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Approval of Amended and Restated Shareholder Rights Plan

Background

At the Meeting, Shareholders will be asked to approve the Company’s amended and restated shareholders’ rights plan (the “Rights Plan”). The Company’s original shareholder rights plan (the “Original Rights Plan”) was first implemented under an agreement dated June 30, 2005 between the Company and CIBC Mellon Trust Company. The Original Rights Plan is the Company’s current shareholder rights plan.

The Rights Plan provides that it must be approved by Independent Shareholders. “Independent Shareholders” means, generally, the holders of Voting Shares of the Company excluding: (i) any Acquiring Person; (ii) any Person making a Take-over Bid; (iii) any Affiliate or Associate of a Person referred to in clause (i) or (ii) above; (iv) any Person acting jointly or in concert with a Person referred to in clause (i) or (ii) above; and (v) a Person who is a trustee of any employee benefit plan, share purchase plan, deferred profit sharing plan or any similar plan or trust for the benefit of employees of the Company or a subsidiary of the Company, unless the beneficiaries of the plan or trust direct the manner in which the Voting Shares are to be voted or direct whether the Voting Shares are to be tendered to a Take-over Bid.

To the knowledge of the Company, as of the date of this Circular, all Shareholders are currently Independent Shareholders and, accordingly, to the knowledge of the Company, all Shareholders will vote on the approval of the Rights Plan.
The Company reviewed the Original Rights Plan for conformity with current practices of Canadian companies with respect to shareholder rights plan design and recommendations for shareholder rights plans under the proxy voting guidelines of institutional investors. A number of changes have been made to the Original Rights Plan so as to bring the Rights Plan into conformity with current industry practice and the recommendations for shareholder rights plans under proxy guidelines of institutional investors.

A summary of the key features of the Rights Plan is attached as Schedule “B” to this Circular. All capitalized terms used in this section of the Circular and in Schedule “B” have the meanings set forth in the Rights Plan, unless otherwise indicated. The complete text of the Rights Plan is available to any Shareholder on request from the Company at its head office address, by calling (204) 277-5411, Attention: Chief Financial Officer or by e-mail request to info@sangoldcorp.com.
Recommendation of the Board

The Board has determined that it continues to be in the best interests of the Company and the holders of its Common Shares that the Company have a shareholder rights plan, in the form of the Rights Plan. Accordingly, the Board unanimously recommends that the Shareholders vote in favour of the approval
of the Rights Plan.

The Company has been advised that the directors and executive officers of the Company intend to vote all Common Shares held by them in favour of the confirmation and approval of the Rights Plan.

The persons named in the enclosed form of proxy, if named as proxy, intend to vote in favour of the resolution approving and reconfirming the Rights Plan unless a Shareholder has specified in their proxy that their shares are to be voted against such resolution.

Text of Resolution

“BE IT RESOLVED, as an ordinary resolution of the Independent Shareholders of San Gold Corporation (the “Company”), that:

1. The shareholder rights plan of the Company be continued and the Amended and Restated Shareholder Rights Plan Agreement to be made as of June 23, 2008 (the “Rights Plan Agreement”) between the Company and CIBC Mellon Trust Company, as rights agent, be and it is hereby approved; and

2. Any officer or director of the Company be and is hereby authorized, for and on behalf of the Company, to do all such things and execute all such documents and instruments as may be necessary or desirable to give effect to this resolution.”

Vote Required

Shareholder approval of the Rights Plan is required by stock exchange rules. Under the terms of the Rights Plan, the foregoing resolution must be approved by an Ordinary Resolution of the Independent Shareholders (generally, all Shareholders other than a person who beneficially owns, or who is deemed to beneficially own, more than 20% of the issued and outstanding Common Shares, or an offeror or Acquiring Person, their Associates and Affiliates, and Persons acting jointly or in concert with the offeror or Acquiring Person) at the Meeting.
If the above resolution approving the Rights Plan is passed at the Meeting, then the Company and CIBC Mellon Trust Company will execute the Rights Plan Agreement effective as of the date the resolution is passed.

If the resolution is not passed at the Meeting, the Rights Plan will not come into effect and the Original Plan will terminate and be of no further force and effect and the Company will no longer have any form of shareholder rights plan.

The Board reserves the right to alter any terms of or not to proceed with the Rights Plan at any time prior to the Meeting in the event that the Board determines that it would be in the best interests of the Company and its Shareholders to do so, in light of subsequent developments.

Objectives of the Rights Plan

The primary objectives of the Rights Plan, as with the Original Rights Plan, are to ensure that, in the context of a bid for control of the Company through an acquisition of the Company’s Common Shares, the Board has sufficient time to explore and develop alternatives for maximizing Shareholder value, to provide adequate time for competing bids to emerge, to ensure that Shareholders have an equal opportunity to participate in such a bid and to give them adequate time to properly assess the bid and lessen the pressure to tender typically encountered by a shareholder of a company that is subject to a bid.

In approving the Rights Plan, the Board considered the following concerns inherent in the existing legislative framework governing takeover bids in Canada:

(i) Time. Current legislation permits a takeover bid to expire in 35 days. The Board is of the view that 35 days may not be sufficient time to permit Shareholders to consider a takeover bid and to make a reasoned and unhurried decision. The Rights Plan provides a mechanism whereby the minimum expiry period for a Take-over Bid must be 60 days after the date of the bid and the bid must remain open for a further period of 10 business days after the offeror publiclyannounces that the shares deposited or tendered and not withdrawn constitute more than 50% of the Voting Shares outstanding held by Independent Shareholders. The Rights Plan is intended to provide Shareholders with adequate time to properly evaluate the offer and to provide the Board with sufficient time to explore and develop alternatives for maximizing Shareholder value. Those alternatives could include, if deemed appropriate by the Board, the identification of other potential bidders, the conducting of an orderly auction or the development of a corporate restructuring alternative which could enhance Shareholder value.

