-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UvkR1iAVSiZGu2utKgBfJ046bjwkQuMrfTL0tOgnbjFbiQ2gpcFiCXxLtG9uPGa2 ddZMHxjM1GOHpfJlhcQMWw== 0001047469-98-031637.txt : 19980817 0001047469-98-031637.hdr.sgml : 19980817 ACCESSION NUMBER: 0001047469-98-031637 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROYAL OAK MINES INC CENTRAL INDEX KEY: 0000041304 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 980160821 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04350 FILM NUMBER: 98690040 BUSINESS ADDRESS: STREET 1: 5501 LAKEVIEW DR CITY: KIRKLAND STATE: WA ZIP: 98033 BUSINESS PHONE: 4258228992 MAIL ADDRESS: STREET 1: 5501 LAKEVIEW DR CITY: KIRKLAND STATE: WA ZIP: 98033 10-Q 1 10-Q - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _______ Commission File Number 1-4350 ROYAL OAK MINES INC. (Exact name of registrant as specified in its charter) ONTARIO, CANADA 98-0160821 - ------------------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) c/o Royal Oak Mines (USA) Inc. 5501 Lakeview Drive Kirkland, Washington U.S.A. 98033 - ------------------------------------- ----------------------------------- (Address of principal executive offices) (Postal/Zip Code) (425) 822-8992 - ------------------------------------- Registrant's telephone number, including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes No X --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common shares outstanding as of August 7, 1998 was 150,865,079, including 1,924,816 shares which are owned by a wholly owned subsidiary of the Company and which may not be voted and are not considered outstanding for earnings per share calculations. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- INDEX
Page ---- PART I - FINANCIAL INFORMATION 3 Item 1. Consolidated Financial Statements of Royal Oak Mines Inc. and Subsidiaries (All statements are unaudited except for the December 31, 1997 Consolidated Balance Sheet, which has been audited.) Consolidated Balance Sheets - June 30, 1998 and December 31, 1997 4 Consolidated Statements of Income - Three and Six Months Ended June 30, 1998 and 1997 5 Consolidated Statements of Cash Flow - Three and Six Months Ended June 30, 1998 and 1997 6 Notes to Consolidated Financial Statements (unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 PART II - OTHER INFORMATION 20 Item 1. Legal Proceedings 20 Item 4. Submission of Matters to a Vote of Security Holders 21 Item 6. Exhibits and Reports on Form 8-K 21 Signatures 23
In this Report, unless otherwise indicated, all dollar amounts are expressed in Canadian dollars. 2 PART I - FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS All tabular amounts are in thousands of Canadian dollars, except as indicated. 3 Royal Oak Mines Inc. Consolidated Balance Sheets (unaudited - Cdn$ 000's)
June 30 December 31 1998 1997 (audited) --------- ----------- ASSETS Current Assets Cash and cash equivalents $ 16,423 $ 568 Marketable securities 560 9,875 Receivables 8,891 30,923 Inventories (Note 4) 15,447 21,120 Prepaid expenses 4,933 3,967 --------- --------- Total Current Assets 46,254 66,453 Property, Plant and Equipment, net 787,740 730,314 Long-Term Investments 12,424 12,145 Reclamation and Other Deposits 14,346 14,332 Deferred Charges and Other Assets (Note 5) 43,112 20,142 --------- --------- TOTAL ASSETS $903,876 $ 843,386 --------- --------- --------- --------- LIABILITIES Current Liabilities Accounts payable $ 31,277 $ 123,586 Accrued payroll costs 3,087 2,599 Deferred revenue 12,865 20,085 Obligation under commodity contracts (Note 6) 19,203 -- Capital leases 5,588 4,531 Taxes payable 1,207 1,723 Long-term debt interest payable 11,437 10,326 Accrued unrealized loss on derivatives 2,454 21,327 Other current liabilities 7,682 9,135 --------- --------- Total Current Liabilities 94,800 193,312 Deferred Revenue 14,515 23,330 Other Liabilities (Note 6) 63,272 57,427 Long-Term Debt (Note 7) 426,764 250,338 Deferred Income Taxes 2,532 2,532 Minority Interest in Subsidiary Companies 22 69 --------- --------- TOTAL LIABILITIES 601,905 527,008 --------- --------- SHAREHOLDERS' EQUITY Share Capital (Note 8) Authorized - unlimited Outstanding - 148,940,263 (Dec. 31, 1997 - 138,940,263) 397,375 379,040 Deficit (95,404) (62,662) --------- --------- TOTAL SHAREHOLDERS' EQUITY 301,971 316,378 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 903,876 $ 843,386 --------- --------- --------- ---------
The accompanying notes are an integral part of the Consolidated Financial Statements. 4 Royal Oak Mines Inc. Consolidated Statements of Income (Loss) (unaudited - Cdn$ 000's except per share amounts)
Three months ended Six months ended June 30 June 30 -------------------- -------------------- 1998 1997 1998 1997 -------- -------- -------- -------- REVENUE $22,621 $58,872 $ 45,050 $106,846 -------- -------- -------- -------- EXPENSES Operating 17,016 50,930 35,247 93,908 Care and maintenance 974 76 2,311 150 Royalties and marketing 312 447 603 871 Administrative and corporate 2,214 3,544 4,460 6,196 Depreciation and amortization 6,711 5,925 10,715 11,478 Reclamation 584 1,246 1,168 2,376 Exploration and other 472 1,319 919 2,666 Provision for loss on foreign currency and commodity contracts 11,390 7,250 3,496 10,258 -------- -------- -------- -------- Total operating expenses 39,673 70,737 58,919 127,903 -------- -------- -------- -------- OPERATING LOSS (17,052) (11,865) (13,869) (21,057) OTHER INCOME (EXPENSE) Interest and other income (expense), net (847) 314 (855) 2,027 Interest expense (346) (69) (643) (187) Long-term debt interest (10,400) (6,503) (18,608) (12,847) Interest capitalized 9,977 5,544 18,185 9,964 Foreign currency translation loss on long-term debt (964) 490 (1,256) (2,048) Write-off of financing costs (15,011) -- (15,011) -- Write-down of mine assets -- (39,700) -- (39,700) -------- -------- -------- -------- LOSS BEFORE UNDERNOTED (34,643) (51,789) (32,057) (63,848) Income and mining taxes - current (421) (313) (841) (639) Income and mining taxes - deferred -- -- -- 4,221 Minority interest 16 (5) 47 31 Equity in income of associated companies 46 18 109 33 -------- -------- -------- -------- NET LOSS (35,002) (52,089) (32,742) (60,202) RETAINED EARNINGS (DEFICIT)- BEGINNING OF PERIOD (60,402) 64,440 (62,662) 72,553 -------- -------- -------- -------- RETAINED EARNINGS (DEFICIT) - END OF PERIOD ($95,404) $12,351 $ (95,404) $ 12,351 -------- -------- -------- -------- -------- -------- -------- -------- LOSS PER SHARE $ (0.25) $ (0.38) $ (0.24) $ (0.43) -------- -------- -------- -------- -------- -------- -------- -------- Weighted average number of common shares outstanding (000's) 138,940 138,884 138,940 138,864 -------- -------- -------- -------- -------- -------- -------- --------
The accompanying notes are an integral part of the Consolidated Financial Statements. 5 Royal Oak Mines Inc. Consolidated Statements of Cash Flow (unaudited - Cdn$ 000's)
Three months ended Six months ended June 30 June 30 ---------------------- ---------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Net loss for the period $ (35,002) $ (52,089) $ (32,742) $ (60,202) Items not affecting cash: Depreciation and amortization 6,711 5,925 10,715 11,478 Amortization of deferred finance costs 684 233 1,109 472 Reclamation 584 1,246 1,168 2,376 Deferred income tax -- -- -- (4,221) Provision for unrealized loss on foreign currency and commodity contracts 13,575 7,357 7,036 9,875 Foreign currency translation on senior subordinated notes 964 (490) 1,256 2,048 Write-down of mine assets -- 39,700 -- 39,700 Write-off of deferred finance costs 15,011 -- 15,011 -- Deferred charges and other (46) 223 (142) 91 ---------- ---------- ---------- ---------- Cash flow 2,481 2,105 3,411 1,617 Net change in other operating items (Note 9) (45,965) (7,713) (82,162) (73,476) ---------- ---------- ---------- ---------- Net cash used in operating activities (43,484) (5,608) (78,751) (71,859) ---------- ---------- ---------- ---------- CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES Issue of share capital 18,335 65 18,335 177 Capital lease obligation (473) (249) (947) (527) Issue of long-term debt 169,050 -- 233,109 -- Retirement of long-term debt (64,232) -- (64,232) -- Issue costs of long-term debt (25,775) -- (31,341) -- Deferred credits and other -- (18) -- (18) ---------- ---------- ---------- ---------- Net cash provided by (used in) financing activities 96,905 (202) 154,924 (368) ---------- ---------- ---------- ---------- CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES Increase in long-term investments -- (17,846) -- (17,846) Proceeds from asset sales 8,606 -- 12,873 -- Investment in other capital assets, net (43,700) (63,248) (80,146) (109,523) B. C. Government assistance -- 47,822 -- 78,787 Investment in exploration and non-producing properties, net (540) (2,377) (814) (4,068) Change in other assets (1,427) (48) (1,546) (635) ---------- ---------- ---------- ---------- Net cash used in investing activities (37,061) (35,697) (69,633) (53,285) ---------- ---------- ---------- ---------- INCREASE (DECREASE) IN CASH AND MARKETABLE SECURITIES DURING THE PERIOD 16,360 (41,507) 6,540 (125,512) CASH AND MARKETABLE SECURITIES AT BEGINNING OF PERIOD 623 114,351 10,443 198,356 ---------- ---------- ---------- ---------- CASH AND MARKETABLE SECURITIES AT END OF PERIOD $ 16,983 $ 72,844 $ 16,983 $ 72,844 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 2,716 $ 69 $ 16,726 $ 13,386 Income taxes $ -- $ 25 $ -- $ 65
The accompanying notes are an integral part of the Consolidated Financial Statements 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (tabular amounts in thousands of Canadian dollars unless otherwise stated) 1. GOING CONCERN These financial statements have been prepared on the basis of accounting principles applicable to a "going concern", which assume that the Company will continue in operation for at least one year and will be able to realize its assets and discharge its liabilities in the normal course of operations. Several conditions and events cast substantial doubt about the Company's ability to continue as a "going concern". The company has experienced a liquidity problem, has a working capital deficiency as at June 30, 1998 and incurred substantial losses in the first six months of 1998 and in 1997. In addition, the Company recently completed a substantial capital project, the construction of its Kemess Mine. Furthermore, substantial payments will be required to settle liabilities arising from the closure of certain commodity and currency contracts. In June, 1998 the Company completed the placement of US$120 million Senior Secured Notes to Trilon Financial Corporation and Northgate Exploration Limited. This brings the Company's aggregate outstanding long term secured debt at June 30, 1998 to approximately US$315 million (Cdn$464 million) based on the exchange rate as of June 30, 1998. Such amount does not include capital leases of approximately $23 million. Such secured indebtedness and capital leases in the aggregate represent 61.7% of the total capitalization of the company. The Company's future viability is dependent upon its ability to bring the Kemess Mine into an efficient operating state, maintain satisfactory credit relationships with its suppliers and achieve and maintain profitable operations. Successful operations in the future are also dependent upon various external factors, the most significant of which are the prices of the commodities it produces, gold and copper, and the $US/$Cdn exchange rate. Based upon current commodity prices, exchange rates and forecast production levels, management expects to have sufficient cash to meet interest payments and other obligations arising during the balance of 1998. However, at such price levels the Company's ability to meet interest payments and scheduled principal repayments of secured indebtedness occurring after 1998 will depend upon the Company's ability to maintain its costs of production at or below current levels, the performance of the Company's operating mines at or above forecast production, and its ability to refinance principal repayments as they fall due. Under the terms of the agreements which govern the Company's currently existing secured indebtedness, a default under any of such agreements may lead to a cross default under all of such agreements, with the result that, if there is a default under any such agreements, all long-term secured debt together with interest accrued but unpaid thereon may thereupon become due and payable. These financial statements do not reflect adjustments that would be necessary if the Company were unable to continue as a "going concern". While management believes that the actions already taken or planned, as described above, will mitigate the adverse conditions and events which raise doubts about the "going concern" assumption used in preparing these financial statements, there can be no assurance that these actions will be successful. If the Company were unable to continue as a "going concern", then substantial adjustments would be necessary to the carrying values of assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used. 2. INTERIM FINANCIAL STATEMENTS ACCOUNTING POLICIES The accompanying unaudited interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP") which, in the case of Royal Oak Mines Inc. (the "Company"), differ in certain material respects from United States generally accepted accounting principles ("U.S. GAAP"), as described in Note 10. Also, such statements do not include all of the disclosures required by generally accepted accounting principles for annual statements. In the opinion of management all adjustments considered necessary for fair presentation have been included in these statements. Operating results for the three and six months ended June 30, 1998, are not necessarily indicative of the results that may be expected for the full year ending December 31, 1998. For further information, see the Company's Consolidated Financial Statements, including the accounting policies and notes thereto, included in the Annual Report on Form 10-K for the year ended December 31, 1997. 7 The calculations of net earnings per share are based upon the weighted average number of common shares of the Company outstanding during each period (except as set forth in Note 8(a)). When outstanding convertible instruments materially dilute earnings per share, fully diluted earnings per share are disclosed. 3. PRESENTATION Certain amounts for 1997 have been reclassified to conform with the current year's presentation. 4. INVENTORIES
June 30 December 31 1998 1997 ---------- ----------- -- Bullion and copper concentrate in process $ 5,913 $ 6,751 Stores and operating supplies 9,534 14,369 -------- -------- Inventories $ 15,447 $ 21,120 -------- -------- -------- --------
5. DEFERRED CHARGES AND OTHER ASSETS
June 30 December 31 1998 1997 ------- ----------- Deferred finance costs on long-term debt $40,502 $ 9,041 Amortization of deferred finance costs (17,371) (1,251) Deferred foreign exchange loss on long-term foreign debt 18,207 10,658 Amortization of foreign exchange loss on long-term foreign debt (1,277) (364) Other assets 3,051 2,058 ------- ------- $43,112 $20,142 ------- ------- ------- -------
6. OTHER LIABILITIES
June 30 December 31 1998 1997 -------- ----------- Provision for loss on foreign currency contracts $ -- $12,497 Accrued reclamation and provision for closure costs 25,827 24,682 Capital leases 17,831 19,835 Obligation under commodity contracts 19,203 -- Other 411 413 ------- ------- $63,272 $57,427 ------- ------- ------- -------
DERIVATIVE INDEBTEDNESS The Company entered into a number of agreements with Bankers Trust Company ("Bankers"), Macquarie Bank Limited ("Macquarie"), and The Bank of Nova Scotia ("BNS") (collectively, the "Hedging Parties") each dated June 22, 1998. As of June 30, 1998, the Company was indebted to Bankers and BNS, pursuant to repayment agreements (the "Repayment Agreements"), in the aggregate amount of approximately US$25 million, including accrued interest. The Company agreed to pay to Bankers and BNS 8 US$500,000 and US$100,000, respectively, on December 1, 1998 and agreed to pay the balance, together with interest at the rate of 12% per annum, in twelve monthly payments commencing in January 1999. The Company also entered into an agreement with Macquarie (the "Macquarie Agreement"), pursuant to which the Company agreed to secure the payment of certain present and future indebtedness under hedging contracts between the Company and Macquarie to the extent that any such indebtedness becomes due. In connection with the Repayment Agreements and the Macquarie Agreement, the Company entered into a trust indenture (the "Hedging Indenture") dated as of June 22, 1998 with Montreal Trust Company of Canada (the "Hedging Trustee"), pursuant to which the Company and certain subsidiaries granted, and may in the future grant, security in the assets, property and undertaking of the Company and such subsidiaries to the Hedging Trustee up to a maximum amount of US$50 million for the benefit of the Hedging Parties and, subject to certain conditions, other providers of credit in respect to hedging and related activities of the Company. The security constituted by the Hedging Indenture ranks junior in priority to the security held by the Debentureholders. The Hedging Indenture provides for the issuance and pledging of three bonds (the "Bonds") by the Company in favor of the Hedging Parties as security for the indebtedness owed, and, in the case of Macquarie, certain indebtedness which may become owing by the Company, to the Hedging Parties. The Bonds issued to Bankers, BNS, and Macquarie, each dated June 22, 1998, are in the principal amounts of US$21 million, US$5 million and US$15 million, respectively. The Company may in the future issue bonds under the Hedging Indenture to secure any future indebtedness under agreements which may be entered into by the Company in respect to hedging and related activities of the Company, subject to the maximum amount specified above. 7. LONG-TERM DEBT
June 30 December 31 1998 1997 -------- ----------- Secured Long-Term Debt US$80 million Series A Senior Secured Debentures $117,728 $ -- US$35 million Series B Senior Secured Debentures 51,506 -- US$175 million Secured 12.75% Senior Subordinated Notes 257,530 250,338 --------- -------- $426,764 $250,338 --------- -------- --------- --------
SENIOR SECURED DEBENTURES (SERIES A AND B) The Company entered into a securities purchase agreement with Trilon Financial Corporation ("Trilon") on April 17, 1998 providing for the issuance by the Company to Trilon and Northgate Exploration Limited of senior secured debentures in the aggregate principal amount of US$120 million (the "Senior Debentures"). The initial draw-down of US$115 million under the Senior Debentures occurred on June 24, 1998 and the balance may be drawn down, subject to certain conditions being fulfilled, on or before August 15, 1998. The Senior Debentures mature June 22, 2000 and bear interest at a rate of 30 day LIBOR plus 6% per annum. Interest payments commenced July 31, 1998 and are payable monthly thereafter. The Company issued the Senior Debentures for the following purposes: (i) to repurchase and retire the senior secured debentures issued by the Company in January 1998 in the principal amounts of $19.5 million and US$30.7 million and pay accrued interest thereon; (ii) to pay the Company's past due accounts payable attributable to construction of the Kemess Mine; and (iii) to provide the Company with working capital. The Senior Debentures are secured by a first fixed and floating charge on all of the present and after acquired property and assets of the Company and certain of its subsidiaries, subject to mutually agreed permitted encumbrances and are redeemable, in whole or in part, in aggregate minimum amounts of US$5 million at any time at 101% of the principal amount being repaid plus interest and all other amounts owing thereon. Under the terms of the Senior Debentures, the holders of the Senior Debentures (the "Debentureholders") can require the Company to transfer ownership of the Kemess South Mine to a wholly-owned subsidiary of the Company. The Company received a formal request from the Debentureholders in early July 1998 requiring the transfer of the Kemess South Mine to a wholly-owned subsidiary of the Company. The Company has identified certain potentially adverse tax consequences which may arise from such a transfer. Consequently, the Company has asked the Debentureholders to reconsider their request and discussions between the Company and the Debentureholders are continuing. 9 The fees payable by the Company to the Debentureholders consist of the following: 1. a non-refundable up-front fee of US$2,400,000, which was paid on closing; 2. a non-refundable fee equal to 2% of the outstanding principal and accrued interest payable to the Debentureholders which exceeds the following threshold levels as at the following dates, being, (a) US$80 million on February 15, 1999, and (b) US$50 million on October 15, 1999; and 3. a royalty payable to Trilon of up to a maximum of 1.62% (the "Royalty") of the gross revenues of the Kemess South Mine to be accrued but unpaid for two years and thereafter payable quarterly. The accrued Royalty will bear compound interest at the three-month LIBOR rate plus 1% per annum. The Royalty is to be prorated in the event that the Senior Debentures are redeemed prior to maturity based on the amount redeemed and the timing of such redemption. The Company may acquire the Royalty on June 22, 2003 at the then fair market value, payable in cash on such closing. SUBORDINATED NOTES In order to obtain the required consent to the issuance of the Senior Debentures, the Company and the holders (the "Noteholders") of the Company's US$175 million senior subordinated notes due 2006 (the "Notes") agreed to certain amendments and supplements to the Indenture dated as of August 12, 1996 among the Company, Kemess Mines Inc. and Mellon Bank, F.S.B., as trustee, as amended by the First Supplemental Indenture dated as of December 31, 1997 and the Second Supplemental Indenture dated as of January 31, 1998 between the Company and Chase Manhattan Trust Company, National Association ("Chase"), as successor trustee to Mellon Bank, F.S.B. (as so supplemented and amended, the "Indenture"). The Indenture was amended and supplemented by: 1) the Third Supplemental Indenture dated as of May 19, 1998 which reduces the length of time required to set a record date for determining the Noteholders who are entitled to consent to any amendment or supplement of the Indenture or any waiver pursuant thereto from 30 days to 3 days prior to the first solicitation of such consent; 2) the Fourth Supplemental Indenture dated as of June 22, 1998 which has the effect of: (a) increasing the interest rate payable on the Notes by 175 basis points to 12.75% per annum effective May 30, 1998; (b) increasing the limits on aggregate Permitted Indebtedness (as defined in the Indenture) to US$120 million (to permit the issuance of the Senior Debentures) and, to the extent the Senior Debentures are repaid, establishing a working capital facility; (c) allowing the transfer in the future of the Kemess South Mine to a new wholly-owned Subsidiary (as defined in the Indenture); (d) allowing such Subsidiary to guarantee repayment of certain Senior Indebtedness (as defined in the Indenture) and the Notes; (e) providing for the granting of collateral security by the Company and its subsidiaries to secure the Notes; and (f) allowing the Company to redeem the Notes at a purchase price of 105.5% of the principal amount of the Notes plus all accrued and unpaid interest at any time before August 15, 2001; and 3) the Fifth Supplemental Indenture dated as of June 22, 1998 which provides that in the event of certain bankruptcy or other similar proceedings in which the Debentureholders and the Noteholders may be placed in the same class of creditors, Noteholders who consent to the Fifth Supplemental Indenture have agreed for the benefit of themselves and their assignees to: (a) take all steps reasonably within their control or power to place the Noteholders in a different class of creditors than the Debentureholders; and (b) assign to the Debentureholders their voting rights in any such proceedings to enable the Debentureholders to vote against and defeat any restructuring plan presented to any class of creditors which includes both the Debentureholders and the Noteholders. Pursuant to the Fourth Supplemental Indenture the Company and certain of its subsidiaries granted, and may in the future grant, security in favor of Chase, as trustee, and CIBC Mellon Trust Company ("CIBC Mellon"), as collateral agent, in the assets, properties and undertaking of the Company and such subsidiaries to secure repayment of principal and interest owing on the Notes and all other present and future amounts owing under the Indenture. The Fourth Supplemental Indenture included an Inter-Creditor Agreement between, among others, the Debentureholders, Chase, as trustee, and CIBC Mellon, as collateral agent, pursuant to which the security of the Debentureholders was confirmed as having priority over and ranking senior to the security held by Chase and CIBC Mellon on behalf of the Noteholders. Pursuant to the Fourth Supplemental Indenture, Chase, as trustee, and CIBC Mellon, as collateral agent, acknowledged to the Company, the Hedging Trustee and the Hedging Parties that the security constituted by the Hedging Indenture ranks in priority to the security held by Chase and CIBC Mellon on behalf of the Noteholders. Noteholders who executed consents to the Third, Fourth and Fifth Supplemental Indentures were entitled to receive, pro rata based on the percentage of principal amount of Notes held, a consent fee equal to an aggregate of 10 million Common Shares of the Company on a private placement basis at a deemed issue price of US$1.125 per common share. The Third and Fourth Supplemental Indentures are binding on all Noteholders while the Fifth Supplemental Indenture is binding only on the Noteholders who provided their consent to such supplemental indenture. Approximately 99% of Noteholders consented to the Fifth Supplemental Indenture. 10 8. SHARE CAPITAL (a) Changes in capital
Number of shares Amount ----------- -------- Balance, December 31, 1996 140,770,079 $387,667 Issued for share purchase options 65,000 176 ----------- -------- Balance, June 30, 1997 issued and outstanding 140,835,079 387,843 Company shares held by Witteck Development Inc. (1,924,816) (8,854) ----------- -------- Balance, June 30, 1997 for financial reporting purposes 138,910,263 $378,989 ----------- -------- ----------- -------- Balance, December 31, 1997 140,865,079 $387,894 Issued for bondholder consent 10,000,000 13,000 Special Warrants (see note 8(b) -- 5,335 ----------- -------- Balance, June 30, 1998 issued and outstanding 150,865,079 406,229 Company shares held by Witteck Development Inc. (1,924,816) (8,854) ----------- -------- Balance, June 30, 1998 for financial reporting purposes 148,940,263 $397,375 ----------- -------- ----------- --------
