Document:

Filed by sedaredgar.com - Endeavour Silver Corp. - Exhibit 10.1

EXECUTION VERSION 

CDN$14,000,000
Subordinated Unsecured Convertible
Redeemable Debentures 

ENDEAVOUR SILVER CORP. 

PLACEMENT AGENCY AGREEMENT 

February 26, 2009 

EURO PACIFIC CAPITAL, INC. 
4667 MacArthur Blvd., Ste. 340

Newport Beach, CA 92660 

SALMAN PARTNERS, INC. 
1095 West Pender Street, 17th Floor

Vancouver, B.C.
V6E 2M6 

Ladies and Gentlemen: 

          Endeavour
Silver Corp., a corporation organized under the laws of the Province of British
Columbia, Canada (the “Company”), proposes to issue and sell to one or
more qualified investors (each a “Purchaser” and collectively, the
“Purchasers”), pursuant to the terms of this Placement Agent Agreement
(this “Agreement”), the Subscription Agreement in the form of
Exhibit A attached hereto (the “Subscription Agreement”),
the Indenture in the form of Exhibit B attached hereto (the
“Indenture”), the Warrants (as defined below) in the form of
Exhibit C attached hereto and (the Warrants, together with this
Agreement, the Subscription Agreements, the Indenture, the Notes (as defined
below) and any other documents or agreements entered into in connection with the
Offering, the “Offering Documents”), up to CDN$14 million in aggregate
principal amount of convertible debentures (the “Notes”) (with the
principal amount of each debenture equal to CDN$1,000), which are convertible,
based on an initial conversion price of CDN$1.90, into units of the Company (the
“Units”), with each Unit consisting of (i) one common share of the
Company, no par value and (ii) one half of a common share purchase warrant (the
“Warrants”). The common shares issuable upon conversion of the Notes are
hereinafter referred to as the “Shares,” the common shares issuable upon
exercise of the Warrants are hereinafter referred to as the “Warrant
Shares” and the Notes, the Shares, the Warrants and the Warrant Shares are
collectively referred to herein as the “Securities.” The Company desires
to engage Euro Pacific Capital Inc. (“Euro Pacific”) and Salman Partners,
Inc. (“Salman Partners” and, together with Euro Pacific, the
“Placement Agents” and, each a “Placement Agent”) as its exclusive
placement agents in connection with the issuance and sale of the Notes in
accordance with the terms and conditions hereof. 

                         1.     
  Agreement to Act as Placement Agents. On the basis of the representations,
  warranties and agreements of the Company and the Placement Agents herein contained
  and subject to all of the terms and conditions of this Agreement:

EXECUTION VERSION 

                                   1.1.     
Authorization and Appointment of Placement Agents. The Company hereby
authorizes and appoints the Placement Agents to act as its exclusive placement
agents to solicit offers for the purchase of all or part of the Notes from the
Company in connection with the proposed offering of the Notes (the
“Offering”). Until the Closing Date (as defined in Section 3.1
hereof), the Company will not, without the prior written consent of the
Placement Agents, solicit or accept offers to purchase Notes otherwise than
through the Placement Agents.

                                   1.2.      Obligations
of the Placement Agents. The Placement Agents, as agents of the Company,
will use commercially reasonable efforts to solicit offers to purchase the Notes
from the Company on the terms and subject to the conditions set forth in the
Offering Documents. The Placement Agents will use commercially reasonable
efforts to obtain performance by each Purchaser whose offer to purchase Notes
was solicited by such Placement Agent and accepted by the Company, but the
Placement Agents will not, except as otherwise provided in this Agreement, be
obligated to disclose the identity of any potential purchaser or have any
liability to the Company in the event any such purchase is not consummated for
any reason. Under no circumstances will the Placement Agents be obligated to
underwrite or purchase any Notes for their own accounts and, in soliciting
purchases of Notes, the Placement Agents will act solely as the Company’s agents
and not as principals. Notwithstanding the foregoing, it is understood and
agreed that the Placement Agents (or their respective affiliates) may, solely at
their discretion and without any obligation to do so, purchase Notes as
principals. 

                                   1.3.     
Offers to Purchase; Acceptance. Subject to the provisions of this
Section 1, offers for the purchase of Notes will be solicited by the
Placement Agents as agents for the Company at such times and in such amounts as
the Placement Agents deem advisable. Euro Pacific will solicit offers for the
purchase of the Notes solely within the United States and Salman Partners will
solicit offers for the purchase of the Notes solely within Canada (other than
with respect to orders made by members of the President’s List provided to the
Placement Agents by the Company). The Placement Agents will communicate to the
Company, orally or in writing, each reasonable offer to purchase Notes received
by them as agents of the Company. The Company will have the sole right to accept
offers to purchase the Notes and may reject any such offer, in whole or in part.
The Placement Agents will have the right, in their discretion reasonably
exercised, without notice to the Company, to reject any offer to purchase Notes
received by them, in whole or in part, and any such rejection will not be deemed
a breach of this Agreement. Euro Pacific covenants that none of it, any of its
sub-agents or any of its affiliates will sell or solicit offers to purchase the
Notes or conduct other selling efforts outside of the United States and Salman
Partners covenants that none of it, any of its sub-agents or any of its
affiliates will sell or solicit offers to purchase the Notes or conduct other
selling efforts outside of Canada (other than with respect to orders made by
members of the President’s List provided to the Placement Agents by the
Company). Each Placement Agent covenants that it will not make any
representations or warranties with respect to the Company or the Offering other
than as set out in the Offering Documents. 

                                   1.4.      Offering
Documents. The purchases of the Notes by the Purchasers is evidenced by the
execution of the Subscription Agreements. 

2 

EXECUTION VERSION 

                                   1.5.     
Compensation of Euro Pacific. As compensation for the services rendered
hereunder, on the Closing Date (as defined below), the Company will (i) pay to
Euro Pacific, by wire transfer of immediately available U.S. funds payable to
the order of Euro Pacific, to an account or accounts designated by Euro Pacific,
an amount (the “Euro Pacific Fee”) equal to (A) 7.0% of the aggregate
gross proceeds received by the Company from the sale of the Notes by Euro
Pacific, plus (B) 2.0% of the aggregate gross proceeds received by the Company
from the sale of the Notes by Salman Partners, minus (C) an amount equal to 10%
of the aggregate cash fee paid by the Company to the Placement Agents with
respect to the sale of Notes that represents the portion of the aggregate
proceeds from the sale of all Notes that is between CDN$8 million and CDN$14
million; provided, however, that under no circumstances will the total deduction
required by this clause (C) exceed CDN$42,000 and (ii) issue Euro Pacific a
common share purchase warrant (the “Agent Warrant”) to purchase such
number of common shares as is equal to 7.0% of the aggregate gross proceeds
received by the Company in connection with the Offering (whether as a result of
sales by Euro Pacific or by Salman Partners) divided by CDN$1.52. The exercise
price for the Agent Warrant is CDN$1.90 per common share. Except as otherwise
provided herein, the Agent Warrant will contain terms identical to the Warrants
issued to the Purchasers upon conversion of the Notes. Expenses incurred by the
Placement Agents in connection with the Offering will be reimbursed in
accordance with, and subject to the aggregate limitation set out in, Section
5 of this Agreement. Subject to receipt by the Company of the Fee
Confirmation Certificate (as defined below) in accordance with Section
1.7 of this Agreement, Euro Pacific may deduct the Euro Pacific Fee from
the gross proceeds of the sale of Notes by Euro Pacific prior to delivering such
proceeds to the Company in accordance with the terms of this Agreement. Subject
to receipt by the Company of the Reimbursement Certificate (as defined below),
at least one (1) day prior to the Closing Date, and in accordance with
Section 5 of this Agreement, Euro Pacific may deduct such fees
reimbursable to Euro Pacific, as set forth in the Reimbursement Certificate,
from the gross proceeds of the sale of the Notes by Euro Pacific prior to
delivering such proceeds to the Company in accordance with the terms of this
Agreement. 

                                   1.6.     
Compensation of Salman Partners. As compensation for the services
rendered hereunder, on the Closing Date (as defined below), the Company will pay
to Salman Partners, by wire transfer of immediately available Canadian funds
payable to the order of Salman Partners, to an account or accounts designated by
Salman Partners, an amount (the “Salman Partners Fee” and, collectively
with the Euro Pacific Fee, the “Placement Agent Fee”) equal to (i) 5.0%
of the aggregate gross proceeds received by the Company from the sale of the
Notes by Salman Partners plus (ii) an amount equal to 10% of the aggregate cash
fee paid by the Company to the Placement Agents with respect to the sale of
Notes that represents the portion of the aggregate proceeds from the sale of all
Notes that is between CDN$8 million and CDN$14 million; provided, however, that
under no circumstances will the total addition required by this clause (ii)
exceed CDN$42,000. Salman Partners may deduct the Salman Partners Fee from the
gross proceeds of the sale of Notes by Salman Partners prior to delivering such
proceeds to the Company in accordance with the terms of this Agreement. Subject
to receipt by the Company of the Reimbursement Certificate (as defined below),
at least one (1) day prior to the Closing Date, and in accordance with
Section 5 of this Agreement, Salman Partners may deduct such fees
reimbursable to Salman Partners, as set forth in the Reimbursement Certificate,
from the gross proceeds of the sale of the Notes by Salman Partners prior to
delivering such proceeds to the Company in accordance with the terms of this
Agreement. 

3 

EXECUTION VERSION 

                                   1.7.     
Fee Confirmation Certificate. The Placement Agents covenant and agree to
deliver a joint certificate (the “Fee Certification Certificate”) to the
Company, at least one (1) day prior to the Closing Date (as defined below)
confirming the breakdown of the aggregate Placement Agent Fee between the
Placement Agents and, if necessary, providing wire transfer instructions.

                                   1.8.      Brokers,
Dealers and Sub-Agents. Subject to the limitations imposed in Section
1.3 of this Agreement, each Placement Agent may, in its discretion, use its
registered broker-dealer affiliates and retain other brokers or dealers to act
as sub-agents on such Placement Agent’s behalf in connection with the Offering,
provided that the Company will not be obligated to pay any additional amounts to
such Placement Agent or any such sub-agent with respect thereto; provided,
further, that such Placement Agent shall require any such person to agree in
writing, for the benefit of the Company, to comply with, and shall use its best
efforts to ensure such person complies with, the same provisions of this
Agreement and applicable securities laws as apply to such Placement Agent as if
such provisions and laws applied to such person. 

                                   1.9.      Delivery
of Notes. No Notes which the Company has agreed to sell pursuant to this
Agreement and the other Offering Documents will be deemed to have been purchased
and paid for, or sold by the Company, until such Notes will have been delivered
to the Purchaser thereof against payment by such Purchaser. If the Company
defaults in its obligations to deliver Notes to a Purchaser whose offer it has
accepted, and whose full payment for such Notes has been received by the
Company, the Company will indemnify and hold the respective Placement Agent
harmless against any loss, claim, damage or expense to such Placement Agent
arising from or as a result of such default by the Company in accordance with
the procedures set forth in Section 7.1 herein. 

                                   1.10.     
Restricted Securities; Regulation D Offering. The Placement Agents agree
that the Securities have not been and will not be registered under the United
States Securities Act of 1933, as amended (the “Securities Act”), or the
securities laws of any state of the United States, and the Notes may not be
offered or sold except pursuant to the exemption from the registration
requirements of the Securities Act contained in Rule 506 of Regulation D under
the Securities Act (“Regulation D”) and pursuant to similar exemptions
under applicable state securities laws and only to “accredited investors,” as
such term is defined in Rule 501(a) of Regulation D (“Accredited
Investors”).

                                   1.11.     
Broker-Dealer Registration and Compliance. Each Placement Agent
represents, warrants and covenants that all offers of the Notes have been made
and will be made in compliance with Rule 506 of Regulation D and applicable
state securities laws and only by such Placement Agent or such Placement Agent’s
U.S. registered broker-dealer affiliate (“U.S. Affiliate”), if
applicable, who (i) as of the date hereof is, and as of the Closing Date will
continue to be, a broker-dealer registered pursuant to Section 15(b) of the
United States Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and under applicable state securities laws (unless exempted from the
respective state’s broker-dealer registration requirements), (ii) as of the date
hereof is, and as of the Closing Date will continue to be, a member of and in
good standing with the Financial Industry Regulatory Authority, Inc., in
compliance with applicable U.S. federal and state broker-dealer requirements,
and (iii) has good 

4 

EXECUTION VERSION 

and sufficient power and authority to enter into this
Agreement, if a party hereto, and fulfill its obligations hereunder.

                                                  (b)
Salman Partners represents, warrants and covenants that (i) it is appropriately
registered in such provinces of Canada, as may be necessary, so as to permit it
to lawfully fulfill its obligations hereunder and (ii) all of the offers and
sales of Notes, and its or its sub-agent’s solicitation and selling efforts
related thereto, made in Canada have been made and will be made in compliance
with all applicable securities and other laws, rules, regulations, instruments,
notices, blanket orders, procedures and policies in Canada. 

                                   1.12.     
Not a Public Offering; Regulation M. Each Placement Agent represents,
warrants and covenants that (i) all offers of Notes have not been made and will
not be made by it (A) by any form of “general solicitation or general
advertising” (as those terms are used in Regulation D), including, but not
limited to, advertisements, articles, notices or other communications published
in any newspaper, magazine, or similar media or on the Internet or broadcast
over radio, television or the Internet, or any seminar or meeting whose
attendees had been invited by general solicitation or general advertising;
provided, however, that neither Placement Agent makes any representation or
warranty regarding any action that the Company may have taken that may
constitute a “general solicitation or general advertising” (as those terms are
defined in Regulation D) or (B) in any manner involving a public offering within
the meaning of Section 4(2) of the Securities Act, and (ii) it has not taken and
will not take any action that would constitute a violation of Regulation M under
the Exchange Act in connection with the offer and sale of the Notes. 

                                   1.13.      Pre-Existing
Relationship; Subscription Agreement. Each Placement Agent represents,
warrants and covenants that it has offered and will offer the Notes only to
offerees with respect to which such Placement Agent or its U.S. Affiliate has a
pre-existing business relationship and has reasonable grounds to believe are
Accredited Investors, and that all purchasers of Notes shall prior to the
completion of any sale by the Company be required to execute and deliver a
subscription agreement in a form satisfactory to the Placement Agents and the
Company. 

                                   1.14.      Confidential
Information. Each Placement Agent hereby agrees that any Information (as
defined below) disclosed to it by the Company in connection with the Offering
may be used solely for the purposes of fulfilling such Placement Agent’s
obligations to the Company under this Agreement. All disclosure in any manner,
format or circumstance whatsoever of any Information between the parties hereto
is subject to the terms and conditions of this Section 1.14. Each
Placement Agent will at all times maintain the confidentiality of the
Information and, unless and until such information shall have been made publicly
available by the Company or by others without breach of a confidentiality
agreement and shall disclose the Information only as authorized by the Company
or as required by law or by order of a governmental authority or court of
competent jurisdiction. In the event that a Placement Agent is legally required
to make disclosure of any of the Information, it will give notice to the Company
prior to such disclosure, to the extent that it can practically do so. Upon
written request by the Company, such Placement Agent shall promptly return to
the Company or destroy, all Information (and copies thereof) and related
materials and such return and/or destruction shall be confirmed in writing by
such Placement Agent. “Information” means all financial and other 

5 

EXECUTION VERSION 

information regarding the Company so furnished by the Company
to the Placement Agents or their affiliates, agents, advisors or employees,
whether furnished before or after the date of this Agreement. The Company
represents and warrants that the Placement Agents will not possess any material
non-public information once the Company has satisfied its obligations under
Section 4.5 hereof. 

                                   1.15.     
No Short Selling. Each Placement Agent covenants and agrees that neither
it nor any of its associates, affiliates or sub-agents shall sell short any
common shares of the Company from the date hereof until the Closing Date. 

                         2.       
Representations and Warranties of the Company. The Company
represents and warrants to each Placement Agent and to each Purchaser that: 

                                   2.1.      Organization
and Qualification. Each of the Company and each Subsidiary (as defined
below) has been duly organized and is validly existing as corporations or other
legal entities in good standing (or the foreign equivalent thereof) under the
laws of its respective jurisdiction of organization. Each of the Company and
each Subsidiary is duly qualified to do business and is in good standing as
foreign corporations or other legal entities in each jurisdiction in which its
respective ownership or lease of property or the conduct of its respective
businesses requires such qualification and has all power and authority
(corporate or other) necessary to own or hold its respective properties and to
conduct the businesses in which each is engaged, except where the failure to so
qualify or have such power or authority (i) would not have, singularly or in the
aggregate, a material adverse effect on the condition (financial or otherwise),
results of operations, assets, business or prospects of the Company and its
Subsidiaries, taken as a whole, or (ii) impair in any material respect the
ability of the Company to perform its obligations under this Agreement or to
consummate any transactions contemplated by the Offering Documents (any such
effect as described in clauses (i) or (ii), a “Material Adverse
Effect”).

                                   2.2.      Subsidiaries.
The Company owns or controls, directly or indirectly, an interest in only the
following Persons (as defined below): Endeavour Gold Corporation, S.A. de C.V.,
Minera Plata Adelante, S.A. de C.V., Minera Sanda Cruz y Garibaldi, S.A. de
C.V., Refinadora Plata Guanacevi, S.A. de C.V., Metallurgica Guanacevi, S.A. de
C.V., Mina Bolanitos, S.A. de C.V., Endeavour Management Corp., S.A. de C.V.,
Guanacevi Mining Sevice, S.A. de C.V., Recursos Humanos Guanacevi, S.A. de C.V.
and Exploraciones, S.A. de C.V. (each a “Subsidiary” and, collectively,
the “Subsidiaries”). The Company owns, directly or indirectly, all of the
capital stock or other equity interests of each Subsidiary free and clear of any
lien, charge, security interest, encumbrance, right of first refusal, preemptive
right or other restriction (collectively, a “Lien”), and all of the
issued and outstanding shares of capital stock of each Subsidiary are validly
issued and are fully paid, non-assessable and free of preemptive and similar
rights to subscribe for or purchase securities. The Company or one of its
Subsidiaries has the unrestricted right to vote, and (subject to limitations
imposed by applicable law) to receive dividends and distributions on, all
capital securities of its Subsidiaries as owned by the Company or such
Subsidiary. 