(ii) Pressure to Tender. A Shareholder may feel compelled to tender to a bid which the Shareholder considers to be inadequate out of a concern that failing to tender may result in the Shareholder being left with illiquid or minority discounted shares in the target company. This is particularly so in the case of a partial bid for less than all shares of a class, where the bidder wishes to obtain a control position but does not wish to acquire all of the Voting Shares. The Rights Plan provides a Shareholder approval mechanism in the Permitted Bid provision which is intended to ensure that a Shareholder can separate the tender decision from the approval or disapproval of a particular Take-over Bid. By requiring that a bid remain open for acceptance for a further 10 Business Days following public announcement that more than 50% of the Voting Shares held by Independent Shareholders have been deposited, a Shareholder’s decision to accept a bid is separated from the decision to tender, lessening the undue pressure to tender typically encountered by a shareholder of a company that is the subject of a takeover bid.

(iii) Unequal Treatment. While existing securities legislation has substantially addressed many concerns of unequal treatment, there remains the possibility that control of a company may be acquired pursuant to a private agreement in which a small group of shareholders dispose of shares at a premium to market price which premium is not shared with other shareholders. In addition, a person may slowly accumulate shares through stock exchange acquisitions which may result, over time, in an acquisition of control without payment of fair value for control or a fair sharing of a control premium among all shareholders. The Rights Plan addresses these concerns by applying to essentially all acquisitions of greater than 20% of the Voting Shares, to better ensure that Shareholders receive equal treatment.

General Impact of the Rights Plan

It is not the intention of the Board in maintaining a shareholder rights plan for the Company to secure the continuance of existing directors or management in office, nor to avoid a bid for control of the Company in a transaction that is fair and in the best interest of Shareholders. For example, through the Permitted Bid mechanism, described in more detail in Schedule “B” to this Circular, Shareholders may tender to a bid which meets the Permitted Bid criteria without triggering the Rights Plan, regardless of the acceptability of the bid to the Board. Furthermore, even in the context of a bid that does not meet the Permitted Bid criteria, the Board will continue to be bound to consider fully and fairly any bid for the Company’s Common Shares in any exercise of its discretion to waive application of the Rights Plan or redeem the Rights. In all such circumstances, the Board must act honestly and in good faith with a view to the best interests of the Company and its Shareholders.

Neither the Original Rights Plan nor the Rights Plan was adopted or approved in response to or in anticipation of any pending or threatened takeover bid, nor to deter takeover bids generally. As of the date of this Circular, the Board was not aware of any third party considering or preparing any proposal to acquire control of the Company. Rather, the objectives of the Rights Plan remain the same as they were for the Original Rights Plan, as summarized above.

The Rights Plan does not interfere with the day-to-day operations of the Company. The issuance of the Rights does not in any way alter the financial condition of the Company, impede its business plans or alter its financial statements. In addition, the Rights Plan is not initially dilutive and is not expected to have any effect on the trading of Common Shares. However, if a Flip-In Event occurs and the Rights separate from the Common Shares, as described in Schedule “B”, reported earnings per share and reported cash flow per share on a fully-diluted or non-diluted basis may be affected. In addition, holders of Rights not exercising their Rights after a Flip-In Event may suffer substantial dilution.
The Rights Plan does not preclude any Shareholder from utilizing the proxy mechanism of applicable corporate law to promote a change in the management or direction of the Company, and has no effect on the rights of holders of outstanding voting shares of the Company to requisition a meeting of Shareholders, in accordance with the provisions of applicable corporate and securities legislation, or to enter into agreements with respect to voting their Common Shares. The definitions of “Acquiring Person” and “Beneficial Ownership” have been developed to minimize concerns that the Rights Plan may be inadvertently triggered or triggered as a result of an overly-broad aggregating of holdings of institutional Shareholders and their clients.

In summary, the Board believes that the dominant effect of the Rights Plan will be to enhance Shareholder value and ensure equal treatment of all Shareholders in the context of an acquisition of control.

Tax Consequences of Rights Plan

The following discussion is of a general nature only and is not intended to constitute nor should it be construed to constitute legal or tax advice to any particular Shareholder. Shareholders are advised to consult their own tax advisers regarding the consequences of acquiring, holding, exercising or otherwise disposing of their Rights, taking into account their own particular circumstances and applicable foreign, provincial, state and local tax laws.

Canadian Federal Income Tax Consequences

While the matter is not free from doubt, the issue of the Rights may be a taxable benefit which must be included in the income of Shareholders. However, no amount must be included in income if the Rights do not have a monetary value at the date of issue. The Company considers that the Rights, when issued, will have negligible monetary value, there being only a remote possibility that the Rights will ever be exercised.

Assuming that the Rights have no value, Canadian Shareholders will not be required to include any amount in income or be subject to withholding tax under the Income Tax Act (Canada) (the “Tax Act”) as a result of the issuance of the Rights. The Rights will be considered to have been acquired at no cost.

The holders of Rights may have income or be subject to withholding tax under the Tax Act if the Rights are exercised or otherwise disposed of.

In the unlikely event that Rights are disposed of for proceeds of disposition greater than zero, a holder thereof may realize a capital gain.