AGENCY AGREEMENT

 

 

 

AGENCY AGREEMENT

June 30, 2004

Aurizon Mines Ltd.

Suite 900

510 Burrard Street

Vancouver, British Columbia

V6C 3A8

Attention:

President

Dear Sirs:

Re:

Private Placement of Flow-Through Common Shares

Dundee Securities Corporation, National Bank Financial Inc., Pacific International Securities Inc. and Haywood Securities Inc. (collectively the "Agents") understand that:

(a)

Aurizon Mines Ltd. (the "Corporation") is authorized to issue, among other things, 500,000,000 Common Shares (as hereinafter defined);

(b)

as at June 29, 2004, 97,946,603 Common Shares were outstanding as fully paid and non-assessable shares and an aggregate of 9,028,623 Common Shares were reserved for issue pursuant to outstanding options, warrants, share incentive plans, convertible and exchangeable securities and other rights to acquire Common Shares; and

(c)

the Corporation is prepared to issue and sell up to 4,500,000 Common Shares (collectively the "Offered Securities" and individually an "Offered Security") which are "flow-through shares" as defined in subsection 66(15) of the Income Tax Act (Canada) at a price of $2.00 per Offered Security for maximum aggregate gross proceeds of $9,000,000 on the terms and subject to the conditions contained hereinafter.

Based upon the understanding of the Agents set out above and upon the terms and subject to the conditions contained hereinafter, upon the acceptance hereof by the Corporation, the Agents hereby agree to purchase or find other purchasers for 2,500,000 of the Offered Securities.  In addition, the Agents have the option to sell up to an additional 2,000,000 Offered Securities upon the exercise of the Agents' Option (as hereinafter defined).  It is understood and agreed that the Agents are under no obligation to purchase any of the Offered Securities issuable upon the exercise of the Agent's Option, although any of them may subscribe for and purchase such Offered Securities if it so desires.

The terms and conditions of this Agreement are as follows:

1.

Definitions, Interpretation and Schedules

(a)

Definitions :  Whenever used in this Agreement:

(i)

"Agents" means Dundee Securities Corporation, National Bank Financial Inc., Pacific International Securities Inc. and Haywood Securities Inc. collectively;

(ii)

"Agents' Option" means the option granted to the Agents by the Corporation to sell an additional 2,000,000 Offered Shares exercisable at any time prior to the Closing Date;

 

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(iii)

"Agreement" means the agreement resulting from the acceptance by the Corporation of the offer made by the Agents herein, including the schedules attached hereto, as amended or supplemented from time to time;

(iv)

"Ancillary Documents" means all agreements, indentures, certificates (including the Broker Warrant Certificates) and documents executed and delivered, or to be executed and delivered, by the Corporation in connection with the transactions contemplated by this Agreement or the Subscription Agreements and includes the Subscription Agreements;

(v)

"Assistance" means assistance as that term is defined in subsection 66(15) of the Tax Act;

(vi)

"Auditor" means PricewaterhouseCoopers LLP, Chartered Accountants, the auditor of the Corporation;

(vii)

"Broker Shares" means the Common Shares which may be issued on the exercise of the Broker Warrants;

(viii)

"Broker Warrant Certificates" means the certificates representing the Broker Warrants;

(ix)

"Broker Warrants" means the non-transferable broker warrants which will entitle the Agents to acquire in the aggregate Common Shares equal in number to 4% of the number of Offered Securities sold at any time commencing on the Closing Date and prior to 5:00 p.m. (Toronto time) on the date which is 12 months after the Closing Date at an exercise price of $2.00 per Common Share;

(x)

"Business Day" means a day which is not a Saturday, Sunday or a statutory or civic holiday in the City of Toronto, Province of Ontario;

(xi)

"Canadian Exploration Expense" or "CEE" means an expense incurred in 2004 of the nature referred to in paragraphs (f) or (g) of the definition of Canadian exploration expense in subsection 66.1(6) of the Tax Act or incurred in 2005 of the nature referred to in paragraph (f) of the definition of Canadian exploration expense in subsection 66.1(6) of the Tax Act, other than amounts which are prescribed to be "Canadian exploration and development overhead expense" for the purposes of the Tax Act or the cost of acquiring or obtaining the use of seismic data described in paragraph 66(12.6)(b.1) of the Tax Act or any expenses for prepaid services or rent that do not qualify as outlays and expenses for the period as described in the definition "expense" in paragraph 66(15) of the Tax Act;

(xii)

"Closing" means the purchase and sale of the Offered Securities subscribed for by the Purchasers pursuant to the Subscription Agreements;

(xiii)

"Closing Date" means June 30, 2004 or such other date as the Corporation and the Agents may mutually agree upon in writing;

(xiv)

"Closing Time" means [ 2:00 p.m. ] (Toronto time) on the Closing Date or such other time on the Closing Date as the Corporation and the Agents may mutually agree upon in writing;

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(xv)

"Common Shares" means the common shares which the Corporation is authorized to issue as constituted on the date hereof;

(xvi)

"Commitment Amount" means the aggregate amount paid by the Purchasers for the Offered Securities;

(xvii)