                                   2.3.     
Filings, Consents and Approvals. The Company has the full right, power
and authority to enter into this Agreement and to carry on the transactions
contemplated 

6 

EXECUTION VERSION 

hereby. Neither the Company nor any of its Subsidiaries is
required to obtain any consent, approval, waiver, authorization or order of,
give any notice to, or make any filing or registration with, or qualification
of, any court or other federal, provincial, state, local or other Governmental
Body or other Person in connection with the execution, delivery and performance
by the Company of this Agreement, the other Offering Documents or the
transactions contemplated hereby and thereby, including the issuance and sale by
the Company of the Notes, the issuance of the Units upon due conversion of the
Notes in accordance with their terms and the issuance of the Warrant Shares upon
due exercise of the Warrants in accordance with their terms, other than (i) the
filing of a Form 6-K disclosing the transaction contemplated hereby in the form
of a press release with any other documents filed with the securities regulators
in Canada that are publicly available, (ii) the filing of an application for the
listing of additional securities to the NYSE Alternext U.S. and the Toronto
Stock Exchange (the “Principal Markets”) for the listing of the Shares,
the Warrant Shares and the common shares issuable upon the exercise of the Agent
Warrant for trading thereon in the time and manner required by such exchange,
(iii) the approval of the NYSE Alternext U.S. to rely upon a waiver from the
NYSE Alternext U.S. shareholder approval requirements set forth in Sections 7.12
and 7.13 of the NYSE Alternext U.S. Company Guide as set forth in Section 1.10
of such guide, (iv) the filing with the British Columbia Securities Commission
of the report of exempt distribution in Form 45-106F1 and (v) applicable notice
filings with the U.S. Securities and Exchange Commission (the
“Commission”) and state securities regulators or administrators and
foreign securities law filings (collectively, the “Required Approvals”).
“Person” means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.

                                   2.4.      Authorization
of Securities; Reservation of Shares. The Notes, when issued, sold and
delivered in accordance with the terms of the Offering Documents, for the
consideration expressed therein; the Shares and the Warrants when issued upon
due conversion of the Notes in accordance with their terms; and the Warrant
Shares when issued upon due exercise of the Warrants in accordance with their
terms, will be duly authorized and validly issued, and in the case of the Shares
and the Warrant Shares, will be fully paid and non-assessable and will not be
subject to any pre-emptive or similar right and will be free of restrictions on
transfer other than restrictions on transfer under applicable securities laws
and the rules of each of the Principal Markets. The Company has reserved from
its authorized capital the maximum number of common shares issuable pursuant to
the Offering Documents, including upon the due conversion of the Notes and the
due exercise of the Warrants.

                                   2.5.     
Capitalization. As of February 25, 2009, there were unlimited common
shares authorized and 51,507,018 common shares issued and outstanding, and
6,155,962 common shares were issuable upon the exercise of all options,
restricted stock units, warrants and convertible securities outstanding as of
such date. Since such date, the Company has not issued any equity securities,
other than common shares issued pursuant to the exercise of stock options
previously outstanding under the Company’s stock option plans or the issuance of
common shares pursuant to employee stock purchase plans. All of the Company’s
options, warrants and other rights to purchase or exchange any securities for
shares of the Company’s capital stock have been duly authorized and validly
issued and were issued in compliance in all material respects with U.S. and
Canadian federal and state securities laws. None of the outstanding common
shares were issued in violation of any preemptive rights, rights of first 

7 

EXECUTION VERSION 

refusal or other similar rights to subscribe for or purchase
securities of the Company. There are no authorized or outstanding common shares,
options, warrants, preemptive rights, rights of first refusal or other rights to
purchase, or equity or debt securities convertible into or exchangeable or
exercisable for, any shares of the Company or any of its Subsidiaries other than
those described above. 

                                   2.6.      No
Conflicts. The execution, delivery and performance of the Offering Documents
by the Company, the issuance and sale of the Securities and the consummation by
the Company of the other transactions contemplated hereby and thereby do not and
will not (i) conflict with or violate any provision of the Company’s or any
Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, result in the creation of any Lien upon any of the properties or
assets of the Company or any Subsidiary, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without notice,
lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) subject to the Required Approvals, conflict with or result in a material
violation of any Legal Requirement (as defined below) or other restriction of
any court or Governmental Body (as defined below) to which the Company or a
Subsidiary is subject (including United States federal and state securities laws
and regulations), or by which any property or asset of the Company or a
Subsidiary is bound or affected; except in the case of each of clauses (ii) and
(iii), such as could not have or reasonably be expected to result in a Material
Adverse Effect. For purposes of this Agreement, “Governmental Body” means
any: (a) nation, state, commonwealth, province, territory, county, municipality,
district or other jurisdiction of any nature; (b) federal, state, local,
municipal, foreign or other government; or (c) governmental or
quasi-governmental authority of any nature (including any governmental or
administrative division, department, agency, commission, instrumentality,
official, organization, unit, body or entity) and any court or other tribunal;
and “Legal Requirement” means any federal state, local, municipal,
foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Body (or under the
authority of any national securities exchange upon which the common shares of
the Company are then listed or traded). 

                                   2.7.     
SEC Reports; Financial Statements. The Company has filed or furnished all
reports, schedules, forms, statements and other documents required to be filed
by the Company under the Securities Act and the Exchange Act, including pursuant
to Section 13(a) or 15(d) thereof, for the year preceding the date hereof (or
such shorter period as the Company was required by law or regulation to file
such material) (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively referred to
herein as the “SEC Reports”) on a timely basis or has received a valid
extension of such time of filing and has filed or furnished any such SEC Reports
prior to the expiration of any such extension. As of their respective dates, the
SEC Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act, as applicable, and none of the SEC Reports,
when filed, contained any untrue statement of a material fact or omitted to
state a 

8 

EXECUTION VERSION 

material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that no
such representation is made with respect to any press release furnished under a
Form 6-K, the substance of which did not require the Company to file a Material
Change Report with any securities regulator in Canada. The financial statements
of the Company included in the SEC Reports complied in all material respects
with applicable accounting requirements and the applicable rules and regulations
of the Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with Canadian generally
accepted accounting principles applied on a consistent basis during the periods
involved (“GAAP”), except as may be otherwise specified in such financial
statements or the notes thereto and except that unaudited financial statements
may not contain all footnotes required by GAAP, and fairly present in all
material respects the financial position of the Company and its consolidated
Subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal year-end audit adjustments. 

                                   2.8.     
  Material Changes; Undisclosed Events, Liabilities or Developments. Since
the date of the Company’s latest audited financial statements included within
the SEC Reports, except as specifically disclosed in a subsequent SEC Report
filed or furnished prior to the date hereof, (i) there has been no event,
occurrence or development that has had or that could reasonably be expected to
result in a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and accrued
expenses incurred in the ordinary course of business consistent with past
practice and (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or disclosed in filings made with the
Commission, (iii) the Company has not altered its method of accounting, (iv) the
Company has not declared or made any dividend or distribution of cash or other
property to its shareholders or purchased, redeemed or made any agreements to
purchase or redeem any of its shares and (v) the Company has not issued any
equity securities to any officer, director or affiliate, except pursuant to
existing Company incentive plans and pursuant to the Company’s offering of
special warrants on December 31, 2008. The Company does not have pending before
the Commission any request for confidential treatment of information. Except for
the issuance of the Notes, Shares, Warrants and Warrant Shares contemplated by
this Agreement or as disclosed in the SEC Reports, no event, liability or
development has occurred or exists with respect to the Company or its
Subsidiaries or their respective business, properties, operations or financial
condition, that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made that has not
been publicly disclosed at least one trading day prior to the date that this
representation is made. 

                                   2.9.      Litigation.
Except as disclosed in the SEC Reports, there is no action, suit, inquiry,
notice of violation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company, any Subsidiary or any
of their respective properties before or by any court, arbitrator, governmental
or administrative agency or regulatory authority (federal, state, county, local
or foreign) (collectively, an “Action”) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Offering
Documents or the Securities or (ii) could, if there were an unfavorable
decision, have or reasonably be expected to result in a Material Adverse Effect.
Except as disclosed in the SEC 

9 

EXECUTION VERSION 

Reports, neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the subject of any Action involving
a claim of violation of or liability under federal, state or foreign securities
laws or a claim of breach of fiduciary duty. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or, to the knowledge of
the Company, any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.

                                  2.10.      Compliance.
Neither the Company nor any of its Subsidiaries is in (i) violation of its
charter or by-laws (or analogous governing instrument, as applicable), (ii)
default in any respect, and no event has occurred which, with notice or lapse of
time or both, would constitute such a default, in the due performance or
observance of any term, covenant or condition contained in any indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or instrument
to which it is a party or by which it is bound or to which any of its property
or assets is subject or (iii) violation in any respect of any Legal Requirement,
except, in the case of clauses (ii) and (iii) of this paragraph 2.10, for
any violations or defaults which, singularly or in the aggregate, would not have
a Material Adverse Effect 

                                   2.11.      Investment
Company Act. Neither the Company nor any of its Subsidiaries is or, after
giving effect to the offering of the Securities and the application of the
proceeds thereof as required by the Offering Documents, will become registered
or required to be registered as an “investment company” within the meaning of
the Investment Company Act of 1940, as amended, and the rules and regulations of
Commission thereunder. 

                                   2.12.     
No Stabilization. Neither the Company, its Subsidiaries nor, to the
Company’s knowledge, any of the Company’s or its Subsidiaries’ officers,
directors or affiliates has taken or will take, directly or indirectly, any
action designed or intended to stabilize or manipulate the price of any security
of the Company, or which caused or resulted in, or which might in the future
reasonably be expected to cause or result in, stabilization or manipulation of
the price of any security of the Company. 

                                   2.13.     
Intellectual Property. The Company and its Subsidiaries own or possess,
or can acquire on reasonable terms, ownership of or rights to use, all material
patents, patent rights, licenses, inventions, copyrights, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks and
trade names (collectively, the “Company Intellectual Property”) currently
employed by them in connection with the business described in the SEC Reports
substantially as now conducted, and except as described in the SEC Reports,
neither the Company nor any of its Subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to any
of the foregoing which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a Material Adverse Effect on
the Company and its Subsidiaries, taken as a whole. To the best of the Company’s
knowledge, the Company’s and its Subsidiaries’ businesses as now conducted do
not and will not infringe any patents, trademarks, service marks, trade names,
copyrights or trade secrets of any person, except as described in the SEC
Reports or as could not reasonably be expected to have a Material Adverse
Effect. Neither the Company nor its Subsidiaries has granted or 

10 

EXECUTION VERSION 

assigned to any other Person any right under any of Company
Intellectual Property other than as described in the SEC Reports. 

                                   2.14.     
Title to Assets. Except as disclosed in the SEC Reports, the Company and
its Subsidiaries have valid and marketable title to all real property owned by
them and good and marketable title in all personal property owned by them that
is material to the business of the Company and the Subsidiaries, respectively,
in each case free and clear of all Liens, except for Liens that do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
the Subsidiaries and Liens for the payment of federal, state, provincial or
other taxes, the payment of which is neither delinquent nor subject to
penalties. Except as disclosed in the SEC Reports, any real property and
facilities held under lease by the Company and the Subsidiaries are held by them
under valid, subsisting and enforceable leases with which the Company and the
Subsidiaries are in compliance. 

                                   2.15.     
Labor Relations. No labor dispute exists or, to the knowledge of the
Company, is imminent with respect to any of the employees of the Company which
could reasonably be expected to result in a Material Adverse Effect. Except as
disclosed in the SEC Reports, neither the Company nor any of its Subsidiaries is
a party to a collective bargaining agreement, and the Company and its
Subsidiaries believe that their relationships with their employees is
satisfactory. No executive officer of the Company, to the knowledge of the
Company, is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement or non-competition agreement, or any other contract or agreement or
any restrictive covenant in favor of any third party, and the continued
employment of each such executive officer does not subject the Company or any of
its Subsidiaries to any liability with respect to any of the foregoing matters.
The Company and its Subsidiaries are in compliance with all Legal Requirements
relating to employment and employment practices, terms and conditions of
employment and wages and hours, except where the failure to be in compliance
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. 

                                   2.16.     
Compliance with Laws. The Company has not received any notice of any
violation of, or noncompliance with, any federal, provincial, state, local or
foreign Legal Requirements applicable to its business, the violation of, or
noncompliance with which, would have a Material Adverse Effect, and the Company
knows of no facts or set of circumstances which would give rise to such a
notice. The Company has all material licenses and permits and other governmental
certificates, authorizations and permits and approvals (collectively,
“Licenses”) required by every federal, provincial, state and local
government or regulatory body for the operation of its business and the use of
its properties. The Licenses are in full force and effect and no violations are
or have been recorded in respect of any License and no proceeding is pending or
threatened to revoke or limit any thereof. The Company has not received any
written opinion or memorandum from legal counsel providing that it has taken any
action that has resulted in, or is reasonably likely to result in, the Company
incurring any liability that may be material to its business, prospects,
financial condition, operations, property or affairs. 

                                   2.17.      Taxes.
The Company and its Subsidiaries, each (i) has timely filed all necessary
federal, provincial, state, local and foreign tax returns, and all such returns
were 

11 

EXECUTION VERSION 

true, complete and correct, (ii) has paid all federal, state,
local and foreign taxes, assessments, governmental or other charges due and
payable for which it is liable, including, without limitation, all sales and use
taxes and all taxes which the Company or any of its Subsidiaries is obligated to
withhold from amounts owing to employees, creditors and third parties, and (iii)
does not have any tax deficiency or claims outstanding or assessed or, to the
best of its knowledge, proposed against any of them, except those, in each of
the cases described in clauses (i), (ii) and (iii) of this Section 2.17,
that would not, singularly or in the aggregate, have a Material Adverse Effect.
The accruals and reserves on the books and records of the Company and its
Subsidiaries in respect of tax liabilities for any taxable period not yet
finally determined are adequate to meet any assessments and related liabilities
for any such period, and since December 31, 2007, the Company and its
Subsidiaries each has not incurred any liability for taxes other than in the
ordinary course. 

                                   2.18.      Insurance.
The Company and each of its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which they are engaged; neither
the Company nor any of its Subsidiaries has been refused any insurance coverage
sought or applied for; and neither the Company nor any of its Subsidiaries has
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect on the Company and its Subsidiaries,
taken as a whole. 

                                   2.19.      Internal
Controls. The Company and its Subsidiaries maintain a system of internal
accounting and other controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management’s general or
specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management’s general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. Since the end of the Company’s most recent audited fiscal year,
there as been (A) no material weakness in the Company’s internal control over
financial reporting (whether or not remediated) and (B) no change in the
Company’s internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, the Company’s internal
control over financial reporting. 

                                   2.20.      Certain
Registration Matters. Assuming the accuracy of the Purchasers’
representations and warranties set forth in the Subscription Agreements and the
representations, warranties and covenants of the Placement Agents contained
herein, no registration under the Securities Act is required for the offer and
sale of the Notes by the Company to the Purchasers at the Closing (as defined in
Section 3 below) under the Offering Documents. No Person has the right to
require registration of common shares or other securities of the Company or any
of its Subsidiaries because of the filing or effectiveness of a registration
statement (the “Registration Statement”), registering for resale the
Shares and Warrant Shares or otherwise, except for persons and entities who have
expressly waived such right in writing or who have been given timely and proper
written notice and have failed to exercise such right within the time or times
required under the terms and conditions of such right. There are no 

12 

EXECUTION VERSION 

Persons with registration rights or similar rights to have any
securities registered or to include such securities with the Shares and Warrant
Shares to be registered by the Company or any of its Subsidiaries under the
Securities Act. 

                                   2.21.      Certain
Fees. Neither the Company nor any of its Subsidiaries is a party to any
contract, agreement or understanding with any person (other than this Agreement)
that would give rise to a valid claim against the Company or any placement agent
for a brokerage commission, finder’s fee or like payment in connection with the
offering and sale of the Notes or any transaction contemplated by this hereby.

                                   2.22.      Transactions
With Affiliates and Employees. Except as disclosed in the SEC Reports, none
of the officers or directors of the Company and, to the knowledge of the
Company, none of the employees of the Company is presently a party to any
transaction of a value of US$120,000 or greater with the Company or any of its
Subsidiaries which would be required to be reported under Item 404 of Regulation
S-K with the Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner other than for (i)
payment of salary or consulting fees for services rendered, (ii) reimbursement
for expenses incurred on behalf of the Company and (iii) other employee
benefits, including stock option agreements under any stock option plan of the
Company. 

                                   2.23.     
Listing and Maintenance Requirements. The Company’s common shares are
registered pursuant to Section 12(b) of the Exchange Act, and the Company has
taken no action designed to, or which is likely to have the effect of,
terminating its registration of its common shares under the Exchange Act nor has
the Company received any notification that the Commission is contemplating
terminating such registration. The Company has not, in the 12 months preceding
the date hereof, received notice from any trading market on which its common
shares are or have been listed or quoted to the effect that the Company is not
in compliance with the listing or maintenance requirements of such trading
market. The Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and
maintenance requirements; provided, the Company makes no warranty as to the
future price of its common shares and its impact on such listing or maintenance
requirements. 

                                   2.24.     
Application of Takeover Protections. The Company and the Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company’s articles of incorporation (or
similar charter documents) or the laws of its jurisdiction of incorporation that
is or could become applicable to the Purchasers as a result of the Purchasers
and the Company fulfilling their obligations or exercising their rights under
the Offering Documents, including, without limitation, as a result of the
Company’s issuance of the Securities and the Purchasers’ ownership of the
Securities. 

13 

EXECUTION VERSION 

                                   2.25.     
No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in the Subscription Agreements and the
representations, warranties and covenants of the Placement Agents set forth
herein, neither the Company, nor any of its affiliates, nor any Person acting on
its or their behalf has, directly or indirectly, made any sales of any security,
under circumstances that would cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of any applicable
shareholder approval provisions of any Principal Trading Market on which any of
the securities of the Company are listed or designated and, if integration were
to occur, the Company would obtain a waiver or exemption from such shareholder
approval provisions of such Principal Trading Market. 

                                   2.26.     
Indebtedness. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt). Neither the Company
nor any of its Subsidiaries has taken any steps to seek protection pursuant to
any bankruptcy law nor does the Company have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings or any
actual knowledge of any fact which would reasonably lead a creditor to do so.
The Company and its Subsidiaries, individually and on a consolidated basis, are
not as of the date hereof, and after giving effect to the transactions
contemplated hereby to occur at the Closing, will not be Insolvent (as defined
below). For purposes of this Agreement “Insolvent” means, with respect to
any Person (i) the present fair saleable value of such Person's assets is less
than the amount required to pay such Person's total Indebtedness (as defined
below), (ii) such Person is unable to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured, (iii) such Person intends to incur or believes that it
will incur debts that would be beyond its ability to pay as such debts mature or
(iv) such Person has unreasonably small capital with which to conduct the
business in which it is engaged as such business is now conducted and is
proposed to be conducted. The SEC Reports set forth as of the respective dates
thereof all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments. For the
purposes of this Agreement, “Indebtedness” means (a) any liabilities for
borrowed money or amounts owed in excess of US$100,000 (other than trade
accounts payable incurred in the ordinary course of business), (b) all
guaranties, endorsements and other contingent obligations in respect of
indebtedness of others, whether or not the same are or should be reflected in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of US$100,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is
in default with respect to any Indebtedness. 

