
will not result in an extension of time in which the Partnership is to
perform the relevant obligations, nor create any liability or
responsibility on the part of the Treasury.
8.3.1 The Minister will assist the Partnership in its application for and
insofar as possible in granting by national and local Polish
government of permissions required for the performance of Concession
Operations, including, but not limited to, licenses, permits,
approvals, authorizations, consents, visas, work permits, surface
rights and easements.
8.3.2 The Minister will assist in obtaining and providing to the Partnership
such general information, other than information referred to in
Article 6.3, as may be reasonably required by the Partnership for
planning and executing projects incidental to Concession Operations.
8.4 Prior to commencing any Geological Works, the Partnership shall submit to
the Minister the applicable Geological Works Plan.
8.5 The Partnership shall provide to the Minister or to the Designated Entity,
as defined in Article XVII, data and information collected and compiled
with respect to Concession Operations in the Mining Usufruct Area, as
follows:
8.5.1 one set of geological reports, studies, or interpretations and the
maps, sections and other documents related thereto;
8.5.2 one set of all geophysical recordings, measurements and reports, with
all maps profiles, sections, interpretations, studies, and other
documents relating thereto;
8.5.3 one set of final well reports and composite logs representing the
Ethnology and other parameters relating to each well drilled;
8.5.4 a representative portion of all cores, samples and other materials
taken from outcrops and xxxxx; and
8.5.5 one set of analyses or other results in final form produced by or for
the Partnership in connection with Concession Operations.
All of such information shall be kept confidential by the Minister or
the Designated Entity for a period of one year after it is provided.
8.6 The Partnership shall make such other reports to the Minister in such form,
detail and at such time as the Minister may reasonably require with respect
to exploration, production, employment or training, or such other matters
related to the conduct of Concession Operations hereunder, provided,
however, that the Minister's requests for such reports shall not interfere
unreasonably with the Partnership's ability to carry out Concession
Operations efficiently or necessitate any undue expense. Pursuant to the
above mentioned determination, the Partnership shall submit annually to the
Minister a report of the progress of the work and a short memorandum of the
results thereof.
8.7 The Partnership shall give prompt written notice to the Minister in the
event of any change of the Partnership's name, organizational form,
increase or decrease of the partners' contributions to the Partnership,
petition for bankruptcy, restructuring of debt, or liquidation. The
Minister may request any necessary clarification in these matters. For the
avoidance of doubt, none of the above shall require the consent of the
Treasury.
ARTICLE IX
PROTECTION OF ENVIRONMENT AND SAFETY
9.1 The Partnership shall conduct Concession Operations in accordance with the
laws of Poland and good international mining industry practice relating to
the protection of the environment, including but not necessarily limited to
the following:
9.1.1 The Partnership shall in particular take all commercially reasonable
steps required by Polish law and good international mining industry
practice to:
a ensure that its operations minimize ecological damage or
destruction;
b. prevent damage to Gold or ground water bearing strata; and
c. prevent damage to land, fresh water supplies, animal life, flora,
crops, buildings or other structures.
9.1.2 If there is a release of any hazardous material on land, fresh water,
or any other form of pollution or other harm to fresh water, land,
animal life or flora as a result of Concession Operations, the
Partnership shall promptly take all necessary measures to control the
pollution, to clean up any released material or to repair, to the
extent commercially feasible, any damage resulting from such
circumstances.
9.1.3 In the event of an emergency the Partnership shall notify the Minister
immediately and shall take such action as may be prescribed by the
appropriate governmental authority and otherwise act in accordance
with good international mining industry practice.
9.1.4 The Partnership shall take steps to ensure restoration of the
operating environment upon termination of the Concessions. The
Partnership shall provide the Minister a copy of the plans for
restoration of the operating environment that are required by law.