(b) Special Warrants On June 24, 1998, the Company issued and sold to certain investors by way of private placement an aggregate of 4,103,663 Special Warrants convertible into an aggregate of 4,103,663 Common Shares for aggregate consideration of $5,334,761.90. The Special Warrants were sold pursuant to prospectus exemptions under applicable legislation. The 4,103,663 Special Warrants were issued to certain creditors of the Company in full payment and satisfaction of an aggregate $5,334,761.90 of indebtedness (the "Indebtedness") of the Company in favor of such creditors. The Indebtedness related principally to overdue accounts payable in connection with the construction of the Kemess South Mine. The Special Warrants were issued under the terms of a trust indenture (the "Warrant Indenture") dated as of June 24, 1998 between the Company and Montreal Trust Company of Canada, as trustee (the "Trustee"). Each Special Warrant entitles the holder thereof to acquire one Common Share, without payment of additional consideration, prior to 2:00 p.m. (Vancouver time) on the earlier of (i) the sixth business day after a receipt for the Prospectus is issued by the securities regulatory authority in each of Alberta, British Columbia, Newfoundland and Ontario; and (ii) December 31, 1998 (the "Expiry Date"). Any Special Warrants which remain unexercised at the Expiry Date will be automatically exercised on the Expiry Date. If the securities regulatory authority in each of Alberta, British Columbia, Newfoundland and Ontario has not issued a receipt for this prospectus on or before 2:00 p.m. (Vancouver time) on September 21, 1998, the holders of Special Warrants shall be entitled to deliver their Special Warrants certificates to the Trustee, and to receive 1.1 Common Shares, without payment of additional consideration, for each Special Warrant held. 11 9. NET CHANGE IN OTHER OPERATING ITEMS
Three months ended June 30 Six months ended June 30 ----------------------------- -------------------------- 1998 1997 1998 1997 --------- --------- --------- --------- Cash provided by (used in): Receivables $ 5,403 $ (16,086) $ 22,032 $ (49,452) Inventories 757 10,680 5,673 (10,441) Prepaid expenses (410) 4,449 (966) (1,833) Accounts payable, accrued payroll and other current liabilities (39,541) (10,091) (92,350) (7,817) Deferred revenue (11,818) (1,661) (16,035) (2,845) Income and other taxes payable (356) 338 (516) 922 Long-term reclamation reclassified to current period -- 4,658 -- (2,010) --------- --------- --------- --------- Net change in other operating items $ (45,965) $ (7,713) $ (82,162) $ (73,476) --------- --------- --------- --------- --------- --------- --------- ---------
10. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Reconciliation of net income in accordance with Canadian GAAP to net income in accordance with U.S. GAAP is as follows:
Three months ended Six months ended June 30 June 30 -------------------- -------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Net income (loss) in accordance with Canadian GAAP $(35,002) $(52,089) $(32,742) $(60,202) Adjustments Depreciation and amortization (4,985) 3,133 (9,214) 2,355 Foreign currency translation loss on long- term debt (11,107) -- (6,636) -- -------- -------- -------- -------- Net income in accordance with U.S. GAAP $(51,094) $(48,956) $(48,592) $(57,847) -------- -------- -------- -------- -------- -------- -------- -------- Earnings (loss) per share in accordance with U.S. GAAP: Basic earnings (loss) $ (0.37) $ (0.35) $ (0.35) $ (0.42) Diluted earnings (loss) $ (0.37) $ (0.35) $ (0.35) $ (0.42)
The effects on the balance sheets of the Company at June 30, prepared in accordance with U.S. GAAP, are:
June 30 June 30 --------- --------- 1998 1997 --------- --------- Increase (decrease): Property, plant and equipment $(11,417) $ 7,077 Prepaid expenses (pension asset) $ (1,175) $ (552) Long-term investment in equity securities -- $(17,701) Deferred charges $(16,930) -- Deferred income taxes $ 19,377 $ 19,377 Provision for unrealized loss on long-term -- $(17,701) investments (contra-equity account) Retained earnings $(48,899) $(12,852)
12 During the year, the Company adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income. This statement requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. The Company has no material comprehensive income. Under U.S. GAAP, depreciation and amortization are calculated on the unit-of-production method based upon proven and probable reserves, whereas under Canadian GAAP, total mineral inventory may be used in the calculations. Under U.S. GAAP, foreign exchange gains and losses arising from the translation of long-term foreign debt are recognized in income in the period when exchange rates change, whereas under Canadian GAAP, such foreign exchange gains and losses are deferred and amortized on a pro rata basis over the remaining life of the debt. Statement of Financial Accounting Standards No. 109 requires that a deferred tax liability be recognized for differences between the assigned values and the tax bases of the assets and liabilities recognized in a business combination involving a purchase of stock. Canadian GAAP does not require similar recognition. Accordingly, during the three months ended March 31, 1998, a difference between U.S. GAAP and Canadian GAAP arose for the deferred tax liabilities associated with the excess of the assigned values and the tax bases of assets acquired in the acquisition of Geddes Resources Limited and Consolidated Professor Mines Limited. The effect of these differences is to increase property, plant and equipment and deferred income taxes by $21.0 million as of June 30, 1998. Statement of Financial Accounting Standards No. 115 (SFAS 115), Accounting for Certain Investments in Debt and Equity Securities, requires that marketable securities be put into one of two categories: trading securities (securities which are bought and held principally for the purpose of selling them in the near term) or available-for-sale securities (investments not classified as trading securities). SFAS 115 requires that unrealized gains and losses on available-for-sale securities should be excluded from earnings and reported as a net amount in a separate component of shareholders= equity until realized. Canadian GAAP requires no recognition or reporting of unrealized losses unless the loss is considered permanent. The Company implemented SFAS No. 128, "Earnings per Share," effective for its December 31, 1997 financial statements. Accordingly, earnings per share data have been restated for all periods presented. This standard requires the presentation of both basic and diluted earnings per share amounts. Basic earnings per share is calculated by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share is computed similarly, but also gives effect to the impact convertible securities, such as common stock options and warrants, if dilutive, would have on net income and average common shares outstanding if converted at the beginning of the year. 13
Three months ended Six months ended ---------------------- ---------------------- COMPUTATIONS OF EARNINGS PER COMMON SHARE June 30 June 30 June 30 June 30 1998 1997 1998 1997 -------- -------- -------- -------- BASIC INCOME (LOSS) PER SHARE ACCORDING TO U.S. GAAP Net income (loss) in accordance with U.S. GAAP $(51,094) $(48,956) $(48,592) $(57,847) -------- -------- -------- -------- -------- -------- -------- -------- Weighted average number of shares outstanding (000's) 138,940 138,884 138,940 138,864 -------- -------- -------- -------- -------- -------- -------- -------- Basic income (loss) per share $ (0.37) $ (0.35) $ (0.35) $ (0.42) -------- -------- -------- -------- -------- -------- -------- -------- DILUTED INCOME (LOSS) PER SHARE ACCORDING TO U.S. GAAP Net income (loss) in accordance with U.S. GAAP $(51,094) $(48,956) $(48,592) $(57,847) -------- -------- -------- -------- -------- -------- -------- -------- Shares Weighted average number of shares outstanding (000's) 138,940 138,884 138,940 138,864 Assuming exercise of stock options reduced by the number of shares which could have been purchased with the proceeds from exercise of such options -- -- 49 -- -------- -------- -------- -------- Weighted average number of shares outstanding (000's), as adjusted 138,940 138,884 138,989 138,864 -------- -------- -------- -------- -------- -------- -------- -------- Diluted income (loss) per share $ (0.37) $ (0.35) $ (0.35) $ (0.42) -------- -------- -------- -------- -------- -------- -------- --------
All options and warrants outstanding at June 1998 and March and June 1997 were considered antidilutive due to the net losses. 11. SHAREHOLDER RIGHTS PLAN On February 10, 1998, the Board of Directors adopted, subject to regulatory and shareholder approvals, a Shareholder Rights Plan (the "Rights Plan"), the terms of which are set forth in a Shareholder Rights Plan Agreement dated as of February 25, 1998 between the Company and Montreal Trust Company of Canada (the "Rights Plan Agreement"). Under the Rights Plan, a right to purchase one of the Company's common shares (the "Right") was issued for each outstanding common share to the Company's shareholders of record on February 25, 1998. The Rights expire in 2002 and initially are not separate from the Company's common shares nor are they represented by separate certificates. However, should a triggering event occur, as defined in the Rights Plan Agreement (including the acquisition by a single entity of 20% or more of the Company's common shares), a holder of a Right (other than the acquiror of 20% or more of the Company's common shares) becomes entitled to purchase one share of the Company's common shares for each Right at a 50% discount to the market price. Under the Rights Plan Agreement, purchases of common shares that are made pursuant to certain permitted bids, as defined in the Rights Plan Agreement, do not constitute a triggering event. Subject to certain terms and conditions specified in the Rights Plan Agreement, the Rights may be redeemed by the Company for a price of $0.0001 per Right. The Rights Plan was approved by the Shareholders at the annual meeting held June 26, 1998. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS REVENUE Consolidated revenues for the three-month and six-month periods ended June 30, 1998 were $22.6 million and $45.1 million, respectively. Revenues in the second quarter of 1998 were 62% below the $58.9 million of revenues reported for the three-month period ended June 30, 1997 and 58% below the $106.8 million of revenues reported for the six-month period ended June 30, 1997. Declines in revenue were attributed to lower gold production resulting from the late 1997 closure of the Hope Brook and Colomac mines and lower realized gold prices. Gold production was 45,732 and 91,289 ounces for the three-month and six-month periods ended June 30, 1998, respectively. 1998 gold production was 56% below the 104,845 ounces produced for the three-month period ended June 30, 1997 and 52% below the 189,925 ounces produced for the six month period ended June 30, 1997. The September 1997 closure of the Hope Brook Mine and December 1997 closure of the Colomac Mine were the main factors contributing to the decline in gold production. Gold production for the ongoing mines Pamour/Nighthawk and Giant was 45,732 and 91,289 ounces for the three-month and six-month periods ended June 30, 1998. This compares to 49,288 and 97,287 ounces produced during the same periods in 1997. Gold production at the ongoing operations during 1998 declined 7% or 3,556 ounces and 6% or 5,998 ounces from corresponding gold production in the same three- and six-month periods of 1997. The decline in production at the Giant Mine was due to modification in the mine plan resulting from declining gold prices. The Company commenced limited production at the Kemess Mine on May 19, 1998 when ore was conveyed to line "A", one of two parallel circuits in the concentrator. On June 14, 1998 line "B" was commissioned. As of June 30, 1998 all proceeds from sale of concentrates during the commissioning period have been credited against Kemess capital costs.
Three months ended Six months ended June 30 June 30 1998 1997 1998 1997 ------- --------- ------- --------- Ore milled (tons) 433,631 1,603,901 867,119 2,866,479 Average mill fees grade (oz/ton) 0.129 0.076 0.131 0.077 Gold production (ounces) Northwest Territories - Giant Mine 21,424 22,981 43,814 45,829 - Colomac Mine - 32,387 - 62,267 Ontario Division - Pamour/Nighthawk 24,308 26,307 47,475 51,458 Newfoundland - Hope Brook Mine - 23,170 - 30,371 Total gold ounces produced 45,732 104,845 91,289 189,925 Average spot gold price (US$/oz) 300 343 297 347 Average realized price (US$/oz) 342 406 343 405 Average cash cost (US$/oz) 257 351 268 358
EXPENSES Operating expenses for the three months and six months ended June 30, 1998 were $17.0 million or US $257 per ounce, and $35.2 million, or US$268 per ounce, respectively. This compares to $50.9 million, or US$351 per ounce, and $93.9 million, or US$358 per ounce, for the three months and six months ended June 30, 1997, respectively. The decrease in consolidated operating costs was mainly attributed to the closure of the high cost Colomac and Hope Brook mines, lower production volumes at ongoing operations, and the implementation of a cost reduction program, which reduced manpower and minimized discretionary spending. US dollar cash costs per ounce were also favorably impacted by the continued weakening of the Canadian dollar in relation to the US dollar. NORTHWEST TERRITORIES DIVISION GIANT MINE Gold production for the three-month period ended June 30, 1998 was 21,424 ounces or 7% lower than the 22,981 ounces produced during the same period of 1997. Lower gold production was largely due to modification in the mine plan resulting from declining gold prices. Mill 15 throughput of 84,431 tons (1997- 97,564 tons) was 13% lower than production in the same period a year ago. Mill head grade improved by 9% to 0.290 opt gold (1997 - 0.265 opt). Gold recovery decreased 1% to 87.28 % (1997 - 88.38%). Cash costs of US$282 per ounce were 11% below the US$317 per ounce cash cost reported for the three-month period ended June 30, 1997. Mining operations for the six-month period ended June 30, 1998 produced 43,814 ounces of gold (1997 - 45,829 ounces) or 4% fewer ounces than those produced in the same period in 1997. Mill throughput of 178,475 tons (1997 - 192,906 tons) was 7% lower than that reported for the same period a year ago. Head grades of 0.283 opt gold (1997 - 0.265 opt) improved 5%. Gold recovery declined 1% to 86.40% (1997 - 87.53%). Cash costs of US$283 per ounce were 12% below the US$321 incurred during the six-month period ended June 30, 1997. ONTARIO DIVISION PAMOUR/NIGHTHAWK MINES Gold production for the three-month period ended June 30, 1998 of 24,308 ounces (1997 - 26,307) was 8% lower than that reported for the same period a year ago. Lower production was primarily related to a lower recovery rate of 77.02% (1997 - - 87.14%), which was 12% lower than that of the same period a year ago. Offsetting the lower recovery rates were improvements in head grade and lower operating cash costs. Second quarter 1998 head grades of 0.090 opt gold (1997 - 0.087 opt) showed an improvement of 3% from the same period in 1997. Cash costs per ounce of US$235 per ounce (1997 - US$316) were 26% lower than that reported for the same period in 1997. For the first six months of 1998, gold production was 47,475 ounces (1997 - 51,458 ounces), a decrease of 8% from production reported for the same period a year ago. Lower gold production was attributed to the lower recovery rate of 75.60% (1997 - 86.50%), a decrease of 13% from first half 1997 recovery rates. Lower gold production volumes associated with recovery rates were, however, partially offset by higher head grades and increased mill throughput. Head grades of 0.091 opt gold (1997 - 0.088 opt) showed an improvement of 3% and mill throughput of 688,644 tons (1997 - 677,889 tons) increased 2% over results reported for the same period of 1997. Operating cash costs for this period of US$255 per ounce decreased 21% from the same period 1997 cash cost of US$323, evidencing the effects of the cost reduction efforts and the effects of a weaker Canadian dollar in relation to the US dollar. OTHER EXPENSES Care and maintenance expenditures for the three months and six months ended June 30, 1998 were $1.0 million and $2.3 million, respectively. Care and maintenance costs were up $0.9 million and $2.2 million from the amounts incurred in the three months and six months ended June 30, 1997, respectively. Higher care and maintenance costs were attributed to the shutdown Colomac and Hope Brook properties and the suspended Matachewan project. On a year to date basis, $1.0 million has been incurred at Colomac and $0.6 million at Hope Brook. Royalties and marketing costs for the three months and six months ended June 30, 1998 were $0.3 and $0.6 million, respectively. This compares to $0.4 and $0.9 million reported for the same periods in 1997. Decreases in marketing costs were related to the closure of the Colomac and Hope Brook mines. The Ontario Division was the only property subject to royalty payments during the six-month periods ended June 30, 1997 and 1998. Royalty payments for the first six months of 1997 and 1998 were unchanged with the impacts of lower gold prices being offset by slightly higher ore production. Administrative costs and corporate costs were $2.2 million and $4.5 million for the three months and six months ended June 30, 1998, respectively. These costs represent a cost reduction of 38% or $1.3 million from the $3.5 million incurred during the three-month period ended June 30, 1997, and a 28%, or $1.7 million decrease from the $6.2 million incurred for the six-month period ended June 30, 1997. Decreases in costs were primarily associated with the employment of fewer personnel in the corporate office. Depreciation and amortization for the three months and six months ended June 30, 1998 was $6.7 million and $10.7 million, respectively. This compares to $5.9 million and $11.5 million for the same periods a year ago. The changes between periods reflect a 13% increase and a 7% decrease for the three months and six months ended June 30, 1997, respectively. Decreases in depreciation and amortization were primarily related to the 1997 closure of the Hope Brook and Colomac mines. Lower costs were, however, partially offset by the 1997 year-end downward revision of ore reserve estimates due to lower gold prices, resulting in adjustments to depreciation and amortization. Reclamation costs decreased 53% to $0.6 million and 51% to $1.2 million during the three months and six months ended June 30, 1998 from $1.2 million and $2.4 million in the corresponding periods in 1997. The closure of the Hope Brook and Colomac mines in 1997 and slightly lower ore production at the ongoing operations contributed to the significant decline in costs. Cost declines were partially offset by the lower ore reserve estimates which slightly increased per unit cost accruals. Exploration and other costs declined 64% to $0.5 million and 66% to $0.9 million for the second quarter and six months ended June 16 30, 1998, respectively, compared to the $1.3 million and $2.7 million incurred during the same period a year ago, respectively. Management's decision to limit exploration and other discretionary costs was based upon the cash requirements for the start-up of the Kemess Mine and continued low gold prices. The Company enters into foreign currency and commodity contracts to minimize exposure to adverse fluctuations in Canadian dollar exchange rates associated with US dollar sales of gold and copper and commodity prices. A weakening of the Canadian dollar relative to the US dollar resulted in a currency loss provision of $11.4 million during the second quarter 1998, which more than offset a first quarter 1998 loss recovery of $7.9 million bringing the loss for the six-month period ended June 30, 1998 to $3.5 million. This compares to provisions for currency losses of $7.3 million and $10.3 million for the same three- and six-month periods a year ago. The Canadian/US foreign currency exchange rate at December 31, 1997 was 1.431 or 3% lower than the exchange rate of 1.472 at June 30, 1998. The December 31, 1997 spot gold price of US$290 per ounce increased 2% to the June 30, 1998 spot gold price of US$296 per ounce. In June of 1998 a significant portion of the outstanding hedge positions were closed out (see Note 6 to the Consolidated Financial Statements). The Company incurred interest on long-term debt of $10.4 million and $18.6 million during the three months and six months ended June 30, 1998, respectively. This compares to $6.5 million and $12.8 million incurred during the same periods a year ago, respectively. Increases in interest expense are mainly attributed to the January 1998 issuance of Senior Secured Debentures in the principal amounts of $19.5 million and US$30.7 million and the June 1998 issuance of US$115.0 million of Senior Secured Debentures to Trilon Financial Corporation ("Trilon") and Northgate Exploration Limited ("Northgate") see Note 7 to the Consolidated Financial Statements). Proceeds from the June 1998 issuance of Senior Secured Debentures was used in part to retire the Senior Secured Debentures issued in January of 1998. All but $0.4 million of the 1998 interest expense incurred has been capitalized against projects under construction, mainly the Kemess project. Generally accepted accounting principles (GAAP) promulgate the write-down of unamortized deferred finance costs on retirement of debt. Accordingly, deferred financing costs associated with the Senior Secured Debentures retired in June of 1998, as well as legal, advisory and other costs associated with the $115.0 million Trilon financing were written off at June 30, 1998. This resulted in a charge to income of $15.0 million. A write-down of $39.7 million was taken in the three-month period ended June 30, 1997 to reflect the permanent impairment of Colomac Assets. No write-down of this nature has occurred in 1998. NET INCOME (LOSS) The Company incurred a net loss of $35.0 million and $32.7 million for the three months and six months ended June 30, 1998, respectively. This compares with a net loss of $52.1 million and $60.2 million for the three and six months ended June 30, 1997, respectively. The loss for the quarter and first six months of 1998 was primarily the result of lower realized gold prices, lower gold production and the write-off of deferred finance costs on retirement of debt. Improvements over 1997 financial results was attributed to cost reduction efforts, closure of the high cost Colomac and Hope Brook mines and the 1997 $39.7 million write-down of Colomac Mine assets. LIQUIDITY AND CAPITAL RESOURCES The progressive decline in the gold price during 1997, which continued through the second quarter of 1998 (from US$366 to approximately US$285 per ounce), has adversely affected the Company's operating cash flow and its ability to meet its cash obligations over the last eighteen months. Commencing in 1997 and continuing through 1998, the Company has implemented a number of measures to conserve its cash resources, including closure of two high-cost mines (Colomac and Hope Brook); cost reductions at its active operations and corporate office; indefinite postponement of development projects; and other actions designed to improve cash flow at its active operations. On April 17, 1998 the Company entered into a securities purchase agreement with Trilon providing for the issuance by the Company to Trilon and Northgate of senior secured debentures in the aggregate principal amount of US$120 million. The initial draw down of US$115 million occurred on June 24, 1998 and the balance may be drawn down, subject to certain conditions being fulfilled, on or before August 15, 1998 (see Note 7 to the Consolidated Financial Statements). Due to the delay in closing this transaction, which occurred at a critical time during the last few months of construction of the Kemess South Mine, the Company was unable to meet certain payment commitments it had made to its key contractors. This resulted in a delay to the construction schedule at Kemess whereby the mine commenced production on May 19, 1998 instead of the original scheduled date of April 1. The financial impact of these delays on cash flow was exacerbated by a cost overrun on the Kemess South 17 project. The final cost of the Kemess South Mine is expected to be approximately $480 million, which is an increase of approximately 11.6% over the previously announced cost estimate of $430 million. The increase is attributed to a number of unforeseen construction-related factors, the most significant of which related to additional costs for the tailings dam construction and the tailings pipeline system. These additional costs accounted for approximately one-half of the cost overrun. The design of the tailings dam was substantially altered due to geotechnical considerations related to bedrock and soil conditions. At the Company's request, the tailings pipeline design was changed to increase the number of tailings lines from one to two, in order to decrease the operating risk, adding additional costs to the previous estimates. In the dam and pipeline areas, the previously estimated budgets had not adequately allowed for the added difficulties in the handling of materials, nor for the control of sediments resulting from the earthworks program, nor for the substantial increase in the volumes of materials to be moved as a consequence of redesign. Additional costs were incurred in power line clearing, government-assessed stumpage costs, project expenses associated with increased costs resulting primarily from staff requirements, site accommodations, travel, freight and fuel. The remaining overrun amounts were associated with redesign requirements during the mechanical, piping, and electrical stage of the project construction, and bulk construction material quantity reconciliations. The result of the financings and other sources and applications of funds on the Company's liquidity was to reduce the working capital deficiency from $126.9 million at December 31, 1997 to $104.8 million at March 31, 1998 and to $48.5 million at June 30, 1998. The current ratio at each date was 0.34 to 1, 0.25 to 1 and 0.49 to 1, respectively. The working capital deficiency resulted primarily from the use of cash to construct the Kemess South project and from accounts payable to equipment suppliers and contractors working on the project. As of June 30, 1998 the total of the Company's cash, cash equivalents and marketable securities increased to $17.0 million, from $0.6 million at March 31, 1998 and from $10.4 million at the end of 1997. OPERATING ACTIVITIES In the second quarter of 1998, cash flow before net changes in other operating items was $2.5 million compared with $2.1 million in the same period of 1997. In the six month period ended June 30, 1998 cash flow before net changes in other operating items was $3.4 million compared with $1.6 million in the same period a year earlier. The