                                   2.27.     
Foreign Corrupt Practices Act. Neither the Company, nor, to the Company’s
knowledge, any agent or other person acting on behalf of the Company, has
violated in any material respect any provision of the United States Foreign
Corrupt Practices Act of 1977, as amended. 

                                   2.28.     
Accountants. The Company’s independent accountants, who the Company
expects will express their opinion with respect to the financial statements to
be 

14 

EXECUTION VERSION 

included in the Company’s Annual Report for the year ending
December 31, 2008 are a registered with the Public Company Accounting Oversight
Board. 

                                   2.29.      U.S.
Real Property Holding Corporation. The Company is not and has never been a
U.S. real property holding corporation within the meaning of Section 897 of the
Internal Revenue Code of 1986, as amended, and the Company will so certify upon
any Purchaser's request. 

                                   2.30.      No
Additional Agreements. The Company does not have any agreement or
understanding with any Purchaser with respect to the transactions contemplated
by the Offering Documents other than as specified in the Offering Documents.

                                   2.31.      Disclosure.
Neither the Company nor any Person acting on its behalf has provided any
Purchaser or its respective agents or counsel with any information that
constitutes material, non-public information concerning the Company, the
Subsidiaries or their respective businesses, except insofar as the existence and
terms of the proposed transactions contemplated hereunder may constitute such
information and except for information that will be disclosed at or promptly
following the Closing. The Company understands and confirms that the Placement
Agents and the Purchasers will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company. All of the
representations and warranties made by the Company in this Agreement are true
and correct and do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. 

                         3.       
Closings.

                                   3.1.      Timing.
Subject to the satisfaction (or waiver) of the terms and conditions of the
Offering Documents, and upon receipt of executed Offering Documents from the
Purchasers, in a form acceptable to the Company and the Placement Agents, and
the delivery by each Purchaser of the appropriate purchase price to the Company
and the Company’s acceptance thereof as described in the Subscription Agreement,
the closing of the purchase and sale of the Notes will take place at 2:00 p.m.
Pacific Time on or before February 26, 2009 (the “Closing”, and such day,
the “Closing Date”). The Closing will occur on the Closing Date at the
Vancouver, British Columbia offices of Blake, Cassels & Graydon LLP, counsel
to the Company (or such other place as is mutually agreed to by the Company and
the Placement Agents). 

                                   3.2.     
Delivery of Closing Certificate. At the Closing, the Placement Agents
will receive certificates from the Company, signed by the President or a Vice
President thereof, certifying that the representations and warranties contained
in Section 2 hereof are true and accurate in all material respects as of
the date of that Closing with the same effect as though expressly made at that
Closing and that the conditions specified in this Section 3 have been
satisfied. 

                                   3.3.      Delivery
of Placement Agent Fee. At the Closing, (i) Euro Pacific will receive the
Euro Pacific Fee and an Agent Warrant as set forth in accordance with
Section 

15 

EXECUTION VERSION 

1.5 of this Agreement and (ii) Salman Partners will
receive the Salman Partners Fee as set forth in accordance with Section
1.6 of this Agreement. 

                                   3.4.      Delivery
of Legal Opinions. At the Closing, the Placement Agents will receive an
opinion of the Company’s counsel in the U.S. and Canada, dated as of the date of
such Closing, which opinion shall be in a form customary for transactions of
this nature and be in a form reasonably acceptable to the Placement Agents.

                                   3.5.     
No Changes. At and prior to the Closing, (i) there will have been no
material adverse change nor development involving a prospective change in the
condition or prospects or the business activities, financial or otherwise, of
the Company or its Subsidiaries from the latest dates as of which such condition
is set forth in the SEC Reports or by press release; (ii) there will have been
no transaction, not in the ordinary course of business, entered into by the
Company which has not been disclosed in the SEC Reports or by press release;
(iii) the Company will not be in default under any provision of any instrument
relating to any outstanding indebtedness for which a waiver or extension has not
been otherwise received; (iv) except as set forth in the SEC Reports or by press
release, the Company will not have issued any securities (other than the
Securities or securities issuable upon the exercise of options, warrants or
other convertible securities described in Section 2.5 herein) or declared
or paid any dividend or made any distribution of its capital stock of any class
and there will not have been any change in the Indebtedness (long or short term)
or liabilities or obligations of the Company (contingent or otherwise); (v) no
material amount of the assets of the Company will have been pledged or
mortgaged; and (vi) no action, suit or proceeding, at law or in equity, against
the Company or affecting any of its properties or businesses will be pending or
threatened before or by any court or federal or state commission, board or other
administrative agency, domestic or foreign, wherein an unfavorable decision,
ruling or finding could have a Materially Adverse Effect . 

                                   3.6.      Delivery
of Notes. At or prior to each Closing, the Company will have duly executed
and delivered the appropriate amount and designation of Notes to the Placement
Agents as agent for the respective Purchasers whose subscriptions have been
accepted by the Company. 

                         4.      Agreements
of the Company. The Company covenants and agrees with the Placement
Agents and the Purchasers as follows: 

                                   4.1.      Transferability;
Certificate. (a)     Securities may only be
disposed of in compliance with U.S. federal and state, and Canadian provincial,
securities laws and any applicable foreign securities laws. In connection with
the transfer of any Securities other than pursuant to an effective registration
statement, to the Company or to an Affiliate of a Purchaser or in connection
with a pledge as contemplated in Section 4.1(b) hereof, the Company may
require the transferor thereof to provide to the Company an opinion of counsel
selected by the transferor, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act. “Affiliate” means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 144.

16 

EXECUTION VERSION 

                                                  
(b)      Certificates evidencing Securities will
contain the following legends, until such time as they are not required under
Section 4.1(c): 

  
    
      
        
          THESE SECURITIES [AND THE SECURITIES ISSUABLE
            UPON CONVERSION OR EXERCISE HEREOF] HAVE NOT BEEN REGISTERED UNDER
            THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933
            ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY,
            MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT
            PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT
            OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
            SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN ACCORDANCE
            WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION
            OF COUNSEL TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
            ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION
            WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES. 

          UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE
            HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE [INSERT
            DATE THAT IS FOUR MONTHS AND A DAY AFTER THE DISTRIBUTION DATE]. 

        

      

    

  

                         The
Company acknowledges and agrees that a Purchaser may from time to time pledge,
and/or grant a security interest in some or all of the Securities pursuant to a
bona fide margin agreement in connection with a bona fide margin account and, if
required under the terms of such agreement or account, such Purchaser may
transfer pledged or secured Securities to the pledgees or secured parties as
long as such Purchaser agrees that the transferees are Accredited Investors and
such transfers comply with applicable United States federal and state securities
laws and Canadian federal and provincial securities laws. Except as set forth
above, such a pledge or transfer would not be subject to approval or consent of
the Company and no legal opinion of legal counsel to the pledgee, secured party
or pledgor shall be required in connection with the pledge, but such legal
opinion may be required in connection with a subsequent transfer following
default by the Purchaser transferee of the pledge. Notice shall be required of
such pledge. Except as otherwise provided in Section 4.1(c) hereunder,
any Securities subject to a pledge or security interest as contemplated by this
Section 4.1(b) shall continue to bear the legend set forth in this
Section 4.1(b) and be subject to the restrictions on transfer set forth
in Section 4.1(a).

                                                  
(c)      Certificates evidencing Shares and
Warrant Shares shall not contain any U.S. restrictive legend (including the U.S.
restrictive legend set forth in Section 4.1(b) hereof): (i) while
a registration statement (including the Registration Statement) covering such
Shares and Warrant Shares is then effective and a suspension period relating to
such 

17 

EXECUTION VERSION 

registration statement is not in effect, or (ii) following a
sale or transfer of such Shares and Warrant Shares pursuant to Rule 144
promulgated under the Securities Act (“Rule 144”) (assuming the
transferee is not an Affiliate of the Company), or (iii) while such Shares and
Warrant Shares are eligible for sale by the selling Purchaser without volume
restrictions under Rule 144. The Company agrees that following the effective
date of the Registration Statement (the “Effective Date”) or such other
time as U.S. restrictive legends are no longer required to be set forth on
certificates representing the Shares and Warrant Shares under this Section
4.1(c), it will, no longer than three trading days following the delivery by
a Purchaser to the Company or the Company’s transfer agent of a certificate
representing such Shares and Warrant Shares containing a U.S. restrictive
legend, deliver or instruct the Company’s transfer agent to deliver to such
Purchaser, Shares and Warrant Shares which are free of all U.S. restrictive and
other U.S. legends. If the Company is then eligible, certificates for Shares and
Warrant Shares subject to U.S. legend removal hereunder shall be transmitted by
the Company’s transfer agent to a Purchaser by crediting the prime brokerage
account of such Purchaser with the Depository Trust Company System as directed
by such Purchaser. If a Purchaser shall make a sale or transfer of Shares of
Warrant Shares either (x) pursuant to Rule 144 or (y) pursuant to a registration
statement and in each case shall have delivered to the Company or the Company’s
transfer agent the certificate representing the applicable Shares or Warrant
Shares containing a U.S. restrictive legend which are the subject of such sale
or transfer and a representation letter in customary form and acceptable to the
Company (the date of such sale or transfer and Shares or Warrant Sharese
delivery being the “Share Delivery Date”) and (1) the Company shall fail
to deliver or cause to be delivered to such Purchaser a certificate representing
such Shares or Warrant Shares that is free from all U.S. restrictive or other
U.S. legends by the third trading day following the Share Delivery Date and (2)
following such third trading day after the Share Delivery Date and prior to the
time such Shares or Warrant Shares are received free from any U.S. restrictive
legends, the Purchaser, or any third party on behalf of such Purchaser,
purchases (in an open market transaction or otherwise) common shares to deliver
in satisfaction of a sale by the Purchaser of such Shares or Warrant Shares (a
“Buy-In”), then, in addition to any other rights available to the
Purchaser under the Offering Documents and applicable law, the Company shall pay
in cash to the Purchaser (for costs incurred either directly by such Purchaser
or on behalf of a third party) the amount by which the total purchase price paid
for common shares as a result of the Buy-In (including brokerage commissions, if
any) exceed the proceeds received by such Purchaser as a result of the sale to
which such Buy-In relates. The Purchaser shall provide the Company written
notice indicating the amounts payable to the Purchaser in respect of the Buy-In.
The Company may not make any notation on its records or give instructions to any
transfer agent of the Company that enlarge the restrictions on transfer set
forth in this Section 4.1, unless required under applicable securities
laws. 

                                   4.2.     
Furnishing of Information. As long as any Purchaser owns any Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act for a period of
two (2) years from the Closing Date. 

                                   4.3.      Integration.
The Company shall not, and shall use commercially reasonable efforts to ensure
that no Affiliate of the Company shall, sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any security (as defined in Section
2 of the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that 

18 

EXECUTION VERSION 

would require the registration under the Securities Act of the
sale of the Securities to the Purchasers, or that would be integrated with the
offer or sale of the Securities for purposes of the rules and regulations of any
Principal Market in a manner that would require shareholder approval of the sale
of the Securities to the Purchasers. 

                                   4.4.      Subsequent
Registrations. The Company may not file any registration statement (other
than on Form S-8) with the Commission with respect to any securities of the
Company prior to the time that all Shares are registered pursuant to one or more
effective Registration Statement(s), and the prospectuses forming a portion of
such Registration Statement(s) is available for the resale of all Shares, except
that if a Purchaser declines in writing to include their Shares in a
Registration Statement, then this Section 4.4 hereafter ceases to apply
to the Shares of such Purchaser (other than if such Purchaser declines to
include its Shares because such Purchaser was unwilling to be named as an
underwriter in such Registration Statement). 

                                   4.5.     
Securities Laws Disclosure; Publicity. By (i) 9:30 a.m. (New York time)
on the trading day following the Closing Date, the Company will issue a press
release, disclosing the transactions contemplated by the Offering Documents and
the Closing and by (ii) 5:30 p.m. (New York time) on the trading day following
the Closing Date, the Company will file a report on Form 6-K with a copy of such
press release attached and such other documents filed with the securities
regulators in Canada that are publicly available. The Company covenants that at
the time of such disclosure, the Purchasers shall no longer be in possession of
any material, non-public information with respect to any of the Company and its
Subsidiaries. In addition, the Company will make such other filings and notices
in the manner and time required by the Commission and the Principal Markets on
which the Company’s common shares are listed. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of any Purchaser, or include the
name of any Purchaser in any filing with the Commission (other than the
Registration Statement and any exhibits to filings made in respect of this
transaction in accordance with periodic filing requirements under the Exchange
Act) or any regulatory agency or Principal Market, without the prior written
consent of such Purchaser, except to the extent such disclosure is required by
law or Principal Market regulations. 

                                   4.6.     
Limitation on Issuance of Future Priced Securities. During the twelve
(12) months following the Closing Date, the Company shall not issue any “Future
Priced Securities” as such term is described by NASD IM-4350-1. 

                                   4.7.     
Non-Public Information. The Company covenants and agrees that neither it,
any Subsidiary nor any other Person acting on its or their behalf will provide
any Purchaser or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto such
Purchaser shall have executed a written agreement regarding the confidentiality
and use of such information. The Company understands and confirms that each
Purchaser shall be relying on the foregoing representations in effecting
transactions in securities of the Company. 

                                   4.8.     
Listing of Shares. The Company agrees, (i) if the Company applies to have
the common shares traded on any market other than the Principal Markets, it will
include in such application the Shares, and will take such other action as is
necessary or desirable 

19 

EXECUTION VERSION 

to cause the Shares to be listed on such other trading market
as promptly as possible, and (ii) the Company will take all action reasonably
necessary to continue the listing and trading of its common shares on the
Principal Markets and will comply in all material respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of the
Principal Markets. 

                                   4.9.     
Use of Proceeds. The Company will use the net proceeds from the sale of
the Notes hereunder to acquire mining equipment, develop underground access to
mineralized zones and upgrade certain plant circuits at the Company’s Guanacevi
and Guanajato mines in Mexico and for general working capital purposes and/or
capital expenditure and not for the satisfaction of any portion of the Company’s
debt (other than payment of trade payables and accrued expenses in the ordinary
course of the Company’s business and consistent with prior practices), or to
redeem any common shares or common shares equivalents or engage in any related
party transaction. 

                                   4.10.     
Further Assurances. The Company will use its best efforts to satisfy all
of the closing conditions specified in Section 6, and will not take any
action which could frustrate or delay the satisfaction of such conditions. In
addition, either prior to or following the Closing, the Company will perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as any other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby. 

                                   4.11.     
Blue Sky. Prior to any offering of the Notes, the Company will cooperate
with Euro Pacific and counsel to Euro Pacific in connection with the
registration or qualification of the Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions as Euro Pacific may request;
provided, that in no event will the Company be obligated to qualify to do
business in any jurisdiction where it is not now so qualified or to take any
action that would subject it to general service of process in any jurisdiction
where it is not now so subject. 

                                   4.12.      Commission
Correspondence. The Company will supply the Placement Agents, through their
respective legal counsel, with copies of all correspondence to and from, and all
documents issued to and by, the Commission in connection with the registration
of the Shares and the Warrant Shares under the Securities Act. 

                                   4.13.     
Reservation of Shares. The Company will reserve and keep available at all
times a sufficient number of common shares for the purpose of enabling the
Company to issue the Shares and Warrant Shares. 

                                   4.14.      Price
Stabilization. The Company will not at any time, directly or indirectly,
take any action designed or that might reasonably be expected to cause or result
in, or that will constitute, stabilization of the price of the common shares to
facilitate the sale or resale of any of the Securities. 

20 

EXECUTION VERSION 

                                   4.15.      Right
of First Refusal. If at any time within twelve (12) months from the date
hereof, the Company determines to pursue a convertible debenture financing (a
“Financing”), the Company will offer Euro Pacific the role of lead
financial advisor and/or placement agent to the Company, as appropriate, in
connection with such Financing. Each such engagement will be set forth in a
separate engagement letter or agency agreement at the appropriate time providing
for customary fees and containing other customary terms and conditions,
including appropriate indemnification provisions.

                         5.       
Payment of Expenses. The Company will pay all expenses related
to the Offering, including, but not limited to, the fees and expenses of its
counsel, all expenses incurred in connection with Blue Sky registrations, all
printing and duplication costs related to the Offering Documents, in such
quantities as the Placement Agents reasonably deem necessary, filing fees,
trustee fees and expenses, and all postage, mailing and express charges and
other expenses in connection with the delivery of copies of the Offering
Documents and the distribution of Securities after any Closing. The Company will
also reimburse the Placement Agents for expenses incurred by them in connection
with the Offering, including but not limited to the fees and expenses of their
legal counsel and reasonable travel expenses, which, in the aggregate, will not
exceed US$65,000.00 without the Company’s prior written consent. Such amount
will be reimbursed to the Placement Agents on the Closing Date for all such
amounts incurred on or before the Closing Date; provided, however, that the
Company shall not be required to reimburse any amount unless it has first
received a joint certificate signed by each of the Placement Agents confirming
the amounts to be paid to each Placement Agent pursuant to this Section 5
and the Placement Agents’ agreement to such repayment amounts (a
“Reimbursement Certificate”). To the extent that the Placement Agents
subsequently incur additional expenses for which they are entitled to
reimbursement under this Section 5, such reimbursement will be made upon
submission to the Company of a Reimbursement Certificate. Upon request by the
Company, the Placement Agents shall provide invoices and other documentation to
support any amounts set out in a Reimbursement Certificate. 

                         6.       
Conditions to the Obligations of the Placement Agents and the
Purchasers. The respective obligations of the Placement Agents
hereunder and the Purchasers under the Subscription Agreements, and any Closing
of the sale of the Notes, are subject to each of the following conditions: 

                                   6.1.     
Representations and Warranties. Each of the representations and
warranties of the Company contained herein will be true and correct in all
respects (in the case of any representation or warranty containing a materiality
or Material Adverse Effect qualification) or in all material respects (in the
case of any representation or warranty not containing a materiality or Material
Adverse Effect qualification) at the relevant Closing Date and all covenants and
agreements contained herein to be performed on the part of the Company and all
conditions contained herein to be fulfilled or complied with by the Company at
or prior to the relevant Closing Date. 

