Document:

exh4_2.htm

Exhibit 4.2

 

AMENDMENT TO

EQUITY PARTICIPATION

AND EARN-IN AGREEMENT

 

 

THIS AMENDING AGREEMENT made as of the ___ day of November, 2004.

 

BETWEEN:

 

IVANHOE MINES LTD., a corporation incorporated under the laws of the Yukon Territory

 

(“Ivanhoe”)

 

AND:

 

ENTRÉE GOLD INC., a corporation incorporated under the laws of the Yukon   Territory

 

(“Entree”)

 

WHEREAS:

 

	
A.  

	
Ivanhoe and Entrée are parties to an Equity Participation and Earn-in Agreement dated as of the 15th day of October, 2004 (the “Earn-in Agreement”); and

 

	
B.  

	
the parties wish to amend the Earn-in Agreement on the terms hereinafter provided;

 

NOW THEREFORE THIS AGREEMENT WITNESSES THAT, in consideration of the premises and the respective covenants and agreements herein contained, the parties hereto covenant and agree as follows:

 

	
1.  

	
Capitalized terms used in these recitals without definition have the meanings assigned to them in the Earn-in Agreement.

 

	
2.  

	
The parties hereby agree that the Joint Venture Agreement to be entered into by the parties pursuant to the terms of the Earn-in Agreement will be in the form attached hereto as Appendix “A”, that all references in the Earn-in Agreement to the Joint Venture Agreement will be deemed to be a reference to the form of agreement attached hereto as Appendix”A” and that the condition in Section 7.3(b) of the Earn-in Agreement that the parties must have agreed to the form of the Joint Venture Agreement within 30 days of execution of the Earn-in Agreement has been satisfied.

 

	
3.  

	
Schedule “B” is hereby deleted from the Earn-in Agreement.

 

	
4.  

	
Section 5.5(a) of the Earn-in Agreement is hereby deleted and replaced by the following:

 

	
  

	
“(a)      before the Earn-in Period ends as provided in Section 3.3, Entree intends to directly or indirectly dispose of any interest, other than its Participating Interest, in any geographical areas that are the subject of the Existing Licenses, Mineral Exploration License number 3136X or any successor licenses in whole or in part; or”.

 

 

  

 

  

 

	
5.  

	
The Earn-in Agreement, as amended by this Amending Agreement, is hereby ratified and confirmed.

 

	
6.   

	
This Amending 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.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

ENTREE GOLD INC.

 

By___________________________________

Title:

 

IVANHOE MINES LTD.

 

By___________________________________

Title:

 

 

  

2

  

 

JOINT VENTURE AGREEMENT

 

THIS AGREEMENT made as of the ● day of ●, ●,

 

BETWEEN:

 

IVANHOE MINES LTD., a corporation incorporated under the laws of the Yukon Territory

 

(“Ivanhoe”)

 

AND:

 

ENTRÉE GOLD INC., a corporation incorporated under the laws of the Yukon   Territory

 

(“Entree”),

 

WITNESSES that in consideration of the covenants and conditions contained herein, Ivanhoe and Entree agree as follows:

 

	
1.  

	
DEFINITIONS AND CROSS-REFERENCES

 

	
1.1.  

	
Definitions.

 

The terms defined in Exhibit D and elsewhere shall have the defined meaning wherever used in this Agreement, including in Exhibits.

 

	
1.2.  

	
Cross-References

 

References to "Exhibits," "Articles," "Sections" and "Subsections" refer to Exhibits, Articles, Sections and Subsections of this Agreement. References to "Paragraphs" and "Subparagraphs" refer to paragraphs and subparagraphs of the referenced Exhibits.

 

	
1.3.  

	
Exhibits

 

The following Exhibits are attached to and form part of this Agreement:

 

Exhibit A                      Properties

 

Exhibit B                      Accounting Procedures

 

Exhibit C                      [Deleted]

 

Exhibit D                      Definitions

 

Exhibit E                      Net Smelter Returns Royalty

 

Exhibit F                      Insurance

 

Exhibit G                      [Deleted]

 

Exhibit H                      Pre-emptive Rights

 

 

  

 

  

 

	
2.  

	
NAME, PURPOSES AND TERM

 

	
2.1.  

	
General.

 

Ivanhoe and Entrée hereby enter into this Agreement for the purposes hereinafter stated.  All of the rights and obligations of the Participants in connection with the Assets or the Area of Interest and all Operations shall be subject to and governed by this Agreement.

 

	
2.2.  

	
Name

 

The Assets shall be managed and operated by the Participants under the name “Shivee East”.  The Manager shall accomplish any registration required by applicable assumed or fictitious name statutes and similar statutes.

 

	
2.3.  

	
Purposes

 

This Agreement is entered into for the following purposes and for no others, and shall serve as the exclusive means by which each of the Participants accomplishes such purposes:

 

	
(a)  

	
to conduct Exploration within the area of the Properties;

 

	
(b)  

	
to acquire additional real property and other interests within the area of the Properties;

 

	
(c)  

	
to evaluate the possible Development and Mining of the Properties, and, if justified, to engage in Development and Mining;

 

	
(d)  

	
to engage in Operations on the Properties;

 

	
(e)  

	
to engage in marketing Products, to the extent provided by Article 12;

 

	
(f)  

	
to complete and satisfy all Environmental Compliance obligations and Continuing Obligations affecting the Properties; and

 

	
(g)  

	
to perform any other activity necessary, appropriate, or incidental to any of the foregoing.

 

	
2.4.  

	
Limitation

 

Unless the Participants otherwise agree in writing, the Operations shall be limited to the purposes described in Section 2.3, and nothing in this Agreement shall be construed to enlarge such purposes or to change the relationships of the Participants as set forth in Article 4.

 

 

  

2

  

 

	
2.5.  

	
Term

 

The term of this Agreement shall be for twenty (20) years from the Effective Date and for so long thereafter as the Participants are engaged in Development or Mining of the Properties on a continuous basis, and thereafter until all materials, supplies, equipment and infrastructure have been salvaged and disposed of, any required Environmental Compliance is completed and accepted and the Participants have agreed to a final accounting, unless the Business is earlier terminated as herein provided.

 

	
2.6.  

	
Mongolian Subsidiary

 

The parties hereby acknowledge and agree that, in order to fully and effectually enjoy their respective rights, and perform their respective obligations, under this Agreement, it may be necessary or desirable, from time to time, for a party to cause a company incorporated under the laws of Mongolia and controlled by such party (a “Mongolian Subsidiary”) such as, in the case of Entrée, the Entrée Subsidiary to do, or refrain from doing, certain acts and things in Mongolia in furtherance of the covenants and agreements of such party in this Agreement. Each party hereby covenants and agrees with the other party that, whenever the performance by that party of an obligation under this Agreement requires any involvement by a Mongolian Subsidiary of that party, such party will cause its Mongolian Subsidiary to promptly execute all such instruments and do all such acts and things as may be necessary or desirable in order for such party’s obligations hereunder to be fully and effectually performed on a timely basis. Wherever in this Agreement an obligation is ascribed to a party and such obligation can only be legally and effectually performed by such party’s Mongolian Subsidiary, such party will be deemed to have obliged itself, as principal, and its Mongolian Subsidiary, as the Mongolian Subsidiary’s authorized agent, to perform such obligation.

 

	
3.  

	
REPRESENTATIONS AND WARRANTIES;

	
  

	
INDEMNITIES        

 

	
3.1.  

	
Representations and Warranties of Both Participants

 

As of the Effective Date, each Participant represents and warrants to the other that:

 

	
(a)  

	
it is a corporation duly organized and in good standing in its jurisdiction of incorporation and is qualified to do business and is in good standing in those jurisdictions where necessary in order to carry out the purposes of this Agreement;

 

	
(b)  

	
it has the capacity to enter into and perform this Agreement and all transactions contemplated herein and that all corporate, board of directors and shareholder actions required to authorize it to enter into and perform this Agreement have been properly taken;

 

 

  

3

  

 

	
(c)  

	
it will not breach any other agreement or arrangement by entering into or performing this Agreement;

 

	
(d)  

	
it is not subject to any governmental order, judgment, decree, debarment, sanction or Laws that would preclude the permitting or implementation of Operations under this Agreement; and

 

	
(e)  

	
this Agreement has been duly executed and delivered by it and is valid and binding upon it in accordance with its terms.

 

	
3.2.  

	
No Encumbrances

 

Each Participant represents and warrants to the other that, since the Effective Date of  the Earn-in Agreement (as defined therein), it has not created nor allowed to continue any Encumbrance of its interest in the Properties or has knowledge of any Encumbrance of the Properties arising between the Effective Date of the Earn-in Agreement and the Effective Date hereof.

 

	
3.3.  

	
Disclosures

 

Each of the Participants represents and warrants that it is unaware of any material facts or circumstances that have not been disclosed in this Agreement, which should be disclosed to the other Participant in order to prevent the representations and warranties in this Article from being materially misleading.

 

	
3.4.  

	
Record Title

 

Title to the Assets shall be held by the Participant which is the Manager for the Participants, as their respective Participating Interests are determined pursuant to this Agreement. Each Participant shall have the right to receive, forthwith upon making demand therefor, from the Manager such documents as it may reasonably require to confirm its Participating Interest.

 

	
3.5.  

	
Loss of Title

 

Any failure or loss of title to the Assets, and all costs of defending title, shall be charged to the Business Account, unless such failure or loss is attributable to a breach by a Participant of any covenant or representation or warranty in this Agreement in which case such failure or loss and such costs shall be for the account of such Participant.

 

	
3.6.  

	
Royalties, Production Taxes and Other Payments Based on Production

 

All required payments of production royalties, taxes based on production of Products, and other payments out of production to private parties and governmental entities shall be determined and made by each Participant in proportion to its Participating Interest, and each Participant undertakes to make such payments timely and otherwise in accordance with applicable laws and agreements.  If separate payment is not permitted, each Participant shall determine and pay its proportionate share in advance to the Participant obligated to make such payment and such Participant shall timely make such payment.  Each Participant shall furnish to the other Participant evidence of timely payment for all such required payments.  In the event that either Participant fails to make any such required payment, the other Participant shall have the right to make such payment and shall thereby become subrogated to the rights of such third party; provided, however, that the making of any such payment on behalf of the other Participant shall not constitute acceptance by the paying Participant of any liability to such third party for the underlying obligation.

 

 

  

4

  

 

	
3.7.  

	
Indemnities/Limitation of Liability

 

	
(a)  

	
Each Participant shall indemnify the other Participant, its directors, officers, employees, agents and attorneys, or Affiliates (collectively "Indemnified Participant") from and against the entire amount of any Loss.  A " Loss" shall mean all costs, expenses, damages or liabilities, including attorneys' fees and other costs of litigation (either threatened or pending) arising out of or based on a breach by a Participant ("Indemnifying Participant") of any representation, warranty or covenant contained in this Agreement, including without limitation:

 

	
(i)  

	
any failure by a Participant to determine accurately and make timely payment of its proportionate share of required royalties, production taxes and other payments out of production to third parties as required by Section 3.6;

 

	
(ii)  

	
any action taken for or obligation or responsibility assumed on behalf of the other Participant, its directors, officers, employees, agents and attorneys, or Affiliates by a Participant, any of its directors, officers, employees, agents and attorneys, or Affiliates, in violation of Section 4.1;

 

	
(iii)  

	
failure of a Participant or its Affiliates to comply with the provisions of Section 13.5 or Article 14; and

 

	
(iv)  

	
failure of a Participant or its Affiliates to comply with the pre-emptive right under Section 17.3 and Exhibit H.

 

	
(b)  

	
If any claim or demand is asserted against an Indemnified Participant in respect of which such Indemnified Participant may be entitled to indemnification under this Agreement, written notice of such claim or demand shall promptly be given to the Indemnifying Participant.  The Indemnifying Participant shall have the right, but not the obligation, by notifying the Indemnified Participant within thirty (30) days after its receipt of the notice of the claim or demand, to assume the entire control of (subject to the right of the Indemnified Participant to participate, at the Indemnified Participant's expense and with counsel of the Indemnified Participant's choice), the defense, compromise, or settlement of the matter, including, at the Indemnifying Participant's expense, employment of counsel of the Indemnifying Participant's choice.  Any damages to the assets or business of the Indemnified Participant caused by a failure by the Indemnifying Participant to defend, compromise, or settle a claim or demand in a reasonable and expeditious manner requested by the Indemnified Participant, after the Indemnifying Participant has given notice that it will assume control of the defense, compromise, or settlement of the matter, shall be included in the damages for which the Indemnifying Participant shall be obligated to indemnify the Indemnified Participant.  Any settlement or compromise of a matter by the Indemnifying Participant shall include a full release of claims against the Indemnified Participant which has arisen out of the indemnified claim or demand.

 

 

  

5

  

 

	
4.  

	
RELATIONSHIP OF THE PARTICIPANTS

 

	
4.1.  

	
No Partnership

 

Nothing contained in this Agreement shall be deemed to constitute either Participant the partner of the other, or, except as otherwise herein expressly provided, to constitute either Participant the agent or legal representative of the other, or to create any fiduciary relationship between them.  The Participants do not intend to create, and this Agreement shall not be construed to create, any mining, commercial or other partnership.  Neither Participant, nor any of its directors, officers, employees, agents and attorneys, or Affiliates, shall act for or assume any obligation or responsibility on behalf of the other Participant, except as otherwise expressly provided herein, and any such action or assumption by a Participant's directors, officers, employees, agents and attorneys, or Affiliates shall be a breach by such Participant of this Agreement. The rights, duties, obligations and liabilities of the Participants shall be several and not joint or collective.  Each Participant shall be responsible only for its obligations as herein set out and shall be liable only for its share of the costs and expenses as provided herein, and it is the express purpose and intention of the Participants that their ownership of Assets and the rights acquired hereunder shall be as tenants in common.

 

	
4.2.  

	
Taxation

 

All costs of Operations incurred hereunder shall be for the account of the Participants in proportion to their respective Participating Interests, and each Participant on whose behalf any costs have been so incurred shall be entitled to claim all tax benefits, write-offs and deductions with respect thereto.

 

	
4.3.  

	
Other Business Opportunities

 

Except as expressly provided in this Agreement, each Participant shall have the right to engage in and receive full benefits from any independent business activities or operations, whether or not competitive with this Business, without consulting with, or obligation to, the other Participant.  The doctrines of "corporate opportunity" or "business opportunity" shall not be applied to this Business nor to any other activity or operation of either Participant.  Neither Participant shall have any obligation to the other with respect to any opportunity to acquire any property outside the area of the Properties at any time, or, except as otherwise provided in Section 13.5, within the area of the Properties after the termination of the Business.

 

	
4.4.  

	
Waiver of Rights to Partition or Other Division of Assets

 

The Participants hereby waive and release all rights of partition, or of sale in lieu thereof, or other division of Assets, including any such rights provided by Law.

 

 

  

6

  

 

	
4.5.  

	
Transfer or Termination of Rights to Properties

 

Except as otherwise provided in this Agreement, neither Participant shall Transfer all or any part of its interest in the Assets or this Agreement or otherwise permit or cause such interests to terminate.

 

	
4.6.  

	
Implied Covenants

 

There are no implied covenants contained in this Agreement other than those of good faith and fair dealing.

 

	
4.7.  

	
No Third Party Beneficiary Rights

 

This Agreement shall be construed to benefit the Participants and their respective successors and assigns only, and shall not be construed to create third party beneficiary rights in any other party or in any governmental organization or agency, except to the extent required by Project Financing and as provided in Subsection 3.7(a).

 

	
5.  

	
INTERESTS OF PARTICIPANTS

 

	
5.1.  

	
Participants' Initial Contributions

 

Each Participant, as its Initial Contribution, hereby contributes all its undivided right, title and interest in and to the Properties to the Business.

 

	
5.2.  

	
Value of Initial Contributions

 

The agreed value of the Participants' respective Initial Contributions shall be as follows:

 

Ivanhoe                             $___________

 

Entrée                                $___________

 

[Prior to execution, complete the blanks above in accordance with the following and then delete this square-bracketed text: the value of Ivanhoe’s initial contribution is the amount of Earn-in Expenditures incurred by it under the Earn-in Agreement and the value of Entrée’s  initial contribution is in the same proportion thereto as its initial Participating Interest is to the initial Participating Interest of Ivanhoe.]

 

	
5.3.  

	
Initial Participating Interests

 

The Participants shall have the following initial Participating Interests:

 

Ivanhoe                                               %

 

Entrée                                                  %

 

 

  

7

  

 

[Prior to execution, complete the blanks in accordance with the following and then delete this square-bracketed text:

 

	
  

	
i)

	
In the circumstances described in section 4.5(a) of the Earn-in Agreement the blanks are completed Ivanhoe - 51% and Entrée - 49%.

 

	
  

	
ii)

	
In the circumstances described in section 4.5(b) of the Earn-in Agreement the blanks are completed Ivanhoe - 60% and Entrée - 40%.

 

	
  

	
iii)

	
In the circumstances described in section 4.5(c) of the Earn-in Agreement the blanks are completed Ivanhoe - 80% and Entrée - 20% and add the following text:

 

provided that for the purposes of Article 12 only, in respect of Products extracted from the Properties pursuant to Mining carried out at depths from the surface of the Properties to 560 meters below the surface of the Properties, the initial Participating Interest of Ivanhoe will be 70% and the initial Participating Interest of Entrée will be 30%.]

 

	
5.4.  

	
Additional Contributions

 

The Participants, subject to Section 8.2 and to any elections permitted by Subsection 8.5(a), shall be obligated to contribute funds to adopted Programs and Budgets in proportion to their respective Participating Interests.

 

[If the Joint Venture is formed in the circumstances described in section 4.5(c) of the Earn-in Agreement, add the following text:

 

Notwithstanding that in respect of Products extracted from the Properties pursuant to Mining carried out at depths from the surface of the Properties to 560 meters below the surface of the Properties the initial Participating Interest of Ivanhoe is 70% and the initial Participating Interest of Entrée is 30%, subject to Section 8.2 and to any elections as aforesaid, Ivanhoe shall be obligated to contribute funds to adopted Programs and Budgets based on a Participating Interest of 80% and Entrée shall be obligated to contribute funds to adopted Programs and Budgets based on a Participating Interest of 20% (subject in each case to adjustment as provided in Section 5.5), provided that to the extent Ivanhoe can demonstrate before the Program and Budget is adopted that costs incurred on or in respect of the surface to or to a depth of 560 metres below the surface should reasonably and fairly be allocated to the production of Products above a depth of 560 metres from the surface, Entrée’s share of such costs will be based on a 30% Participating Interest and Ivanhoe’s share of such costs will be based on a 70% Participating Interest (subject in each case to adjustment as provided in Section 5.5).]

 

 

  

8

  

 

	
5.5.  

	
Changes in Participating Interests

 

The Participating Interests shall be eliminated or changed as follows:

 

	
(a)  

	
upon deemed withdrawal or termination as provided in Section 5.6, and Article 13;

 

	
(b)  

	
upon an election by either Participant pursuant to Section 8.5 to contribute less to an adopted Program and Budget than the percentage equal to its Participating Interest, or to contribute nothing to an adopted Program and Budget or an election by Entrée pursuant to Section 4.6(b) of the Earn-in Agreement to sole fund the first $400,000 of costs under the first adopted Program and Budget;

 

	
(c)  

	
in the event of default by either Participant in making its agreed-upon contribution to an adopted Program and Budget, followed by an election by the other Participant to invoke any of the remedies in Section 9.5;

 

	
(d)  

	
upon Transfer by either Participant of part or all of its Participating Interest in accordance with Article 17; or

 

	
(e)  

	
upon acquisition by either Participant of part or all of the Participating Interest of the other Participant, however arising, including without limitation pursuant to Section 4.6 or Section 4.7 of the Earn-in Agreement.

 

[If the Joint Venture was formed in the circumstances described in section 4.5(c) of the Earn-in Agreement add the following text:

 

If the Participating Interests are changed pursuant to Subsection 5.5(b) or (c), the respective Participating Interests of each of Ivanhoe and Entrée in respect of Products extracted from the Properties pursuant to Mining carried out at depths from the surface of the Properties to 560 meters below the surface of the Properties will also be changed pro rata, by multiplying the change by a fraction (i) the denominator of which is the Reduced Participant’s Participating Interest immediately before the change and (ii) the numerator of which is the Reduced Participant’s Participating Interest immediately before the change in respect of Products extracted from the Properties pursuant to Mining carried out at depths from the surface of the Properties to 560 meters below the surface of the Properties.]

 

	
5.6.  

	
Elimination of Minority Interest

 

	
(a)  

	
A Reduced Participant whose Recalculated Participating Interest becomes less than ten percent (10%) shall be deemed to have withdrawn from the Business and shall relinquish its entire Participating Interest free and clear of any Encumbrances arising by, through or under the Reduced Participant, except any such Encumbrances listed in Paragraph 1.1 of Exhibit A or to which the Participants have agreed.  Such relinquished Participating Interest shall be deemed to have accrued automatically to the other Participant. The Reduced Participant shall have the right to receive two percent (2%) of Net Smelter Returns, if any.

 

 

  

9

  

 

	
(b)  

	
The relinquishment, withdrawal and entitlements for which this Section provides shall be effective as of the effective date of the recalculation under Sections 8.5 or 9.5.  However, if the final adjustment provided under Section 8.5 for any recalculation under Section 8.6 results in a Recalculated Participating Interest of greater than ten percent (10%): (i) the Recalculated Participating Interest shall be deemed, effective retroactively as of the first day of the Program Period, to have automatically revested; (ii) the Reduced Participant shall be reinstated as a Participant, with all of the rights and obligations pertaining thereto; (iii) the right to Net Smelter Returns under Subsection 5.6(a) shall terminate; and (iv) the Manager, on behalf of the Participants, shall make any necessary reimbursements, reallocations of Products, contributions and other adjustments as provided in Subsection 8.6(d). Similarly, if such final adjustment under Section 8.6 results in a Recalculated Participating Interest for either Participant of ten percent (10%) or less for a Program Period as to which the provisional calculation under Section 8.5 had not resulted in a Participating Interest of ten percent (10%) or less, then such Participant, at its election within thirty (30) days after notice of the final adjustment, may contribute an amount resulting in a revised final adjustment and resultant Recalculated Participating Interest which is greater than ten percent (10%).  If no such election is made, such Participant shall be deemed to have withdrawn under the terms of Subsection 5.6(a) as of the beginning of such Program Period, and the Manager, on behalf of the Participants, shall make any necessary reimbursements, reallocations of Products, contributions and other adjustments as provided in Subsection 8.6(d), including of any Net Smelter Returns to which such Participant may be entitled for such Program Period.

 

	
5.7.  

	
Continuing Liabilities Upon Adjustments of Participating Interests

 

Any reduction or elimination of either Participant's Participating Interest under Section 5.6 shall not relieve such Participant of its share of any liability, including, without limitation, Continuing Obligations, Environmental Liabilities and Environmental Compliance, whether arising, before or after such reduction or elimination, out of acts or omissions occurring or conditions existing prior to the Effective Date or out of Operations conducted during the term of this Agreement but prior to such reduction or elimination, regardless of when any funds may be expended to satisfy such liability.  For purposes of this Section, such Participant's share of such liability shall be equal to its Participating Interest at the time the act or omission giving rise to the liability occurred, after first taking into account any reduction, readjustment and restoration of Participating Interests under Sections 5.6, 8.5, 8.6 and 9.5 (or, as to such liability arising out of acts or omissions occurring or conditions existing prior to the Effective Date, equal to such Participant's initial Participating Interest).  Should the cumulative cost of satisfying Continuing Obligations be in excess of cumulative amounts accrued or otherwise charged to the Environmental Compliance Fund as described in Exhibit B, each of the Participants shall be liable for its proportionate share (i.e., Participating Interest at the time of the act or omission giving rise to such liability occurred), after first taking into account any reduction, readjustment and restoration of Participating Interests under Sections 5.6, 8.5, 8.6 and 9.5, of the cost of satisfying such Continuing Obligations, notwithstanding that either Participant has previously withdrawn from the Business or that its Participating Interest has been reduced or converted to an interest in Net Smelter Returns pursuant to Subsection 5.6(a).

 

 

  

10

  

 

	
5.8.  

	
Documentation of Adjustments to Participating Interests

 

Adjustments to the Participating Interests need not be evidenced during the term of this Agreement by the execution and recording of appropriate instruments, but each Participant's Participating Interest and related Equity Account balance shall be shown in the accounting records of the Manager, and any adjustments thereto, including any reduction, readjustment, and restoration of Participating Interests under Sections 5.6, 8.5, 8.6 and 9.5, shall be made monthly.  However, either Participant, at any time upon the request of the other Participant, shall execute and acknowledge instruments necessary to evidence such adjustments in form sufficient for filing and recording in the jurisdiction where the Properties are located.

 

	
5.9.  

	
Grant of Lien and Security Interest

 

	
(a)  

	
Subject to Section 5.10, each Participant grants to the other Participant a lien upon and a security interest in its Participating Interest, including all of its right, title and interest in the Assets, whenever acquired or arising, and the proceeds from and accessions to the foregoing.

 

	
(b)  

	
The liens and security interests granted by Subsection 5.9(a) shall secure every obligation or liability of the Participant granting such lien or security interest created under this Agreement, including the obligation to repay a Cover Payment in accordance with Section 9.4.  Each Participant hereby agrees to take all action necessary to perfect such lien and security interest and hereby appoints the other Participant its attorney-in-fact to execute, file and record all financing statements and other documents necessary to perfect or maintain such lien and security interest.

 

	
5.10.  

	
Subordination of Interests

 

Each Participant shall, from time to time, take all necessary actions, including execution of appropriate agreements, to pledge and subordinate its Participating Interest, any liens it may hold which are created under this Agreement other than those created pursuant to Section 5.9 hereof, and any other right or interest it holds with respect to the Assets (other than any statutory lien of the Manager) to any secured borrowings for Operations approved by the Management Committee, including any secured borrowings relating to Project Financing, and any modifications or renewals thereof.

 

 

  

11

  

 

	
6.  

	
MANAGEMENT COMMITTEE

 

	
6.1.  

	
Organization and Composition

 

The Participants hereby establish a Management Committee to determine overall policies, objectives, procedures, methods and actions under this Agreement.  The Management Committee shall consist of two (2) members appointed by Ivanhoe and two (2) members appointed by Entree.  Each Participant may appoint one or more alternates to act in the absence of a regular member.  Any alternate so acting shall be deemed a member.  Appointments by a Participant shall be made or changed by notice to the other members.  The Participant which is the Manager shall designate one of its members to serve as the chair of the Management Committee.

 

	
6.2.  

	
Decisions

 

Each Participant, acting through its appointed members in attendance at the meeting, shall have the votes on the Management Committee in proportion to its Participating Interest.  All decisions of the Management Committee shall be decided by a simple majority vote of the Participating Interests such that, by way of example and for greater clarity, the vote of a party holding a Participating Interest greater than fifty percent (50%) is a simple majority vote which would be effective to make the decision of the Management Committee.  The Manager shall be entitled to break all tie votes with a second or casting vote.

 

	
6.3.  

	
Meetings

 

	
(a)  

	
The Management Committee shall hold regular meetings at least quarterly in Vancouver, British Columbia or at other agreed places.  The Manager shall give thirty (30) days notice to the Participants of such meetings.  Additionally, either Participant may call a special meeting upon seven (7) days notice to the other Participant.  In case of an emergency, reasonable notice of a special meeting shall suffice.  There shall be a quorum if at least one member representing each Participant is present; provided, however, that if a Participant fails to attend two consecutive properly called meetings, then a quorum shall exist at the second meeting if the other Participant is represented by at least one appointed member, and a vote of such Participant shall be considered the vote required for the purposes of the conduct of all business properly noticed even if such vote would otherwise require unanimity.

 

	
(b)  

	
If business cannot be conducted at a regular or special meeting due to the lack of a quorum, either Participant may call the next meeting upon seven (7) days notice to the other Participant.

 

	
(c)  

	
Each notice of a meeting shall include an itemized agenda prepared by the Manager in the case of a regular meeting or by the Participant calling the meeting in the case of a special meeting, but any matters may be considered if either Participant adds the matter to the agenda at least five (5) days before the meeting or with the consent of the other Participant.  The Manager shall prepare minutes of all meetings and shall distribute copies of such minutes to the other Participant within thirty (30) days after the meeting.  Either Participant may electronically record the proceedings of a meeting with the consent of the other Participant.  The other Participant shall sign and return or object to the minutes prepared by the Manager within thirty (30) days after receipt, and failure to do either shall be deemed acceptance of the minutes as prepared by the Manager.  The minutes, when signed or deemed accepted by both Participants, shall be the official record of the decisions made by the Management Committee.  Decisions made at a Management Committee meeting shall be implemented in accordance with adopted Programs and Budgets.  If a Participant timely objects to minutes proposed by the Manager, the members of the Management Committee shall seek, for a period not to exceed thirty (30) days from receipt by the Manager of notice of the objections, to agree upon minutes acceptable to both Participants.  If the Management Committee does not reach agreement on the minutes of the meeting within such thirty (30) day period, the minutes of the meeting as prepared by the Manager together with the other Participant's proposed changes shall collectively constitute the record of the meeting.  If personnel employed in Operations are required to attend a Management Committee meeting, reasonable costs incurred in connection with such attendance shall be charged to the Business Account.  All other costs shall be paid by the Participants individually.

 

 

  

12

  

 

	
6.4.  

	
Action Without Meeting in Person

 

In lieu of meetings in person, the Management Committee may conduct meetings by telephone or video conference, so long as minutes of such meetings are prepared in accordance with Subsection 6.3(c).  The Management Committee may also take actions in writing signed by all members.

 

	
6.5.  

	
Matters Requiring Approval

 

Except as otherwise delegated to the Manager in Section 7.2, the Management Committee shall have exclusive authority to determine all matters related to overall policies, objectives, procedures, methods and actions under this Agreement.

 

	
7.  

	
MANAGER

 

	
7.1.  

	
Appointment

 

The Participants hereby appoint _______________ as the Manager with overall management responsibility for Operations.  _______________ hereby agrees to serve until it resigns as provided in Section 7.4. The Manager shall have overall management responsibility for Operations and shall serve until it resigns or is deemed to resign as provided in Section 7.4.

 

[Prior to execution, complete the blanks above by inserting the name of the Participant with the greater Participating Interest and then delete this square-bracketed text.]

 

 

  

13

  

 

	
7.2.  

	
Powers and Duties of Manager

 

Subject to the terms and provisions of this Agreement including without limitation Article 11 and the general oversight and direction of the Management Committee, the Manager shall have the following powers and duties, which shall be discharged in accordance with adopted Programs and Budgets:

 

	
(a)  

	
the Manager shall manage, direct and control Operations, and shall prepare and present to the Management Committee proposed Programs and Budgets as provided in Article 8;

 

	
(b)  

	
the Manager shall implement the decisions of the Management Committee, shall make all expenditures necessary to carry out adopted Programs, and shall promptly advise the Management Committee if it lacks sufficient funds to carry out its responsibilities under this Agreement;

 

	
(c)  

	
the Manager shall use reasonable efforts to:

 

	
(i)  

	
purchase or otherwise acquire all material, supplies, equipment, water, utility and transportation services required for Operations, such purchases and acquisitions to be made to the extent reasonably possible on the best terms available, taking into account all of the circumstances;

 

	
(ii)  

	
obtain such customary warranties and guarantees as are available in connection with such purchases and acquisitions; and

 

	
(iii)  

	
keep the Assets free and clear of all Encumbrances, except any such Encumbrances listed in Paragraph 1.1 of Exhibit A and those existing at the time of, or created concurrent with, the acquisition of such Assets, or mechanic's or materialmen's liens (which shall be contested, released or discharged in a diligent matter) or Encumbrances specifically approved by the Management Committee.

 

	
(d)  

	
the Manager shall conduct such title examinations of the Properties and cure such title defects pertaining to the Properties as may be advisable in its reasonable judgment;

 

	
(e)  

	
the Manager shall:

 

	
(i)  

	
make or arrange for all payments required by leases, licenses, permits, contracts and other agreements related to the Assets,

 

	
(ii)  

	
pay all taxes, assessments and like charges on Operations and Assets except taxes determined or measured by a Participant's sales revenue or net income and taxes, including production taxes, attributable to a Participant's share of Products, and shall otherwise promptly pay and discharge expenses incurred in Operations; provided, however, that if authorized by the Management Committee, the Manager shall have the right to contest (in the courts or otherwise) the validity or amount of any taxes, assessments or charges if the Manager deems them to be unlawful, unjust, unequal or excessive, or to undertake such other steps or proceedings as the Manager may deem reasonably necessary to secure a cancellation, reduction, readjustment or equalization thereof before the Manager shall be required to pay them, but in no event shall the Manager permit or allow title to the Assets to be lost as the result of the non-payment of any taxes, assessments or like charges, and

 

 

  

14

  

 

	
(iii)  

	
do all other acts reasonably necessary to maintain the Assets;

 

	
(f)  

	
the Manager shall:

 

	
(i)  

	
apply for all necessary permits, licenses and approvals,

 

	
(ii)  

	
comply with all Laws,

 

	
(iii)  

	
notify promptly the Management Committee of any allegations of substantial violation thereof, and

 

	
(iv)  

	
prepare and file all reports or notices;

 

required for or as a result of Operations.  The Manager shall not be in breach of this provision if a violation has occurred in spite of the Manager's good faith efforts to comply consistent with its standard of care under Section 7.3.  In the event of any such violation, the Manager shall timely cure or dispose of such violation on behalf of both Participants through performance, payment of fines and penalties, or both, and the cost thereof shall be charged to the Business Account.

 

	
(g)  

	
the Manager shall prosecute and defend, but shall not initiate without consent of the Management Committee, all litigation or administrative proceedings arising out of Operations.  The non-managing Participant shall have the right to participate, at its own expense, in such litigation or administrative proceedings.  The non-managing Participant shall approve in advance any settlement involving payments, commitments or obligations in excess of Five Hundred Thousand Dollars ($500,000) in cash or value;

 

	
(h)  

	
the Manager shall provide insurance for the benefit of the Participants as provided in Exhibit F or as may otherwise be determined from time to time by the Management Committee;

 

 

  

15

  

 

	
(i)  

	
the Manager may dispose of Assets, whether by abandonment, surrender, or Transfer in the ordinary course of business, except that Properties may be abandoned or surrendered only as provided in Article 15.  Without prior authorization from the Management Committee, however, the Manager shall not:

 

	
(i)  

	
dispose of Assets in any one transaction (or in any series of related transactions) having a value in excess of Five Hundred Thousand Dollars ($500,000),

 

	
(ii)  

	
enter into any sales contracts or commitments for Product, except as permitted in Section 12.2,

 

	
(iii)  

	
begin a liquidation of the Business, or

 

	
(iv)  

	
dispose of all or a substantial part of the Assets necessary to achieve the purposes of the Business;

 

	
(j)  

	
the Manager shall have the right to carry out its responsibilities hereunder through agents, Affiliates or independent contractors;

 

	
(k)  

	
the Manager shall perform or cause to be performed any and all work and make any and all filings and do all such other lawful things, and shall pay all Governmental Fees required by Law, in order to maintain the Properties in good standing;

 

	
(l)  

	
the Manager shall keep and maintain all required accounting and financial records pursuant to the procedures described in Exhibit B and in accordance with customary cost accounting practices in the mining industry, and shall ensure appropriate separation of accounts unless otherwise agreed by the Participants;

 

	
(m)  

	
the Manager shall maintain Equity Accounts for each Participant.  Each Participant's Equity Account shall be credited with the value of its Initial Contribution under Sections 5.2 and shall be credited with amounts contributed by such Participant under Section 5.4.  Each Participant's Equity Account shall be charged with the cash and the fair market value of property distributed to such Participant (net of liabilities assumed by such Participant and liabilities to which such distributed property is subject). Contributions and distributions shall include all cash contributions or distributions plus the agreed value (expressed in dollars) of all in-kind contributions or distributions.  Solely for purposes of determining the Equity Account balances of the Participants, the Manager shall reasonably estimate the fair market value of all Products distributed to the Participants, and such estimated value shall be used regardless of the actual amount received by each Participant upon disposition of such Products;

 

	
(n)  

	
the Manager shall keep the Management Committee advised of all Operations by submitting in writing to the members of the Management Committee:

 

	
(i)  

	
monthly progress reports that include statements of expenditures and comparisons of such expenditures to the adopted Budget,

 

	
(ii)  

	
quarterly summaries of data acquired,

 

	
(iii)  

	
copies of reports concerning Operations,

 

	
(iv)  

	
a detailed final report within sixty (60)  days after completion of each Program and Budget, which shall include comparisons between actual and budgeted expenditures and comparisons between the objectives and results of Programs, and

 

	
(v)  

	
such other reports as any member of the Management Committee may reasonably request.