increase in cash flow reflected improved operations at the Giant and Pamour/Nighthawk mines. Declines in the Company's average realized gold price were more than offset by reductions in unit cash costs. Unit cash costs for the Giant and Pamour/Nighthawk mines for the six-month period ended June 30, 1998 declined 17% to US$268 per ounce from US$322 per ounce incurred during the same period in 1997. Net changes to cash used in other operating items amounted to $46.0 million in the second quarter of 1998 and $7.7 million in the same period a year earlier. These changes mainly reflect reductions in accounts payable on the Kemess South project. The Company reported net cash used in operating activities of $43.5 million and $5.6 million in the respective quarters of 1998 and 1997. FINANCING ACTIVITIES Net cash provided by financing activities was $96.9 million in the second quarter of 1998 compared with net cash used in financing activities of $0.2 million in the second quarter of 1997. In the six month period ended June 30, 1998 net cash provided by financing activities was $154.9 million compared with $0.4 million used in the same period of 1997. As noted above and more fully described in Note 7 to the Consolidated Financial Statements, the principal source of capital was provided by the US$120 million Senior Secured Debenture financing. In the three months ended June 30, 1998 the Company issued 10 million common shares to the subordinated noteholders as consideration for their consent to the Senior Secured Debenture financing. These shares were issued on closing of the US$120 million Senior Secured Debenture financing and recorded for book purposes at the closing price of the common shares on The Toronto Stock Exchange as of that date. On June 24, 1998 the Company issued and sold to certain investors an aggregate amount of 4,103,663 Special Warrants convertible into an aggregate amount of 4,103,663 common shares for aggregate consideration of approximately $5.3 million (see Note 8(b) to the Consolidated Financial Statements). The Special Warrants were issued to certain creditors of the Company in full payment and satisfaction of indebtedness related principally to overdue accounts payable in connection with the construction of the Kemess South Mine. 18 INVESTING ACTIVITIES In the second quarter of 1998, net cash used in investing activities was $37.1 million compared with $35.7 million in the same period of 1997. In the period this year, capital expenditures amounted to $43.7 million. In the second quarter of 1997, capital expenditures amounted to $63.2 million and were offset by $47.8 million received as assistance from the B.C. government for construction of the Kemess project. Long-term investments decreased by $17.8 million in the period. In the first half of 1998, net cash used in investing activities was $69.6 million compared with $53.3 million in the same six-month period of 1997. Capital expenditures in the first half this year were $80.1 million. In the same period of 1997, capital expenditures of $109.5 million were partly off-set by B.C. government assistance of $78.8 million. Investing activities were mainly associated with costs to complete construction of the Kemess South Mine. The development of the Kemess South Mine has been facilitated by up to $166 million of compensation, economic assistance and investment from the British Columbia provincial government. To date, the Company has received approximately $154 million from the British Columbia provincial government. The Company and the British Columbia provincial government have agreed on the terms of payment for the remaining $12 million. The British Columbia provincial government has agreed to pay the Company $8.1 million in a lump sum payment on August 15, 1998 rather than to pay $12 million over a 12-year period. With construction of the Kemess South Mine complete, the Company anticipates that investments in capital assets for the next several quarters will be limited to sustaining capital at its active operations. OUTLOOK As a result of the Company's tight liquidity and the terms of the most recent financing, the Company may be restricted in its ability to expand its hedging activities. This may limit the Company's ability to effectively hedge production and realize gold and copper prices significantly above spot prices. Historically, the Company has been one of the industry leaders, averaging US$20 to US$40 per ounce over spot prices for its gold sales. Should spot prices for gold and copper continue at the current levels, the Company will be required to examine the carrying value of all its assets to determine recoverability of its investments. The Company's future viability is dependent upon its ability to bring the Kemess South Mine into an efficient operating state, maintain satisfactory credit relationships with its suppliers and achieve and maintain profitable operations. Successful operations in the future are also dependent upon various external factors, the most significant of which are the prices of the commodities it produces, gold and copper, and the US$/Cdn$ exchange rate. Based upon current commodity prices, exchange rates and forecast production levels, management expects to have sufficient cash to meet interest payments and other obligations arising during the balance of 1998. However, at such price levels the Company's ability to meet interest payments and scheduled principal payments of secured indebtedness occurring after 1998 will depend upon the Company's ability to maintain its costs of production at or below current levels, the performance of the Company's operating mines at or above forecast production, and its ability to refinance principal repayments as they fall due. The Company is continuing to work with its investment bankers and advisors in seeking a long-term re-financing alternative. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS With the exception of historical statements, the matters discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on numerous variables and assumptions that are inherently uncertain and could cause actual results to be materially more or less favorable than projected, including without limitation general economic and competitive conditions and other factors. Among such factors are those related to volatility in the price of gold, copper and other commodities, changes in interest and foreign exchange rates, government regulation and agency action, competing land claims, the accuracy of estimates of ore reserves and mineral inventory, environmental costs and risks, unanticipated processing, access, transportation of supplies, water availability or other problems, other factors relating to the Company's ability successfully to complete development projects within projected capital budgets or to carry on mining operations within projected operating budgets and the risk factors listed from time to time in the Company's filings with the Securities and Exchange Commission, including without limitation the Company's Annual Report on Form 10-K for the year ended December 31, 1997, Part I:, Item 7, Risks and Uncertainties. 19 PART II - OTHER INFORMATION Item 1. Legal Proceedings FULLOWKA ET AL V. ROYAL OAK MINES INC. ET AL, (September 1994; served July 1995), begun by widows and dependents of nine miners killed during the 1992 strike at the Giant Mine in the Supreme Court of the NWT as action no. CV 05408 alleging, INTER ALIA, negligence on the part of the Company and two named directors/officers (along with 23 other named defendants). Roger Warren, a member of the Union, was charged and subsequently convicted of causing the deaths by explosion. The claim against the Company and all named defendants but one totals approximately $10.8 million plus taxes, interest and costs. The claim against the two directors/officers and all defendants, excluding the Company, totals approximately $33.65 million plus taxes, interest and costs. The Company has denied any negligence on its part. Pleadings and productions are complete; pretrial discovery has recently commenced and is scheduled to continue through the summer of 1998. A second action (action no. CV 06964) has been commenced recently by the widows against the "John Does" in the original action; two of whom have served notices of third-party claims against, INTER ALIA, the Company and the two directors/officers aforesaid. Defendants have moved the court to strike the second action as being untimely. The Northwest Territories Workers' Compensation Board has rendered a decision that the immunity provisions of the Workers' Compensation Act do not apply to one of the named directors/officers, and application has been made for judicial review of this decision. TSAY KEY DENE AND TAKLA INDIAN BANDS V. KEMESS MINES INC. ET AL, (February 1997), begun in the Supreme Court of British Columbia as action no. 97 0723 seeking injunctive relief and an order setting aside the Certificate of Approval, License of Occupation and Permits to Cut for the Kemess South Mine and its power line for, amongst other causes, alleged failure on the part of the British Columbia government to adequately consult with the Bands before granting the documents in issue and the alleged bias on the part of the Government related to the Heads of Agreement entered into between the British Columbia Government and the Company in August 1995 in, INTER ALIA, settlement of the Windy Craggy compensation claim. Interim and interlocutory injunction applications were denied by two separate judges of the British Columbia Supreme Court and have not been appealed by plaintiffs. Hearing on the merits of plaintiffs' claims was scheduled to commence in September 1997 but was adjourned at the plaintiffs' request to accommodate a court-supervised mediation process between the British Columbia government and the plaintiffs, which began in August 1997, continued into December 1997 and was adjourned in January 1998 upon the withdrawal by one of the plaintiffs following pronouncement of the DELGAMUUKW decision by the Supreme Court of Canada. In May 1998, the Takla Indian Band discontinued the proceeding against the Defendants. Also in May 1998, the other plaintiff, the Tsay Keh Dene, and the Provincial Government agreed to mediation, and the scheduled proceedings will be adjourned pending results of the mediation. ROYAL OAK MINES INC. V. TERCON CONTRACTORS LTD. (arbitration January 1998 and heard March-May 1998, ongoing) TERCON CONTRACTORS LTD. V. ROYAL OAK MINES INC. (builders lien proceeding) (May 1998) ROYAL OAK MINES INC. V. TERCON CONTRACTORS INC. (BCSC May 1998) claiming damages for breach of contract of approximately $6.8 million, including interest and legal costs, for failure to pay for equipment used to perform a contract at the Kemess South Mine. On March 20, 1998, the arbitrator entered an award finding against the Company generally and directed that the parties attempt to agree as to actual amounts owing, absent which agreement the arbitrator would retain jurisdiction over the matter for the purpose of determining the amount of a final monetary award against the Company. On May 5, 1998, the arbitrator made a partial award in the amount of $6,453,105.28. A court order that the award could be enforced as a judgement was made on May 7, 1998. On May 13, 1998, Tercon obtained a writ of seizure and sale of the Kemess South Mine lease and claims. The Company challenged the same and on June 4, 1998, the court ordered the return of the mine lease and claims, stayed any execution against the same under this proceeding and under the builders lien proceeding commenced by Tercon. The court ordered the Company to pay $3,500,000 to Tercon from the proceeds of the Trilon financing (which amount has been paid) and invited the Company to make application for payment terms as to the balance before October 15, 1998. In addition, in May 1998, Royal Oak commenced proceedings against Tercon for misrepresentation in connection with the subject contracts. This proceeding is in very early stages. Tercon is also proceeding with its builders lien action which is scheduled to be heard August 14, 1998 in Vancouver. Builders' Liens and Claims The Company has also received notice of and is in the process of responding to builders' liens filed against the Kemess South Mine and/or claims arising out of work performed at the Kemess South Mine by various contractors. The stated amount of the asserted liens filed against the Kemess South project, not including the amounts owing to contractors who have not filed liens, was approximately $14.6 million as of August 7, 1998. These include a proceeding by Golden Hill Ventures Ltd. for $6.15 million plus holdback, commenced September 1997. 20 Item 4. Submission of Matters to a Vote of Security Holders. (a) The Company's Annual and Special Meeting of Shareholders was held on June 26, 1998. (c) Seven proposals were submitted for shareholder approval, all of which were passed with the following voting results: 1. The proposal to fix the number of directors at five and to authorize the Board of Directors to determine the number of directors serving on the Board of Directors was approved with 101,795,297 votes for, 1,942,313 votes against, and 753,731 votes abstaining, not voted or spoiled. 2. All five of the Company's directors were re-elected to serve until the next annual meeting of shareholders, based on the votes as tabulated below:
Votes abstained, Votes not voted or Nominee Votes for withheld spoiled --------------------------- ----------- --------- ----------------- Margaret K. Witte 102,659,981 148,888 1,682,472 Ross F. Burns 102,716,463 92,406 1,682,472 William J.V. Sheridan 102,671,153 137,716 1,682,472 J. Conrad Lavigne 102,616,393 192,476 1,682,472 George W. Oughtred 102,699,656 109,213 1,682,472
3. The reappointment of Arthur Andersen & Co., Chartered Accountants, as independent auditors and to authorize the directors to fix their remuneration was approved with 101,659,033 votes for, 612,996 votes against, 48,232 votes withheld and 2,171,080 votes abstaining, not voted or spoiled. 4. The proposal to confirm the adoption of the shareholder rights plan was approved with 40,020,406 votes for, 8,105,421 votes against and 56,365,514 votes abstaining, not voted or spoiled. 5. The proposal to approve stock options previously granted to senior officers and directors of the Company, to purchase, in aggregate, up to 1,810,000 Common Shares of the Company was approved with 29,335,017 votes for, 18,400,512 votes against and 56,755,812 votes abstaining, not voted or spoiled. 6. The proposal to approve the repricing to $1.10 per share of stock options previously granted to senior officers, directors and employees of the Company was approved with 26,406,799 votes for, 21,372,597 votes against and 56,711,945 votes abstaining, not voted or spoiled. 7. The proposal to approve stock options previously granted to senior officers of the Company to purchase, in aggregate, up to 300,000 Common Shares of the Company at a price of $1.55 per share was approved with 32,341,586 votes for, 15,452,855 votes against and 56,696,900 votes abstaining, not voted or spoiled. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits See Exhibit Index. (b) Reports on Form 8-K. A report on Form 8-K was filed on April 7, 1998, regarding a press release from Royal Oak Mines Inc., announcing the Exploration Program for 1998. A report on Form 8-K was filed on May 12, 1998, regarding a press release from Royal Oak Mines Inc., announcing first quarter 1998 results of operations. A report on Form 8-K was filed on May 15, 1998, regarding a press release from Royal Oak Mines Inc., announcing the agreement for consents with the majority of holders of its US$175 million Senior Subordinated Notes. 21 A report on Form 8-K was filed on June 16, 1998, regarding a press release from Royal Oak Mines Inc., announcing the company is not a delinquent filer of annual financial statements. A report on Form 8-K was filed on June 24, 1998, regarding a press release from Royal Oak Mines Inc., announcing the closing of senior secured financing. 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ROYAL OAK MINES INC. Date: August 14, 1998 By /s/ Margaret K. Witte ------------------------------ Margaret K. Witte President and Chief Executive Officer Date: August 14, 1998 By /s/ James H. Wood --------------------------- James H. Wood Chief Financial Officer 23 EXHIBIT INDEX
Exhibit Method of Filing - ------- ---------------- 4.1 Third Supplemental Indenture, dated as of May 19, 1998, by and among the Company, and Chase Manhattan Trust Company, National Association, the successor to Mellon Filed herewith Bank, F.S.B., as Trustee. 4.2 Fourth Supplemental Indenture, dated as of June 22, 1998, by and among the Company, and Chase Manhattan Trust Company, National Association, the successor to Mellon Filed herewith Bank, F.S.B., as Trustee. 4.3 Fifth Supplemental Indenture, dated as of June 22, 1998, by and among the Company, and Chase Manhattan Trust Company, National Association, the successor to Mellon Bank, F.S.B., as Trustee. Filed herewith 4.4 Securities Purchase Agreement, dated as of April 17, 1998, between the Company and Trilon Financial Corporation. Filed herewith 4.5 Securities Purchase First Amending Agreement, dated as of May 15, 1998, between the Company and Trilon Financial Corporation. Filed herewith 4.6 Securities Purchase Second Amending Agreement, dated as of June 22, 1998, between the Company and Trilon Financial Corporation. Filed herewith 4.7 Senior Secured Debenture - Series A, in the principal amount of US$85,000,000 dated as of June 22, 1998. Filed herewith 4.8 Senior Secured Debenture - Series B, in the principal amount of US$35,000,000 dated as of June 22, 1998. Filed herewith 4.9 Trust Indenture Providing for the Issue of US$50 million 15% Demand Bonds, dated as of June 22, 1998, among and between the Company, and Montreal Trust Company of Canada, as Trustee. Filed herewith 27. Financial Data Schedule Filed herewith
EX-4.1 2 EXHIBIT 4.1 THIRD SUPPLEMENTAL INDENTURE THIRD SUPPLEMENTAL INDENTURE, dated and effective as of May 19, 1998, by and between Royal Oak Mines Inc., a corporation amalgamated under the laws of Ontario, Canada (the "Company"), and Chase Manhattan Trust Company, National Association, the successor to Mellon Bank, F.S.B., as Trustee (the "Trustee"), amending the Indenture (hereinafter defined). Royal Oak Mines Inc. issued an aggregate principal amount of $175,000,000 of 11% Senior Subordinated Notes due 2006 and Series B 11% Senior Subordinated Notes due 2006 (collectively, the "Notes") pursuant to an Indenture (the "Original Indenture"), dated as of August 12, 1996 (as amended and supplemented by the First Supplemental Indenture dated and effective as of December 31, 1997 and the Second Supplemental Indenture dated and effective as of January 31, 1998, (collectively with the Original Indenture, the "Indenture")), by and among Royal Oak Mines Inc., the Trustee and Kemess Mines Inc. ("Kemess"). Kemess was a Guarantor as defined in and for the purposes of the Indenture. On December 29, 1997, Royal Oak Mines Inc. and Kemess amalgamated under the laws of Ontario, Canada and the surviving entity of such amalgamation is the Company. Section 9.02 of the Indenture provides that the Company, when authorized by a resolution of the board of directors of the Company, and the Trustee, together with the written consent of the Holders (as defined in the Indenture) of at least a majority in aggregate principal amount of the outstanding Notes, may amend the Indenture as provided in Section 9.02. The Company has designated a record date of April 15, 1998 (the "Record Date") for the purpose of obtaining such consent to this Third Supplemental Indenture and the Holders of a majority in aggregate principal amount of the Notes as of the Record Date have provided their written consent, and have not revoked such consent, to the amendment to the Indenture contained in this Third Supplemental Indenture, and the other conditions precedent in the Indenture to the execution hereof have been satisfied. Pursuant to section 9.05 of the Indenture, once the amendment to the Indenture contained in this Third Supplemental Indenture becomes effective, it will bind every Holder of Notes. Each party hereto agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Notes: 1. The second paragraph of section 9.05 of the Indenture is hereby amended by replacing the number "30" referred to therein with the number "3". 2. The Indenture is hereby amended in every respect to the extent necessary to give effect to all sections of this Third Supplemental Indenture and conform the Indenture thereto. IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental Indenture to be duly executed and effective all as of the date first written above. ROYAL OAK MINES INC. By: /s/ James H. Wood ----------------------------- Name: James H. Wood Title: C.F.O. CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee By: /s/ Roy Davis ---------------------------- Name: Roy Davis Title: Vice President EX-4.2 3 EXHIBIT 4.2 FOURTH SUPPLEMENTAL INDENTURE FOURTH SUPPLEMENTAL INDENTURE, dated and effective as of June 22, 1998, by and between Royal Oak Mines Inc., a corporation amalgamated under the laws of Ontario, Canada (the "Company"), and Chase Manhattan Trust Company, National Association, the successor to Mellon Bank, F.S.B., as Trustee (the "Trustee"). RECITALS OF ROYAL OAK MINES INC. Royal Oak Mines Inc. issued an aggregate principal amount of $175 million of 11% Senior Subordinated Notes due 2006 and Series B 11% Senior Subordinated Notes due 2006 (collectively, the "Notes") pursuant to an Indenture, dated as of August 12, 1996 (as amended and supplemented by the First Supplemental Indenture dated and effective as of December 31, 1997, and the Second Supplemental Indenture dated and effective as of January 31, 1998, and the Third Supplemental Indenture dated and effective as of May 19, 1998) (as so amended and supplemented, the "Indenture"), by and among Royal Oak Mines Inc., the Trustee and Kemess Mines Inc. ("Kemess"). Kemess was a Guarantor as defined in and for the purposes of the Indenture. On December 29, 1997, Royal Oak Mines Inc. and Kemess amalgamated under the laws of Ontario, Canada and the surviving entity of such amalgamation is the Company. Unless otherwise defined herein, terms with initial capitals shall have the meanings ascribed thereto in the Indenture. Section 9.02 of the Indenture provides that the Indenture may be amended or supplemented by the Company and the Trustee when authorized by a resolution of the board of directors of the Company and consented to in writing by the holders of at least a majority in principal amount of the outstanding Notes. The holders of a majority in aggregate principal amount of the outstanding Notes have provided their written consent to the amendments and supplements contained in this Fourth Supplemental Indenture. Pursuant to Sections 9.02 and 9.05 of the Indenture, upon the effective date (determined in accordance with the Indenture) of the amendments and supplements to the Indenture contained in this Fourth Supplemental Indenture, the Indenture as supplemented and amended by the Fourth Supplemental Indenture will bind every Holder. AGREEMENT Each party hereto agrees as follows for the benefit of the other party and for the equal and ratable benefit of the holders of the Notes: 1. The second preamble paragraph to the Indenture is hereby amended by deleting the words "Series B 11% Senior Subordinated Notes due 2006" (the "Exchange Notes") and substituting therefor in the preamble to the Indenture the words "Series B Secured 12.75% Senior Subordinated Notes due 2006". 2. The title to each of the Exchange Notes is hereby changed to "Secured 12.75% Senior Subordinated Notes due 2006". Each issued and outstanding Note and the form of Notes -2- annexed to the Indenture as Exhibit B are hereby amended accordingly. The Exchange Notes are the only Notes outstanding under the Indenture. 3. The interest rate payable on the Notes shall increase by 175 basis points to 12.75% per annum effective on and after May 30, 1998. Each issued and outstanding Note and the form of Notes annexed to the Indenture as Exhibit B are hereby amended accordingly. No exchange of the Notes is necessary to effect the amendments of the Notes hereunder. 