"Corporation" means Aurizon Mines Ltd., a corporation incorporated under the Company Act (British Columbia) and includes any successor corporation thereto;

(xviii)

"CRA" means Canada Customs and Revenue Agency;

(xix)

"Expenditure Period" means the period commencing on the Closing Date and ending on December 31, 2005;

(xx)

"Flow-Through Mining Expenditure" means an expense which is a "flow-through mining expenditure" as defined in subsection 127(9) of the Tax Act;

(xxi)

"Flow-Through Shares" means flow-through shares as defined in subsection 66(15) of the Tax Act;

(xxii)

"Information" means all information regarding the Corporation that is made publicly available by, or becomes publicly available with the consent of the Corporation, together with all information prepared by the Corporation and provided to the Agents or to potential purchasers of the Offered Securities, if any, and includes but is not limited to, all press releases, material change reports and financial statements of the Corporation;

(xxiii)

"Offered Securities" means up to 4,500,000 Common Shares which are Flow-Through Shares to be issued and sold at the Purchase Price under the Offering and including the Common Shares which are Flow-Through Shares issuable upon the exercise of the Agents' Option;

(xxiv)

"Offering" means the offering for sale by the Corporation on a private placement basis of the Offered Securities;

(xxv)

"Offering Jurisdictions" means the Provinces of British Columbia, Alberta and Ontario and such other provinces and territories of Canada as may be mutually agreed upon by the Agents and the Corporation where the Offered Securities are offered to prospective purchasers or those provinces or territories where Purchasers reside, as the context permits or requires;

(xxvi)

"Ontario Act" means the Securities Act (Ontario) and the regulations thereunder, together with the instruments, policies, rules, orders, codes, notices and interpretation notes of the Ontario Securities Commission, as amended, supplemented or replaced from time to time;

(xxvii)

"Person" means an individual, a firm, a corporation, a syndicate, a partnership, a trust, an association, an unincorporated organization, a joint venture, an investment club, a government or an agency or political subdivision thereof and every other form of legal or business entity of any nature or kind whatsoever;

 

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(xxviii)

"Prescribed Forms" means the forms prescribed from time to time under subsection 66(12.7) of the Tax Act and under the applicable provisions of the Taxation Act (Québec) as described in paragraph 1(e) hereof filed or to be filed by the Corporation within the prescribed times renouncing to the Purchasers the Resource Expenses incurred pursuant to the Subscription Agreements and all parts or copies of such forms required by CRA and under the Taxation Act (Québec) as described in paragraph 1(e) hereof to be delivered to the Purchasers;

(xxix)

"Prescribed Relationship" means a relationship between the Corporation and a Person where such Person and the Corporation are related or otherwise do not deal at arms length for purposes of the Tax Act;

(xxx)

"Purchase Price" means the price to be paid by the Purchasers for each Offered Security under the Offering, being $2.00 per Offered Security;

(xxxi)

"Purchasers" means the purchasers of the Offered Securities collectively;

(xxxii)

"Reporting Provinces" means the Provinces of British Columbia, Ontario and Québec collectively;

(xxxiii)

"Resource Expense" means an expense which is CEE, which is incurred on or after the Closing Date and on or before the Termination Date which may be renounced by the Corporation pursuant to subsection 66(12.6) of the Tax Act with an effective date not later than December 31, 2004 and in respect of which, but for the renunciation, the Corporation would be entitled to a deduction from income for income tax purposes;

(xxxiv)

"Securities Commissions" means the securities regulatory authorities of the Offering Jurisdictions collectively;

(xxxv)

"Securities Laws" means the securities legislation and regulations of, and the instruments, policies, rules, orders, codes, notices and interpretation notes of the securities regulatory authorities (including the Stock Exchanges) of, the applicable jurisdiction or jurisdictions collectively;

(xxxvi)

"Stock Exchanges" means the Toronto Stock Exchange and the American Stock Exchange collectively;

(xxxvii)

"Subject Shares" means the Offered Securities and the Broker Shares collectively;

(xxxviii)

"Subscription Agreements" means the subscription and renunciation agreement to be entered into between the Corporation and each of the Purchasers with respect to the purchase of the Offered Securities collectively;

(xxxix)

"Tax Act" means the Income Tax Act (Canada), as amended, re-enacted or replaced from time to time and all rules and regulations made pursuant thereto and any proposed amendments thereto; and

(xl)

"Termination Date" means December 31, 2005.

(b)

Other Defined Terms :  Whenever used in this Agreement, the words and terms "affiliate", "associate", "material fact", "material change", "misrepresentation", "senior officer" and

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"subsidiary" shall have the meaning given to such word or term in the Ontario Act unless specifically provided otherwise herein.

(c)

Plural and Gender :  Whenever used in this Agreement, words importing the singular number only shall include the plural and vice versa and words importing the masculine gender shall include the feminine gender and neuter.

(d)

Currency :  All references to monetary amounts in this Agreement are to lawful money of Canada.