 

 

  

16

  

 

Subject to Article 19, at all reasonable times the Manager shall keep the other Participant fully informed of Operations and shall provide the Management Committee, or other representative of a Participant upon the request of such Participant's member of the Management Committee, access to, and the right to inspect and, at such Participant's cost and expense, copies of the Existing Data and all maps, drill logs and other drilling data, core, pulps, reports, surveys, assays, analyses, production reports, operations, technical, accounting and financial records, and other Confidential Information, to the extent preserved or kept by the Manager, subject to Article 19. In addition, the Manager shall allow the non-managing Participant, at the latter's sole risk, cost and expense, and subject to reasonable safety regulations, to inspect the Assets and Operations at all reasonable times, so long as the non-managing Participant does not unreasonably interfere with Operations; All reports and summaries will be accompanied by copies of all internal memoranda, maps, plans, photographs, electromagnetic surveys, test results, reports, drill logs and other information and data including electronic data and the Manager’s analyses, interpretations, compilations, studies and evaluations of such information, data and knowledge. All such information will be deemed to be Confidential Information. If requested, the Manager will consult with the non-managing Participant to assist the non-managing Participant to fully understand the information provided and the implications of it for the value and prospectivity of the Properties;

 

	
(o)  

	
the Manager shall prepare an Environmental Compliance plan for all Operations consistent with the requirements of any applicable Laws or contractual obligations and shall include in each Program and Budget sufficient funding to implement the Environmental Compliance plan and to satisfy the financial assurance requirements of any applicable Law or contractual obligation pertaining to Environmental Compliance.  To the extent practical, the Environmental Compliance plan shall incorporate concurrent reclamation of Properties disturbed by Operations;

 

	
(p)  

	
the Manager shall undertake to perform Continuing Obligations when and as economic and appropriate, whether before or after termination of the Business. The Manager shall have the right to delegate performance of Continuing Obligations to persons having demonstrated skill and experience in relevant disciplines.  As part of each Program and Budget submittal, the Manager shall specify in such Program and Budget the measures to be taken for performance of Continuing Obligations and the cost of such measures.  The Manager shall keep the other Participant reasonably informed about the Manager's efforts to discharge Continuing Obligations.   Authorized representatives of each Participant shall have the right from time to time to enter the Properties to inspect work directed toward satisfaction of Continuing Obligations and audit books, records, and accounts related thereto;

 

 

  

17

  

 

	
(q)  

	
the funds that are to be deposited into the Environmental Compliance Fund shall be maintained by the Manager in a separate, interest bearing cash management account, which may include, but is not limited to, money market investments and money market funds, and/or in longer term investments if approved by the Management Committee.  Such funds shall be used solely for Environmental Compliance and Continuing Obligations, including the committing of such funds, interests in property, insurance or bond policies, or other security to satisfy Laws regarding financial assurance for the reclamation or restoration of the Properties, and for other Environmental Compliance requirements;

 

	
(r)  

	
if Participating Interests are adjusted in accordance with this Agreement the Manager shall propose from time to time one or more methods for fairly allocating costs for Continuing Obligations;

 

	
(s)  

	
the Manager shall undertake all other activities reasonably necessary to fulfil the foregoing, and to implement the policies, objectives, procedures, methods and actions determined by the Management Committee pursuant to Section 6.1.

 

	
7.3.  

	
Standard of Care

 

The Manager shall discharge its duties under Section 7.2 and conduct all Operations in a good, workmanlike and efficient manner, in accordance with sound mining and other applicable industry standards and practices, and in accordance with Laws and with the terms and provisions of leases, licenses, permits, contracts and other agreements pertaining to the Assets.  The Manager shall not be liable to the other Participant for any act or omission resulting in damage or loss except to the extent caused by or attributable to the Manager's wilful misconduct or gross negligence.  The Manager shall not be in default of any of its duties under Section 7.2 if its inability or failure to perform results from the failure of the other Participant to perform acts or to contribute amounts required of it by this Agreement.

 

	
7.4.  

	
Resignation; Deemed Offer to Resign

 

The Manager may resign upon not less than three (3) months' prior notice to the other Participant, in which case the other Participant may elect to become the new Manager by notice to the resigning Participant within thirty (30) days after the notice of resignation.  If any of the following shall occur, the Manager shall be deemed to have resigned upon the occurrence of the event described in each of the following Subsections, with the successor Manager to be appointed by the other Participant at a subsequently called meeting of the Management Committee, at which the Manager shall not be entitled to vote and at which the other Participant may appoint itself or a third party as the Manager.

 

 

  

18

  

 

	
(a)  

	
the aggregate Participating Interest of the Manager and its Affiliates becomes less than fifty percent (50%);

 

	
(b)  

	
the Manager fails to perform a material obligation imposed upon it under this Agreement and such failure continues for a period of sixty (60) days after notice from the other Participant demanding performance;

 

	
(c)  

	
the Manager fails to pay or contest in good faith its bills and Business debts as such obligations become due;

 

	
(d)  

	
a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for a substantial part of its assets is appointed and such appointment is neither made ineffective nor discharged within sixty (60) days after the making thereof, or such appointment is consented to, requested by, or acquiesced in by the Manager;

 

	
(e)  

	
the Manager commences a voluntary case under any applicable bankruptcy, insolvency or similar law now or hereafter in effect; or consents to the entry of an order for relief in an involuntary case under any such law or to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or other similar official of any substantial part of its assets; or makes a general assignment for the benefit of creditors; or takes corporate or other action in furtherance of any of the foregoing; or

 

	
(f)  

	
entry is made against the Manager of a judgment, decree or order for relief affecting its ability to serve as Manager, or a substantial part of its Participating Interest or its other assets by a court of competent jurisdiction in an involuntary case commenced under any applicable bankruptcy, insolvency or other similar law of any jurisdiction now or hereafter in effect.

 

Under Subsections (d), (e) or (f) above, the appointment of a successor Manager shall be deemed to pre-date the event causing a deemed resignation.

 

	
7.5.  

	
Payments To Manager

 

The Manager shall be compensated for its services and reimbursed for its costs hereunder in accordance with Exhibit B.

 

	
7.6.  

	
Transactions With Affiliates

 

If the Manager engages Affiliates to provide services hereunder, it shall do so on terms no less favourable than would be the case in arm's-length transactions with unrelated persons.

 

	
7.7.  

	
Activities During Deadlock

 

If the Management Committee for any reason fails to adopt an Exploration, Pre-Feasibility Study, Feasibility Study or Development Program and Budget,  the Manager shall continue Operations at levels sufficient to maintain the Properties.  If the Management Committee for any reason fails to adopt an initial Mining Program and Budget or any Expansion or Modification Programs and Budgets, the Manager shall continue Operations at levels sufficient to maintain the then current Operations and Properties.  If the Management Committee for any reason fails to adopt Mining Programs and Budgets subsequent to the initial Mining Program and Budget, subject to the contrary direction of the Management Committee and receipt of necessary funds, the Manager shall continue Operations at levels comparable with the last adopted Mining Program and Budget.  All of the foregoing shall be subject to the contrary direction of the Management Committee and the receipt of necessary funds.

 

 

  

19

  

 

	
8.  

	
PROGRAMS AND BUDGETS

 

	
8.1.  

	
Operations Pursuant to Programs and Budgets

 

Except as otherwise provided in Section 8.13, Operations shall be conducted, expenses shall be incurred, and Assets shall be acquired only pursuant to adopted Programs and Budgets.  Every Program and Budget adopted pursuant to this Agreement shall provide for accrual of reasonably anticipated Environmental Compliance expenses for all Operations contemplated under the Program and Budget. Programs and Budgets shall provide only for Exploration, Development or mining operations on the Properties and for no other activities or expenditures.

 

	
8.2.  

	
Programs which Benefit Oyu Tolgoi

 

All costs of Operations under each Program and Budget will, to the extent practicable, be allocated at the time the Program and Budget is adopted between the Properties and the Oyu Tolgoi Property, based on the proportions in which each of them benefits most from such Operations and:

 

	
(a)  

	
Ivanhoe shall bear and pay for one hundred percent (100%) of such costs allocated to the Oyu Tolgoi Property and all associated liabilities including for Environmental Compliance; and

 

	
(b)  

	
the balance of such costs shall be borne and paid by the Participants in accordance with their respective Participating Interests, subject to any elections made under Subsection 8.5(a).

 

If, and to the extent that, it is impracticable to fully allocate costs of Operations between the Properties and the Oyu Tolgoi Property at the time that a Program and Budget is adopted, such costs will be provisionally allocated based on all information available to the Participants respecting the Properties and the Oyu Tolgoi Property and, if warranted based on additional information obtained from future Operations, will be re-allocated to equitably reflect the relative benefits to each such property. Any such provisional or definitive allocation or re-allocation of costs as aforesaid will be agreed by the Participants. A failure to agree will be a dispute for the purposes of Section 18.3.

 

For illustration purposes only, if a shaft is sunk on the Properties which also provides access to the Oyu Tolgoi Property and fifty five percent (55%) of mineral production is from the Oyu Tolgoi Property and forty five percent (45%) of mineral production is from the Properties, Entrée would have responsibility for a share of those costs equal to its Participating Interest multiplied by forty five percent (45%).

 

 

  

20

  

 

	
8.3.  

	
Presentation of Programs and Budgets

 

Proposed Programs and Budgets shall be prepared by the Manager for a period of one (1) year or any other period as approved by the Management Committee, and shall be submitted to the Management Committee for review and consideration.  All proposed Programs and Budgets may include Exploration, Pre-Feasibility Studies, Feasibility Study, Development, Mining and Expansion or Modification Operations components, or any combination thereof, and shall be reviewed and adopted upon a vote of the Management Committee in accordance with Sections 6.2 and 8.4.  Each Program and Budget adopted by the Management Committee, regardless of length, shall be reviewed at least once a year at a meeting of the Management Committee.  During the period encompassed by any Program and Budget, and at least one (1) month prior to its expiration, a proposed Program and Budget for the succeeding period shall be prepared by the Manager and submitted to the Management Committee for review and consideration.

 

	
8.4.  

	
Review and Adoption of Proposed Programs and Budgets

 

Within thirty (30) days after submission of a proposed Program and Budget, each Participant shall submit in writing to the Management Committee:

 

	
(a)  

	
notice that the Participant approves any or all of the components of the proposed Program and Budget;

 

	
(b)  

	
modifications proposed by the Participant to the components of the proposed Program and Budget; or

 

	
(c)  

	
notice that the Participant rejects any or all of the components of the proposed Program and Budget.

 

If a Participant fails to give any of the foregoing responses within the allotted time, the failure shall be deemed to be a vote by the Participant for adoption of the Manager's proposed Program and Budget.  If a Participant makes a timely submission to the Management Committee pursuant to Subsections 8.4(a), (b) or (c), then the Manager working with the other Participant shall seek for a period of time not to exceed twenty (20) days to develop a complete Program and Budget acceptable to both Participants.  The Manager shall then call a Management Committee meeting in accordance with Section 6.3 for purposes of reviewing and voting upon the proposed Program and Budget, provided however that the Management Committee shall make the final determination of the Program and Budget notwithstanding the inability to accommodate an individual Participant’s objections.

 

 

  

21

  

 

	
8.5.  

	
Election to Participate

 

	
(a)  

	
By notice to the Management Committee within twenty (20) days after the final vote adopting a Program and Budget, and notwithstanding its vote concerning adoption of a Program and Budget, a Participant may elect to participate in the approved Program and Budget:

 

	
(i)  

	
in proportion to its respective Participating Interest,

 

	
(ii)  

	
in some lesser amount than its respective Participating Interest, or

 

	
(iii)  

	
not at all;

 

subject to Entrée’s overriding right to elect to sole fund the first $400,000 of costs under the first approved Program and Budget provided in Section 4.6(b) of the Earn-in Agreement. In case of any such election except an election under Subsection 8.5(a)(i), the Participating Interest of the electing Participant shall be recalculated as provided in Subsection 8.5(b) below, with dilution effective as of the first day of the Program Period for the adopted Program and Budget.  If a Participant fails to so notify the Management Committee of the extent to which it elects to participate, the Participant shall be deemed to have elected to contribute to such Program and Budget in proportion to its respective Participating Interest as of the beginning of the Program Period.

 

	
(b)  

	
If a Participant elects to contribute to an adopted Program and Budget some lesser amount than in proportion to its respective Participating Interest, or not at all, and the other Participant elects to fund all or any portion of the deficiency, the Participating Interest of the Reduced Participant shall be provisionally recalculated as follows:

 

	
(i)  

	
for an election made before Payout, by dividing: (A) the sum of (1) the amount credited to the Reduced Participant's Equity Account with respect to its Initial Contribution under Section 5.2, (2) the total of all of the Reduced Participant's contributions under Section 5.4, and (3) the amount, if any, the Reduced Participant elects to contribute to the adopted Program and Budget; by (B) the sum of (1), (2) and (3) above for both Participants; and then multiplying the result by one hundred; or

 

	
(ii)  

	
for an election made after Payout, by reducing its Participating Interest in an amount equal to two (2) times the amount by which it would have been reduced under Subsection 8.5(b)(i) if such election were made before Payout.

 

The Participating Interest of the other Participant shall be increased by the amount of the reduction in the Participating Interest of the Reduced Participant, and if the other Participant elects not to fund the entire deficiency, the Manager shall adjust the Program and Budget to reflect the funds available.

 

 

  

22

  

 

	
(c)  

	
Whenever the Participating Interests are recalculated pursuant to this Section 8.5, the Equity Accounts of both Participants shall be revised to bear the same ratio to each other as their recalculated Participating Interests.

 

	
8.6.  

	
Recalculation or Restoration of Reduced Interest Based on Actual Expenditures

 

	
(a)  

	
If a Participant makes an election under Subsection 8.5(a)(ii) or (iii), then within thirty (30) days after the conclusion of such Program and Budget, the Manager shall report the total amount of money expended plus the total obligations incurred by the Manager for such Budget.

 

	
(b)  

	
If the Manager expended or incurred obligations that were more or less than the adopted Budget, the Participating Interests shall be recalculated pursuant to Subsection 8.5(b) by substituting each Participant's actual contribution to the adopted Budget for that Participant's estimated contribution at the time of the Reduced Participant's election under Subsection 8.5(a).

 

	
(c)  

	
If the Manager expended or incurred obligations of less than seventy-five percent (75%) of the adopted Budget, within ten (10) days of receiving the Manager's report on expenditures, the Reduced Participant may notify the other Participant of its election to reimburse the other Participant for the difference between any amount contributed by the Reduced Participant to such adopted Program and Budget and the Reduced Participant's proportionate share (at the Reduced Participant's former Participating Interest) of the actual amount expended or incurred for the Program, plus interest on the difference accruing at the rate described in Section 9.3 plus four (4) percentage points.  The Reduced Participant shall deliver the appropriate amount (including interest) to the other Participant with such notice.  Failure of the Reduced Participant to so notify and tender such amount shall result in dilution occurring in accordance with this Article 8 and shall bar the Reduced Participant from its rights under this Subsection 8.5(c) concerning the relevant adopted Program and Budget.

 

	
(d)  

	
All recalculations under this Article 8 shall be effective as of the first day of the Program Period for the Program and Budget.  The Manager, on behalf of both Participants, shall make such reimbursements, reallocations of Products, contributions and other adjustments as are necessary so that, to the extent possible, each Participant will be placed in the position it would have been in had its Participating Interests as recalculated under this Article 8 been in effect throughout the Program Period for such Program and Budget.  If the Participants are required to make contributions, reimbursements or other adjustments pursuant to this Section, the Manager shall have the right to purchase or sell a Participant's share of Products in the same manner as under Section 12.2 and to apply the proceeds of such sale to satisfy that Participant's obligation to make such contributions, reimbursements or adjustments.

 

	
(e)  

	
Whenever the Participating Interests are recalculated pursuant to this Article 8, the Participants' Equity Accounts shall be revised to bear the same ratio to each other as their Recalculated Participating Interests.

 

  

23

  

 

	
8.7.  

	
Pre-Feasibility Study Program and Budgets

 

	
(a)  

	
At such time as either Participant is of the good faith and reasonable opinion that economically viable Mining Operations may be possible on the Properties, the Participant may propose to the Management Committee that a Pre-Feasibility Study Program and Budget, or a Program and Budget that includes Pre-Feasibility Studies, be prepared.  Such proposal shall be made in writing to the other Participant, shall reference the data upon which the proposing Participant bases its opinion, and shall call a meeting of the Management Committee pursuant to Section 6.3.  If such proposal is adopted by the Management Committee, the Manager shall prepare or have prepared a Pre-Feasibility Study Program and Budget as approved by the Management Committee and shall submit the same to the Management Committee within thirty (30) days following adoption of the proposal or such other period of time as the Management Committee may prescribe based on a good faith pre-estimate of the time actually required under the circumstances.

 

	
(b)  

	
Pre-Feasibility Studies may be conducted by the Manager, Feasibility Contractors, or both, or may be conducted by the Manager and audited by Feasibility Contractors, as the Management Committee determines.  A Pre-Feasibility Study Program shall include the work necessary to prepare and complete the Pre-Feasibility Study approved in the proposal adopted by the Management Committee, which may include some or all of the following:

 

	
(i)  

	
analyses of various alternatives for mining, processing and beneficiation of Products;

 

	
(ii)  

	
analyses of alternative mining, milling, and production rates;

 

	
(iii)  

	
analyses of alternative sites for placement of facilities (i.e., water supply facilities, transport facilities, reagent storage, offices, shops, warehouses, stock yards, explosives storage, handling facilities, housing, public facilities);

 

	
(iv)  

	
analyses of alternatives for waste treatment and handling (including a description of each alternative of the method of tailings disposal and the location of the proposed disposal site);

 

	
(v)  

	
estimates of recoverable proven and probable reserves of Products and of related substances, in terms of technical and economic constraints (extraction and treatment of Products), including the effect of grade, losses, and impurities, and the estimated mineral composition and content thereof, and review of mining rates commensurate with such reserves;

 

 

  

24

  

 

	
(vi)  

	
analyses of environmental impacts of the various alternatives, including an analysis of the permitting, environmental liability and other Environmental Law implications of each alternative, and costs of Environmental Compliance for each alternative;

 

	
(vii)  

	
conduct of appropriate metallurgical tests to determine the efficiency of alternative extraction, recovery and processing techniques, including an estimate of water, power, and reagent consumption requirements;

 

	
(viii)  

	
conduct of hydrology and other studies related to any required dewatering; and

 

	
(ix)  

	
conduct of other studies and analyses approved by the Management Committee.

 

	
(c)  

	
The Manager shall have the discretion to base its and any Feasibility Contractors' Pre-Feasibility Study on the cumulative results of each discipline studied, so that if a particular portion of the work would result in the conclusion that further work based on these results would be unwarranted for a particular alternative, the Manager shall have no obligation to continue expenditures on other Pre-Feasibility Studies related solely to such alternative.

 

	
8.8.  

	
Completion of Pre-Feasibility Studies and Selection of Approved Alternatives

 

As soon as reasonably practical following completion of all Pre-Feasibility Studies required to evaluate fully the alternatives studied pursuant to Pre-Feasibility Programs, the Manager shall prepare a report summarizing all Pre-Feasibility Studies and shall submit the same to the Management Committee.  Such report shall incorporate the following:

 

	
(a)  

	
the results of the analyses of the alternatives and other matters evaluated in the conduct of the Pre-Feasibility Programs;

 

	
(b)  

	
reasonable estimates of capital costs for the Development and start-up of the mine, mill and other processing and ancillary facilities required by the Development and Mining alternatives evaluated (based on flowsheets, piping and instrumentation diagrams, and other major engineering diagrams), which cost estimates shall include reasonable estimates of:

 

	
(i)  

	
capitalized pre-stripping expenditures, if an open pit or surface mine is proposed,

 

	
(ii)  

	
expenditures required to purchase, construct and install all machinery, equipment and other facilities and infrastructure (including contingencies) required to bring a mine into commercial production, including an analysis of costs of equipment or supply contracts in lieu of Development costs for each Development and Mining alternative evaluated,

 

	
(iii)  

	
expenditures required to perform all other related work required to commence commercial production of Products and, if applicable, process Products (including reasonable estimates of working capital requirements), and

 

  

25

  

 

	
(iv)  

	
all other direct and indirect costs and general and administrative expenses that may be required for a proper evaluation of the Development and Mining alternatives and annual production levels evaluated.  The capital cost estimates shall include a schedule of the timing of the estimated capital requirements for each alternative;

 

	
(c)  

	
a reasonable estimate of the annual expenditures required for the first year of Operations after completion of the capital program described in Subsection 8.8(b) for each Development alternative evaluated, and for subsequent years of Operations, including estimates of annual production, processing, administrative, operating and maintenance expenditures, taxes (other than income taxes), working capital requirements, royalty and purchase obligations, equipment leasing or supply contract expenditures, work commitments, Environmental Compliance costs, post-Operations Environmental Compliance and Continuing Obligations funding requirements and all other anticipated costs of such Operations.  This analysis shall also include an estimate of the number of employees required to conduct such Operations for each alternative;

 

	
(d)  

	
a review of the nature, extent and rated capacity of the mine, machinery, equipment and other facilities preliminarily estimated to be required for the purpose of producing and marketing Products under each Development and Mining alternative analyzed;

 

	
(e)  

	
an analysis (and sensitivity analyses reasonably requested by either Participant), based on various target rates of return and price assumptions requested by either Participant, of whether it is technically, environmentally, and economically feasible to place a prospective ore body or deposit within the Properties into commercial production for each of the Development and Mining alternatives analyzed (including a discounted cash flow rate of return investment analysis for each alternative and net present value estimate using various discount rates requested by either Participant); and

 

	
(f)  

	
such other information as the Management Committee deems appropriate.

 

Within sixty (60) days after delivery of the Pre-Feasibility Study summary to the Participants, a Management Committee meeting shall be convened for the purposes of reviewing the Pre-Feasibility Study summary and selecting one or more Approved Alternatives, if any.

 

	
8.9.  

	
Programs and Budges for Feasibility Study

 

Within thirty (30) days following the selection of an Approved Alternative or such other period of time as the Management Committee may prescribe based on a good faith pre-estimate of the time actually required under the circumstances, the Manager shall submit to the Management Committee a Program and a Budget, which shall include necessary Operations, for the preparation of a Feasibility Study.  A Feasibility Study may be prepared by the Manager, Feasibility Contractors, or both, or may be prepared by the Manager and audited by Feasibility Contractors, as the Management Committee determines.

 

 

  

26

  

 

	
8.10.  

	
Development Programs and Budgets; Project Financing

 

	
(a)  

	
Unless otherwise determined by the Management Committee, the Manager shall not submit to the Management Committee a Program and Budget including Development of the mine described in a completed Feasibility Study until thirty (30) days following the receipt by Manager of the Feasibility Study.  The Program and Budget, which includes Development of the mine described in the completed Feasibility Study, shall be based on the estimated cost of Development described in the Feasibility Study for the Approved Alternative, unless otherwise directed by the Management Committee.

 

	
(b)  

	
Promptly following adoption of the Program and Budget, which includes Development as described in a completed Feasibility Study, but in no event more than sixty (60) days thereafter, the Manager shall submit to the Management Committee a report on material bids received for Development work ("Bid Report").  If bids described in the Bid Report result in the aggregate cost of Development work exceeding twenty percent (20%) of the Development cost estimates that formed the basis of the Development component of the adopted Program and Budget, the Program and Budget, which includes relevant Development, shall be deemed to have been resubmitted to the Management Committee based on the aggregate costs as described in the Bid Report on the date of receipt of the Bid Report and shall be reviewed and adopted in accordance with Sections 6.2 and 8.4.

 

	
(c)  

	
If the Management Committee approves the Development of the mine described in a Feasibility Study and also decides to seek Project Financing for such mine, each Participant shall, at its own cost, cooperate in seeking to obtain Project Financing for such mine; provided, however, that all fees, charges and costs (including attorneys and technical consultants fees) paid to the Project Financing lenders shall be borne by the Participants in proportion to their Participating Interests, unless such fees are capitalized as a part of the Project Financing.

 

	
8.11.  

	
Expansion or Modification Programs and Budgets

 

Any Program and Budget proposed by the Manager involving Expansion or Modification shall be based on a Feasibility Study prepared by the Manager, Feasibility Contractors, or both, or prepared by the Manager and audited by Feasibility Contractors, as the Management Committee determines. The Program and Budget, which include Expansion or Modification, shall be submitted for review and approval by the Management Committee within twenty (20) days following receipt by the Manager of such Feasibility Study or such other period of time as the Management Committee may prescribe based on a good faith pre-estimate of the time actually required under the circumstances.

 

 

  

27

  

 

	
8.12.  

	
Budget Overruns; Program Changes

 

The Manager shall immediately notify the Management Committee of any material departure from an adopted Program and Budget. If the Manager exceeds an adopted Budget by more than ten percent (10%) in the aggregate, then the excess over ten percent (10%), unless directly caused by an emergency or unexpected expenditure made pursuant to Section 8.13 or unless otherwise authorized or ratified by the Management Committee, shall be for the sole account of the Manager and such excess shall not be included in the calculations of the Participating Interests nor deemed a contribution under this Agreement.  Budget overruns of ten percent (10%) or less in the aggregate shall be borne by the Participants in proportion to their respective Participating Interests.

 

	
8.13.  

	
Emergency or Unexpected Expenditures

 

In case of emergency, the Manager may take any reasonable action it deems necessary to protect life or property, to protect the Assets or to comply with Laws.  The Manager may make reasonable expenditures on behalf of the Participants for unexpected events that are beyond its reasonable control and that do not result from a breach by it of its standard of care.  The Manager shall promptly notify the Participants of the emergency or unexpected expenditure, and the Manager shall be reimbursed for all resulting costs by the Participants in proportion to their respective Participating Interests.

 

	
8.14.  

	
Entrée Observer

 

If and whenever Ivanhoe is the Manager, Entrée will have the right to maintain one of its own geologists as an observer of the Operations and Ivanhoe will consult with this individual on the preparation of Programs and Budgets before presentation thereof to the Management Committee. The cost of maintaining one of Entrée’s geologists on the Properties will be paid by Entrée except such individual’s salary shall be for the Business Account.

 

	
9.  

	
ACCOUNTS AND SETTLEMENTS

 

	
9.1.  

	
Monthly Statements

 

The Manager shall promptly submit to the Management Committee monthly statements of account reflecting in reasonable detail the charges and credits to the Business Account during the preceding month.

 

	
9.2.  

	
Cash Calls

 

The Manager shall submit prior to the last day of each month a billing for the estimated cash requirements for the next month under the adopted Program and Budget and for any amounts owing from previous months.  Such billing shall be subject to any election that a Participant may have made pursuant to Section 8.5(a) to participate in the approved Program and Budget in some lesser amount than its Participating Interest or not at all.  Within ten (10) days after receipt of each billing, or a billing made pursuant to Section 8.12 or 8.13, each Participant shall advance its proportionate share of such requirements. The Manager shall record all funds received in the Business Account.  The Manager shall at all times maintain a cash balance approximately equal to the rate of disbursement for up to sixty (60) days.  All funds in excess of immediate cash requirements shall be invested by the Manager for the benefit of the Business in cash management accounts and investments selected at the discretion of the Manager, which accounts may include, but are not limited to, money market investments and money market funds.

 

 

  

28

  

 

	
9.3.  

	
Failure to Meet Cash Calls

 

A Participant that fails to meet cash calls in the amount and at the times specified in Section 9.2 shall be in default, and the amounts of the defaulted cash call shall bear interest from the date due at an annual rate equal to five (5) percentage points over the Prime Rate, but in no event shall the rate of interest exceed the maximum permitted by Law.  Such interest shall accrue to the benefit of and be payable to the non-defaulting Participant, but shall not be deemed as amounts contributed by the non-defaulting Participant in the event dilution occurs in accordance with Article 5.  In addition to any other rights and remedies available to it by Law, the non-defaulting Participant shall have those other rights, remedies, and elections specified in Sections 9.4 and 9.5.

 

	
9.4.  

	
Cover Payment

 

If a Participant defaults in making a contribution or cash call required by an adopted Program and Budget, the non-defaulting Participant may, but shall not be obligated to, advance some portion or all of the amount in default on behalf of the defaulting Participant (a "Cover Payment").  Each and every Cover Payment shall constitute a demand loan bearing interest from the date of the advance at the rate provided in Section 9.3. If more than one Cover Payment is made, the Cover Payments shall be aggregated and the rights and remedies described herein pertaining to an individual Cover Payment shall apply to the aggregated Cover Payments.  The failure to repay such loan upon demand shall be a default.

 

	
9.5.  

	
Remedies

 

The Participants acknowledge that if either Participant defaults in making a contribution required by Section 5.4 or a cash call, or in repaying a loan, as required under Sections 9.2, 9.3 or 9.4, whether or not a Cover Payment is made, it will be difficult to measure the damages resulting from such default (it being hereby understood and agreed that the Participants have attempted to determine such damages in advance and determined that the calculation of such damages cannot be ascertained with reasonable certainty).  Both Participants acknowledge and recognize that the damage to the non-defaulting Participant could be significant.  In the event of such default, as reasonable liquidated damages, the non-defaulting Participant may, with respect to any such default not cured within thirty (30) days after notice to the defaulting Participant of such default, elect any of the following remedies by giving notice to the defaulting Participant. Such election may be made with respect to each failure to meet a cash call relating to a Program and Budget, regardless of the frequency of such cash calls, provided such cash calls are made in accordance with Section 9.2:

 

 

  

29

  

 

	
(a)  

	
the defaulting Participant grants to the non-defaulting Participant a power of sale as to all or any portion of its interest in any Assets or in its Participating Interest that is subject to the lien and security interest granted in Section 5.7 (whether or not such lien and security interest has been perfected), upon a default under Sections 9.3 or 9.4.  Such power shall be exercised in the manner provided by applicable Law or otherwise in a commercially reasonable manner and upon reasonable notice.  If the non-defaulting Participant elects to enforce the lien or security interest pursuant to the terms of this Subsection, the defaulting Participant shall be deemed to have waived any available right of redemption, any required valuation or appraisal of the secured property prior to sale, any available right to stay execution or to require a marshalling of assets, and any required bond in the event a receiver is appointed, and the defaulting Participant shall be liable for any deficiency;

 

	
(b)  

	
the non-defaulting Participant may elect to have the defaulting Participant's Participating Interest diluted or eliminated as follows: the Reduced Participant's Participating Interest shall be recalculated by dividing: (X) the sum of (1) the value of the Reduced Participant's Initial Contribution under Section 5.2, (2) the total of all of the Reduced Participant's contributions under Section 5.4, and (3) the amount, if any, the Reduced Participant contributed to the adopted Program and Budget with respect to which the default occurred; by (Y) the sum of (1), (2) and (3) above for both Participants; and then multiplying the result by one hundred. The Participating Interest of the other Participant shall be increased by the amount of the reduction in the Participating Interest of the Reduced Participant.

 

	
(c)  

	
dilution under Subsection 9.5(b) shall be effective as of the date of the original default, and Section 9.6 shall not apply.  The amount of any Cover Payment under Section 9.4 and interest thereon, or any interest accrued in accordance with Section 9.3, shall be deemed to be amounts contributed by the non-defaulting Participant, and not as amounts contributed by the defaulting Participant;

 

	
(d)  

	
whenever the Participating Interests are recalculated pursuant to Subsection 9.5(b), the Equity Accounts of both Participants shall be adjusted to bear the same ratio to each other as their recalculated Participating Interests;

 

 

  

30

  

 

	
(e)  

	
if a Participant has defaulted in meeting a cash call or repaying a loan, and if the non-defaulting Participant has made a Cover Payment, then, in addition to a reduction in the defaulting Participant's Participating Interest effected pursuant to Subsection 9.5(b), the non-defaulting Participant shall have the right, if the indebtedness arising from a default or Cover Payment is not discharged within sixty (60) days of the default and upon not less than thirty (30) days advance notice to the defaulting Participant, to elect to purchase all the right, title, and interest, whenever acquired or arising, of the defaulting Participant in the Assets, including but not limited to its Participating Interest or interest in Net Smelter Returns, together with all proceeds from and accessions of the foregoing (collectively the "Defaulting Participant's Entire Interest") at a purchase price equal to seventy-five percent (75%) of the fair market value thereof as determined by a qualified independent appraiser appointed by the non-defaulting Participant.  If the defaulting Participant conveys notice of objection to the person so appointed within ten (10) days after receiving notice thereof, then an independent and qualified appraiser shall be appointed by the joint action of the appraiser appointed by the non-defaulting Participant and a qualified independent appraiser appointed by the defaulting Participant; provided, however, that if the defaulting Participant fails to designate a qualified independent appraiser for such purpose within ten (10) days after giving notice of such objection, then the person originally designated by the non-defaulting Participant shall serve as the appraiser; provided further, that if the appraisers appointed by each of the Participants fail to appoint a third qualified independent appraiser within five (5) days after the appointment of the last of them, then an appraiser shall be appointed by a judge of a court of competent jurisdiction in the state in which the Assets are situated upon the application of either Participant. There shall be withheld from the purchase price payable, upon transfer of the Defaulting Participant's Entire Interest, the amount of any Cover Payment under Section 9.4 and unpaid interest thereon to the date of such transfer, or any unpaid interest accrued in accordance with Section 9.3 to the date of such transfer.  Upon payment of such purchase price, the defaulting Participant shall be deemed to have relinquished all of the Defaulting Participant's Entire Interest to the non-defaulting Participant, but shall remain liable to the extent provided in Section 5.7.

 

	
9.6.  

	
Audits

 

	
(a)  

	
Within sixty (60) days after the end of each calendar year, at the request of a Participant, an audit shall be completed by certified public accountants selected by, and independent of, the Manager.  The audit shall be conducted in accordance with generally accepted auditing standards and shall cover all books and records maintained by the Manager pursuant to this Agreement, all Assets and Encumbrances, and all transactions and Operations conducted during such calendar year, including production and inventory records and all costs for which the Manager sought reimbursement under this Agreement, together with all other matters customarily included in such audits.  All written exceptions to and claims upon the Manager for discrepancies disclosed by such audit shall be made not more than three (3) months after receipt of the audit report, unless either Participant elects to conduct an independent audit pursuant to Subsection 9.6(b) which is ongoing at the end of such three (3) month period, in which case such exceptions and claims may be made within the period provided in Subsection 9.6(b).  Failure to make any such exception or claim within such period shall mean the audit is deemed to be correct and binding upon the Participants.  The cost of all audits under this Subsection shall be charged to the Business Account.

 

 

  

31

  

 

	
(b)  

	
Notwithstanding the annual audit conducted by certified public accountants selected by the Manager, each Participant shall have the right to have an independent audit of all Business books, records and accounts, including all charges to the Business Account. This audit shall review all issues raised by the requesting Participant, with all costs borne by the requesting Participant.  The requesting Participant shall give the other Participant thirty (30) days prior notice of such audit.  Any audit conducted on behalf of either Participant shall be made during the Manager's normal business hours and shall not interfere with Operations. Neither Participant shall have the right to audit records and accounts of the Business relating to transactions or Operations more than twenty-four (24) months after the calendar year during which such transactions, or transactions related to such Operations, were charged to the Business Account.  All written exceptions to and claims upon the Manager for discrepancies disclosed by such audit shall be made not more than three (3) months after completion and delivery of such audit, or they shall be deemed waived.

 

	
10.  

	
LOANS BY IVANHOE

 

	
10.1.  