                                   6.2.     
Legal Opinions. The Placement Agents will have received opinions, dated
as of the Closing Date, reasonably satisfactory in form and substance to the
Placement Agents, from the Company’s counsel in the U.S. and Canada. 

21 

EXECUTION VERSION 

                                   6.3.      Closing
Certificate. The Company will have furnished to the Placement Agents and the
Purchasers a certificate, dated the relevant Closing Date, of its Executive
Chairman, its President, or its Chief Executive Officer and its Chief Financial
Officer or such other principal financial officer stating that (i) to the best
of their knowledge after reasonable investigation, as of the relevant Closing
Date, the representations and warranties of the Company in this Agreement are
true and correct in all material respects, except that any such representation
or warranty will be true and correct in all respects where such representation
or warranty is qualified with respect to materiality, and the Company has
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied hereunder at or prior to the Closing Date, and (ii) there
has not been, subsequent to the date of the most recent unaudited financial
statements furnished to the Commission any material adverse change in the
financial position or results of operations of the Company and its Subsidiaries,
taken as a whole, or any change or development that, singularly or in the
aggregate, would involve a material adverse change or a prospective material
adverse change, in or affecting the condition (financial or otherwise), results
of operations, business, assets or prospects of the Company and its Subsidiaries
taken as a whole, except as set forth in the SEC Reports or by press release.

                                   6.4.      Officer’s
Certificate. On each Closing Date, the Company will have furnished to the
Placement Agents an Officer’s Certificate of the Company certifying the
Company’s Certificate of Incorporation, articles and resolutions of the
Company’s Board of Directors approving the transactions contemplated by this
Agreement. 

                                   6.5.     
No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction will have been enacted, entered, promulgated or endorsed by
any court or Governmental Body of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by this Agreement or the
other Offering Documents. 

                                   6.6.     
Approval of Listing. Prior to the Closing Date, the Shares and Warrant
Shares will have been approved for listing on the Principal Markets.

                         7.       
Indemnification. 

                                   7.1.      Indemnification
by the Company. The Company will indemnify and hold harmless each Placement
Agent, the directors, officers, employees and agents of each Placement Agent and
each person, if any, who controls such Placement Agent within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act (each an
“Agent Indemnified Party”), from and against any and all losses, claims,
liabilities, expenses and damages (including any and all investigative, legal
and other expenses reasonably incurred in connection with, and any amount paid
in settlement of, any action, suit or proceeding or any claim asserted), to
which they, or any of them, may become subject under the Securities Act, the
Exchange Act or other federal, provincial or state statutory law or regulation,
at common law or otherwise, insofar as such losses, claims, liabilities,
expenses or damages (i) arise out of or are based on any untrue statement or
alleged untrue statement of a material fact contained in the Offering Documents,
the Registration Statement or in any materials provided to the Placement Agent
by the Company for the purposes of marketing the Offering or alleged omission to
state a material fact required to be stated in the Offering Documents, the
Registration Statement or in any materials provided to the Placement Agent by
the Company for the purposes of marketing 

22 

EXECUTION VERSION 

the Offering necessary to make the statements contained in
those documents not misleading, (ii) arise out of or are based in whole or in
part on any inaccuracy in the representations and warranties of the Company
contained in the Offering Documents or any failure of the Company to perform its
obligations hereunder, in the other Offering Documents or under law in
connection with the transactions contemplated hereby, (iii) result from a claim
that the Offering by the Company of the Securities is in violation of Section 5
of the Securities Act, including, without limitation, any claim that the notice
given by the Company on January 22, 2009 and filed by the Company with the
Commission as an exhibit to a Form 6-K on such date constituted an offer of
securities or that such notice was used for the purpose of conditioning the
market in the United States for the sale of the Securities, or (iv) result from
the performance by the Placement Agent of the services contemplated by this
Agreement; provided , however, that the Company will not be liable
to the extent that such loss, claim, liability, expense or damage arises from
(i) the sale of the Notes to any Purchaser and is based on an untrue statement
or omission or alleged untrue statement or omission made in reliance on and in
conformity with information relating to the Placement Agent furnished in writing
to the Company by the Placement Agent expressly for inclusion in the
Registration Statement or in any Offering Document, (ii) any settlement by an
Agent Indemnified Party effected without the prior consent of the Company (which
consent will not be unreasonably withheld), or (iii) the Agent Indemnified
Party’s willful misconduct or gross negligence. This indemnity agreement will be
in addition to any liability that the Company might otherwise have. 

                                   7.2.     
Indemnification by the Placement Agent. Each Placement Agent, severally
and not jointly, will indemnify and hold harmless the Company, each director of
the Company, each officer of the Company who signs the Registration Statement,
and each person, if any, who controls the Company within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, liabilities, expenses and damages (including any and all
investigative, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other federal, provincial, state statutory
law or regulation, at common law or otherwise, insofar as such losses, claims,
liabilities, expenses or damages arise out of or are based on any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or Offering Documents, or the omission or alleged
omission to state a material fact required to be stated in the Registration
Statement or Offering Documents or necessary to make the statements in it not
misleading, but only to the extent, that such losses, claims, liabilities,
expenses or damages arise out of or are based on (i) any untrue statement or
omission or alleged untrue statement or omission made in reliance on and in
conformity with information relating to such Placement Agent or its sub-agents
furnished in writing to the Company by such Placement Agent expressly for use in
the Registration Statement or the Offering Documents, or (ii) any inaccuracy in
the representations and warranties of such Placement Agent contained in this
Agreement or any failure by such Placement Agent, its affiliates or its
sub-agents to perform their obligations hereunder, in the other Offering
Documents or under law in connection with the transactions contemplated hereby.
Notwithstanding the foregoing, in no case will a Placement Agent’s total
liability under this Section 7.2 exceed the amount of the Placement Agent
Fee received by such Placement Agent pursuant to this Agreement. 

23 

EXECUTION VERSION 

                                   7.3.      Notice
of Claim. Any party that proposes to assert the right to be indemnified
under this Section 7 will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section 7,
notify each such indemnifying party in writing of the commencement of such
action, enclosing with such notice a copy of all papers served, but the omission
so to notify such indemnifying party will not relieve it from any liability that
it may have to any indemnified party under the foregoing provisions of this
Section 7. If any such action is brought against any indemnified party
and it notifies the indemnifying party of its commencement, the indemnifying
party will be entitled to participate in and, to the extent that it elects by
delivering written notice to the indemnified party after receiving notice of the
commencement of the action from the indemnified party, jointly with any other
indemnifying party similarly notified, to assume the defense of the action, with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense, the indemnifying party will not be liable to the indemnified party for
any legal or other expenses except as provided below and except for the
reasonable costs of investigation incurred by the indemnified party in
connection with the defense. The indemnified party will have the right to employ
its own counsel in any such action, but the fees, expenses and other charges of
such counsel will be at the expense of such indemnified party unless (i) the
employment of counsel by the indemnified party has been authorized in writing by
the indemnifying party, (ii) the indemnified party has reasonably concluded
(based on advice of counsel) that there may be legal defenses available to it or
other indemnified parties that are different from or in addition to those
available to the indemnifying party, (iii) a conflict or potential conflict
exists (based on advice of counsel to the indemnified party) between the
indemnified party and the indemnifying party (in which case the indemnifying
party will not have the right to direct the defense of such action on behalf of
the indemnified party) or (iv) the indemnifying party has not in fact employed
counsel reasonably satisfactory to the indemnified party to assume the defense
of such action within a reasonable time after receiving notice of the
commencement of the action, in each of which cases the reasonable fees,
disbursements and other charges of counsel will be at the expense of the
indemnifying party or parties. All such fees, disbursements and other charges
will be reimbursed by the indemnifying party promptly as they are incurred. No
indemnifying party will, without the prior written consent of the indemnified
party, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened action or claim in respect
of which any indemnified party is or could have been a party and indemnity or
contribution could have been sought hereunder by such indemnified party unless
such settlement, compromise or judgment (i) includes an unconditional release of
such indemnified party from all liability on any claims that are the subject
matter of such action and (ii) does not include a statement as to, or an
admission of, fault, culpability or a failure to act by or on behalf of an
indemnified party. An indemnifying party will not be liable for any settlement
of any action or claim effected without its written consent (which consent will
not be unreasonably withheld or delayed). 

                                   7.4.     
Contribution. If the indemnification provided for in this Section
7 is applicable in accordance with its terms but for any reason is held to
be unavailable to or insufficient to hold harmless an indemnified party under
Sections 7.1-7.3 hereof in respect of any losses, claims, liabilities,
expenses and damages referred to therein, then each applicable indemnifying
party, in lieu of indemnifying such indemnified party, will contribute to the
amount paid or payable (including any investigative, legal and other expenses
reasonably 

24 

EXECUTION VERSION 

incurred in connection with, and any amount paid in settlement
of, any action, suit or proceeding or any claim asserted, but after deducting
any contribution received by the Company from persons other than the Placement
Agents, such as persons who control the Company within the meaning of the
Securities Act, officers of the Company who signed the Registration Statement
and directors of the Company, who also may be liable for contribution) by such
indemnified party as a result of such losses, claims, liabilities, expenses and
damages (or actions in respect thereof) in such proportion as will be
appropriate to reflect the relative benefits received by the Company, on the one
hand, and the Placement Agents, on the other hand. The relative benefits
received by the Company, on the one hand, and the Placement Agents, on the other
hand, will be deemed to be in the same proportion as the total net proceeds from
the offering (before deducting expenses other than the Placement Agent Fee)
received by the Company bear to the total Placement Agent Fee received by the
Placement Agents pursuant to this Agreement. If, but only if, the allocation
provided by the foregoing sentence is not permitted by applicable law, the
allocation of contribution will be made in such proportion as is appropriate to
reflect not only the relative benefits referred to in the foregoing sentence but
also the relative fault of the Company, on the one hand, and the Placement
Agents, on the other hand, with respect to the statements or omissions that
resulted in such loss, claim, liability, expense or damage, or action in respect
thereof, as well as any other relevant equitable considerations with respect to
such offering. Such relative fault will be determined by reference to whether
the untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Placement Agents, the relative intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Placement Agents agree that it would
not be just and equitable if contributions pursuant to this Section 7.4
were to be determined by pro rata allocation or by any other method of
allocation that does not take into account the equitable considerations referred
to herein. The amount paid or payable by an indemnified party as a result of the
loss claim, liability, expense or damage (or action in respect thereof) referred
to above in this Section 7.4 will be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7.4, in no case will a Placement Agent be
required to contribute any amount in excess of the Placement Agent Fee received
by such Placement Agent pursuant to this Agreement. No person found guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section
7.4, any person who controls a party to this Agreement within the meaning of
the Securities Act will have the same rights to contribution as that party, and
each officer of the Company who signed the Registration Statement will have the
same rights to contribution as the Company, subject in each case to the
provisions hereof. Any party entitled to contribution, promptly after receipt of
notice of commencement of any action against any such party in respect of which
a claim for contribution may be made under this Section 7.4, will notify
any such party or parties from whom contribution may be sought, but the omission
so to notify will not relieve the party or parties from whom contribution may be
sought from any other obligation it or they may have under this Section
7.4. No party will be liable for contribution with respect to any action or
claim settled without its written consent (which consent will not be
unreasonably withheld). 

25 

EXECUTION VERSION 

                                   7.5.     
Survival. The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Company contained
in this Agreement will remain operative and in full force and effect regardless
of (i) any investigation made by or on behalf of a Placement Agent, (ii)
acceptance by the Purchasers of any of the Notes and payment therefor, or (iii)
any termination of this Agreement. 

                         8.   
    Notice. Notice given pursuant to any of
the provisions of this Agreement will be in writing and, unless otherwise
specified, will be mailed or delivered (a) if to the Company, at the office of
the Company, #301 – 700 West Pender Street, Vancouver, BC, Canada, V6C 1G8,
Attention: Chief Executive Officer, with a copy to Kathleen P. Keilty, 2600 –
595 Burrard Street, Vancouver, BC, V7X 1L3, (b) if to Euro Pacific, at the
offices of Euro Pacific, 4667 MacArthur Blvd., Ste. 340 Newport Beach, CA 92660,
Attention: Gordon McBean, with a copy to Louis A. Bevilacqua, Esq., Pillsbury
Winthrop Shaw Pittman, 2300 N. Street NW, Washington, DC, 20037, or (c) if to
Salman Partners, at the offices of Salman Partners, 1095 West Pender Street,
17th Floor Vancouver, B.C., V6E 2M6, Attention: Alan C. Herrington, with a copy
to Eric Doherty, Borden Ladner Gervais LLP, 1200 – 200 Burrard Street,
Vancouver, BC, V7Y 1T2. Any such notice will be effective only upon receipt. Any
notice under this Section 8 may be made by facsimile or telephone, but if
so made will be subsequently confirmed in writing. 

                         9.   
    Absence of Fiduciary Relationship.
Notwithstanding any preexisting relationship, advisory or otherwise, between the
parties or any oral representations or assurances previously or subsequently
made by the Placement Agents, the Company acknowledges and agrees that (i) the
purchase and sale of the Notes pursuant to this Agreement and the other Offering
Documents (including the determination of the terms of the Offering) is an
arm’s-length commercial transaction between the Company and the several
Purchasers, (ii) the Placement Agents have not assumed an advisory or fiduciary
responsibility in favor of the Company with respect to the Offering contemplated
hereby or the process leading thereto (irrespective of whether the Placement
Agents have advised or is currently advising the Company on other matters) or
any other obligation to the Company except the obligations expressly set forth
in this Agreement, (iii) the Placement Agents and their respective affiliates
may be engaged in a broad range of transactions that involve interests that
differ from those of the Company and have no obligation to disclose or account
to the Company for any of such differing interests, and (iv) the Company has
consulted its own legal, tax, accounting and financial advisors to the extent it
deemed appropriate. The Company hereby agrees that it will not claim that the
Placement Agents have rendered advisory services of any nature or respect, or
owe a fiduciary or similar duty to the Company, in connection with such
transaction or the process leading thereto. 

                         10.       
Successors; Persons Entitled to Benefit of Agreement. This
Agreement will inure to the benefit of and be binding upon the Placement Agents,
the Company, and their respective successors and assigns. This Agreement will
also inure to the benefit of the Purchasers, and each of their respective
successors and assigns, which will be third party beneficiaries hereof. Nothing
expressed or mentioned in this Agreement is intended or will be construed to
give any person, other than the persons mentioned in the preceding sentences,
any legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained, this Agreement and all conditions
and provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other 

26 

EXECUTION VERSION 

person; except that the representations, warranties, covenants,
agreements and indemnities of the Company contained in this Agreement will also
be for the benefit of the indemnified parties pursuant to Section 7.1
hereof and the indemnities of the Placement Agent will be for the benefit of the
indemnified parties pursuant to Section 7.2 hereof.

                         11.       
Survival of Indemnities, Representations, Warranties, Etc. The
respective indemnities, covenants, agreements, representations, warranties and
other statements of the Company and the Placement Agents, as set forth in this
Agreement or made by them respectively, pursuant to this Agreement, will remain
in full force and effect, regardless of any investigation made by or on behalf
of the Placement Agents, the Company, the Purchasers or any person controlling
any of them and will survive delivery of and payment for the Notes and the
issuance of the other Securities. Notwithstanding any termination of this
Agreement, the indemnity and contribution agreements contained in Section
7 and the covenants, representations, warranties set forth in this Agreement
will not terminate and will remain in full force and effect at all times. 

                         12.       
Governing Law, Agent for Service and Jurisdiction. This
Agreement will be governed by and construed in accordance with the laws of the
State of New York, including without limitation Section 5-1401 of the New York
General Obligations Law. No legal proceeding may be commenced, prosecuted or
continued in any court other than the courts of the State of New York located in
the City and County of New York or in the United States District Court for the
Southern District of New York, which courts will have jurisdiction over the
adjudication of such matters, and the Company and the Placement Agents each
hereby consent to the jurisdiction of such courts and personal service with
respect thereto. The Company and the Placement Agents each hereby consent to
personal jurisdiction, service and venue in any court in which any legal
proceeding arising out of or in any way relating to this Agreement is brought by
any third party against the Company or either Placement Agent. The Company and
the Placement Agents each hereby waive all right to trial by jury in any legal
proceeding (whether based upon contract, tort or otherwise) in any way arising
out of or relating to this Agreement. The Company agrees that a final judgment
in any such legal proceeding brought in any such court will be conclusive and
binding upon the Company and the Placement Agents and may be enforced in any
other courts in the jurisdiction of which the Company is or may be subject, by
suit upon such judgment. 

                         13.      
 Termination. This Agreement shall automatically terminate
on January 20, 2010, provided, however, that either Placement Agent, solely with
respect to such Placement Agent, or the Company may terminate this Agreement
prior to that time upon fifteen (15) days written notice to the other party.
Upon termination, the Placement Agent, as applicable, will be entitled to
collect all respective fees, if any, earned through the date of termination and
will be entitled to reimbursement of all expenses subject to applicable caps up
through the date of termination. This Section 13 (Termination),
Section 1.13 (Confidential Information), Section 4.15
(Right of First Refusal), Section 7 (Indemnification), Section 11
(Survival of Indemnities; Representations, Warranties, Etc.), Section 12
(Governing Law, Agent for Service and Jurisdiction), and Section 14
(Miscellaneous) will survive the termination of this Agreement. If the Offering
is not consummated during the term and if during the twelve months following the
expiration or termination of this Agreement any Person that was introduced to
the Company by a Placement Agent or with whom such Placement Agent discussed the
Offering purchases 

27 

EXECUTION VERSION 

debentures from the Company, or any affiliates of the Company,
the Company and such affiliates (as the case may be, it being understood that in
the case of affiliate sales, the Company will be jointly and severally liable
with such affiliates for such fees) will pay such Placement Agent upon the
closing of each such purchase/sale such cash fees and compensation warrants in
the amounts that would otherwise have been payable to such Placement Agent if
such transaction occurred during the term and all such securities been offered
and sold by the Company as part of the Offering. Upon request by the Company,
each Placement Agent will deliver to the Company a list of those persons who
such Placement Agent introduced to the Company or with whom such Placement Agent
discussed the Offering. 

                    14.       
Miscellaneous. 

                                   14.1.      Entire
Agreement. This Agreement supersedes all prior agreements and understandings
(whether written or oral) between the Company and the Placement Agents with
respect to the subject matter hereof including the Engagement Letter between the
Company and Euro Pacific dated January 21, 2009. This Agreement may be amended
upon the mutual written agreement of the Company and the Placement Agent. 