(e)

Taxation Act (Québec) :  Any reference to a word or term defined in the Tax Act includes, for purposes of Québec income taxation, a reference to the equivalent word or term, if any, defined in the Taxation Act (Québec) as such act may be amended, re-enacted or replaced from time to time.  Any reference to the Tax Act or a provision thereof includes, for purposes of Québec income taxation, a reference to the Taxation Act (Québec) or the equivalent provision thereof as such act may be amended, re-enacted or replaced from time to time.  Any reference to a filing or similar requirement imposed under the Tax Act includes, for purposes of Québec income taxation, a reference to the equivalent filing or similar requirement, where applicable, under the Taxation Act (Québec) as such act may be amended, re-enacted or replaced from time to time; provided that, if no filing or similar requirement is provided under the Taxation Act (Québec) , a copy of any material filed under the Tax Act shall be filed with the ministère du Revenu du Québec.

(f)

Schedules :  The following schedules are attached to this Agreement and are deemed to be a part of and incorporated in this Agreement:

 

 

 

2.

The Offered Securities

(a)

Offered Securities :  The Offered Securities are up to 4,500,000 Common Shares which are Flow-Through Shares.

(b)

Incurring and Renouncing of CEE :  The Corporation hereby agrees to incur Resource Expenses in an amount equal to the Commitment Amount on or before the Termination Date in accordance with the Subscription Agreements and agrees to renounce to the Purchasers, with an effective date no later than December 31, 2004, pursuant to subsection 66(12.6) of the Tax Act, and, in respect of Resource Expenses incurred by the Corporation in 2005, pursuant to subsection 66(12.66) of the Tax Act, Resource Expenses in an amount equal to the Commitment Amount.  For greater certainty, the Corporation may renounce to the Purchasers, with an effective date no later than December 31, 2004, either (i) Resource Expenses deemed to be incurred by it in 2005 pursuant to a renunciation to the Corporation by a corporation related to it for purposes of the Tax Act of Resource Expenses incurred by that corporation in 2005 if the renunciation by that corporation to the Corporation is pursuant to subsection 66(12.6) of the Tax Act and has an effective date in 2004, or (ii) Resource Expenses deemed to be incurred by it in 2004 pursuant to a renunciation to the Corporation by a corporation related to it for the purposes of the Tax Act of Resource Expenses incurred by that corporation in 2004 if the renunciation by that corporation to the Corporation is pursuant to subsection 66(12.6) of the Tax Act and has an effective date in 2004.

 

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(c)

Investment Tax Credit :  Notwithstanding any other provision hereof, the Corporation hereby agrees that in the event it should incur Flow-Through Mining Expenditures that it is not required to renounce to third parties pursuant to flow-through agreements entered into prior to the date hereof, it will renounce such Flow-Through Mining Expenditures to the Purchasers pro rata by number of Offered Securities purchased.

(d)

Renunciation :  The Corporation shall deliver to the Purchasers, on or before March 1, 2005, the relevant Prescribed Forms, fully completed and executed, renouncing to each Purchaser, Resource Expenses in an amount equal to the Commitment Amount applicable to such Purchaser with an effective date of no later than December 31, 2004, such delivery constituting the authorization of the Corporation to the Purchasers to file such Prescribed Forms with applicable taxation authorities.

3.

The Offering

(a)

Sale on Exempt Basis :  The Agents will offer the Offered Securities in the Offering Jurisdictions in compliance with the Securities Laws of the Offering Jurisdictions and only to such Persons and in such manner so that, pursuant to the provisions of the Securities Laws of the Offering Jurisdictions, no prospectus or offering memorandum or other similar document need be filed with, or delivered to, any Securities Commission in any Offering Jurisdiction in connection therewith.

(b)

Appointment of Co-agents and Sub-agents :  The Corporation agrees that, subject to the consent of the Corporation, such consent not to be unreasonably withheld, the Agents have the right to invite one or more investment dealers to form a selling group to participate in finding purchasers for 2,500,000 of the Offered Securities and in soliciting of offers to purchase up to 2,000,000 Offered Securities issuable upon the exercise of the Agents' Option.  The Agents shall have the exclusive right to control all compensation arrangements between the members of the selling group.  The Corporation grants all of the rights and benefits of this Agreement to any investment dealer who is a member of any selling group formed by the Agents and appoints the Agents as trustees of such rights and benefits for such investment dealers, and the Agents hereby accept such trust and agree to hold such rights and benefits for and on behalf of such investment dealers.  The Agents shall ensure that any investment dealer who is a member of any selling group formed by the Agents pursuant to the provisions of this subsection 3(b) or with whom the Agents have a contractual relationship with respect to the Offering, if any, agrees with the Agents to comply with the covenants and obligations given by the Agents herein.

(c)

Covenants of the Agents :  Each of the Agents covenants with the Corporation that (i) it will comply with all Securities Laws of the Offering Jurisdictions in which it solicits or procures subscriptions for Offered Securities in connection with the Offering, (ii) it will not solicit or procure subscriptions for Offered Securities so as to require the registration thereof or the filing of a prospectus with respect thereto under the laws of any jurisdiction, and (iii) it will obtain from each Purchaser an executed subscription agreement in a form reasonably acceptable to the Corporation and the Agents.  Each of the Agents represents and warrants that it is, and, to the best of its knowledge, each member of any selling group formed by the Agents is, qualified to so act in the Offering Jurisdictions in which such member solicits or procures subscriptions for the Offered Securities.