	
As and when requested from time to time by Entrée, Ivanhoe will contribute to approved Programs and Budgets, onto Entrée’s behalf funds in an amount sufficient to enable Entrée to participate in such approved Programs and Budgets as Entrée may elect from time to time pursuant to Section 8.5. Each and every such contribution made by Ivanhoe on Entrée’s behalf will be treated as a loan (a “Loan”) advanced by Ivanhoe to Entrée.

 

	
10.2.  

	
Interest on each advance of the Loans shall accrue at an annual rate from the date of advance to the date of repayment equal to Ivanhoe’s actual cost of capital or the Prime Rate plus two percent (2%) per annum, whichever is less, as at the date of the advance. Cost of capital means the weighted average interest rate payable by Ivanhoe on arm’s length long-term debt.

 

	
10.3.  

	
The Loans may be prepaid in whole or in part from time to time. Subject to any Project Financing restrictions, the Loans will be repayable by Entrée monthly from (and only from) ninety percent (90%) of the Available Cash Flow arising from the sale of its share of Products.  Such amounts shall be applied firstly to payment of accrued interest and then to repayment of principal, with the oldest advances repaid first. “Available Cash Flow” means all net proceeds of sale of Entrée’s share of Products in a month less Entrée’s share of costs of Operations for the month that are operating costs under Canadian generally accepted accounting principles.

 

	
10.4.  

	
Entrée will use the proceeds of the Loans only to meet its obligations under this Agreement.

 

	
10.5.  

	
Notwithstanding anything to the contrary, Entrée will not be in default of any obligation under this Agreement, including without limitation under Articles 8 and 9, if it has requested funds from Ivanhoe which Ivanhoe has failed to advance.

 

 

  

32

  

 

	
11.  

	
PROCESSING FACILITES

 

	
11.1.  

	
Any mill, smelter and other processing facilities and related infrastructure on the Properties (“Ivanhoe Facilities”) will be owned exclusively by Ivanhoe and not by Entrée; Ivanhoe Facilities are specifically excluded from Assets and the use and operation of them is specifically excluded from Operations; and all costs of constructing and operating Ivanhoe Facilities will be solely for the account of Ivanhoe, and will not be included in Programs and Budgets or taken into account under this Agreement in calculating or adjusting the respective Participating Interests of Ivanhoe and Entrée. Ivanhoe will pay all such costs when due and will keep the Assets free from any Encumbrances pertaining to Ivanhoe Facilities.

 

	
11.2.  

	
Entrée’s share of Products will unless Entrée otherwise agrees be processed at Ivanhoe Facilities by paying milling and smelting charges. Ivanhoe confirms that the Ivanhoe Facilities are not intended to be profit centres and therefore, minerals from the Joint Venture will be processed through such facilities at cost (using industry standards for calculation of cost including an amortization of capital costs). The amortization allowance for capital costs will be calculated in accordance with generally accepted accounting principles determined yearly based on the estimated quantity of minerals to be processed for Entrée’s account during that year relative to the total design capacity of the processing facilities over their useful life. Ivanhoe will also make Ivanhoe Facilities available to Entrée at on the same terms if spare processing capacity exists to process other suitable ores from Entrée’s Lookout Hill concession, outside the area comprised in the Properties.

 

	
11.3.  

	
Ivanhoe will indemnify and hold harmless Entrée and its Affiliates and its and their respective officers, directors and employees from and against any and all claims, debts, demands, suits, actions and causes of action whatsoever, including legal costs incurred in defending same, which may be brought or made against one or more of them by any person, firm or corporation and all loss, cost, damages, expenses and liabilities, including without limitation environmental liabilities, which may be suffered or incurred by them arising out of or in connection with or in any way referable to, whether directly or indirectly, the Ivanhoe Facilities or the use or operation thereof by Ivanhoe including without limitation bodily injuries or death at any time resulting therefrom or damage to property. In constructing and operating Ivanhoe Facilities, Ivanhoe will comply with all applicable laws, rules and regulations and the terms of the Existing Licenses in accordance with generally accepted mining practice and will perform all reclamation and site-remediation work as may be required.

 

	
11.4.  

	
In respect of the Ivanhoe Facilities, Ivanhoe will at all times maintain, with insurance companies approved by Entrée, insurance including commercial general liability insurance and environmental liability insurance against such risks and with such limits and deductibles as a prudent operator would maintain in the circumstances. All policies will be endorsed:

 

	
  

	
(a)        to provide that thirty (30) days' prior Notice will be given by the carrier to Entrée before effecting cancellation or material change of coverage at the address specified in Section 20.1 hereof; and

 

	
  

	
(b)        to include Entrée and all its Affiliates as additional insureds.

 

All insurance carried by Ivanhoe under this Agreement will contain a waiver of the insurer’s right of subrogation against Entrée and its Affiliates.

 

  

33

  

 

	
12.  

	
DISPOSITION OF PRODUCTION

 

	
12.1.  

	
Taking In Kind

 

Each Participant shall take in kind or separately dispose of its share of all Products in proportion to its Participating Interest.  Any extra expenditure incurred in the taking in kind or separate disposition by either Participant of its proportionate share of Products shall be borne by such Participant.  Nothing in this Agreement shall be construed as providing, directly or indirectly, for any joint or co-operative marketing or selling of Products or permitting the processing of Products owned by any third party at any processing facilities constructed by the Participants pursuant to this Agreement.  The Manager shall give notice in advance of the anticipated delivery date upon which Products will be available.

 

	
12.2.  

	
Failure of Participant to Take In Kind

 

If a Participant fails to take its proportionate share of Products in kind, the Manager shall have the right, but not the obligation, for a period of time consistent with the minimum needs of the industry, but not to exceed one (1) year from the notice date described in Section 12.1, to purchase the Participant's share for its own account or to sell such share as agent for the Participant at not less than the prevailing market price in the area.  Subject to the terms of any such contracts of sale then outstanding, during any period that the Manager is purchasing or selling a Participant's share of production, the Participant may elect by notice to the Manager to take in kind.  The Manager shall be entitled to deduct from proceeds of any sale by it for the account of a Participant reasonable expenses incurred in such a sale.

 

	
12.3.  

	
Hedging

 

Neither Participant shall have any obligation to account to the other Participant for, nor have any interest or right of participation in any profits or proceeds nor have any obligation to share in any losses from, futures contracts, forward sales, trading in puts, calls, options or any similar hedging, price protection or marketing mechanism employed by a Participant with respect to its proportionate share of any Products produced or to be produced from the Properties.

 

 

  

34

  

 

	
13.  

	
TERMINATION

 

	
13.1.  

	
Termination by Expiration or Agreement

 

This Agreement shall terminate as expressly provided herein, unless earlier terminated by written agreement.

 

	
13.2.  

	
Termination by Deadlock

 

If the Management Committee fails to adopt a Program and Budget for twelve (12) months after the expiration of the latest adopted Program and Budget, either Participant may elect to terminate the Business by giving thirty (30) days notice of termination to the other Participant.

 

	
13.3.  

	
Continuing Obligations and Environmental Liabilities

 

On termination of the Business under Sections 13.1 or 13.2, each Participant shall remain liable for its respective share of liabilities to third persons (whether such arises before or after such withdrawal), including Environmental Liabilities and Continuing Obligations.  The withdrawing Participant's share of such liabilities shall be equal to its Participating Interest at the time such liability was incurred, after first taking into account any reduction, readjustment, and restoration of Participating Interests under Sections 5.6, 8.5, 8.6 and 9.5 (or, as to liabilities arising prior to the Effective Date, its initial Participating Interest).

 

	
13.4.  

	
Disposition of Assets on Termination

 

Promptly after termination under Sections 13.1 or 13.2, the Manager shall take all action necessary to wind up the activities of the Business.  All costs and expenses incurred in connection with the termination of the Business shall be expenses chargeable to the Business Account.

 

	
13.5.  

	
Non-Compete Covenants

 

Neither a Participant that is deemed to have withdrawn pursuant to Sections 5.6 or 9.5, nor any Affiliate of such a Participant, shall directly or indirectly acquire any interest or right to explore or mine, or both, on any property any part of which is within the area of the Properties for twelve (12) months after the effective date of withdrawal.  If a withdrawing Participant, or the Affiliate of a withdrawing Participant, breaches this Section 13.5, such Participant shall be obligated to offer to convey to the non-withdrawing Participant, without cost, any such property or interest so acquired (or ensure its Affiliate offers to convey the property or interest to the non-withdrawing Participant, if the acquiring party is the withdrawing Participant's Affiliate).  Such offer shall be made in writing and can be accepted by the non-withdrawing Participant at any time within ten (10) days after the offer is received by such non-withdrawing Participant.  Failure of a Participant's Affiliate to comply with this Section 13.5 shall be a breach by such Participant of this Agreement. Nothing in this Section 13.5 will be construed to limit Ivanhoe’s ability to exercise the Surface Access Rights.

 

 

  

35

  

 

	
13.6.  

	
Right to Data After Termination

 

After termination of the Business pursuant to Sections 13.1 or 13.2, each Participant shall be entitled to make copies of all applicable information acquired hereunder before the effective date of termination not previously furnished to it, but a terminating or withdrawing Participant shall not be entitled to any such copies after any other termination or withdrawal.

 

	
13.7.  

	
Continuing Authority

 

On termination of the Business under Sections 13.1 or13.2 or the deemed withdrawal of either Participant pursuant to Sections 5.6 or 9.5, the Participant which was the Manager prior to such termination or withdrawal (or the other Participant in the event of a withdrawal by the Manager) shall have the power and authority to do all things on behalf of both Participants which are reasonably necessary or convenient to:  (a) wind up Operations and (b) complete any transaction and satisfy any obligation, unfinished or unsatisfied, at the time of such termination or withdrawal, if the transaction or obligation arises out of Operations prior to such termination or withdrawal.  The Manager shall have the power and authority to grant or receive extensions of time or change the method of payment of an already existing liability or obligation, prosecute and defend actions on behalf of both Participants and the Business, encumber Assets, and take any other reasonable action in any matter with respect to which the former Participants continue to have, or appear or are alleged to have, a common interest or a common liability.

 

	
14.  

	
ACQUISITIONS WITHIN AREA OF THE PROPERTIES

 

	
14.1.  

	
General

 

Any interest or right to acquire any interest in real property or water rights related thereto within the area comprised within the outermost boundaries of the Properties as constituted on the Effective Date (in this Article 14, the “Area of Interest”) either acquired or proposed to be acquired during the term of this Agreement by or on behalf of either Participant ("Acquiring Participant") or any Affiliate of such Participant shall be subject to the terms and provisions of this Agreement.  Ivanhoe and Entrée and their respective Affiliates for their separate account shall be free to acquire lands and interests in lands outside the Area of Interest and to locate mining claims outside the Area of Interest.  Failure of any Affiliate of either Participant to comply with this Article 14 shall be a breach by such Participant of this Agreement.

 

	
14.2.  

	
Notice to Non-Acquiring Participant

 

Within fifteen (15) days after the acquisition or proposed acquisition, as the case may be, of any interest or the right to acquire any interest in real property or water rights wholly or partially within the Area of Interest (except real property acquired by the Manager pursuant to a Program), the Acquiring Participant shall notify the other Participant of such acquisition by it or its Affiliate; provided further that if the acquisition of any interest or right to acquire any interest pertains to real property or water rights partially within the Area of Interest, then all such real property (i.e., the part within the Area of Interest and the part outside the Area of Interest) shall be subject to this Article 14.  The Acquiring Participant's notice shall describe in detail the acquisition, the acquiring party if that party is an Affiliate, the lands and minerals covered thereby, any water rights related thereto, the cost thereof, and the reasons why the Acquiring Participant believes that the acquisition (or proposed acquisition) of the interest is in the best interests of the Participants under this Agreement.  In addition to such notice, the Acquiring Participant shall make any and all information concerning the relevant interest available for inspection by the other Participant.

 

 

  

36

  

 

	
14.3.  

	
Option Exercised

 

Within thirty (30) days after receiving the Acquiring Participant's notice, the other Participant may notify the Acquiring Participant of its election to accept a proportionate interest in the acquired interest equal to its Participating Interest. Promptly upon such notice, the Acquiring Participant shall convey or cause its Affiliate to convey to the Participants, in proportion to their respective Participating Interests, with title held as described in Section 3.4, all of the Acquiring Participant's (or its Affiliate's) interest in such acquired interest, free and clear of all Encumbrances arising by, through or under the Acquiring Participant (or its Affiliate) other than those to which both Participants have agreed.  The acquired interests shall become a part of the Properties for all purposes of this Agreement immediately upon such notice.  The other Participant shall promptly pay to the Acquiring Participant its proportionate share of the latter's actual out-of-pocket acquisition costs.

 

	
14.4.  

	
Option Not Exercised

 

If the other Participant does not give such notice within the thirty (30) day period set forth in Section 14.3, it shall have no interest in the acquired interests, and the acquired interests shall not be a part of the Assets or continue to be subject to this Agreement.

 

	
15.  

	
ABANDONMENT AND SURRENDER OF PROPERTIES

 

Either Participant may request the Management Committee to authorize the Manager to surrender or abandon part or all of the Properties.  If the Management Committee does not authorize such surrender or abandonment, or authorizes any such surrender or abandonment over the objection of either Participant, the Participant that desires to surrender or abandon shall assign to the objecting Participant, by special warranty deed and without cost to the objecting Participant, all of the abandoning Participant's interest in the Properties sought to be abandoned or surrendered, free and clear of all Encumbrances created by, through or under the abandoning Participant other than those to which both Participants have agreed.  Upon the assignment, such properties shall cease to be part of the Properties.  The Participant that desires to abandon or surrender shall remain liable for its share (determined by its Participating Interest as of the date of such abandonment, after first taking into account any reduction, readjustment, and restoration of Participating Interests under Sections 5.6, 8.5, 8.6 and 9.5) of any liability with respect to such Properties, including, without limitation, Continuing Obligations, Environmental Liabilities and Environmental Compliance, whether accruing before or after such abandonment, arising out of activities prior to the Effective Date and out of Operations conducted prior to the date of such abandonment, regardless of when any funds may be expended to satisfy such liability.

 

 

  

37

  

 

	
16.  

	
SUPPLEMENTAL BUSINESS AGREEMENT

 

	
16.1.  

	
At any time during the term of this Agreement, the Management Committee may determine by unanimous vote of both Participants that it is appropriate to segregate the Area of Interest into areas subject to separate Programs and Budgets for purposes of conducting further Exploration, Pre-Feasibility or Feasibility Studies, Development, or Mining.  At such time, the Management Committee shall designate which portion of the Properties will comprise an area of interest under a separate business arrangement ("Supplemental Business"), and the Participants shall enter into a new agreement ("Supplemental Business Agreement") for the purpose of further exploring, analyzing, developing, and mining such portion of the Properties.  The Supplemental Business Agreement shall be in substantially the same form as this Agreement, with rights and interests of the Participants in the Supplemental Business identical to the rights and interests of the Participants in this Business at the time of the designation, unless otherwise agreed by the Participants, and with the Participants agreeing to new Capital and Equity Accounts and other terms necessary for the Supplemental Business Agreement to comply with the nature and purpose of the designation.  Following execution of the Supplemental Business Agreement, this Agreement shall terminate insofar as it affects the Properties covered by the Supplemental Business Agreement.

 

	
17.  

	
TRANSFER OF INTEREST; PRE-EMPTIVE RIGHT

 

	
17.1.  

	
General

 

A Participant shall have the right to Transfer to a third party an interest in its Participating Interest, including an interest in this Agreement or the Assets, solely as provided in this Article 17.

 

	
17.2.  

	
Limitations on Free Transferability

 

Any Transfer by either Participant under Section 17.1 shall be subject to the following limitations:

 

	
(a)  

	
neither Participant shall Transfer any interest in this Agreement or the Assets (including, but not limited to, any royalty, profits, or other interest in the Products) except in conjunction with the Transfer of part or all of its Participating Interest;

 

	
(b)  

	
no transferee of all or any part of a Participant's Participating Interest shall have the rights of a Participant unless and until the transferring Participant has provided to the other Participant notice of the Transfer, and, except as provided in Subsections 17.2(f) and 17.2(g), the transferee, as of the effective date of the Transfer, has committed in writing to assume and be bound by:

 

	
(i)  

	
this Agreement to the same extent as the transferring Participant; and

 

	
(ii)  

	
if Ivanhoe holds Surface Access Rights in respect of any area of the Properties, such Surface Access Rights to the same extent as Entrée;

 

 

  

38

  

 

	
(c)  

	
neither Participant, without the consent of the other Participant, shall make a Transfer that shall violate any Law, or result in the cancellation of any permits, licenses, or other similar authorization;

 

	
(d)  

	
no Transfer permitted by this Article 17 shall relieve the transferring Participant of its share of any liability, whether accruing before or after such Transfer, which arises out of Operations conducted prior to such Transfer or exists on the Effective Date;

 

	
(e)  

	
in the event of a Transfer of less than all of a Participating Interest, the transferring Participant and its transferee shall act and be treated as one Participant; provided however, that in order for such Transfer to be effective, the transferring Participant and its transferee must first:

 

	
(i)  

	
agree, as between themselves, that one of them is authorized to act as the sole agent ("Agent") on their behalf with respect to all matters pertaining to this Agreement and the Business; and

 

	
(ii)  

	
notify the other Participant of the designation of the Agent, and in such notice warrant and represent to other Participant that:

 

	
A.  

	
the Agent has the sole authority to act on behalf of, and to bind, the transferring Participant and its transferee with respect to all matters pertaining to this Agreement and the Business;

 

	
B.  

	
the other Participant may rely on all decisions of, notices and other communications from, and failures to respond by, the Agent, as if given (or not given) by the transferring Participant and its transferee; and

 

	
C.  

	
all decisions of, notices and other communications from, and failures to respond by, the other Participant to the Agent shall be deemed to have been given (or not given) to the transferring Participant and its transferee.

 

The transferring Participant and its transferee may change the Agent (but such replacement must be one of them) by giving notice to the other Participant, which notice must conform to Subsection 17.2(e)(ii).

 

 

  

39

  

 

	
(f)  

	
if the Transfer is the grant of an Encumbrance in a Participating Interest to secure a loan or other indebtedness of either Participant in a bona fide transaction, other than a transaction approved unanimously by the Management Committee or Project Financing approved by the Management Committee, such Encumbrance shall be granted only in connection with such Participant's financing payment or performance of that Participant's obligations under this Agreement and shall be subject to the terms of this Agreement and the rights and interests of the other Participant hereunder (including without limitation under Section 6.7).  Any such Encumbrance shall be further subject to the condition that the holder of such Encumbrance ("Chargee") first enter into a written agreement with the other Participant in form satisfactory to the other Participant, acting reasonably, binding upon the Chargee, to the effect that:

 

	
(i)  

	
the Chargee shall not enter into possession or institute any proceedings for foreclosure or partition of the encumbering Participant's Participating Interest and that such Encumbrance shall be subject to the provisions of this Agreement;

 

	
(ii)  

	
the Chargee's remedies under the Encumbrance shall be limited to the sale of the whole (but only of the whole) of the encumbering Participant's Participating Interest to the other Participant, or, failing such a sale, at a public auction to be held at least thirty (30) days after prior notice to the other Participant, such sale to be subject to the purchaser entering into a written agreement with the other Participant whereby such purchaser assumes all obligations of the encumbering Participant under the terms of this Agreement.  The price of any pre-emptive sale to the other Participant shall be the remaining principal amount of the loan plus accrued interest and related expenses, and such pre-emptive sale shall occur within sixty (60) days of the Chargee's notice to the other Participant of its intent to sell the encumbering Participant's Participating Interest.  Failure of a sale to the other Participant to close by the end of such period, unless failure is caused by the encumbering Participant or by the Chargee, shall permit the Chargee to sell the encumbering Participant's Participating Interest at a public sale; and

 

	
(iii)  

	
the charge shall be subordinate to any then-existing debt, including Project Financing previously approved by the Management Committee, encumbering the transferring Participant's Participating Interest;

 

	
(g)  

	
if a sale or other commitment or disposition of Products or proceeds from the sale of Products by either Participant upon distribution to it pursuant to Article 12 creates in a third party a security interest by Encumbrance in Products or proceeds therefrom prior to such distribution, such sales, commitment or disposition shall be subject to the terms and conditions of this Agreement including, without limitation, Section 5.10.

 

	
17.3.  

	
Pre-emptive Right

 

Any Transfer by either Participant under Section 17.1 and any Transfer by an Affiliate of Control of either Participant shall be subject to a pre-emptive right of the other Participant to the extent provided in Exhibit H.  Failure of a Participant's Affiliate to comply with this Article 17 and Exhibit H shall be a breach by such Participant of this Agreement. Any Transfer by Entrée of its interest in the geographical areas, other than the Properties, that are subject to the Existing Licenses or any successor licenses shall also be subject to a pre-emptive right of Ivanhoe to extent provided in Exhibit H.

 

 

  

40

  

 

	
18.  

	
ARBITRATION

 

	
18.1.  

	
Single Arbitrator

 

Any matter in dispute under this Agreement that is referred to arbitration will be determined by a single arbitrator to be appointed by the parties hereto.

 

	
18.2.  

	
Notice of Intent to Arbitrate

 

Either party may refer any matter in dispute under this Agreement to arbitration by Notice to the other party and, within thirty (30) days after receipt of such Notice, the parties will agree on the appointment of an arbitrator, who will be capable of commencing the arbitration within twenty one (21) days of his appointment.  No person will be appointed as an arbitrator hereunder unless such person agrees in writing to act.

 

	
18.3.  

	
Effect of Lack of Agreement on Arbitration

 

If the parties cannot agree on a single arbitrator as provided in Section 18.2 either party may request a court of competent jurisdiction to appoint a single arbitrator in accordance with the Arbitration Act.

 

	
18.4.  

	
Procedural Matters

 

Except as specifically provided in this Part, an arbitration hereunder will be conducted in accordance with the Arbitration Act.  The arbitrator will fix a time and place in Vancouver, British Columbia for the purpose of hearing the evidence and representations of the parties, all of which will be in camera, and he will preside over the arbitration and determine all questions of procedure not provided for under the Arbitration Act or this Part.  After hearing any evidence and representations that the parties may submit, the arbitrator will make an award and reduce the same to writing and deliver one copy thereof to each of the parties.  The award will be kept confidential by the parties except to the extent that disclosure is required by applicable securities laws or stock exchange rules.  The decision of the arbitrator will be made within forty five (45) days after his appointment, subject to any reasonable delay due to unforeseen circumstances.  The expense of the arbitration will be paid as specified in the award.  The parties agree that the award of the single arbitrator will be final and binding upon each of them and will not be subject to appeal.

 

	
19.  

	
CONFIDENTIALITY, OWNERSHIP, USE AND

	
  

	
DISCLOSURE OF INFORMATION            

 

	
19.1.  

	
Confidential Information

 

All Confidential Information, other than Confidential Information pertaining to the Oyu Tolgoi Property, which will remain the sole and exclusive property of Ivanhoe, shall be owned jointly by the Participants as their Participating Interests are determined pursuant to this Agreement. Except as provided in Sections 19.2 and 19.3, or with the prior written consent of the other party, each party will keep confidential and not disclose to any third party or the public any Confidential Information.

 

 

  

41

  

 

	
19.2.  

	
Permitted Disclosure of Confidential Information

 

Either party may disclose Confidential Information to:

 

	
(a)  

	
a party’s officers, directors, partners, members, employees, Affiliates, shareholders, agents, attorneys, accountants, consultants, contractors, subcontractors or advisors, for the sole purpose of such party’s performance of its obligations under this Agreement;

 

	
(b)  

	
any actual or potential lender, underwriter or investor for the sole purpose of evaluating whether to make a loan to or investment in the disclosing party;

 

	
(c)  

	
a third party with whom the disclosing party contemplates any independent business activity or operation; or

 

	
(d)  

	
a third party to whom the disclosing party contemplates a sale or other disposition of the whole or part of its Participating Interest.

 

The party disclosing Confidential Information pursuant to this Section 19.2 will disclose such Confidential Information to only those parties who have a bona fide need to have access to such Confidential Information for the purpose for which disclosure to such parties is permitted under this Section 19.2 and who have agreed in writing supplied to, and enforceable by, the other party to protect the Confidential Information from further disclosure, to use such Confidential Information solely for such purpose and to otherwise be bound by the provisions of this Article 19.  The party disclosing Confidential Information will be responsible and liable for any use or disclosure of the Confidential Information by such parties in violation of this Agreement and such other writing.

 

	
19.3.  

	
Disclosure Required By Law

 

Notwithstanding anything contained in this Article 19, a party may disclose any Confidential Information if, in the opinion of the disclosing party’s legal counsel:

 

	
(a)  

	
such disclosure is legally required to be made in a judicial, administrative or governmental proceeding pursuant to a valid subpoena or other applicable order; or

 

	
(b)  

	
such disclosure is legally required to be made pursuant to the applicable securities laws, rules and regulations or, the rules or regulations of a stock exchange or similar trading market applicable to the disclosing party.

 

Prior to any disclosure of Confidential Information under this Section 19.3, the disclosing party will give the other party at least ten days’ prior Notice (unless less time is permitted by such rules, regulations or proceeding) and, in making such disclosure, the disclosing party will disclose only that portion of Confidential Information required to be disclosed and will take all reasonable steps to preserve the confidentiality thereof, including, without limitation, obtaining protective orders and supporting the other party in intervention in any such proceeding.

 

 

  

42

  

 

	
19.4.  

	
Public Announcements

 

Prior to making or issuing any press release or other public announcement or disclosure of the subject matter of this Agreement or any Confidential Information, a party will first consult with the other party as to the content and timing of such announcement or disclosure, unless in the good faith judgment of such party, there is not sufficient time to consult with the other party before such announcement or disclosure must be made under applicable Laws; but in such event, the disclosing party will notify the other party before such announcement or disclosure is made if at all reasonably possible and, if not, as soon as reasonably possible thereafter.  Any press release or other public announcement or disclosure to be issued by either party relating to the Business will also identify the other party.

 

	
19.5.  

	
Information pertaining to Oyu Tolgoi

 

Ivanhoe will afford to Entrée access to and copies of, and will keep Entrée fully informed of, all Confidential Information pertaining to the Oyu Tolgoi Property, if and to the extent pertinent to the selection of drill targets on the Properties or otherwise relevant to planning Exploration or other Operations.

 

	
20.  

	
GENERAL PROVISIONS

 

	
20.1.  

	
Notices

 

All notices, payments and other required or permitted communications ("Notices") to either Participant shall be in writing, and shall be addressed respectively as follows:

 

If to Entree:

Entrée Gold Inc.

1450 – 650 West Georgia Street

Vancouver, B.C.  V6B 4N7

Attention:      President

Facsimile:       (604) 687-4770

If to Ivanhoe:

Ivanhoe Mines Ltd.

654 – 999 Canada Place

Vancouver, B.C.  V6C 3E1

Attention:      Corporate Secretary

Facsimile:       (604) 682-2060

 

  

43

  

 

All Notices shall be given (a) by personal delivery to the Participant, (b) by electronic communication, capable of producing a printed transmission, (c) by registered or certified mail return receipt requested; or (d) by overnight or other express courier service. All Notices shall be effective and shall 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, or if by electronic communication, on the date of such communication.  Either Participant may change its address by Notice to the other Participant.

 

	
20.2.  

	
Gender

 

The singular shall include the plural, and the plural the singular wherever the context so requires, and the masculine, the feminine, and the neuter genders shall be mutually inclusive.

 

	
20.3.  

	
Currency

 

All references to "dollars" or "$" herein shall mean lawful currency of the United States of America.

 

	
20.4.  

	
Headings

 

The subject headings of the Sections and Subsections of this Agreement and the Paragraphs and Subparagraphs of the Exhibits to this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions.

 

	
20.5.  

	
Waiver

 

The failure of either Participant to insist on the strict performance of any provision of this Agreement or to exercise any right, power or remedy upon a breach hereof shall not constitute a waiver of any provision of this Agreement or limit such Participant's right thereafter to enforce any provision or exercise any right.

 

	
20.6.  

	
Modification

 

No modification of this Agreement shall be valid unless made in writing and duly executed by both Participants.

 

	
20.7.  

	
Force Majeure

 

Except for the obligation to make payments when due hereunder, the obligations of a Participant shall be suspended to the extent and for the period that performance is prevented by any cause, whether foreseeable or unforeseeable, beyond its reasonable control, including, without limitation, labour disputes (however arising and whether or not employee demands are reasonable or within the power of the Participant to grant); acts of God; Laws, instructions or requests of any government or governmental entity; judgments or orders of any court; inability to obtain on reasonably acceptable terms any public or private license, permit or other authorization; curtailment or suspension of activities to remedy or avoid an actual or alleged, present or prospective violation of Environmental Laws; action or inaction by any federal, state or local agency that delays or prevents the issuance or granting of any approval or authorization required to conduct Operations beyond the reasonable expectations of the Participant seeking the approval or authorization; acts of war or conditions arising out of or attributable to war, whether declared or undeclared; riot, civil strife, insurrection or rebellion; fire, explosion, earthquake, storm, flood, sink holes, drought or other adverse weather condition; delay or failure by suppliers or transporters of materials, parts, supplies, services or equipment or by contractors' or subcontractors' shortage of, or inability to obtain, labour, transportation, materials, machinery, equipment, supplies, utilities or services; accidents; breakdown of equipment, machinery or facilities; actions by native rights groups, environmental groups, or other similar special interest groups; or any other cause whether similar or dissimilar to the foregoing.  The affected Participant shall promptly give notice to the other Participant of the suspension of performance, stating therein the nature of the suspension, the reasons therefor, and the expected duration thereof.  The affected Participant shall resume performance as soon as reasonably possible.  During the period of suspension the obligations of both Participants to advance funds pursuant to Section 9.2 shall be reduced to levels consistent with then current Operations.

 

  

44

  

  

	
20.8.  

	
Rule Against Perpetuities

 

If any provision of this Agreement should violate any rule against perpetuities or any related rule against interests that last too long or are not alienable, then any such provision shall terminate 20 years after the death of the last survivor of all the lineal descendants of His late Majesty King George V of England, living on the date of execution of this Agreement.

 

	
20.9.  

	
Governing Law

 

Except for matters of title to the Properties or their Transfer, which shall be governed by the law of their situs, this Agreement shall be governed by and interpreted in accordance with the laws of British Columbia, 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.

 

	
20.10.  

	
Further Assurances

 

Each of the Participants shall take, from time to time and without additional consideration, such further actions and execute such additional instruments as may be reasonably necessary or convenient to implement and carry out the intent and purpose of this Agreement or as may be reasonably required by lenders in connection with Project Financing.

 

	
20.11.  

	
Entire Agreement; Status of Earn-in Agreement

 

As of the Effective Date of this Agreement, the Earn-in Agreement is terminated, except that any obligations or liabilities then existing or accrued, including any obligations to indemnify that may arise or have arisen under Sections 3.13, 4.8 and 6.5 of the Earn-in Agreement, and the following provisions of the Earn-in Agreement, all of which will continue in full force and effect: Part 2 and Sections 4.6, 4.7, 4.9, 4.10, 4.11, 5.1 (but only until such time as the transactions contemplated by Section 5.2 of the Earn-in Agreement are complete),5.2 and 5.3. Subject to the foregoing, this Agreement contains the entire understanding of the Participants and supersedes all prior agreements and understandings between the Participants relating to the subject matter hereof.

 

  

45

  

  

	
20.12.  

	
Successors and Assigns

 

This Agreement shall be binding upon and inure to the benefit of the respective successors and permitted assigns of the Participants.

 

	
20.13.  

	
Memorandum

 

At the request of either Participant, a Memorandum or short form of this Agreement shall be prepared by the Manager, executed and acknowledged by both Participants, and recorded or filed by the Manager in appropriate offices of public record in Mongolia or elsewhere as may be possible to provide constructive notice of this Agreement and the rights and obligations of the Participants hereunder. Unless both Participants agree, this Agreement shall not be recorded.

 

	
20.14.  

	
Counterparts

 

This Agreement may be executed in any number of counterparts, and it shall not be necessary that the signatures of both Participants be contained on any counterpart.  Each counterpart shall be deemed an original, but all counterparts together shall constitute one and the same instrument.

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.

 

ENTREE GOLD INC.

 

 

By__________________________________                                                                                     c/s

Title:

 

 

IVANHOE MINES LTD.

 

 

By___________________________________                                                                                   c/s

Title:

 

 

  

46

  

 

EXHIBIT A

 

To

 

	
JOINT VENTURE AGREEMENT

	
By And Between

 

	
IVANHOE MINES LTD.

 

	
And

 

	
ENTRÉE GOLD INC.

 

 

PROPERTIES

 

  

 

  

 

PROJECT PROPERTY

 

 

 

Coordinate, Latitude, Longitude

 

	
A

	 106 36 00, 43 00 00	 N	
106 38 00, 42 57 00

	
B

	 106 47 30, 43 00 00	 O	
106 38 00, 42 55 30

	
C

	 106 47 30, 42 58 30	 P	
106 36 00, 42 55 30

	
D

	 106 55 00, 42 58 30	 Q	
106 30 00, 43 00 00

	
E

	 106 55 00, 43 00 00	 R	
106 30 00, 43 08 00

	
F

	 107 00 00, 43 00 00	 S	
107 00 00, 43 08 00

	
G

	 107 00 00, 42 55 30	 T	
106 55 00, 43 03 00

	
H

	 106 55 00, 42 55 30	 U	
106 47 30, 43 03 00

	
I

	 106 55 00, 42 57 30	 V	
106 04 00, 43 16 00

	
J

	 106 51 30, 42 57 30	 W	
106 30 00, 43 16 00

	
K

	 106 51 30, 42 55 30	 X	
106 04 00, 43 00 00

	
L

	 106 44 00, 42 55 30	 	  
	
M

	 106 44 00, 42 57 00	 AA	
106 47 30, 43 08 00

 

  

2

  

 

EXHIBIT B

 

To

 

	
JOINT VENTURE AGREEMENT

	
By And Between

 

	
IVANHOE MINES LTD.

 

	
And

 

	
ENTRÉE GOLD INC.

 

 

ACCOUNTING PROCEDURES

 

The financing and accounting procedures to be followed by the Manager and the Participants under the Agreement are set forth below.  All capitalized terms in these Accounting Procedures shall have the definition attributed to them in the Agreement, unless defined otherwise herein.

 

The purpose of these Accounting Procedures is to establish equitable methods for determining charges and credits applicable to Operations.  It is the intent of the Participants that neither of them shall lose or profit by reason of the designation of one of them to exercise the duties and responsibilities of the Manager.  The Participants shall meet and in good faith endeavor to agree upon changes deemed necessary to correct any unfairness or inequity.  In the event of a conflict between the provisions of these Accounting Procedures and those of the Agreement, the provisions of the Agreement shall control.

 

	
20.1.  

	
GENERAL PROVISIONS

 

	
20.2.  

	
General Accounting Records

 

The Manager shall maintain detailed and comprehensive cost accounting records in accordance with these Accounting Procedures, including general ledgers, supporting and subsidiary journals, invoices, checks and other customary documentation, sufficient to provide a record of revenues and expenditures and periodic statements of financial position and the results of Operations for managerial, tax, regulatory or other financial, regulatory, or legal reporting purposes related to the Business. Such records shall be retained for the duration of the period allowed the Participants for audit or the period necessary to comply with tax or other regulatory requirements.  The records shall reflect all obligations, advances and credits of the Participants.

 

	
20.3.  

	
Cash Management Accounts

 

The Manager shall maintain one or more separate cash management accounts for the payment of all expenses and the deposit of all cash receipts for the Business.

 

 

  

 

  

 

	
20.4.  

	
Statements and Billings

 

The Manager shall prepare statements and bill the Participants as provided in Article 9 of the Agreement.  Payment of any such billings by either Participant, including the Manager, shall not prejudice such Participant's right to protest or question the correctness thereof for a period not to exceed twenty-four (24) months following the calendar year during which such billings were received by such Participant.  All written exceptions to and claims upon the Manager for incorrect charges, billings or statements shall be made upon the Manager within such twenty-four (24) month period.  The time period permitted for adjustments hereunder shall not apply to adjustments resulting from periodic inventories as provided in Paragraphs 5.1 and 5.2.

 

	
21.  