ARTICLE X
EMPLOYMENT AND TRAINING
10.1 Subject to the applicable provisions of law, the Partnership shall be free
to employ such personnel and sub-contractors as it may choose for the
purpose of carrying out the Concession Operations. To the extent the
Partnership deems it reasonable and prudent to do so, and as far as is
consistent with efficient operations and with the Partnership's
responsibility for the conduct of the Concession Operations, in recruiting
employee candidates the Partnership shall give preference to Polish
citizens who are qualified by education, training and experience to conduct
the tasks for which they are considered; and in selecting subcontractors to
carry out the Concession Operations in the Republic of Poland the
Partnership shall give preference to Polish sub-contractors, provided they
are competitive in terms of quality, cost, and the ability to meet required
schedules.
10.2 The Partnership shall provide such training as it deems appropriate for
Polish citizens employed directly or indirectly in the Concession
Operations during term of this Agreement.
ARTICLE XI
ASSIGNMENT
11.1 The Partnership has the right to assign or transfer all or part of its
rights and obligations under this Agreement to any Affiliate. Upon request
of the Partnership, the Treasury shall execute such documents as the
Partnership may reasonably require to evidence the Treasury's consent to
such transfer to a particular Affiliate. The Partnership has the right to
assign or transfer all or part of its obligations and rights under this
Agreement to any third party, subject to the requirement that the
Partnership obtain the prior written consent of the Treasury, which consent
shall not be unreasonably withheld or delayed provided that the Minister
shall be satisfied that any such assignee shall be technically and
financially able to carry out the terms and conditions of this Agreement.
11.2 A change of the legal persons who form the Partnership or a change of
ownership of shares of any of such legal persons shall not be considered an
assignment or transfer of rights under this Agreement and shall not require
the consent of the Treasury.
ARTICLE XII
FORCE MAJEURE
12.1 Performance under this Agreement by the Partnership or the Treasury shall
be excused in the event such performance is delayed or prevented by acts of
Force Majeure. Acts of Force Majeure are events beyond the reasonable
control of the Party claiming to be affected by any such event, which have
not been brought about at its insistence and include, but are not limited
to, war, insurrection, riot, civil disorder, embargo, blockade, explosion,
fire, lightening, earthquake or other adverse weather conditions, strikes,
non-availability of equipment, failure to obtain public or private permits
or authorizations to explore the Mining usufruct Area, or any other event
of a similar nature, whether or not of the same type or kind. The Parties
shall use reasonable diligence to seek to overcome the obstacle and resume
performance within a reasonable time after the obstacle is removed.
12.2 If Concession Operations are delayed, curtailed or prevented by such
causes, then the time for carrying out the obligations affected thereby,
the duration of the relevant period of Concession Operations, the term of
this Agreement, and all rights and obligations hereunder, all shall be
extended for a period equal to the delay caused by the Force Majeure
occurrence plus such period of time as is necessary to reestablish
operations.
12.3 The Party whose ability to perform its obligations is so affected shall
notify forthwith the other Party thereof in writing stating the cause, and
the Parties shall do all that is reasonably within their power to remove
such cause.
ARTICLE XIII
TERMINATION
13.1 The Partnership may terminate this Agreement, in whole or in part, on sixty
(60) days' notice subject to implementation of the work program prescribed
for the part of the Exploration Period (pursuant to Article IV) within
which the Partnership declares termination of the Agreement.
13.2 In the event the Partnership takes an action or fails to take an action
which results in a material breach of this Agreement, then within sixty
(60) days of receiving written notice from the Minister of such alleged
material breach the Partnership shall take action reasonably intended to
remedy such alleged breach If within the time allowed the Partnership fails
to take remedial action, then the Minister, on behalf of the Treasury, may
give the Partnership a notice of termination and then this Agreement shall
terminate upon expiration of sixty (60) days from the receipt of such
notice by the Partnership, subject to Article 13.3 below.
13.3 Should the Partnership dispute the existence of circumstances in Article
13.2, the Partnership may refer the dispute, at any time before the end of
sixty (60) days after receipt of the notice of termination from the
Minister, to arbitration as provided by Article XIV and termination of the
Agreement by the Minister on behalf of the Treasury shall be suspended and
not take effect except under the terms of any arbitration award which
results.