4. Section 1.01 is hereby amended by deleting in their entirety the definitions of "Asset Sale", "Bankruptcy Law", "Commodity Agreement", "Custodian" "Kemess South" and "Senior Secured Debentures" contained in that section and by inserting in alphabetical order in Section 1.01 the following definitions: "Acceptance Notice" has the meaning attributed thereto in Section 5.1 of the Inter-Creditor Agreement." "Amalgamation" has the meaning attributed thereto in Section 5.01." "APM" means Arctic Precious Metals, Inc., a Nevada corporation." "Applicable Law" means, in respect of any Person, property, transaction or event, all applicable laws, statutes, rules, by-laws and regulations, and all applicable official written directives, orders, judgements and decrees of Governmental Bodies." "Asset Sale" means any direct or indirect sale, issuance, conveyance, transfer, lease, assignment or other transfer by the Company or by any of its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any Person other than to the Company or to a direct or indirect wholly owned Restricted Subsidiary of the Company of (i) any Capital Stock of any Restricted Subsidiary of the Company or (ii) any other property or assets of the Company or of any Restricted Subsidiary of the Company, other than with respect to this clause (ii) any disposition of mineral products in the ordinary course of business. "Bankruptcy Law" means the United States Federal Bankruptcy Code of 1978, as amended from time to time, state or foreign law for the relief of debtors and any other applicable insolvency or other similar laws of any jurisdiction including, without limitation, any law of any jurisdiction permitting a debtor to obtain a stay or a compromise of the claims of its creditors against it or any laws of any jurisdiction permitting a creditor or officer of the court to enforce rights or remedies against the property, assets and undertaking of a debtor by contract or at law, including, without limitation, a court ordered or contractual appointment of a Custodian." "Beneficial Holders" has the meaning attributed thereto in Section 6.12." -3- "Collateral" means the property, assets and undertaking of the Company (other than the Excluded Assets) and its Restricted Subsidiaries charged or in which the Trustee or the Collateral Agent is granted a Lien pursuant to the Security Documents and all replacements, substitutions and additions thereto and all income, gains and distributions thereon and proceeds thereof, of whatsoever nature and kind." "Collateral Agent" means initially CIBC-Mellon Trust Company, a Canadian trust company, chartered under the LOAN AND TRUST COMPANIES ACT (Canada) its successors and assigns, and any other Person appointed from time to time as collateral agent hereunder, provided, that for the purposes of the Inter-Creditor Agreement, the Trustee may be required to therein act as the "U.S. Collateral Agent" to the extent it holds Collateral and in such capacity shall be considered a "Collateral Agent" hereunder." "Commodity Agreement" of any Person means any option or futures contract or similar agreement or arrangement and all payments which become due and payable upon termination thereof or of any transaction thereunder and includes any contract for the sale of copper concentrate." "Company Purchase Offer" has the meaning attributed thereto in Section 4A.06." "Consents" means the form of Consent To Fourth and Fifth Supplemental Indentures, Inter-Creditor Agreement, Security Documents and Waiver requested of the Holders in connection with the transactions contemplated in the Fourth Supplemental Indenture, the Fifth Supplemental Indenture and the Letter Agreement (as defined herein)." "Custodian" means any receiver, manager, receiver/manager, interim receiver, agent, liquidator, trustee, assignee or similar person or representative under any Bankruptcy Law and whether appointed by a court or otherwise." "Eligible Holders" and "Eligible Holder" has the meanings attributed thereto in Section 6.12." "Excluded Assets" means the Windy Craggy Property." "Existing Hedging Indebtedness" means the present and future debts, liabilities and obligations of the Company or its affiliates to Bankers Trust Company, The Bank of Nova Scotia and Macquarie Bank Limited and their respective affiliates, successors or assigns pursuant to or in any way related to Commodity Agreements, Interest Swap Obligations, Foreign Exchange Obligations or Currency Agreements, whether matured or unmatured, originally entered into by the Company or its affiliates on or prior to the date hereof (in this definition "Contracts"), and the present and future debts, liabilities and obligations of the Company or its affiliates to Bankers Trust Company, The Bank of Nova Scotia and Macquarie Bank Limited or their respective affiliates, successors and assigns pursuant to or in any way related to instruments or agreement entered into after the date hereof, where such instruments or agreements are entered into to replace, amend, extend the -4- maturity of or rollover Contracts (including such as previously replaced, amended, extended or rolled over), or otherwise to extend or reschedule payments due thereunder." "Final Deposit Time" has the meaning attributed thereto in Section 6.13." "Fourth Supplemental Closing Date" means the date on which the Trustee receives an Officer's Certificate certifying that all of the following have occurred, subject to any applicable escrow conditions: (i) the closing of the issuance and sale of the Senior Secured Debentures; (ii) the execution, delivery and registration or filing of the Security Documents and execution and delivery of the Inter-Creditor Agreement as each is contemplated in this Fourth Supplemental Indenture; and (iii) the completion of the issuance of shares and payments contemplated in paragraphs 1 and 8 of the letter agreement, dated May 15, 1998 (the "Letter Agreement"), between the Company and the Proposing Noteholders (as defined in the said letter agreement)." "Governmental Body" means any government, parliament, legislature, or any regulatory, authority, agency, commission or board of any government, parliament or legislature, or any court or (without limitation to the foregoing) any other law, regulation or rule-making entity (including, without limitation, any central bank, fiscal or monetary authority or authority regulating banks), having jurisdiction in the relevant circumstances, or any Person acting under the authority of any of the foregoing (including, without limitation, any arbitrator)." "Hazardous Substance" includes but is not limited to any contaminants, pollutants, dangerous substances, liquid wastes, industrial wastes, toxic substances, hazardous wastes, hazardous materials of whatsoever nature or kind or any other hazardous substance within the meaning of any Applicable Law including without limitation the HAZARDOUS PRODUCTS ACT (Canada), the CANADIAN ENVIRONMENTAL PROTECTION ACT (Canada), the ENVIRONMENTAL PROTECTION ACT (Ontario) and the WASTE MANAGEMENT ACT (B.C.)." "In Agreed Form" means, with respect to any document to be delivered by the Company or any Restricted Subsidiary to the Trustee under or pursuant to this Fourth Supplemental Indenture, the receipt by the Trustee of an Officer's Certificate and Opinion of Counsel, upon each of which the Trustee may conclusively rely, to the effect that: (i) such document is in substantially the same form and substance as any comparable document previously delivered or to be delivered contemporaneously by the Company or such Restricted Subsidiary to the Senior Debentureholders (other than as it pertains to the priority of a Lien), such document is authorized or permitted by the Indenture and that the form and substance of such document complies with all of the terms of this Indenture; or (ii) if no such comparable document has or is to be delivered by the Company or such Restricted Subsidiary to the Senior Debentureholders, the form and substance of such document is authorized or permitted by this Indenture and the form and substance of such document complies with all of the terms of this Indenture." -5- "Initial Deposit Time" has the meaning attributed thereto in Section 6.13." "Inter-Creditor Agreement" means the inter-creditor agreement incorporated herein by reference, to be dated and effective as of the Fourth Supplemental Closing Date among Trilon, Northgate Exploration Limited, the Trustee, the Collateral Agent, APM and the Company, which agreement shall be in the form annexed as Exhibit E hereto, as amended or supplemented from time to time in accordance with this Indenture." "Kemess Mine" means the Kemess North Property and Kemess South Mine." "Kemess Newco" means the wholly owned Restricted Subsidiary of the Company into which, at the request of the Senior Debentureholders, the Company will transfer ownership of the Kemess Mine and related assets." "Kemess Newco Guarantee and Assumption" means the guarantee and assumption agreement to be given by Kemess Newco, in compliance with Sections 4.20 and 4.21 of the Indenture and In Agreed Form, to the Trustee for the benefit of the Holders of the Notes, of the Company's obligations under the Indenture." "Kemess Newco Liens" means the present and future fixed and floating Liens to be granted by Kemess Newco to the Trustee or the Collateral Agent in all of its property, assets and undertaking, including the Kemess Mine and related assets, which Lien will be In Agreed Form and will secure the payment and performance by Kemess Newco of its obligations under the Kemess Newco Guarantee and Assumption." "Kemess North Property" means all present and future property, assets and undertaking comprising or relating to what is generally referred to as the Kemess North property in British Columbia, Canada, including, without limitation all mineral claims and leases referred to in Exhibit F hereto, all buildings, equipment, fixtures and other property and assets owned or leased by the Company (or in which the Company otherwise has an interest) situated or used at the Kemess North Property site, all operations, exploration and other activities carried on at such site and all permits, authorizations, licenses and similar approvals relating thereto." "Kemess South Mine" means all present and future property, assets and undertaking comprising or relating to what is generally referred to as the Kemess South property in British Columbia, Canada, including, without limitation, all mineral claims and leases referred to in Exhibit G hereto, all buildings, equipment, fixtures and other property and assets owned or leased by the Company (or in which the Company otherwise has an interest) situated or used at the Kemess South Mine site, all operations, exploration and other activities carried on at such site and all permits, authorizations, licenses and similar approvals relating thereto." "Kemess South Resources Limited Partnership" means the limited partnership by that name formed under the laws of the Province of British Columbia, and its successors and assigns." -6- "Nighthawk Lake Mine" means the property covering approximately 11,726 acres representing 254 claims in both Cody and Macklem Townships, Ontario, with most of the property held outright by the Company as staked mineral claims and the remaining property held through various agreements and subsidiary companies." "Noteholder Liens" means the present and future Liens held by the Trustee, or a Collateral Agent, to secure payment and performance of the obligations of the Company and its Restricted Subsidiaries under the Indenture, the Notes and the Security Documents." "Pamour Mine" means the property (exclusive of the Hoyle properties) located in Whitney Township approximately 15 miles east of Timmins, Ontario which consists of 38 patented mining claims and one license of occupation covering approximately 1,531 acres of mining and surface rights." "Purchase Event" has the meaning attributed thereto in Section 5.1 of the Inter-Creditor Agreement." "Purchase Event Price" has the meaning attributed thereto in Section 6.13." "Purchase Event Record Date" means the Business Day following the date on which the Trustee publishes a notice on Bloomberg in accordance with Section 4.06(f)." "Royalty Agreement" means an agreement between the Company and Trilon to be dated and effective as of the Fourth Supplemental Closing Date, as such royalty agreement is amended or supplemented from time to time." "Royalty Debenture" means the debenture granted by the Company to Trilon to secure the Obligations of the Company under the Royalty Agreement, as amended or supplemented from time to time." "Royalty Interest" means a royalty interest in gross revenues of the Kemess Mine granted by the Company to Trilon in accordance with the Royalty Agreement." "Sale and Leaseback Transaction" means, in respect of any Person, any direct or indirect sale, issuance, conveyance, transfer, lease, assignment or other transfer of any property or assets of such Person to any other Person following which such other Person leases back to such Person such property or assets." "Securities Purchase Agreement" means an agreement between the Company and Trilon made the 17th day of April, 1998, as amended or supplemented from time to time." "Security Documents" means, collectively, the agreements, instruments and documents delivered from time to time to the Trustee or any Collateral Agent by the Company, Kemess Newco and APM, and any other Restricted Subsidiary, for the purpose of creating, perfecting, preserving or protecting the Liens in favor of the Trustee or the -7- Collateral Agent for the benefit of the Holders, which secure the payment and performance by the Company and its Restricted Subsidiaries of their respective obligations under the Indenture and the Notes and such Security Documents and including any guarantees thereof. The Security Documents as of the date hereof are described in Exhibit H hereto. "Senior Debentureholders" means the holders from time to time of the Senior Secured Debentures." "Senior Debentures Security" means the present or future Permitted Liens held by the Senior Debenture holders to secure the obligations of the Company under or in respect of the Senior Secured Debentures, the Documents (as defined in the Senior Secured Debentures) and the Securities Purchase Agreement and including any guarantees thereof." "Senior Secured Debentures" means the Series A Senior Secured Debenture and the Series B Senior Secured Debenture in the aggregate principal amount not to exceed US$120 million to be issued to Trilon and Northgate Exploration Limited, pursuant to the terms of the Securities Purchase Agreement and includes without limitation (i) any amendment or supplement thereto from time to time and (ii) each Refinancing thereof from time to time with Trilon, Northgate Exploration Limited or any other Persons." "Senior Secured Parties" means collectively the holders of Permitted Liens described in clauses (i), (ii), (iii), (vii), (xii) and (xiii) of the definition of Permitted Liens on the property, assets or undertaking of the Company or any Restricted Subsidiary, including, without limitation, Kemess Newco and their respective successors and assigns." "Subscribing Eligible Holder" has the meaning attributed thereto in Section 6.13." "Trilon" means Trilon Financial Corporation, its successors and assigns." "Windy Craggy Property" means the mineral claims in and around Windy Craggy Mountain in the Tatshenshini/Alesk region of northwestern British Columbia." "Working Capital Facility" means (i) a working capital facility in a principal amount not to exceed US$45 million or (ii) a working capital facility in excess of US$45 million, provided that the lenders thereof execute and deliver an inter-creditor agreement In Agreed Form in favor of the Trustee and any Collateral Agent that provides to the Holders at least the same rights and benefits as set out in Section 5.1 of the Inter-Creditor Agreement, as amended or supplemented from time to time, and in respect of which the Trustee has received, at the expense of the Company, a favorable opinion from an Independent Financial Advisor that the working capital facility is on conventional market terms, in each case in compliance with Section 4.12 of this Indenture, and any Refinancing thereof from time to time." -8- 5. The definitions of "Foreign Exchange Contracts", "Currency Agreements" and "Interest Swap Obligations" in Section 1.01 are hereby amended by deleting the period and adding the following words, at the end of each of those definitions: "and all payments which become due and payable upon termination thereof or of any transaction thereunder." 6. Clause (vii) of the definition of "Indebtedness" in Section 1.01 is hereby deleted and replaced by the following: "(vii) comprising net liabilities under Interest Swap Obligations, Foreign Exchange Obligations, Currency Agreements and Commodity Agreements;" 7. The definition of "Mining Related Assets Investment" in Section 1.01 is hereby amended by adding the following words, at the end of the definition: "and including payment of accounts payable incurred in connection with the making of any such Investment or capital expenditures." 8. The definition of "Permitted Liens" in Section 1.01 is hereby deleted in its entirety and replaced with the following: "Permitted Liens" means: (i) Liens on the property, assets or undertaking of the Company or of a Restricted Subsidiary that, in each case, secure Senior Indebtedness of the Company or such Restricted Subsidiary permitted under paragraph (b) of section 4.12; (ii) Liens on the property, assets or undertaking of the Company or of a Restricted Subsidiary that, in each case, secure Indebtedness permitted under clause (v) of the definition of Permitted Indebtedness contained in section 4.12; (iii) Liens on the property, assets or undertaking of the Company or of a Restricted Subsidiary that, in each case, secure Indebtedness permitted under clause (vii) of the definition of Permitted Indebtedness contained in section 4.12; (iv) Liens securing Indebtedness of a Person existing at the time that such Person is merged into or consolidated with the Company or Restricted Subsidiary, provided that such Liens were in existence prior to the completion of such merger or consolidation and do not extend to any assets other than those of such Person; -9- (v) Liens on property acquired by the Company or a Restricted Subsidiary, provided that such Liens were in existence prior to the contemplation of such acquisition and do not extend to any other property; (vi) Liens on the property, assets or undertaking of the Company that, in each case, secure the royalty payments to be made by the Company or a Restricted Subsidiary to Kemess South Resources Limited Partnership or, upon dissolution to the partners thereof, in respect of copper extracted and processed from the Kemess South property; (vii) (a) Liens on the property, assets or undertaking of the Company or a Restricted Subsidiary that secure Indebtedness of not more than US$60 million in aggregate principal amount at any time under Existing Hedging Indebtedness, Currency Agreements, Interest Swap Obligations, Foreign Exchange Obligations and Commodity Agreements; and (b) Liens on the property, assets or undertaking of the Company that, in each case, secure Capitalized Lease Obligations or Purchase Money Obligations, in each case to the extent that such Indebtedness is Permitted Indebtedness under this Indenture; (viii) (a) Liens in favor of the Company or any direct or indirect wholly owned Restricted Subsidiary; and (b) Liens to secure Indebtedness permitted under clause (xiv) of the definition of Permitted Indebtedness; (ix) Liens incurred, or pledges and deposits in connection with, workers' compensation, unemployment insurance and other social security benefits, and leases, appeal bonds and other obligations of like nature incurred by the Company or any Restricted Subsidiary in the ordinary course of business; (x) Liens imposed by law, including, without limitation, mechanics', carriers' warehousemen's, materialmen's, suppliers' and vendors' Liens, incurred by the Company or any Restricted Subsidiary in the ordinary course of business; (xi) Liens for AD VALOREM, income or property taxes or assessments and similar charges which either are not delinquent or are being contested in good faith by appropriate proceedings for which the Company has set aside on its books reserves to the extent required by GAAP; (xii) Liens on the property, assets or undertaking of the Company that, in each case, secure the Obligations of the Company under the Royalty Agreement, including pursuant to the Royalty Debenture; (xiii) Liens on the property, assets or undertaking of any Restricted Subsidiary, including, without limitation, Kemess Newco, that secure Indebtedness -10- under guarantees or assumptions of Indebtedness described in clause (xiii) of the definition of "Permitted Indebtedness" contained in Section 4.12, provided that in respect of Indebtedness referred to in clauses (ii), (iii) and (iv) of the definition of "Permitted Indebtedness" as referred to in clause (xiii), such Liens shall be permitted only to the extent they comply with the provisions of clause (vii)(a) of the definition of "Permitted Lien"; (xiv) Liens granted by the Company and its Restricted Subsidiaries to the Trustee or any Collateral Agent pursuant to the terms hereof, provided that in respect of Indebtedness referred to in clauses (ii), (iii) and (iv) of the definition of "Permitted Indebtedness" as referred to in clause (xiv), such Liens shall be permitted only to the extent that they, in the aggregate, secured Indebtedness of not more than US$60 million under the guarantees described in such clause (xiv); (xv) rights reserved to or vested in any government or governmental body by the terms of any lease, licence, franchise, grant or permit, or by any statutory provision, to terminate the same, to take action which results in an expropriation, to designate a purchase of any property subject thereto or to require annual or other payments as a condition to the continuance thereof; (xvi) zoning restrictions, easements, rights of way, leases or other similar encumbrances or privileges in respect of real property which in the aggregate do not materially impair the use of such property by the Company or any Restricted Subsidiary in the operation of its business; (xvii) security given by the Company or a Restricted Subsidiary to a public utility or any governmental body, when required by such utility or governmental body in connection with the operations of the Company or such Restricted Subsidiary in the ordinary course of its business, which singly or in the aggregate do not materially detract from the value of the asset concerned or materially impair its use in the operation of the business of the Company or such Restricted Subsidiary; (xviii) the reservation in any original grants from any Governmental Body of any land or interest therein and statutory exceptions to title; and (xix) title defects or irregularities which are of a minor nature and which do not materially detract from the value of the assets of the Company or its Restricted Subsidiaries encumbered thereby. 9. The definition of "Refinancing Indebtedness" in Section 1.01 of the Indenture is hereby amended by deleting the words in brackets in the third and fourth lines and substituting therefor the following words: "(other than pursuant to clauses (v), (vi), (vii), (viii), (ix), (xii), (xiii) or (xiv) of the definition of "Permitted Indebtedness")." 10. Section 4.06 is hereby amended by adding the following at the end of clause 4.06(a): -11- "The Officer's Certificate delivered pursuant to this Section 4.06(a) shall be accompanied by an Opinion of Counsel (i) stating that, in the opinion of such counsel, subject to customary exclusions and exceptions reasonably acceptable to the Trustee, either (A) all such action has been taken with respect to the recording, registering, filing, rerecording and refiling of the Indenture, all supplemental indentures, the Security Documents, financing statements, continuation statements and all other instruments of further assurance as is necessary to maintain the Noteholder Liens and the Kemess Newco Liens and reciting the details of such action or referring to prior Opinions of Counsel in which such details are given, and stating that all financing statements and continuation statements have been executed and filed and such other actions taken that are necessary fully to preserve and protect the rights of the Holders and the Trustee hereunder and under the Security Documents, or (B) no such action is necessary to maintain the Noteholder Liens and the Kemess Newco Liens, if any, and (ii) stating what, if any, action of the foregoing character is necessary during the one-year period commencing April 1 in the then current calendar year to so maintain the Noteholder Liens and the Kemess Newco Liens during such period." Section 4.06 is further amended by adding the following clauses thereto: "(e) On the written request, from time to time, of Holders of at least a majority in aggregate principal amount of the outstanding Notes, the Company shall deliver to those Holders making such request such financial information, reports or other materials as the Company delivers to the Senior Debentureholders or is required to deliver to the Senior Debentureholders pursuant to the terms thereof. Notwithstanding the foregoing, the Company shall not be required to provide any such information which is confidential and not otherwise generally available to the holders of the common shares of the Company. (f) The Company shall deliver to the Trustee a true and complete copy of any notice that it receives from the Senior Debentureholders which constitutes a Purchase Event and the Company shall notify the Trustee in writing of the occurrence of any event which constitutes a Purchase Event or of any event which with the giving of notice or passage of time will constitute a Purchase Event, whether or not the Company receives notice thereof from the Senior Debentureholders, in each case immediately (but in any event within one Business Day) after the Company obtains notice or actual knowledge thereof. Upon the earlier of the Company receiving such notice or becoming aware of such circumstances the Company shall no later than within one Business Day issue a press release that: (i) states that a Purchase Event has occurred or with the giving of notice or passage of time -12- will occur; (ii) provides a description of the Purchase Event; (iii) contains a statement that upon the occurrence of a Purchase Event, Eligible Holders have the right for a limited period of time to buy the Senior Secured Debentures and the Senior Debentures Security; (iv) states the time period within which a purchase must be effected under the Inter-Creditor Agreement in respect of the subject Purchase Event; and (v) provides notice that a conference call concerning the Purchase Event will be convened by the Company within no later than two Business Days of the date of the press release and the details for participation in such conference call shall. The press release will be disseminated on those wire services and publications customarily used by the Company to disseminate financial information and information concerning material events. At the expense of the Company, the Trustee shall mail a copy of any notice received by it pursuant to this Section 4.06(f) or pursuant to Section 5.1 of the Inter-Creditor Agreement to each Holder within one Business Day (5 Business Days if the Notes are no longer held in book-entry form by the Depositary) after the Trustee's receipt thereof, by first class mail to such Holder's address as set forth in the Registrar's books and the Trustee shall, as soon as practicable but in no event later than three Business Days of the earlier of its receipt of any such notice or the date a Trust Officer obtains actual knowledge of the occurrence of a Purchase Event, publish an announcement in the form prescribed in Exhibit I on the Bloomberg wire service. The Trustee shall have no further or other duty under this Section 4.06(f) and shall not be liable to any Person for the accuracy, content, adequacy or delivery to any Person of such notice, or for any action taken thereupon by any Person." 11. Section 4.11 of the Indenture is amended by inserting the words "(other than the transfer of the Kemess Mine and related assets by the Company to Kemess Newco in accordance with the terms of the Indenture)" after the words "$15 million" in line 20 therein. 