	
CHARGES TO BUSINESS ACCOUNT

 

Subject to the limitations hereinafter set forth, the Manager shall charge the Business Account with the following:

 

	
21.1.  

	
Property Acquisition Costs, Rentals, Royalties and Other Payments

 

All property acquisition and holding costs, including Governmental Fees, filing fees, license fees, costs of permits and assessment work, delay rentals, production royalties, including any required advances, and all other payments made by the Manager which are necessary to acquire or maintain title to the Assets.

 

	
21.2.  

	
Labor and Employee Benefits

 

	
(a)  

	
Salaries and wages of the Manager's employees directly engaged in Operations, including salaries or wages of employees who are temporarily assigned to and directly employed by same.

 

	
(b)  

	
The Manager's cost of holiday, vacation, sickness and disability benefits, and other customary allowances applicable to the salaries and wages chargeable under Subparagraph 2.2(a) and Paragraph 2.12.  Such costs may be charged on a "when and as paid basis" or by "percentage assessment" on the amount of salaries and wages.  If percentage assessment is used, the rate shall be applied to wages or salaries excluding overtime and bonuses.  Such rate shall be based on the Manager's cost experience and it shall be periodically adjusted at least annually to ensure that the total of such charges does not exceed the actual cost thereof to the Manager.

 

	
(c)  

	
The Manager's actual cost of established plans for employees' group life insurance, hospitalization, pension, retirement, stock purchase, thrift, bonus (except production or incentive bonus plans under a union contract based on actual rates of production, cost savings and other production factors, and similar non-union bonus plans customary in the industry or necessary to attract competent employees, which bonus payments shall be considered salaries and wages under Subparagraph 2.2(a) or Paragraph 2.12 rather than employees' benefit plans) and other benefit plans of a like nature applicable to salaries and wages chargeable under Subparagraphs2.2(a) or Paragraph 2.12, provided that the plans are limited to the extent feasible to those customary in the industry.

 

 

  

2

  

 

	
(d)  

	
Cost of assessments imposed by governmental authority that are applicable to salaries and wages chargeable under Subparagraph 2.2(a) and Paragraph 2.12, including all penalties except those resulting from the willful misconduct or gross negligence of the Manager.

 

	
21.3.  

	
Materials, Equipment and Supplies

 

The cost of materials, equipment and supplies (herein called "Material") purchased from unaffiliated third parties or furnished by either Participant as provided in Paragraph 3.1.  The Manager shall purchase or furnish only so much Material as may be required for immediate use in efficient and economical Operations.  The Manager shall also maintain inventory levels of Material at reasonable levels to avoid unnecessary accumulation of surplus stock.

 

	
21.4.  

	
Equipment and Facilities Furnished by Manager

 

The cost of machinery, equipment and facilities owned by the Manager and used in Operations or used to provide support or utility services to Operations charged at rates commensurate with the actual costs of ownership and operation of such machinery, equipment and facilities.  Such rates shall include costs of maintenance, repairs, other operating expenses, insurance, taxes, depreciation and interest at a rate not to exceed Prime Rate plus three percent (3%) per annum.  Such rates shall not exceed the average commercial rates currently prevailing in the vicinity of the Operations.

 

	
21.5.  

	
Transportation

 

Reasonable transportation costs incurred in connection with the transportation of employees and material necessary for Operations.

 

	
21.6.  

	
Contract Services and Utilities

 

The cost of contract services and utilities procured from outside sources, other than services described in Paragraphs 2.9 and 2.13.  If contract services are performed by the Manager or an Affiliate thereof, the cost charged to the Business Account shall not be greater than that for which comparable services and utilities are available in the open market within the vicinity of Operations.  The cost of professional consultant services procured from outside sources in excess of Twenty-Five Thousand Dollars ($25,000.00) per annum per contract shall not be charged to the Business Account unless approved by the Management Committee.

 

	
21.7.  

	
Insurance Premiums

 

Net premiums paid for insurance required to be carried for Operations for the protection of the Participants.  When Operations are conducted in an area where the Manager may self-insure for Worker's Compensation and/or Employer's Liability under applicable law, the Manager may elect to include such risks in its self-insurance program and shall charge its costs of self-insuring such risks to the Business Account provided that such charges shall not exceed published manual rates.

 

 

  

3

  

 

	
21.8.  

	
Damages and Losses

 

All costs in excess of insurance proceeds necessary to repair or replace damage or losses to any Assets resulting from any cause other than the willful misconduct or gross negligence of the Manager.  The Manager shall furnish the Management Committee with written notice of damages or losses as soon as practicable after a report thereof has been received by the Manager.

 

	
21.9.  

	
Legal and Regulatory Expense

 

Except as otherwise provided in Paragraph 2.13, all legal and regulatory costs and expenses incurred in or resulting from Operations or necessary to protect or recover the Assets of the Business, including costs of title investigation and title curative services.  All attorneys fees and other legal costs to handle, investigate and settle litigation or claims, and amounts paid in settlement of such litigation or claims in excess of Twenty-Five Thousand Dollars ($25,000.00) per annum shall not be charged to the Business Account unless approved by the Management Committee.

 

	
21.10.  

	
Audit

 

Cost of annual audits under Subsection 9.6(a).

 

	
21.11.  

	
Taxes

 

All taxes, assessments and like charges on Operations and Assets which have been paid by the Manager for the benefit of the Participants.  Each Participant is separately responsible for taxes determined or measured by a Participant’s sales revenue or net income.

 

	
21.12.  

	
District and Camp Expense (Field Supervision and Camp Expenses)

 

A pro rata portion of:  (i) the salaries and expenses of the Manager's superintendent and other employees serving Operations whose time is not allocated directly to such Operations, and (ii) the costs of maintaining and operating an office and any necessary suboffice, and (iii) all necessary camps, including housing facilities for employees, used for Operations.  The expense of those facilities, less any revenue therefrom, shall include depreciation or a fair monthly rental in lieu of depreciation of the investment.  The total of such charges for all Properties served by the Manager's employees and facilities shall be apportioned to the Business Account on the basis of a ratio to be approved by the Management Committee.

 

	
21.13.  

	
Administrative Charge

 

	
(a)  

	
Each month, the Manager shall charge the Business Account a sum for each phase of Operations as provided below, which shall be a liquidated amount to reimburse the Manager for its home office overhead and general and administrative expenses to conduct each phase of Operations, and which shall be in lieu of any management fee and for taxes based on production of Products:

 

  

4

  

 

	
(i)  

	
Exploration Phase – (A) two percent (2%) of Allowable Costs under third-party contracts which contain an allowance for contract administration or overhead by the third-party; (B) five percent (5%) of Allowable Costs under third-party contracts not included in (A) which provide for aggregate contract expenditures of more than $50,000; and (C) ten percent (10%) of all other Allowable Costs.

 

	
(ii)  

	
Development Phase – two percent (2%) of Allowable Costs.

 

	
(iii)  

	
Major Construction Phase – one percent (1%) of Allowable Costs.

 

	
(iv)  

	
Mining Phase – two and one-half percent (2.5%) of Allowable Costs.

 

	
(b)  

	
The term "Allowable Costs" as used in this Paragraph for a particular phase of Operations shall mean, subject to the provisions in Article 11 of the Agreement, all charges to the Business Account excluding:

 

	
(i)  

	
the administrative charge referred to herein;

 

	
(ii)  

	
depreciation, depletion or amortization of tangible or intangible Assets;

 

	
(iii)  

	
amounts charged in accordance with Paragraphs 2.1 and 2.9, and

 

	
(iv)  

	
marketing costs.

 

The Manager shall attribute such Allowable Costs to a particular phase of Operations by applying the following guidelines:

 

	
A.  

	
the Exploration Phase shall cover those Operations conducted to ascertain the existence, location, extent or quantity of any deposit of ore or mineral,

 

	
B.  

	
the Development Phase shall cover those Operations, including Pre-Feasibility and Feasibility Study Operations, conducted to assess a commercially feasible ore body or to extend production of an existing ore body, and to construct or install related fixed Assets,

 

	
C.  

	
the Major Construction Phase shall include all Operations involved in the construction of a mill, smelter or other ore processing facilities,

 

	
D.  

	
the Mining Phase shall include all other Operations activities not otherwise covered above, including activities conducted after Mining Operations have ceased.

 

	
(c)  

	
Various phases of Operations may be conducted concurrently, in which event the administrative charge shall be calculated separately for Allowable Costs attributable to each phase.

 

 

  

5

  

 

	
(d)  

	
The monthly administration charge determined for each phase of Operations shall be a liquidated amount to reimburse Manager for its home office overhead and general and administrative expenses for its conduct of Operations, and shall be equitably apportioned among all of the properties served during such monthly period on the basis of a ratio approved by the Management Committee.

 

	
(e)  

	
The following is a representative list of items that constitute the Manager's principal business office expenses that are expressly covered by the administrative charge provided in this Paragraph, except to the extent that such items are directly chargeable to the Business Account under other provisions of this Article II:

 

	
(i)  

	
administrative supervision, which includes all services rendered by managers, department supervisors, officers and directors of the Manager for Operations;

 

	
(ii)  

	
accounting, data processing, personnel administration, billing and record keeping in accordance with governmental regulations and the provisions of the Agreement, and preparation of reports;

 

	
(iii)  

	
the services of tax counsel and tax administration employees for all tax matters, including any protests, except any outside professional fees which the Management Committee may approve as a direct charge to the Business Account;

 

	
(iv)  

	
routine legal services rendered by outside sources and the Manager's legal staff not otherwise charged to the Business Account under Paragraph 2.9, including property acquisition, attorney management and oversight, and support services provided by Manager's legal staff concerning any litigation; and

 

	
(v)  

	
rentals and other charges for office and records storage space, telephone service, office equipment and supplies.

 

	
(f)  

	
The Management Committee shall annually review the administrative charges and shall amend the methodology or rates used to determine such charges if they are found to be insufficient or excessive based on the principles that the Manager shall not make a profit or suffer a loss and that it should be fairly and adequately compensated for its costs and expenses.

 

	
21.14.  

	
Environmental Compliance Fund

 

Costs of reasonably anticipated Environmental Compliance which, on a Program basis, shall be determined by the Management Committee and shall be based on proportionate contributions in an amount sufficient to establish a fund, which through successive proportionate contributions during the life of the Business, will pay for ongoing Environmental Compliance conducted during Operations and which will aggregate the reasonably anticipated costs of mine closure, post-Operations Environmental Compliance and Continuing Obligations.  The Manager shall invest such amounts on behalf of the Participants as provided in Subsection 7.2(q) of the Agreement.

 

  

6

  

 

	
21.15.  

	
Other Expenditures

 

Any reasonable direct expenditure, other than expenditures which are covered by the foregoing provisions, incurred by the Manager for the necessary and proper conduct of Operations.

 

	
22.  

	
BASIS OF CHARGES TO BUSINESS ACCOUNT

 

	
22.1.  

	
Purchases

 

Material purchased and services procured from third parties shall be charged to the Business Account by the Manager at invoiced cost, including applicable transfer taxes, less all discounts taken.  If any Material is determined to be defective or is returned to a vendor for any other reason, the Manager shall credit the Business Account when an adjustment is received from the vendor.

 

	
22.2.  

	
Material Furnished by a Participant for Use in the Business

 

Any Material furnished by either Participant for use in the Business or distributed to either Participant by the Manager shall be priced on the following basis:

 

	
(a)  

	
New Material:  New Material furnished by either Participant shall be priced F.O.B. the nearest reputable supply store or railway receiving point, where like Material is available, at the current replacement cost of the same kind of Material, exclusive of any available cash discounts, at the time it is furnished (herein called "New Price").

 

	
(b)  

	
Used Material.

 

	
(i)  

	
Used Material in sound and serviceable condition and suitable for reuse without reconditioning shall be priced as follows:

 

	
A.  

	
used Material furnished by either Participant shall be priced at seventy-five percent (75%) of the New Price;

 

	
B.  

	
used Material distributed to either Participant shall be priced (i) at seventy-five percent (75%) of the New Price if such Material was originally charged to the Business Account as new Material, or (ii) at sixty-five percent (65%) of the New Price if such Material was originally charged to the Business Account as good used Material at seventy-five percent (75%) of the New Price.

 

	
(ii)  

	
Other used Material that, after reconditioning, will be further serviceable for original function as good secondhand Material, or that is serviceable for original function but not substantially suitable for reconditioning, shall be priced at fifty percent (50%) of New Price.  The cost of any reconditioning shall be borne by the transferee.

 

  

7

  

 

	
(iii)  

	
Bad-Order Material which is no longer usable for its original purpose without excessive repair cost but further usable for some other purpose shall be priced on a basis comparable with items normally used for that purpose.

 

	
(iv)  

	
All other Material, including junk, shall be priced at a value commensurate with its use or at prevailing prices.

 

	
(c)  

	
Obsolete Material.  Any Material that is serviceable and usable for its original function, but its condition is not equivalent to that which would justify a price as provided above, shall be priced by the Management Committee.  Such price shall be set at a level that will result in a charge to the Business Account equal to the value of the service to be rendered by such Material.

 

	
22.3.  

	
Premium Prices

 

Whenever Material is not readily obtainable at published or listed prices because of national emergencies, strikes or other unusual circumstances over which the Manager has no control, the Manager may charge the Business Account for the required Material on the basis of the Manager's direct cost and expenses incurred in procuring such Material and making it suitable for use.  The Manager shall give written notice of the proposed charge to the Participants prior to the time when such charge is to be billed, whereupon either Participant shall have the right, by notifying the Manager within ten (10) days of the delivery of the notice from the Manager, to furnish at the usual receiving point all or part of its share of Material suitable for use and acceptable to the Manager.

 

	
22.4.  

	
Warranty of Material Furnished by the Manager or Participants

 

Neither Participant warrants any Material furnished beyond any dealer's or manufacturer's warranty and no credits shall be made to the Business Account for defective Material until adjustments are received by the Manager from the dealer, manufacturer or their respective agents.

 

	
23.  

	
DISPOSAL OF MATERIAL

 

	
23.1.  

	
Disposition Generally

 

The Manager shall have no obligation to purchase either Participant's interest in Material.  The Management Committee shall determine the disposition of major items of surplus Material, provided the Manager shall have the right to dispose of normal accumulations of junk and scrap Material either by sale or by transfer to the Participants as provided in Paragraph 4.2.

 

  

8

  

 

	
23.2.  

	
Distribution to Participants

 

Any Material to be distributed to the Participants shall be made in proportion to their respective Participating Interests, and corresponding credits shall be made to the Business Account on the basis provided in Paragraph 3.2.

 

	
23.3.  

	
Sales

 

Sales of Material to third parties shall be credited to the Business Account at the net amount received.  Any damages or claims by the Purchaser shall be charged back to the Business Account if and when paid.

 

	
24.  

	
INVENTORIES

 

	
24.1.  

	
Periodic Inventories, Notice and Representations

 

At reasonable intervals, inventories shall be taken by the Manager, which shall include all such Material as is ordinarily considered controllable by operators of mining properties, and the expense of conducting such periodic inventories shall be charged to the Business Account.  The Manager shall give written notice to the Participants of its intent to take any inventory at least thirty (30) days before such inventory is scheduled to take place.  A Participant shall be deemed to have accepted the results of any inventory taken by the Manager if the Participant fails to be represented at such inventory.

 

	
24.2.  

	
Reconciliation and Adjustment of Inventories

 

Reconciliation of inventory with charges to the Business Account shall be made, and a list of overages and shortages shall be furnished to the Management Committee within six (6) months after the inventory is taken. Inventory adjustments shall be made by the Manager to the Business Account for overages and shortages, but the Manager shall be held accountable to the Business only for shortages due to lack of reasonable diligence.

 

  

9

  

 

EXHIBIT D

 

To

 

	
JOINT VENTURE AGREEMENT

	
By And Between

 

	
IVANHOE MINES LTD.

 

	
And

 

	
ENTRÉE GOLD INC.

 

 

DEFINITIONS

 

"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 Participant.

 

“Agent” has the meaning assigned to it in Subsection 17.2(e)(i) of the Agreement.

 

"Agreement" means this Joint Venture Agreement, including all amendments and modifications, and all schedules and exhibits, all of which are incorporated by this reference.

 

"Approved Alternative" means a Development and Mining alternative selected by the Management Committee from various Development and Mining alternatives analyzed in the Pre-Feasibility Studies.

 

“Acquiring Participant” has the meaning assigned to it in Section 14.1 of the Agreement.

 

“Arbitration Act” means the Commercial Arbitration Act of the Province of British Columbia.

 

"Area of Interest" has the meaning assigned to it in Section 14.1.

 

"Assets" means the Properties, Products, Confidential Information, (other than Confidential Information pertaining to the Oyu Tolgoi Property), and all other real and personal property, tangible and intangible, including existing or after-acquired properties and all contract rights held for the benefit of the Participants hereunder.

 

“Available Cash Flow” has the meaning assigned to it in Section 10.3 of the Agreement.

 

"Bid Report" has the meaning assigned to it in Subsection 8.10(b) of the Agreement.

 

"Budget" means a detailed estimate of all costs to be incurred and a schedule of cash advances to be made by the Participants with respect to a Program.

 

"Business" means the contractual relationship of the Participants under this Agreement.

 

 

  

 

  

 

"Business Account" means the account maintained by the Manager for the Business in accordance with Exhibit B.

 

"Confidential Information" means the terms of this Agreement, and any other agreement relating to the Business, the Existing Data, any information pertaining to the Oyu Tolgoi Property and all other information, data, knowledge and know-how (including, but not limited to, formulas, patterns, compilations, programs, devices, methods, techniques and processes) disclosed by one Participant to the other Participant hereunder that derives independent economic value, actual or potential, as a result of not being generally known to, or readily ascertainable by, third parties and which is the subject of efforts that are reasonable under the circumstances to maintain its secrecy, and includes all analyses, interpretations, compilations, studies and evaluations of such information, data, knowledge and know-how generated or prepared by or on behalf of either Participant but does not include any information, data, knowledge or know-how that is already in the receiving Participant’s possession prior to receipt thereof from the disclosing Participant or that enters the public domain other than as a consequence of a breach of this Agreement by one of the parties or that comes into a Participant’s possession from a third party who is not, to the knowledge of the receiving Participant after due enquiry, under an obligation of confidentiality to the other Participant.

 

"Continuing Obligations" mean obligations or responsibilities that are reasonably expected to continue or arise after Operations on a particular area of the Properties have ceased or are suspended, such as future monitoring, stabilization, or Environmental Compliance.

 

"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 (i) the legal or beneficial ownership of voting securities or membership interests; (ii) the right to appoint managers, directors or corporate management; (iii) contract; (iv) operating agreement; (v) 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.

 

"Cover Payment" shall have the meaning as set forth in Section 9.4 of the Agreement.

 

"Defaulting Participant's Entire Interest" has the meaning assigned to it in Subsection 9.5(e) of the Agreement.

 

"Development" means all preparation (other than Exploration) for the removal and recovery of Products, including construction and installation of a mill or any other improvements to be used for the mining, handling, milling, processing, or other beneficiation of Products, and all related Environmental Compliance.

 

“Earn-in Agreement” means the Equity Participation and Earn-in Agreement made as of the 15th day of October, 2004 between Ivanhoe and Entrée.

 

"Effective Date" means the date first above written.

 

 

  

2

  

 

"Encumbrance" or "Encumbrances" means mortgages, deeds of trust, security interests, pledges, liens, net profits interests, royalties or overriding royalty interests, other payments out of production, or other burdens of any nature.

 

"Environmental Compliance" means actions performed during or after Operations to comply with the requirements of all Environmental Laws or contractual commitments related to reclamation of the Properties or other compliance with Environmental Laws.

 

"Environmental Laws" means Laws aimed at reclamation or restoration of the Properties; abatement of pollution; protection of the environment; protection of wildlife, including endangered species; ensuring public safety from environmental hazards; protection of cultural or historic resources; management, storage or control of hazardous materials and substances; releases or threatened releases of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances as wastes into the environment, including without limitation, ambient air, surface water and groundwater; and all other Laws relating to the manufacturing, processing, distribution, use, treatment, storage, disposal, handling or transport of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or wastes.

 

"Environmental Liabilities" means any and all claims, actions, causes of action, damages, losses, liabilities, obligations, penalties, judgments, amounts paid in settlement, assessments, costs, disbursements, or expenses (including, without limitation, attorneys' fees and costs, experts' fees and costs, and consultants' fees and costs) of any kind or of any nature whatsoever that are asserted against either Participant, by any person or entity other than the other Participant, alleging liability (including, without limitation, liability for studies, testing or investigatory costs, cleanup costs, response costs, removal costs, remediation costs, containment costs, restoration costs, corrective action costs, closure costs, reclamation costs, natural resource damages, property damages, business losses, personal injuries, penalties or fines) arising out of, based on or resulting from (i) the presence, release, threatened release, discharge or emission into the environment of any hazardous materials or substances existing or arising on, beneath or above the Properties and/or emanating or migrating and/or threatening to emanate or migrate from the Properties to off-site properties; (ii) physical disturbance of the environment; or (iii) the violation or alleged violation of any Environmental Laws.

 

"Equity Account" means the account maintained for each Participant by the Manager in accordance with Subsection 7.2(m) of the Agreement.

 

"Existing Data" means maps, drill logs and other drilling data, core tests, pulps, reports, surveys, assays, analyses, production reports, operations, technical, accounting and financial records, and other material information developed in operations on the Properties prior to the Effective Date.

 

“Existing Licenses” means, collectively, Mineral Exploration License number 3148X and Mineral Exploration License number 3150X, both issued by the Mineral Resources Authority of Mongolia on April 3, 2001.

 

"Expansion" or "Modification" means (i) a material increase in mining or production capacity; (ii) a material change in the recovery process; or (iii) a material change in waste or tailings disposal methods.  An increase or change shall be deemed "material" if it is anticipated to cost more than twenty percent (20%) of original capital costs attributable to the Development of the mining or production capacity, recovery process or waste or tailings disposal facility to be expanded or modified.

 

 

  

3

  

 

"Exploration" means all activities directed toward ascertaining the existence, location, quantity, quality or commercial value of deposits of Products, including but not limited to additional drilling required after discovery of potentially commercial mineralization, and including related Environmental Compliance.

 

"Feasibility Contractors" means one or more engineering firms approved by the Management Committee for purposes of preparing or auditing any Pre-Feasibility Study or Feasibility Study.

 

"Feasibility Study" means a report to be prepared following selection by the Management Committee of one or more Approved Alternatives.  The Feasibility Study shall include a review of information presented in any Pre-Feasibility Studies concerning the Approved Alternative(s).  The Feasibility Study shall be in a form and of a scope generally acceptable to reputable financial institutions that provide financing to the mining industry.

 

"Governmental Fees" means all fees, rentals and similar payments required by Law to acquire hold exploration licenses and leases in Mongolia.

 

"Indemnified Participant" has the meaning assigned to it in Subsection 3.7(a) of the Agreement.

 

"Indemnifying Participant" has the meaning assigned to it in Subsection 3.7(a) of the Agreement.

 

“Initial Contribution” means that contribution each Participant has made or agrees to make pursuant to Section 5.1 of the Agreement.

 

“Ivanhoe Facilities” has the meaning assigned to it in Subsection 11.1 of the Agreement.

 

"Law" or "Laws" means all applicable governmental laws (statutory or common), rules, ordinances, regulations, grants, concessions, franchises, licenses, orders, directives, judgments, decrees, and other governmental restrictions, including permits and other similar requirements, whether legislative, municipal, administrative or judicial in nature.

 

“Loans” has the meaning assigned to it in Section 10.1 of the Agreement.

 

"Loss " has the meaning assigned to it in Subsection 3.7(a) of the Agreement.

 

"Management Committee" means the committee established under Article 6 of the Agreement.

 

"Manager" means the Participant appointed under Article 7 of the Agreement to manage Operations, or any successor Manager.

 

"Mining" means the mining, extracting, producing, beneficiating, handling, milling or other processing of Products.

 

 

  

4

  

 

“Mongolian Subsidiary” has the meaning assigned to it in Section 2.7.

 

"Net Smelter Returns" means certain amounts calculated as provided in Exhibit E, which may be payable to a Participant under Subsection 5.6(a) of the Agreement.

 

“Notices” has the meaning assigned to it in Section 20.1 of the Agreement.

 

"Operations" means the activities carried out under this Agreement.

 

“Oyu Tolgoi Property” means the geographical area which is the subject of Mining License number 6709 issued by the Mineral Resources Authority of Mongolia on December 23, 2003

 

"Participant" means Ivanhoe or Entrée, or any permitted successor or assign of Ivanhoe or Entrée under the Agreement.

 

"Participating Interest" means the percentage interest representing the ownership interest of a Participant in the Assets, and all other rights and obligations arising under this Agreement, as such interest may from time to time be adjusted hereunder.  Participating Interests shall be calculated to three decimal places and rounded to two decimal places as follows:  Decimals of .005 or more shall be rounded up (e.g., 1.519% rounded to 1.52%); decimals of less than .005 shall be rounded down (e.g., 1.514% rounded to 1.51%).  The initial Participating Interests of the Participants are set forth in Section 5.3 of the Agreement.

 

"Pre-Feasibility Studies" means one or more studies prepared to analyze whether economically viable Mining Operations may be possible on the Properties, as described in Section 8.8.

 

“Payout” means the date on which the Equity Account balance of each of the Participants has become zero or a negative number, regardless of whether the Equity Account balance of either or both Participants subsequently becomes a positive number.  If one Participant's Equity Account balance becomes zero or a negative number before the other Participant's, "Payout" shall not occur until the date that the other Participant's Equity Account balance first becomes zero or a negative number.

 

"Prime Rate" means at any particular time the annual rate of interest announced from time to time by Royal Bank of Canada, main branch, Vancouver, British Columbia as a reference rate then in effect for determining floating rates of interest on Canadian dollar loans made in Canada and as to which from time to time a certificate of an officer of Royal Bank of Canada shall be conclusive evidence.

 

"Products" means all ores, minerals and mineral resources produced from the Properties.

 

"Program" means a description in reasonable detail of Operations to be conducted and objectives to be accomplished by the Manager for a period determined by the Management Committee.

 

"Program Period" means the time period covered by an adopted Program and Budget.

 

 

  

5

  

 

"Project Financing" means any financing approved by the Management Committee and obtained by the Participants for the purpose of placing a mineral deposit situated on the Properties into commercial production, but shall not include any such financing obtained individually by either Participant to finance payment or performance of its obligations under the Agreement.

 

"Properties" means that portion of the geographical area which is the subject of the Existing Licenses, as more particularly described in Schedule “A”.

 

"Recalculated Participating Interest" means the reduced Participating Interest of a Participant as recalculated under Sections 8.5, 8.6 or 9.5 of the Agreement.

 

"Reduced Participant" means a Participant whose Participating Interest is reduced under Sections 8.5 or 9.5 of the Agreement.

 

“Supplemental Business” has the meaning assigned to it in Section 16.1 of the Agreement.

 

“Supplemental Business Agreement” has the meaning assigned to it in Section 16.1 of the Agreement.

 

“Surface Access Rights” has the meaning assigned to it in the Earn-in Agreement.

 

"Transfer" means, when used as a verb, to sell, grant, assign, create an Encumbrance, pledge or otherwise convey, or dispose of or commit to do any of the foregoing, or to arrange for substitute performance by an Affiliate or third party (except as permitted under Subsection 8.2(j) and Section 7.6 of the Agreement), either directly or indirectly; and, when used as a noun, means such a sale, grant, assignment, Encumbrance, pledge or other conveyance or disposition, or such an arrangement.

 

 

 

  

6

  

 

EXHIBIT E

 

To

 

	
JOINT VENTURE AGREEMENT

	
By And Between

 

	
IVANHOE MINES LTD.

 

	
And

 

	
ENTRÉE GOLD INC.

 

 

NET SMELTER RETURNS ROYALTY

 

	
1.  

	
Definitions and Interpretation

 

In this Exhibit E, capitalized terms have the meanings assigned to them respectively in the Agreement and the following terms have the meanings ascribed to them as follows:

 

	
1.1.  

	
“Business Day” means a day on which banks are open for business in Vancouver, British Columbia.

 

	
1.2.  

	
"Commercial Production" shall mean the mining, extraction, processing and recovery for sale of Minerals from the Properties, excluding the taking of Minerals from the Properties for the purpose of bulk sampling or determining the amenability of the Minerals to beneficiation processes or mining.

 

	
1.3.  

	
"Deemed Gross Sale Proceeds" of all Sales occurring in respect of the disposition of Minerals consisting of gold, silver, platinum and palladium shall mean and be determined by multiplying the total number of troy ounces of the particular Minerals deemed sold or otherwise disposed of within that last completed calendar quarter by the following:

 

	
(a)  

	
in the case of gold, platinum and palladium, the arithmetic mean of the daily London Bullion Market afternoon fixing for the calendar quarter per ounce of the respective Minerals;

 

	
(b)  

	
in the case of silver, the arithmetic mean of the weekly Handy & Harman price per ounce of silver as quoted in "Metals Week" for the last two (2) weeks which conclude within that calendar quarter, but in the event "Metals Week" is not published or if for any reason such quotation is not available the arithmetic mean of the Handy & Harman base price quote as published in the "Wall Street Journal" for the calendar quarter will be utilized.

 

	
1.4.  

	
“Encumbrances” means any mortgage, charge, pledge, lien, licence, privilege, security interest, royalty or other encumbrance.

 

 

  

 

  

 

	
1.5.  

	
"Gross Sale Proceeds" in respect of the disposition of Minerals shall mean and be determined as follows:

 

	
(a)  

	
for gold, silver, platinum and palladium, the Deemed Gross Sale Proceeds in respect of such Minerals at the time of the Sale of such Minerals; and

 

	
(b)  

	
for all Minerals other than gold, silver, platinum and palladium, the actual proceeds of sale to an independent refinery, smelter or other unaffiliated third-party purchaser of such Minerals during a calendar quarter.

 

	
1.6.  

	
"Minerals" shall mean all minerals, ores, concentrates, metals and other materials produced from the Property.

 

	
1.7.  

	
"Net Smelter Returns" shall mean Gross Sales Proceeds less Permissible Deductions, except where Minerals other than gold, silver, platinum or palladium are finally disposed of by the Payor by means other than a sale to an independent refinery, smelter of other unaffiliated third-party purchaser of such Minerals during a calendar quarter, then Net Smelter Returns shall be determined as follows:

 

	
(a)  

	
the metallurgically recoverable marketable content of such Minerals in the ores and concentrates produced from the Properties shall be determined in accordance with commonly accepted industry standards using assays or other accurate analyses regularly taken for ores or concentrates;

 

	
(b)  

	
the recoverable marketable content of such Minerals shall be multiplied by the closing price for each of the respective Minerals on the day of disposition of the subject ores and concentrates as quoted on the New York Commodity Exchange; and

 

	
(c)  

	
the result in Paragraph 1.7(b) be reduced by all applicable charges, royalties, taxes, costs and penalties which the Payor actually incurs with respect to the disposition of the subject ores and concentrates.

 

	
1.8.  

	
“NSR Royalty” has the meaning assigned to it in Paragraph 2.1.

 

	
1.9.  

	
“Payee” means the party entitled to a royalty pursuant to the provisions in Section 5.6 and “Payor” means the party required to pay same.

 

	
1.10.  

	
"Permissible Deductions" shall mean the aggregate of the following costs and charges, without duplication and to the extent not previously deducted or accrued in computing Gross Sales Proceeds, that accrue or are paid in each quarterly period:

 

	
(a)  

	
all smelting, refining, treatment, assaying, sampling, umpiring, selling and other costs, charges and penalties charged by any refinery, smelter or other unaffiliated third-party purchaser of Minerals;

 

	
(b)  

	
all taxes paid on production of Minerals, except Payor’s income taxes, including, but not limited to, production, severance, sales and privilege taxes, and all local, provincial and federal royalties that are based on the production of Minerals;

 

 

  

2

  

 

	
(c)  

	
all costs of loading, securing, insuring and transporting Minerals from the Property to the place of beneficiation, processing or treatment and, if applicable, thence to the place of delivery thereafter, including shipping, freight, handling and forwarding expenses, and export and import taxes, if applicable;

 

	
(d)  

	
all costs or charges of any nature for or in connection with insurance, storage or representation at a smelter or refinery for ores and Minerals; and

 

	
(e)  

	
all actual sales and brokerage costs on ores and Minerals;

 

provided that, where a cost or expense otherwise constituting a Permissible Deduction is incurred by the Payor in a transaction with a party with whom it is not dealing at arm's length, such costs or expenses may be deducted, but only as to the lesser of the actual cost incurred by the Payor and the fair market value thereof, considering the time of such transaction and under all the circumstances thereof.

 

	
1.11.  

	
"Sales" shall mean and be deemed to have occurred, without regard to when or to whom they actually are made, upon the earliest to occur of the following:

 

	
(a)  

	
when such Minerals (other than refined bullion, ore or concentrates) are shipped by the Payor from the Properties to an independent refinery, smelter or other unaffiliated third-party purchaser;

 

	
(b)  

	
with respect to refined bullion produced by the Payor, the day the final, refined bullion was produced;

 

	
(c)  

	
with respect to ore produced by the Payor, three Business Days after the ore was produced; and

 

	
(d)  

	
with respect to other concentrates produced by the Payor, 30 days after those concentrates have been produced.

 

	
2.  

	
Grant of Royalty

 

	
2.1.  

	
Payor hereby grants and agrees to pay to Payee a royalty (the “NSR Royalty”) in perpetuity equal to two percent (2.0%) of the Net Smelter Returns.

 

	
3.  

	
Payment of Royalty

 

	
3.1.  

	
The NSR Royalty shall be calculated and paid net of any applicable withholding taxes required by law within 25 days after the end of each calendar quarter in which Sales have occurred, at the option of the Payee exercised by written notice to the Payor before the first day of any applicable quarter, either:

 

	
(a)  

	
by cheque, cash or draft, mailed or delivered to the Payee; or

 

	
(b)  

	
if and to the extent that the Minerals in respect of which the NSR Royalty is payable consist of bullion or other refined Minerals, by delivery of bullion or such other refined minerals to the Payee at an account maintained for the Payee at an independent refinery, or at such other place as may be designated by the Payee (the cost of such delivery to be borne by the Payee);

 

 

  

3

  

 

provided that, on failure of the Payee to give any such notice, the Payee shall be deemed to have elected to receive payment pursuant to Paragraph 3.1(a). Once the Payee has given notice electing to receive payment pursuant to Paragraph 3.1(a) or 3.1(b), such notice shall continue to be effective for all succeeding quarters until the Payee gives notice changing its election.  Smelter settlement sheets, if any, and a statement setting forth calculations in sufficient detail to show how the payment was derived (the "Statement") shall be submitted with the payment

 

	
3.2.  

	
In the event that final amounts required for the calculation of the NSR Royalty are not available within the time period referred to in Paragraph 3.1, then provisional amounts shall be established, the NSR Royalty shall be paid on the basis of such provisional amounts and positive or negative adjustments shall be made to the payment in the succeeding quarter, as necessary.

 

	
3.3.  

	
The parties will cooperate so as to reduce or avoid withholding taxes on the payment of the NSR Royalty to the extent possible and practicable in accordance with applicable law.

 

	
4.  

	
Sales of Minerals

 

	
4.1.  

	
All profits and losses resulting from the Payor engaging in any commodity futures trading, option trading, metals trading, gold loans or any combination thereof, and any other hedging transactions with respect to mineral products (collectively, "Hedging Transactions") are specifically excluded from calculations of the NSR Royalty, it being understood by the parties that both the Payor and Payee may engage in speculative hedging trading activities for their own account. All Hedging Transactions by the Payor and all profits or losses associated therewith, if any, shall be solely for the Payor's account, irrespective of whether or not mineral products are delivered in fulfilment of such obligations.

 

	
4.2.  

	
The Payor may, but is not obligated to, beneficiate, mill, sort, concentrate, refine, smelt, or otherwise process and upgrade Minerals prior to sale, transfer, or conveyance to a purchaser, user or consumer. The Payor shall not be liable for mineral values lost in such processing under sound practices.

 

	
4.3.  

	
The Payor shall not dispose of Minerals other than gold, silver, platinum and palladium except by way of sale to an arm’s length third party for cash proceeds equal to the fair market value thereof at the time of sale.