ARTICLE XIV
ARBITRATION
141 Any dispute as to any matter or operation arising out of or in connection
with this Agreement, including, without limitation, any dispute as to the
validity, construction, enforceability or breach of this Agreement shall be
exclusively and finally settled by arbitration, and any Party may submit
such a dispute to arbitration.
14.2 Arbitration proceedings shall be conducted by three (3) arbitrators in
accordance with the Rules of UNCITRAL, the United Nations Commission on
International Trade Law.
14.3 Unless otherwise agreed in writing by the Parties, the third arbitrator
appointed pursuant to Article 14.2 shall not be a national of Poland or of
the same nationality as the main shareholder(s) of Partnership.
14.4 In any arbitration proceeding hereunder:
14.4.1 proceedings shall, unless otherwise agreed in writing by the Parties,
be held in Warsaw, Poland;
14.4.2 the Polish language shall be the official language for all purposes;
and
14.4.3 the decision of the majority of the arbitrators shall be final and
binding and shall be enforceable in any court of competent
jurisdiction.
14.5 The costs of arbitration shall be borne in the manner determined by the
arbitration tribunal.
14.6 Each of the Parties hereby irrevocably waives any and all claims to
immunity in regard to the arbitration proceedings and any proceedings to
enforce, recognize or execute any arbitral award rendered by a tribunal
constituted pursuant to this Agreement including, without limitation,
sovereign immunity, immunity from service of process, immunity from
jurisdiction of any court, and immunity of such of its property as is of a
commercial nature from execution.
ARTICLE XV
GOVERNING LAW AND STABILIZATION
15.1 This Agreement shall be governed by the laws of Poland and international
treaties which Poland has adopted.
15.2 The Minister on behalf of the Treasury acknowledges that the Partnership
has entered into this Agreement in reliance on the Polish law as in
existence on the date the Partnership executes this Agreement, particularly
the laws and ordinances relating to Article 84 exploitation charges
(subject to Article 15.3 below), taxation, the export of Gold, and the
repatriation of profits. The Minister on behalf of the Treasury hereby
represents that all rights granted to the Partnership hereunder are in
conformity with Polish law as in effect on the date the Partnership
executes this Agreement, as such law applies to the Partnership. In the
event that any change to the law of Poland occurs or the Government takes
any other action which restricts, divests or limits any rights or benefits
accruing to the Partnership or which increases the Partnership's
obligations or costs of operation under this Agreement or under the law of
Poland, the Partnership may, at any time thereafter so notify the Minister
in writing. Promptly upon receipt of such notice, the Minister and the
Partnership shall meet to negotiate in good faith and agree upon the
modifications which need to be made to the terms of this Agreement to
restore the Partnership's rights and benefits to a level equal to what they
would have been had such change not occurred, or upon such other remedy as
they agree may be appropriate. In the event the Parties are unable to agree
within ninety (90) days after the Partnership's notice to the Minister upon
the modifications which are needed to the Agreement or upon such other
remedy as may be required, then either Party may at any time thereafter
refer the matter or matters in dispute to arbitration pursuant to Article
XIV.
15.3 The Partnership and the Treasury acknowledge that the Council of Ministers
has not specified the Article 84 exploitation charge rate with respect to
Gold in Poland, that the statutory default rate is 10%, and that this rate
could make Gold Exploitation non-economic. The Minister shall initiate a
procedure to review the exploitation charge for Gold and consider
specifying the exploitation charge for Gold at a reasonable lower level.
ARTICLE XVI
MINING USUFRUCT FEES & OTHER PAYMENTS
16.1 The Partnership shall pay the Treasury a mining usufruct fee as follows:
16.1.1 As mining usufruct fee with respect to the Prospecting and Exploration
for one Block, the Partnership shall pay the Polish zloty equivalent
of US$ 7,500 within 60 days from obtaining the Exploration Concession.
16.1.3 The mining usufruct fee shall be paid to the following bank account:
Ministry of Environmental Protection,
Natural Resources and Forestry
Biuro Adrninistracyjno-Budzetowe
NBP 0/0 Warszawa
account# 00000000-680-273-1
title: 28.31.3996 S 64 - Mining usufruct fee;or such other account as
the Minister may notify to the Partnership in writing.