12. The definition of "Permitted Indebtedness" in section 4.12 of the Indenture is hereby deleted and replaced in its entirety with the following: "Permitted Indebtedness" means, without duplication, each of the following: (i) Indebtedness under the Notes, this Indenture, any Guarantee, the Security Documents and the Kemess Newco Guarantee and Assumption; (ii) Existing Hedging Indebtedness; (iii) Indebtedness in respect of Commodity Agreements of the Company and Restricted Subsidiaries provided however that in entering into such Commodity Agreements after the Fourth Supplemental Closing Date the Company and the Restricted Subsidiaries are in compliance with Section 4.22 of this Indenture and provided, further, that such Commodity -13- Agreements (other than those involving the sale of copper concentrate to the extent the following is not relevant to such copper concentrate agreements) are entered into to reduce the exposure of the Company and its Restricted Subsidiaries to fluctuations in the prices of commodities; (iv) Indebtedness under Interest Swap Obligations, Foreign Exchange Obligations and Currency Agreements of the Company and the Restricted Subsidiaries; provided, however, that such Interest Swap Obligations, Foreign Exchange Obligations and Currency Agreements are entered into to protect the Company and its Restricted Subsidiaries from fluctuations in interest or exchange rates on Indebtedness Incurred in accordance with this Indenture to the extent the notional principal amount of such Interest Swap Obligation, Foreign Exchange Obligation or Currency Agreements does not exceed the principal amount of the Indebtedness to which such Obligation relates; and provided, further, that the Company may enter into Foreign Exchange Obligations and Currency Agreements to protect the Company and its Restricted Subsidiaries from fluctuations in exchange rates related to the operating costs of the Company and its Restricted Subsidiaries, in each case consistent with past practice of the Company; (v) Indebtedness under the Working Capital Facility to the extent that, as of any date, the aggregate of the principal amount of such Indebtedness and the principal amounts outstanding under the Senior Secured Debentures does not at such date exceed US$120 million and provided, however that from and after the date of the Company's request to the Trustee for the release contemplated by Section 4A.12, the aggregate amount of Indebtedness that, at any time, is "Permitted Indebtedness" under this clause (v) shall not exceed US$45 million less the aggregate principal amount outstanding under the Senior Secured Debentures." (vi) Capitalized Lease Obligations and Purchase Money Obligations of the Company or any Restricted Subsidiary not to exceed, calculated using foreign exchange rates on date of Incurrence, US$25 million in aggregate principal outstanding at any one time; (vii) Indebtedness under or in relation to the Senior Secured Debentures in aggregate principal amounts not to exceed, as of any date, US$120 million, together with all interest, fees, and other amounts payable under or in respect of the Senior Secured Debentures and the Senior Debentures Security, provided that, if the aggregate principal amount of, under or in respect of the Senior Secured Debentures (excluding interest, fees and other amounts payable under or in respect of the Senior Secured Debentures and the Senior Debentures Security) is equal to or less than US$45 million at any time, and if at such time, the Trustee is required to release and discharge the Noteholder Liens following compliance by the Company with and in accordance with Section 4A.12, the aggregate principal amount of, under or in respect of the Senior Secured Debentures that, at any time, is "Permitted Indebtedness" under this clause (vii) shall not exceed US$45 million together with all interest, fees and other -14- amounts payable under or in respect of the Senior Secured Debentures and the Senior Debentures Security; (viii) Indebtedness of a direct or indirect Restricted Subsidiary of the Company to the Company or to a direct or indirect wholly owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by the Company or a direct or indirect wholly owned Restricted Subsidiary of the Company in each case subject to no Lien held by a Person other than the Company, any direct or indirect wholly owned Restricted Subsidiary of the Company, any of the Senior Secured Parties or the Trustee or any Collateral Agent, in each case for benefit of the Noteholders; provided that if as of any date any Person other than the Company, any direct or indirect wholly owned Restricted Subsidiary of the Company, any of the Senior Secured Parties or the Trustee or any Collateral Agent, in each case for the benefit of the Noteholders owns or holds any such indebtedness or holds a Lien in respect of such Indebtedness, such date shall be deemed the Incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness; (ix) Indebtedness of the Company to a direct or indirect wholly owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by a direct or indirect wholly owned Restricted Subsidiary of the Company in each case subject to no Lien; provided that (a) any Indebtedness of the Company to any direct or indirect Restricted Subsidiary of the Company is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under this Indenture and the Notes, and (b) if as of any date any Person other than a direct or indirect wholly owned Restricted Subsidiary of the Company owns or holds any such Indebtedness or any Person holds a Lien in respect of such Indebtedness, such date shall be deemed the Incurrence of Indebtedness not constituting Permitted Indebtedness under this clause (ix) by the issuer of such Indebtedness; (x) Guarantees by Restricted Subsidiaries of the Company of Indebtedness of the Company (other than Permitted Indebtedness) Incurred on or after the Issue Date; provided that such Indebtedness was Incurred in compliance with this Section 4.12; (xi) subject to Section 4A.16, Refinancing Indebtedness; (xii) Indebtedness of the Company or any Restricted Subsidiary (including, without limitation, Kemess Newco), when and if incurred, under or in relation to the Royalty Agreement and the Royalty Debenture; (xiii) notwithstanding clause (x) of this definition of Permitted Indebtedness, guarantees or assumptions by Restricted Subsidiaries (including, without limitation, Kemess Newco) of Indebtedness and Obligations permitted under clauses (i), (ii), (iii), (iv), (v), (vi), (vii) and (xii) of this definition of Permitted Indebtedness; and -15- (xiv) guarantees by the Company of Indebtedness and Obligations of or assumed by Kemess Newco of Indebtedness permitted under clauses (i), (ii), (iii), (iv), (v), (vi), (vii) and (xii) of this definition of Permitted Indebtedness." 13. Section 4.13 of the Indenture is hereby amended by: (a) deleting the word "or" at the end of clause (7); (b) inserting an "or" at the end of clause (8); and (c) adding the following after clause (8): "(9) the Senior Secured Debentures to the extent such Senior Secured Debentures or related documents restrict payment or distributions of any kind from any Restricted Subsidiary, including without limitation, Kemess Newco, to the Company or other Restricted Subsidiary without the prior written consent of the Senior Debentureholders after the occurrence and during the continuance of a "Default" or "Event of Default" (as defined in the Senior Secured Debentures provided that no Restricted Subsidiary, including Kemess Newco, shall be affected by a Payment Restriction under or by reason of the Senior Secured Debentures unless such Restricted Subsidiary has and continues to be jointly and severally liable as a Guarantor for the performance by the Company of its obligations under the Notes, the Indenture and the Security Documents and such Restricted Subsidiary has granted Liens to the Trustee or any Collateral Agent for the benefit of the Holders to secure such obligations." 14. Section 4.16 of the Indenture is hereby amended by: (i) deleting the introductory paragraph and paragraph (a) thereof; (ii) adding the following new introductory paragraph and paragraphs (a), (a.1) and (a.2); (iii) adding an "s" to the first use of the word "paragraph" in paragraph (b); (iv) deleting the "(a)" after the first use of the word "paragraphs" as amended as aforesaid in paragraph (b); (v) adding "(a)(iii), (a)(iv) and (a)(v)" after the word "paragraphs" as amended as aforesaid; and (vi) inserting the word "Investment" after the words "Mining Related Assets" in the 14th line of paragraph (b): The Company shall not and shall not permit any of its Restricted Subsidiaries to, consummate any Asset Sale, including without limitation, an Asset Sale of the Kemess South Mine or any undivided interest therein, without the prior written consent of the Holders of a majority in aggregate principal amount of the outstanding Notes. Notwithstanding the foregoing, so long as no Default, Event of Default or Purchase Event has occurred or would occur as a result, the Company and its Restricted Subsidiaries may effect Asset Sales, free and clear of the Noteholder Liens and the Kemess Newco Liens, on the following terms: (a) The Asset Sale of: (i) any machinery, equipment, other personal property or other similar property that has become worn out, obsolete, or unserviceable, which property, if Collateral, shall be replaced with or substituted for with machinery, equipment or other property not -16- necessarily of the same character but being of at least equal value and utility to the Company and its Restricted Subsidiaries as the property so disposed of, which replacement property shall, without further action, become subject to the Noteholder Liens and the Kemess Newco Liens; (ii) or abandonment of any personal property the use of which is no longer necessary or desirable in or material to the conduct of the business of the Company and its Restricted Subsidiaries and the maintenance of their respective earnings; (iii) any real property or any interest therein which is undeveloped and held by the Company or a Restricted Subsidiary for exploration purposes and is not material to the conduct of the business of the Company and its Restricted Subsidiaries (and for greater certainty, not real property comprising the Kemess South Mine) provided that: (A) the Asset Sale is at a price at least equal to fair market value; (B) to the extent that the proceeds of sale are Cash or Cash Equivalents, the Net Cash Proceeds are applied in accordance with Section 4.16(b) hereof within 180 days of receipt thereof by the Company or a Restricted Subsidiary, as applicable, and if in accordance with Section 4.16(b) the Net Cash Proceeds are applied to or invested in Mining Related Asset Investments and the assets and properties sold were Collateral, the properties and assets acquired as a result of the Mining Related Assets Investment shall, upon such investment being made, be subject to the Noteholder Liens and the Kemess Newco Liens, without further action, and if, to the extent that, the proceeds of such Asset Sale are not Cash or Cash Equivalents, the non-cash consideration shall, upon the closing of such Asset Sale, be subject to the Noteholder Liens and the Kemess Newco Liens without further action; -17- (iv) any assets and properties of the Company or a Restricted Subsidiary, other than assets described in clauses (i), (ii), and (iii) above, and other than assets which comprise or are in any way material to the Kemess South Mine or the Capital Stock of Kemess Newco for so long as the Capital Stock of Kemess Newco is subject to the Noteholder Liens, provided that (A) the Asset Sale is at a price at least equal to fair market value; (B) at least 85% of the consideration received therefrom by the Company or a Restricted Subsidiary is in the form of Cash or Cash Equivalents; (C) the Net Cash Proceeds are applied in accordance with Section 4.16(b) hereof, within 180 days of receipt thereof by the Company or a Restricted Subsidiary, as applicable; (D) if in accordance with Section 4.16(b) the Net Cash Proceeds are applied to or invested in Mining Related Asset Investments and the assets and properties sold were Collateral, the properties and assets acquired as a result of the Mining Related Assets Investment shall, upon such investment being made, be subject to the Noteholder Liens and the Kemess Newco Liens, without further action; and (E) the amount of Net Cash Proceeds that may be applied in accordance with this clause (iv) shall not exceed US$15 million in any calendar year; (v) any assets and properties of the Company or a Restricted Subsidiary, other than assets described in clauses (i), (ii) and (iii) above, and other than assets which comprise or are in any way material to the Kemess South Mine or the Capital Stock of Kemess Newco for so long as the Capital Stock of Kemess Newco is subject to the Noteholder Liens, provided that (A) the Asset Sale is at a price at least equal to fair market value; (B) at least 85% of the consideration therefrom received by the Company or a Restricted Subsidiary is in the form of Cash or Cash Equivalents; (C) Net Cash Proceeds are applied to repay any Senior Indebtedness secured by the assets involved in such disposition or, if there is no such secured Senior Indebtedness, to repay Senior Indebtedness in each case within 180 days of receipt thereof by the Company or a Restricted Subsidiary, as applicable; (D) to the extent that there are any Net Cash Proceeds remaining after such application of proceeds to Senior Indebtedness or, to the extent that any such Senior Indebtedness so reduced is re-borrowed, such remaining Net Cash Proceeds or amounts re-borrowed from time to time shall be applied in accordance with Section 4.16(b) within the aforesaid 180 days of receipt in the case of such remaining Net Cash Proceeds or within 30 days of receipt in the case of money re- borrowed; and (E) if in accordance with Section 4.16(b) the Net Cash Proceeds are applied to or invested in Mining Related Asset Investments and the assets and properties sold were Collateral, the properties and assets acquired as a result of the Mining Related Assets Investment, shall upon such investment being made, be subject to the Noteholder Liens and the Kemess Newco Liens, without further action; -18- (a.1) Nothing in this Section 4.16 shall limit or prohibit the Company or a Restricted Subsidiary, in the ordinary course of their respective businesses from; (A) selling inventory; (B) collecting, liquidating, selling, factoring or otherwise disposing of, accounts receivable or notes receivable; or (C) making cash payments (including scheduled repayments of Indebtedness permitted to be incurred under this Indenture) that are not otherwise prohibited by this Indenture, all free and clear of the Noteholder Liens and the Kemess Newco Liens; (a.2) The Trustee shall provide all such releases and discharges of the Noteholder Liens and the Kemess Newco Liens as the Company may request, at the Company's sole cost and expense, to give effect to the foregoing provided that each such request is accompanied by (I) an Officers' Certificate attesting that: (1) the assets to be sold hereunder do not comprise and are not in any way material to the Kemess South Mine; (2) the assets to be sold hereunder come within the description of the assets permitted to be sold in clauses (i), (ii) or (iii) above; (3) with respect to clause (iii) above, the conditions set out in paragraph (A) therein have been satisfied; (4) with respect to clause (iv) above, the conditions set out in paragraphs (A), (B) and (E) therein have been satisfied; (5) with respect to clause (v) above, the conditions set out in paragraphs (A) and (B) therein have been satisfied; as applicable; and (II) if required by TIA Section 314(d) in the case of any Asset Sales described above, a certificate or opinion, which complies with the requirements of TIA Section 314(d), of an engineer, appraiser or other expert as to the fair market value of the property subject to the Asset Sale or the property acquired as a result of the Mining Related Asset Investment. The Trustee, in confirming that the requirements of this Section 4.16 and TIA Section 314(d) have been satisfied, shall be fully protected in relying upon such Officers' Certificates and expert's certificates or opinions, as applicable. The Liens provided for herein shall be subject to the provisions of Section 4A.14 hereof." 15. Section 4.20 of the Indenture is hereby amended by deleting the ";" and all of the language that follows the ";" in clause (iii) thereof and by adding a "." in place of the ";" so deleted. 16. Sections 4.21 and 4.22 of the Indenture are deleted in their entirety and the following sections are added at the end of Article 4: "SECTION 4.21 KEMESS NEWCO GUARANTEE AND ASSUMPTION The Company is hereby permitted to transfer the Kemess Mine to Kemess Newco provided that contemporaneously with such transfer the Trustee receives: (i) the Kemess Newco Guarantee and Assumption which evidences Kemess Newco's assumption and agreement to observe and perform all the covenants and obligations of the Company under this Indenture; -19- (ii) the Kemess Newco Liens; (iii) a fixed and specific Lien In Agreed Form in any debt, equity or other consideration issued by Kemess Newco to the Company upon the transfer of the Kemess Mine to Kemess Newco; (iv) an Opinion of Counsel as to the enforceability of the Kemess Newco Guarantee and Assumption and the Kemess Newco Liens, subject to customary exclusions and exceptions; and (v) an Officers' Certificate and an Opinion of Counsel, each stating that such transfer as described in this Indenture will, upon giving effect to such transfer, comply with the applicable provisions of the Indenture. SECTION 4.22 COMMODITY AGREEMENTS Except in connection with Existing Hedging Indebtedness, the Company shall not, and it shall not permit any Restricted Subsidiary, to enter into any Commodity Agreement, pursuant to which the Company or a Restricted Subsidiary has sold puts on gold, silver, copper or any other precious metals without simultaneously writing calls for a corresponding quantity of the same metal (and effectively creating a hedge) or enter into any other transaction which has the effect of creating a net long position on gold, silver, copper or any other precious metals produced by the Company or a Restricted Subsidiary." SECTION 4.23 INSURANCE The Company shall, and shall cause each Restricted Subsidiary to: (i) keep its properties and assets insured and maintain public liability insurance in accordance with Section 4.05 (b); (ii) provide the Trustee with certificates for all insurance policies, with proof of loss payable as required in subparagraph (iii) below, annually at the same time that the Company delivers its Officer's Certificates under section 4.06 (a); and (iii) provide that any loss under all such insurance policies (other than policies in respect of third party liability and business interruption insurance) in excess of Cdn. $500,000 shall be payable to the Trustee subject only to any prior rights which may be held in such proceeds by the holders of Permitted Liens, provided that if a Default or Event of Default has not occurred, the Company or such Restricted Subsidiary shall be entitled to receive such loss payment directly if the entire amount thereof is: (a) used to repair or replace the lost or damaged property in question if the lost or damaged property relates to the Kemess Mine; or (b) if the lost or damaged property does not in any way relate to the Kemess Mine either (x) used to repair or replace the lost or -20- damaged property in question or (y) after applying such loss payment or a portion thereof to the reasonable costs of any required remediation of the lost or damaged property, used and distributed as the proceeds of an "Asset Sale" pursuant to and in accordance with Section 4.16 hereof; and (c) the Company or such Restricted Subsidiary delivers to the Trustee an Officer's Certificate attesting to the matters described in (a) or (b) above, as applicable. The Trustee shall provide all such releases and discharges from the Noteholder Liens and the Kemess Newco Liens of any proceeds or loss payment under insurance policies as the Company may request, at the Company's sole cost and expense, provided that each such request is accompanied by (i) the aforesaid Officers' Certificate attesting to the matters described in clauses (a) and (b) above and (ii) if required by TIA Section 314(d), a certificate or opinion, which complies with the requirements of TIA Section 314(d), of an engineer, appraiser or other expert as to the fair value of any property replacing any such lost or damaged property. The Trustee, in confirming that the requirements of this Section 4.23 and TIA Section 314(d) have been satisfied, shall be fully protected in relying upon such Officers' Certificate and expert's certificate or opinion, as applicable. The Trustee shall have no duty to examine, review or maintain copies of any policies of insurance required hereunder. SECTION 4.24 ROYALTY INTEREST AMENDMENT The Company shall not, without the prior consent of the Holders of a majority in aggregate principal amount of the outstanding Notes, amend the Royalty Agreement so as to increase the Initial Royalty Rate (as defined therein) or amend Section 2.2 and 7.2(c) thereof. SECTION 4.25 ENVIRONMENTAL MATTERS (i) The Company shall maintain, and shall cause each of its Subsidiaries to maintain, a system to assure and monitor continued compliance with all Applicable Laws relating to the environment, which system shall include periodic reviews of such compliance. (ii) The Company shall indemnify the Trustee and the Collateral Agent and their respective officers, directors, employees, agents and shareholders, and shall hold each of them harmless from and against any and all losses, liabilities, damages, costs, expenses and claims (including legal fees and expenses of its counsel and agents) suffered or incurred by such party in respect of (a) any violation by the Company or any Subsidiary of Applicable Law related to the environment including the assertion of any Lien thereunder, (b) the presence of any Hazardous Substance affecting the Collateral or any property adjacent thereto or (c) the release of any Hazardous Substance by the Company or any Subsidiary into the environment, provided that the foregoing indemnity shall not apply in connection with any negligence, willful misconduct or violation of any Applicable -21- Law relating to the environment affecting the Collateral by the Trustee, the Collateral Agent or their respective agents after taking possession of the Collateral. The Company's obligations and indemnification under this section shall survive the satisfaction and release of the Security Documents and the repayment of the principal, interest and all other monies payable under this Indenture and the Notes. The Trustee shall hold the benefit of this indemnity in trust for those indemnified parties who are not parties to this Indenture. 17. The following Article is to be inserted into the Indenture after Article 4, which Article shall read in its entirety as follows: "ARTICLE 4A - SECURITY SECTION 4A.01 - SECURITY As security for the due and punctual payment and performance of all of its obligations to the Noteholders under and in respect of this Indenture and the Notes, the Company shall execute and deliver to the Trustee or the Collateral Agent in each case for the benefit of the Holders of the Notes, valid and enforceable Liens against all present and after acquired property, assets and undertaking of the Company, except the Excluded Assets, all In Agreed Form, including without limitation, the following: (i) a security debenture by the Company creating a fixed and floating Lien on all of the Company's present and after acquired property, assets and undertaking including, without limitation, fixed and specific Liens on all property, assets and undertaking comprising Kemess Mine; (ii) a general security agreement by the Company creating a Lien on all of the Company's present and after acquired property, assets and undertaking; (iii) a limited guarantee by APM of the obligations of the Company to the Noteholders; (iv) a general security agreement by APM creating a Lien on all of APM's present and after acquired property, assets and undertaking; (v) assignments of the Company's interests in all material mining claims, concessions and leases in any way relating to the Kemess Mine; (vi) an assignment by the Company of its rights and interests in the Kemess South Resources Limited Partnership; (vii) if, and to the extent required by the Senior Debentureholders, an assignment (and where required, consents to such assignment) by the Company of its rights and interests in all Kemess Mine construction contracts; (viii) if, and to the extent required by the Senior Debentureholders an assignment (and, where required, consent to such assignment) by the -22- Company of its rights and interest in those agreements of the Company which are material to the Kemess Mine and which have not been fully performed by the parties thereto, including without limitation, agreements which relate to construction underway or proposed at Kemess Mine and including, without limitation, royalty refining and shipping agreements; (ix) pledges of all the shares in the capital of APM held by the Company; and (x) such other agreements and documents as may be necessary or desirable to grant to the Trustee or the Collateral Agent valid and enforceable Liens on all of the property, assets and undertaking of the Company other than the Excluded Assets. Notwithstanding anything to the contrary contained in the foregoing, the Company shall not be obligated to register the Liens against any real property or mineral claims consisting of: (a) the Pamour Mine, the Nighthawk Lake Mine and the mines generally known as Giant, HopeBrook and Colomac; and (b) the Company's currently existing exploration properties not in any way related to the Kemess Mine. The Company shall register Liens against the Pamour Mine and the Nighthawk Lake Mine in favor of the Trustee or the Collateral Agent should the Company at some subsequent time grant Liens against (either or both) such mines to the Senior Debentureholders. The Company shall insure that all of the Security Documents are executed and delivered in accordance with this Section 4A.01 such that the Liens created thereby are perfected in all jurisdictions and at all times required to maintain such perfection by the Trustee or the Collateral Agent for the benefit of the Noteholders. SECTION 4A.02 - EFFECT OF LIENS The Trustee or the Collateral Agent shall have and hold the Security Documents and the Collateral and all rights hereby and thereby conferred unto the Trustee and the Collateral Agent, and their respective successors and assigns forever, but in trust, nevertheless, for the equal benefit and security of the Holders of all Notes without any preference or priority between them and with the powers and authorities and subject to the terms and conditions set forth in this Indenture, the Inter-Creditor Agreement and in the Security Documents. The Company hereby represents and warrants that the Company has executed and delivered, filed and recorded and will execute and deliver, file and record, all instruments and documents, and has done and will do all such acts and other things, at the Company's expense, as are necessary to subject the Collateral to the Noteholder Liens and the Kemess Newco Liens, as applicable. The Company will execute and deliver, file and record all instruments and do all acts and other things as may be reasonably necessary or advisable to perfect, maintain and protect the Noteholder Liens and the Kemess Newco Liens, as applicable. The Company shall furnish to the Trustee and the Collateral Agent, promptly after the execution and delivery of the Security Documents and promptly after the execution and delivery of any amendment hereto or thereto or any other instrument of further assurance, an Opinion of Counsel stating that, in the opinion of such counsel, subject to customary exclusions and exceptions reasonably acceptable to the Trustee, either (i) the Security Documents, any such amendment and all other instruments of further assurance have been properly recorded, registered and -23- filed and all such other action has been taken to the extent necessary to make effective the Liens intended to be created by the Security Documents, and reciting the details of