 

	
4.4.  

	
All Minerals for which a Net Smelter Return Royalty is payable shall be weighed or measured, sampled and analyzed in accordance with sound mining and metallurgical practices.  After such measurement, the Payor may mix or commingle such ores, materials or products with ores, materials or products from other property.

 

 

  

4

  

 

	
5.  

	
Books; Records; Inspections

 

	
5.1.  

	
The Payor will keep true and accurate books and records of all of its operations and activities with respect to the Properties and the Minerals, prepared on an accrual basis in accordance with Canadian generally accepted accounting principles, consistently applied.  Payee may, from time to time, perform audits or other examinations of all of the books and records of the Payor to confirm the calculation of the NSR Royalty and compliance with the terms of the Agreement including this Appendix.  The reasonable expenses of any audit or other examination permitted hereunder shall be paid by Payee, unless the results of such audit or other examination permitted hereunder disclose a deficiency in respect of the NSR Royalty payments paid to Payee hereunder greater than $5,000, in which event the costs of such audit or other examination shall be paid by the Payor.

 

	
5.2.  

	
Without limiting Paragraph 5.1, upon not less than five Business Days’ notice to Payor, Payee , or its authorized agents or representatives, may, under the direction and control of Payor, enter upon all surface and subsurface portions of the Properties for the purpose of inspecting the Properties, all improvements thereto and operations thereon, and all production records and data pertaining to all production activities and operations on or with respect to the Properties, including without limitation, records and data that are electronically maintained.

 

	
5.3.  

	
Within 60 days following the end of each calendar year, the Payor will provide Payee with an annual report of Minerals mined, Minerals milled or processed, recoveries, grades, and capital and development expenses with respect to the Properties during such calendar year.  Such annual report shall include estimates of proposed expenditures upon, anticipated production from and estimated remaining Mineral reserves on the Properties for the succeeding calendar year and any changes to, or replacements of, the mine plan or any “life of mine plan” with respect to the Properties.  The Payor will provide Payee with a copy of any “life of mine plan”, if produced, within 30 days of its approval by Payor and any changes to, or replacements of, any such “life of mine plan” or any mine plan within 30 days after such change or replacement thereof.

 

	
6.  

	
Stockpiling and Commingling

 

	
6.1.  

	
The Payor may stockpile and commingle Minerals with ores, concentrates or other products not mined from the Properties. The Payor shall, prior to such stockpiling or commingling, measure, weigh and analyze samples of such commingled materials in accordance with sound mining and metallurgical practices and the Payor shall keep accurate records as a basis for computing any NSR Royalty payments.  In determining which commingled materials are sold from a commingled stockpile, a first-in, first-out system shall be used.

 

	
7.  

	
Tailings and Waste

 

	
7.1.  

	
All tailings or waste material shall be the property of the Payor and the Payor shall have no obligation to process or extract substances therefrom. If the Payor elects to extract Minerals of value therefrom and utilizes or sells the same, the Payee shall receive payments in respect of the NSR Royalty during Commercial Production of such Minerals.  If the Payor commingles the tailings or waste material produced from the Properties with tailings and waste material not produced from the Properties, the Payor shall record the tonnage amount and source of such tailings and waste material prior to commingling and the NSR Royalty payments, if any, shall be based upon the recoverable pro rata portion of the minerals in the tailings or waste material derived from the Properties.  The records of the Payor shall be deemed conclusive as to the tailings or waste material attributable to each source.

 

 

  

5

  

 

	
8.  

	
Compliance with Laws; Environmental Obligations

 

	
8.1.  

	
The Payor will indemnify and save Payee and its Affiliates harmless from any loss, cost or liability including, without limitation, reasonable legal fees arising from a claim against Payee in respect of any failure by the Payor to at all times comply with all Laws.

 

	
8.2.  

	
The Payor will indemnify and save Payee and its Affiliates harmless from any loss, cost or liability (including, without limitation, reasonably legal fees) arising from a claim against Payee in respect of:

 

	
(a)  

	
any failure by the Payor to timely and fully perform all abandonment, restoration, remediation and reclamation required by all governmental authorities pertaining or related to the operations or activities of by the Payor on or with respect to the Properties or required under the Agreement;

 

	
(b)  

	
the Payor causing, suffering, or permitting any condition or activity at, on or in the vicinity of the Properties which constitutes a nuisance; or

 

	
(c)  

	
any failure by the Payor which results in a violation of or liability under any Laws.

 

	
9.  

	
Conduct of Operations

 

	
9.1.  

	
All decisions concerning methods, the extent, times, procedures and techniques of any exploration, development, mining, leaching, milling, processing, extraction treatment, if any, and the materials to be introduced into the Properties or produced therefrom, and except as otherwise provided in this Agreement all decisions concerning the sale or other disposition of Minerals (including, without limitation, decisions as to buyers, times of sale, whether to store or stockpile Minerals for a reasonable length of time without selling the same) shall be made by the Payor, acting reasonably and in accordance with good mining and engineering practice in the circumstances.

 

	
9.2.  

	
The Payor will not at any time permit any person with which it does not deal at arm’s length, to smelt, refine or otherwise process Minerals, without the prior written consent of Payee.

 

	
10.  

	
Insurance

 

	
10.1.  

	
Payor shall purchase or otherwise arrange at its own expense and shall keep in force at all times insurance (including, without limitation, comprehensive general public liability insurance) against claims for bodily injury or death or property damage arising out of or resulting from activities or operations on or with respect to the Properties and in respect of loss, theft or destruction of Minerals, in such amounts as will adequately protect the Payor, Payee, the NSR Royalty, and the Properties from any and all claims, liabilities and damages which may arise with respect to the Properties and as will adequately protect the Payor and Payee from loss, theft and destruction of Minerals. Payee shall be named as a loss payee on all property, liability and other insurance policies held by Payor and relating to the Properties, the Minerals or the NSR Royalty.

 

 

  

6

  

 

	
11.  

	
Maintenance of Properties

 

	
11.1.  

	
The Payor shall do all things and make all payments necessary or appropriate to maintain the right, title and interest of the Payor and Payee in the Properties and the Minerals and to maintain the Properties in good standing.  The Payor shall be entitled, from time to time, to abandon or surrender or allow to lapse or expire any part or parts of any mineral claims or mining leases relating to or comprising the Properties if the Payor determines, acting reasonably, that such part or parts are not economically viable or otherwise have insufficient value to warrant continued maintenance.

 

	
11.2.  

	
Notwithstanding Paragraph 11.1, the Payor shall not abandon or surrender, or allow to lapse or expire, any mining claims or leases relating to or comprising the Properties for the purpose of permitting any third party to restake such claim and avoid the NSR Royalty; and if the Payor, or any person with which the Payor does not deal at arm’s length or joint venturer, restakes any expired claims or leases relating to or comprising the Properties, this Agreement shall include any such new claims.

 

	
11.3.  

	
Payor will not sell, assign or transfer the Properties or any right, title or interest that it now has or may hereafter have therein, in whole or in part, to any person, firm or corporation, or agree to do so or grant any person, firm or corporation an option or right to acquire the Properties or any right, title or interest that it now has or may hereafter have therein, in whole or in part, unless the intended transferee first provides an acknowledgement in writing to Payee, in form and content to the reasonable satisfaction of Payee, that it assumes this Agreement and the obligations of Payor hereunder as if a named party in the first instance.

 

	
12.  

	
Nature of Royalty Interest

 

	
12.1.  

	
The NSR Royalty creates a direct real property interest in the Minerals and the Properties in favour of Payee, provided such interest shall be satisfied in respect of any particular Minerals by the payment to Payee of the NSR Royalty in respect thereof.

 

	
13.  

	
Term

 

	
13.1.  

	
This Agreement shall continue in perpetuity, it being the intent of the parties hereto that the NSR Royalty shall constitute a covenant running with the Properties and all successions thereof, whether created privately or through governmental action, and including, without limitation, any leasehold interest.  If any right, power or interest of either party under this Agreement would violate the rule against perpetuities, then such right, power or interest shall terminate at the expiration of 20 years after the death of the last survivor of all the lineal descendants of Her Majesty, Queen Elizabeth II of England, living on the date of this Agreement.

 

 

  

7

  

 

	
14.  

	
General Provisions

 

	
14.1.  

	
Registration of Interest

 

Payee shall have the right from time to time to register or record notice of this Agreement and the NSR Royalty, any other documents relating to or contemplated by the foregoing and any caution or other title document, against title to the Properties or elsewhere, and Payor shall cooperate with all such registrations and recordings and provide its written consent or signature to any documents and do such other things from time to time as are necessary or desirable to effect all such registrations or recordings or otherwise to protect the interests of Payee hereunder.

 

	
14.2.  

	
Time

 

Time is of the essence of this Exhibit and the Agreement and each of the terms and conditions hereof.

 

 

 

 

  

8

  

 

EXHIBIT F

 

To

 

	
JOINT VENTURE AGREEMENT

	
By And Between

 

	
IVANHOE MINES LTD.

 

	
And

 

	
ENTRÉE GOLD INC.

 

 

INSURANCE

 

 

The Manager shall, at all times while conducting Operations, comply fully with the applicable worker's compensation laws and purchase, or provide insurance for the Participants and the Business against such risks and with such carriers and limits and deductibles as would be prudent in the circumstances including without limitation:

 

	
  

	
(i)

	
comprehensive public liability and property damage;

 

	
  

	
(ii)

	
automobile insurance; and

 

	
  

	
(iii)

	

adequate and reasonable insurance against risk of fire and other risks ordinarily insured against in similar operations.

 

Each Participant shall self-insure or purchase for its own account such additional insurance as it deems necessary.

 

 

 

 

  

 

  

 

EXHIBIT H

 

To

 

	
JOINT VENTURE AGREEMENT

	
By And Between

 

	
IVANHOE MINES LTD.

 

	
And

 

	
ENTRÉE GOLD INC.

 

 

PREEMPTIVE RIGHTS

 

 

	
1.  

	
Mutual Preemptive Rights

 

	
1.1.  

	
If either Participant intends to Transfer all or any part of its Participating Interest, or an Affiliate of either Participant intends to Transfer Control of such Participant ("Transferring Entity"), such Participant shall promptly notify the other Participant of such intentions.  The notice shall state the price and all other pertinent terms and conditions of the intended Transfer, and shall be accompanied by a copy of the offer or the contract for sale.  If the consideration for the intended transfer is, in whole or in part, other than monetary, the notice shall describe such consideration and its monetary equivalent (based upon the fair market value of the nonmonetary consideration and stated in terms of cash or currency). The other Participant shall have 15 days from the date such notice is delivered to notify the Transferring Entity (and the Participant if its Affiliate is the Transferring Entity) whether it elects to acquire the offered interest at the same price (or its monetary equivalent in cash or currency) and on the same terms and conditions as set forth in the notice.  If it does so elect, the acquisition by the other Participant shall be consummated promptly after notice of such election is delivered;

 

	
1.2.  

	
If the other Participant fails to so elect within the period provided for above, the Transferring Entity shall have 90 days following the expiration of such period to consummate the Transfer to a third party at a price and on terms no less favorable to the Transferring Entity than those offered by the Transferring Entity to the other Participant in the aforementioned notice;

 

	
1.3.  

	
If the Transferring Entity fails to consummate the Transfer to a third party within the period set forth above, the preemptive right of the other Participant in such offered interest shall be deemed to be revived.  Any subsequent proposal to Transfer such interest shall be conducted in accordance with all of the procedures set forth in this Paragraph..

 

	
2.  

	
Exceptions to Mutual Preemptive Right

 

Paragraph 1.1 above shall not apply to the following:

 

 

  

 

  

 

	
2.1.  

	
transfer by either Participant of all or any part of its Participating Interest to an Affiliate;

 

	
2.2.  

	
incorporation of either Participant, or corporate consolidation or reorganization of either Participant by which the surviving entity shall possess substantially all of the stock or all of the property rights and interests, and be subject to substantially all of the liabilities and obligations of that Participant;

 

	
2.3.  

	
corporate merger or amalgamation involving either Participant by which the surviving entity or amalgamated company shall possess substantially all of the stock or substantially all of the property rights and interests, and be subject to substantially all of the liabilities and obligations of that Participant;

 

	
2.4.  

	
the transfer of Control of either Participant by an Affiliate to such Participant or to another Affiliate;

 

	
2.5.  

	
subject to Subsection 17.2(g) of the Agreement, the grant by either Participant of a security interest in its Participating Interest by Encumbrance;

 

	
2.6.  

	
the creation by any Affiliate of either Participant of an Encumbrance affecting its Control of such Participant;

 

	
2.7.  

	
a sale or other commitment or disposition of Products or proceeds from sale of Products by either Participant upon distribution to it pursuant to Article 12 of the Agreement;

 

	
2.8.  

	
a sale by Ivanhoe of its Participating Interest in conjunction with a bona fide sale of its entire interest in the Oyu Tolgoi Property;

 

	
2.9.  

	
the transfer of Control of either Participant by an Affiliate in the course of or as a result of a take-over bid made for shares of a Participant or a compromise or arrangement to which a Participant is a party; or

 

	
2.10.  

	
a transfer by an Affiliate of either Participant of Control of such Participant to a third party where the value of such Participant's Equity Account (after adding back amounts that were charged to such Equity Account pursuant to Section 7.2(m) of the Agreement) does not exceed 50% of the Net Worth of the transferring Affiliate, or does not exceed 50% of the Net Worth of Transferee.

 

For purposes hereof, the term "Net Worth" shall mean the remainder after total liabilities are deducted from total assets.  In the case of a corporation, Net Worth includes both capital stock and surplus.  In the case of a limited liability company, Net Worth includes member contributions.  In the case of a partnership or sole proprietorship, Net Worth includes the original investment plus accumulated and reinvested profits.

 

	
3.  

	
Ivanhoe Preemptive Right

 

	
3.1.  

	
If Entrée intends to directly or indirectly dispose of any interest, other than its Participating Interest, in any geographical areas that are the subject of the Existing Licenses or Mineral Exploration License number 3136X or any successor licenses in whole or in part (the interest intended to be sold being hereinafter called an “Interest”) to a bona fide arm’s length third party (a “Third Party”) by way of a sale, joint venture or other mode of disposition, then in any such case Entrée will give Notice (the “Transfer Notice”) to Ivanhoe, offering the Interest to Ivanhoe on substantially the same terms upon which Entrée proposes to convey the Interest to the Third Party.

 

 

  

2

  

 

	
3.2.  

	
Ivanhoe 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, Ivanhoe may elect to furnish the same non-monetary consideration or to pay to Entrée 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 fifteen (15) days of receipt by Ivanhoe of the Transfer Notice (the “Exercise Period”).

 

	
3.3.  

	
If Ivanhoe does not exercise its right to acquire the Interest prior to the expiry of the Exercise Period, Entrée will have the right for a period of ninety (90) 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 for which Entrée offered the Interest to Ivanhoe. If Entrée does not convey the Interest to the Third Party by the expiry of the Closing Period, Ivanhoe’s preemptive right in such Interest shall be deemed to be revived.  Any subsequent proposal to dispose of such Interest shall be conducted in accordance with all of the procedures set forth in this Paragraph..

 

	
4.  

	
Exceptions to Ivanhoe Preemptive Right

 

Paragraph 3.1 above shall not apply to the following:

 

	
4.1.  

	
transfer by Entrée of an Interest to an Affiliate provided that such Affiliate agrees in writing with Ivanhoe to be bound by Entrée’s obligations in Paragraphs 3.1 through 3.3 in respect of the transferred Interest;

 

	
4.2.  

	
corporate consolidation, reorganization, merger or amalgamation involving Entrée by which the surviving entity will possess substantially all of the stock, or all of the property rights and interests, and be subject to substantially all of the liabilities and obligations of Entrée;

 

	
4.3.  

	
the grant by Entrée of a security interest by mortgage, deed of trust, pledge, lien or other encumbrance and any transfer of such interest by reason of exercise of the rights granted to the secured party; or

 

	
4.4.  

	
a sale or other commitment or disposition of Products or proceeds from sale of Products by Entrée.

 

 

 

3exh4_3.htm

Exhibit 4.3

 

 

 

 

 

EQUITY PARTICIPATION AND FUNDING AGREEMENT

 

 

 

 

 

ENTRÉE GOLD INC.

 

and

 

SANDSTORM GOLD LTD.

 

 

 

 

  

  

  

 

TABLE OF CONTENTS

 

	
1.

	
DEFINITIONS AND INTERPRETATION

	
1

	
2.

	
EQUITY INVESTMENT AND RELATED OBLIGATIONS

	
17

	
3.

	
AGREEMENT OF PURCHASE AND SALE

	
18

	
4.

	
REFUNDABLE DEPOSIT AND RELATED MATTERS

	
19

	
5.

	
TERM

	
23

	
6.

	
COVENANTS OF ENTRÉE

	
24

	
7.

	
MONTHLY REPORTS AND ANNUAL REPORTS

	
28

	
8.

	
CONDITIONS SATISFACTION

	
30

	
9.

	
DELIVERY OF MINERALS AND PAYMENTS

	
30

	
10.

	
EVENTS OF DEFAULT AND TERMINATION

	
31

	
11.

	
OFFTAKE AGREEMENTS

	
34

	
12.

	
BOOKS; RECORDS; INSPECTIONS

	
34

	
13.

	
CONDUCT OF MINING OPERATIONS, ETC.

	
35

	
14.

	
RESTRICTED TRANSFER RIGHTS OF ENTRÉE AND ENTRÉE LLC

	
36

	
15.

	
TRANSFER RIGHTS OF SANDSTORM

	
37

	
16.

	
CONFIDENTIALITY

	
37

	
17.

	
DISPUTE RESOLUTION

	
38

	
18.

	
REPRESENTATIONS AND WARRANTIES OF SANDSTORM

	
41

	
19.

	
REPRESENTATIONS AND WARRANTIES OF ENTRÉE

	
42

	
20.

	
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF ENTRÉE

	
43

	
21.

	
INDEMNITY OF SANDSTORM

	
45

	
22.

	
INDEMNITY OF ENTRÉE

	
46

	
23.

	
TAXES

	
46

	
24.

	
FINANCE SECURITY INTEREST

	
46

	
25.

	
GENERAL PROVISIONS

	
46

 

 

  

  

  

 

EQUITY PARTICIPATION AND FUNDING AGREEMENT dated as of the 14th day of

 

February, 2013.

 

B E T W E E N

 

ENTRÉE GOLD INC. a corporation incorporated and existing under the laws of the Province of British Columbia

 

(“Entrée”)

 

                                  - and -

 

SANDSTORM GOLD LTD., a corporation incorporated and existing under the laws of the Province of British Columbia

 

(“Sandstorm”)

 

 

INTRODUCTION

 

	
A.

	
Entrée and its Affiliates hold or have an interest, either directly or indirectly in, various mineral properties located in, among other places, the United States of America, Australia and Mongolia (collectively, the “Entrée Mineral Properties”).

 

	
B.

	
Entrée and its Affiliates are, either themselves or in conjunction with other Persons, undertaking, among other things, exploration and development activities on or with respect to the Entrée Mineral Properties.

 

	
C.

	
Entrée and its Affiliates require additional funding to maintain or advance (as the case may be) the exploration and development activities being conducted on or with respect to the Entrée Minerals Properties.

 

	
D.

	
Sandstorm has agreed to provide funding to Entrée by subscribing for common shares of Entrée and by making a refundable deposit to and in favour of Entrée, on the terms and conditions hereinafter provided.

 

	
E.

	
Entrée will use revenues derived from production from the Entrée Mineral Properties to acquire and deliver refined metals (in the form of metal credits) to Sandstorm in an amount indexed to production from certain of the Entrée Mineral Properties and Sandstorm has agreed to purchase and pay for such refined metals, all on and subject to the terms and conditions hereinafter provided.

 

NOW THEREFORE in consideration of the premises and the mutual covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each of the Parties, the Parties mutually agree as follows:

 

	
1.

	
DEFINITIONS AND INTERPRETATION

 

	
1.1

	
Unless the context otherwise requires, in this Agreement:

 

 

  

  

  

 

	
  

	
(1)

	
“Affiliate” means any Person which directly or indirectly Controls, is Controlled by, or is under common Control with, a Person.

 

	
  

	
(2)

	
“Ag” means silver.

 

	
  

	
(3)

	
“Agreement” or “this Agreement” means this document including any schedule or appendix to it.

 

	
  

	
(4)

	
“Annual Report” means a written report, in relation to any calendar year, detailing on an Apportioned Basis:

 

	
  

	
(a)

	
the gross number of ounces and pounds of Production, including without limitation, the ounces and pounds, delivered to an Offtaker in the applicable calendar year;

 

	
  

	
(b)

	
the names and addresses of each Offtaker to which the Production referred to in section 1.1(4)(a) was delivered, if the Offtaker is not OTL or its Affiliates;

 

	
  

	
(c)

	
the gross number of ounces and pounds of Sandstorm Payable Metals which have resulted or which are estimated to result from the Production referred to in section 1.1(4)(a);

 

	
  

	
(d)

	
the gross number of ounces and pounds of Sandstorm Payable Metals which have been delivered to Sandstorm with respect to the Production referred to in section 1.1(4)(a), in accordance with the provisions of Article 9;

 

	
  

	
(e)

	
a reconciliation between any provisional number of ounces and pounds of Sandstorm Payable Metals specified in an Annual Report for a preceding calendar year and the final number of ounces and pounds of Sandstorm Payable Metals for the applicable calendar year;

 

	
  

	
(f)

	
a reconciliation between any gross number of ounces and pounds of Production which constitute Entrée’s Share of Production specified in an Annual Report for a preceding calendar year and the gross number of ounces and pounds delivered to Sandstorm for the applicable calendar year;

 

	
  

	
(g)

	
the gross number of ounces and pounds of Production for which Entrée has not yet received payment or compensation, as at the end of the applicable calendar year;

 

	
  

	
(h)

	
the amount of the OTL Financed Costs that have been advanced and the OTL Interest Costs that have accrued and the amount of the OTL Financed Costs and OTL Interest Costs that have been repaid as at the end of the applicable calendar year;

 

	
  

	
(i)

	
any and all information received by Entrée from OTL with respect to the OTL Financed Costs that are estimated to be advanced during the next succeeding calendar year;

 

 

  

- 2 -

  

 

	
  

	
(j)

	
any and all information received by Entrée from OTL with respect to the OTL Financing Commitment;

 

	
  

	
(k)

	
any and all information received by Entrée from OTL with respect to distributions to OTL in repayment of the OTL Financed Costs and the OTL Interest Costs;

 

	
  

	
(l)

	
the amount of Sandstorm Accrued Metals and Sandstorm Expropriated Metals as at the end of the applicable calendar year;

 

	
  

	
(m)

	
subject to the provision of the same by the Operator, a summary of the status of any and all permits and permit applications with respect to the Property and mining operations to be conducted thereon;

 

	
  

	
(n)

	
the [redacted] and a calculation of how the [redacted] during the applicable calendar year; and

 

	
  

	
(o)

	
subject to provision of the same by the Operator, an updated mine operating and development plan and budget with respect to the Property which includes updated reserves and resources, forecasted production and any planned drilling and exploration activities within the Property.

 

	
  

	
(5)

	
“Apportioned Basis” means Au, Ag and Cu contained in the Property broken down on the basis of Au, Ag and Cu contained in the Upper Level and Au, Ag and Cu contained in the Lower Level.

 

	
  

	
(6)

	
“Au” means gold.

 

	
  

	
(7)

	
“Audit Dispute Notice” has the meaning set forth in section 7.3(1).

 

	
  

	
(8)

	
“BCICAC” has the meaning set forth in section 17.4(1).

 

	
  

	
(9)

	
“Business Day” means any day other than a Saturday or Sunday or a day that is a statutory holiday in Vancouver, British Columbia.

 

	
  

	
(10)

	
“Confidential Information” has the meaning set forth in section 16.1.

 

	
  

	
(11)

	
“Control” means, in relation to any Person, possession, directly or indirectly, of the power to direct or cause direction of management and policies of that Person through ownership of voting securities, contract, voting trust or otherwise.

 

	
  

	
(12)

	
[redacted].

 

	
  

	
(13)

	
[redacted].

 

	
  

	
(14)

	
“Cu” means copper.

 

	
  

	
(15)

	
“Current Resource” means the Production which is estimated in the LOM Case, being 8,584,119 ounces of Au, 40,321,123 ounces of Ag and 9,087,567,000 pounds of Cu.

 

	
  

	
(16)

	
“Deductions” means any and all deductions (excluding Payable Deductions), refining, reprocessing, processing, capital allowance costs included in the processing costs, treatment and other charges, penalties, adjustments, shipping expenses and/or expenses pertaining to and/or in respect of Production and charged by an Offtaker and/or charged in respect of delivery costs to Sandstorm or to the final customer of Entrée, OTL or their respective Affiliates and/or Sandstorm, as the case may be, or, charged to Entrée, OTL or their respective Affiliates as and by way of royalty payments.

 

 

  

- 3 -

  

 

	
  

	
(17)

	
“Deed of Adherence” means [redacted].

 

	
  

	
(18)

	
“Dispute” has the meaning set forth in section 17.2.

 

	
  

	
(19)

	
“Dispute Notice” has the meaning set forth in section 17.2.

 

	
  

	
(20)

	
“Earn-in Agreement” has the meaning set forth in section 20.1(3).

 

	
  

	
(21)

	
“Earn-in Date” has the meaning set forth in section 20.1(5).

 

	
  

	
(22)

	
“Encumbrances” means any and all liens, charges, mortgages, hypothecs, encumbrances, pledges, security interests, prior claims, royalties, taxes, proxies and third party rights or any other encumbrances of any nature whatsoever, whether registered or unregistered.

 

	
  

	
(23)

	
“Entrée Default Fee” has the meaning set forth in section 10.3.

 

	
  

	
(24)

	
“Entrée Event of Default” has the meaning set forth in section 10.2.

 

	
  

	
(25)

	
“Entrée Indemnified Person” has the meaning set forth in Article 21.

 

	
  

	
(26)

	
“Entrée Mineral Properties” has the meaning set forth in Introduction A.

 

	
  

	
(27)

	
“Entrée’s Joint Venture Interest” means the participating interest of Entrée in, among other things, the assets of the Joint Venture which is currently operating pursuant to the Joint Venture Conduct and on the basis of the terms and conditions of the Joint Venture Agreement (which participating interest includes an ownership interest in the Property that, as at the Execution Date, is held through Entrée LLC).

 

	
  

	
(28)

	
“Entrée’s Limited Share of Production” has the meaning set forth in section 20.1(8).

 

	
  

	
(29)

	
“Entrée LLC” means Entrée LLC, a limited liability company formed under the Company Law of Mongolia.

 

	
  

	
(30)

	
“Entrée Material Adverse Change” in respect of Entrée or Entrée LLC means any one or more changes, events or occurrences which, in either case, either individually or in the aggregate are material and adverse to Entrée or Entrée LLC, other than any change, effect, event or occurrence:

 

	
  

	
(a)

	
relating to the global economy or securities markets in general;

 

	
  

	
(b)

	
affecting the worldwide Au, Ag or Cu mining industry in general and which does not have a materially disproportionate effect on Entrée or Entrée LLC;

 

 

  

- 4 -

  

 

	
  

	
(c)

	
resulting from changes in the price of Au, Ag or Cu; or

 

	
  

	
(d)

	
relating to the rate at which Canadian dollars can be exchanged for the currency of any other nation, including the United States or vice versa, and references in this Agreement to dollar amounts are not intended to be, and shall not be deemed to be, interpretive of the amount used for the purpose of determining whether an “Entrée Material Adverse Change” has occurred and such defined terms and all other references to materiality in this Agreement shall be interpreted without reference to any such amounts.

 

	
  

	
(31)

	
“Entrée’s Share of Production” means:

 

	
  

	
(a)

	
20% of the Refined Au, Refined Ag and Refined Cu produced from the Hugo North Extension (which Au, Ag and Cu were contained in the Lower Level);

 

	
  

	
(b)

	
30% of the Refined Au, Refined Ag and Refined Cu produced from the Hugo North Extension (which Au, Ag and Cu were contained in the Upper Level);

 

	
  

	
(c)

	
20% of the Refined Au, Refined Ag and Refined Cu produced from the Heruga Deposit (which Au, Ag and Cu were contained in the Lower Level); and

 

	
  

	
(d)

	
30% of the Refined Au, Refined Ag and Refined Cu produced from the Heruga Deposit (which Au, Ag and Cu were contained in the Upper Level).

 

	
  

	
(32)

	
“Excess Sandstorm Payable Metals” has the meaning set forth in section 4.9(4).

 

	
  

	
(33)

	
“Execution Date” means February 14, 2013.

 

	
  

	
(34)

	
“Existing Investment Agreement” means the investment agreement dated as of October 6, 2009 among the Government, Turquoise Hill Resources Ltd. (formerly Ivanhoe Mines Ltd.), OTL and Rio Tinto International Holdings Ltd. with respect to, among other things, OTL’s interest in the Property.

 

	
  

	
(35)

	
“Expert” means an expert appointed under and acting pursuant to section 17.11.

 

	
  

	
(36)

	
“Expropriation Event” means [redacted].

 

	
  

	
(37)

	
“Expropriation Event Abeyance Period” means the 12 month period commencing upon the commencement of a Partial Expropriation Event or a Full Expropriation Event, as the case may be.

 

	
  

	
(38)

	
“Expropriation Event Expiration Date” has the meaning set forth in section 4.9.

 

	
  

	
(39)

	
“Expropriation Percentage Adjustment” has the meaning set forth in section 4.9(3).

 

 

  

- 5 -

  

 

	
  

	
(40)

	
“Extended Expropriation Event Abeyance Period” means the period commencing at the end of the 12 month period that commences upon the commencement of a Partial Expropriation Event or a Full Expropriation Event, as the case may be and that terminates as unilaterally determined by Sandstorm.

 

	
  

	
(41)

	
“Extended Term” has the meaning set forth in section 5.2.

 

	
  

	
(42)

	
“Extension Date” means that date which is the last day of the Expropriation Event Abeyance Period.

 

	
  

	
(43)

	
“Finance Security Interest” means, subject to any existing Permitted Encumbrances and section 24.2, [redacted].

 

	
  

	
(44)

	
“Fixed Price” means:

 

	
  

	
(a)

	
until the Property has produced the Current Resource with respect to Au, US$220 per ounce of Au;

 

	
  

	
(b)

	
until the Property has produced the Current Resource with respect to Ag, US$5 per ounce of Ag;

 

	
  

	
(c)

	
until the Property has produced the Current Resource with respect to Cu, US$0.50 per pound of Cu;

 

	
  

	
(d)

	
after the Property has produced the Current Resource with respect to Au, US$500 per ounce of Au;

 

	
  

	
(e)

	
after the Property has produced the Current Resource with respect to Ag, US$10 per ounce of Ag; and

 

	
  

	
(f)

	
after the Property has produced the Current Resource with respect to Cu, US$1.10 per pound of Cu.

 

Commencing on the Inflation Adjustment Commencement Date for the Initial Fixed Price, the Fixed Price in sections 1.1(44)(a), 1.1(44)(b) and 1.1(44)(c) shall be increased on a yearly basis by the Inflation Adjustment. Commencing on the Inflation Adjustment Commencement Date for the Subsequent Fixed Price, the Fixed Price in sections 1.1(44)(d), 1.1(44)(e) and 1.1(44)(f) shall be increased on a yearly basis by the Inflation Adjustment.

 

	
  

	
(45)

	
“Full Expropriation Event” means [redacted].

 

	
  

	
(46)

	
“Future Agreements” has the meaning set forth in section 6.1.

 

	
  

	
(47)

	
“Future Agreement Offer” has the meaning set forth in section 6.2(1).

 

	
  

	
(48)

	
“Future Agreements Right of First Refusal” has the meaning set forth in section 6.2(1).

 

	
  

	
(49)

	
“Government” means the Government of Mongolia.

 

	
  

	
(50)

	
“Grantee” has the meaning set forth in section 14.5(2).

 

 

  

- 6 -

  

 

	
  

	
(51)

	
“Hedging Arrangement” means any arrangement proposed to be entered into by Entrée or its Affiliates pursuant to which the risk of the future price of Production is sold to a third Person, including as and by way of netting and collateral arrangements under International Swaps and Derivatives Association, Inc. protocols and mandates.

 

	
  

	
(52)

	
“Heruga Deposit” means, for the purposes of this Agreement, the economic mineralization, whether existing as at the Execution Date or discovered during the Term or the Extended Term (as the case may be), on Javhlant Mining Licence 15225A, as identified and depicted in Schedule “B” hereto including, without limitation, the Heruga deposit.

 

	
  

	
(53)

	
“Hugo North Extension” means, for the purposes of this Agreement, the economic mineralization, whether existing as at the Execution Date or discovered during the Term or the Extended Term (as the case may be), on that portion of Shivee Tolgoi Mining Licence 15226A, as identified and depicted in Schedule “C” hereto including, without limitation, the Hugo North Extension deposit.

 

	
  

	
(54)

	
“Inflation Adjustment” means 1% per year.

 

	
  

	
(55)

	
“Inflation Adjustment Commencement Date for the Initial Fixed Price” means the fourth anniversary of the date that Sandstorm has commenced receiving Sandstorm Payable Metals under this Agreement.

 

	
  

	
(56)

	
“Inflation Adjustment Commencement Date for the Subsequent Fixed Price” means the first anniversary of the date upon which the Fixed Price that is paid for Sandstorm Payable Metals is adjusted from the Initial Fixed Price to the Subsequent Fixed Price.

 

	
  

	
(57)

	
“Initial Fixed Price” means those prices set forth in sections 1.1(44)(a), 1.1(44)(b) and 1.1(44)(c) of the definition of Fixed Price.

 

	
  

	
(58)

	
“Insolvency Event” means, in relation to Entrée or Entrée LLC, any one or more of the following events or circumstances:

 

	
  

	
(a)

	
proceedings are commenced for the winding-up, liquidation or dissolution of it, unless it in good faith actively and diligently contests such proceedings within 15 days of the commencement of such proceedings resulting in a dismissal or stay of such proceedings within 30 days;

 

	
  

	
(b)

	
if a Take Over has occurred, and proceedings are commenced for the winding-up, liquidation or dissolution of it, unless it in good faith actively and diligently contests such proceedings within 10 days of the commencement of such proceedings, resulting in a dismissal or stay of such proceedings within 30 days;

 

	
  

	
(c)

	
a decree or order of a court of competent jurisdiction is entered adjudging it to be bankrupt or insolvent, or a petition seeking reorganization, arrangement or adjustment of or in respect of it is approved under applicable laws relating to bankruptcy, insolvency or relief of debtors;

 

 

  

- 7 -

  

 

	
  

	
(d)

	
it makes an assignment for the benefit of its creditors, or petitions or applies to any court or tribunal for the appointment of a receiver or trustee for itself or any substantial part of its property, or commences for itself or acquiesces in or approves or has filed or commenced against it any proceeding under any bankruptcy, insolvency, reorganization, arrangement (other than any reorganization or arrangement that is generally understood not to be consummated within the context of an insolvency) or readjustment of debt law or statute or any proceeding for the appointment of a receiver or trustee for itself or any substantial part of its assets or property, or has a liquidator, administrator, receiver, trustee, conservator or similar Person appointed with respect to it or any substantial portion of its property or assets; or

 

	
  

	
(e)

	
a resolution is passed for the winding-up or liquidation of it.

 

	
  

	
(59)

	
“Investment Agreement” means an agreement that parties carrying on business in Mongolia enter into with the Government, to, among other things, stabilize the taxation and operational environment and cap the royalties and other fees, expenses, levies and costs that such parties must pay to the Government by reason of their carrying on mining operations or any business in Mongolia, including by such parties conceding to the Government ownership of an undivided interest in the applicable interest in a property, the joint venture or the company that carries on the applicable joint venture.

 

	
  

	
(60)

	
“Joint Venture” has the meaning set forth in section 20.1(2).

 

	
  

	
(61)

	
“Joint Venture Agreement” means the joint venture agreement attached to the Earn-In Agreement as Appendix A, any amendments thereto, and any agreement which may supersede or replace such joint venture agreement including without limitation a shareholders’ agreement, a partnership agreement or a members’ agreement.