(d)

Filings :  The Corporation undertakes to file or cause to be filed all forms and undertakings required to be filed by the Corporation in connection with the Offering so that the distribution of the Offered Securities may lawfully occur in the Offering

 

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Jurisdictions without the necessity of filing a prospectus or an offering memorandum in Canada and the Agents undertake to use commercially reasonable efforts to cause the Purchasers of the Offered Securities to complete (and it shall be a condition of closing in favour of the Corporation that the Purchasers complete and deliver to the Corporation) any forms and undertakings required by the Securities Laws of the Offering Jurisdictions.  All fees payable in connection with such filings shall be at the expense of the Corporation.

(e)

No Offering Memorandum :  Neither the Corporation nor the Agents shall (i) provide to prospective purchasers of Offered Securities any document or other material that would constitute an offering memorandum within the meaning of the Securities Laws of the Offering Jurisdictions or (ii) engage in any form of general solicitation or general advertising in connection with the offer and sale of the Offered Securities, including but not limited to, causing the sale of the Offered Securities to be advertised in any newspaper, magazine, printed public media, printed media or similar medium of general and regular paid circulation, broadcast over radio, television or telecommunications, including electronic display or the Internet, or otherwise, or conduct any seminar or meeting relating to any offer and sale of the Offered Securities whose attendees have been invited by a general solicitation or general advertising.

4.

Due Diligence

The Corporation shall allow the Agents to conduct all due diligence investigations, including meeting with senior management of the Corporation and the Auditor, as the Agents shall consider appropriate in connection with the Offering.

5.

Deliveries By Closing Time

(a)

Deliveries :  By the Closing Time:

(i)

all actions required to be taken by or on behalf of the Corporation including, without limitation, the passing of all required resolutions of the directors, including committees of the directors, and shareholders of the Corporation, shall have occurred in order to complete the transactions contemplated by this Agreement and the Subscription Agreements, including, without limitation, to issue the Offered Securities, to create and issue the Broker Warrants and to reserve for issue and conditionally issue the Broker Shares, and a certified copy of all such resolutions shall have been delivered by the Corporation to the Agents;

(ii)

the Corporation shall have delivered or caused to be delivered to the Agents

A.

a favourable legal opinion of counsel to the Corporation, DuMoulin Black, addressed to, among others, the Agents and the Purchasers substantially in the form of the opinion attached hereto as schedule A,

B.

favourable legal opinions of counsel to the Corporation in the Provinces of Alberta and Ontario (to the extent the Securities Laws of such provinces are applicable) addressed to, among others, the Agents and the Purchasers, with respect to the Securities Laws of the Provinces of Alberta and Ontario and such other matters as the Agents may reasonably require and in form acceptable to the Agents,

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C.

a favourable title opinion of Gowling Lafleur Henderson s.r.l. with respect to title to the Casa Berardi property of the Corporation addressed to, among others, the Agents and the Purchasers,

D.

a certificate dated the Closing Date signed by an appropriate officer of the Corporation and addressed to, among others, the Agents and the Purchasers with respect to the memorandum and articles of the Corporation, the resolutions of the directors and shareholders, if any, of the Corporation and any other corporate action taken relating to this Agreement and the Ancillary Documents and with respect to such other matters as the Agents may reasonably request and including specimen signatures of the signing officers of the Corporation,

E.

a certificate dated the Closing Date addressed to, among others, the Agents and the Purchasers signed by the chief executive officer and the chief financial officer of the Corporation or any two other senior officers of the Corporation acceptable to the Agents substantially in the form of the certificate attached hereto as schedule B ,

F.

a Subscription Agreement from each Purchaser accepted by the Corporation,

G.

definitive certificates representing the Offered Securities registered in the names of the Purchasers or in such other name or names as the Purchasers or the Agents may direct,

H.

definitive certificates representing the Broker Warrants registered in the name of the Agents or in such other name or names as the Agents may direct, and

I.

such further documents as may be contemplated by this Agreement or as the Agents may reasonably require,

all in form and substance satisfactory to the Agents;

(iii)

the Corporation shall have delivered or cause to be delivered payment of the amount payable by the Corporation to the Agents by certified cheque or bank draft, including ( i) the commission payable by the Corporation to the Agents as provided in section 7 of this Agreement against delivery from the Agents to the Corporation of a receipt for the payment of such commission, (ii) the expenses (excluding legal expenses) payable by the Corporation to the Agents as provided in section 12 of this Agreement against delivery from the Agents to the Corporation of a receipt for the payment of such expenses, and (iii) the legal expenses payable by the Corporation to counsel for the Agents as provided in section 12 of this Agreement against delivery from such legal counsel to the Corporation of a receipt for the payment of such legal expenses; and

(iv)

the Agents shall have delivered or cause to be delivered to the Corporation

A.

payment of the aggregate gross Purchase Price for the Offered Securities purchased by the Purchasers by certified cheque or bank draft payable to the Corporation or as the Corporation may otherwise direct in writing

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against delivery from the Corporation to the Agents of a receipt for the aggregate gross Purchase Price for the Offered Securities, and

B.

such further documents as may be contemplated by this Agreement or as the Corporation may reasonably require,

all in form and substance satisfactory to the Corporation.

