Exhibit A
EQUITY PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the 17th day of June 2005.
BETWEEN:
ENTREE GOLD INC., a corporation continued under the laws of
the Province of British Columbia, having an office at Xxxxx
0000 - 0000 Xxxxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxx Xxxxxxxx, X0X
0X0;
("Entree")
AND:
KENNECOTT CANADA EXPLORATION INC., a corporation
incorporated under the laws of Canada, having an office at
Suite 354 - 000 Xxxxxxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxx
Xxxxxxxx, X0X 0X0;
("Kennecott")
WHEREAS Kennecott wishes to acquire certain equity securities of Entree and the
parties have agreed to effect a private placement subject to the terms and
conditions hereinafter provided;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the recitals and
of the mutual covenants and agreements hereinafter contained, the parties hereto
agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
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DEFINITIONS
1.1 In this Agreement, unless there is something in the subject matter or
context inconsistent therewith:
(a) "A Warrant" means a non-transferable (except to Affiliates of
Kennecott) share purchase warrant A which forms part of a Unit and "A
Warrants" means more than one A Warrant;
(b) "Affiliate" means any person, partnership, limited liability company,
joint venture, corporation, or other form of enterprise which
Controls, is Controlled by, or is under common Control with a party to
this Agreement;
(c) "Agreement", "herein", "hereby", "hereof", "hereunder", and similar
expressions mean or refer to this agreement or any instrument
supplementary or ancillary hereto and the expressions "Article",
"section" or "subsection" followed by a number mean and refer to the
specified Article, section or subsection of this Agreement;
(d) "Applicable Securities Laws" has the meaning given to such term under
subsection 4.2(d);
(e) "B Warrant" means a non-transferable (except to Affiliates of
Kennecott) share purchase warrant B which forms part of a Unit and "B
Warrants" means more than one B Warrant;
(f) "Business Days" means any day upon which banks in Vancouver, British
Columbia and London, England are open for business;
(g) "Cash Offer Securities" has the meaning given to that term under
section 2.4;
(h) "Closing Period" has the meaning given to that term under section 3.1;
(i) "Common Share" means a common share of Entree and "Common Shares"
means more than one Common Share;
(j) "Control" used as a verb means, when used with respect to an entity,
the ability, directly or indirectly through one or more
intermediaries, to direct or cause the direction of the management and
policies of such entity through the legal or beneficial ownership of
voting securities or membership interests, the right to appoint
managers, directors or corporate officers, rights arising under
operating agreements or other contracts, a voting trust or otherwise;
and, when used with respect to a person, means the actual or legal
ability to control the actions of another, through family
relationship, agency, contract or otherwise; and "Control" used as a
noun means an interest which gives the holder the ability to exercise
any of the foregoing powers;
(k) "Disposition Notice" has the meaning given to that term under section
2.9;
(l) "Encumbrance" means any mortgage, charge, pledge, hypothec, security
interest, lien, easement, right-of-way, encroachment, covenant,
condition, right of entry, lease, license, assignment, option, claim
or any other encumbrance of whatever kind or nature, regardless of
form;
(m) "Entree Board" means the board of directors of Entree;
(n) "Entree Securities" has the meaning given to that term under section
2.9;
(o) "Entree Subsidiary" means Entree LLC, a company incorporated under the
laws of Mongolia;
(p) "Entree' s Designee" has the meaning given to that term under section
2.7;
(q) "Exchange" means TSX Venture Exchange;
(r) "Exercise Notice" has the meaning given to that term under section
3.1;
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(s) "Exercise Period" has the meaning given to that term under section
3.1;
(t) "Existing Licenses" means, collectively, the Ulziit Uul License and
Mineral Exploration License number 3148X, Mineral Exploration License
number 3150X and Mineral Exploration License number 3136X issued by
the Mineral Resources Authority of Mongolia;
(u) "First Closing Date" has the meaning given to that term under section
6.1;
(v) "First Subscription Agreement" has the meaning given to that term
under section 2.3;
(w) "First Tranche" has the meaning given to that term under section 2.1;
(x) "Governmental Authority" means any national, central, federal,
provincial, state, municipal or county government or regional
authority and includes any ministry, department, commission, bureau,
board, administrative or other agency or regulatory body or
instrumentality thereof;
(y) "Interest" has the meaning given to that term under section 3.1;
(z) "Ivanhoe" means Ivanhoe Mines Ltd.;
(aa) "Ivanhoe Pre-emptive Right" means the pre-emptive right to purchase
Common Shares granted to Ivanhoe pursuant to the Equity Participation
and Earn-In Agreement between Entree and Ivanhoe dated October 15,
2004;
(bb) "Notices" has the meaning given to that term under section 7.1;
(cc) "Offer Notice" has the meaning given to that term under section 2.4;
(dd) "Offered Securities" has the meaning given to that term under section
2.9;
(ee) "party" means Entree or Kennecott, or any successor or permitted
assign of Entree or Kennecott under this Agreement;
(ff) "Private Placement" means the offering and sale of up to 6,306,921
Units to Kennecott;
(gg) "Property" has the meaning given to such term under subsection 4.2(j);
(hh) "Public Record" has the meaning given to such term under subsection
4.2(g);
(ii) "Second Closing Date" has the meaning given to that term under section
6.1;
(jj) "Second Subscription Agreement" has the meaning given to that term
under section 2.3;
(kk) "Second Tranche" has the meaning given to that term under section 2.1;
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(ll) "Transfer Notice" has the meaning given to that term under section
3.1;
(mm) "Ulziit Uul License" means Mineral Exploration License 3045X issued by
the Mineral Resources Authority of Mongolia, as more particularly
described in Schedule A;
(nn) "Unit" means one unit of Entree offered under the Private Placement,
consisting of one Common Share, one A Warrant and one B Warrant and
"Units" means more than one Unit; and
(oo) "Voting Notice" has the meaning given to that term under section 2.6;
INTERPRETATION
1.2 For the purposes of this Agreement, except as otherwise expressly provided:
(a) words importing the singular number will mean and include the plural
and vice versa, and words importing the masculine gender will include
the feminine and neuter genders;
(b) any statement of or reference to dollar amounts in this Agreement will
mean coin or currency of Canada;
(c) in the event that any date on which any action is required to be taken
hereunder by any of the parties hereto is not a Business Day, such
action will be required to be taken on the next succeeding day which
is a Business Day; and
(d) the division of this Agreement into Articles and sections and the
insertion of headings are for convenience of reference only and will
not affect the construction or interpretation hereof.