such action or referring to prior Opinions of Counsel in which such details are given, or (ii) no such action is necessary to make the Liens intended to be created by the Security Documents effective. SECTION 4A.03 - EXCEPTION AS TO THE LAST DAY OF ANY LEASES. The mortgages, pledges and charges created under the Security Documents shall not extend or apply to the last day of the term of any lease, whether oral or written, or any agreement therefor, now held or hereafter acquired by the Company or Restricted Subsidiary as tenant, but should such mortgage, pledge and charge become enforceable and the Trustee or the Collateral Agent determines or becomes bound to enforce the same, the Company or Restricted Subsidiary shall thereafter stand possessed of such last day and shall hold it in trust to assign the same to any person who may acquire such term or the part thereof hereby mortgaged, pledged or charged in the course of any enforcement of such mortgage, pledge and charge or any realization of the subject matter thereof. SECTION 4A.04 - EFFECTIVE DATE OF SECURITY. The Liens created under the Security Documents shall be effective upon the date of the execution of the Security Documents. SECTION 4A.05 - DISCHARGE OF SECURITY. The Trustee and the Collateral Agent shall at the request and the expense of the Company, release and discharge this Indenture and the security created pursuant to the Security Documents (unless such security has otherwise been released and discharged pursuant to the terms hereof) and execute and deliver such instruments as it is advised by an Opinion of Counsel are requisite for that purpose and to release the Company from its covenants herein contained (other than provisions related to the compensation and indemnification of the Trustee) upon the discharge of the Indenture in accordance with the provisions of Article Eight. SECTION 4A.06 - PURCHASE OFFER In the event that the Company, at any time before August 15, 2001, makes an all cash offer to purchase (the "Company Purchase Offer") all of the outstanding Notes at a purchase price not less than 105.5% of the principal amount thereof plus all accrued and unpaid interest, if any, to the date of purchase, and less than all of the outstanding Notes are tendered in response to the Company Purchase Offer, the Company shall complete the purchase of those Notes that are so tendered (which Company Purchase Offer must be completed no later than 60 days after being made by the Company) and, upon completion of the Company Purchase Offer, the Company shall deliver to the Trustee an Officers' Certificate and an Opinion of Counsel confirming such completion and the Trustee shall -24- release all of the property, assets and undertaking of the Company and its Restricted Subsidiaries from the Noteholder Liens and the Kemess Newco Liens. The Trustee shall provide all such releases and discharges of the Noteholder Liens and the Kemess Newco Liens as the Company may request, at the Company's sole cost and expense. Following the completion of the Company Purchase Offer, interest on amounts outstanding under the remaining Notes shall accrue at the rate of 11 % per annum (subject to any default rate as set out in the Indenture) and shall be paid in accordance with the terms hereof. In making a Company Purchase Offer, the Company shall comply with all tender offer rules applicable under state and Federal Securities laws in the United States of America, including, but not limited to, Section 14(e) under the EXCHANGE ACT and Rule 14e-1 thereunder, to the extent applicable to such Company Purchase Offer. A Company Purchase Offer shall be conducted at the expense of the Company in accordance with the redemption procedure set out in Article 3. Any such Company Purchase Offer shall include a summary of the provisions of this Section 4A.06, including, without limitation, a description of the consequences of any Holder's failure to tender such Holder's Notes. SECTION 4A.07 CONFLICTS. Except with respect to Section 13.01, if a conflict or inconsistency exists between a provision of this Indenture and a provision of the Security Documents, the provision of this Indenture shall prevail. Except with respect to Section 13.01 and except as between the Company, the Holders, the Trustee and the Collateral Agent with respect to the entitlements, protections and immunities of the Trustee contained in Section 6.10 and Article Seven of the Indenture, if a conflict or inconsistency exists between a provision of this Indenture or any of the Security Documents and a provision of the Inter-Creditor Agreement, then the provisions of the Inter-Creditor Agreement shall prevail. Notwithstanding any provision of the Indenture, the Inter-Creditor Agreement or the Security Documents, the provisions of Section 10.13 of the Indenture shall remain in full force and effect. SECTION 4A.08 CO-OPERATE. Upon the occurrence and during the continuance of an Event of Default and if the Trustee shall have determined or become bound to enforce the Liens, the Company and any Restricted Subsidiaries shall from time to time execute and do all such acts and things as the Trustee or any Collateral Agent may, acting reasonably, require to facilitate the realization of the Collateral or any part thereof, whether under this Indenture or the Security Documents or by judicial proceedings, and to give any notices and directions which the Trustee or any Collateral Agent may, acting reasonably, consider expedient. SECTION 4A.09 NO MERGER The Security Documents shall not merge in any other security. No judgment obtained by the Trustee shall in any way affect the provisions of this Indenture or any of the Security Documents. For greater certainty, no judgment obtained by the Trustee shall in any way affect the obligation of the Company to pay principal, fees and interest at the rates, times and in the manner provided in this Indenture -25- and the Notes and to compensate and indemnify the Trustee, including, without limitation, each Collateral Agent as provided in this Indenture. SECTION 4A.10 ADDITIONAL SECURITY The Company hereby covenants and agrees to execute and deliver or cause to be executed and delivered to or for benefit of the Trustee and the Collateral Agent such additional Security Documents In Agreed Form as the Company or any Restricted Subsidiary grants to the Senior Debentureholders from time to time. SECTION 4A.11 FURTHER ASSURANCES -SECURITY From time to time the Company shall, at the expense of the Company, take or cause to be taken such action (including, without limitation, the provision of information and access to property) and execute and deliver or cause to be executed and delivered to the Trustee or the Collateral Agent, such agreements, convenances, deeds and other documents and instruments as the Trustee, at the written request of the Holders of a majority in principal amount of the outstanding Notes, shall reasonably request in furtherance of granting to the Trustee or the Collateral Agent valid and enforceable Liens on all of the Company's present and after acquired property, assets and undertaking to which they are entitled hereunder and the Company shall, at the expense of the Company, register, file or record the same (or a notice or financing statement in respect thereof) in all offices and in all jurisdictions where such registration, filing or recording is necessary or advisable to constitute, perfect and maintain such Liens; provided however that any such Liens shall be In Agreed Form and shall be subject and subordinate to present and future Permitted Liens in such property, assets and undertaking held by the Senior Secured Parties. The Company shall renew and amend such recordings, filings or registrations from time to time as and when required to keep them in full force and effect. The Company shall from time to time, if and when required to do so by the Trustee upon the request of the Holders of a majority in principal amount of the outstanding Notes and on the Fourth Supplemental Closing Date, furnish the Trustee with an Opinion of Counsel as to compliance with the provisions of Section 4A.02 and this Section 4A.11. The Trustee or the Collateral Agent is hereby authorized to enter into such further and other documents as may reasonably be required to permit perfection of the Liens in the Collateral granted by this Indenture or the Security Documents or to permit registration of instruments of further assurance or collateral mortgages. SECTION 4A.12 - PARTIAL DISCHARGES Provided that (i) there shall have been no Default or Event of Default that has occurred and is continuing; and (ii) the Company delivers to the Trustee an Officers' Certificate to which are attached (A) a confirmation in writing from the Senior Debentureholders that the aggregate principal amount then outstanding under the Senior Secured Debentures at such time (other than interest, fees and other amounts payable under or in respect of the Senior Secured Debentures and the Senior Debentures Security) is equal to or less than U.S.$45 million; and (B) a confirmation in writing from the lenders under the Working Capital Facility -26- confirming the maximum amount available thereunder and the actual Indebtedness of the Company thereunder at such time and such Officers' Certificate certifies that the aggregate principal amount of the Indebtedness of the Company under the Senior Secured Debentures, as permanently reduced, and the greater of the maximum amount available under in respect of the Working Capital Facility and the actual Indebtedness of the Company under or in respect of the Working Capital Facility do not in aggregate and on a permanent basis exceed U.S.$45 million, the Trustee shall, upon written request and at the expense of the Company, release and discharge the Noteholders' Liens from the assets and properties of the Company and its Restricted Subsidiaries, other than the Kemess South Mine. The Trustee, in confirming that the requirements of this Section 4A.12 (including, without limitation, the absence of a continuing Default or Event of Default) have been satisfied, shall be entitled to receive and shall be fully protected in relying upon an Officers' Certificate and an Opinion of Counsel. SECTION 4A.13 PRIORITY. Subject to Sections 4A.14 and 4A.15, any reference to Permitted Liens contained in this Indenture or the Security Documents in and of itself shall not expressly or by implication result in any Permitted Liens ranking ahead of the charges or security interests created pursuant to this Indenture or the Security Documents. SECTION 4A.14 - PRIORITY OF LIENS Notwithstanding the time of granting of Permitted Liens, or the time of registering, filing or recording the same (or a notice or financing statement in respect thereof) the Permitted Liens and beneficial rights of each of the Senior Secured Parties in the assets, properties and undertaking of the Company and its Restricted Subsidiaries and the proceeds thereof shall be senior and prior to the Noteholder Liens, Kemess Newco Liens and beneficial rights of the Trustee, the Collateral Agent and any Noteholder therein; and (ii) the Noteholder Liens, Kemess Newco Liens and beneficial rights of the Trustee, the Collateral Agent and any Noteholder in the assets, properties and undertaking of the Company and its Restricted Subsidiaries shall be and are hereby subordinated and postponed to the Liens and beneficial rights of each of the Senior Secured Parties therein. Each Holder of Notes, by its acceptance of them, authorizes and expressly directs the Trustee and the Collateral Agent on its behalf to take such action as may be necessary or appropriate to effectuate, as between the Senior Secured Parties and the Holders of Notes, the aforesaid subordination and postponement of the Noteholder Liens, Kemess Newco Liens and beneficial rights of the Trustee, the Collateral Agent and any Noteholder therein, and appoints each of the Trustee and the Collateral Agent its attorney-in-fact for such purposes. SECTION 4A.15 CONFIRMATION OF SUBORDINATION ON BEHALF OF HOLDERS Notwithstanding the generality of Section 4A.14, the Trustee and the Collateral Agent are hereby authorized and directed to execute and deliver to the Company, APM, the Collateral Agent, the Senior Debentureholders and the holders of the -27- Royalty Interest, the Inter-Creditor Agreement and the Security Documents. The terms and provisions contained in the Inter-Creditor Agreement shall constitute, and are hereby expressly made, a part of this Indenture as if fully set forth herein. To the extent applicable, the Company and the Trustee, by their execution and delivery of the Fourth Supplemental Indenture, expressly agree to such terms and provisions and to be bound thereby; provided, that the Trustee and the Collateral Agent have executed and delivered the Inter-Creditor Agreement and the Security Documents in reliance upon Officers' Certificates and Opinions of Counsel and at the direction of Holders contained in the Consents. Any appointment of a successor Trustee or a Collateral Agent from and after the date hereof shall include the express agreement of such successor, Trustee or Collateral Agent to be bound by the terms and provisions of the Inter-Creditor Agreement and the Security Documents. The Trustee or the Collateral Agent shall, from time to time, at the written request of the Company, confirm in writing to the Company, APM, the Collateral Agent, the Senior Debentureholders and the holders of the Royalty Interest, that the Trustee's or the Collateral Agent's rights and remedies in respect of the Noteholder Liens and the Kemess Newco Liens are subordinated and postponed in the manner described in the Inter-Creditor Agreement to Liens provided for in the Royalty Debenture and the Senior Debentures Security until such time as all of the Obligations of the Company and its Restricted Subsidiaries secured by the Senior Debentures Security and the Royalty Debenture are satisfied in full. SECTION 4A.16 REPLACEMENT INTER-CREDITOR AGREEMENT In the event of any Refinancing of the Senior Secured Debentures, including under a Working Capital Facility, the Trustee, the Collateral Agent, the Company, Kemess Newco, APM and the Collateral Agent shall, at the expense of the Company enter into a new inter-creditor agreement In Agreed Form that provides to the Holders at least the same rights and benefits as set out in Article 5 of the Inter-Creditor Agreement or, at the expense and at the request of the Company, enter into a new inter-creditor agreement In Agreed Form with the Company and the holders of the Refinanced Senior Secured Debentures on substantially the same terms and conditions as the Inter-Creditor Agreement, including, without limitation, at least the same rights and benefits as set out in Article 5 thereof, and shall deliver such subordinations and postponements of the registered Noteholder Liens and Kemess Newco Liens as may be necessary or desirable to effect the subordinations and postponements as described in such new inter-creditor agreement, provided that the Trustee shall not be required to enter into any new inter-creditor agreement which affects its rights, protections or immunities under this Indenture or otherwise. 4A.17 ACKNOWLEDGEMENT For greater certainty, the entering into by any person who is a secured creditor of the Company of an agreement by which such person acknowledges the priority of the security for the Royalty Agreement and the Senior Secured Debentures, agrees not to exercise remedies with respect to its collateral for a period of time and acknowledges the priority of remedies with respect to the Royalty Security (as defined in the Inter-Creditor Agreement) and the Senior Debentures Security does -28- not cause the amounts owing to such person to be subordinate in the right of payment to any other Indebtedness. 18. Section 5.01 is hereby amended by inserting: (a) after the word "merge" in the second line the following: "(including, without limitation, an amalgamation under the BUSINESS CORPORATIONS ACT (Ontario) or comparable legislation in any other jurisdiction in Canada (including pursuant to federal legislation) or similar legislation in any other jurisdiction (an "Amalgamation"))"; and (b) after the words "the Company" in each of the 10th line of the first paragraph, the 10th last line of the first paragraph and the 4th last line of the last paragraph the following words: "(or in the case of an Amalgamation, the amalgamated corporation)". 19. Section 6.01 of the Indenture is hereby amended by deleting clause 6 thereof and replacing it with the following: "(6) The company or any of its Restricted Subsidiaries pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case including, without limitation, the filing of a proposal or notice of intention to file a proposal under the BANKRUPTCY AND INSOLVENCY ACT (Canada) (the "BIA"), as amended from time to time, or commences proceedings under the COMPANIES CREDITORS' ARRANGEMENT ACT (Canada) (the "CCAA"), as amended from time to time; (b) consents to the entry of an order for relief against in an involuntary case; (c) consents to the appointment of a Custodian of it or for all or substantially all of its property or a Custodian of it or for all or substantially all of its property is appointed by a Person other than a court of competent jurisdiction and such appointment remains unstayed and in effect for five consecutive days; (d) makes a general assignment for the benefit of its creditors; or (e) admits in writing its inability to pay its debts as they become due." 20. The first paragraph of Section 6.03 of the Indenture is hereby amended by adding at the conclusion of the paragraph the words "including, without limitation, the enforcement of the Liens and realization of the Collateral under the Security Documents, subject to the Inter-Creditor Agreement." 21. Section 6.05 of the Indenture is hereby deleted and the following substituted therefor: "Subject to Section 2.09, the Holders of at least a majority in aggregate principal amount of the outstanding Notes, may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or the Collateral Agent or exercising any trust or power conferred on either of them, including without limitation, any remedies provided for in Section 6.03 and -29- upon receiving security or indemnity from such Holders satisfactory to the Trustee and the Collateral Agent against all costs, expenses and liabilities to be incurred, the Trustee or the Collateral Agent, without in any way limiting its rights or remedies pursuant to this Indenture or under the Security Documents shall exercise one or more of the powers of enforcement available to it at law, in equity or by contract including under the terms of this Indenture or the Security Documents. Subject to Section 7.01, however, the Trustee or the Collateral Agent may refuse to follow any direction that the Trustee or the Collateral Agent reasonably believes conflicts with any laws, this Indenture or the Inter-Creditor Agreement, that the Trustee or the Collateral Agent determines may be unduly prejudicial to the rights of another Noteholder, or that may involve the Trustee or the Collateral Agent in personal liability; provided that the Trustee or Collateral Agent may take any other action deemed proper by the Trustee or the Collateral Agent which is not inconsistent with such direction. Furthermore the Trustee and the Collateral Agent shall have the right if directed by those Holders of at least a majority in aggregate principal amount of the outstanding Notes to take private action or to take judicial proceedings instead of such private proceeding." 22. Section 6.10 of the Indenture is hereby amended as follows: (1) by deleting the reference to "this Article Six" in the second line and substituting "this Article Six or Article 4A hereof or any of the Security Documents; and by inserting the words "or the Collateral Agent" after the word "Trustee" in the preamble and the "First" and "Second" paragraphs thereof. 23. Section 6.11 of the Indenture is hereby amended by adding the words "or the Collateral Agent" after the word "Trustee" each time it appears in that section other than the second time in which case the words "or as Collateral Agent" shall be inserted. 24. Article 6 of the Indenture is hereby amended by adding section 6.12 as follows: 6.12 PURCHASE OF SENIOR SECURED DEBENTURES The Holders and the holders of a beneficial interest in the Notes (the "Beneficial Holders") as at the Purchase Event Record Date (collectively the "Eligible Holders" and individually an "Eligible Holder) shall each, on a non-duplicative basis, have a one time right on the occurrence of a Purchase Event to, on a pro rata basis (which right may be taken by those Eligible Holders who wish to do so to the extent other Eligible Holders do not participate), purchase all, but no less than all, of the Senior Secured Debentures and the Senior Debentures Security. The Inter-Creditor Agreement sets out the circumstances and periods of time within which such rights may be exercised and in which they expire, the basis of the calculation of the purchase price to be paid for the Senior Secured Debentures and the Senior Debentures Security (the "Purchase Event Price"). To exercise the purchase right, Holders must comply with the procedures set out in the Inter-Creditor Agreement and in Section 6.13 hereof. It is hereby acknowledged that the Senior Debentureholders shall have no liability or obligation to any Person in respect of the foregoing other than to sell and deliver -30- the Senior Secured Debentures and the Senior Debentures Security in accordance with the terms of, and subject to compliance by the Agent (as hereinafter defined) of the terms of, the Inter-Creditor Agreement; provided, that the Agent shall have no duty hereunder to comply with the terms of the Inter-Creditor Agreement except in accordance with Section 6.13 hereof. 6.13 PURCHASE EVENT PROCEDURE (a) As soon as practicable but in no event later than the day of publication by the Trustee of the notice on Bloomberg (the "Publication") described in Section 4.06(f) hereof, Chase Manhattan Trust Company, National Association or its successor hereunder, acting solely in its capacity as agent hereunder and not in its capacity as Trustee or in any other fiduciary capacity (the "Agent"), shall request from the Senior Debentureholders, in accordance with the Inter-Creditor Agreement, the Purchase Event Price as of such day (the "Initial Purchase Event Price"). The Agent may conclusively rely on any such information and any additional information provided to the Agent by the Senior Debentureholders for all purposes hereunder. The Agent shall not be required to furnish such information to any Person other than an Eligible Holder who has provided the certificate described in Section 6.13(b). (b) Each Eligible Holder who elects to purchase at least its respective pro rata share of the Senior Secured Debentures and the Senior Debentures Security (collectively, the "Senior Position") shall deliver to the Agent, no later than 4:30 p.m. on the third day following the Publication, each of the following: (i) a certificate, with signature guarantee, of the Eligible Holder or a duly qualified officer of the Eligible Holder, upon which certificate the Agent may conclusively rely, which certifies (1) that such holder is an Eligible Holder; (2) the principal amount of the Notes held by such Eligible Holder; (3) that such Eligible Holder elects to purchase at least such Eligible Holder's pro rata share of the Senior Position, and, if applicable, that such Eligible Holder may elect to purchase additional unsubscribed shares of such Senior Position, if available for purchase; (4) that the Eligible Holder irrevocably directs the Agent to deliver the Acceptance Notice (as defined in the Inter-Creditor Agreement) and to purchase the Senior Position on the earliest date on which all of the conditions to purchase hereunder have been satisfied, if such date is on or prior to the expiration date (the "Final Closing Date") of the right to purchase under the Inter-Creditor Agreement, for and on behalf of all Subscribing Holders (defined hereinafter) with immediately available funds provided by such Subscribing Holders, but with no duty by the Agent to advance funds to make such purchase, on the terms and subject to the conditions of the Inter-Creditor Agreement and this Section 6.13; (5) an agreement to irrevocably deliver such Eligible Holder's pro rata share of the Initial Purchase Event Price to the Agent by federal funds transfer within one day of such Eligible Holders receipt of notice, from the Agent or otherwise, of the Initial Purchase Event Price (but in no event later than the Initial Deposit Time (defined hereinafter)), which notice the Agent shall provide to such Eligible Holder by facsimile no later than the second day following receipt of such Eligible Holder's fully conforming certificate (but only if the Agent has received notice of the Initial Purchase Event Price from the Senior Debentureholders); provided, that in lieu of the procedure in this clause (5), such Eligible Holder may fulfill this condition. -31- by irrevocably depositing, on the date of delivery of the certificate and for the account of the Agent, a federal funds transfer of at least its pro rata share of the Initial Purchase Event Price; (6) such Eligible Holder's agreement to pay on a pro rata basis with the other Eligible Holders the reasonable legal fees and expenses, if any, of the Agent hereunder, as and when incurred, and to indemnify and hold the Agent harmless hereunder for any expenses, claims, liabilities, outlays, fees, taxes and any other disbursements or costs incurred in connection herewith (collectively with such legal fees and expenses, "Costs"), unless any such Cost is adjudicated to have resulted from the gross negligence or wilful misconduct of the Agent; (7) wire transfer and facsimile communication instructions for such Eligible Holder (which the Agent shall use for all purposes hereunder); and (8) an acknowledgement that the Transfer Documents (as hereinafter defined) and the Agent Transfer Documents (as hereinafter defined) must be delivered to the Agent not later than 3 Business Days before any Closing (as hereinafter defined). Each Eligible Holder who has complied with all of the above requirements (a "Subscribing Holder"), including without limitation, delivery of any executed agreement required under clause (4) above and any deposit of funds required under clause (5) above, no later than 4:30 p.m. on the fifth day after the Publication (the "Initial Deposit Time"), but no other Holder or Eligible Holder, shall be entitled to subscribe for any unsubscribed portion of the Purchase Event Price (the "Unsubscribed Portion"). (c) The Agent shall request, on such fifth day, from the Senior Debentureholders, the Purchase Event Price calculated as of the sixth day after the Publication (the "Revised Purchase Event Price"). The Agent shall provide, if and when received from the Senior Debentureholders, any such information, together with the amount of the estimated Unsubscribed Portion calculated as of the Initial Deposit Time which amount is equal to the