6.

Closing

(a)

Closing :  The Closing shall be completed at the offices of counsel for the Agents at the Closing Time on the Closing Date.

(b)

Conditions of Closing :  The following are conditions precedent to the obligation of the Agents to complete the Closing and of the Purchasers to purchase the Offered Securities, which conditions the Corporation hereby covenants and agrees to use its best efforts to fulfill within the time set out herein therefor, and which conditions may be waived in writing in whole or in part by the Agents:

(i)

the Corporation shall have received all necessary approvals and consents, including all necessary regulatory approvals and consents (including those of the Stock Exchanges) required for the completion of the transaction contemplated by this Agreement, all in a form satisfactory to the Agents and the Stock Exchanges shall have conditionally approved the listing thereon of the Subject Shares, subject to the fulfillment of normal conditions;

(ii)

receipt by the Agents of the documents set forth in section 5 of this Agreement to be delivered to the Agents;

(iii)

the representations and warranties of the Corporation contained herein being true and correct as of the Closing Time with the same force and effect as if made at and as of the Closing Time after giving effect to the transactions contemplated hereby;

(iv)

the Corporation having complied with all covenants, and satisfied all terms and conditions, contained herein to be complied with and satisfied by the Corporation at or prior to the Closing Time; and

(v)

the Agents not having previously terminated the obligations thereof pursuant to this Agreement.

7.

Fee

(a)

Commission :  In consideration of the agreement of the Agents to act as agents of the Corporation in respect of the Offering, and in consideration of the services performed and to be performed by the Agents in connection therewith, including, without limitation:

(i)

finding purchasers to purchase Offered Securities;

(ii)

participating in the preparation of the form of the Subscription Agreements and certain of the Ancillary Documents; and

(iii)

advising the Corporation with respect to the private placement of the Offered Securities;

 

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the Corporation shall pay to the Agents or as the Agents may otherwise direct at the Closing Time against receipt of payment of the purchase price for the Offered Securities, a fee of 6% of the aggregate Purchase Price for the Offered Securities.

(b)

Taxes:  The Corporation and the Agents acknowledge and agree that if a separate fee would have been charged to the Corporation for the services described in clause 7(a)(i) above, such separate fee would represent more than 50% of the fee payable to the Agents, and the Corporation hereby further acknowledges and agrees that the Agents will rely on the foregoing statement in not charging federal goods and services tax on such fee and that the Corporation will forthwith pay to the Agents any such tax and any applicable interest and penalties to the extent determined to be exigible.

(c)

Broker Warrants :  In addition to the commission payable to the Agents pursuant to subsection 7(a) hereof, as additional consideration for the services performed and to be performed by the Agents hereunder, the Corporation shall issue to the Agents or as the Agents may otherwise direct at the Closing Time Broker Warrants which entitle the holders thereof to acquire in the aggregate Common Shares equal in number to 4% of the number of Offered Securities sold, in form and substance satisfactory to the Agents.  

8.

Representations and Warranties

The Corporation hereby represents and warrants to the Agents and the Purchasers, and acknowledges that the Agents and the Purchasers are relying upon each of such representations and warranties in completing the Closing, as follows:

(a)

Incorporation and Organization:  The Corporation has been incorporated and organized and is a valid and subsisting corporation under the laws of its jurisdiction of incorporation and has all requisite corporate power and authority to carry on its business as now conducted or proposed to be conducted and to own or lease and operate the property and assets thereof and the Corporation has all requisite corporate power and authority to enter into, execute and deliver this Agreement and the Subscription Agreements and to carry out the obligations thereof hereunder and thereunder.

(b)

Extra-provincial Registration:  The Corporation is licensed, registered or qualified as an extra-provincial or foreign corporation in all jurisdictions where the character of the property or assets thereof owned or leased or the nature of the activities conducted by it make licensing, registration or qualification necessary and is carrying on the business thereof in compliance with all applicable laws, rules and regulations of each such jurisdiction.

(c)

Authorized Capital:  The Corporation is authorized to issue, among other things, 500,000,000 Common Shares and 100,000,000 preferred shares, of which, as of June 29, 2004, 97,946,603 Common Shares were issued and outstanding as fully paid and non-assessable shares and no preferred shares were outstanding.

(d)

Listing:  The Common Shares are, and at the time of issue of the Offered Securities will be, listed on the Stock Exchanges and the Offered Securities will, at the time of issue thereof, have been conditionally listed on the Stock Exchanges.  The Corporation has not issued, or agreed to issue, any Common Shares or any securities exchangeable or exercisable for, or convertible into, Common Shares at an effective price per Common Share which is less than the Purchase Price during the 60 day period immediately preceding the date hereof.

 

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(e)

Certain Securities Law Matters:  The Common Shares are listed on the Stock Exchanges, the Corporation is a reporting issuer or the equivalent only in the Reporting Provinces and the United States and is not in default of any requirement of the Securities Laws of any of such provinces and the Offered Securities have not been and will not be registered under the Securities Act of 1933 (United States), as amended.

(f)

Resale of Securities:  The Offered Securities will not be subject to a restricted period or statutory hold period under the Securities Laws of the Offering Jurisdictions or to any resale restriction under the policies of the Stock Exchanges which extends beyond four months and one day after the Closing Date.