                                   14.2.     
Counterparts. This Agreement may be signed in two or more counterparts
with the same effect as if the signatures thereto and hereto were upon the same
instrument. Facsimile execution and delivery of this Agreement is legal, valid
and binding for all purposes. 

                                   14.3.     
Severability. In case any provision in this Agreement is invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions will not in any way be affected or impaired thereby. 

[Signature Page Follows] 

28 

EXECUTION VERSION 

     Please confirm that the foregoing
correctly sets forth the agreement between the Company and the Placement Agents.

Very truly yours, 

ENDEAVOUR SILVER CORP. 

By:  /s/ Daniel Dickson                          
       
Name: Daniel Dickson 
        Title:
Chief Financial Officer 

Confirmed as of the date first 
Above mentioned: 

EURO PACIFIC CAPITAL INC. 

By:  /s/ Gordon McBean                            
       
Name: Gordon McBean 
        Title:
Head of Capital Markets 

 

SALMAN PARTNERS, INC. 

By:
 /s/ Alan C.
Herrington                        

        Name: Alan C.
Herrington 
        Title: Executive
Vice-President 

29Filed by sedaredgar.com - Endeavour Silver Corp. - Exhibit 10.2

EXECUTION VERSION 

SUBSCRIPTION AGREEMENT 

	TO: 	ENDEAVOUR SILVER CORP. 
	AND TO: 	EURO PACIFIC CAPITAL INC. AND TO SALMAN
      PARTNERS INC. (together the “Agents”) 

The undersigned (referred to herein as the “Purchaser”),
hereby irrevocably subscribes to purchase from ENDEAVOUR SILVER CORP.
(the “Issuer”) that number of 10% Subordinated Unsecured Convertible
Redeemable Debentures (the “Convertible Debentures”) of the Issuer set
out below for the total aggregate subscription price (the “Aggregate
Subscription Price”) set form below. This subscription plus the attached
terms and conditions (the “Terms and Conditions”), each completed and
executed Canadian Subscriber Certificate (as defined in the Terms and
Conditions), each completed and executed U.S. Subscriber Certificate (as defined
in the Terms and Conditions) and the schedules attached hereto and thereto, are
collectively referred to as the “Subscription Agreement”. Each
Convertible Debenture shall be convertible into units (“Units”)
consisting of one common share (a “Common Share”) of the Issuer and one
half of a common share purchase warrant (each whole common share purchase
warrant, a “Warrant”) at a conversion price of CDN$1.90 at any time prior
to the maturity date of the Convertible Debentures in accordance with the terms
and conditions of the Indenture (as defined herein). Each Warrant shall be
exercisable for one Common Share of the Issuer (a “Warrant Share”) prior
to the maturity date of the Convertible Debentures at an exercise price of
CDN$2.05 and may be exercised on a “cashless” or “net exercise” basis at the
option of the Purchaser, and shall be in substantially the same form as
Exhibit I hereto. The Purchaser agrees to be bound by the Terms and
Conditions and agrees that the Issuer and the Agents may rely upon the
covenants, representations and warranties contained in the Subscription
Agreement. 

	________________________________Convertible Debentures
      at 	 	Aggregate Subscription Price:
      _________________
	CDN$1,000 per Convertible Debenture 	 	  

	Name and Address of Purchaser: 	 	Registration Instructions (if different):
  
	 	 	 
	______________________________________________	 	______________________________________________
	Name of Purchaser
      (please print) 	 	Name
  
	 	 	 
	By:
      ___________________________________________	 	______________________________________________
	     
       Authorized Signature 	 	Account
      Reference, if applicable 
	 	 	 
	______________________________________________	 	______________________________________________
	Official Capacity or
      Title (please print) 	 	 
    
	 	 	______________________________________________
		 	
	______________________________________________	 	______________________________________________
	(Please print
      name of signatory if different from the 	 	Address, including postal code 
	name of the
      Purchaser printed above.) 	 	
		 	Delivery Instructions (if different): 
	 	 	 
	Purchaser’s Address,
      including province: 	 	______________________________________________
		 	Name
  
	______________________________________________	 	______________________________________________
		 	Account
      Reference, if applicable 
	 	 	 
	______________________________________________	 	______________________________________________
		 	
	 	 	 
	______________________________________________	 	______________________________________________
		 	 
	Telephone Number:
      _______________________________	 	
	 	 	______________________________________________
	 	 	 
	Fax Number:
      _____________________________________	 	______________________________________________
		 	Address, including postal code 
	 	 	 
	E-mail Address:
      ___________________________________	 	______________________________________________
		 	Telephone Number 

EXECUTION VERSION 

	INSTRUCTIONS FOR PURCHASERS 

The
      Purchaser must: 
(1) Read this Subscription
      Agreement; 
(2) Complete and execute the face page of
      this Subscription Agreement; 
(3) Read and complete the
      U.S. Subscriber Certificate; 
(4) If resident in Canada,
      read and complete the Canadian Subscriber Certificate; 
(5)
      Make payment for the Convertible Debentures as required by Section 2 of
      the Terms and Conditions; and 
(6) Deliver the signed
      documents as required by Section 3 of the Terms and Conditions.
  

ACCEPTANCE AND EXTENSION OF REPRESENTATIONS AND WARRANTIES
TO SUBSCRIBER: The Issuer hereby (i) accepts the above subscription subject
to the Terms and Conditions contained in this Subscription Agreement; (ii)
represents and warrants to the Purchaser that the representations and warranties
made by the Issuer to the Agents and Purchaser in Section 2 of that
certain Placement Agency Agreement, dated February ____, 2009, by and among the
Issuer and the Agents (the “Agency Agreement”), which are incorporated by
reference in this Subscription Agreement, are true and correct as of the date of
the Agency Agreement (except as waived by the Agents); (iii) agrees that the
Purchaser is entitled to rely, subject to the limitations and other terms of the
Agency Agreement, on the representations and warranties made by the Issuer to
the Agents and the Purchaser (except as waived by the Agents) and on the
covenants made by the Issuer (except as waived or modified by the Agents) in the
Agency Agreement, each of which are incorporated by reference in this
Subscription Agreement; and (iv) accepts the conditions to the obligations of
the Agents and the Purchaser in Section 6 of the Agency Agreement and
agrees to deliver documents as specified in Section 3 of the Agency Agreement,
each of which is incorporated by reference in this Subscription Agreement. 

ENDEAVOUR SILVER CORP. 

	Per:	  	Date:     	  
	 	BRADFORD J. COOKE 	 	  
	 	CHAIRMAN AND CHIEF EXECUTIVE 	 	  
	 	OFFICER 	 	  

     EXECUTION
VERSION

 - 3 - 

TERMS AND CONDITIONS OF SUBSCRIPTION FOR 
CONVERTIBLE
DEBENTURES OF ENDEAVOUR SILVER CORP. 

	1. 	
      Acceptance

	 	 	 
	1.1 	
      The Issuer may accept or reject this Subscription
      Agreement in whole or in part at any time prior to the Closing Time (as
      defined herein) and the Issuer has the right to allot to any Purchaser
      less than the amount of Convertible Debentures subscribed for.

	 	 	 
	1.2 	
      The Issuer shall forward to the Purchaser confirmation of
      acceptance or rejection of this Subscription Agreement promptly, but in
      any case within five (5) Business Days (as defined hereinafter) after the
      acceptance or rejection of this Subscription Agreement by the Issuer. If
      this Subscription Agreement is rejected in whole, the Purchaser
      understands that any funds, certified cheques and bank drafts delivered by
      the Purchaser to the Agents, representing the purchase price for
      Convertible Debentures will be promptly, but in any case within five (5)
      Business Days, returned to the Purchaser without interest. If this
      Subscription Agreement is accepted only in part, the Purchaser understands
      that a cheque representing the portion of the purchase price for that
      portion of its subscription for Convertible Debentures that is not
      accepted will be promptly, but in any case within five (5) Business Days,
      delivered to the Purchaser without interest.

	 	 	 
	2. 	
      Payment

	 	 	 
		
      The Purchaser shall deliver the Aggregate Subscription
      Price payable in respect of the Convertible Debentures subscribed for
      hereunder to the Agent with whom the Purchaser deals at or before the
      Closing Time on the Closing Date (as defined herein), by certified cheque
      or bank draft drawn on a Canadian chartered bank or trust company in
      Canadian dollars and payable to such account as the Issuer and the
      Subscriber may agree, or payable in such other manner as may be agreed by
      the Issuer and the Purchaser.

	 	 	 
	3. 	
      Additional Deliveries and Conditions for
      Acceptance

	 	 	 
	3.1 	
      The Purchaser shall complete, sign and return
  to:

	 	 	 
		(a) 	
      if the Purchaser is resident in the United States, to
      Euro Pacific Capital Inc. at 4667 MacArthur Blvd., Ste. 340, Newport
      Beach, CA 92660; or

	 	 	 
		(b) 	
      if the Purchaser is resident outside the United States,
      to Salman Partners Inc. at 1095 West Pender Street, 17th Floor,
      Vancouver, B.C. V6E 2M6 (Fax no.: (604) 685-2471).

as soon as possible and, in any event
not later than 5:00 p.m. (Vancouver time) three Business Days (as defined
herein) on or before the Closing Date: 

	 	(i) 	
      one completed and executed copy of this Subscription
      Agreement;

	 	 	 
	 	(ii) 	
      one completed and executed copy of the subscriber
      certificate in the form attached as Schedule “A” hereto (the “U.S.
      Subscriber Certificate”);

	 	 	 
	 	(iii) 	
      if the Purchaser is resident in Canada, one completed and
      executed copy of the Subscriber certificate in the form attached as
      Schedule “B” hereto (the “Canadian Subscriber Certificate”);
    and

	 	 	 
	 	(iv) 	
      any other document required by applicable Securities Laws
      (as defined herein), U.S. federal or state securities laws or the rules
      and regulations of the NYSE Alternext U.S. or any other exchange upon
      which the Issuer’s securities are listed or quoted, which the Agents or
      the Issuer requests.

     EXECUTION
VERSION 

- 4 - 

The Purchaser acknowledges and agrees
that such documents, when executed and delivered by the Purchaser, will form
part of and will be incorporated into this Subscription Agreement with the same
effect as if each constituted a representation and warranty or covenant of the
Purchaser hereunder in favour of the Issuer and the Agents. The Purchaser
acknowledges and agrees that this offer and any other documents delivered in
connection herewith will be held by the Agents and the purchase price will be
held by the Agents until such time as the conditions set out in the Agency
Agreement are satisfied by the Issuer or waived by the Agents. 

For the purposes hereof, “Business
Day” means any day except Saturday, Sunday or a statutory holiday in the City of
Vancouver, British Columbia, Canada. 

	3.2 	
      Any obligation of the Issuer to sell the Convertible
      Debentures to the Purchaser is subject to (a) performance by the Purchaser
      of its covenants under and in accordance with this Subscription Agreement;
      (b) the truth, at the time of acceptance and at the Closing Date, of the
      Purchaser’s representations and warranties in this Subscription Agreement;
      (c) the trade of Convertible Debentures to the Purchaser being exempt from
      the prospectus and registration of applicable Securities Laws and exempt
      from the registration requirements of U.S. federal and state securities
      laws; (d) the terms and conditions contained in the Agency Agreement for
      the benefit of the Issuer being complied with to the satisfaction of the
      Issuer or waived by the Issuer; (e) the Issuer having obtained all
      required regulatory approvals to permit the completion of such sale; and
      (f) the Purchaser executing and delivering all requisite documentation as
      specified in Section 1.1 above.

	 	 
	3.3 	
      The Purchaser understands that the information provided
      herein will be relied upon by the Issuer for purposes of determining the
      eligibility of the Purchaser to purchase the Convertible Debentures. The
      Purchaser agrees to provide upon request any additional information that
      the Issuer reasonably determines necessary or appropriate in determining
      the Purchaser’s eligibility.

	 	 
	3.4 	
      For the purposes hereof, “Securities Laws” means
      the securities laws, regulations and rules, and the blanket rulings,
      policies and written interpretations of and multilateral or national
      instruments adopted by the securities regulators of the Province of
      British Columbia and Ontario and the rules and policies of the Toronto
      Stock Exchange (the “TSX”).

	 	 
	4. 	
      Closing

	 	 
	4.1 	
      Closing of this subscription for the Convertible
      Debentures (the “Closing”) will be completed at the offices of
      Blake, Cassels & Graydon, in City of Vancouver, British Columbia, at
      9:00 a.m. (Vancouver time), or such other place or time as the Agents and
      the Issuer may agree upon (the “Closing Time”) on February 20,
      2009, or such later date as the Agents and the Issuer may agree upon (the
      “Closing Date”). If, by the Closing Time, the terms and conditions
      contained in the Agency Agreement have been complied with to the
      satisfaction of the Agents or waived by the Agents, the Agents shall (a)
      deliver to the Issuer all completed subscription agreements, including
      this Subscription Agreement, and (b) deliver to the Issuer the aggregate
      subscription proceeds, against (i) delivery by the Issuer of the
      Convertible Debentures, and (ii) delivery by the Issuer of such other
      documentation as may be required by the Agents.

	 	 
	4.2 	
      If the Closing does not occur, this Subscription
      Agreement will be returned to the Purchaser and the applicable Agent and
      the Issuer shall promptly to return any funds, certified cheques and bank
      drafts delivered by the Purchaser representing the purchase price for
      Convertible Debentures, without interest, to the Purchaser.

	 	 
	5. 	
      Representations, Warranties and Covenants of the
      Purchaser

	 	 
		
      By executing this Subscription Agreement, the Purchaser
      represents, warrants and covenants to the Issuer and the Agents and
      acknowledges that the Issuer and the Agents are relying thereon
    that:

     EXECUTION
VERSION 

- 5 - 

	 	(a) 	
      the Purchaser understands that the Convertible Debentures
      subscribed for by the Purchaser hereunder form part of a larger offering
      (the “Offering”) of Convertible Debentures by the Issuer upon and
      subject to the terms and conditions set forth herein and the Purchaser has
      received a term sheet in the form attached hereto as Schedule “D” setting
      out the principal terms of the Offering; furthermore, the Purchaser
      understands that the Offering is not subject to any minimum subscription
      level and therefore any funds invested are available to and will be paid
      to the Issuer on the Closing Date and need not be refunded to the
      Purchaser unless the Closing Date does not occur on or before February 20,
      2009;

	 	 	 
	 	(b) 	
      the Purchaser acknowledges that the description of the
      Convertible Debentures set out in this Subscription Agreement including,
      without limitation, Schedule “D”, is a summary only and is subject to the
      detailed provisions of a trust indenture to be entered into between the
      Issuer and a trust company mutually satisfactory to the Issuer and the
      Agents, each acting reasonably and in good faith (the “Indenture”)
      under which such Convertible Debentures will be issued. In the event of a
      conflict, the provisions of the Indenture shall prevail;

	 	 	 
	 	(c) 	
      the Purchaser has completed, executed and delivered the
      U.S. Subscriber Certificate;

	 	 	 
	 	(d) 	
      if resident in Canada, the Purchaser has completed,
      executed and delivered the Canadian Subscriber Certificate;

	 	 	 
	 	(e) 	
      the Purchaser is aware of the characteristics of the
      Convertible Debentures, the Units, the Common Shares, the Warrants and the
      Warrant Shares, the risks relating to an investment therein and agrees
      that the Purchaser must bear the economic risk of his or her investment in
      the Convertible Debentures. The Purchaser understands that he or she will
      not be able to resell the Convertible Debentures, Units, Warrants, Common
      Shares or Warrant Shares until expiry of the applicable hold period under
      applicable Securities Laws and, subject to the U.S. resale registration
      rights provisions contained in Section 6 hereof, under U.S. federal and
      state securities laws, unless such securities are registered under the
      1933 Act (as defined hereinafter) or an exemption from registration is
      available.