SCHEDULES
1.3 Attached to and forming part of this Agreement is the following Schedule:
Schedule A - Ulziit Uul License
ARTICLE 2
EQUITY INVESTMENT AND RELATED OBLIGATIONS
-----------------------------------------
PRIVATE PLACEMENT
2.1 Subject to the terms and conditions of this Agreement, on the First Closing
Date, pursuant to the First Subscription Agreement, Kennecott will
subscribe for and purchase and Entree will issue and sell, 5,665,730 Units
(the "First Tranche") at a price of $2.20 per Unit. If the Ivanhoe
Pre-emptive Right is exercised in connection with the Private Placement,
then, subject to the terms and conditions of this Agreement, on the Second
Closing Date, pursuant to the Second Subscription Agreement, Kennecott will
subscribe for and purchase and Entree
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will issue and sell that number of Units that would result in Kennecott
beneficially owning 9.9% of the issued and outstanding Common Shares of
Entree (the "Second Tranche") immediately after the closing of the Second
Tranche. The issued and outstanding Common Shares of Entree immediately
after the closing of the Second Tranche will be calculated by taking the
issued and outstanding Common Shares of Entree as at the date of this
Agreement and adding (i) any Common Shares issued to Ivanhoe on or prior to
the Second Closing Date pursuant to the exercise of Ivanhoe's existing
share purchase warrants; (ii) the Common Shares to be issued to Ivanhoe on
the Second Closing Date pursuant to the exercise of the Ivanhoe Pre-emptive
Right; and (iii) any Common Shares issued to Kennecott pursuant to the
Private Placement.
COMPOSITION OF UNITS
2.2 Each Unit will consist of one Common Share, one A Warrant and one B
Warrant. Two A Warrants will entitle Kennecott to purchase one additional
Common Share at a price of $2.75 for a period of two years. Two B Warrants
will entitle Kennecott to purchase one additional Common Share at a price
of $3.00 for a period of two years. The instruments representing the A
Warrants and the B Warrants will be in a form mutually satisfactory to the
parties, acting reasonably, and will reflect the foregoing terms together
with such other terms as are customary in respect of similar convertible
securities including, without limitation, terms providing for the
adjustment of the number of Common Shares issuable upon the exercise of the
A Warrants and B Warrants and the exercise prices upon the occurrence of
certain specified corporate events.
SUBSCRIPTION AGREEMENT
2.3 The parties will enter into a separate subscription agreement immediately
prior to the First Closing Date in respect of the First Tranche (the "First
Subscription Agreement") and, if applicable, immediately prior to the
Second Closing Date in respect of the Second Tranche (the "Second
Subscription Agreement"), in form and substance mutually satisfactory to
the parties, acting reasonably, and containing such representations,
warranties, covenants and acknowledgements as are customary in similar
private placement transactions. Notwithstanding the foregoing, the parties
acknowledge and agree that the substantive terms of the Private Placement
are as provided in this Article 2 and that this Article 2 constitutes a
legal, valid and binding agreement and not merely an "agreement to agree"
with respect to the Private Placement.
PRE-EMPTIVE RIGHTS
2.4 If, at any time after the First Closing Date, Entree offers to sell for
cash, by way of a private placement or a public offering, any Common Shares
or any securities convertible into or exchangeable for Common Shares (for
greater certainty, other than (i) incentive stock options or Common Shares
issued on the exercise thereof, (ii) warrants outstanding as at the date
hereof to purchase Common Shares, (iii) Common Shares issued on the
exercise of any warrants, or (iv) Units to Ivanhoe on the Second Closing
Date) ("Cash Offer Securities"), Entree will offer to Kennecott, at least
10 Business Days prior to the issuance of any such Cash Offer Securities,
by Notice (the "Offer Notice") the right, for a period of 10 Business
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Days, to purchase that number of Cash Offer Securities (including a pro
rata share of any Cash Offer Securities that are securities convertible
into or exchangeable for Common Shares) which would result in Kennecott
beneficially owning, in aggregate, the same percentage of outstanding
Common Shares after the issuance of the Cash Offer Securities that
Kennecott beneficially owned on the date of the Offer Notice. For purposes
of this section 2.4, outstanding Common Shares after the issuance of the
Cash Offer Securities will be calculated by taking the issued and
outstanding Common Shares as at the date of the Offer Notice and adding the
Common Shares issued in the sale of the Cash Offer Securities (including
those that may be issued to Kennecott pursuant to this section 2.4).