16.2 The concession fee referred to in Article 85 of the Geological and Mining
Law of February 4, 1994 shall amount to the zloty equivalent of US $7,500,
payable in full within sixty (60) days from obtaining the Exploration
Concession. Sixty percent (60%) of the fee shall constitute the revenue of
the local authorities on whose territory the activities under the
Exploration Concession are to be conducted and the remaining forty percent
(40%) shall constitute the revenue of the National Fund for Environmental
Protection and Water Management.
ARTICLE XVII
DESIGNATED ENTITY
17.1 The Minister may designate an entity of its choice to represent the
Minister for the purposes of receipt and safekeeping of reports,
interpretations, maps, data, cores, samples, and other information.
17.2 The appointment of a Designated Entity notwithstanding, the Treasury shall
remain responsible to the Partnership for al of its obligations to the
Partnership as provided herein
17.3 The Minister shall notify the Partnership in writing of its naming of the
Designated Entity, of the specific purpose to which such designation
relates, and of all communication and other details which the Partnership
requires to know about such Designated Entity. Such notification shall be
made in good time to enable the Partnership to comply with its obligations
hereunder and so as not to disrupt or delay Concession Operations.
ARTICLE XVIII
NOTICES
18.1 All notices, applications, requests, agreements, approval, consents,
instructions, delegations, waivers or other communications to be given,
submitted or made hereunder by any Party to another shall be sufficiently
given if in writing and delivered in person to an authorized representative
of the Party to whom such notice is directed or when sent by registered
post, postage paid, or by telegram, telex, facsimile or cable, to the
address or addressee of the other Party as follows, or to such other
address as a Party may specify in writing to the other:
for the Treasury Xxxxx Xxxxxxxxxx, Vice-Director
or the Minister: Department of Geology and Geological Concessions
Ministry of Environmental Protection,
Natural Resources and Forestry
00/00 Xxxxxxxx Xxxxxx
00-000 Xxxxxxxx Xxxxxx
Facsimile: 25-15-03
for the Partnership: Xxxxx X. Xxxxxx
FX Energy Poland Sp. z o.o. & Partners
(Block 43), Commercial Partnership
Wal Miedzeszyuski 000
00-000 Xxxxxxxx Xxxxxx
Facsimile: 671-6640, 000-00-00
18.2 Notices when given in terms of Article 18.1 shall be made in the Polish
language, shall be effective when delivered, if delivered during business
hours of working days; if received outside business hours such notices
shall be effective on the next following working day.
18.3 The Partnership shall appoint, by written notice to the Minister, a
plenipotentiary for cooperation with the Minister and other state
authorities. Such plenipotentiary shall be authorized to act on behalf of
the Partnership in any matters regarding this Agreement. The first such
plenipotentiary shall be Xx. Xxxxx X. Xxxxxx. Any removal of
plenipotentiary and appointment of a new one shall require a written notice
to the Minister.
IN WITNESS WHEREOF, the representatives of the Parties to this Agreement being
duly authorized have hereunto set their hands and have executed these presents
this 16th day of October 1997.
The Minister of Environmental Protection, FX Energy Poland Sp. z o.o.
Natural Resources and Forestry & Partners (Block 43),
of The Republic of Poland commercial partnership
by: /s/ Xxxxxxxxx Xxxxxxxx by: /s/ Xxxxx X. Xxxxxx
SCHEDULE TO
FORM OF
MINING USUFRUCT AGREEMENT
Name of FX Energy-related entity Concession Block(s) covered
---------------------------------- ---------------------------
FX Energy Poland Sp. zo.o. &
Partners (Block 43), Commercial Block 43
Partnership
FX Energy Poland Sp. zo.o. &
Partners (Block 63), Commercial Block 63
Partnership
FX Energy Poland Sp. zo.o. &
Partners (Block 64), Commercial Block 64
Partnership
FX Energy Poland Sp. zo.o. &
Partners (Block 65), Commercial Block 65
Partnership