	 	 	 
	 	(f) 	
      the Purchaser alone, or with the assistance of its
      professional advisors, has such knowledge in financial and business
      affairs as to be capable of evaluating the merits and risks of the
      Purchaser’s proposed investment in the Convertible Debentures;

	 	 	 
	 	(g) 	
      the Purchaser will execute and deliver within the
      applicable time periods all documentation as may be required by applicable
      securities laws or by any securities regulatory authority or stock
      exchange or other regulatory authority to permit the purchase of the
      Convertible Debentures on the terms set forth herein and the Purchaser
      will use its commercially reasonable efforts to execute, deliver, file and
      otherwise assist the Issuer in filing such reports, undertakings and other
      documents with respect to the issue of the Convertible Debentures as may
      be required by applicable securities laws or by any securities regulatory
      authority or stock exchange or other regulatory authority;

	 	 	 
	 	(h) 	
      if the Purchaser is an individual, he/she has attained
      the age of majority and is legally competent to execute this Subscription
      Agreement and to take all actions required pursuant hereto;

	 	 	 
	 	(i) 	
      if the Purchaser is a corporation, partnership,
      unincorporated association or other entity, the Purchaser has the legal
      capacity and competence to execute this Subscription Agreement and to take
      all actions required pursuant hereto;

	 	 	 
	 	(j) 	
      if the Purchaser is not an individual, the Purchaser has
      not been created solely or primarily to use exemptions from the
      registration and prospectus exemptions under applicable securities laws
      and has a pre-existing purpose other than to use such
  exemptions;

     EXECUTION
VERSION 

- 6 - 

	 	(k) 	
      this Subscription Agreement has been duly and validly
      authorized, executed and delivered by, and upon acceptance by the Issuer
      constitutes a legal, valid, binding and enforceable obligation of, the
      Purchaser;

	 	 	 	 
	 	(l) 	
      the Purchaser has not received, nor has the Purchaser
      requested, nor does the Purchaser have any need to receive, any
      prospectus, sales or advertising literature, offering memorandum or any
      other document (other than an annual or interim report, financial
      statements or any other document, other than an offering memorandum, the
      content of which is prescribed by statute or regulation, or any
      information available on the Issuer’s website) describing or purporting to
      describe the business and affairs of the Issuer which has been prepared
      for delivery to, and review by, prospective purchasers in order to assist
      them in making an investment decision in respect of the purchase of the
      Convertible Debentures pursuant to the Offering;

	 	 	 	 
	 	(m) 	
      the Purchaser has relied only upon publicly available
      information relating to the Issuer and not upon any verbal or written
      representation as to fact, and the Purchaser acknowledges that neither the
      Issuer, the Agents or anyone acting on its or their behalf have made any
      written representations, warranties or covenants in respect of such
      publicly available information, except as set forth in this Subscription
      Agreement and the Agency Agreement. Without limiting the generality of the
      foregoing, except as may be provided herein, no person has made any
      written or oral representation to the Purchaser that any person will
      re-sell or re-purchase the Convertible Debentures, or refund any of the
      purchase price of the Convertible Debentures, or that the Convertible
      Debentures will be listed on any exchange or quoted on any quotation and
      trade reporting system, or that application has been or will be made to
      list any such security on any exchange or quote the security on any
      quotation and trade reporting system, and no person has given any
      undertaking to the Purchaser relating to the future value or price of the
      Convertible Debentures;

	 	 	 	 
	 	(n) 	
      the Purchaser agrees that it is solely responsible for
      obtaining such legal, tax and other advice as the Purchaser considers
      appropriate in connection with the execution, delivery and performance of
      this Subscription Agreement and the transactions contemplated
      hereunder;

	 	 	 	 
	 	(o) 	
      in order to ensure compliance with applicable U.S.
      federal and state securities laws, the Purchaser represents, warrants and
      covenants as follows:

	 	 	 	 
	 		(i) 	
      it is purchasing the Convertible Debentures for its own
      account and not with a view to any resale, distribution or other
      disposition of the Convertible Debentures, the Units, the Warrants, the
      Common Shares or the Warrant Shares in violation of U.S. federal or state
      securities laws;

	 	 	 	 
	 		(ii) 	
      it understands that the Convertible Debentures, the
      Units, the Warrants, the Common Shares and the Warrant Shares have not
      been registered under the United States Securities Act of 1933, as amended
      (the “1933 Act”) or any applicable state securities laws, and are,
      therefore, “restricted securities” within the meaning of Rule 144 under
      the 1933 Act and that the contemplated sale of Convertible Debentures is
      being made in reliance on a private placement exemption available under
      Rule 506 of Regulation D under the 1933 Act to U.S. Accredited Investors
      (as defined in Schedule “A”);

	 	 	 	 
	 		(iii) 	
      it has had opportunity to discuss the Issuer’s business,
      management and financial affairs with the Issuer’s management and has had
      access to such additional information, if any, concerning the Issuer as it
      has considered necessary in connection with its investment decision to
      acquire the Convertible Debentures;

	 	 	 	 
	 		(iv) 	
      it is a U.S. Accredited Investor and has completed and
      executed Schedule “A” to this Agreement;

     EXECUTION
VERSION 

- 7 - 

	 	(v) 	
      it agrees that if it decides to offer, sell, pledge or
      otherwise transfer any Convertible Debentures, Common Shares, Warrants or
      Warrant Shares it will do so only, pursuant to an effective registration
      statement under the 1933 Act or pursuant to an available exemption from,
      or in a transaction not subject to, the registration requirements of the
      1933 Act and in accordance with applicable state securities laws as
      evidenced by a legal opinion of counsel to such effect;

	 	 	 
	 	(vi) 	
      it understands and acknowledges that, in addition to any
      legend setting forth transfer restrictions under applicable securities
      laws, upon the original issuance thereof, and until such time as the same
      is no longer required under applicable requirements of the 1933 Act or
      applicable state securities laws, certificates representing the
      Convertible Debentures, the Common Shares, the Warrants and the Warrant
      Shares, and all certificates issued in exchange therefor or in
      substitution thereof, shall bear the following restrictive legend (the
      “U.S. Legend”):

THESE SECURITIES [AND THE
SECURITIES ISSUABLE UPON CONVERSION OR EXERCISE HEREOF] HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933
ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
1933 ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY
A LEGAL OPINION OF COUNSEL TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE
REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

provided, that with respect to any
such pledge that the transferee is a U.S. Accredited Investor and such transfer
complies with applicable United States federal and state securities laws and
Canadian federal and provincial securities laws; 

	 	(vii) 	
      it is not purchasing the Convertible Debentures as a
      result of any “general solicitation or general advertising” (as those
      terms are used in Regulation D under the 1933 Act), including, but not
      limited, any advertisements, articles, notices or other communications
      published in any newspaper, magazine or similar media or on the Internet
      or broadcast over radio, television or the Internet, or any seminar or
      meeting whose attendees have been invited by general solicitation or
      general advertising, and it has a pre-existing business relationship with
      (i), if a director or officer of the Issuer, the Issuer or (ii) the Agents
      and, other than a director or officer of the Issuer, it was first made
      aware of the offering of the Convertible Debentures by the
  Agents;

	 	 	 
	 	(viii) 	
      it understands that the Convertible Debentures may not be
      converted unless an exemption is available from the registration
      requirements of the 1933 Act and the securities laws of any applicable
      states, and the holder has furnished an opinion of counsel of recognized
      standing) or other evidence reasonably satisfactory to the Issuer to such
      effect in form and substance reasonably satisfactory to the Issuer
      provided, however, that a holder who purchased Convertible Debentures in
      the Issuer’s private placement of Convertible Debentures will not be
      required to deliver an opinion of counsel or other evidence in connection
      with the conversion of those Convertible Debentures;

	 	 	 
	 	(ix) 	
      it understands that the Warrants may not be exercised
      unless an exemption from registration is available under the 1933 Act and
      any applicable state securities laws and

     EXECUTION
VERSION 

- 8 - 

	 		
      the Issuer has received an opinion counsel of recognized
      standing to such effect in form and substance reasonably satisfactory to
      the Issuer; provided, however, that a holder who is a U.S. Accredited
      Investor at the time of exercise of Warrants and purchased Convertible
      Debentures in the Issuer’s private placement of Convertible Debentures
      will not be required to deliver an opinion of counsel in connection with
      the exercise of Warrants that are a part of the Units underlying those
      Convertible Debentures; and

	 	 	 
	 	(x) 	
      it is aware that (i) purchasing, holding and disposing of
      the Convertible Debentures, the Units, the Common Shares, the Warrants and
      the Warrant Shares may have tax consequences under the laws of both Canada
      and the United States, (ii) the tax consequences for prospective investors
      who are resident in, or citizens of, the United States are not described
      in this Subscription Agreement, and (iii) it is solely responsible for
      determining the tax consequences applicable to its particular
      circumstances and should consult its own tax advisors concerning
      investment in such securities.

	 	 	 
	 	(xi) 	
      if the Purchaser is resident in Canada, it is resident in
      or otherwise subject to applicable securities laws of Canada and it is an
      “accredited investor”, as such term is defined in NI 45-106, it was not
      created or used solely to purchase or hold securities as an accredited
      investor as described in paragraph (m) of the definition of “accredited
      investor” in NI 45- 106, and it has concurrently executed and delivered an
      Canadian Subscriber Certificate in the form attached as Schedule “B” to
      this Subscription Agreement and has initialled or placed a check mark in
      Exhibit 1 thereto indicating that the Purchaser satisfies one of the
      categories of “accredited investor” set forth in such
  definition;

	 	(p) 	
      if the address of the Purchaser in this Subscription
      Agreement is in a jurisdiction outside of British Columbia, the Purchaser
      certifies that the Subscriber (or beneficial purchaser, if applicable) is
      not resident in British Columbia and acknowledges that:

	 	 	 	 
	 		(i) 	
      no securities commission or similar regulatory authority
      has reviewed or passed on the merits of the Convertible Debentures, Units,
      Common Shares, Warrants or Warrant Shares;

	 	 	 	 
	 		(ii) 	
      there is no government or other insurance covering the
      Convertible Debentures, Units, Common Shares, Warrants or Warrant
      Shares;

	 	 	 	 
	 		(iii) 	
      there are risks associated with the purchase of the
      Convertible Debentures, Units, Common Shares, Warrants or Warrant
      Shares;

	 	 	 	 
	 		(iv) 	
      there are restrictions on the Purchaser’s ability to
      re-sell the Convertible Debentures, Units, Common Shares, Warrants or
      Warrant Shares and it is the responsibility of the Purchaser to find out
      what those restrictions are and to comply with them before selling the
      Debentures, Units, Common Shares, Warrants or Warrant Shares;
and

	 	 	 	 
	 		(v) 	
      the Corporation has advised the Purchaser that the
      Corporation is relying on an exemption from the requirements to provide
      the Purchaser with a prospectus and to sell securities through a person or
      company registered to sell securities under the Securities Act
      (British Columbia) (the “Act”) and, as a consequence of
      acquiring the Convertible Debentures pursuant to an exemption, certain
      protections, rights and remedies provided by the Act, including statutory
      rights of rescission and damages, will not be available to the
      Purchaser;

	 	 	 	 
	 	(q) 	
      the Purchaser is aware that, in addition to any legend
      setting forth transfer restrictions under applicable securities laws, the
      certificates evidencing the Convertible Debentures, the Warrants, the
      Common Shares and the Warrant Shares issued to the Purchaser will be
      endorsed with, a

     EXECUTION
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legend setting out resale restrictions
under applicable Securities Laws in substantially the following form: 

“UNLESS PERMITTED UNDER SECURITIES
LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE
[INSERT DATE THAT IS FOUR MONTHS AND A DAY AFTER THE DISTRIBUTION DATE].” 

	6. 	
      U.S. Resale Registration Statement

	 	 	 	 
		(a) 	
      On or before March 31, 2009 (the “Registration Due
      Date”) and subject to any limitations imposed by Rule 415 (“Rule
      415”) under the 1933 Act or by the United States Securities and
      Exchange Commission (the “Commission”) with respect to
      interpretations thereof or thereunder, the Issuer shall prepare and file
      with the Commission a registration statement on Form F-3, or , if form F-3
      is not available, such other form that the Issuer is eligible to use (the
      “Registration Statement”), covering the resale of the Common Shares
      and the Warrant Shares (collectively, the “Registrable
      Securities”). The Issuer will use commercially reasonable efforts to
      cause such registration statement to become effective within 120 days
      following the Closing Date (such effective date the “Effective
      Date”), and shall use commercially reasonable efforts to maintain the
      effectiveness of the Registration Statement for a period of two years from
      the Effective Date (the “Effectiveness Period”).

	 	 	 	 
		(b) 	
      If the Issuer (i) subject to any limitations imposed by
      Rule 415 and the Commission’s interpretations thereof and thereunder,
      fails to have the Registration Statement covering the registration of 110%
      of the Registrable Securities filed with the Commission by the
      Registration Due Date, (ii) fails to use commercially reasonable efforts
      to have the Registration Statement declared effective by the Effective
      Date, or (iii) fails to use commercially reasonable efforts to maintain
      the effectiveness of the Registration Statement during the Effectiveness
      Period, then, as liquidated damages for such failure, the principal amount
      of the Convertible Debentures purchased by such Purchaser will be deemed
      to have increased by an amount equal to one percent (1%) of the original
      principal amount of Convertible Debentures purchased by such Purchaser for
      every 30-day period, or portion thereof, until the Registration Statement
      has been filed or declared effective. Notwithstanding the foregoing, the
      aggregate amount of liquidated damages payable by the Issuer to the
      Purchasers as a result of a failure to timely file or cause the
      Registration Statement to become effective and to maintain its effective
      status shall be capped at ten percent (10%) of the amount subscribed for
      by the Purchasers. Moreover, the Issuer shall not accrue liquidated
      damages with respect to more than one of any failure under this Section 6
      at a time.

	 	 	 	 
		(c) 	
      In connection with the Issuer’s registration obligations
      herein, the Issuer will:

	 	 	 	 
			(i) 	
      Not less than three (3) business days prior to the filing
      of the Registration Statement or any related prospectus or any amendment
      or supplement thereto (i) furnish to the Purchasers copies of all such
      documents proposed to be filed and (ii) cause its officers and counsel to
      respond to such inquiries as shall be necessary, in the reasonable opinion
      of respective counsel, to conduct a reasonable investigation within the
      meaning of the 1933 Act. In this regard, the Purchaser acknowledges and
      agrees to provide an email address on the cover page of this Subscription
      Agreement to which such documents may be sent. If such an email address is
      not provided, the Issuer shall have no obligation to provide such
      documents to the Purchaser pursuant to this Section 6(c)(i). The Issuer
      shall not file the Registration Statement or any such prospectus or any
      amendments or supplements thereto to which the Purchasers of a majority of
      the Registrable Securities shall reasonably object in good faith, provided
      that the Issuer is notified of such objection in writing no later than two
      (2) business days after the Purchasers have been so furnished copies of
      such documents;

     EXECUTION
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	 	(ii) 	
      prepare and file with the Commission such amendments and
      supplements to such Registration Statement and the prospectus used in
      connection therewith as may be necessary to keep such registration
      statement effective and to comply with the provisions of the 1933 Act with
      respect to the sale or other disposition of all securities covered by such
      Registration Statement until the such time as all of such securities have
      been disposed of in a public offering or as otherwise set forth
    herein;

	 	 	 
	 	(iii) 	
      furnish to each Purchaser such number of copies of a
      summary prospectus or other prospectus, including a preliminary
      prospectus, in conformity with the requirements of the 1933 Act, and such
      other documents, as the Purchasers may reasonably request;

	 	 	 
	 	(iv) 	
      register or qualify the Registrable Securities covered by
      the Registration Statement under such other securities or blue sky laws of
      such jurisdictions within the United States as the Agents shall reasonably
      request (provided, however, that it shall not be obligated to qualify as a
      foreign corporation to do business under the laws of any jurisdiction in
      which it is not then qualified or to file any general consent to service
      or process);

	 	 	 
	 	(v) 	
      furnish, at the request of the Purchasers, a legal
      opinion of the counsel representing the Issuer for the purposes of such
      registration, addressed to the Purchasers, in customary form and covering
      matters of the type customarily covered in such legal opinions;

	 	 	 
	 	(vi) 	
      otherwise use its commercially reasonable efforts to
      comply with all applicable rules and regulations of the Commission;
    and

	 	 	 
	 	(vii) 	
      promptly notify the Purchasers of (i) the issuance by the
      Commission of an order suspending the effectiveness of the Registration
      Statement, or of the threat of any proceeding for that purpose, or (ii)
      the suspension of the qualification of any Registrable Securities to be
      included in the Registration Statement for sale in any jurisdiction or the
      initiation or threat of any proceeding for that
purpose.

	 	(d) 	
      It shall be a condition precedent to the obligations of
      the Issuer to take any action pursuant to Section 6 hereof and the payment
      of liquidated damages hereunder that the Purchaser furnish to the Issuer
      such information regarding itself, the Registrable Securities held by it
      and the intended method of disposition of such securities as shall be
      required to timely effect the filing and effectiveness of the Registration
      Statement pursuant to the terms of this Section 6. In addition, the
      Purchaser shall not be obligated to pay liquidated damages hereunder if
      Purchasers of a majority of Registrable Securities object to the filing of
      the Registration Statement under Section 6(c)(i).

	 	 	 
	 	(e) 	
      No Purchaser shall have any right to obtain or seek an
      injunction restraining or otherwise delaying any the filing of the
      Registration Statement as the result of any controversy that might arise
      with respect to the interpretation or implementation of this Section
    6.

	 	 	 
	 	(f) 	
      Without limiting the other provisions of this Section 6,
      the Purchaser agrees that, if so requested by the Issuer upon a good faith
      determination by the Issuer’s board of directors that the imposition of a
      “Suspension Period” is necessary to enable the Issuer to pursue the
      objectives described in this Section 6(f), not to effect any offer or sale
      of securities pursuant to the Registration Statement, or otherwise, or
      engage in any hedging or other transaction intended to reduce or transfer
      the risk of ownership for any period (not to exceed 45 days) reasonably
      deemed necessary by the Issuer in connection with (i) the offering of
      securities by the Issuer for its own account or (ii) any proposal or plan
      by the Issuer to engage in any material financing or material acquisition
      or disposition by the Issuer or any subsidiary thereof of the securities
      or substantially all of the assets of any other person (other than in the
      ordinary course of business), any tender offer or any merger,
      consolidation, corporate reorganization, strategic partnership arrangement
      or restructuring or other similar transaction (each, a “Business
      Combination”) material to the Issuer and its
subsidiaries

     EXECUTION
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- 11 - 

	 		
      taken as a whole. Any period during which the Issuer
      requires pursuant to this Section 6(f) that the Purchaser not effect such
      transactions is hereafter referred to as a “Suspension Period”. A
      Suspension Period shall commence on the date set forth in a written notice
      by the Issuer to the Purchaser pursuant to this Section 6(f) and shall end
      on the date when the Purchaser is advised in writing by the Issuer that
      such transactions may be resumed. The Issuer may only impose a Suspension
      Period on the Purchaser one (1) time during any twelve month period. The
      obligation under Section 6 to keep a Registration Statement effective
      shall not include any period of time such Registration Statement was
      subject to a Suspension Period.

	 	 	 
	 	(g) 	
      All expenses incurred in connection with the Registration
      Statement will be borne by the Issuer except for (i) any costs and
      expenses of counsel, accountants or other advisors retained by the
      Purchasers and (ii) all transfer, franchise, capital stock and other
      taxes, if any, applicable to the Purchasers’ securities which shall be
      paid by the Purchasers.

	 	 	 
	 	(h) 	
      The Issuer shall indemnify and hold harmless each
      Purchaser holding such Registrable Securities, such Purchaser’s directors
      and officers, and each other person (including each underwriter) who
      participated in the offering of such Registrable Securities and each other
      person, if any, who controls such Purchaser or such participating person
      within the meaning of the 1933 Act, against any losses, claims, damages or
      liabilities, joint or several, to which such Purchaser or any such
      director or officer or participating person or controlling person may
      become subject under the 1933 Act or any other statute or at common law,
      insofar as such losses, claims, damages or liabilities (or actions in
      respect thereof) arise out of or are based upon (i) any untrue statement
      or any alleged untrue statement of any material fact contained, on the
      effective date thereof, in the Registration Statement, any preliminary
      prospectus or final prospectus contained therein, or any amendment or
      supplement thereto, (ii) any omission or any alleged omission to state
      therein a material fact required to be stated therein or necessary to make
      the statements therein not misleading, or (iii) any other violation of any
      applicable securities laws, and in each of the foregoing circumstances
      shall reimburse such Purchaser or such director, officer or participating
      person or controlling person for any legal or any other expenses
      reasonably incurred by such Purchaser or such director, officer or
      participating person or controlling person in connection with
      investigating or defending any such loss, claim, damage, liability or
      action; provided, however, that the Issuer shall not be liable in any such
      case (A) to amounts paid in settlement of any such loss, claim, damage,
      liability or action if such settlement is effected without the consent of
      the Issuer (which consent shall not be unreasonably withheld), (B) to the
      extent that any such loss, claim, damage or liability arises out of or is
      based upon any actual or alleged untrue statement or actual or alleged
      omission made in such Registration Statement, preliminary prospectus,
      prospectus or amendment or supplement in reliance upon and in conformity
      with information furnished to the Issuer by such Purchaser specifically
      for use therein, or (C) for any loss, claim, damage, liability or action
      that is the result of or is caused, directly or indirectly, by the wilful
      misconduct or negligence of the Purchaser. Notwithstanding the provisions
      of this paragraph, the Issuer shall not be required to indemnify the
      Purchaser or any other person pursuant to this paragraph or contribute
      pursuant to paragraph (i) below in an amount in excess of the aggregate
      proceeds received from such Purchaser or other person pursuant to this
      Offering.