Kennecott may purchase the Cash Offer Securities for cash in an amount per
Cash Offer Security equal to the price for which the particular Cash Offer
Securities are to be issued. The Offer Notice will describe the Cash Offer
Securities proposed to be issued and specify the number, price and payment
terms. Kennecott may accept Entree's offer as to the full number of Cash
Offer Securities offered to it or any lesser number, by Notice thereof
given by it to Entree prior to the expiration of the aforesaid 10 Business
Day period, in which event Entree will, within 10 Business Days following
the closing of the sale of Cash Offer Securities to third parties, sell and
Kennecott will buy, upon the terms specified, the number of Cash Offer
Securities agreed to be purchased by Kennecott.
TERMINATION
2.5 Kennecott's rights under section 2.4 will terminate if:
(a) the number of Common Shares held by Kennecott and its Affiliates
(assuming the exercise of all securities held by Kennecott and its
Affiliates which are convertible into or exchangeable for Common
Shares but which have not actually been issued) ceases to represent at
least 10% of Entree's issued and outstanding Common Shares; or
(b) Kennecott fails to exercise its rights under section 2.4 to subscribe
for and purchase the maximum number of Cash Offer Securities which it
has the right to purchase thereunder (other than Cash Offer Securities
that are securities convertible into or exchangeable for Common
Shares) and, as a result of the issuance of Cash Offer Securities to
parties other than Kennecott, Kennecott's percentage holding of the
issued and outstanding Common Shares of Entree is reduced.
VOTING
2.6 Kennecott will vote its Common Shares, at every meeting of the shareholders
of Entree and at every adjournment thereof after the First Closing Date, in
the manner that the Entree Board specifies with respect to:
(a) fixing the number of directors to be elected;
(b) the election of directors of Entree;
(c) the appointment and remuneration of the auditors of Entree; and
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(d) the approval of any corporate incentive compensation plan or any
amendment thereof, provided the compensation plan could not result at
any time in the number of Common Shares reserved for issuance under
the plan exceeding 20% of the issued and outstanding Common Shares.
Any voting instructions given by the Entree Board pursuant to this section
2.6 will be based on a resolution passed by a majority of Entree's
directors and will be communicated to Kennecott by Notice given at least 10
Business Days before the date of the meeting at which the Common Shares are
to be voted (a "Voting Notice").
DELIVERY OF PROXY
2.7 Upon receipt of a Voting Notice given in accordance with section 2.6,
Kennecott will execute and deliver to an individual designated by Entree in
the Voting Notice ("Entree's Designee") a proxy entitling Entree's Designee
to vote the Common Shares held by Kennecott at the meeting to which the
Voting Notice relates in accordance with the instructions in the Voting
Notice. Kennecott agrees not to revoke the proxy. In any situation where
the Entree Board would not be entitled under law or the rules of any
applicable securities regulatory authority or stock exchange to give voting
instructions to Kennecott or to vote the Common Shares held by Kennecott by
proxy at a meeting of shareholders, Kennecott will, with respect to the
matters set out in section 2.6, vote the Common Shares held by it in the
manner recommended by Entree in its communications to shareholders in
respect of such matters.
SUSPENSION AND TERMINATION OF VOTING REQUIREMENTS
2.8 The requirements of section 2.6 and section 2.7 will:
(a) not apply for any meeting of the shareholders of Entree if, at the
time of the meeting:
(i) the number of Common Shares held by Kennecott and its Affiliates
represents less than 10% of Entree's issued and outstanding
Common Shares (excluding, for greater certainty, any Common
Shares issuable on the exercise of any securities held by
Kennecott and its Affiliates which are convertible into or
exchangeable for Common Shares but which have not actually been
issued) at such time; or
(ii) the number of Common Shares held by Kennecott and its Affiliates
represents 40% or more of Entree's issued and outstanding Common
Shares (excluding, for greater certainty, any Common Shares
issuable on the exercise of any securities held by Kennecott and
its Affiliates which are convertible into or exchangeable for
Common Shares but which have not actually been issued) at such
time; and
(b) terminate on the fourth anniversary of the First Closing Date.
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DISPOSITION OF SECURITIES
2.9 If at any time after the First Closing Date or from time to time thereafter
Kennecott wishes to dispose of any of its Common Shares or any of its
securities convertible into or exchangeable for Common Shares
(collectively, the "Entree Securities"), Kennecott will so advise Entree in
a written notice (the "Disposition Notice") which specifies the Entree
Securities that Kennecott wishes to dispose of (the "Offered Securities"),
the minimum price that Kennecott would be prepared to accept for the
Offered Securities and any other terms and conditions of the disposition.
If, within 15 days of its receipt of the Disposition Notice, Entree
notifies Kennecott in writing of the identities of one or more persons who
will purchase all, but not less than all, of the Offered Securities at the
price and on the terms and conditions specified in the Disposition Notice,
Kennecott will sell the Offered Securities to those purchasers(s), provided
the purchaser(s) provide evidence satisfactory to Kennecott, acting
reasonably, of the purchaser(s)' ability to pay for the Offered Securities
and to satisfy the other terms and conditions for the disposition. The
purchaser(s) and Kennecott shall use their reasonable commercial efforts to
complete the transaction within 45 days of Entree's receipt of the
Disposition Notice. If Entree does not notify Kennecott of the identities
of one or more purchaser(s) and provide evidence, satisfactory to
Kennecott, acting reasonably, of each purchaser(s) ability to pay for the
Offered Securities and to satisfy the other terms and conditions of the
disposition by the end of the 15 day period following Entree's receipt of
the Disposition Notice or if Kennecott, despite its reasonable commercial
efforts, is unable to complete the sale transaction within the 45 day
period following Entree's receipt of the Disposition Notice as a result of
the failure of the proposed purchaser(s), then Kennecott may dispose of the
Offered Securities to any third party purchaser(s) at a price and on terms
no less favourable to Kennecott than those specified in the Disposition
Notice. This section will apply again to the Offered Securities if a sale
to a bona fide third party purchaser(s) is not completed within 105 days of
Entree's receipt of the Disposition Notice.