difference between the funds on deposit and the Revised Purchase Event Price (if available, and otherwise the Initial Purchase Event Price) to each Subscribing Holder within one day following receipt of notice of the Revised Purchase Event Price, but in the absence of receipt of such notice, shall provide the amount of such estimated Unsubscribed Portion to Subscribing Holders no later than the second day following the Initial Deposit Time. Any Subscribing Holder, or group of Subscribing Holders, may subscribe for all or a portion of the Unsubscribed Portion by depositing immediately available funds with the Agent, together with an accounting therefor satisfactory to the Agent, no later than 4:30 p.m. on the eighth day after the Publication (the "Final Deposit Time"). Such Subscribing Holders will cooperate with the Agent in providing such accounting. Such deposit(s) shall be calculated by the Subscribing Holders on a pro rata basis or on any basis on which the Subscribing Holders may agree, time being of the essence. (d) No later than the fourth day preceding the Final Closing Date, the Agent shall request from the Senior Debentureholders revised information concerning the Purchase Event Price, and upon any receipt thereof, the Agent shall provide such information, together with confirmation of the amount on deposit with the Agent and available to effect the purchase, to the Subscribing Holders (the latter information being provided no later than 4:30 p.m. on the third day preceding the -32- Final Closing Date). If any Purchase Event Price received from the Senior Debentureholders is an estimate, the Agent shall so advise the Subscribing Holders. The Agent shall have no further duty to initiate communication with Subscribing Holders; however, Subscribing Holders may deposit additional immediately available funds with the Agent, together with an accounting therefor, on any basis on which Subscribing Holders may agree, no later than 12:00 p.m. on the day preceding the Final Closing Date. The Agent shall have no duty under Section 6.13(b), (c) or (d) hereof to verify the sufficiency of, assist with or confirm calculation of any deposits made by Subscribing Holders hereunder. (e) To the extent the Agent is fully funded to pay the Purchase Event Price, as such Purchase Event Price is confirmed to the Agent as of the earlier of the first day on which all conditions hereunder have been satisfied and the Final Closing Date, whichever is operative, and, if at least three Business Days prior to the Closing (as hereinafter defined), the Agent has received from or on behalf of Subscribing Holders (but with no obligations on the Agent to prepare any such documentation), documentation satisfactory to the Agent, in its sole judgment, to accomplish the purchase, including without limitation documents of assignment and transfer from the Senior Debentureholders to the Agent fully complying with the Inter-Creditor Agreement (the "Transfer Documents") and documents of assignment and transfer from the Agent to the Subscribing Holders (the "Agent Transfer Documents") fully complying with the provisions of this Section 6.13 (each of which are specific conditions precedent hereunder to the exercise of the purchase right by the Agent and all of which shall be prepared by or on behalf of and at the expense of the Subscribing Holders), the Agent shall purchase the Senior Position by delivering the Acceptance Notice and a certified check drawn on the Agent or an affiliate of the Agent to or upon the order of the Senior Debentureholders, but only upon contemporaneous delivery of fully executed Transfer Documents from the Senior Debentureholders (the "Closing") and with no duty by the Agent to advance any funds; provided, that the Agent shall have no responsibility or liability whatsoever to any Person for the content, adequacy, validity, sufficiency, condition of title or priority of any of such documentation or of any collateral. Upon payment of the Agent's Costs, the Agent shall promptly execute and deliver the Agent Transfer Documents to the Subscribing Holders and shall return any unexpended funds to the Subscribing Holders entitled thereto, based solely on the accounting and instructions for payment provided by such Subscribing Holders and thereupon the Agent shall be fully discharged hereunder. (f) To the extent the Agent is not fully funded to pay the Purchase Event Price by 12:00 p.m. on the Final Closing Date, based on the latest information received from the Senior Debentureholders or the other conditions precedent to Closing hereunder have not been satisfied, the Agent shall not deliver the Acceptance Notice and shall not purchase the Senior Position and the right to purchase under the Inter-Creditor Agreement shall expire. The Agent shall incur no liability for a failed purchase unless adjudicated to have resulted from its gross negligence or wilful misconduct. In that case and upon payment of the Agent's Costs to the satisfaction of the Agent, the Agent shall return all funds on deposit with the Agent to the Subscribing Holders entitled thereto, based on the accounting and payment -33- instructions provided to the Agent by such Holders and thereupon shall be fully discharged hereunder. (g) Notwithstanding anything to the contrary contained herein, the duty to compensate, reimburse and indemnify the Agent under this Section 6.13 shall be an obligation of the Company; provided, that the Agent may pay or reimburse itself from funds on deposit with it and, to the extent such funds are insufficient and payment arrangements satisfactory to the Agent have not been made, the Agent may refuse to deliver the Acceptance Notice and purchase the Senior Position and shall incur no liability to any Person for having done so. If at any time prior to the Closing or if at any time after the purchase of the Senior Position is completed but prior to the delivery of the Agent Transfer Documents, any controversy or dispute arises among any Holders, including without limitation any Eligible Holders, or between the Senior Debentureholders and the Agent and/or any Holders with respect to any matter whatsoever contemplated in this Section 6.13, the Agent shall not be required to determine the same or do any other act or thing, but shall instead interplead any funds deposited with it and/or any Agent Transfer Documents held by it in a court of competent jurisdiction. Each Holder, including without limitation each Eligible Holder, shall be bound by any determination of such court and the Agent shall incur no liability whatsoever to any Person for, and shall be held harmless from by the Subscribing Holders, any failure to complete the purchase or deliver the Agent Transfer Documents. (h) All times expressed herein shall be New York times. Any reference to a day or date that does not fall on a Business Day shall be deemed a reference to the next succeeding Business Day as defined in the Inter-Creditor Agreement. (i) The Trustee shall have no obligation or liability whatsoever to any Person with respect to the foregoing other than its duties under Section 4.06 with respect to the Publication. The Trustee shall not be deemed to have notice of any Purchase Event in the absence of actual notice thereof. (j) The Agent Transfer Documents shall provide only that the Agent represents and warrants in favor of the Subscribing Holders as at the Closing Date that the Senior Position has not been sold, assigned or encumbered by the Agent. The Agent shall not provide any other or additional representations, warranties or covenants, expressed or implied and the Senior Position shall be purchased by the Subscribing Holders on a (i) non-recourse; (ii) "as is, where is" basis, other than as aforesaid. (k) Whether or not a Purchase Event has occurred hereunder, the Agent shall have only those duties as are expressly set out in this Section 6.13 and nothing herein shall be construed to impose any other or further duties; it being recognized that the services of the Agent are necessary only to comply with the Inter-Creditor Agreement in order to facilitate the purchase; provided, that in furtherance and not in limitation of the foregoing, the Agent shall have no duty whatsoever to incur liability, financial or otherwise, to any Person, to advance any funds or to otherwise act or refrain from acting if, in the sole judgment of the Agent, any such act or failure to act would cause the Agent to incur risk or liability. Notwithstanding anything to the contrary contained herein, any -34- agreement to indemnify the Agent on the terms and conditions herein shall include, without limitation, indemnification for any Cost imposed on the Agent under the Inter-Creditor Agreement. (l) In performing its duties as aforesaid, the Agent is acting as an agent for the Holders and Beneficial Holders and is not acting in its capacity as Trustee or fiduciary hereunder. In furtherance and not in limitation of any provision of this Section 6.13, neither the Trustee nor the Agent shall have any responsibility for or duty to determine (i) the identity or eligibility of any Person as a Holder, Beneficial Holder, or Eligible Holder, (ii) the irrevocable nature of any deposit hereunder, (iii) the amount of the Purchase Event Price or (iv) the effectiveness under the Inter-Creditor Agreement of any Acceptance Notice or delivery of payment thereunder, or (v) the adequacy of consideration, or lack thereof, to the Holders for the Purchase Event Price. Neither the Trustee nor the Agent shall have any duty or responsibility to any Person with respect to the disclosure of any information concerning the Senior Secured Debentures and the Senior Debentures Security to any Holder or Beneficial Holder. (m) In no event shall the Agent be liable to any Person for special, indirect or consequential damages of any nature whatsoever. (n) The Subscribing Holders who in the aggregate are entitled to buy at least 51% of the Senior Position based on their pro rata share of subscriptions held by the Agent as at the Initial Deposit Date may, without notice, but with the consent of the Trustee and the Agent, in their sole discretion, amend the foregoing timetable and procedures so as to give effect to the delivery of an Acceptance Notice in accordance with the terms of the Inter-Creditor Agreement. 25. Section 7.05 of the Indenture is hereby deleted and the following substituted therefore: "If a Default or an Event of Default occurs and is continuing, the Trustee shall mail to each Noteholder notice of the uncured Default or Event of Default within 30 days after the later of the date such Default, or Event of Default occurs or the date on which the Trustee shall have received written notice of such Default or Event of Default from the Company or any of the Holders, unless a Trust Officer has actual knowledge of any such event, in which case, such notice shall be given within 30 days of such actual knowledge being obtained. Except in the case of a Default or an Event of Default in payment of principal of, or interest on, any Note, including an accelerated payment and the failure to make payment on the Change of Control Payment Date pursuant to a Change of Control Offer or on the Proceeds Purchase Date pursuant to a Net Proceeds Offer and, except in the case of a failure to comply with Article V hereof, a Default or Event of Default that also is a Purchase Event, the Trustee may withhold the notice if and so long as its Board of Directors, the executive committee of its Board of Directors or a committee of its directors and/or Trust Officers in good faith determines that withholding the notice is in the interest of the Noteholders." -35- 26. (a) Section 7.07 of the Indenture is hereby amended and supplemented by adding the following new paragraphs before the penultimate paragraph thereof as follows: "In furtherance and not in limitation of anything provided in this Section 7.07 or otherwise in the Indenture, the Company shall pay reasonable compensation, in accordance with this Section 7.07, to the Trustee and its agents, together with the fees and expenses of counsel to the Trustee or any agent, for their services under or in connection with the Inter-Creditor Agreement (including for purposes of this Section 7.07, any other or successor inter-creditor agreements hereunder) and any Security Document. The Company shall indemnify, in accordance with this Section 7.07, the Trustee and its agents and employees, stockholders, directors and officers for, and hold them harmless against, any and all claims, damages, demands, expenses, liabilities, charges and taxes of any character or nature whatsoever relating to this Indenture, the Notes, such Inter-Creditor Agreement or the Security Documents; the administration of the Trustee's or any agent's duties hereunder or under the Inter-Creditor Agreement or the Security Documents; the condition, occupancy, use, possession, conduct or management of or any work done in or about any of the assets or property of the Company or the planning, design, construction, rehabilitation or improvement of any such assets or property, subject only in each case to the exception in the second paragraph of this Section 7.07 for actions caused by the negligence, bad faith or willful misconduct of the Trustee or any agent; or for any untrue statement or alleged untrue statement of any material fact or omission or alleged omission to state a material fact necessary to make the statements made in any statement, information or material furnished by or on behalf of the Company to the Trustee or any other Person, including without limitation, to any Holder of the Notes or in connection with any information included in any solicitation of consents of Holders to any amendment, supplement or waiver of or in connection with this Indenture, the Inter-Creditor Agreement or the Security Documents. The Company and the Holders hereby acknowledge the Trustee, its agents, employees, stockholders, directors and officers have not participated in the preparation or dissemination of any such statement, information, material or solicitation. The Trustee makes no representation or warranty, express or implied, as to the title, value, design, compliance with specifications of legal requirements, quality, durability, operation, condition, merchantability or fitness for any particular purpose for any of the property, assets or undertakings of the Company now or hereafter subject to any Security Document. In no event shall the Trustee be liable for incidental, indirect, special or consequential damages to any Person in connection with or arising from the existence or use of any such property, assets or undertakings; and -36- (b) References to the "Trustee" in Section 7.07 shall include the Trustee's agents and any Collateral Agent and the penultimate paragraph of Section 7.07 is amended to add "including without limitation pursuant to the Security Documents", after the word "Trustee" in the third line thereof. 27. Article 7 of the Indenture is hereby amended by adding at the end thereof the following section, which shall read in its entirety as follows: "SECTION 7.12 CO-COLLATERAL TRUSTEE, SEPARATE COLLATERAL TRUSTEE, COLLATERAL AGENTS (1) If at any time or times it shall be necessary or prudent in order to conform to any law of any jurisdiction in which any of the Collateral shall be located, or to avoid any violation of law or the imposition on the Trustee of taxes by such jurisdiction not otherwise imposed on the Trustee, or the Company or the Trustee shall be advised by an Opinion of Counsel, that it is necessary or prudent in the interest of the Noteholders or the Holders of a majority in principal amount of the outstanding Notes shall, in writing, so request the Trustee, or the Trustee shall deem it desirable for its own protection in the performance of its duties hereunder or under any Security Document, then the Company shall appoint a Collateral Agent and the Company, and any Guarantor and, if necessary, the Trustee shall execute and deliver all instruments and agreements necessary or proper to constitute another bank or trust company, or one or more Persons approved by the Company to act as Collateral Agent, co-collateral trustee or co-collateral trustees of all of or any of the Collateral under this Indenture or under any of the Security Documents, jointly with the Trustee originally named herein or therein or any successor Trustee, or to act as separate collateral Trustee or Collateral Agent of any of the Collateral or to act as co-trustee hereunder. If the Company or Guarantor has not joined in the execution of such instruments and agreements within 10 days after it receives a written request from the Trustee to do so or if a Default or Event of Default exists, the Trustee may act under the foregoing provisions of this Section 7.12 (1) without the concurrence of the Company or Guarantor and execute and deliver such instruments and agreements on behalf of the Company or such Guarantor. The Company and any Guarantor hereby appoints the Trustee as its agent and attorney-in-fact in either of such contingencies. The Company has appointed the initial Collateral Agent and has agreed to compensate and indemnify such Collateral Agent in accordance with Section 7.07. (2) Every separate Collateral Agent and collateral trustee and every co-collateral trustee, other than any successor Trustee appointed pursuant to Section 7.08 of this Indenture, shall, to the extent permitted by law, be appointed and act and be such, subject to the following provisions and conditions: (a) all rights, powers, duties and obligations conferred upon the Trustee in respect of the custody, control and management of moneys, papers, or securities shall be exercised solely -37- by the Trustee or any Collateral Agent appointed in accordance with this Section 7.12; (b) all rights, powers, duties and obligations conferred or imposed upon the Trustee hereunder and under the relevant Security Documents shall be conferred or imposed and exercised or performed by the Trustee and such Collateral Agent, separate collateral trustee or separate collateral trustees or co-collateral trustee or co-collateral trustees, jointly, as shall be provided in the instrument appointing such Collateral Agent, separate collateral trustee or separate collateral trustees or co-collateral trustee or co-collateral trustees, except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed, the Trustee shall be incompetent or unqualified to perform such act or acts, or unless the performance of such act or acts would result in the imposition of any tax on the Trustee which would not be imposed absent such joint act or acts, in which event such rights, powers, duties and obligations shall be exercised and performed by such Collateral Agent, separate collateral trustee or co-collateral trustees; (c) no power given hereby or by the relevant Security Documents to, or which it is provided herein or therein may be exercised by, any such Collateral Agent, co-collateral trustee or co-collateral trustees or separate collateral trustee or separate collateral trustees, shall be exercised hereunder or thereunder by such Collateral Agent, co-collateral trustee or co-collateral trustees except jointly with, or with the consent in writing of, the Trustee, anything contained herein to the contrary notwithstanding; (d) no collateral trustee (including, without limitation, the Trustee) or Collateral Agent hereunder shall be personally liable by reason of any act or omissions of any other collateral trustee or Collateral Agent hereunder; (e) the Trustee, at any time by an instrument in writing, may accept the resignation of or remove any such Collateral Agent, separate collateral trustee or co-collateral trustees or co-trustee and, in that case by an instrument in writing, may appoint a successor to such Collateral Agent, separate collateral trustee or co-collateral trustees, as the case may be, anything contained herein to the contrary notwithstanding. If the Company or any Guarantor has not joined in the execution of any such instrument within 10 days after it receives a written request from the Trustee to do so, or if a Default or Event of Default then exists, the Trustee shall have the power to accept the resignation of -38- or remove any such Collateral Agent, separate collateral trustee or co-collateral trustees and to appoint a successor without the concurrence of the Company or any Guarantor. The Company and any Guarantor hereby appoint the Trustee its agent and attorney-in-fact to act for it in such connection in such contingency. If the Trustee shall have appointed a Collateral Agent, separate collateral trustee, collateral trustees or co-collateral trustee or co-collateral trustees or co-trustee as above provided, the Trustee may at any time, by an instrument in writing, accept the resignation of or remove any such Collateral Agent, separate collateral trustee, co-collateral trustees or co-trustee and the successor to any such Collateral Agent, separate collateral trustee, co-collateral trustees or co-trustee shall be appointed by the Trustee alone pursuant to this Subsection 7.12(e); and (f) The Trustee shall have no duty to compensate or indemnify any Collateral Agent, separate collateral trustee, co-collateral trustee or co-trustee appointed hereunder. The Trustee shall not be liable or responsible for any Collateral Agent appointed by it with due care hereunder. "SECTION 7.13 COSTS OF ENFORCEMENT Each of the Company and its Restricted Subsidiaries shall reimburse the Trustee and the Collateral Agent or, if applicable the Holders, on demand for all costs of realization (which for the purposes hereof shall include any loans or advances made by the Trustee, Collateral Trustee or a Holder to a Custodian) and other costs and expenses (including legal fees and expenses) incurred by the Trustee and the Collateral Agent or, if applicable the Holders or a Custodian in connection with the realization, disposition of, retention, protection or collection of any of the Collateral and the protection, preservation, or enforcement of the rights, remedies and powers of the Trustee and the Collateral Agent or, if applicable the Holders, or any Custodian. All amounts for which the Company or any Restricted Subsidiary is required under this Section 7.13, Section 7.07 or otherwise under this Indenture to reimburse or pay to the Trustee and the Collateral Agent or, if applicable the Holders or any Custodian shall, from the date of disbursement until the date of payment, be deemed to be an Obligation under this Indenture that is secured under the Security Documents and shall bear interest at the highest rate per annurn charged hereunder on any of the Obligations under this Indenture. Nothing herein shall affect, impair or limit the Trustee's and any Collateral Agent's rights under Section 6.10 or Section 7.07. 28. Section 9.01 of the Indenture is hereby amended by inserting a comma after word "Indenture" wherever it appears therein and thereafter adding the words "Security Documents, the Inter-Creditor Agreement". -39- 29. Section 9.02 of the Indenture is hereby amended by inserting a comma after the word "Indenture" wherever it appears therein and, in each case, thereafter adding the words "Security Documents, the Inter-Creditor Agreement". 30. Article 11 of the Indenture is hereby amended by deleting in its entirety section 11.04 thereof. 31. Section 11.06 shall be amended (i) by adding at the end of the first sentence of clause (a) thereof the following: "provided however that the Company or such other Guarantor, as applicable, shall confirm (i) that it is and continues to be bound by and shall covenant and agree to perform the obligations of the Guarantor in respect of the Indenture and the Notes; (ii) that the property, assets and undertaking so conveyed to the Company or such other Guarantor, as applicable, are subject to the Noteholder Liens or the Kemess Newco Liens, as applicable, which Liens remain in full force and effect and secure the said Obligations of such other Guarantor and the Company; and (iii) such other Guarantor or the Company, as applicable, shall grant to the Trustee or the Collateral Agent a Lien in all of its property, assets and undertaking, including the assets transferred as aforesaid, which Lien will be In Agreed Form and will secure the payment and performance by such other Guarantor or the Company, of its obligations in respect of the Indenture and the Notes." (ii) and by inserting after the word "property" and before the "," at the end of subparagraph (b) (ii) the following: "and such corporation shall acknowledge and confirm that the property, assets and undertaking of the Guarantor that it has assumed are subject to the Noteholders Liens and the Kemess Newco Liens, as applicable, which Liens are and continue to be enforceable as security for the obligations of the Company under the Indenture and the Notes and such successor corporation shall grant to the Trustee or the Collateral Agent a Lien on all of its property, assets and undertaking, which Lien will be In Agreed Form and will secure the payment and performance by such successor corporation of such assumed obligations." 32. The Indenture is hereby amended by adding thereto Exhibits E through I in the forms annexed to this Fourth Supplemental Indenture. 33. The Indenture is hereby amended and supplemented in every respect to the extent necessary to give effect to all sections of this Fourth Supplemental Indenture and conform the Indenture thereto. -40- 34. The Fourth Supplemental Indenture is entered into, and the amendments and supplements contained herein are made, pursuant to the provisions of Sections 9.02 and 9.05 of the Indenture with the written consent of the Holders of a majority of the principal amount of Notes outstanding under the Indenture. On or prior to the Fourth Supplemental Closing Date, the Company shall deliver to the Trustee an Officer's Certificate and an Opinion of Counsel pursuant to Section 7.02 of the Indenture, in each case stating the matters required to be stated therein pursuant to Sections 9.07, 13.04 and 13.05 of the Indenture and to the effect that all conditions precedent to be performed by the Company provided for in the Indenture relating to this Fourth Supplemental Indenture have been complied with including, without limitation, the closing of each of the transactions described in the definition of "Fourth Supplemental Closing Date" and including such other matters as are requested by the Trustee; whereupon this Fourth Supplemental Indenture, including as a part thereof, the Inter-Creditor Agreement (with the exception of Section 3.5 which shall bind only the Holders of Notes that execute Consents with respect thereto), shall be binding upon each Holder of Notes. 