	 	 	 
	 	(i) 	
      Each Purchaser holding Registrable Securities, by
      acceptance hereof, agrees to indemnify and hold harmless the Issuer, its
      directors and officers and each other person, if any, who controls the
      Issuer within the meaning of the 1933 Act and any other Purchaser against
      any losses, claims, damages or liabilities, joint or several, to which the
      Issuer or any such director or officer or any such person may become
      subject under the 1933 Act or any other statute or at common law, insofar
      as such losses, claims, damages or liabilities (or actions in respect
      thereof) arise out of or are based upon (i) any untrue statement or any
      alleged untrue statement of any material fact contained, on the effective
      date thereof, in the Registration Statement, any preliminary prospectus or
      final prospectus contained therein, or any amendment or supplement
      thereto, or (ii) any omission or any alleged omission to state therein a
      material fact required to be stated therein or necessary to make the
      statements therein not misleading, but in either case only to the extent
      that such untrue

     EXECUTION
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      statement or omission is (A) made in reliance on and in
      conformity with any information furnished in writing by such Purchaser to
      the Issuer concerning such Purchaser specifically for inclusion in the
      offering documents relating to such offering, and (B) is not corrected by
      such Purchaser prior to any such loss, claim, damage or liability.
      Notwithstanding the provisions of this paragraph, no Purchaser shall be
      required to indemnify any person or entity pursuant to this paragraph or
      to contribute pursuant to paragraph (j) below in an amount in excess of
      the amount of the Aggregate Subscription Price paid by such Purchaser
      pursuant to this Offering.

	 	 	 	 
	 	(j) 	
      If the indemnification provided for in Section 6(i) above
      from the indemnifying party is unavailable to an indemnified party
      hereunder in respect of any losses, claims, damages, liabilities or
      expenses referred to therein, then the indemnifying party, in lieu of
      indemnifying such indemnified party, shall contribute to the amount paid
      or payable by such indemnified party as a result of such losses, claims,
      damages, liabilities or expenses in such proportion as is appropriate to
      reflect the relative fault of the indemnifying party and indemnified
      parties in connection with the actions which resulted in such losses,
      claims, damages, liabilities or expenses, as well as any other relevant
      equitable considerations. The relative fault of such indemnifying party
      and indemnified parties shall be determined by reference to, among other
      things, whether any action in question, including any untrue or alleged
      untrue statement of a material fact or omission or alleged omission to
      state a material fact, has been made by, or relates to information
      supplied by, such indemnifying party or indemnified parties, and the
      parties’ relative intent, knowledge, access to information and opportunity
      to correct or prevent such action. The amount paid or payable by a party
      as a result of the losses, claims, damages, liabilities and expenses
      referred to above shall be deemed to include any legal or other fees or
      expenses reasonably incurred by such party in connection with any
      investigation or proceeding. The parties hereto agree that it would not be
      just and equitable if contribution pursuant to this paragraph were
      determined by pro rata allocation or by any other method of allocation
      which does not take account of the equitable considerations referred to
      above. No person guilty of fraudulent misrepresentation (within the
      meaning of Section 11(f) of the 1933 Act) shall be entitled to
      contribution from any person who was not guilty of such fraudulent
      misrepresentation.

	 	 	 	 
	 	(k) 	
      In order to permit the Purchasers to sell the Registrable
      Securities, if so desired, pursuant to any applicable resale exemption
      under applicable securities laws and regulations, the Issuer shall for a
      period of two years from the Closing Date:

	 	 	 	 
	 		(i) 	
      comply with all rules and regulations of the Commission
      in connection with use of any such resale exemption;

	 	 	 	 
	 		(ii) 	
      make and keep available adequate and current public
      information regarding the Issuer;

	 	 	 	 
	 		(iii) 	
      file with the Commission in a timely manner, all reports
      and other documents required to be filed under the 1933 Act, the Exchange
      Act, or other applicable securities laws and regulations;

	 	 	 	 
	 		(iv) 	
      furnish to the Purchasers copies of annual reports
      required to be filed under the Exchange Act and other applicable
      securities laws and regulations; and

	 	 	 	 
	 		(v) 	
      furnish to the Purchasers, upon written request such
      other information as may be reasonably required to permit the Purchasers
      to sell pursuant to any applicable resale exemption under the 1933 Act or
      other applicable securities law and regulations, if any.

	 	 	 	 
	 	(l) 	
      Certificates evidencing Registrable Securities shall not
      contain any U.S. restrictive legend: (i) while a registration statement
      (including the Registration Statement) covering such Registrable
      Securities is then effective and a Suspension Period is not in effect; or
      (ii) following a sale or transfer of such Registrable Securities pursuant
      to Rule 144 promulgated under the 1933 Act

     EXECUTION
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      (“Rule 144”) (assuming the transferee is not an
      “affiliate” (as such term is defined in Rule 405 under the 1933 Act) of
      the Issuer), or (iii) while such Registrable Securities are eligible for
      sale by the selling Purchaser without volume restrictions under Rule 144.
      The Issuer agrees that following the Effective Date or such other time as
      U.S. restrictive legends are no longer required to be set forth on
      certificates representing Registrable Securities under this Section 6(l),
      it will, no longer than three trading days following the delivery by a
      Purchaser to the Issuer or the Issuer’s transfer agent of a certificate
      representing such Registrable Securities containing a U.S. restrictive
      legend, deliver or instruct the Issuer’s transfer agent to deliver to such
      Investor, Registrable Securities which are free of all U.S. restrictive
      and other U.S. legends. If the Issuer is then eligible, certificates for
      Registrable Securities subject to U.S. legend removal hereunder shall be
      transmitted by the Issuer’s transfer agent to a Purchaser by crediting the
      prime brokerage account of such Purchaser with the Depository Trust Issuer
      System as directed by such Purchaser.

	 	 	 
	 	(m) 	
      Neither the Issuer nor any of its security holders (other
      than the Purchasers in such capacity pursuant hereto) may include
      securities of the Issuer in the Registration Statement other than the
      Registrable Securities without the consent of Purchasers holding a
      majority of the then outstanding Registrable Securities, and the Company
      shall not, during the Effectiveness Period, enter into any agreement
      providing any such right to any of its security
holders.

	7. 	
      Pre-emptive Right

	 	 	 
		(a) 	
      The Issuer agrees that no additional convertible
      debentures of the Issuer shall be issued within (2) years of the Closing
      Date unless the Issuer, by written notice, advises the holders of any
      Convertible Debentures at such time of the Issuer’s intention to issue
      such additional debentures (the “Offered Debentures”) and the
      subscription price per Offered Debenture for same. Each of holders of
      Convertible Debentures shall have a pre-emptive right, exercisable within
      a period of 15 Business Days from receipt of such notice from the Issuer,
      to elect in writing to acquire the Offered Debentures in proportion to
      their respective holdings of the outstanding Convertible Debentures at the
      same price and on the same terms as those that are specified in the
      written notice issued by the Issuer. If any holders of Convertible
      Debentures so elect to acquire the Offered Debentures, the holder shall be
      obligated to acquire its proportion of the Offered Debentures (as
      determined pursuant to the foregoing) in its entirety.

	 	 	 
		(b) 	
      If the holder does not elect to acquire the Offered
      Debentures in accordance with Section 7(a), the Issuer may issue the
      Offered Debentures at any time within 90 days from the issuance of the
      notice referred to in Section 7(a), provided that such issuance is not on
      terms that are more favourable than those specified in the written notice
      issued by the Issuer.

	 	 	 
		(c) 	
      Following the issuance of Offered Debentures or 90 days
      following the issuance of the written notice referred to in Section 7(a)
      from which an issuance of the Offered Debentures did not result, as the
      case may be, the provisions of Section 7(a) shall once again apply to any
      intention by the Issuer to issue additional convertible debentures of the
      Issuer within (2) years of the Closing Date.

	 	 	 
	8. 	
      Prohibition on Short Sales

	 	 	 
		
      The Purchaser covenants and agrees that it will not sell
      short any Common Shares of the Issuer from the date hereof until the
      Closing Date.

	 	 	 
	9. 	
      Reliance Upon Representations, Warranties and
      Covenants by Issuer and Agents

	 	 	 
		
      The Purchaser acknowledges that the representations,
      warranties and covenants made by the Purchaser in this Subscription
      Agreement (including without limitation those made in each Subscriber
      Certificate to be executed and delivered in accordance with this
      Subscription Agreement) are made with the intent that they may be relied
      upon by the Issuer, the Agents and their respective counsel to, among
      other things, determine

     EXECUTION
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      the Purchaser’s eligibility to purchase the Convertible
      Debentures, including without limitation the availability of exemptions
      from the registration and prospectus requirements of applicable Securities
      Laws in connection with the issuance of the Convertible Debentures to the
      Purchaser. The Purchaser further covenants to the Issuer and the Agents
      that by accepting the Convertible Debentures, the Purchaser shall be
      representing and warranting that such representations and warranties are
      true as at the Closing Date with the same force and effect as if they had
      been made by the Purchaser at the Closing Date and that the covenants of
      the Purchaser made by it in this Subscription Agreement to be performed
      prior to the Closing Date have been performed. The Purchaser further
      agrees to indemnify the Issuer, the Agents and its respective directors,
      officers, employees, advisers, affiliates, shareholders and agents, and
      their respective counsel, against all losses, claims, costs, expenses,
      damages and liabilities which any of them may suffer or incur and which
      are caused by or arise from any inaccuracy in, or breach or
      misrepresentation by the Purchaser of, any such representations,
      warranties and covenants made by the Purchaser in this Subscription
      Agreement. The Purchaser undertakes to immediately notify the Issuer and
      the Agents of any change in any statement or other information relating to
      the Purchaser set forth herein or in a Subscriber Certificate that takes
      place prior to the Closing Date.

	 	 
	10. 	
      Reliance Upon Representations, Warranties and
      Covenants by the Purchaser

	 	 
		
      The Issuer acknowledges that the representations,
      warranties and covenants made by the Issuer in this Subscription Agreement
      and the Agency Agreement, which are incorporated herein by reference, are
      made with the intent that they may be relied upon by the Purchaser and
      their respective counsel to, among other things, assist Purchaser in
      making its investment decision regarding the Convertible Debentures. The
      Issuer further agrees to indemnify the Purchaser and its respective
      directors, officers, employees, advisers, affiliates, shareholders and
      agents, and their respective counsel, against all losses, claims, costs,
      expenses, damages and liabilities which any of them may suffer or incur
      and which are caused by or arise from any inaccuracy in, or breach or
      misrepresentation by the Issuer of, any such representations, warranties
      and covenants made by the Issuer in this Subscription Agreement. The
      Issuer undertakes to immediately notify the Purchaser of any change in any
      statement or other information relating to the Issuer set forth herein
      that takes place prior to the Closing Date.

	 	 
	11. 	
      Survival

	 	 
		
      This Subscription Agreement, including without limitation
      the representations, warranties and covenants contained herein and in each
      Subscriber Certificate shall survive and continue in full force and effect
      and be binding upon the Issuer and the Purchaser, notwithstanding the
      completion of the purchase of the Convertible Debentures by the Purchaser
      pursuant hereto, the issuance of any underlying securities, or the
      subsequent disposition of the Convertible Debentures or the underlying
      securities by the Purchaser, subject in the case of the representations
      and warranties in the Agency Agreement to the limitations and other terms
      thereof.

	 	 
	12. 	
      Personal Information Authorization

	 	 
		
      By executing this Subscription Agreement, the Purchaser
      hereby consents to the collection, use and disclosure of the personal
      information provided herein and other personal information provided by the
      Purchaser or collected by the Issuer or its agents as reasonably necessary
      in connection with the Purchaser’s subscription for the Convertible
      Debentures (collectively, “personal information”) as follows: (a)
      the Issuer may use personal information and disclose personal information
      to intermediaries such as the Issuer’s legal counsel and withholding
      and/or transfer agents for the purposes of determining the Purchaser’s
      eligibility to invest in the Convertible Debentures and for managing and
      administering the Purchaser’s investment in the Convertible Debentures;
      (b) if the Purchaser purchased securities through a registered dealer, the
      Issuer may disclose and collect such personal information relating to the
      Purchaser’s holding of the Convertible Debentures to and from the dealer;
      (c) the Issuer and its agents may use the Purchaser’s social insurance
      number for income reporting purposes in accordance with applicable law;
      (d) the Issuer, its agents and advisors, may each collect, use and
      disclose personal information for the purposes

     EXECUTION
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      of meeting legal, regulatory, self-regulatory, security
      and audit requirements (including any applicable tax, securities, money
      laundering or anti-terrorism legislation, rules or regulations) and as
      otherwise permitted or required by law, which disclosures may include
      disclosures to tax, securities or other regulatory or self- regulatory
      authorities in Canada, the United States of America and/or in foreign
      jurisdictions, if applicable, in connection with the regulatory oversight
      mandate of such authorities; (e) the Issuer and its agents and advisors
      may use personal information and disclose personal information to parties
      connected with the proposed or actual transfer, sale, assignment, merger
      or amalgamation of the Issuer or its business or assets or similar
      transactions, for the purpose of permitting such parties to evaluate
      and/or proceed with and complete such transaction. Purchasers, assignees
      and successors of the Issuer or its business or assets may collect, use
      and disclose personal information as described in this Subscription
      Agreement. The Purchaser acknowledges that the Issuer’s agents or
      intermediaries may be located outside of Canada and the United States, and
      personal information may be transferred and/or processed outside of Canada
      and the United States for the purposes described above, and that measures
      the Issuer may use to protect personal information while handled by
      agents, intermediaries or other third parties on its behalf, and personal
      information otherwise disclosed or transferred outside of Canada and/or
      the United States for the purposes described above, are subject to legal
      requirements in foreign countries applicable to the Issuer or such third
      parties, for example lawful requirements to disclose personal information
      to government authorities in those countries.

	 	 
	13. 	
      Governing Law

	 	 
		
      This Subscription Agreement shall be governed by and
      construed in accordance with the laws of the Province of British Columbia
      and the federal laws of Canada applicable therein. The Purchaser hereby
      irrevocably attorns to the non-exclusive jurisdiction of the courts of the
      Province of British Columbia with respect to any matters arising out of
      this Subscription Agreement.

	 	 
	14. 	
      Costs

	 	 
		
      Each party shall pay the fees and expenses of its
      advisers, counsel, accountants and other experts, if any, and all other
      expenses incurred by such party incident to the negotiation, preparation,
      execution, delivery and performance of the Subscription Agreement. The
      Issuer shall pay all stamp and other taxes and duties levied in connection
      with the sale of the Convertible Debentures.

	 	 
	15. 	
      Assignment

	 	 
		
      This Subscription Agreement shall enure to the benefit of
      and be binding on the Issuer, the Purchaser and their respective heirs,
      administrators, executors, successors and permitted assigns. This
      Subscription Agreement may not be assigned by the Issuer and may only be
      transferred or assigned by the Purchaser: (i) subject to compliance with
      applicable Securities Law, applicable U.S. federal and state securities
      laws and the rules and regulations of the NYSE Alternext U.S. and any
      other exchange upon which the Issuer’s securities are listed or quoted and
      (ii) with the prior written consent of the Issuer and the
Agents.

	 	 
	16. 	
      Entire Agreement

	 	 
		
      This Subscription Agreement constitutes the entire
      agreement between the parties hereto pertaining to the subject matter
      hereof and supersedes all prior agreements, understandings, negotiations
      and discussions, whether oral or written. There are no conditions,
      representations, warranties, covenants or other agreements between the
      parties hereto relating to the subject matter hereof, except as
      specifically set out, referred to or incorporated by reference
    herein.

	 	 
	17. 	
      Amendments and Waivers

	 	 
		
      Except as permitted by the Agency Agreement, no amendment
      to this Subscription Agreement will be valid or binding unless set forth
      in writing and duly executed by the parties hereto and no waiver of any
      breach

     EXECUTION
VERSION 

- 16 - 

		
      of any provision of this Subscription Agreement will be
      effective or binding unless made in writing and signed by the waiving
      party.

	 	 
	18. 	
      Language

	 	 
		
      The parties hereto confirm their express wish that this
      Subscription Agreement and all documents and agreements directly or
      indirectly relating hereto be drawn up in the English language. Les
      parties reconnaissent leur volonté expresse que la présente ainsi que tous
      les documents et contrats s’y rattachant directmente ou indirectmente
      soient rédigés en anglais.

	 	 
	19. 	
      Time of Essence

	 	 
		
      Time shall be of the essence of this Subscription
      Agreement in all respects.

	 	 
	20. 	
      Facsimile Deliveries and Counterparts

	 	 
		
      The Issuer and the Agents shall be entitled to rely on
      delivery by facsimile of a copy of this Subscription Agreement executed by
      the Purchaser, and acceptance by the Issuer of such executed Subscription
      Agreement shall be legally effective to create a valid and binding
      agreement between the Purchaser and the Issuer in accordance with the
      terms hereof. In addition, this Subscription Agreement may be executed in
      counterparts, each of which shall be deemed to be an original and all of
      which shall constitute one and the same document.

	 	 
	21. 	
      Extended Meanings and Headings

	 	 
		
      In this Subscription Agreement words importing the
      singular number include the plural and vice versa, words importing any
      gender include all genders and words importing persons include
      individuals, partnerships, associations, trusts and unincorporated
      associations. The headings contained herein are for convenience of
      reference only and shall not affect the construction or interpretation
      hereof.

	 	 
	22. 	
      Currency

	 	 
		
      All references to currency herein are to lawful money of
      Canada.