PERMITTED DISPOSITIONS OF SECURITIES
2.10 Section 2.9 does not apply in the case of:
(a) a disposition by Kennecott of Entree Securities to an Affiliate of
Kennecott, provided that such Affiliate agrees in writing to be bound
by Kennecott's obligations under this Agreement (in which case the
Affiliate will also be entitled to Kennecott's rights under this
Agreement);
(b) Kennecott depositing Entree Securities pursuant to a take over bid for
which a circular has been delivered to Entree shareholders in
accordance with applicable securities laws;
(c) a corporate consolidation, reorganization, merger, amalgamation or
arrangement involving Kennecott by which the entity resulting
therefrom owns, directly or indirectly, all or substantially all of
the assets of Kennecott and assumes, directly or indirectly, all of
the liabilities of Kennecott including, without limitation,
Kennecott's obligations under this Agreement (in which case the entity
will also be entitled to Kennecott's rights under this Agreement);
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(d) the grant to a bank or other bona fide financial institution of any
Encumbrance in respect of all or part of the Entree Securities and any
transfer of any such Entree Securities by reason of the exercise of
any rights, powers or remedies under or in relation to such
Encumbrance, provided that the holder of such Encumbrance agrees in
writing to be bound by Kennecott's obligations under this Agreement in
the event it exercises any rights, powers or remedies under or in
relation to such Encumbrance; or
(e) a disposition of Entree Securities by Kennecott at a time when,
immediately prior to the disposition:
(i) the number of Common Shares held by Kennecott and its Affiliates
represents less than 10% of Entree's issued and outstanding
Common Shares (assuming the exercise of all securities held by
Kennecott and its Affiliates which are convertible into or
exchangeable for Common Shares but which have not actually been
issued, other than any such securities which are non-transferable
(except to Affiliates of Kennecott)) at such time; or
(ii) the number of Common Shares held by Kennecott and its Affiliates
represents 40% or more of Entree's issued and outstanding Common
Shares (excluding, for greater certainty, any Common Shares
issuable on the exercise of any securities held by Kennecott and
its Affiliates which are convertible into or exchangeable for
Common Shares but which have not actually been issued) at such
time.
TERMINATION
2.11 The requirements of section 2.9 will terminate on the fourth anniversary of
the First Closing Date.
SPECIFIC PERFORMANCE AND INJUNCTION
2.12 Kennecott specifically acknowledges that its obligations under sections
2.6, 2.7 and 2.9 are an integral part of the transaction contemplated by
this Agreement. Kennecott, therefore, specifically acknowledges and agrees
that the breach of any of the terms of section 2.6, 2.7 or 2.9 by it would
cause Entree irreparable harm not compensable in damages. Kennecott further
acknowledges and agrees that it is essential to the effective enforcement
of this Agreement that Entree be entitled to equitable remedies including,
but not limited to specific performance and injunction without being
required to show irreparable harm. Kennecott acknowledges and agrees that
the terms of this Agreement are just and reasonable having regard to all
the circumstances.
2.13 Entree specifically acknowledges that its obligations under sections 2.4
are an integral part of the transaction contemplated by this Agreement.
Entree, therefore, specifically acknowledges and agrees that the breach of
any of the terms of section 2.4 by it would cause Kennecott irreparable
harm not compensable in damages. Entree further acknowledges and agrees
that it is essential to the effective enforcement of this Agreement that
Kennecott be entitled to equitable remedies including, but not limited to
specific performance and
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injunction without being required to show irreparable harm. Entree
acknowledges and agrees that the terms of this Agreement are just and
reasonable having regard to all the circumstances.
ARTICLE 3
ULZIIT UUL RIGHT OF FIRST REFUSAL
---------------------------------
RIGHT OF FIRST REFUSAL
3.1 If, at any time after the First Closing Date, Entree intends to directly or
indirectly dispose of any legal or beneficial interest in (i) the Ulziit
Uul License or any successor license or licenses or (ii) any geographical
areas that are the subject of the Ulziit Uul License or any successor
license or licenses, in whole or in part (the "Interest"), to a third party
by way of a sale, transfer, joint venture, grant of option or other rights,
rights of encumbrance over or any other mode of disposition or alienation,
it may do so only upon bona fide arm's length terms and further provided
that, in any such case Entree will give Notice (the "Transfer Notice") to
Kennecott, offering the Interest to Kennecott on substantially the same
bona fide arm's length terms upon which Entree proposes to convey the
Interest to the third party. Kennecott or, at its direction, an Affiliate
of Kennecott may exercise its right to acquire all, but not less than all,
of the Interest for the consideration stipulated in the Transfer Notice
(provided that if all or any part of the consideration offered by the third
party is non-monetary, Kennecott, or its Affiliate, may elect to furnish
the same or equivalent non-monetary consideration or to pay to Entree an
amount of money equal to the fair market value of the non-monetary
consideration offered by the third party) by providing Notice (the
"Exercise Notice") within 15 days of receipt by Kennecott of the Transfer
Notice (the "Exercise Period"). If Kennecott does not exercise its right to
acquire the Interest prior to the expiry of the Exercise Period, Entree
will have the right for a period of 60 days following the Exercise Period
(the "Closing Period") to convey the Interest to the third party for
consideration having a value equal to or higher than the value of the
consideration, and on terms no less favourable to Entree than, set out in
the Transfer Notice. If Entree does not convey the Interest to the third
party by the expiry of the Closing Period, the Interest will again become
subject to the right of first refusal under this section 3.1.