(g)

Rights to Acquire Securities:  No Person has any agreement, option, right or privilege (whether pre-emptive, contractual or otherwise) capable of becoming an agreement for the purchase, acquisition, subscription for or issue of any of the unissued shares or other securities of the Corporation, except that, as at June 29, 2004, an aggregate of 9,028,623 Common Shares were reserved for issue pursuant to outstanding options, warrants, share incentive plans, convertible, exercisable and exchangeable securities and other rights to acquire Common Shares.

(h)

No Pre-emptive Rights:  The issue of the Offered Securities will not be subject to any pre-emptive right or other contractual right to purchase securities granted by the Corporation or to which the Corporation is subject.

(i)

Offered Securities:  The execution of each of this Agreement and the Subscription Agreements and the issue by the Corporation to the Purchasers of the Offered Securities will be exempt from the registration and prospectus requirements of Securities Laws.

(j)

Subsidiaries:  The Corporation does not have any subsidiaries within the meaning of the Ontario Act.

(k)

Issue of Offered Securities:  All necessary corporate action has been taken to authorize the issue and sale of, and the delivery of certificates representing, the Offered Securities and, upon payment of the requisite consideration therefor, the Offered Securities will be validly issued as fully paid and non-assessable shares.

(l)

Consents, Approvals and Conflicts:  None of the offering and sale of the Offered Securities, the execution and delivery of this Agreement, the Subscription Agreements, the compliance by the Corporation with the provisions of this Agreement or the consummation of the transactions contemplated herein or therein including, without limitation, the incurring of Resource Expenses and the issue of the Offered Securities to the Purchasers for the consideration and upon the terms and conditions as set forth herein, do or will (i) require the consent, approval, or authorization, order or agreement of, or registration or qualification with, any governmental agency, body or authority, court, stock exchange, securities regulatory authority or other Person, except (A) such as have been obtained, or (B) such as may be required under Securities Laws and the policies of the Stock Exchanges and will be obtained by the Closing Date, or (ii) conflict with or result in any breach or violation of any of the provisions of, or constitute a default under, any indenture, mortgage, deed of trust, lease or other agreement or instrument to which the Corporation is a party or by which it or any of the properties or assets thereof is bound, or the memorandum or articles of the Corporation or any resolution passed by the directors (or any committee thereof) or shareholders of the Corporation, or any statute or any judgment, decree, order, rule, policy or regulation of any court, governmental authority, arbitrator, stock exchange or securities regulatory authority applicable to the

 

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Corporation or any of the properties or assets thereof which could have a material adverse effect on the condition (financial or otherwise), business, properties or results of operations of the Corporation.

(m)

Authority and Authorization:  The Corporation has full corporate power and authority to enter into this Agreement and the Subscription Agreements and to do all acts and things and execute and deliver all documents as are required hereunder and thereunder to be done, observed, performed or executed and delivered by it in accordance with the terms hereof or thereof and the Corporation has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement and the Subscription Agreements and to observe and perform the provisions of this Agreement and the Subscription Agreements in accordance with the provisions hereof and thereof including, without limitation, the incurring of Resource Expenses and the issue of the Offered Securities to the Purchasers for the consideration and upon the terms and conditions set forth herein.

(n)

Validity and Enforceability:  Each of this Agreement and the Subscription Agreements has been authorized, executed and delivered by the Corporation and constitutes a valid and legally binding obligation of the Corporation enforceable against the Corporation in accordance with its terms (subject to applicable bankruptcy, insolvency and other similar laws affecting the rights of creditors generally and the qualification that the granting of equitable remedies such as specific performance and injunctive relief is within the discretion of a court of competent jurisdiction).

(o)

Broker Warrants :  

(i)

The Corporation has all requisite corporate power and authority to issue the Broker Warrants and to enter into, execute and deliver and to carry out the obligations thereof under the Broker Warrant Certificates.  All necessary corporate action has been taken by the Corporation to authorize the issue of the Broker Warrants in accordance with the terms and conditions hereof and, when issued, the Broker Warrants will be validly issued and to authorize the creation, execution, delivery and performance of the Broker Warrant Certificates and to observe and perform the provisions of the Broker Warrant Certificates in accordance with the provisions thereof including, without limitation, the issue of the Broker Shares for the consideration and upon the terms and conditions set forth in the Broker Warrant Certificates.

(ii)

The Broker Warrant Certificates constitute valid and legally binding obligations of the Corporation enforceable against the Corporation in accordance with the terms thereof.  None of the issue of the Broker Warrants, the execution and delivery of the Broker Warrant Certificates, the compliance by the Corporation with the provisions of the Broker Warrant Certificates or the consummation of the transactions contemplated therein including, without limitation, the issue of the Broker Shares for the consideration and upon the terms and conditions set forth in the Broker Warrant Certificates, do or will (i) require the consent, approval, or authorization, order or agreement of, or registration or qualification with, any governmental agency, body or authority, court, Stock Exchanges, securities regulatory authority or other Person, except (A) such as have been obtained, or (B) such as may be required under applicable Securities Laws and the policies of the Stock Exchanges and will be obtained by the Closing Date, or (ii) conflict with or result in any breach or violation of any of the provisions of, or constitute a default under, any indenture, mortgage, deed of trust, lease or

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other agreement or instrument to which the Corporation is a party or by which it or any of the properties or assets thereof is bound, or the articles or by-laws of the Corporation or any resolution passed by the directors (or any committee thereof) or shareholders of the Corporation, or any statute or any judgment, decree, order, rule, policy or regulation of any court, governmental authority, any arbitrator, Stock Exchanges or securities regulatory authority applicable to the Corporation or any of the properties or assets thereof which could have a material adverse effect on the condition (financial or otherwise), business, properties or results of operations of the Corporation.