	 	 
	23. 	
      Further Assurances

	 	 
		
      Each of the parties hereto shall from time to time
      execute and deliver all such further documents and instruments and do all
      acts and things as the other party may, either before or after the closing
      of the transactions contemplated hereby, reasonably require to effectively
      carry out or better evidence or perfect the full intent and meaning of
      this Subscription Agreement

(remainder of this page intentionally left blank) 

A-1 

SCHEDULE “A” 

U.S. SUBSCRIBER CERTIFICATE 

(FOR ALL PURCHASERS)

	TO: 	ENDEAVOUR SILVER CORP. (the
      “Issuer”) 
	AND TO: 	EURO PACIFIC CAPITAL INC. and
      SALMAN PARTNERS INC. (the “Agents”) 

In connection with the proposed purchase of Convertible
Debentures of the Issuer the undersigned represents and warrants that the
undersigned has read the following definition of an “U.S. Accredited Investor”
and certifies that the undersigned is a U.S. Accredited Investor as indicated
below (check one): 

“U.S. Accredited Investor” shall mean any of (check
one): 

	 	A bank, as defined in Section 3(a)(2) of the 1933 Act, or
      savings and loan association or other institution as defined in Section
      3(a)(5)(A) of the 1933 Act, whether acting in its individual or fiduciary
      capacity; 	[   ] 
	 	  	  
	 	A broker or dealer registered pursuant to Section 15 of the
      United States Securities Exchange Act of 1934, as amended; 	[   ] 
	 	  	  
	 	An insurance company (as defined in Section 2(13) of the
      1933 Act); 	[   ] 
	 	  	  
	 	An investment company registered under the United States
      Investment Company Act of 1940, as amended (the “1940 Act”); 	[   ] 
	 	  	  
	 	A business development company (as defined in Section
      2(a)(48) of the 1940 Act); 	[   ] 
	 	  	  
	 	A Small Business Investment Company licensed by the U.S.
      Small Business Administration under Section 301(c) or (d) of the United
      States Small Business Investment Act of 1958, as amended; 	[   ] 
	 	  	  
	 	A plan established and maintained by a state, its political
      subdivisions, or any agency or instrumentality of a state or its political
      subdivisions, for the benefit of its employees, if such plan has total
      assets in excess of U.S.$5,000,000; 	[   ] 
	 	  	  
	 	An employee benefit plan within the meaning of the United
      States Employee Retirement Income Security Act of 1974, as amended
      (“ERISA”), (1) whose investment decision is made by a plan fiduciary as
      defined in Section 3(21) of ERISA, which is either a bank, savings and
      loan association, insurance company or registered investment advisor, or
      (2) having total assets in excess of U.S.$5,000,000, or (3) if a
      self-directed plan, with investment decisions made solely by persons that
      are accredited investors; 	[   ] 
	 	  	  
	 	A private business development company (as defined in
      Section 202(a)(22) of the United States Investment Advisers Act of 1940);
    	[   ] 
	 	  	  
	 	An organization described in Section 501(c)(3) of the
      Internal Revenue Code of 1986 as amended, company, or similar business
      trust, or partnership, not formed for the specific purpose of acquiring
      the securities offered, having total assets in excess of U.S.$5,000,000;
    	[   ] 
	 	  	  
	 	A director or executive officer of the Issuer; 	[   ] 
	 	  	  
	 	A natural person with individual net worth, or joint net
      worth with his or her 	[   ] 

A-2 

	 	spouse, at the time of purchase in excess of
      U.S.$1,000,000; 	  
	 	  	  
	 	A natural person with an individual income in excess of
      U.S.$200,000 in each of the last two years or joint income with his or her
      spouse in excess of U.S.$300,000 in each of those years, and who
      reasonably expects to reach the same income level in the current year; 	[   ] 
	 	  	  
	 	A trust, with total assets in excess of U.S.$5,000,000, not
      formed for the specific purpose of acquiring the securities offered, whose
      purchase is directed by a sophisticated person as described in Section
      Rule 506 (b)(2)(ii) of the 1933 Act; and 	[   ] 
	 	  	  
	 	An entity in which all of the equity owners are U.S.
      Accredited Investors. 	[   ] 

TERMS NOT DEFINED HEREIN SHALL HAVE THE MEANINGS ASCRIBED TO
THEM IN THE SUBSCRIPTION AGREEMENT TO WHICH THIS SCHEDULE IS ATTACHED. 

The foregoing representation, warranty and certificate are true
and accurate as of the date of this certificate. 

Dated: ____________________________

[PURCHASER NAME] 

 

By:   ____________________________________________

          
Name: 
         Title: 

SCHEDULE “B” 

CANADIAN SUBSCRIBER CERTIFICATE 

(FOR CANADIAN PURCHASERS)

	TO: 	ENDEAVOUR SILVER CORP. (the
      “Issuer”) 
	 	 
	AND TO: 	EURO PACIFIC CAPITAL INC. and
      SALMAN PARTNERS INC. (the “Agents”) 

Reference is made to the subscription agreement between the
Issuer and the undersigned (referred to herein as the “Purchaser”) dated
as of the date hereof (the “Subscription Agreement”). Upon execution of
this Subscriber Certificate by the Purchaser, this Subscriber Certificate shall
be incorporated into and form a part of the Subscription Agreement. Terms not
otherwise defined herein have the meanings attributed to them in the
Subscription Agreement and in National Instrument 45-106 - Prospectus and
Registration Exemptions (“NI 45-106”). 

	A. 	
      The Subscriber is resident in or is subject to the laws
      of a province of Canada;

	 	 
	B. 	
      The Subscriber is purchasing the Convertible Debentures
      as principal for its own account;

	 	 
	C. 	
      The Subscriber is an “accredited investor” within the
      meaning of NI 45-106 by virtue of satisfying the indicated criterion as
      set out in Exhibit I to this Subscriber Certificate and the Subscriber has
      not been created or used solely to purchase or hold securities as an
      “accredited investor” as described in paragraph (m) of the definition of
      “accredited investor” in NI 45-106, which is reproduced in Exhibit I to
      this Subscriber Certificate; and

	 	 
	D. 	
      Upon execution of this Schedule “B” by the Subscriber,
      this Schedule “B” shall be incorporated into and form a part of the
      Subscription Agreement.

Dated: __________________________________________

 

	 	Print name of Purchaser
	 	 	 
	 		
	 	By:	  
	 		Signature 
	 	 	 
	 	 	 
	 		Print name of Purchaser (if different from Subscriber)
    
	 	 	 
	 	 	 
	 		Title 

IMPORTANT: PLEASE INITIAL THE CATEGORY OR CATEGORIES 
IN
EXHIBIT 1 ON THE NEXT PAGE THAT DESCRIBE YOU 

 

 

B-1 

EXHIBIT 1 

TO SCHEDULE “B” 

PLEASE MARK YOUR INITIALS OR PLACE A CHECKMARK BESIDE THE
CATEGORY OF “ACCREDITED INVESTOR” TO WHICH YOU BELONG. 

Accredited Investor - (defined in National Instrument
45-106) means: 

	_______	(1) 	
      an individual who, either alone or with a spouse,
      beneficially owns, directly or indirectly, financial assets having an
      aggregate realizable value that before taxes, but net of any related
      liabilities, exceeds $1,000,000;

	 	 	 
	_______	(2) 	
      an individual whose net income before taxes exceeded
      $200,000 in each of the 2 most recent calendar years or whose net income
      before taxes combined with that of a spouse exceeded $300,000 in each of
      the 2 most recent calendar years and who, in either case, reasonably
      expects to exceed that net income level in the current calendar
    year;

	 	 	 
	_______	(3) 	
      an individual who, either alone or with a spouse, has net
      assets of at least $5,000,000; or

	 	 	 
	_______	(4) 	
      a person, other than an individual or investment fund,
      that has net assets of at least $5,000,000 as shown on its most recently
      prepared financial statements.

NOTE: The investor must initial or place a checkmark beside
the applicable portion of the above definition. 

For the purposes hereof: 

	 	(5) 	
      “financial assets” means

	 	 	 	 
	 		(a) 	
      cash,

	 	 	 	 
	 		(b) 	
      securities, or

	 	 	 	 
	 		(c) 	
      a contract of insurance, a deposit or an evidence of a
      deposit that is not a security for the purposes of securities
      legislation;

	 	 	 	 
	 	(6) 	
      “individual” means a natural person, but does not
      include

	 	 	 	 
	 		(a) 	
      a partnership, unincorporated association, unincorporated
      syndicate, unincorporated organization or a trust, or

	 	 	 	 
	 		(b) 	
      a natural person in the person's capacity as trustee,
      executor, administrator or other legal personal representative;

	 	 	 	 
	 	(7) 	
      “person” includes

	 	 	 	 
	 		(a) 	
      an individual,

	 	 	 	 
	 		(b) 	
      a corporation,

	 	 	 	 
	 		(c) 	
      a partnership, trust, fund and an association, syndicate,
      organization or other organized group of persons, whether incorporated or
      not, and

B-2 

	 	(d) 	
      an individual or other person in that person's capacity
      as a trustee, executor, administrator or personal or other legal
      representative;

	 	(8) 	
      “spouse” means, an individual who,

	 	 	 	 
	 		(a) 	
      is married to another individual and is not living
      separate and apart within the meaning of the Divorce Act (Canada),
      from the other individual, or

	 	 	 	 
	 		(b) 	
      is living with another individual in a marriage-like
      relationship, including a marriage-like relationship between individuals
      of the same gender.

B-3 

C-1 

SCHEDULE “C” 

ENDEAVOUR SILVER CORP.

PRIVATE PLACEMENT OF
SUBORDINATED UNSECURED
CONVERTIBLE REDEEMABLE DEBENTURES 

TERM SHEET 

	Issuer: 	
      Endeavour Silver Corp. (the “Company”). 

	  	
       

	Agents: 	
      Euro Pacific Capital Inc. and Salman Partners Inc. (the
      “Agents”). 

	  	
       

	Issue: 	
      Subordinated Unsecured Convertible Redeemable Debentures
      (the “Debentures”). 

	  	
       

	Amount: 	
      Up to CDN$8.0 million. The Company has given the Agents
      the option to sell up to an additional CDN$6.0 million of Debentures on or
      before the closing of the transactions contemplated by this term sheet
      (the “Closing”). 

	  	
       

	Reference Price: 	
      The Reference Price for determining the Conversion Price
      and Warrant Price is CDN$1.52. 

	  	
       

	Closing and Maturity 
Dates: 	
      The Closing will occur on or before February 20, 2009
      (the “Closing Date”) and the maturity date (the “Maturity
      Date”) will be the fifth (5th) anniversary of the Closing
      Date. 

	  	
       

	Interest Rate: 	
      10% per annum, payable quarterly in arrears in Canadian
      dollars on April 15, July 15, October 15 and January 15. The April 15,
      2009 interest payment will represent accrued interest for the period from
      Closing to April 15, 2009. 

	  	
       

	Use of Proceeds: 	
      The net proceeds to the Company will be used to acquire
      mining equipment, develop underground access to mineralized zones and
      upgrade certain plant circuits at the Company’s Guanacevi and Guanajuato
      mines in Mexico, and for general corporate purposes. 

	  	
       

	Conversion: 	
      The holders of the Debentures (“Holders”) will
      have the right to convert all or part of the Debentures at any time prior
      to the Maturity Date. The Holders must provide at least five (5) days
      prior notice to the Company (“the Conversion Notice”) of the exercise of
      their conversion right. Each Debenture will be convertible into units of
      the Company (the “Units”) each consisting of one common share (the
      “Common Shares”) and one half of a Common Share purchase warrant.
      The share price to be used for the conversion of the Debentures into Units
      (the “Conversion Price”) will be at a 25% premium to the Reference
      Price, or CDN$1.90. 

	  	
       

		
      Each full share purchase warrant (the “Warrants”)
      will entitle the Holder thereof to purchase one Common Share prior to the
      Maturity Date at an exercise price representing a premium of 35% over the
      Reference Price, or CDN$2.05. The Warrants may be exercised on a
      “cashless” or “Net exercise” basis at the option of the holder. 

	  	
       

	  	
      The Company will ensure that the Common Shares issued
      upon the conversion of the 

C-2 

		
      Debentures and the Common Shares issued upon the exercise
      of the Warrants are freely tradable upon such conversion and exercise (see
      Registration rights below) in the United States pursuant to an effective
      registration statement. In addition to the applicable number of Units to
      be received on conversion, each holder of Debentures will be entitled to
      receive the accrued and unpaid interest for the period from the latest
      interest payment to the date of conversion. 

	  	
       

	Redemption: 	
      After a period of 18 months from the Closing, the Company
      will have the right to redeem all or part of the Debentures at any time
      prior to the Maturity Date so long as the Common Shares underlying the
      Units may be transferred pursuant to an effective registration statement
      or are otherwise freely transferrable without restriction. The Company
      must provide at least ten (10) days prior notice (the “Redemption
      Notice”) to the Holders, during which the holders may convert their
      Debentures, and the redemption price will be payable in cash equal to the
      outstanding principal amount plus any accrued and unpaid interest plus a
      redemption fee equal to 7% of the principal amount then outstanding.
    

	  	
       

		
      The Company will not be entitled to redeem all or any
      part of the Debentures unless the volume weighted average price of the
      Common Shares on the Toronto Stock Exchange (“TSX”) for a period of
      thirty (30) consecutive trading days prior to the date of the Redemption
      Notice represents at least a 50% premium to the Conversion Price, or
      CDN$2.85. 

	  	
       

	Ranking: 	
      The Debentures will be subordinated in right of payment
      of principal and interest to all senior secured debt of the Company and
      will be pari passu with any other unsecured debt. 

	  	
       

	Security: 	
      The Debentures will be unsecured. 

	  	
       

	Transfer / Resale: 	
      The Debentures, Units, Common Shares, Warrants and
      Warrant Shares will be transferrable subject to restrictions under
      applicable law, including Canadian and U.S. federal and state securities
      laws and applicable provincial securities laws. 

	  	
       

	Events of Default: 	
      The Indenture in respect of the Debentures will contain
      usual and customary “Events of Default” for transactions of
      this type, including, but not limited to: 

	  	
       

	  	
      Failure to pay principal or interest when due; 

	  	
       

		
      Breach of covenants by the Company (after the expiration
      of a twenty (20) day cure period); 

	  	
       

		
      Cross default to any other debt or obligation more senior
      than the Debentures that results in the acceleration of a payment
      obligation of at least CDN$4,000,000; and cross default to any other
      convertible debt pari passu with the Debentures that results in the
      acceleration of a payment obligation of at least CDN$4,000,000 within 18
      months of the Closing Date; 

	  	
       

	 	
      Bankruptcy, insolvency or dissolution of the Company; and
      

	  	
       

		
      Unpaid judgments in excess of CDN$4,000,000 that are not
      vacated within twenty (20) days. 

C-3 

	Default Interest: 	
      From and during the continuance of an Event of Default
      (as defined above) the Company will be obligated to pay the holder a
      post-Default interest rate that is equal to the then current interest rate
      under the Debenture plus 5.0% (the “Default Rate”). 

	  	
       

	Warranties and 
Covenants 	
      The Company shall not issue any additional convertible
      debentures for two (2) years after the Closing Date unless they first
      offer such debentures to the holders of the Debentures on a pro rata
      basis. The Debentures will also contain covenants (including customary
      affirmative and negative covenants), anti-dilution provisions and other
      provisions that are customary for transactions of this nature. 

	  	
       

		
      The Agents and each Holder will not sell short any Common
      Shares after the announcement of the Debenture financing by the Company
      and prior to the Closing. 

	  	
       

	Registration Rights: 	
      The Company will file a registration statement with the
      U.S. SEC, covering 100% of the Common Shares and the shares of common
      stock underlying the Warrants, on or before March 31, 2009 and use its
      commercially reasonable efforts to cause the registration statement to
      become effective within one hundred twenty (120) days following the
      Closing. 

	  	
       

		
      If the registration statement is not filed on or before
      March 31, 2009 (the “Filing Date”), the principal amount of
      the Debentures will be deemed to have increased by an amount equal to one
      percent (1%) of the original principal amount of the Debenture per month
      (or part thereof) after the Filing Date until the registration statement
      is filed. 

	  	
       

		
      If the Company fails to use commercially reasonable
      efforts to have the registration statement declared effective within 120
      days of the Closing (the “Effective Date”), the principal amount of
      the Debentures will be deemed to have increased by an amount equal to one
      percent (1%) of the original principal amount of the Debenture per month
      (or part thereof) after the Effective Date until the registration
      statement is declared effective. 

	  	
       

		
      If the Company fails to use commercially reasonable
      efforts to maintain the effectiveness of the registration statement during
      the requisite periods, the principal amount of the Debentures will be
      deemed to have increased by an amount equal to one percent (1%) of the
      original principal amount of the Debentures per month (or part thereof)
      during the period that the registration statement is not effective.
  

	  	
       

		
      The Company will be deemed not to have used commercially
      reasonable efforts to cause the registration statement to become, or to
      remain effective during the requisite period if the Company voluntarily
      takes any action that would, or omits any action the omission of which
      would result in either: (i) such registration statement not being declared
      effective; or (ii) the holders of securities covered by a previously
      effective registration statement being prohibited by applicable law from
      trading the securities covered thereby. 

	  	
       

		
      Notwithstanding the foregoing, the aggregate amount of
      liquidated damages payable by the Company to the Purchasers as a result of
      a failure to timely file or cause the registration statement to become or
      maintain its effective status shall be capped at ten percent (10%) of the
      amount subscribed for by the Purchasers. Moreover, the Company shall not
      accrue liquidated damages with respect to more than one of any failure
      under this section at a time. 

C-4 

	Conditions to Closing: 	
      The completion of the transactions contemplated in this
      term sheet will be subject to conditions which are customary for
      transactions of this nature, including the following: 

	  	
       

	  	
      approval by the board of directors of the Company;
  

	  	
       

		
      approval by the TSX (as noted below) and any other
      necessary governmental authorities or agencies; and 

	  	
       

		
      execution of definitive documentation for the
      transaction, in form and substance satisfactory to the Agent and its legal
      counsel. 

	  	
       

	Offering basis: 	
      Offered on a private placement basis in Canada to
      “accredited investors” and in the U.S. to “accredited investors” pursuant
      to Rule 506 of Regulation D promulgated under the 1933 Act. 

	  	
       

	Agency fee: 	
      In connection with the Closing, the Agents will receive
      cash in the amount of 7% of the aggregate principal amount of the issued
      Debentures, plus a Warrant exercisable for a number of Common Shares equal
      to 7% of the aggregate principal amount of the issued Debentures divided
      by the Reference Price. The exercise price for the Warrant will be equal
      to the Conversion Price. The Company will be responsible for the Agents’
      out-of- pocket expenses related to the offering including, without
      limitation, travel expenses, photocopying, courier services and attorney’s
      fees, not to exceed U.S.$65,000.00 without prior written approval by the
      Company. 

	  	
       

	Regulatory Approvals: 	
      The issuance of the Debentures and the listing of the
      Common Shares issuable on the conversion of the Debentures and the
      exercise of the Warrants are subject to approval of the TSX and the NYSE
      AlterNext (AMEX).

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