EXEMPT TRANSACTIONS
3.2 Section 3.1 will not apply to the following:
(a) a disposition by Entree of all or part of the Interest to an Affiliate
of Entree, provided that such Affiliate agrees in writing to be bound
by Entree's obligations under Article 3 of this Agreement;
(b) a corporate consolidation, reorganization, merger, amalgamation or
arrangement involving Entree by which the surviving entity resulting
therefrom owns, directly or indirectly, all or substantially all of
the assets of Entree and assumes, directly or indirectly, all of the
liabilities of Entree including, without limitation, Entree's
obligations under Article 3 of this Agreement;
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(c) the grant to a bank or other bona fide financial institution of any
Encumbrance in respect of all or part of the Interest in connection
with a bonafide exploration program and/or mine development program by
Entree, acting alone, in respect of the geographical areas comprised
in the Interest and any transfer of any such Interest by reason of the
exercise of any rights, powers or remedies under or in relation to
such Encumbrance, provided that the holder of such Encumbrance agrees
in writing to be bound by Entree's obligations under Article 3 of this
Agreement in the event it exercises any rights, powers or remedies
under or in relation to such Encumbrance; or
(d) a sale or other commitment (but not a future or conditional sale
agreed prior to actual production) of ores, minerals, mineral
concentrates, metals, chemical by-products and refinements or partial
refinements thereof or proceeds from the sale of such products.
TERMINATION OF RIGHT OF FIRST REFUSAL
3.3 Kennecott's right of first refusal under section 3.1 will terminate
immediately:
(a) in the event (i) Kennecott fails to exercise its rights under section 2.4
to subscribe for and purchase the maximum number of Cash Offer Securities
which it has the right to purchase thereunder (other than in respect of an
offering of Cash Offer Securities that consists solely of securities
convertible into or exchangeable for Common Shares), or (ii) Kenecott sells
or disposes of Common Shares, and, in either case, as a result thereof, the
number of Common Shares held by Kennecott and its Affiliates represents
less than 8% of Entree's issued and outstanding Common Shares (excluding,
for greater certainty, any Common Shares issuable on the exercise of any
securities held by Kennecott and its Affiliates which are convertible into
or exchangeable for Common Shares but which have not actually been issued);
and
(b) in any event on the fourth anniversary of the First Closing Date.
INFORMATION AND ACCESS
3.4 For so long as section 3.1 shall apply, Entree shall, within 30 days upon
request from Kennecott, (i) provide to Kennecott and its authorized
representatives all information not previously provided to Kennecott
related to the Interest that Kennecott and its authorized representatives
may reasonably request and (ii) give Kennecott and its authorized
representatives reasonable opportunity to have access to and to inspect the
Interest and the books and records related thereto. Kennecott will not
disclose to any third party (other than its professional advisers) any
confidential information concerning the Interest obtained by Kennecott
pursuant hereto and will hold all such confidential information in the
strictest confidence.
SPECIFIC PERFORMANCE AND INJUNCTION
3.5 Entree specifically acknowledges that the right of first refusal contained
in this Article 3 is an integral part of the transaction contemplated by
this Agreement. Entree, therefore,
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specifically acknowledges and agrees that the breach of any of the terms of
this Article 3 by it would cause Kennecott irreparable harm not compensable
in damages. Entree further acknowledges and agrees that it is essential to
the effective enforcement of this Agreement that Kennecott be entitled to
equitable remedies including, but not limited to specific performance and
injunction without being required to show irreparable harm. Having regard
to the significant investment being made by Kennecott in Entree, Entree
acknowledges and agrees that the terms of this Agreement are just and
reasonable having regard to all the circumstances.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
------------------------------
REPRESENTATIONS AND WARRANTIES OF BOTH PARTIES
4.1 Each party represents and warrants to the other party that:
(a) it is a corporation duly incorporated, organized and validly existing
under the laws of its jurisdiction of incorporation and is current
with respect to all filings required under all applicable corporate,
securities and taxation laws or any other laws to which it is subject
and no proceedings have been taken or authorized by it or, to the best
of its knowledge, by any other person, with respect to the bankruptcy,
insolvency, liquidation, dissolution or winding-up of such
corporation;
(b) it has the necessary corporate capacity and authority to execute and
deliver this Agreement and to observe and perform its covenants and
obligations hereunder and has taken all necessary corporate action in
respect thereof, and this Agreement shall constitute a legal, valid
and binding contract enforceable against it in accordance with its
terms (subject to bankruptcy, insolvency and other laws affecting the
enforcement of creditors' rights generally and to general principles
of equity);
(c) neither this Agreement nor the completion of the transactions
contemplated hereby conflicts, or will conflict, or will result in a
breach or violation of, any law or regulation of any kind whatsoever
applicable to it, any of its constating documents or any agreement of
any kind whatsoever to which it is a party or by which it is bound or
the acceleration of any indebtedness, or the breach of any judgment or
order of any kind whatsoever of any court or administrative body of
any kind whatsoever by which it is bound or the creation or
crystallization of any Encumbrance; and
(d) except for the approval from the Exchange, no exemption, consent,
approval, order or authorization of, or registration or filing with
any court, Governmental Authority or any third party is required by,
or with respect to, the party in connection with the execution,
delivery and performance of this Agreement by the party or completion
of the transactions contemplated hereby.