(iii)

None of the issue of the Broker Warrants or the Broker Shares will be subject to any pre-emptive right or other contractual right to purchase securities granted by the Corporation or to which the Corporation is subject.  

(iv)

The issue by the Corporation to the Agents of the Broker Warrants will be exempt from the registration and prospectus requirements of the Securities Laws of the Provinces of British Columbia and Ontario.  The Broker Shares will not be subject to a restricted period or statutory hold period under the Securities Laws of the Province of British Columbia or Ontario or to any resale restrictions under the policies of the Stock Exchanges which extends beyond four months and one day after the Closing Date.

(p)

Public Disclosure:  Each of the documents which contains any of the Information is, as of the date thereof, in compliance in all material respects with the Securities Laws of the Reporting Provinces and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and such documents collectively constitute full, true and plain disclosure of all material facts relating to the Corporation and do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, as of the date hereof.  There is no fact known to the Corporation which the Corporation has not publicly disclosed which materially adversely affects, or so far as the Corporation can reasonably foresee, will materially adversely affect, the assets, liabilities (contingent or otherwise), capital, affairs, business, prospects, operations or condition (financial or otherwise) of the Corporation or the ability of the Corporation to perform its obligations under this Agreement or which would otherwise be material to any Person intending to make an equity investment in the Corporation.

(q)

Timely Disclosure:  The Corporation is in compliance with all timely disclosure obligations under the Securities Laws of the Reporting Provinces, and, without limiting the generality of the foregoing, there has not occurred any material adverse change, in the assets, liabilities (contingent or otherwise), capital, affairs, business, prospects, operations or condition (financial or otherwise) of the Corporation which has not been publicly disclosed and none of the documents filed by or on behalf of the Corporation pursuant to the Securities Laws of the Reporting Provinces contains a misrepresentation (as such term is defined in the Ontario Act) at the date of the filing thereof.

(r)

No Cease Trade Order:  No order preventing, ceasing or suspending trading in any securities of the Corporation or prohibiting the issue and sale of securities by the Corporation has been issued and no proceedings for either of such purposes have been instituted or, to the best of the knowledge of the Corporation, are pending, contemplated or threatened.

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(s)

Accounting Controls:  The Corporation maintains a system of internal accounting controls sufficient to provide reasonable assurance that:  (i) transactions are completed in accordance with the general or a specific authorization of management of the Corporation; (ii) transactions are recorded as necessary to permit preparation of financial statements for the Corporation in conformity with Canadian generally accepted accounting principles and to maintain asset accountability; (iii) access to assets of the Corporation is permitted only in accordance with the general or a specific authorization of management of the Corporation; and (v) the recorded accountability for assets of the Corporation is compared with the existing assets of the Corporation at reasonable intervals and appropriate action is taken with respect to any differences therein.

(t)

Financial Statements:  The audited financial statements of the Corporation for the year ended December 31, 2003, together with the auditors' report thereon and the notes thereto, and the unaudited interim financial statements of the Corporation for the period ended March 31, 2004 and the notes thereto, have been prepared in accordance with Canadian generally accepted accounting principles applied on a basis consistent with prior periods (except as disclosed in such financial statements), are substantially correct in every particular and present fairly the financial condition and position of the Corporation as at the dates thereof and such financial statements contain no direct or implied statement of a material fact which is untrue on the date of such financial statements and do not omit to state any material fact which is required by Canadian generally accepted accounting principles or by applicable law to be stated or reflected therein or which is necessary to make the statements contained therein not misleading.

(u)

Changes in Financial Position:  Since March 31, 2004:

(i)

the Corporation has not paid or declared any dividend or incurred any material capital expenditure or made any commitment therefore;

(ii)

the Corporation has not incurred any obligation or liability, direct or indirect, contingent or otherwise, except in the ordinary course of business and which is not, and which in the aggregate are not, material; and

(iii)

the Corporation has not entered into any material transaction;

except in each case as disclosed in the Information.

(v)

Insolvency:  The Corporation has not committed an act of bankruptcy or sought protection from its creditors before any court or pursuant to any legislation, proposed a compromise or arrangement to its creditors generally, taken any proceeding with respect to a compromise or arrangement, taken any proceeding to be declared bankrupt or wound up, taken any proceeding to have a receiver appointed of any of its assets, had any Person holding any encumbrance, lien, charge, hypothec, pledge, mortgage, title retention agreement or other security interest or receiver take possession of any of its property, had an execution or distress become enforceable or levied upon any portion of its property or had any petition for a receiving order in bankruptcy filed against it.