 

	
  

	
(62)

	
“Joint Venture Conduct” means [redacted].

 

	
  

	
(63)

	
“Joint Venture Confidential Information” has the meaning set forth in section 16.2.

 

	
  

	
(64)

	
[redacted].

 

	
  

	
(65)

	
“LOM Case” means the IDP-10 LOM Case which is contained in the technical report prepared for Entrée with respect to the Lookout Hill Property by AMEC Minproc dated June, 2010.

 

	
  

	
(66)

	
“Losses” means any and all damages, claims, losses, lost profits, liabilities, fines, injuries, costs, penalties and expenses (including reasonable legal fees) and whether present or future, fixed or unascertained, actual or contingent and whether at law, in equity, under statute, contract or otherwise.

 

	
  

	
(67)

	
“Lower Level” means, with respect to Minerals in the Property, those contained 560 metres and below in depth.

 

 

  

- 8 -

  

 

	
  

	
(68)

	
“Market Price” means:

 

	
  

	
(a)

	
for each ounce of Sandstorm Payable Metals that is Au and that is delivered and sold to Sandstorm pursuant to this Agreement, the London p.m. fix for Au as quoted in United States dollars by the London Bullion Market Association (or any successor metals exchange) on the Business Day prior to the date the Sandstorm Payable Metals that is Au is delivered and sold to Sandstorm;

 

	
  

	
(b)

	
for each ounce of Sandstorm Payable Metals that is Ag and that is delivered and sold to Sandstorm pursuant to this Agreement, the London p.m. fix for Ag as quoted in United States dollars by the London Bullion Market Association (or any successor metals exchange) on the Business Day prior to the date the Sandstorm Payable Metals that is Ag is delivered and sold to Sandstorm;

 

	
  

	
(c)

	
for each pound of Sandstorm Payable Metals that is Cu and that is delivered and sold to Sandstorm pursuant to this Agreement, the London p.m. fix for Cu as quoted in United States dollars by the London Metals Exchange (or any successor metals exchange) on the Business Day prior to the date the Sandstorm Payable Metals that is Cu is delivered and sold to Sandstorm.

 

	
  

	
(69)

	
“Minerals” means any and all economic, marketable metal bearing material, in whatever form or state.

 

	
  

	
(70)

	
“Monthly Report” means a written report or reports, in relation to a calendar month, detailing on an Apportioned Basis:

 

	
  

	
(a)

	
the gross number of ounces and pounds of Production, including those ounces and pounds delivered to an Offtaker in the applicable calendar month;

 

	
  

	
(b)

	
the names and addresses of each Offtaker to which the Production referred to in section 1.1(70)(a) was delivered, if the Offtaker is not OTL or an Affiliate of OTL;

 

	
  

	
(c)

	
the gross number of ounces and pounds of Sandstorm Payable Metals which have resulted or which are estimated to result from the Production referred to in section 1.1(70)(a);

 

	
  

	
(d)

	
the gross number of ounces and pounds of Sandstorm Payable Metals which have been delivered to Sandstorm with respect to the Production referred to in section 1.1(70)(a), in accordance with the provisions of Article 9;

 

	
  

	
(e)

	
a reconciliation between any provisional number of ounces and pounds of Sandstorm Payable Metals specified in a Monthly Report pursuant to section 1.1(70)(c) for a preceding calendar month and the final number of ounces and pounds of Sandstorm Payable Metals for the applicable calendar month;

 

	
  

	
(f)

	
a reconciliation between any gross number of ounces and pounds produced by Entrée’s Share of Production specified in a Monthly Report pursuant to section 1.1(70)(c) and the gross number of ounces and pounds delivered to Sandstorm for the applicable calendar month;

 

 

  

- 9 -

  

 

	
  

	
(g)

	
the gross number of ounces and pounds of Production for which Entrée has not yet received payment or compensation as of the applicable calendar month;

 

	
  

	
(h)

	
the amount of the OTL Financed Costs that have been advanced and the OTL Interest Costs that have accrued and the amount of the OTL Financed Costs and the OTL Interest Costs that have been repaid as at the end of the applicable calendar month;

 

	
  

	
(i)

	
any and all information received by Entrée from OTL with respect to the OTL Financed Costs estimated to be advanced during the next succeeding calendar month;

 

	
  

	
(j)

	
any and all information received in the applicable calendar month by Entrée from OTL with respect to the OTL Financing Commitment;

 

	
  

	
(k)

	
any and all information received in the applicable calendar month by Entrée from OTL with respect to distributions in repayment of the OTL Financed Costs and the OTL Interest Costs;

 

	
  

	
(l)

	
the [redacted] in such calendar month and the [redacted];

 

	
  

	
(m)

	
the amount of Sandstorm Accrued Metals and Sandstorm Expropriated Metals as at the end of the applicable calendar month; and

 

	
  

	
(n)

	
any material changes from the previous Monthly Report relating to anticipated quarterly Production for the remainder of the current calendar year.

 

	
  

	
(71)

	
[redacted].

 

	
  

	
(72)

	
“NYSE” means the NYSE MKT LLC.

 

	
  

	
(73)

	
“Offtaker” means the counterparty to an Offtake Agreement which may include, as applicable, the manager of the Joint Venture, appointed pursuant to the Joint Venture Agreement or the Joint Venture Conduct.

 

	
  

	
(74)

	
“Offtake Agreement” means any refining, marketing or processing agreement entered into by the Operator or by Entrée or its Affiliates with respect to Production.

 

	
  

	
(75)

	
“Operator” means the manager of the Property including, as appointed by the Joint Venture pursuant to the Joint Venture Agreement or any successor manager.

 

	
  

	
(76)

	
“OTL” means Oyu Tolgoi LLC, a corporation incorporated pursuant to the laws of Mongolia and as of the Execution Date owned by Turquoise Hill Resources Ltd. and the Government (through Erdenes Oyu Tolgoi LLC) (on a 66%/34% basis).

 

	
  

	
(77)

	
“OTL Financed Costs” has the meaning set forth in section 20.1(7).

 

 

  

- 10 -

  

 

	
  

	
(78)

	
“OTL Financing Commitment” has the meaning set forth in section 20.1(7).

 

	
  

	
(79)

	
“OTL Interest Costs” has the meaning set forth in section 20.1(7).

 

	
  

	
(80)

	
“OTL Repayment Date” means the date upon which OTL is repaid any tranche of the OTL Financed Costs and the OTL Interest Costs.

 

	
  

	
(81)

	
“OTL Share of Entrée’s Share of Production” has the meaning set forth in section 20.1(8).

 

	
  

	
(82)

	
“Partial Expropriation Event means [redacted].

 

	
  

	
(83)

	
“Parties” means Entrée and Sandstorm and “Party” means any one of Entrée or Sandstorm, as the context requires.

 

	
  

	
(84)

	
“Payable Deductions” has the meaning set forth in section 3.4.

 

	
  

	
(85)

	
“Permitted Encumbrances” means the Encumbrances described in Schedule “D”.

 

	
  

	
(86)

	
“Person” means and includes individuals, corporations, bodies corporate, limited or general partnerships, joint stock companies, limited liability corporations, joint ventures, associations, companies, trusts, banks, trust companies, governments or any other type of organization, whether or not a legal entity.

 

	
  

	
(87)

	
“Place of Delivery” has the meaning set forth in section 9.1.

 

	
  

	
(88)

	
“Private Placement” has the meaning set forth in section 2.1.

 

	
  

	
(89)

	
“Production” means Au, Ag and Cu produced from the Property.

 

	
  

	
(90)

	
“Production Payment” means a cash payment, distribution or dividend received by Entrée pursuant to the Joint Venture Agreement on account of Entrée’s Share of Production or Entrée’s Limited Share of Production, as the case may be, net of any deductions or withholdings imposed or levied by applicable law or any government or governmental authority or agency, and all cash payments or distributions subsequently received by Entrée on account of any such deductions or withholdings.

 

	
  

	
(91)

	
“Property” has the meaning set forth in section 20.1(2).

 

	
  

	
(92)

	
“Purchase Price” per ounce or pound, as the case may be, of Sandstorm Payable Metals means:

 

	
  

	
(a)

	
subject to section 1.1(92)(b), the Market Price, [redacted]; and

 

	
  

	
(b)

	
[redacted], the lesser of the Fixed Price and the Market Price, payable in cash.

 

	
  

	
(93)

	
[redacted].

 

	
  

	
(94)

	
“Receiving Party” has the meaning set forth in section 23.2.

 

 

  

- 11 -

  

 

	
  

	
(95)

	
“Refined Ag” means the Ag portion of marketable metal bearing material in the form of Ag that meets the specifications for Good Delivery Silver Bars under the Good Delivery Rules as published by the London Bullion Market Association from time to time, being at the Execution Date, among other things, a purity of at least 99.9%.

 

	
  

	
(96)

	
“Refined Au” means the Au portion of marketable metal bearing material in the form of Au that meets the specifications for Good Delivery Gold Bars under the Good Delivery Rules as published by the London Bullion Market Association from time to time, being at the Execution Date, among other things, a purity of at least 99.5%.

 

	
  

	
(97)

	
“Refined Cu” means the Cu portion of marketable metal bearing material in the form of Cu that is refined to standards meeting or exceeding commercial standards for the sale of refined Cu, that meets the specifications for Grade A Copper as published by the London Metals Exchange from time to time being at the Execution Date, among other things, a purity of at least 99.9935%.

 

	
  

	
(98)

	
“Refined Metals” means Refined Au, Refined Ag and Refined Cu and “Refined Metal” means any one of Refined Au, Refined Ag or Refined Cu, as the context requires.

 

	
  

	
(99)

	
“Refundable Deposit” means the sum of US$40.0 million.

 

	
  

	
(100)

	
“Refundable Deposit Funding Conditions” means the following conditions which are solely for the benefit of Sandstorm and may be waived by Sandstorm as contemplated in section 4.1:

 

	
  

	
(a)

	
Entrée shall have provided Sandstorm with a certified copy of the executed Earn-In Agreement, which shall be acceptable to Sandstorm, acting reasonably;

 

	
  

	
(b)

	
Entrée shall have provided Sandstorm with a duly executed officer’s certificate (signed by a senior officer) which shall set forth all amounts that OTL has funded pursuant to the Earn-In Agreement and shall set forth all amounts from and after the Earn-In Date, that OTL has advanced by way of OTL Financed Costs, broken down to indicate the then outstanding advanced amount of the OTL Financed Costs and the OTL Interest Costs, which officer’s certificate and the contents thereof shall be acceptable to Sandstorm, acting reasonably;

 

	
  

	
(c)

	
Sandstorm shall have received a legal opinion, acceptable to Sandstorm, acting reasonably, subject to reasonable qualifications, as to:

 

	
  

	
(i)

	
[redacted];

 

	
  

	
(ii)

	
the ability of Entrée to sell Sandstorm Payable Metals as contemplated by this Agreement during the Term and the Extended Term;

 

	
  

	
(iii)

	
the enforceability of the Finance Security Interest, subject to any existing Permitted Encumbrances and section 24.2, the first priority of the Finance Security Interest and the creation and perfection of the Finance Security Interest under applicable law; and

 

 

  

- 12 -

  

 

	
  

	
(iv)

	
Entrée having received all required regulatory, legal and third party approvals and consents required to be acquired by Entrée in order to execute, deliver and perform its obligations under this Agreement and the Finance Security Interest;

 

	
  

	
(d)

	
Sandstorm shall have received a duly executed copy of the Finance Security Interest and proof that the Finance Security Interest has been duly registered as a first priority Encumbrance pursuant to applicable law in the Province of British Columbia, acceptable to Sandstorm, acting reasonably;

 

	
  

	
(e)

	
the representations and warranties of Entrée contained in Articles 19 and 20 shall be true and correct, in all material respects, at the time of the payment of the Refundable Deposit and Sandstorm shall have received a certificate from a duly authorized senior officer of Entrée to such effect;

 

	
  

	
(f)

	
Sandstorm shall, acting reasonably, be satisfied that Entrée shall not have suffered an Entrée Material Adverse Change between the Execution Date and the Refundable Deposit Funding Date;

 

	
  

	
(g)

	
[redacted];

 

	
  

	
(h)

	
[redacted];

 

	
  

	
(i)

	
[redacted];

 

	
  

	
(j)

	
Entrée shall have complied in all material respects with the terms of this Agreement and Sandstorm shall have received a certificate from a duly authorized senior officer of Entrée to such effect;

 

	
  

	
(k)

	
Sandstorm shall have received all requisite regulatory approvals and third party consents to the execution and delivery of this Agreement and the consummation of the transactions contemplated in this Agreement; and

 

	
  

	
(l)

	
Entrée shall have received all requisite regulatory approvals and third party consents to the execution and delivery of this Agreement and the Finance Security Interest and the consummation of the transactions contemplated in this Agreement and the Finance Security Interest, including the consent of the TSX and the NYSE.

 

	
  

	
(101)

	
“Refundable Deposit Funding Date” means the date that is three Business Days after the last of the Refundable Deposit Funding Conditions has been satisfied or waived by Sandstorm as long as such date is on or before the Refundable Deposit Funding Date Deadline.

 

	
  

	
(102)

	
“Refundable Deposit Funding Date Deadline” means February 28, 2013.

 

	
  

	
(103)

	
“Refunded Deposit” has the meaning set forth in section 4.8.

 

 

  

- 13 -

  

 

	
  

	
(104)

	
“Rules” has the meaning set forth in section 17.4(2).

 

	
  

	
(105)

	
“Sandstorm Accrued Metals” means that portion of the Sandstorm Payable Metals which Sandstorm is entitled to purchase in a particular month that cannot be delivered to Sandstorm due to the fact that OTL shall retain a portion of the relevant Production Payment on account of the OTL Share of Entrée’s Share of Production, which Sandstorm Payable Metals shall therefore accrue pro rata (i.e. based on the various percentages of the Refined Au, Refined Ag and Refined Cu to be purchased by Sandstorm as set forth in the definition of Sandstorm Payable Metals) for the benefit of Sandstorm.

 

	
  

	
(106)

	
“Sandstorm Audit” has the meaning set forth in section 7.4.

 

	
  

	
(107)

	
“Sandstorm Audit Report” has the meaning set forth in section 7.4.

 

	
  

	
(108)

	
“Sandstorm Expropriated Metals” means all or part (as the case may be) of the amount of Sandstorm Payable Metals which Sandstorm is entitled to purchase in a particular month and that amount of Sandstorm Accrued Metals which Sandstorm is entitled to purchase in the same month, that cannot be delivered by Entrée as a result of an Expropriation Event (whether a Full Expropriation Event or a Partial Expropriation Event) and which shall therefore accrue for the benefit of Sandstorm.

 

	
  

	
(109)

	
“Sandstorm Indemnified Person” has the meaning set forth in Article 22.

 

	
  

	
(110)

	
“Sandstorm Material Adverse Effect” in respect of Sandstorm means any one or more changes, events or circumstances, which, in each case, either individually or in the aggregate, are, or would reasonably be expected to be, material and adverse to expected future amounts of Sandstorm Payable Metals to be delivered to and purchased by Sandstorm pursuant to this Agreement, to payments due and owing to Sandstorm under this Agreement, or to the business, operations, assets, liabilities, financial condition or continued ownership of the assets of Sandstorm, taken as a whole, other than any change, effect, event or occurrence:

 

	
  

	
(a)

	
relating to the global economy or securities markets in general;

 

	
  

	
(b)

	
(save and except for a Full Expropriation Event), affecting the worldwide Au or Ag mining industry in general, which does not have a materially disproportionate effect on Sandstorm;

 

	
  

	
(c)

	
resulting from changes in the price of Au, Ag or Cu; or

 

	
  

	
(d)

	
relating to the rate at which Canadian dollars can be exchanged for the currency of any other nation, including the United States or vice versa, and references in this Agreement to dollar amounts are not intended to be, and shall not be deemed to be, interpretive of the amount used for the purpose of determining whether a “Sandstorm Material Adverse Effect” has occurred and such defined terms and all other references to materiality in this Agreement shall be interpreted without reference to any such amounts.

 

 

  

- 14 -

  

 

	
  

	
(111)

	
“Sandstorm Payable Metals” means Refined Metals in an amount equal to:

 

	
  

	
(a)

	
6.77% of the Refined Au and Refined Ag which comprise part of Production produced from the Hugo North Extension (which Au and Ag were contained in the Lower Level);

 

	
  

	
(b)

	
10.15% of the Refined Au and Refined Ag which comprise part of Production produced from the Hugo North Extension (which Au and Ag were contained in the Upper Level);

 

	
  

	
(c)

	
5.13% of the Refined Au and Refined Ag which comprise part of Production produced from the Heruga Deposit (which Au and Ag were contained in the Lower Level);

 

	
  

	
(d)

	
7.7% of the Refined Au and Refined Ag which comprise part of Production produced from the Heruga Deposit (which Au and Ag were contained in the Upper Level);

 

	
  

	
(e)

	
0.50% of the Refined Cu which comprises part of Production produced from the Hugo North Extension (which Cu was contained in the Lower Level);

 

	
  

	
(f)

	
0.75% of the Refined Cu which comprises part of Production produced from the Hugo North Extension (which Cu was contained in the Upper Level);

 

	
  

	
(g)

	
0.50% of the Refined Cu which comprises part of Production produced from the Heruga Deposit (which Au and Ag were contained in the Lower Level); and

 

	
  

	
(h)

	
0.75% of the Refined Cu which comprises part of Production produced from the Heruga Deposit (which Au and Ag were contained in the Upper Level).

 

The foregoing amounts shall be subject to adjustment upon the occurrence of a Partial Expropriation Event as provided in section 4.9.  [redacted].

 

	
  

	
(112)

	
“Selling Party” has the meaning set forth in section 6.1.

 

	
  

	
(113)

	
“Shares” means fully paid common shares without par value in the capital of Entrée.

 

	
  

	
(114)

	
“Share Price” means the VWAP for the 10 Trading Days immediately preceding the Execution Date.

 

	
  

	
(115)

	
“Subscription Agreement” means a subscription agreement between Entrée and Sandstorm in the form set forth in Schedule “A” to this Agreement.

 

	
  

	
(116)

	
“Subscription Date” means that date which is the later of (i) the 10th Business Day after the Execution Date; or (ii) the Refundable Deposit Funding Date.

 

	
  

	
(117)

	
“Subsequent Fixed Price” means those fixed prices set forth in sections 1.1(44)(d), 1.1(44)(e) and 1.1(44)(f) of the definition of Fixed Price.

 

 

  

- 15 -

  

 

	
  

	
(118)

	
“Take Over” means a transaction with respect to Entrée or its successor which results in the beneficial owners of the shares and other securities of Entrée or its successor immediately prior to such transaction, ceasing to beneficially own, directly or indirectly, more than 50% of the voting rights (on a fully-diluted basis) of Entrée or its successor, and for greater certainty includes any transaction in which persons who are not the beneficial owners of shares or other securities of Entrée or its successor carrying more than 50% of the voting rights (on a fully diluted basis) prior to such transaction, becoming the beneficial owners of shares or other securities of Entrée or its successor, carrying more than 50% of the voting rights (on a fully diluted basis) after the transaction.

 

	
  

	
(119)

	
“Term” has the meaning set forth in section 5.1.

 

	
  

	
(120)

	
“Termination Notice” has the meaning set forth in section 5.2.

 

	
  

	
(121)

	
“Third Party Offer” has the meaning set forth in section 6.2.

 

	
  

	
(122)

	
“Time of Delivery” has the meaning set forth in section 9.4.

 

	
  

	
(123)

	
“Trading Day” means a day on which the Shares are able to be traded on TSX.

 

	
  

	
(124)

	
“Transfer” when used as a verb, means to sell, grant, assign, encumber, hypothecate, pledge or otherwise dispose of or commit to dispose of, directly or indirectly, including through mergers, arrangements, amalgamations, consolidations, asset sales or spin-out transactions.  When used as a noun, “Transfer” means a sale, grant, assignment, pledge or disposal or the commitment to do any of the foregoing, directly or indirectly, including through mergers, arrangements, amalgamations, consolidations, asset sales or spin-out transactions.

 

	
  

	
(125)

	
“Transfer Conditions” has the meaning set forth in section 14.1.

 

	
  

	
(126)

	
“TSX” means the Toronto Stock Exchange.

 

	
  

	
(127)

	
“Unearned Balance” means [redacted].

 

	
  

	
(128)

	
[redacted].

 

	
  

	
(129)

	
[redacted].

 

	
  

	
(130)

	
“Upper Level” means, with respect to Minerals in the Property, those contained above 560 metres in depth.

 

	
  

	
(131)

	
“VWAP” means the weighted average trading price of the Shares on the TSX over a relevant period, calculated by dividing the total value of all Shares traded on the TSX during the relevant period by the total number of Shares traded in that period.

 

	
1.2

	
Unless the context otherwise expressly requires, in this Agreement:

 

	
  

	
(1)

	
the singular includes the plural and conversely and a gender includes all genders;

 

 

  

- 16 -

  

 

	
  

	
(2)

	
if a word or phrase is defined, its other grammatical forms have a corresponding meaning;

 

	
  

	
(3)

	
a reference to an Article, section or schedule is a reference to an Article or section of or a schedule to this Agreement;

 

	
  

	
(4)

	
a reference to any party (including a Party) includes that party’s substitutes, successors and permitted assigns;

 

	
  

	
(5)

	
a reference to an agreement or document (including a reference to this Agreement) is to the agreement or document as amended, varied, supplemented, novated or replaced except to the extent prohibited by this Agreement or that other agreement or document;

 

	
  

	
(6)

	
a reference to legislation or to a provision of legislation includes a modification or re-enactment of it, a legislative provision substituted for it and a regulation, code, by-law, ordinance or statutory instrument issued under it;

 

	
  

	
(7)

	
a reference to “US$” or “USD” is to the currency of the United States of America;

 

	
  

	
(8)

	
a reference to “C$” or “CAD” is to the currency of Canada;

 

	
  

	
(9)

	
a reference to writing includes a facsimile or electronic mail transmission and any means of reproducing words in a tangible and permanently visible form;

 

	
  

	
(10)

	
the word “including” means “including without limitation” and “include” and, “includes” will be construed similarly;

 

	
  

	
(11)

	
headings and any table of contents or index are for convenience only and do not form part of this Agreement or affect its interpretation;

 

	
  

	
(12)

	
a provision of this Agreement shall not be construed to the disadvantage of a Party merely because that Party was responsible for the preparation of this Agreement or the inclusion of the provision in this Agreement; and

 

	
  

	
(13)

	
if an act is prescribed to be done on a specified day which is not a Business Day, it must be done instead on the next Business Day.

 

	
1.3

	
The following schedules are attached to and incorporated in this Agreement:

 

	
  

	
(1)

	
Schedule “A” – Subscription Agreement;

 

	
  

	
(2)

	
Schedule “B” – Heruga Deposit;

 

	
  

	
(3)

	
Schedule “C” – Hugo North Extension; and

 

	
  

	
(4)

	
Schedule “D” – Permitted Encumbrances.

 

	
2.

	
EQUITY INVESTMENT AND RELATED OBLIGATIONS

 

	
2.1

	
On the Subscription Date and pursuant to the Subscription Agreement, Sandstorm shall subscribe for and purchase, and Entrée shall issue and sell C$10.0 million worth of Shares (the “Private Placement”) at the Share Price.

 

 

  

- 17 -

  

 

	
2.2

	
Each Party shall execute and deliver the Subscription Agreement in respect of the Private Placement concurrently with the execution of this Agreement on the Execution Date.

 

	
2.3

	
Subject to section 2.5, Sandstorm covenants and agrees that, for as long as it holds Shares during the Term or any Extended Term,  Sandstorm shall:

 

	
  

	
(1)

	
vote its Shares as the board of directors of Entrée specifies with respect to any proposed Take Over, provided that if Entrée specifies that Sandstorm vote its Shares in support of any proposed Take Over, Sandstorm shall only be required to do so if, prior to or concurrently with any vote by the holders of Shares to approve the proposed Take Over, the Person or Persons who are to acquire control of Entrée upon completion of the Take Over irrevocably agree with Sandstorm in writing (in form and substance satisfactory to Sandstorm) to execute and deliver a Deed of Adherence to Sandstorm on or before the completion of the Take Over;

 

	
  

	
(2)

	
not, without the prior consent of the board of directors of Entrée, dispose of, agree to dispose of or tender its Shares in connection with any proposed Take Over; and

 

	
  

	
(3)

	
not, without the prior consent of the board of directors of Entrée, engage in any discussions or negotiations, or enter into any agreement, commitment or understanding, or otherwise act jointly or in concert, with any third party in order to propose or effect any:

 

	
  

	
(a)

	
Take Over, or

 

	
  

	
(b)

	
acquisition or disposition of all or substantially all of Entrée’s assets.

 

[redacted].

 

	
2.4

	
During the period commencing on the Subscription Date and ending on the four-month anniversary of the Subscription Date, Sandstorm shall not Transfer any of the Shares.

 

	
2.5

	
Section 2.3 shall cease to apply if an Entrée Event of Default has occurred and all relevant notice and cure periods contained in this Agreement in respect of that Entrée Event of Default have expired without the Entrée Event of Default having been remedied.

 

	
3.

	
AGREEMENT OF PURCHASE AND SALE

 

	
3.1

	
Subject to the terms and conditions of this Agreement, from and after the date that Sandstorm has delivered the Refundable Deposit to Entrée, in consideration of the Purchase Price, Entrée shall sell to Sandstorm and Sandstorm shall purchase from Entrée the Sandstorm Payable Metals, which shall be clear of all Encumbrances once sold to Sandstorm. The obligations of Entrée under this Agreement shall be to deliver and sell the Sandstorm Payable Metals in a manner consistent with the terms of this Agreement.

 

	
3.2

	
Unless the Parties otherwise agree in writing, Entrée shall not sell Production to Sandstorm.

 

 

  

- 18 -

  

 

	
3.3

	
It is understood and agreed as follows:

 

	
  

	
(1)

	
while OTL is receiving the OTL Share of Entrée’s Share of Production, in each month of the Term and the Extended Term, as the case may be, if the Production Payment that was received by Entrée for that month together with the payment for Sandstorm Payable Metals that was received by Entrée for the preceding month is insufficient to purchase and deliver the Sandstorm Payable Metals to be delivered to Sandstorm in that month, then the amount of the Sandstorm Payable Metals to be delivered by Entrée to Sandstorm for that month shall be limited to the maximum amount of Sandstorm Payable Metals that Entrée can deliver to Sandstorm having regard to the Production Payment and the payment for Sandstorm Payable Metals received by Entrée in the preceding month and any remaining amount of Sandstorm Payable Metals, not so delivered to Sandstorm for that month, shall accrue and shall constitute Sandstorm Accrued Metals; and

 

	
  

	
(2)

	
as at and from any OTL Repayment Date, in each month of the Term and the Extended Term, as the case may be, Sandstorm shall purchase, in addition to the Sandstorm Payable Metals, the Sandstorm Accrued Metals; however, in each month the aggregate of the Sandstorm Payable Metals, the Sandstorm Accrued Metals and the Sandstorm Expropriated Metals required to be delivered by Entrée shall not, unless Entrée agrees otherwise, exceed the maximum amount of Refined Metals that Entrée can deliver having regard to the Production Payment that was received by Entrée for that month and the payment for Sandstorm Payable Metals received by Entrée in the month preceding such month. Sandstorm shall continue to additionally purchase Sandstorm Accrued Metals until such time as the balance of the Sandstorm Accrued Metals shall be zero.  Sandstorm shall also, if applicable, purchase Sandstorm Expropriated Metals as contemplated by section 4.6.

 

	
3.4

	
For the avoidance of doubt and notwithstanding any other provision of this Agreement to the contrary, Sandstorm Payable Metals shall not include any ounces or pounds of Au, Ag or Cu, respectively, delivered to an Offtaker in respect of which Entrée does not receive payment as a result of metallurgical recovery rates of less than 100% or other payable metal (but not cash) deductions (the “Payable Deductions”) applied by an Offtaker pursuant to the terms of the applicable Offtake Agreement.

 

	
4.

	
REFUNDABLE DEPOSIT AND RELATED MATTERS

 

	
4.1

	
If the Refundable Deposit Funding Conditions are satisfied or waived by Sandstorm before the Refundable Deposit Funding Date Deadline, Sandstorm shall pay the Refundable Deposit to Entrée in cash by wire transfer on the Refundable Deposit Funding Date.

 

	
4.2

	
If, by the expiry or earlier termination of the Term or the Extended Term, if applicable, Entrée has not sold and delivered Sandstorm Payable Metals to Sandstorm in a sufficient quantity so as to [redacted].

 

	
4.3

	
Within 90 days of the end of each fiscal year of Entrée, Entrée shall prepare a detailed statement setting out the calculations of the Unearned Balance on an annual basis [redacted].  The annual [redacted] may be included in the applicable Annual Report. Entrée shall also prepare a final [redacted] within 90 days of the expiry or earlier termination of the Term or the Extended Term, if applicable.  Each successive [redacted] shall include the aggregate information from previous [redacted] including disputes settled in accordance with Article 17.  Sandstorm shall have 90 days from the date of delivery of each [redacted] to dispute by written notice the accuracy of an item therein.  If Sandstorm and Entrée are unable to resolve any dispute, then Sandstorm and Entrée shall have 90 days (or such greater period of time as Sandstorm and Entrée may mutually agree) from the date the dispute notice is delivered by Sandstorm to resolve the dispute, and failing such resolution, the dispute shall be resolved in accordance with Article 17.  If Sandstorm has not disputed the accuracy of an item in an [redacted] within 90 days after the delivery thereof, then Sandstorm will be deemed to have agreed with [redacted].

 

 

  

- 19 -

  

 

	
4.4

	
[redacted].

 

	
4.5

	
[redacted].

 

During the Expropriation Event Abeyance Period [redacted] and to the extent the Property is still producing Production, Sandstorm Payable Metals shall not be revised in any manner and Sandstorm Payable Metals and, if applicable, Sandstorm Accrued Metals shall continue to be delivered by Entrée to Sandstorm in accordance with this Agreement unless during such Expropriation Event Abeyance Period [redacted] in any month, Entrée is receiving Production Payments in an amount that together with the payment for Sandstorm Payable Metals is insufficient to purchase and deliver the Sandstorm Payable Metals and if applicable, the Sandstorm Accrued Metals and, in such event, in any such month, Entrée shall deliver to Sandstorm the maximum amount of Sandstorm Payable Metals and, if applicable, Sandstorm Accrued Metals that can be delivered by Entrée based on the Production Payment in that month and the payment for Sandstorm Payable Metals that are received by Entrée in the preceding month.  Any amounts of Sandstorm Payable Metals or Sandstorm Accrued Metals that cannot be delivered by Entrée as contemplated by this section shall constitute Sandstorm Expropriated Metals.

 

	
4.6

	
Subject to section 4.9, commencing on:

 

	
  

	
(1)

	
the date upon which the applicable Expropriation Event terminates or abates; or

 

	
  

	
(2)

	
the date upon which Sandstorm has amended the Sandstorm Payable Metals pursuant to section 4.9 (with respect to a Partial Expropriation Event, after the end of the term of the Expropriation Event Abeyance Period or Extended Expropriation Event Abeyance Period),

 

in each month of the Term and the Extended Term, as the case may be, Sandstorm shall purchase, in addition to the Sandstorm Payable Metals (and if applicable, the Sandstorm Accrued Metals), the Sandstorm Expropriated Metals.  Sandstorm shall continue to additionally purchase Sandstorm Expropriated Metals from Entrée until such time as the balance of the Sandstorm Expropriated Metals shall be zero.  However, notwithstanding the foregoing, in each month the aggregate of the Sandstorm Payable Metals, the Sandstorm Accrued Metals and the Sandstorm Expropriated Metals required to be delivered by Entrée shall not, unless Entrée agrees otherwise, exceed the maximum amount of Refined Metals that Entrée can deliver having regard to the Production Payment received by Entrée for that month and the payment for Sandstorm Payable Metals received by Entrée for the preceding month.

 

 

  

- 20 -

  

 

	
4.7

	
Sandstorm shall have the unilateral right to extend the term of the Expropriation Event Abeyance Period with respect to both a Full Expropriation Event and a Partial Expropriation Event (which unilateral right shall be deemed to have been exercised by Sandstorm without any further or other act by Sandstorm, unless Sandstorm shall provide written notice to Entrée that the Expropriation Event Abeyance Period has terminated), until such time as Sandstorm unilaterally elects to terminate such extended term (i.e. the Extended Expropriation Event Abeyance Period) by written notice of such termination given to Entrée.  If the term of the Expropriation Event Abeyance Period shall be so extended, then:

 

	
  

	
(1)

	
in the case of a Full Expropriation Event, from and after the Extension Date and during the Extended Expropriation Event Abeyance Period, Sandstorm Payable Metals and, if applicable, Sandstorm Accrued Metals and Sandstorm Expropriated Metals shall no longer continue to accrue in accordance with this Agreement;

 

	
  

	
(2)

	
in the case where the Extended Expropriation Event Abeyance Period relates to a Partial Expropriation Event, on the Extension Date the Expropriation Percentage Adjustment shall be made in accordance with section 4.9(3) (without, at that time, the requirement for Entrée to refund a portion of the Refundable Deposit in accordance with section 4.9(1)) and such adjustment shall apply during the Extended Expropriation Event Abeyance Period notwithstanding the fact that the Expropriation Event Expiration Date has not transpired;

 

	
  

	
(3)

	
subject to section 4.7(2) and from the Extension Date until the date that the Extended Expropriation Event Abeyance Period is at an end, sections 4.9, 4.10, and 10.2(7) shall not be operative or applicable;

 

	
  

	
(4)

	
in the case of a Partial Expropriation Event, if at any time after the Expropriation Event Expiration Date, and after the application of the Expropriation Percentage Adjustment in section 4.9, an event shall occur such that Entrée’s share of Production from the Property shall increase and be readjusted, then Sandstorm shall further adjust or readjust, as the case may be, the Sandstorm Payable Metals to be delivered by Entrée on or after the date of such event by an amount determined by the application of the following formula: Entrée’s newly increased or readjusted share of Production from the Property divided by Entrée’s then current share of Production from the Property, as determined in accordance with section 4.9, multiplied by the numbers set forth in each of sections 1.1(111)(a) through 1.1(111)(h) in the definition of Sandstorm Payable Metals; and

 

	
  

	
(5)

	
in the case of a Partial Expropriation Event, if at any time after the Expropriation Event Expiration Date, Entrée shall receive cash or other readily measurable consideration as compensation for damages or losses suffered as a result of the Partial Expropriation Event, then forthwith upon receipt of such cash or other readily measurable consideration, Entrée shall pay to Sandstorm in cash without set off, deduction or defalcation an amount equal to the cash or other readily measurable consideration that Entrée has received, multiplied by the Sandstorm Payable Metals that Sandstorm would have received had the Partial Expropriation Event not occurred, divided by the amount of Entrée’s Share of Production that Entrée would have received had the Partial Expropriation Event not occurred, less the Purchase Price Entrée would have received for such Sandstorm Payable Metals.

 

 

  

- 21 -

  

 

	
4.8

	
If sections 4.7(4) or 4.7(5) apply and a portion of the Refundable Deposit has been refunded by Entrée pursuant to section 4.9(1) (the “Refunded Deposit”) then:

 

	
  

	
(1)

	
in the case where section 4.7(4) applies and the Partial Expropriation Event is overturned or unwound in its entirety, then the Refunded Deposit shall be credited in the manner set out in section 4.9(4)(b) (excluding section 4.9(4)(b)(i)) as if a reference to Excess Sandstorm Payable Metals was a reference to the Refunded Deposit;

 

	
  

	
(2)

	
in the case where section 4.7(4) applies and the Partial Expropriation Event is partially overturned or unwound, then a proportionate amount of the Refunded Deposit shall be credited in the manner set out in section 4.9(4)(b) (excluding section 4.9(4)(b)(i)) as if a reference to Excess Sandstorm Payable Metals was a reference to the Refunded Deposit;

 

	
  

	
(3)

	
in the case where section 4.7(5) applies, then all or a proportionate amount (as the case may be) of the Refunded Deposit shall be credited in the manner set out in section 4.9(4)(b) (excluding section 4.9(4)(b)(i)) as if a reference to Excess Sandstorm Payable Metals was a reference to the Refunded Deposit.