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ADDITIONAL REPRESENTATIONS AND WARRANTIES OF ENTREE
4.2 Entree represents and warrants to Kennecott that:
(a) the authorized capital of Entree consists of an unlimited number of
Common Shares, of which as at the date hereof 51,563,866 Common Shares
have been validly issued and are outstanding as fully paid and
non-assessable;
(b) no person holds any securities convertible or exchangeable into Common
Shares or has any agreement, warrant, option, right or privilege being
or capable of becoming an agreement, warrant, option or right for the
purchase of any unissued securities of Entree except pursuant to this
Agreement, the Ivanhoe Pre-emptive Right and, as at the date hereof,
pursuant to authorized outstanding options to purchase an aggregate of
up to 9,000,000 Common Shares pursuant to Entree's stock option plan
and outstanding share purchase warrants to purchase an aggregate of
11,148,470 Common Shares;
(c) the issued and outstanding Common Shares are listed and posted for
trading on the Exchange;
(d) Entree is a "reporting issuer" in the Provinces of British Columbia
and Alberta and is not in default of any material requirement under
the securities laws, rules, regulations and policies of such Provinces
and the Exchange (the "Applicable Securities Laws");
(e) none of the British Columbia Securities Commission, the Alberta
Securities Commission, the Exchange or any similar regulatory
authority of any other jurisdiction has issued any order preventing or
suspending trading in any securities of Entree which is outstanding;
(f) Entree has full corporate power and authority to issue the Common
Shares, the A Warrants and the B Warrants comprising the Units to be
issued to Kennecott pursuant to this Agreement and to issue the Common
Shares issuable upon the exercise of the A Warrants and the B Warrants
to be issued to Kennecott pursuant to this Agreement and, at the First
Closing Date or the Second Closing Date, as the case may be: (i) the
Common Shares, A Warrants and B Warrants comprising the Units to be
issued to Kennecott on such date pursuant to this Agreement will be
duly and validly authorized and issued and such Common Shares will be
issued as fully paid and non-assessable shares in the capital of
Entree free and clear of all trade restrictions (except as may be
imposed by the operation of the Applicable Securities Laws) and free
and clear from all Encumbrances; and (ii) the Common Shares issuable
upon the exercise of such A Warrants and the B Warrants will be duly
and validly authorized and reserved for allotment and issuance upon
such exercise and that the Common Shares issuable upon exercise of
such A Warrants and the B Warrants will, upon exercise of such A
Warrants and the B Warrants, be issued as fully paid and
non-assessable shares in the capital of Entree free and clear of all
trade restrictions (except as may be imposed by the operation of the
Applicable Securities Laws) and free and clear from all Encumbrances;
(g) the public disclosure record of Entree as filed or required to be
filed on SEDAR (the "Public Record") is complete and accurate in all
material respects and does not fail to disclose a "material fact" as
defined under applicable securities laws, rules,
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regulations and policies and no part of such Public Record is known by
Entree to have subsequently become untrue or misleading and the Public
Record reflects all material liabilities of Entree and its Affiliates
as required by Canadian generally accepted accounting principles;
(h) each of Entree and its Affiliates is conducting its business in
compliance with all applicable laws, rules, regulations, notices,
approvals and orders of all jurisdictions in which its business is
carried on, is not in breach of any such laws, rules, regulations,
notices, approvals or orders and is duly licensed, registered or
qualified in all jurisdictions in which its business is carried on to
enable its business to be carried on as now conducted and its assets
to be owned, leased and operated, and all such licences,
registrations, qualifications, permits and quotas are valid and
subsisting and in good standing and none of the same contains or is
subject to any term, provision, condition or limitation which has or
may have a material adverse effect on the operation of its business or
which may adversely change or terminate such licence, registration,
qualification, permit or quota by virtue of the completion of the
transactions contemplated hereby;
(i) except as disclosed in the Public Record, there has not been any
material adverse change in the capital, assets, liabilities,
obligations (absolute, accrued, contingent or otherwise), business,
condition (financial or otherwise), or results of operations of Entree
or any of its Affiliates since December 31, 2004 (provided that any
decline in the market price of any precious or base metal will not be
considered a material adverse change);
(j) with respect to the geographical area that is subject to the Ulziit
Uul License (the "Property"): (i) to the best of the knowledge of
Entree, no person, other than the Entree Subsidiary, owns, or has the
right to acquire, any interest in the Ulziit Uul License; (ii) neither
Entree nor the Entree Subsidiary has received any notice of default of
any of its obligations under the Ulziit Uul License; and (iii) nothing
in this Agreement conflicts with or could reasonably be expected to
cause the Entree Subsidiary to breach any of its obligations under the
Ulziit Uul License or the constating documents of the Entree
Subsidiary;
(k) to the best of Entree's knowledge: (i) the Existing Licenses have been
properly granted and issued by the appropriate Governmental Authority;
(ii) all requirements for holding the Existing Licenses have been met;
(iii) all filings required to be made with the appropriate
Governmental Authority have been made; (iv) all work required in order
for the Entree Subsidiary to hold the Existing Licenses has been
performed and all fees payable to the appropriate Governmental
Authority have been paid to date; (v) the Existing Licenses are clear
of defects in title; (vi) the Ulziit Uul License is free and clear of
Encumbrances and, other than pursuant to the Equity Participation and
Earn-in Agreement between Entree and Ivanhoe dated November 9, 2004 as
amended, the other Existing Licenses are free and clear of
Encumbrances; and (vii) there are no mineral licenses or tenures
conflicting with the Existing Licenses;
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(l) there are no pending or threatened actions, suits, claims or
proceedings, and there have been no previous transactions affecting
the geographical area that is subject to the Existing Licenses which
have not been for fair consideration;
(m) except as to matters otherwise disclosed in writing to Kennecott:
(i) to the best of Entree's knowledge, the conditions existing on or
with respect to the geographical area that is subject to the
Existing Licenses and Entree's activities thereon are not in
violation of any laws (including without limitation any
environmental laws), nor causing or permitting any damage or
impairment to the health, safety, or enjoyment of any person at
or on such property or in the general vicinity of such property;
(ii) to the best of Entree's knowledge, there have been no past
violations by it of any environmental laws or other laws
affecting or pertaining to the geographical area that is subject
to the Existing Licenses, nor any past creation of damage or
threatened damage to the air, soil, surface waters, groundwater,
flora, fauna, or other natural resources on, about or in the
general vicinity of such property; and
(iii) neither Entree nor the Entree Subsidiary has received inquiry
from or notice of a pending investigation from any governmental
agency or of any administrative or judicial proceeding concerning
the violation of any laws;
(n) the Entree Subsidiary is a wholly owned subsidiary of Entree and no
person, other than Entree and its Affiliates and Ivanhoe and its
Affiliates, to the extent provided under the Equity Participation and
Earn-in Agreement between Entree and Ivanhoe dated November 9, 2004 as
amended, has the right to acquire any interest in any securities of
the Entree Subsidiary; and
(o) to the best of its knowledge, and except as publicly disclosed, there
are no material actions, suits, judgments, investigations or
proceedings of any kind whatsoever threatened or outstanding, against
or affecting Entree, at law or in equity or before or by any federal,
provincial, state, municipal or other governmental department,
commission, board, bureau or agency of any kind whatsoever and, to the
best of Entree's knowledge, there is no basis therefore.