(w)

No Contemplated Changes:  Except as disclosed in the Information, the Corporation has not approved, is not contemplating, has not entered into any agreement in respect of, and has no knowledge of:

(i)

the purchase of any property or assets or any interest therein or the sale, transfer or other disposition of any property or assets or any interest therein currently

 

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owned, directly or indirectly, by the Corporation whether by asset sale, transfer of shares or otherwise;

(ii)

the change of control (by sale or transfer of shares or sale of all or substantially all of the property and assets of the Corporation or otherwise) of the Corporation; or

(iii)

a proposed or planned disposition of shares by any shareholder who owns, directly or indirectly, 10% or more of the outstanding shares of the Corporation.

(x)

Insurance:  The assets of the Corporation and the business and operations thereof are insured against loss or damage with responsible insurers on a basis consistent with insurance obtained by reasonably prudent participants in a comparable business in comparable circumstances, such coverage is in full force and effect and the Corporation has not failed to promptly give any notice or present any material claim thereunder.

(y)

Taxes and Tax Returns:  The Corporation has filed in a timely manner all necessary tax returns and notices and has paid all applicable taxes of whatsoever nature for all tax years prior to the date hereof to the extent that such taxes have become due or have been alleged to be due and the Corporation is not aware of any tax deficiencies or interest or penalties accrued or accruing, or alleged to be accrued or accruing, thereon where, in any of the above cases, it might reasonably be expected to result in any material adverse change in the condition (financial or otherwise), or in the earnings, business, affairs or prospects of the Corporation and there are no agreements, waivers or other arrangements providing for an extension of time with respect to the filing of any tax return by the Corporation or the payment of any material tax, governmental charge, penalty, interest or fine against the Corporation.  There are no material actions, suits, proceedings, investigations or claims now threatened or pending against the Corporation which could result in a material liability in respect of taxes, charges or levies of any governmental authority, penalties, interest, fines, assessments or reassessments or any matters under discussion with any governmental authority relating to taxes, governmental charges, penalties, interest, fines, assessments or reassessments asserted by any such authority and the Corporation has withheld (where applicable) from each payment to each of the present and former officers, directors, employees and consultants thereof the amount of all taxes and other amounts, including, but not limited to, income tax and other deductions, required to be withheld therefrom, and has paid the same or will pay the same when due to the proper tax or other receiving authority within the time required under applicable tax legislation.

(z)

Compliance with Laws, Licenses and Permits:  The Corporation has conducted and is conducting its business in compliance in all material respects with all applicable laws, rules, regulations, tariffs, orders and directives of each jurisdiction in which it carries on business and possesses all material approvals, consents, certificates, registrations, authorizations, permits and licenses issued by the appropriate provincial, state, municipal, federal or other regulatory agency or body necessary to carry on the business currently carried on, or contemplated to be carried on, by it, is in compliance in all material respects with the terms and conditions of all such approvals, consents, certificates, authorizations, permits and licenses and with all laws, regulations, tariffs, rules, orders and directives material to the operations thereof, and the Corporation has not received any notice of the modification, revocation or cancellation of, or any intention to modify, revoke or cancel or any proceeding relating to the modification, revocation or cancellation of any such approval, consent, certificate, authorization, permit or license which, singly or in the aggregate, if the subject of an unfavourable decision, order, ruling

 

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or finding, would materially adversely affect the conduct of the business or operations of, or the assets, liabilities (contingent or otherwise), condition (financial or otherwise) or prospects of, the Corporation.

(aa)

Agreements and Actions:  The Corporation is not in violation of any term of its memorandum or articles.  The Corporation is not in violation of any term or provision of any agreement, indenture or other instrument applicable to it which would, or could, result in any material adverse effect on the business, condition (financial or otherwise), capital, affairs or operations of the Corporation, nor is the Corporation in default in the payment of any obligation owed which is now due and there is no action, suit, proceeding or investigation commenced, pending or, to the knowledge of the Corporation after due inquiry, threatened which, either in any case or in the aggregate, might result in any material adverse effect on the business, condition (financial or otherwise), capital, affairs, prospects or operations of the Corporation or in any of the material properties or assets thereof or in any material liability on the part of the Corporation or which places, or could place, in question the validity or enforceability of this Agreement, the Subscription Agreements or any document or instrument delivered, or to be delivered, by the Corporation pursuant hereto or thereto.

(bb)

Owner of Property:  The Corporation is the absolute legal and beneficial owner of, and has good and marketable title to, all of the material property or assets thereof as described in the Information, free of all mortgages, liens, charges, pledges, security interests, encumbrances, claims or demands whatsoever, other than those described in the Information, and no other property rights are necessary for the conduct of the business of the Corporation as currently conducted or contemplated to be conducted, the Corporation does not know of any claim or the basis for any claim that might or could adversely affect the right thereof to use, transfer or otherwise exploit such property rights and, except as disclosed in the Information, the Corporation does not have any responsibility or obligation to pay any commission, royalty, licence fee or similar payment to any Person with respect to the property rights thereof.

(cc)

Mineral Rights:  The Corporation holds either freehold title, mining leases, mining claims or other conventional property, propri