 

	
4.9

	
In the case of a Partial Expropriation Event, if, at the end of the Expropriation Event Abeyance Period or the Extended Expropriation Event Abeyance Period (the “Expropriation Event Expiration Date”), the Partial Expropriation Event shall remain in effect, then:

 

	
  

	
(1)

	
if an Unearned Balance exists as at the Expropriation Event Expiration Date, within 10 Business Days, Entrée shall, upon receipt of written notice from Sandstorm to do so, refund a portion of the Refundable Deposit in cash to Sandstorm equal to the Refundable Deposit multiplied by one minus the Expropriation Percentage Adjustment, up to a maximum amount that is the then Unearned Balance;

 

	
  

	
(2)

	
if Entrée shall not make such refund to Sandstorm within the 10 Business Days referred to in section 4.9(1), then Entrée shall be deemed to be in default of this Agreement pursuant to Article 10 and the provisions of Article 10, including as to the payment of the Entrée Default Fee, shall be applicable;

 

	
  

	
(3)

	
if an Unearned Balance exists as at the Expropriation Event Expiration Date, after Sandstorm shall have received the partial refund of the Refundable Deposit set forth in section 4.9(1) and in any other case upon the Expropriation Event Expiration Date, Sandstorm shall adjust or readjust (as the case may be) the Sandstorm Payable Metals by an amount determined by the application of the following formula: Entrée’s effective new share of Production from the Property divided by Entrée’s Share of Production from the Property (the “Expropriation Percentage Adjustment”) multiplied by the numbers set forth in each of sections 1.1(111)(a) through 1.1(111)(h) in the definition of Sandstorm Payable Metals.  For further clarification and the avoidance of doubt, it is intended that this equation shall result in the amount of the Sandstorm Payable Metals being adjusted by the same percentage that Entrée’s effective share of Production from the Property has been adjusted by the Partial Expropriation Event. The new percentages derived as a result of the calculation of the Expropriation Percentage Adjustment set forth in this section shall be effective retroactively from the beginning of the Expropriation Event Abeyance Period.  A Partial Expropriation Event shall not adjust the amount of Sandstorm Accrued Metals to be delivered to Sandstorm; and

 

 

  

- 22 -

  

 

	
  

	
(4)

	
if as a result of the Expropriation Percentage Adjustment Entrée determines that during the term of the Expropriation Event Abeyance Period it has delivered to Sandstorm an amount of Sandstorm Payable Metals greater than the amount of Sandstorm Payable Metals Entrée would have delivered to Sandstorm had the Expropriation Percentage Adjustment taken effect at the commencement of the Expropriation Event Abeyance Period (the “Excess Sandstorm Payable Metals”) then:

 

	
  

	
(a)

	
Entrée shall promptly give notice in writing to Sandstorm which notice shall detail the amount of the Excess Sandstorm Payable Metals claimed and how that amount has been calculated; and

 

	
  

	
(b)

	
unless Sandstorm, in accordance with Article 17, disputes all or a portion of the amount of the Excess Sandstorm Payable Metals specified in the notice given by Entrée under section 4.9(4)(a), the Excess Sandstorm Payable Metals or the portion of the Excess Sandstorm Payable Metals not in dispute (as the case may be) shall be credited as follows:

 

	
  

	
(i)

	
firstly, set off against the refund set forth in section 4.9(1);

 

	
  

	
(ii)

	
secondly, against the amount (if any) of Sandstorm Accrued Metals then outstanding;

 

	
  

	
(iii)

	
thirdly, against the amount (if any) of Sandstorm Expropriated Metals then outstanding; and

 

	
  

	
(iv)

	
thereafter, against future deliveries of Sandstorm Payable Metals to be made by Entrée to Sandstorm under this Agreement.

 

	
4.10

	
If, at the end of an Expropriation Event Abeyance Period or the Extended Expropriation Event Abeyance Period (as the case may be), a Full Expropriation Event shall remain in existence, then Entrée shall be deemed to be in default of this Agreement pursuant to section 10.2(7) and the provisions of Article 10, including as to the payment of the Entrée Default Fee, shall be applicable.

 

	
5.

	
TERM

 

	
5.1

	
The term of this Agreement shall commence on the Execution Date and subject to section 5.2 and Articles 8 and 10, shall continue until the date that is 50 years after the Execution Date (the “Term”).

 

	
5.2

	
Sandstorm may terminate this Agreement at the end of the Term by providing to Entrée, not less than 90 days prior to the expiry of the Term, written notice of its intention to terminate (a “Termination Notice”).  If Sandstorm has not delivered a Termination Notice within 90 days prior to the expiry of the Term, then this Agreement shall continue in force for successive ten year periods (each, an “Extended Term”) until the date upon which the Extended Term is terminated in accordance with section 5.3. Any extension under this section 5.2 will be on the terms and conditions of this Agreement.

 

 

  

- 23 -

  

 

	
5.3

	
Sandstorm may terminate an Extended Term by providing to Entrée prior to the end of such Extended Term, written notice of its intention to terminate the Extended Term, which termination shall be effective immediately upon receipt of such notice of termination.

 

	
5.4

	
Subject to this Agreement, the termination of this Agreement pursuant to section 5.2 or section 5.3 (as the case may be) does not derogate from, affect or prejudice:

 

	
  

	
(1)

	
any rights of the Parties that have accrued prior to the date of termination; and

 

	
  

	
(2)

	
the rights and obligations of the Parties under any Article or section of this Agreement which, expressly or by implication, is intended to continue after the date of termination.

 

	
6.

	
COVENANTS OF ENTRÉE

 

Entrée covenants and agrees to and in favour of Sandstorm as follows and acknowledges and agrees that Sandstorm is relying on such covenants in executing and delivering this Agreement:

 

	
6.1

	
During the Term and the Extended Term, as the case may be, Entrée and its Affiliates (each a “Selling Party”) shall not enter into any future Mineral stream agreements, royalty agreements or other agreements that are similar to either a Mineral stream agreement or a royalty agreement (excluding Hedging Arrangements) in respect of Entrée’s Share of Production from the Property (the “Future Agreements”) unless:

 

	
  

	
(1)

	
the Selling Party has complied with the Future Agreements Right of First Refusal as provided in section 6.2;

 

	
  

	
(2)

	
[redacted]; and

 

	
  

	
(3)

	
[redacted].

 

	
6.2

	
During the Term and the Extended Term, as the case may be, if at any time a Selling Party intends to accept an offer from a proposed purchaser with respect to a Future Agreement (the “Third Party Offer”), then the following provisions shall apply:

 

	
  

	
(1)

	
the Selling Party shall forthwith forward a copy of the Third Party Offer to Sandstorm and shall send a written offer to Sandstorm to enter into a Future Agreement on the same terms and conditions (subject to section 6.2(2)) as the Third Party Offer (the “Future Agreement Offer”). Sandstorm shall have the right, by notice to the Selling Party within 16 Business Days after receipt of such Future Agreement Offer or, if applicable, the determination of the cash equivalent of the non-cash consideration (which forms part of the Future Agreement Offer) in accordance with section 6.2(3), whichever is the later, to elect to accept the Future Agreement Offer (the “Future Agreements Right of First Refusal). The Selling Party shall deliver to Sandstorm at the time of delivery of the Future Agreement Offer, the same confidential information that was provided to the proposed purchaser to the extent that such confidential information has not already been provided to Sandstorm in any Annual Report or Monthly Report.  Additionally, it is understood and agreed that during such 16 Business Day period, Sandstorm may request from the Selling Party further confidential information that directly pertains to the subject matter of the Future Agreement Offer. Any such confidential information shall constitute Confidential Information for the purposes of Article 16;

 

 

  

- 24 -

  

 

	
  

	
(2)

	
the price payable or other consideration under any proposed Future Agreement Offer shall be expressed in U.S. dollars. If the terms and conditions of a Third Party Offer provides for any consideration to be payable to the Selling Party other than in cash, then the Future Agreement Offer shall include the Selling Party’s reasonable estimate of the cash equivalent of the non-cash consideration;

 

	
  

	
(3)

	
within five Business Days after receipt of a Future Agreement Offer, Sandstorm may object in writing to the Selling Party’s estimate of the cash value of the non-cash consideration set out in the Future Agreement Offer and upon such an objection being made, the Selling Party and Sandstorm shall seek to agree upon that cash value but if they cannot reach agreement within five Business Days after the date of objection, then that cash value will constitute a Dispute to be resolved in accordance with Article 17 (the cost of which determination shall be borne, if the cash value determined is less than that estimated by the Selling Party, by the Selling Party and in any other case, the cost of such determination shall be borne by Sandstorm);

 

	
  

	
(4)

	
within a reasonable period of time after Sandstorm has accepted the Future Agreement Offer in accordance with section 6.2(1), and not later than 120 days after the date of such acceptance, the Selling Party and Sandstorm shall enter into such proposed Future Agreement on the terms and conditions of such proposed Future Agreement Offer. Sandstorm shall act in a reasonable and timely manner with respect to closing matters; however if the proposed Future Agreement is not entered into within 120 days after the date of such acceptance, as a result of the Selling Party, not acting in a timely manner, then Sandstorm shall have the right, acting reasonably, to extend the period of 120 days in order to accommodate such delays (provided that it is understood and agreed that Sandstorm shall not have the right to extend the period of 120 days if the failure to enter into the proposed Future Agreement is occasioned solely by acts or omissions of Sandstorm, such as the failure by Sandstorm to obtain requisite financing or board or regulatory approvals or Sandstorm seeking to incorporate into the Future Agreement any terms and conditions which were not contained in the Future Agreement Offer. Notwithstanding the foregoing, if any of the proposed terms and conditions of the proposed Future Agreement would be in violation of this Agreement then Sandstorm may seek to incorporate additional terms and conditions into the Future Agreement to the extent necessary to ensure that the provisions of the Future Agreement are not in violation of this Agreement); and

 

	
  

	
(5)

	
if Sandstorm does not accept the Future Agreement Offer within the period of 16 Business Days referred to in section 6.2(1) or complete the proposed Future Agreement within the periods prescribed in section 6.2(4), then the Selling Party may enter into and complete the proposed Future Agreement with a counterparty on terms no more favourable to the counterparty than the terms of the Future Agreement Offer and not later than 120 days after the expiration of the period referred to in section 6.2(1) or 6.2(4), as applicable.  If the Selling Party does not enter into and complete the proposed Future Agreement with a counterparty by that date or if the terms of the Future Agreement to be entered into with the counterparty would be more favourable to the counterparty than those offered to Sandstorm and contained in the Future Agreement Offer, then the provisions of this section 6.2 shall again apply and no Future Agreement may be made or entered into or completed in reliance upon this section 6.2 without the Selling Party again complying with its provisions.

 

 

  

- 25 -

  

 

	
6.3

	
Notwithstanding anything in this Agreement to the contrary and for the avoidance of doubt, the Future Agreements Right of First Refusal shall not apply to:

 

	
  

	
(1)

	
any royalties, rents or levies imposed by, or payable to, any government or governmental or regulatory authority, agency, department, ministry, board, tribunal, organization, entity or bureau or branch of any of the foregoing whether pursuant to applicable law, agreement (including an Investment Agreement) or otherwise;

 

	
  

	
(2)

	
spot sales of Minerals or Production;

 

	
  

	
(3)

	
internal transfers of Minerals or Production among Entrée and any of its Affiliates;

 

	
  

	
(4)

	
[redacted];

 

	
  

	
(5)

	
any Minerals, Production or royalty which are the subject of any pre-emptive right, right of first refusal, right of first offer or similar right under the Joint Venture or Joint Venture Agreement, to the extent the same exists under the Joint Venture or the Joint Venture Agreement;

 

	
  

	
(6)

	
[redacted];

 

	
  

	
(7)

	
any Minerals or Production which are the subject of any Offtake Agreement, so long as such Offtake Agreement or parts thereof are not substantially similar in nature to a Future Agreement;

 

	
  

	
(8)

	
any sale, transfer or other disposition of any Minerals or Production as a consequence of or in connection with any Permitted Encumbrance; or

 

	
  

	
(9)

	
[redacted].

 

	
6.4

	
Subject to Article 14, Entrée shall and, Entrée shall cause Entrée LLC (for so long as Entrée LLC has any interest in the Joint Venture, the Property, the Joint Venture Agreement, Entrée’s Share of Production or Entrée’s Joint Venture Interest), to at all times during the Term and the Extended Term, as the case may be, do and cause to be done all things necessary to:

 

	
  

	
(1)

	
maintain their respective corporate existence;

 

	
  

	
(2)

	
[redacted];

 

	
  

	
(3)

	
maintain the Finance Security Interest in good standing;

 

 

  

- 26 -

  

 

	
  

	
(4)

	
[redacted]; and

 

	
  

	
(5)

	
[redacted].

 

	
6.5

	
[redacted].

 

	
6.6

	
[redacted].

 

	
6.7

	
During the Term and the Extended Term, as the case may be [redacted].

 

	
6.8

	
During the Term and the Extended Term, as the case may be, Entrée shall forthwith advise Sandstorm in writing upon the occurrence or the anticipated occurrence of an Expropriation Event.

 

	
6.9

	
[redacted].

 

	
6.10

	
[redacted].

 

	
6.11

	
During the Term and the Extended Term, as the case may be, Entrée shall, and shall cause Entrée LLC to, advise Sandstorm in writing of the execution and delivery of the Joint Venture Agreement or any other agreement with respect to the Joint Venture, the Property, Entrée’s Share of Production and Entrée’s Joint Venture Interest, including, as soon as Entrée has knowledge of the same, any operating or management agreement, Investment Agreement or revisions to the Existing Investment Agreement.

 

	
6.12

	
During the Term and the Extended Term, as the case may be, Entrée shall, and shall cause Entrée LLC to, deliver to Sandstorm all correspondence received from the Government and from OTL that pertains to the Property, Entrée’s Share of Production or Entrée’s Joint Venture Interest and which could reasonably be considered to affect or potentially affect Sandstorm in a material way.  For greater certainty and without limitation, Sandstorm does hereby agree that any such correspondence shall be deemed to be Confidential Information for the purposes of section 16.1.

 

	
6.13

	
During the Term and the Extended Term, as the case may be, Entrée shall cause the Finance Security Interest to be properly renewed as required by applicable law in the jurisdiction in which the Finance Security Interest is registered and renewed six months before its expiry date to ensure that at all times throughout the Term and the Extended Term, as the case may be, the Finance Security Interest remains in full force and effect and duly registered as required by applicable law in the jurisdiction in which the Finance Security Interest is registered. Entrée shall provide proof acceptable to Sandstorm, acting reasonably, of each such re-registration and renewal on or before the date that is six months before each expiry date of the Finance Security Interest, failing which Sandstorm shall have the right to proceed with such renewal, with Entrée to be responsible for all costs and fees related thereto.

 

	
6.14

	
Subject to section 4.5 and Article 14, during the Term and the Extended Term, as the case may be, if Entrée materially defaults in the performance of its obligations under section 6.4(5) and all relevant notice and cure periods in Article 10 have expired, then Sandstorm shall, [redacted] under this section 6.14 Sandstorm shall:

 

 

  

- 27 -

  

 

	
  

	
(1)

	
at all times act in good faith and reasonably so as to minimize or avoid any prejudice to Entrée’s rights and interests with respect to the Joint Venture, the Property, OTL, Entrée’s Share of Production and Entrée’s Joint Venture Interest;

 

	
  

	
(2)

	
regularly consult with Entrée in respect of the [redacted] and provide to Entrée all information and documents (including pleadings, briefs, memorials and advices of counsel) relating to or prepared for the [redacted] as Entrée may from time to time request;

 

	
  

	
(3)

	
permit Entrée and its counsel to consult with the counsel of Sandstorm in respect of the [redacted] and ensure that any counsel appointed by it to act as solicitors of record for Entrée in any court action or arbitral proceedings have no conflict of interest; and

 

	
  

	
(4)

	
notwithstanding anything in this section 6.14 to the contrary, Sandstorm shall not [redacted], without the prior written consent of Entrée and if Entrée shall fail or refuse to give its written consent then the appropriateness of any such [redacted], within the context of this Agreement and the rights and obligations of the Parties hereunder shall be a Dispute to be determined by an Expert pursuant to sections 17.10 to 17.15.

 

	
6.15

	
[redacted].

 

	
6.16

	
During the Term and the Extended Term, as the case may be, and without limiting any rights or other obligations of Sandstorm under this Agreement, Sandstorm shall promptly give written notice to Entrée if at any time Sandstorm considers that any one or more changes, events or circumstances or anything done or omitted to be done by Entrée or Entrée LLC has caused or is likely to cause a Sandstorm Material Adverse Effect under this Agreement. Such notice shall specify in reasonable detail:

 

	
  

	
(1)

	
the changes, events or circumstances or things done or omitted to be done by Entrée or Entrée LLC which have caused or which are likely to cause a Sandstorm Material Adverse Effect; and

 

	
  

	
(2)

	
the steps, measures or other actions, if any, that Entrée could take to avoid, abate or minimize the Sandstorm Material Adverse Effect or to the extent reasonably estimable, the extent and consequences of the Sandstorm Material Adverse Effect.

 

For greater certainty and without limitation any failure by Sandstorm to provide a notice to Entrée as contemplated by this section 6.16 shall not limit any rights of Sandstorm under this Agreement or amounts owed to Sandstorm under this Agreement and Sandstorm shall not incur any liability as a result of its failure to provide such a notice.

 

	
7.

	
MONTHLY REPORTS AND ANNUAL REPORTS

 

	
7.1

	
During the Term and the Extended Term, as the case may be, Entrée shall deliver to Sandstorm a Monthly Report on or before the 15th Business Day after the last day of each calendar month. If Entrée shall receive operating reports from the Operator less frequently than monthly (for example, quarterly), then Entrée shall deliver the contents of the Monthly Report that are impacted by such operating reports to Sandstorm as and when Entrée shall receive the same from the Operator and to the extent that such contents are provided by the Operator. If any such contents are not provided by the Operator to Entrée in time for inclusion in any Monthly Report and are thereafter provided by the Operator to Entrée, Entrée shall deliver the same to Sandstorm forthwith after the receipt of same. Entrée shall continue to deliver Monthly Reports to Sandstorm for items which are not impacted by the contents of the operating reports.

 

 

  

- 28 -

  

 

	
7.2

	
During the Term and the Extended Term, as the case may be, Entrée shall deliver to Sandstorm an Annual Report on or before 60 days after the last day of each fiscal year, to the extent that the contents of the Annual Report are provided by the Operator to Entrée and if any such contents are not provided by the Operator to Entrée in time for inclusion in the Annual Report and are thereafter provided by the Operator to Entrée, Entrée shall deliver the same to Sandstorm forthwith after the receipt of same.

 

	
7.3

	
Sandstorm shall have the right to dispute an Annual Report.  If Sandstorm disputes an Annual Report:

 

	
  

	
(1)

	
Sandstorm shall notify Entrée in writing within 90 days after the delivery of the applicable Annual Report or within 90 days after delivery of any subsequently provided material contents of the Annual Report referred to in section 7.2, as applicable, that it disputes the accuracy of that Annual Report (or any part of the Annual Report) (the “Audit Dispute Notice”);

 

	
  

	
(2)

	
Sandstorm and Entrée shall have 90 days from the date the Audit Dispute Notice is delivered by Sandstorm to resolve the dispute.  If Sandstorm and Entrée have not resolved the dispute within such 90 day period, then such dispute shall be resolved in accordance with Article 17.  Sandstorm and Entrée may mutually agree to extend the 90 day period in this section 7.3(2) in order to allow the Parties additional time to resolve the dispute;

 

	
  

	
(3)

	
if it is determined in arbitration conducted in accordance with Article 17 that the actual number of ounces and pounds, as applicable, of Sandstorm Payable Metals varies by two percent or less from the number of ounces and pounds, as applicable, of Sandstorm Payable Metals set out in the Annual Report, then the cost of the arbitration shall be borne by Sandstorm; and

 

	
  

	
(4)

	
if it is determined in arbitration conducted in accordance with Article 17 that the number of ounces and pounds, as applicable, of Sandstorm Payable Metals varies by more than two percent from the number of ounces and pounds, as applicable, of Sandstorm Payable Metals set out in the Annual Report, then the cost of the arbitration shall be borne by Entrée.

 

	
7.4

	
If Entrée does not deliver a (draft or final) Monthly Report or an Annual Report as required pursuant to this Article 7, then Sandstorm shall have the right to perform or to cause its representatives or agents to perform, at the cost and expense of Entrée, an audit of the books and records of Entrée and Entrée LLC relevant to the production and delivery of Sandstorm Payable Metals produced during the calendar month or calendar year in question (the “Sandstorm Audit”) in conjunction with the provisions of Article 12. Entrée shall grant Sandstorm or its representatives or agents access to all such books and records on a timely basis. In order to exercise this right, Sandstorm must provide not less than 14 days’ written notice to Entrée of its intention to conduct the Sandstorm Audit. If within seven days of receipt of such notice, Entrée delivers the applicable (draft or final) Monthly Report or Annual Report, as the case may be, then Sandstorm shall have no right to perform the Sandstorm Audit. If Entrée delivers the applicable (draft or final) Monthly Report or Annual Report, as the case may be, before the delivery of the report prepared in connection with the Sandstorm Audit (the “Sandstorm Audit Report”), then the applicable (draft or final) Monthly Report or Annual Report, as the case may be, shall be taken as final and conclusive, subject to the rights of Sandstorm as set forth in section 7.3.  Otherwise, absent any manifest or gross error in the Sandstorm Audit Report, the Sandstorm Audit Report shall, subject to the provisions of Article 17, be final and conclusive.

 

 

  

- 29 -

  

 

	
8.

	
CONDITIONS SATISFACTION

 

	
8.1

	
[redacted].  If the Refundable Deposit Funding Conditions have not been satisfied or waived [redacted], then either Party, on written notice to the other Party, may terminate this Agreement and each of the Parties shall, subject to section 8.2, be released from all of their obligations hereunder. If the Refundable Deposit Funding Conditions have not been satisfied as a result of acts or omissions of Sandstorm, then on the Refundable Deposit Funding Deadline Entrée may terminate this Agreement and each of the Parties shall, subject to section 8.2, be released from all of their obligations hereunder.

 

	
8.2

	
The following Articles and sections shall survive termination under this Article 8: this Article, Articles 16, 17, 21, 22 as well as any other provision of this Agreement which expressly or by implication from its nature is intended to survive the termination of this Agreement. It is understood and agreed that Sandstorm, in its sole discretion, shall have the right to waive compliance with any of the Refundable Deposit Funding Conditions, in its sole and absolute discretion.

 

	
9.

	
DELIVERY OF MINERALS AND PAYMENTS

 

	
9.1

	
Commencing from and after the Refundable Deposit Funding Date, and as long as Sandstorm has paid the Refundable Deposit to Entrée, during the Term and the Extended Term, Entrée shall deliver and sell to Sandstorm in consideration of the Purchase Price all Sandstorm Payable Metals to be delivered and sold under this Agreement to [redacted] (the “Place of Delivery”).

 

	
9.2

	
Entrée shall notify Sandstorm in writing at least one Business Day before any delivery and credit to the Place of Delivery of the number of ounces and pounds (as applicable) of Sandstorm Payable Metals to be delivered and credited to the Place of Delivery and the estimated date and time of delivery.

 

	
9.3

	
Subject to sections 3.3 and 4.5, within five Business Days of the receipt by Entrée of any Production Payment, Entrée shall deliver and credit Sandstorm Payable Metals to the Place of Delivery in an amount equal to the number of ounces and pounds (as applicable) of Sandstorm Payable Metals specified in any previous Monthly Report for which such Sandstorm Payable Metals have not yet been delivered to Sandstorm but for which a Production Payment has been received by Entrée.

 

	
9.4

	
Delivery of Sandstorm Payable Metals shall be deemed to have been made at the time Sandstorm Payable Metals is credited to the Place of Delivery (the “Time of Delivery”).

 

	
9.5

	
Title to and risk of loss of Sandstorm Payable Metals shall pass from Entrée to Sandstorm at the Time of Delivery.

 

 

  

- 30 -

  

 

	
9.6

	
All Deductions relating to each delivery and credit of Sandstorm Payable Metals and all costs and expenses pertaining to the delivery of Refined Metals to the Place of Delivery shall be borne by Entrée.

 

	
9.7

	
At the Time of Delivery, Entrée shall deliver to Sandstorm an invoice setting out the number of ounces and pounds, as applicable, of Sandstorm Payable Metals so delivered and credited and the Purchase Price for such Sandstorm Payable Metals.

 

	
9.8

	
If Sandstorm disputes the accuracy of any invoice, Sandstorm shall notify Entrée within 90 days from the earlier of the date of receipt by Sandstorm of such invoice and the date of delivery to the Place of Delivery of the Refined Metals that comprise the applicable Sandstorm Payable Metals but no dispute with respect to the accuracy of any invoice matters in this Article shall relieve Entrée from its delivery and sale obligations hereunder nor Sandstorm from its payment obligations hereunder pending resolution of such dispute.  If Sandstorm and Entrée are unable to resolve any dispute, then Sandstorm and Entrée shall have 90 days (or such greater period of time as Sandstorm and Entrée may mutually agree) from the date the dispute notice is delivered to Entrée to resolve the dispute, and failing such resolution, the dispute shall be resolved in accordance with Article 17.

 

	
9.9

	
Sandstorm shall promptly pay for each delivery of Sandstorm Payable Metals and in any event not later than five Business Days after the Time of Delivery and receipt of any invoice for such Sandstorm Payable Metals.

 

	
9.10

	
All payments for Sandstorm Payable Metals by Sandstorm to Entrée shall be made in US Dollars and shall be made by wire transfer in immediately available funds to the bank account or accounts designated by Entrée in writing from time to time, without deduction or set-off.

 

	
9.11

	
Any payment not made on or by the applicable payment date referred to in this Article 9 shall incur interest until such payment is made at a rate equal to 8% per annum.

 

	
9.12

	
[redacted].

 

	
10.

	
EVENTS OF DEFAULT AND TERMINATION

 

	
10.1

	
The Parties may terminate this Agreement at any time by mutual written consent.

 

	
10.2

	
In addition, Sandstorm shall have the right to terminate this Agreement, effective upon ten days’ prior written notice to Entrée (save and except as provided in section 10.2(16) below) if, any of the following shall occur (each, an “Entrée Event of Default”):

 

	
  

	
(1)

	
Entrée defaults in any material respect in the performance of any of its covenants or obligations contained in this Agreement or the Finance Security Interest (except as otherwise provided for in this Section 10.2) and such default is not remedied within:

 

	
  

	
(a)

	
90 days after receipt of written notice of such default by Entrée from Sandstorm; or

 

	
  

	
(b)

	
[redacted];

 

 

  

- 31 -

  

 

	
  

	
(2)

	
upon the occurrence of any Insolvency Event of Entrée or Entrée LLC (with respect to Entrée LLC, subject to the provisions of Article 14, for so long as Entrée LLC has any interest in the Joint Venture, the Property, the Joint Venture Agreement, Entrée’s Share of Production or Entrée’s Joint Venture Interest);

 

	
  

	
(3)

	
If:

 

	
  

	
(a)

	
the Finance Security Interest shall, other than as a consequence of acts or omissions of Sandstorm, cease to be a valid, binding and enforceable obligation of Entrée in whole or in material part, in accordance with its terms;

 

	
  

	
(b)

	
the validity, enforceability or, subject to section 10.2(3)(c), priority of the Finance Security Interest is contested in any manner by Entrée; and/or

 

	
  

	
(c)

	
subject to the existing Permitted Encumbrances, section 24.2, and Encumbrances arising by operation of law or as previously consented to in writing by Sandstorm, the Finance Security Interest does not constitute a first ranking, priority Encumbrance on the collateral charged thereby;

 

	
  

	
(4)

	
except as:

 

	
  

	
(a)

	
permitted by Article 14; or

 

	
  

	
(b)

	
as a result of an Expropriation Event (including during an Expropriation Event Abeyance Period and an Extended Expropriation Event Abeyance Period);

 

Entrée or its Affiliates shall not be the owner of a 100% undivided interest in Entrée’s Joint Venture Interest or Entrée’s Share of Production, free and clear of any and all Encumbrances (except for the Permitted Encumbrances, the Finance Security Interest, any security granted pursuant to a Future Agreement or as permitted pursuant to section 6.6) but the amendment either during or at the end of the Expropriation Event Abeyance Period or the Extended Expropriation Event Abeyance Period by Sandstorm of the Sandstorm Payable Metals in accordance with section 4.7 or section 4.9 shall not constitute an Entrée Event of Default;

 

	
  

	
(5)

	
[redacted];

 

	
  

	
(6)

	
except as a consequence of [redacted], and other than any termination by reason of a Full Expropriation Event, a Transfer permitted by Article 14, or the expiry of tenure rights in and to the Property (such expiry not including by reason of a Full Expropriation Event), the Joint Venture shall terminate for any reason whatsoever or by any means whatsoever;

 

	
  

	
(7)

	
there shall occur a Full Expropriation Event which has not been remedied within the Expropriation Event Abeyance Period or the Extended Expropriation Event Abeyance Period;

 

	
  

	
(8)

	
Entrée shall not refund a portion of the Refundable Deposit to Sandstorm within the time frame set forth in and as contemplated in section 4.9;

 

 

  

- 32 -

  

 

	
  

	
(9)

	
except as permitted by Article 14 or in the circumstances contemplated by section 10.2(7), Entrée’s Joint Venture Interest shall no longer be owned directly or indirectly by Entrée, or Entrée shall no longer have any direct or indirect rights to Entrée’s Share of Production or to receive compensation or payment on account of Entrée’s Share of Production, including by reason of the exercise of any rights granted to and in favour of OTL pursuant to the terms and conditions of the Joint Venture, the Joint Venture Agreement or the Joint Venture Conduct;

 

	
  

	
(10)

	
if the Joint Venture Agreement shall be executed and delivered containing amendments or revisions or any other joint venture agreement shall be executed and delivered [redacted] and as a result, Sandstorm, acting reasonably, determines that it would be likely to suffer a Sandstorm Material Adverse Effect;

 

	
  

	
(11)

	
except as permitted by Article 14 or in the circumstances contemplated by section 10.2(7), Entrée LLC transfers the Property other than to an Affiliate or pursuant to the Joint Venture Agreement;

 

	
  

	
(12)

	
if Entrée or Entrée LLC shall be in default of any of their respective material obligations pursuant to any debt agreements or instruments to which Entrée or Entrée LLC is a party or by which the assets and properties of Entrée or Entrée LLC are bound and such default has not been remedied within applicable cure periods and as a result, Sandstorm, acting reasonably, determines that it would be likely to suffer a Sandstorm Material Adverse Effect;

 

	
  

	
(13)

	
if Entrée or Entrée LLC shall be in default of any material obligations due and owing to OTL under the Joint Venture Agreement or with respect to Entrée’s Joint Venture Interest or with respect to Production and such default has not been remedied within applicable cure periods and as a result, Sandstorm, acting reasonably, determines that it would be likely to suffer a Sandstorm Material Adverse Effect;

 

	
  

	
(14)

	
Sandstorm is precluded from purchasing Sandstorm Payable Metals by reason of actions taken by any of Entrée, Entrée LLC, OTL or the Operator and such actions are not authorized by this Agreement or the Permitted Encumbrances;

 

	
  

	
(15)

	
[redacted]; or

 

	
  

	
(16)

	
[redacted].

 

For greater certainty and without limitation, for the purposes of this Article: (i) materiality shall be determined in the sole discretion of Sandstorm acting reasonably; (ii) a determination as to whether Sandstorm shall suffer a Sandstorm Material Adverse Effect as a result of an Entrée Event of Default shall be determined in the sole discretion of Sandstorm acting reasonably; and (iii) Sandstorm shall have the right to waive in writing one or more Entrée Events of Default, all without prejudice to any and all rights of Sandstorm with respect to any other Entrée Events of Default in respect of which such a waiver has not been given. Nothing in the foregoing shall prejudice or otherwise affect the rights of Entrée under Article 17 to dispute whether an Entrée Event of Default has occurred, any determination of materiality for the purposes of sections 10.2(1), 10.2(3)(a), 10.2(12) or 10.2(13) or whether Sandstorm has acted reasonably.

 

 

  

- 33 -

  

 

	
10.3

	
[redacted].

 

	
10.4

	
[redacted].

 

	
10.5

	
Upon demand from Sandstorm, which demand shall include a calculation of the Entrée Default Fee, Entrée shall promptly deliver the Entrée Default Fee to Sandstorm without setoff, deduction or defalcation. If Sandstorm elects to demand payment of the Entrée Default Fee this Agreement shall be deemed terminated upon the payment by or on behalf of Entrée of the Entrée Default Fee.  After receipt by Sandstorm of the Entrée Default Fee, save and except for the confidentiality obligations set forth in Article 16 which shall survive termination, Sandstorm releases and discharges Entrée and its Affiliates from further performance of their obligations under this Agreement and shall have no further or other claim (whether in contract, at law or in equity or otherwise) for Losses as against Entrée or Entrée LLC or their respective Affiliates arising out of or in connection with this Agreement or its termination and the Finance Security Interest will be released upon receipt by Sandstorm of the Entrée Default Fee. For greater certainty and without limitation, in the event Entrée is required to pay the Entrée Default Fee to Sandstorm, the provisions set forth in section 4.2 requiring the [redacted] will no longer be of any force or effect.

 

	
10.6

	
The Parties hereby acknowledge that:

 

	
  

	
(1)

	
Sandstorm will be damaged by an Entrée Event of Default; and

 

	
  

	
(2)

	
the Entrée Default Fee is in the nature of liquidated damages, not a penalty and is fair and reasonable.

 

	
10.7

	
Termination of this Agreement under this Article shall not terminate any payment or delivery obligation under this Agreement that arose or accrued prior to the date of termination.

 

	
11.

	
OFFTAKE AGREEMENTS

 

	
11.1

	
Subject to section 11.2, Entrée shall, to the extent that it has the ability to do so pursuant to the Joint Venture Agreement, ensure that each Offtake Agreement is on arm’s length commercial terms, consistent with normal industry standards and practice with respect to the payable adjustment factor [redacted].

 

	
11.2

	
Section 11.1 will not apply to the extent that the terms of any Offtake Agreement are expressly prescribed by the Joint Venture Agreement.

 

	
11.3

	
Entrée shall, if such terms are within its possession or are readily available to Entrée, promptly disclose to Sandstorm the terms of any Offtake Agreement and any amendments to the material terms and conditions of any Offtake Agreement (including the Joint Venture Agreement) that may affect Sandstorm and any refining, smelting or other purchase agreements in respect of Production.

 

	
12.

	
BOOKS; RECORDS; INSPECTIONS

 

Entrée shall, and shall cause Entrée LLC to, keep true, complete and accurate books and records of all material operations and activities with respect to the Joint Venture, Entrée’s Joint Venture Interest, the Property, the Production and OTL’s Financed Costs and OTL Interest Costs. In addition to the provisions of section 7.4 and subject to Article 16, Sandstorm and its authorized representatives shall, during the Term or the Extended Term, as the case may be, be entitled to perform audits or other reviews and examinations of the books and records of Entrée and Entrée LLC relevant to the delivery of Sandstorm Payable Metals pursuant to this Agreement to confirm compliance by Entrée and Entrée LLC with the terms of this Agreement.  Sandstorm shall diligently complete any audit or other examination permitted under this Agreement.

 

 

  

- 34 -

  

 

For greater certainty and without limitation, Sandstorm shall, have access to all documents provided by Entrée to an Offtaker, as contemplated under the Offtake Agreements or which otherwise relate to Production vis a vis the Offtaker and all documents provided to Entrée or due to be provided to Entrée by OTL, pursuant to the Joint Venture, the Joint Venture Agreement, the Joint Venture Conduct or otherwise, related to Production and that are, in any manner, relevant to the calculation of Sandstorm Payable Metals or the delivery and credit in respect of Sandstorm Payable Metals.  All costs and expenses of any audit or other examination permitted in this section shall be paid by Sandstorm, unless the results of such audit or other examination permitted in this section, disclose a discrepancy in calculations made by Entrée of greater than two percent of Sandstorm Payable Metals calculated by Entrée, in which event the reasonable costs of such audit or other examination shall be paid by Entrée.