SURVIVAL
4.3 The representations and warranties set forth in this Article 4 will survive
for a period of two years after the First Closing Date.
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ARTICLE 5
CONDITIONS
----------
EXCHANGE APPROVAL
5.1 This Agreement is subject to Exchange approval of the Private Placement.
Entree covenants and agrees to expeditiously apply for and take all
reasonable commercial efforts to obtain all necessary approvals of the
Exchange for the issuance of the Common Shares, the A Warrants and the B
Warrants comprising the Units to be issued to Kennecott pursuant to this
Agreement and to issue the Common Shares issuable upon the exercise of the
A Warrants and the B Warrants to be issued to Kennecott pursuant to this
Agreement,
MUTUAL CONDITIONS
5.2 The respective obligations of the parties will be subject to the mutual
condition that the parties will have settled the forms of subscription
agreement and certificates representing the A Warrants and B Warrants. Each
of the parties covenants and agrees to negotiate the forms of First
Subscription Agreement and the Second Subscription Agreement and
certificates in good faith acting reasonably.
CONDITION FOR THE BENEFIT OF KENNECOTT
5.3 The obligations of Kennecott under this Agreement to purchase Units on the
First Closing Date and to purchase Units on the Second Closing Date are
subject to the satisfaction, on or before the applicable date, of the
following conditions, any of which may be waived by Kennecott without
prejudice to its right to rely on any other or others of them:
(a) the representations and warranties of Entree set forth in Article 4
shall be true and correct in all material respects on the applicable
date with the same force and effect as if made on and as of such date;
(b) Entree shall have performed or complied with all of the terms,
covenants and conditions of this Agreement to be performed or complied
with by it on or prior to the applicable date;
(c) Kennecott shall have received an opinion dated the applicable date
from counsel for Entree as to the enforceability of the First
Subscription Agreement and the Second Subscription Agreement and the
valid issuance of (i) Common Shares, A Warrants and B Warrants forming
part of Units issuable under the First Subscription Agreement and the
Second Subscription Agreement, and (ii) Common Shares issuable upon
the exercise of the A Warrants and the B Warrants;
(d) there will be no injunction or restraining order issued delaying,
restricting or preventing, and no judicial or administrative
proceeding, or investigation against any party by any Governmental
Authority, for the purpose of enjoining or delaying, restricting or
preventing the consummation of the transactions contemplated by this
Agreement or otherwise claiming that this Agreement or the
consummation of such transactions is improper or would give rise to
proceedings under any laws;
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(e) there will have been no material adverse change in the business,
assets or financial condition of Entree or any of its Affiliates
(provided that any decline in the market price of any precious or base
metal will not be considered a material adverse change) since the date
of this Agreement; and
(f) the Exchange will have conditionally approved the Private Placement
subject only to the filing of documents customary for similar
transactions.
CONDITION FOR THE BENEFIT OF ENTREE
5.4 The obligations of Entree under this Agreement on the First Closing Date
and the Second Closing Date are subject to the satisfaction, on or before
the applicable date, of the following conditions, any of which may be
waived by Entree without prejudice to its right to rely on any other or
others of them:
(a) the representations and warranties of Kennecott set forth in Article 4
shall be true and correct in all material respects on the applicable
date with the same force and effect as if made on and as of such date;
(b) Kennecott shall have performed or complied with all of the terms,
covenants and conditions of this Agreement to be performed or complied
with by it on or prior to the applicable date;
(c) there will be no injunction or restraining order issued delaying,
restricting or preventing, and no judicial or administrative
proceeding, or investigation against any party by any Governmental
Authority, for the purpose of enjoining or delaying, restricting or
preventing the consummation of the transactions contemplated by this
Agreement or otherwise claiming that this Agreement or the
consummation of such transactions is improper or would give rise to
proceedings under any laws; and
(d) the Exchange will have conditionally approved the Private Placement
subject only to the filing of documents customary for similar
transactions.
ARTICLE 6
CLOSING DATES
-------------
CLOSING DATES
6.1 Subject to the terms and conditions hereof, the First Tranche of the
Private Placement will be completed on the second Business Day following
the later of the date upon which Entree receives conditional approval of
the Exchange for the Private Placement and the date upon which the
condition contained in section 5.2 is fulfilled (the "First Closing Date").
Notwithstanding the foregoing, the parties may change the First Closing
Date by mutual agreement. If, despite the good faith, best efforts of each
of the parties, the First Tranche has not been completed and closed by the
45th day following the date of this Agreement, either party may, by Notice,
terminate this Agreement in which event neither party will retain any
rights or obligations hereunder notwithstanding anything herein to the
contrary. The Second
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Tranche, if applicable, will be completed on such Business Day as may be
agreed by Entree and Kennecott, but which in any event will not be later
than 45 days following the date of this Agreement (the "Second Closing
Date"). Any and all documents and instruments to be delivered or exchanged
in order for the First Tranche and, if applicable, the Second Tranche to be
completed and closed will be delivered or exchanged by the parties at such
time on the First Closing Date and the Second Closing Date as the parties
may determine, at 950 - 0000 Xxxx Xxxxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxx
Xxxxxxxx or at such other place as the parties may agree.
FAILURE OF CONDITIONS PRECEDENT
6.2 If a condition precedent to the obligations of a party in this Agreement
has not been satisfied or waived within the time provided, this Agreement
will terminate automatically without prejudice to any rights the parties
may have against one another.
ARTICLE 7
NOTICES
---------
NOTICES
7.1 All notices and other required or permitted communications ("Notices") to
either party will be in writing, and will be addressed respectively as
follows:
To Entree: Entree Gold Inc.
Xxxxx 0000 - 0000 Xxxxxxx Xxxxxx
Xxxxxxxxx, X.X. X0X 0X0
Attention: President
Facsimile Number: (000) 000-0000
To Kennecott: Kennecott Canada Exploration Inc.
Xxxxx 000 - 000 Xxxxxxxxx Xxxxxx
Xxxxxxxxx, X.X. X0X 0X0
Attention: President
Facsimile Number: (000) 000-0000
with copies to:
Rio Tinto Mining and Exploration Limited
X.X. Xxx 000, 0xx Xxxxx
Xxxxxxxxxx, Xxxxx Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxx XX00 0XX
Attention: Exploration Director -
Project Generation Group
Facsimile Number: x00(0)000 000 0000
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and:
1343 South 0000 Xxxx
Xxxx Xxxx Xxxx
Xxxx
00000
Xxxxxx Xxxxxx
Attention: Corporate Secretary
Facsimile Number: (000) 000-0000
All Notices will be given: (a) by personal delivery to the party; (b)
by facsimile transmission; or (c) by overnight or other express
courier service. All Notices will be effective and will be deemed
given on the date of receipt at the principal address if received
during normal business hours, and, if not received during normal
business hours, on the next Business Day following receipt. Either
party may change its address by Notice to the other party.
ARTICLE 8
GENERAL
---------
PRESS RELEASES
8.1 Subject to compliance with applicable laws, any press release of a party
relating to the Private Placement or this Agreement will be provided so far
as possible 48 hours in advance to the other party, and the parties will
use their reasonable best efforts to agree to the form and content thereof
prior to the release thereof.
FURTHER ASSURANCES
8.2 Each party will, from time to time, and at all times, perform all acts and
execute and deliver the deeds and documents and give such assurances as are
reasonably required in order to perform, carry out, and give effect to the
terms of this Agreement.
WAIVER
8.3 A waiver of any breach of a provision of this Agreement will not be binding
upon a party unless the waiver is in writing and such waiver will not
affect such party's rights in respect of any subsequent breach.
AMENDMENT
8.4 No amendment or interpretation of this Agreement will be binding on the
parties unless it is in writing executed by the parties hereto.
ENTIRE AGREEMENT
8.5 The terms of this Agreement together with the First Subscription Agreement,
the Second Subscription Agreement and the warrant certificates express and
constitute the entire agreement between the parties in respect of the
matters referred to herein. This Agreement supersedes and replaces all
previous agreements and understandings, whether written or oral, between
the parties in respect of the subject matter herein. There are no
representations,
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warranties, terms, conditions, undertakings or collateral agreements,
express, implied or statutory, between the parties other than as expressly
set forth in this Agreement.
GOVERNING LAW
8.6 This Agreement will be governed by and interpreted in accordance with laws
of the Province of British Columbia and the laws of Canada applicable
therein without regard for any conflict of laws or choice of laws
principles that would permit or require the application of the laws of any
other jurisdiction.
TIME
8.7 Time will be of the essence of this Agreement.
ASSIGNMENT
8.8 Except as expressly permitted elsewhere in this Agreement, neither party
may assign its rights or obligations under this Agreement without the prior
written consent of the other party, such consent not to be unreasonably
withheld or delayed.
SUCCESSORS AND ASSIGNS
8.9 This Agreement will enure to the benefit of and be binding upon the parties
hereto, their respective successors and their permitted assigns.
USE OF RIO TINTO NAME
8.10 Entree shall not, and shall procure that its Affiliates will not, without
the prior written consent of Kennecott, in any press release, public
announcement or other publication include or refer to "Rio Tinto",
"Kennecott" or the name of any other Affiliate of Rio Tinto plc and/or Rio
Tinto Limited or to the Rio Tinto group of companies generally, except as
may be required by law or the rules of the Exchange.
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COUNTERPARTS
8.11 This Agreement may be executed in any number of counterparts, and it will
not be necessary that the signatures of both parties be contained on any
counterpart. Each counterpart will be deemed an original, but all
counterparts together will constitute one and the same instrument.
Facsimile or electronic signatures are acceptable and binding.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
effective as of the day and year first above written.
ENTREE GOLD INC. KENNECOTT CANADA EXPLORATION INC.
Per: ____________________________ Per: ____________________________
Authorized Signatory Authorized Signatory
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