 

	
13.

	
CONDUCT OF MINING OPERATIONS, ETC.

 

	
13.1

	
Sandstorm expressly acknowledges and agrees that all decisions concerning methods, the nature and extent, times, procedures and techniques of any exploration, development, mining, treating, milling, refining, smelting and other operations related to the Property shall be made by the Operator, in its sole and absolute discretion.

 

	
13.2

	
Sandstorm has no rights (whether contractual or otherwise) relating to the development or operation of any of the operations with respect to the Property and Entrée’s Joint Venture Interest or any of the other properties of Entrée or Entrée LLC and Sandstorm shall not be required to contribute to any capital or expenditures in respect of operations at the Property or pursuant to Entrée’s Joint Venture Interest. Sandstorm has no interest (whether legal, beneficial or otherwise) in the Property or the Minerals produced or extracted from the Property and neither this Agreement nor the Finance Security Interest shall grant or confer on Sandstorm an interest (whether legal, beneficial or otherwise) in the Property or the Minerals produced or extracted from the Property, but Sandstorm does have rights of ownership, as herein provided, in and to Sandstorm Payable Metals.

 

	
13.3

	
Sandstorm is not entitled to any form or type of compensation or payment (including Losses) if the Operator discontinues or ceases operations from the Property save and except as provided in Article 4.

 

	
13.4

	
Entrée shall, to the extent permitted pursuant to the Joint Venture Agreement, monitor the performance of the Operator to verify that all processing operations and activities in respect of the Property are conducted in a good, workmanlike and efficient manner, in accordance with sound mining and other applicable industry standards and practices, and in accordance with applicable laws.

 

	
13.5

	
At reasonable times, to the extent permitted pursuant to the Joint Venture Agreement and subject to the applicable agreement with the mill, smelter, concentrator or other processing facility, Sandstorm, at its sole risk and expense, shall have a right of access by its representatives to the Property and any mill, smelter, concentrator or other processing facility that is used to process Minerals produced or extracted from the Property for the purpose of enabling Sandstorm to monitor compliance by Entrée with the terms of this Agreement [redacted].

 

 

  

- 35 -

  

 

	
13.6

	
[redacted].

 

	
13.7

	
Entrée shall use its good faith commercial efforts to ensure that the Operator grants Sandstorm the access rights contemplated by section 13.5 [redacted] as long as Sandstorm has agreed in writing to be bound by any related confidentiality obligations to which Entrée or Entrée LLC may be subject, to and in favour of OTL.  Entrée shall use its good faith commercial efforts to ensure that the operational and accounting records accurately reflect the Minerals produced from the Property to ensure that Sandstorm may calculate the Sandstorm Payable Metals. In the event that under applicable Canadian securities laws, US securities laws or stock exchange rules and policies [redacted].

 

	
14.

	
RESTRICTED TRANSFER RIGHTS OF ENTRÉE AND ENTRÉE LLC

 

	
14.1

	
During the Term or the Extended Term, as the case may be, Entrée may Transfer, in whole or in part:

 

	
  

	
(1)

	
Entrée’s Joint Venture Interest;

 

	
  

	
(2)

	
Entrée’s Share of Production;

 

	
  

	
(3)

	
Entrée’s interest in Entrée LLC;

 

	
  

	
(4)

	
Entrée’s interest in the Joint Venture or the Joint Venture Agreement;

 

	
  

	
(5)

	
Entrée’s rights in and to the OTL Financing Commitment; or

 

	
  

	
(6)

	
its rights and obligations under this Agreement and the Finance Security Interest,

 

in each case so long as each of the conditions in section 14.2 (the “Transfer Conditions”) are satisfied.

 

	
14.2

	
The Transfer Conditions are as follows:

 

	
  

	
(1)

	
Entrée shall provide Sandstorm with at least 30 days prior written notice of the intent of Entrée to undertake any Transfer that is described in section 14.1;

 

	
  

	
(2)

	
[redacted]; and

 

	
  

	
(3)

	
[redacted].

 

	
14.3

	
For greater certainty and without limitation, it is understood and agreed that:

 

	
  

	
(1)

	
a transfer of the title to the Property from Entrée LLC to OTL in its capacity as Operator under the Joint Venture Agreement and as contemplated by the Joint Venture Agreement which does not result in a change in the beneficial ownership of the Property, shall not be a Transfer that is restricted pursuant to the provisions of this Article 14; and

 

 

  

- 36 -

  

 

	
  

	
(2)

	
subject to section 14.4 and except in the case of a Transfer under section 14.2(2) or section 14.2(3), if the Transfer Conditions are satisfied in respect of a Transfer, upon completion of the Transfer, Entrée shall be released from its obligations under this Agreement.

 

	
14.4

	
[redacted].

 

	
14.5

	
[redacted].

 

	
15.

	
TRANSFER RIGHTS OF SANDSTORM

 

	
15.1

	
During the Term or the Extended Term, as the case may be, Sandstorm shall have the right to Transfer in whole or in part, its rights and obligations under this Agreement to another party upon the delivery to Entrée of 10 Business Days prior written notice.  In such a case, provided that such other party has agreed in writing with Entrée to be bound by such Transferred rights and obligations under this Agreement Sandstorm shall be released from such Transferred obligations under this Agreement which arise or accrue on or after the date of such Transfer.

 

	
15.2

	
[redacted].

 

	
15.3

	
Notwithstanding any Transfer by Sandstorm [redacted] to one or more lenders, Entrée shall not be or become liable to deliver Sandstorm Payable Metals to, or to otherwise deal in respect of this Agreement with, more than one Person.  If the interests of Sandstorm under this Agreement are at any time Transferred by Sandstorm by way of encumbrance pursuant to section 15.2 to one or more lenders, such Persons shall, as a condition of receiving delivery of Sandstorm Payable Metals under this Agreement, nominate one Person to act as agent and common trustee for receipt of delivery of Sandstorm Payable Metals and to otherwise deal with Entrée in respect of such interests and no such Persons shall be entitled to administer or enforce any provisions of this Agreement except through such agent and trustee.  Entrée shall, after receipt of notice which records the nomination of such agent and trustee, thereafter make and be entitled to make delivery of Sandstorm Payable Metals under this Agreement to such agent and trustee and to otherwise deal with such agent and trustee as if it were Sandstorm.

 

	
16.

	
CONFIDENTIALITY

 

	
16.1

	
Subject to section 16.2, neither Party shall, without the express written consent of the other Party, disclose any non-public information received under or in connection with this Agreement (the “Confidential Information”), other than to its respective directors, employees, agents, bankers, consultants, requisite regulatory authorities or prospective transferees (which in the case of Entrée includes OTL) and neither Party shall issue any press releases concerning this Agreement without the consent of the other Party, after the other Party has first reviewed the terms of such press release (to the extent practicable).  Each Party agrees to disclose Confidential Information only to its respective directors, employees, agents, bankers, consultants or prospective transferees who reasonably require and have a bona fide need to access the Confidential Information, who are informed of the confidential nature of the Confidential Information and who agree to comply strictly with the terms of this Article 16 as if they were bound by it.  In addition, neither Party shall use any Confidential Information disclosed to it by the other Party for its own use or benefit except for the purpose of enforcing its rights under this Agreement.

 

 

  

- 37 -

  

 

	
16.2

	
Without limiting and in addition to section 16.1,  if any Confidential Information disclosed by Entrée or its Affiliates to Sandstorm consists of or is comprised of information that constitutes “Confidential Information” for the purposes of the Joint Venture Agreement (the “Joint Venture Confidential Information”) Sandstorm shall, in respect of any such Joint Venture Confidential Information, comply with the provisions of Article 19 of the Joint Venture Agreement as if Sandstorm was bound by the provisions of Article 19 of the Joint Venture Agreement.

 

	
16.3

	
Notwithstanding section 16.1:

 

	
  

	
(1)

	
Sandstorm and Entrée shall be entitled to publicly file a copy of this Agreement in such manner as may be required by applicable securities laws (subject to such redactions permitted under such laws as a Party shall require);

 

	
  

	
(2)

	
each Party may disclose Confidential Information obtained under this Agreement if required to do so for compliance with applicable laws, rules, regulations or orders of any governmental authority or stock exchange having jurisdiction over such Party or to allow a current or potential bona fide provider of finance to conduct due diligence as long as the other Party shall be given the right to review and object to any of the Confidential Information to be disclosed prior to any public release and to require any reasonable changes to the Confidential Information to be disclosed; and

 

	
  

	
(3)

	
each Party may disclose Confidential Information for the purposes of any arbitration proceeding commenced under Article 17.

 

	
16.4

	
This Article 16 shall survive any termination of this Agreement.

 

	
17.

	
DISPUTE RESOLUTION

 

	
17.1

	
The Parties agree that there will be no litigation or arbitration between them until the Parties have complied with, and except to the extent set out in, this Article 17.

 

	
17.2

	
In the event of a dispute, controversy or claim in relation to this Agreement, including the existence, interpretation, validity, performance, breach or termination of this Agreement or any matter arising under this Agreement, including whether any matter is subject to arbitration (the “Dispute”) either Party may give to the other Party a written notice (the “Dispute Notice”) specifying:

 

	
  

	
(1)

	
the Dispute;

 

	
  

	
(2)

	
reasonable particulars of the Dispute, including the nature of the allegations and the issues in dispute and the amount or value involved (if applicable) and the remedy requested; and

 

	
  

	
(3)

	
the position which the Party believes is correct and the relevant facts and provisions of this Agreement supporting its position.

 

	
17.3

	
Subject to section 17.10, within 10 Business Days of delivery of the Dispute Notice (or any other period agreed in writing between the Parties) by one Party to the other Party, the Parties (or their nominees) shall negotiate diligently and in good faith in an attempt to resolve the Dispute. If the Parties have not resolved the Dispute within 10 Business Days after the Dispute Notice (or any other period agreed in writing between the Parties), then if a Party requires a binding resolution of the Dispute that Party shall, by notice to the other Party, submit the Dispute to arbitration for final resolution in accordance with sections 17.4 to 17.9 (inclusive).

 

 

  

- 38 -

  

 

	
17.4

	
The Parties agree that:

 

	
  

	
(1)

	
any Dispute shall be finally resolved by arbitration in accordance with the then current domestic commercial arbitration rules of the British Columbia International Commercial Arbitration Centre (the “BCICAC”);

 

	
  

	
(2)

	
the appointing authority shall be the BCICAC and the arbitration shall be administered by the BCICAC in accordance with its Domestic Commercial Arbitration Rules of Procedure (the “Rules”);

 

	
  

	
(3)

	
the seat of the arbitration shall be Vancouver and the language of the arbitration will be English;

 

	
  

	
(4)

	
the Parties shall mutually agree upon one single qualified arbitrator within 10 Business Days of submission of the Dispute by either Party to arbitration pursuant to section 17.3, failing which either Party may request the BCICAC to appoint one qualified arbitrator;

 

	
  

	
(5)

	
the arbitrator shall be a senior practicing lawyer and a disinterested person who has no connection with either Party or the performance of this Agreement and shall be qualified by experience to hear and determine the Dispute to be arbitrated;

 

	
  

	
(6)

	
the arbitrator may determine all questions of law and jurisdiction (including questions as to whether or not a Dispute is arbitrable) and all matters of procedure relating to the arbitration;

 

	
  

	
(7)

	
the arbitrator shall have the right to grant legal and equitable relief and to award costs (including legal fees and the costs of arbitration) and interest;

 

	
  

	
(8)

	
the arbitrator may make an interim order, including injunctive relief and other provisional, protective or conservatory measures, as well as orders seeking assistance from a court in taking or compelling evidence or preserving and producing documents regarding the subject matter of the Dispute;

 

	
  

	
(9)

	
the costs of any arbitration shall be borne by the Parties in the manner specified by the arbitrator in its determination, if applicable;

 

	
  

	
(10)

	
no later than 15 Business Days after hearing the representations and evidence of the Parties, the arbitrator shall make its determination in writing in English and shall deliver one copy to each Party;

 

	
  

	
(11)

	
the written decision of the arbitrator shall be final and binding upon the Parties in respect of all matters relating to the arbitration, the procedure, the conduct of the Parties during the proceedings and the final determination of the issues in the arbitration; and

 

 

  

- 39 -

  

 

	
  

	
(12)

	
there shall be no appeal from the determination of the arbitrator to any court and the decision made by the arbitrator may be entered into any court for enforcement purposes.

 

	
17.5

	
If for any reason the BCICAC cannot or does not make the appointment or appointments required under the Rules, either Party may apply to the Supreme Court of British Columbia to appoint the arbitrator or arbitrators, as the case may be.

 

	
17.6

	
No arbitration proceeding may be commenced under this Article 17 unless commenced within the time period permitted for actions by the applicable statute of limitations.

 

	
17.7

	
To the extent permitted by the nature of the Dispute, during the existence of any Dispute the Parties shall continue to perform their respective obligations under this Agreement without prejudice to their position in respect of such Dispute, unless the Parties otherwise agree.

 

	
17.8

	
All papers, notices or process pertaining to an arbitration under this Agreement may be served on a Party in accordance with section 25.6.

 

	
17.9

	
The Parties shall treat as Confidential Information, in accordance with the provisions of Article 16, the existence of the arbitral proceedings; written notices, pleadings and correspondence in relation to the arbitration; reports, summaries, witness statements, memorials, briefs and other documents prepared in respect of the arbitration; contemporaneous or historical documents exchanged or produced for the purposes of the arbitration; and the contents of any award or ruling made in respect of the arbitration. Notwithstanding the foregoing, a Party may disclose such Confidential Information in judicial proceedings to enforce, nullify, modify or correct an award or ruling and as permitted under this Article 17.

 

	
17.10

	
If:

 

	
  

	
(1)

	
there is any Dispute which any provision of this Agreement state shall be determined by an Expert; or

 

	
  

	
(2)

	
whenever during the Term or the Extended Term, as the case may be, the Parties agree that a Dispute will be resolved by an Expert,

 

then the Dispute shall be referred to an Expert for determination and sections 17.11 to 17.15 will apply.

 

	
17.11

	
The procedure for the appointment of an Expert shall be as follows:

 

	
  

	
(1)

	
the Party wishing the appointment to be made shall give notice in writing to that effect to the other Party and give details of the Dispute which it proposes will be resolved by the Expert;

 

	
  

	
(2)

	
if the matter to be referred to the Expert is not resolved by the Parties within 5 Business Days from the date of the notice referred to in section 17.11(1), then the Parties shall meet and endeavour to agree upon a single Expert (who must be independent of the Parties and must have qualifications and experience appropriate to the subject matter of the Dispute) to whom the Dispute will be referred for determination; and

 

 

  

- 40 -

  

 

	
  

	
(3)

	
if within ten Business Days of the notice referred to in section 17.11(1) the Parties fail to agree upon the appointment of a single Expert, then the Parties shall request the then President of the Law Society of British Columbia to appoint the Expert or if that person declines to appoint the Expert, then Parties shall request the then Governing Trustee of the BCICAC to appoint the Expert. If for any reason the Governing Trustee of the BCICAC cannot or does not make the appointment of the Expert, either Party may apply to the Supreme Court of British Columbia to appoint the Expert.

 

	
17.12

	
The Expert shall be instructed to:

 

	
  

	
(1)

	
determine the Dispute within the shortest practicable time; and

 

	
  

	
(2)

	
deliver a report stating its determination with respect to the matters in dispute setting out the reasons for the decision.

 

	
17.13

	
The Expert shall determine the procedures for the conduct of the process in order to resolve the Dispute and shall provide each Party with a fair opportunity to make written submissions in relation to the Dispute.

 

	
17.14

	
Any process or determination of the Dispute by the Expert shall be made as an expert and not as an arbitrator and the determination of the Expert shall be final and binding on the Parties without appeal so far as the law allows except in the case of manifest error or where either Party has not been provided with a fair opportunity to make submissions in relation to the Dispute.

 

	
17.15

	
Each Party shall bear its own costs of and incidental to any proceedings under sections 17.11 to 17.15.  The costs of the Expert shall be borne by the Parties in equal shares.

 

	
18.

	
REPRESENTATIONS AND WARRANTIES OF SANDSTORM

 

	
18.1

	
Sandstorm acknowledging that Entrée is entering into this Agreement in reliance thereon, hereby represents and warrants to Entrée as follows:

 

	
  

	
(1)

	
Sandstorm is a corporation duly and validly existing under the laws of its governing jurisdiction and Sandstorm is up to date in respect of all filings required by law or by any governmental authority;

 

	
  

	
(2)

	
Sandstorm has the requisite corporate power and capacity to enter into this Agreement and to perform its obligations under this Agreement. Sandstorm has received all requisite board of director approvals and has taken all action (whether corporate or otherwise) necessary for the execution and delivery of this Agreement;

 

	
  

	
(3)

	
this Agreement has been duly and validly executed and delivered by Sandstorm and constitutes a legal, valid and binding obligation of Sandstorm enforceable against Sandstorm in accordance with its terms subject to laws generally affecting creditors’ rights and to principles of equity;

 

	
  

	
(4)

	
Sandstorm has not made an assignment for the benefit of creditors, nor is Sandstorm the voluntary or involuntary subject of any proceedings under any bankruptcy or insolvency law, no receiver or receiver/manager has been appointed for all or any substantial part of the properties or business of Sandstorm and the corporate existence of Sandstorm has not been terminated by voluntary or involuntary dissolution or winding up (other than by way of amalgamation or reorganization) and Sandstorm is not aware of any circumstance which, with notice or the passage of time, or both, would give rise to any of the foregoing;

 

 

  

- 41 -

  

 

	
  

	
(5)

	
Sandstorm is in compliance in all material respects with the rules, policies and regulations of the TSX;

 

	
  

	
(6)

	
Sandstorm has filed all documents required to be filed by it under all applicable securities laws in connection with its status as a public company and the policies of the TSX, and such documents as of the date they were filed, comply in all material respects with requisite securities laws, do not contain any untrue statement of a material fact or omit to state a material fact required to be stated in such documents or necessary to make the statements in such documents in light of the circumstances under which they were made, not misleading;

 

	
  

	
(7)

	
this Agreement and the exercise of the rights and performance of the obligations of Sandstorm under it do not and will not (with or without the lapse of time, the giving of notice or both) contravene, conflict with or result in a breach of or default under:

 

	
  

	
(a)

	
any agreement, mortgage, bond or other instrument to which either Sandstorm is a party or which is binding on its assets;

 

	
  

	
(b)

	
its constating or constitutive documents; or

 

	
  

	
(c)

	
any writ, order or injunction, judgment, law, rule or regulation to which it is a party or is subject or by which it or any of its property is bound; and

 

	
  

	
(8)

	
no regulatory or third party consents or approvals are required to be obtained by Sandstorm in connection with the execution and delivery or the performance by Sandstorm of this Agreement or the transactions contemplated hereby.

 

	
19.

	
REPRESENTATIONS AND WARRANTIES OF ENTRÉE

 

	
19.1

	
Entrée acknowledging that Sandstorm is entering into this Agreement in reliance thereon, hereby represents and warrants to Sandstorm as follows:

 

	
  

	
(1)

	
each of Entrée and Entrée LLC is a corporation duly and validly existing under the laws of its respective governing jurisdiction and each of Entrée and Entrée LLC is up to date in respect of all filings required by law or by any governmental authority;

 

	
  

	
(2)

	
Entrée has the requisite corporate power and capacity to enter into this Agreement and to perform its obligations under this Agreement.  Entrée has received all requisite board of director approvals and has taken all action (whether corporate or otherwise) necessary for the execution and delivery of this Agreement;

 

 

  

- 42 -

  

 

	
  

	
(3)

	
this Agreement has been duly and validly executed and delivered by Entrée and constitutes a legal, valid and binding obligation of Entrée enforceable against Entrée in accordance with its terms subject to laws generally affecting creditors’ rights and to principles of equity;

 

	
  

	
(4)

	
neither Entrée nor Entrée LLC has made an assignment for the benefit of creditors nor is Entrée or Entrée LLC the voluntary or involuntary subject of any proceedings under any bankruptcy or insolvency law, no receiver or receiver/manager has been appointed for all or any substantial part of their respective properties or business and their respective corporate existence has not been terminated by voluntary or involuntary dissolution or winding up (other than by way of amalgamation or reorganization) and neither Entrée nor Entrée LLC is now aware of any circumstance which, with notice or the passage of time, or both, would give rise to any of the foregoing;

 

	
  

	
(5)

	
this Agreement and the exercise of the rights and performance of the obligations of Entrée under it do not and will not (with or without the lapse of time, the giving of notice or both) contravene, conflict with or result in a breach of or default under:

 

	
  

	
(a)

	
any agreement, mortgage, bond or other instrument to which Entrée is a party or which is binding on its assets;

 

	
  

	
(b)

	
its constating or constitutive documents; or

 

	
  

	
(c)

	
any writ, order or injunction, judgment, law, rule or regulation to which it is a party or is subject or by which it or any of its property is bound; and

 

	
  

	
(6)

	
except for TSX and NYSE approval of the Private Placement, no further regulatory or third party consents or approvals are required to be obtained by Entrée in connection with the execution and delivery or the performance by Entrée of this Agreement or the transactions contemplated hereby;

 

	
  

	
(7)

	
Entrée is in compliance in all material respects with the rules, policies and regulations of the TSX; and

 

	
  

	
(8)

	
Entrée has filed all documents required to be filed by it under all applicable securities laws in connection with its status as a public company and the policies of the TSX, and such documents as of the date they were filed, comply in all material respects with requisite securities laws, do not contain any untrue statement of a material fact or omit to state a material fact required to be stated in such documents or necessary to make the statements in such documents in light of the circumstances under which they were made, not misleading.

 

	
20.

	
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF ENTRÉE

 

	
20.1

	
The Parties acknowledge and agree that as some of the rights and entitlements of Sandstorm under this Agreement are referable and indexed to, among other things, Entrée’s Share of Production, Entrée hereby represents and warrants to Sandstorm as follows:

 

 

  

- 43 -

  

 

	
  

	
(1)

	
Entrée owns 100% of the issued and outstanding shares in the capital of Entrée LLC;

 

	
  

	
(2)

	
Entrée is a participant in a joint venture (the “Joint Venture”) with OTL with respect to the Hugo North Extension and the Heruga Deposit (collectively defined in this Agreement as the “Property”), each of which are accurately described, respectively, in Schedule “B” and Schedule “C”;

 

	
  

	
(3)

	
pursuant to an equity participation and earn-in agreement dated as of October 15, 2004 between Turquoise Hill Resources Ltd. (then known as Ivanhoe Mines Ltd.) and Entrée, as amended November 9, 2004 and assigned by Turquoise Hill Resources Ltd. to OTL on March 1, 2005 (the “Earn-In Agreement”), Entrée and OTL agreed to the form of joint venture agreement which shall govern the Property and the Joint Venture and which would be executed and delivered by Entrée and OTL, which form of joint venture agreement is attached to the Earn-In Agreement as Appendix “A” (the “Joint Venture Agreement”);

 

	
  

	
(4)

	
[redacted];

 

	
  

	
(5)

	
OTL has satisfied all earn-in obligations with respect to the Property and the earn-in funding requirements (which are not treated as a carry in and to Entrée) aggregating US$35 million as at June 30, 2008 (the “Earn-In Date”);

 

	
  

	
(6)

	
[redacted];  

 

	
  

	
(7)

	
pursuant to the Joint Venture Agreement and the Joint Venture Conduct, 100% of Entrée’s share of all exploration, operating and capital costs incurred from time to time (and on a revolving basis) in connection with the Property (the “OTL Financed Costs”) from and after the Earn-In Date, at Entrée’s election (which election has been made), are to be contributed solely by OTL (the “OTL Financing Commitment”) and, interest thereon shall be the lesser of OTL’s actual cost of capital and the prime rate set by the Royal Bank of Canada plus 2% (as defined in the Joint Venture Agreement) (the “OTL Interest Costs”).  As at December 31, 2012, the OTL Financed Costs aggregate US$5,109,339;

 

	
  

	
(8)

	
the Joint Venture Agreement and the Joint Venture Conduct provide that the OTL Financed Costs will be repayable by Entrée from (and only from) 90% of the Available Cash Flow (as defined in the Joint Venture Agreement) arising from the sale of Entrée’s Share of Production (the “OTL Share of Entrée’s Share of Production”) and Entrée shall be entitled to receive the remaining 10% of Available Cash Flow (as defined in the Joint Venture Agreement) arising from the sale of  Entrée’s Share of Production (the “Entrée’s Limited Share of Production”);

 

	
  

	
(9)

	
except as provided in the Joint Venture Agreement or by applicable law, no Person (other than Entrée or its Affiliates) has any agreement, option, right of first refusal or right, title or interest or right capable of becoming an agreement, option, right of first refusal or right, title or interest, in any part of Entrée’s Joint Venture Interest or Entrée’s Share of Production;

 

	
  

	
(10)

	
Entrée has all necessary corporate power to own Entrée’s Joint Venture Interest and Entrée’s Share of Production. To the knowledge of Entrée, each of Entrée LLC and OTL is in material compliance with all material applicable laws and licences, registrations, permits, consents and qualifications to which the Property is subject;

 

 

  

- 44 -

  

 

	
  

	
(11)

	
at each Time of Delivery, Entrée:

 

	
  

	
(a)

	
will be the legal and beneficial owner of the Sandstorm Payable Metals delivered to the Place of Delivery;

 

	
  

	
(b)

	
will have good, valid and marketable title to such Sandstorm Payable Metals and exclusive ownership of and title in and to, the Sandstorm Payable Metals delivered to Sandstorm; and

 

	
  

	
(c)

	
such Sandstorm Payable Metals will be free and clear of all Encumbrances;

 

	
  

	
(12)

	
as at the Execution Date, neither Entrée nor Entrée LLC is in material default of any credit facility or material contract it has executed and delivered, to which its assets are subject or by which its assets are bound;

 

	
  

	
(13)

	
[redacted];

 

	
  

	
(14)

	
[redacted];

 

	
  

	
(15)

	
[redacted];

 

	
  

	
(16)

	
subject to the Joint Venture Agreement and any Encumbrances which arise under or pursuant to the Joint Venture Agreement, Entrée is the owner of a 100% undivided interest in Entrée’s Joint Venture Interest and Entrée’s Share of Production free and clear of any and all Encumbrances and no dispute or legal claim or action exists with respect thereto;

 

	
  

	
(17)

	
as at the Execution Date to the knowledge of Entrée, [redacted];

 

	
  

	
(18)

	
Entrée and Entrée LLC have made available and provided to Sandstorm all correspondence and other communications in their possession received from the Government that pertains to the Property, which could reasonably be expected to affect or potentially affect Sandstorm;

 

	
  

	
(19)

	
no joint venture or other similar agreement has been executed and delivered by Entrée or Entrée LLC and OTL with respect to the Property; and

 

	
  

	
(20)

	
[redacted].

 

	
21.

	
INDEMNITY OF SANDSTORM

 

Sandstorm indemnifies and shall keep indemnified and save harmless Entrée and its directors, officers, employees and agents (each an, “Entrée Indemnified Person”) from and against any and all Losses suffered or incurred by an Entrée Indemnified Person that arise out of or relate to any failure of Sandstorm to timely and fully perform or cause to be performed all of the covenants and obligations to be observed or performed by Sandstorm pursuant to this Agreement. Entrée holds the indemnity set out in this Article 21 for itself and in trust for each other Entrée Indemnified Person.  This Article shall survive termination of this Agreement.

 

 

  

- 45 -

  

 

	
22.

	
INDEMNITY OF ENTRÉE

 

Entrée indemnifies and shall keep indemnified and save harmless Sandstorm and its directors, officers, employees and agents (each an, “Sandstorm Indemnified Person”) from and against any and all Losses suffered or incurred by an Sandstorm Indemnified Person that arise out of or relate to any failure of Entrée to timely and fully perform or cause to be performed all of the covenants and obligations to be observed or performed by Entrée pursuant to this Agreement.  Sandstorm holds the indemnity set out in this Article 22 for itself and in trust for each other Sandstorm Indemnified Person. This Article shall survive termination of this Agreement.

 

	
23.

	
TAXES

 

	
23.1

	
[redacted].

 

	
23.2

	
[redacted].

 

	
23.3

	
The amount of any deduction or withholding required under applicable law shall not reduce the amount of the [redacted].   The Parties agree to reasonably cooperate to ensure that no more taxes, duties or other charges are payable than is required under applicable law.

 

	
24.

	
FINANCE SECURITY INTEREST

 

	
24.1

	
During the Term and the Extended Term, as the case may be, Entrée shall not amend, supplement, waive, restate, supersede, terminate, cancel or release or otherwise consent to a breach of the provisions of the Finance Security Interest without the prior written consent of Sandstorm, such consent not to be unreasonably withheld.

 

	
24.2

	
If, after the Finance Security Interest has been executed and delivered to Sandstorm, the terms of any Permitted Encumbrance charge all or some of the same collateral that is described in subsections (ii) and (iii) of the definition of Finance Security Interest and that is charged by the Finance Security Interest and the counterparty to the Permitted Encumbrance expressly requires that the Permitted Encumbrance be a first ranking priority Encumbrance in respect of such collateral then Sandstorm shall, in good faith, promptly do all acts and things reasonably necessary (including negotiating and executing all documents) to subordinate its security interest in and to such collateral to and in favour of the grantee of the Permitted Encumbrance.

 

	
25.

	
GENERAL PROVISIONS

 

	
25.1

	
Each Party shall execute all such further instruments and documents and shall take all such further actions as may be necessary to effect the transactions contemplated in this Agreement, in each case at the cost and expense of the Party requesting such further instrument, document or action, unless expressly indicated otherwise in this Agreement.

 

	
25.2

	
Nothing in this Agreement shall be construed to create, expressly or by implication, a joint venture, agency relationship, fiduciary relationship, mining partnership, commercial partnership or other partnership relationship between Sandstorm and Entrée.

 

 

  

- 46 -

  

 

	
25.3

	
This Agreement shall be governed by and construed under the laws of the Province of British Columbia and the federal laws of Canada applicable in the Province of British Columbia.

 

	
25.4

	
Time is of the essence of this Agreement.

 

	
25.5

	
If any provision of this Agreement is wholly or partially invalid, this Agreement shall be interpreted as if the invalid provision had not been a part of this Agreement so that the invalidity shall not affect the validity of the remainder of this Agreement which shall be construed as if this Agreement had been executed without the invalid portion.

 

	
25.6

	
Any notice or other communication required or permitted to be given under this Agreement shall be in writing and shall be delivered by hand or transmitted by facsimile transmission or electronic format addressed to:

 

If to Entrée:

 

Suite 1201 - 1166 Alberni Street

Vancouver, BC   V6E 3Z3

 

Attention:         President and Chief Executive Officer

Fax Number:     (604) 687 4770

Email:                ggcrowe@entreegold.com

 

If to Sandstorm:

 

Suite 1400, 400 Burrard Street

Vancouver, BC V6C 3A6

Attention:         President and Chief Executive Officer

Fax Number:     (604) 689-7317

Email :               NWatson@sandstormltd.com

 

Any notice given in accordance with this section, if transmitted by facsimile transmission or electronic transmission, shall be deemed to have been received on the next Business Day following transmission or, if delivered by hand, shall be deemed to have been received when delivered.

 

	
25.7

	
This Agreement may not be changed, amended or modified in any manner, except pursuant to an instrument in writing signed on behalf of each Party.  The failure by a Party to enforce at any time any of the provisions of this Agreement shall in no way be construed to be a waiver of any such provision unless such waiver is acknowledged in writing, nor shall such failure affect the validity of this Agreement or any part of this Agreement or the right of a Party to enforce each and every provision.  No waiver or breach of this Agreement shall be held to be a waiver of any other or subsequent breach.

 

	
25.8

	
Where any representation or warranty contained in this Agreement is expressly qualified by reference to the “best of the knowledge of” (or similar expressions) of Entrée, it shall be deemed to refer to the actual knowledge of any director or officer of Entrée, and all knowledge which each such person would have if such person made due enquiry into the relevant subject matter.

 

 

  

- 47 -

  

 

	
25.9

	
Following the execution and delivery of this Agreement, each Party will co-operate reasonably with the other Party in implementing any proposed adjustments to the structure of this Agreement to facilitate tax planning, provided that such adjustments have no material adverse impact on the non-proposing Party and that such adjustments shall not result in the non-proposing Party incurring any significant costs.

 

	
25.10

	
This Agreement may be executed in one or more counterparts and by the Parties in separate counterparts, each of which when executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same agreement.  Delivery of an executed counterpart of a signature page to this Agreement by telecopier or electronic format shall be effective as delivery of a manually executed counterpart of this Agreement.

 

	
25.11

	
This Agreement shall enure to the benefit of and shall be binding on and shall be enforceable by the Parties and their respective, successors and permitted assigns.

 

	
25.12

	
This Agreement constitutes the entire agreement among the Parties pertaining to the subject matter of this Agreement and supersedes all prior agreements, negotiations, discussions and understandings, written or oral, among the Parties.

 

	
25.13

	
The Parties may agree to enter into other financial instruments or agreements to supplement the pricing in this Agreement.

 

SIGNATURE BLOCKS APPEAR ON NEXT PAGE

 

  

- 48 -

  

 

IN WITNESS WHEREOF the Parties have executed this Agreement as of the date and year first above written.

 

	  	  	
ENTRÉE GOLD INC.

	
Per:

	
 

“Gregory Crowe”

	
Authorized Signing Officer

	
  

 

	  	
“Susan McLeod”

	
Authorized Signing Officer

	  
	
  

 

	  	  	
SANDSTORM GOLD LTD.

	
Per:

	
 

“Nolan Watson”

	
Authorized Signing Officer

	  

 

 

 

 

 

  

  

  

 

SCHEDULE “A”

SUBSCRIPTION AGREEMENT

 

 

 

 

 

  

  

  

SCHEDULE “B”

HERUGA DEPOSIT

 

 

 

  

  

  

 

 

 

  

  

  

 

SCHEDULE “C”

HUGO NORTH EXTENSION

 

 

  

  

  

 

 

 

  

  

  

 

SCHEDULE “D”

PERMITTED ENCUMBRANCES

 

The following Encumbrances are deemed to be Permitted Encumbrances:

 

	
(i)

	
the grant by OTL and Entrée to each other of a lien upon and a security interest in each others participating interest in the Joint Venture, (including all of OTL’s and Entrée’s respective right, title and interest in the assets of the Joint Venture, whenever acquired or arising, and the proceeds from and accessions to the foregoing) as contemplated by the Joint Venture Agreement;

 

	
(ii)

	
any Encumbrance that is created or arises under or in connection with the Joint Venture Agreement including any Encumbrance that has been granted against the Property for the purposes of project financing as contemplated by the Joint Venture Agreement or that is created or arises under or in connection with the Existing Investment Agreement or an Investment Agreement;

 

	
(iii)

	
any reservations, limitations, exceptions, provisos and conditions expressed in the licenses, permits or other instruments relating to the Property in existence on the Execution Date;

 

	
(iv)

	
any royalties, rents or levies of general application which are imposed on the Property or on Production by any government or governmental or regulatory authority, agency, department, ministry, board, tribunal, organization, entity or bureau or branch of any of the foregoing or by the terms of the Existing Investment Agreement or an Investment Agreement;

 

	
(v)

	
minor discrepancies in the legal description of the Property or any adjoining properties which would be disclosed in an up to date survey which do not materially detract from the value of, or materially impair the use of the Property for the purpose of conducting and carrying out mining operations on the Property;

 

	
(v)

	
any minor encumbrance, such as easements, rights-of-way, servitudes or other similar rights in land granted to or reserved by other Persons, rights-of-way for sewers, electric lines, telegraph and telephone lines, oil and natural gas pipelines and other similar purposes, or zoning or other restrictions applicable to the property’s use of real property within the Property that do not in the aggregate materially detract from the value of such property or materially impair its use in the operation of the Property; and

 

	
(vi)

	
inchoate or statutory liens for taxes not at the time due or payable, or being contested in good faith through appropriate proceedings.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00242-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00242-of-00352.parquet"}]]