35. The Company hereby represents and warrants that: (a) The execution, delivery and performance by the Company of this Fourth Supplemental Indenture, the Inter-Creditor Agreement and the Security Documents have been duly authorized by all necessary corporate action on the part of the Company; and this Fourth Supplemental Indenture, the Inter-Creditor Agreement and the Security Documents have been duly executed and delivered by the Company and constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability now or hereafter in effect relating to or affecting creditors' rights and to general equity principles. (b) The execution, delivery and performance by the Company of this Fourth Supplemental Indenture, the Inter-Creditor Agreement and the Security Documents do not and will not (i) conflict with or result in a breach of the terms, conditions or provisions of, (ii) constitute a default under, (iii) give any Person the right to accelerate any obligation under, or (iv) result in a violation of, (x) the constituent documents of the Company, (y) any law, statute, rule, regulation, instrument, order, judgment or decree to which the Company is subject, including without limitation, any federal or state securities laws or comparable laws of any Governmental Body or (z) any agreement, note, mortgage, indenture, arrangement or other obligation to which the Company is a party or by which it is bound. (c) On or prior to the Fourth Supplemental Closing Date, the Company shall deliver to the Trustee, for the benefit of the Holders of the Notes, an Opinion of Counsel, stating the matters required to be stated in an Opinion of Counsel pursuant to Section 13.05 of the Indenture together with all such other matters as the Trustee and the Proposing Noteholders (as defined in the Letter Agreement) may reasonably require in connection with the execution and delivery of the Fourth Supplemental Indenture, the Inter-Creditor Agreement and the Security Documents and in paragraph -41- one of the Letter Agreement and to the effect set forth in paragraph 34 hereof and Section 4A.11 of the Indenture and in subsections (a) and (b) above (and in giving such opinion, Counsel may rely on an Officer's Certificate as to the matters set forth in clause (z) of subsection (b) above) and to the effect that the Indenture, this Fourth Supplemental Indenture and the Inter-Creditor Agreement comply with the TIA (as defined in the Indenture) as in effect on the date thereof. (d) The Company is not, and will not as a result of entering into the Inter-Creditor Agreement, the Royalty Debenture, the Senior Secured Debentures, any inter-creditor agreement in respect of Existing Hedge Indebtedness and the Permitted Liens described in clause (vii)(a) of the definition of Permitted Liens, be in default of its covenants under Section 4.14 of the Indenture. 36. For purposes of this Fourth Supplemental Indenture, the Company hereby affirms its duty to indemnify and hold the Trustee harmless pursuant to Section 7.07 of the Indenture. Nothing herein shall be read or interpreted to limit or otherwise adversely affect the Trustee's or the Collateral Agent's rights, protections and immunities under the Indenture, as amended and supplemented from time to time. In furtherance and not in limitation of any provision of this Indenture, the Trustee, the Collateral Agent, their agents, employees, stockholders, directors, officers and attorneys make no representations or warranties and shall not be responsible for any recital, statement, representation or warranty, which shall in all cases be taken as the recitals, statements, representations and warranties of the Company, in this Fourth Supplemental Indenture, in any Note (other than the Trustee's authentication thereof), any solicitation or consents by the Company of Holders to this Fourth Supplemental Indenture, the Inter-Creditor Agreement (except as otherwise expressly provided in the Inter-Creditor Agreement) or the Security Documents, or for any disclosure materials provided to any Person in connection therewith or in connection with the incurrence of any Indebtedness or for the compliance by the Company with any of the provisions of the Indenture, including without limitation, Section 4.07 of the Indenture, or with any federal or state securities laws or any comparable laws of any Governing Body, or for the validity, sufficiency, effectiveness, adequacy or priority, as applicable, of this Fourth Supplemental Indenture, the Inter-Creditor Agreement (except, as otherwise expressly provided in Section 8.1 of the Inter-Creditor Agreement) or the Security Documents and the security granted or purported to be granted thereunder or any other instrument involved in this transaction, or for the validity of the execution by the Company of any such documents, instruments or agreements. The Company hereby affirms its duty to indemnify and hold the Trustee, the Collateral Agent, their agents, employees, stockholders, directors and officers harmless pursuant to Section 7.07 of the indenture, as amended and supplemented in paragraph 26 hereof. 37. The Holders, by their Consents to this Fourth Supplemental Indenture, the Inter-Creditor Agreement and the Security Documents, hereby instruct the Trustee to waive any and all existing Defaults and Events of Default, known or unknown to the Trustee, under the Indenture and authorize the Trustee to exercise the standard of care in entering into this Fourth Supplemental Indenture as described in Section 7.01 (b) (but not 7.01 (a)) of the indenture. The Holders further hereby acknowledge and confirm that the Trustee has made no statements, representations or warranties to any Holder in connection with the -42- solicitation of such Holders' Consents, that the Trustee has relied hereunder upon the authorization and directions of the Holders contained herein and in their Consents and upon Officer's Certificates and Opinions of Counsel delivered to the Trustee, that the Proposing Noteholders have entered into the Letter Agreement directly with the Company, that the Holders who have consented have had the opportunity to request such information from the Company and other sources as they have considered material to such consent and have been, or have had the opportunity to have been, represented by counsel and/or financial advisors in negotiating the terms of this Fourth Supplemental Indenture, the Inter-Creditor Agreement and the Security Documents, and that it is not the intention of such Holders that the Trustee or Collateral Agent shall incur financial or other risk or liability as a result of entering into this Fourth Supplemental Indenture, the Inter-Creditor Agreement or the Security Documents at the request and direction of such Holders. In furtherance and not in limitation hereof, the terms of Article Seven of the Indenture, as amended hereby, are hereby affirmed with respect to the Indenture, the Inter-Creditor Agreement and the Security Documents. The Trustee and the Collateral Agent shall have no duty or responsibility to any Person under the Letter Agreement or under the Consents. IN WITNESS WHEREOF, the parties hereto have caused this Fourth Supplemental Indenture to be duly executed and effective, all as of the date first written above. ROYAL OAK MINES INC. By: /S/ James H. Wood ------------------------------------- Name: JAMES H. WOOD Title: C.F.O. CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee By: /S/ Cheryl McDonald ------------------------------------- Name: CHERYL MCDONALD Title: AUTHORIZED SIGNATORY EX-4.3 4 EXHIBIT 4.3 FIFTH SUPPLEMENTAL INDENTURE FIFTH SUPPLEMENTAL INDENTURE, dated and effective as of June 22, 1998, by and between Royal Oak Mines Inc., a corporation amalgamated under the laws of Ontario, Canada (the "Company"), and Chase Manhattan Trust Company, National Association, the successor to Mellon Bank, F.S.B., as Trustee (the "Trustee"). RECITALS OF ROYAL OAK MINES INC. Royal Oak Mines Inc. issued an aggregate principal amount of $175 million of 11% Senior Subordinated Notes due 2006 and Series B 11% Senior Subordinated Notes due 2006 (collectively, the "Notes") pursuant to an Indenture, dated as of August 12, 1996 (as amended and supplemented by the First Supplemental Indenture dated and effective as of December 31, 1997, the Second Supplemental Indenture dated and effective as of January 31, 1998, the Third Supplemental Indenture dated and effective as of May 19, 1998 and the Fourth Supplemental Indenture dated and effective as of the date hereof (as so amended and supplemented, the "Indenture"), by and among Royal Oak Mines Inc., the Trustee and Kemess Mines Inc. ("Kemess"). Kemess was a Guarantor as defined in and for the purposes of the Indenture. On December 29, 1997, Royal Oak Mines Inc. and Kemess amalgamated under the laws of Ontario, Canada and the surviving entity of such amalgamation is the Company. Unless otherwise defined herein, terms with initial capitals shall have the meanings ascribed thereto in the Indenture. Section 9.02 of the Indenture provides that the Indenture may be amended or supplemented by the Company and the Trustee, when authorized by a resolution of the board of directors of the Company and consented to in writing by the Holders of at least a majority in aggregate principal amount of the outstanding Notes. The Holders of a majority in aggregate principal amount of the outstanding Notes have provided their written consent to the amendments and supplements to the Indenture contained in this Fifth Supplemental Indenture, and the other conditions precedent in the Indenture to the execution hereof have been satisfied. Pursuant to Sections 9.02 and 9.05 of the Indenture, upon the effective date (determined in accordance with the Indenture), which effective date is June 22, 1998, of the amendments and supplements to the Indenture and the agreements contained in this Fifth Supplemental Indenture, such amendments and supplements and agreements will bind only each Holder of a Note who has consented to this Fifth Supplemental Indenture and every subsequent Holder of a Note or a portion of a Note that evidences the same debt as the consenting Holder's Note. AGREEMENT Each party hereto agrees as follows for the benefit of the other party and for the equal and ratable benefit of each Holder of a Note who has consented to the amendments and supplements to the Indenture and the agreements contained in this Fifth Supplemental Indenture and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note: -2- 1. Section 1.01 of the Indenture is hereby amended by inserting in alphabetical order in Section 1.01 the following definition: "Consenting Holder of Notes" means a Holder of a Note, including for purposes of the Fifth Supplemental Indenture, each holder of a beneficial interest therein, who has given a Consent to the amendments and supplements to the Indenture and the agreements contained in the Fifth Supplemental Indenture and every subsequent Holder of a Note or a portion of a Note, including the holders of beneficial interests therein, that evidences the same debt as such consenting Holder's Note, and "Consenting Holders of Notes" means each and every Consenting Holder of Notes collectively. 2. The last sentence of Section 10.11 of the Indenture is hereby deleted and replaced by the following: Nothing herein contained shall be deemed to authorize the Trustee or the holders of Senior Indebtedness or their Representative to authorize or consent to or accept or adopt on behalf of any holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Senior Indebtedness or their Representative to vote in respect of the claim of any Holder in any such proceeding except as hereinafter provided: (a) As long as any Obligations of the Company under the Senior Secured Debentures are outstanding, in the event of any proceedings under any Bankruptcy Law or any other applicable law relating to bankruptcy, insolvency, receivership or reorganization or relief of debtors including without limitation any such proceedings under the COMPANIES' CREDITORS ARRANGEMENT ACT (Canada), the BANKRUPTCY AND INSOLVENCY ACT (Canada) or any other applicable bankruptcy or insolvency legislation (a "Restructuring Proceeding"), each Consenting Holder of Notes will do all things and take all steps reasonably within its control or power to cause the Holders of Notes to be placed in a different class of creditors than the Senior Debentureholders in a Restructuring Proceeding where the members of such class are entitled to vote in connection with such Restructuring Proceeding ("a "Creditor Class"). None of the Trustee, the Collateral Agent or any Consenting Holder of Notes will take any steps or bring or participate in any proceedings whereby they assert that the Holders of Notes should be placed in the same Creditor Class as the Senior Debentureholders and, if notwithstanding the foregoing, a proposal or other plan of compromise, arrangement or reorganization (a "Proposed Plan") is submitted for acceptance or rejection to the creditors of the Company, and the Proposed Plan places the claims of the Holders of Notes in the same Creditor Class as the Senior Debentureholders, or if a court determines that the Holders of Notes are to be placed in the same Creditor Class as the Senior Debentureholders, then in each -3- such case each Consenting Holder of Notes shall and hereby allows the Senior Debentureholders to vote, and hereby assigns to and in favor of the Senior Debentureholders for the purpose of permitting the Senior Debentureholders to vote against and defeat any such Proposed Plan made to any Creditor Class of the Company of which the Senior Debentureholders and the Holders of the Notes are members, that portion of the Company's Obligations under this Indenture and the Notes and corresponding votes in respect thereof to which the Consenting Holders of Notes are otherwise entitled in such Restructuring Proceedings equal to the lesser of (i) all of the Company's Obligations under this Indenture and the Notes held by the Consenting Holders of Notes and the corresponding votes in respect thereof; and (ii) that amount of the Company's Obligations under this Indenture and the Notes held by the Consenting Holders of Notes and the corresponding votes in respect thereof which, when aggregated with the votes to which the Senior Debentureholders are entitled, will permit the Senior Debentureholders to vote against and defeat such Proposed Plan in such Restructuring Proceedings. (b) Each of the Consenting Holders of Notes hereby appoints each director or officer for the time being of a Senior Debentureholder as attorney-in-fact to do all such acts and things, including to execute and deliver for and in the name of the Consenting Holders of Notes, all documents and instruments, to give effect to the grant of the right to vote and the assignment of the Company's Obligations under this Indenture and the Notes and the corresponding votes in respect thereof by or on behalf of the Consenting Holders of Notes to the Senior Debentureholders provided for in Section 10.11(a) above, with full power of substitution in the premises, and the Consenting Holders of Notes agree to ratify and confirm all acts of the said attorney lawfully done in the premises pursuant to the powers of attorney granted pursuant hereto. The powers of attorney granted hereby are powers coupled with an interest, and shall continue notwithstanding the insolvency, bankruptcy, dissolution or liquidation of any Consenting Holder of Notes, or other event by which any such party granting such power of attorney ceases to exist or to have capacity. (c) It is acknowledged and agreed that (i) the assignment provided for in Section 10.11(a) above is for voting purposes only in the context of a Restructuring Proceeding and (except as provided in Section 10.11(c)(v)) the assignment shall not otherwise affect any rights and entitlements of the Consenting Holders of Notes, (ii) any voting rights so assigned shall be deemed to be assigned back to the Consenting Holders of Notes immediately upon the termination of the circumstances (which includes for greater certainty following the final determination of any appeal therefrom) in which the Senior Debentureholders require such votes to vote against and defeat a Proposed Plan in a Restructuring Proceeding, (iii) the voting rights so assigned to the Senior Debentureholders shall only be exercised to allow the Senior Debentureholders to vote against and defeat a Proposed Plan in a Restructuring Proceeding, (iv) the assignment of voting rights of the Consenting Holders of Notes to the Senior -4- Debentureholders provided for herein shall not affect the entitlement of such Consenting Holders of Notes to receive any and all consideration payable or paid or distributions made on the Notes as calculated without regard to such assignment, (v) other than the loss of the right of the Consenting Holders of Notes, if any, to cause a Proposed Plan to be approved by the members of a Creditor Class of which the Consenting Holders of Notes and the Senior Debentureholders are, or but for this Section 10.11 would be, members, nothing in this Section 10.11 shall prejudice any other right or entitlement of the Consenting Holders of Notes in their capacity as creditors of the Company to the treatment to which they would otherwise be entitled in a Restructuring Proceedings, and (vi) the provisions of this Section 10.11 shall not apply to the Holders of Notes who are not Consenting Holders of Notes. (d) Notwithstanding anything to the contrary contained herein, the rights under the Indenture of Holders who have not consented to the Fifth Supplemental Indenture shall remain unaffected hereby. 3. Section 6.09 of the Indenture is hereby amended by inserting, in the last sentence thereof, after the words "or the rights of any Holder thereof, or" the words ", except as described in Sections 10.11 and 12.11,". 4. The last sentence of Section 12.11 of the Indenture is hereby deleted and replaced by the following: Nothing herein contained shall be deemed to authorize the Trustee or the holders of Guarantor Senior Indebtedness or their Representative to authorize or consent to or accept or adopt on behalf of any holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Guarantor Senior Indebtedness or their Representative to vote in respect of the claim of any Holder in any such proceeding except as hereinafter provided: (a) As long as any Obligations of the Guarantor under the Senior Secured Debentures are outstanding, in the event of any proceedings under any Bankruptcy Law or any other applicable law relating to bankruptcy, insolvency, receivership or reorganization or relief of debtors including without limitation any such proceedings under the COMPANIES' CREDITORS ARRANGEMENT ACT (Canada), the BANKRUPTCY AND INSOLVENCY ACT (Canada) or any other applicable bankruptcy or insolvency legislation (a "Restructuring Proceeding"), each Consenting Holder of Notes will do all things and take all steps reasonably within its control or power to cause the Holders of Notes to be placed in a different class of creditors than the Senior Debentureholders in a Restructuring Proceeding where the members of such class are entitled to vote in connection with such Restructuring Proceeding ("a "Creditor Class"). None of the Trustee, the -5- Collateral Agent or any Consenting Holder of Notes will take any steps or bring or participate in any proceedings whereby they assert that the Holders of Notes should be placed in the same Creditor Class as the Senior Debentureholders and, if notwithstanding the foregoing, a proposal or other plan of compromise, arrangement or reorganization (a "Proposed Plan") is submitted for acceptance or rejection to the creditors of the Guarantor, and the Proposed Plan places the claims of the Holders of Notes in the same Creditor Class as the Senior Debentureholders, or if a court determines that the Holders of Notes are to be placed in the same Creditor Class as the Senior Debentureholders, then in each such case each Consenting Holder of Notes shall and hereby allows the Senior Debentureholders to vote, and hereby assigns to and in favor of the Senior Debentureholders for the purpose of permitting the Senior Debentureholders to vote against and defeat any such Proposed Plan made to any Creditor Class of the Guarantor of which the Senior Debentureholders and the Holders of the Notes are members, that portion of the Guarantor's Obligations under its Guarantee of this Indenture and the Notes and corresponding votes in respect thereof to which the Consenting Holders of Notes are otherwise entitled in such Restructuring Proceedings equal to the lesser of (i) all of the Guarantor's Obligations under its Guarantee of this Indenture and the Notes held by the Consenting Holders of Notes and the corresponding votes in respect thereof; and (ii) that amount of the Guarantor's Obligations under its Guarantee of this Indenture and the Notes held by the Consenting Holders of Notes and the corresponding votes in respect thereof which, when aggregated with the votes to which the Senior Debentureholders are entitled, will permit the Senior Debentureholders to vote against and defeat such Proposed Plan in such Restructuring Proceedings. (b) Each of the Consenting Holders of Notes hereby appoints each director or officer for the time being of a Senior Debentureholder as attorney-in-fact to do all such acts and things, including to execute and deliver for and in the name of the Consenting Holders of Notes, all documents and instruments, to give effect to the grant of the right to vote and the assignment of the Guarantor's Obligations under its Guarantee of this Indenture and the Notes and the corresponding votes in respect thereof by or on behalf of the Consenting Holders of Notes to the Senior Debentureholders provided for in Section 12.11(a) above, with full power of substitution in the premises, and the Consenting Holders of Notes agree to ratify and confirm all acts of the said attorney lawfully done in the premises pursuant to the powers of attorney granted pursuant hereto. The powers of attorney granted hereby are powers coupled with an interest, and shall continue notwithstanding the insolvency, bankruptcy, dissolution or liquidation of any Consenting Holder of Notes, or other event by which any such party granting such power of attorney ceases to exist or to have capacity. (c) It is acknowledged and agreed that (i) the assignment provided for in Section 12.11(a) above is for voting purposes only in the context of a Restructuring Proceeding and (except as provided in Section 12.11(c)(v)) the -6- assignment shall not otherwise affect any rights and entitlements of the Consenting Holders of Notes, (ii) any voting rights so assigned shall be deemed to be assigned back to the Consenting Holders of Notes immediately upon the termination of the circumstances (which includes for greater certainty following the final determination of any appeal therefrom) in which the Senior Debentureholders require such votes to vote against and defeat a Proposed Plan in a Restructuring Proceeding, (iii) the voting rights so assigned to the Senior Debentureholders shall only be exercised to allow the Senior Debentureholders to vote against and defeat a Proposed Plan in a Restructuring Proceeding, (iv) the assignment of voting rights of the Consenting Holders of Notes to the Senior Debentureholders provided for herein shall not affect the entitlement of such Consenting Holders of Notes to receive any and all consideration payable or paid or distributions made on the Notes as calculated without regard to such assignment, (v) other than the loss of the right of the Consenting Holders of Notes, if any, to cause a Proposed Plan to be approved by the members of a Creditor Class of which the Consenting Holders of Notes and the Senior Debentureholders are, or but for this Section 12.11 would be, members, nothing in this Section 12.11 shall prejudice any other right or entitlement of the Consenting Holders of Notes in their capacity as creditors of the Guarantor to the treatment to which they would otherwise be entitled in a Restructuring Proceedings, and (vi) the provisions of this Section 12.11 shall not apply to the Holders of Notes who are not Consenting Holders of Notes. (d) Notwithstanding anything to the contrary contained herein, the rights under the Indenture of Holders who have not consented to the Fifth Supplemental Indenture shall remain unaffected hereby. 5. Each Consenting Holder of Notes authorizes, directs and ratifies the inclusion of the provisions of paragraphs 2 and 4 hereof, or words of like effect and substance, into the Inter-Creditor Agreement and agrees to be subject to and bound by all of the provisions of the Inter-Creditor Agreement as if an original signatory thereto. By its execution and delivery of the Consents to the Trustee, each Consenting Holder of Notes agrees with the Senior Debentureholders that the provisions of this Fifth Supplemental Indenture constitute legal, valid and binding obligations of the Consenting Holder of Notes in favour of the Senior Debentureholders which are enforceable by the Senior Debentureholders against each Consenting Holder of Notes in accordance with their terms. The Senior Debentureholders may rely upon the statements, acknowledgements, covenants and agreements of each Consenting Holder of Notes made or given pursuant to this Fifth Supplemental Indenture and may pursue and enforce any and all remedies resulting from any non-compliance therewith or breach thereof notwithstanding that the Senior Debentureholders are not signatories to this Fifth Supplemental Indenture. The Consenting Holders of Notes, by their consents to this Fifth Supplemental Indenture, hereby acknowledge and confirm for the benefit of the Senior Debentureholders the provisions of Section 3.5(A) of the Inter-Creditor Agreement. The -7- provisions of this Fifth Supplemental Indenture shall be binding on a Person only for so long as such Person is a Holder or Beneficial Holder of the Notes and once the Note or part of the Note is transferred to a subsequent Holder or Beneficial Holder, such prior Holder or Beneficial Holder shall no longer be liable other than for its non-compliance with or breach of the provisions of the Fifth Supplemental Indenture committed while it was a Holder or Beneficial Holder thereof. Notwithstanding anything to the contrary contained herein, the Trustee shall have no duty to the Senior Debentureholders or their successors and assigns to enforce or perform any obligations of the Consenting Holders of Notes under the provisions of this Fifth Supplemental Indenture or under Section 3.5 of the Inter-Creditor Agreement. 6. The Indenture is hereby amended in every respect to the extent necessary to give effect to all sections of this Fifth Supplemental Indenture and conform the Indenture thereto. 7. The Fifth Supplemental Indenture is entered into, and the amendments and supplements contained herein are made, pursuant to the provisions of Section 9.02 and 9.05 of the Indenture with the written consent of the Holders of a majority of the principal amount of Notes outstanding under the Indenture. On or prior to the Fourth Supplemental Closing Date (as defined in the Indenture) the Company shall deliver to the Trustee an Officer's Certificate and an Opinion of Counsel pursuant to Section 7.02 of the Indenture, in each case stating the matters required to be stated therein pursuant to Sections 9.07, 13.04 and 13.05 of the Indenture and to the effect that all conditions precedent to be performed by the Company provided for in the Indenture relating to this Fifth Supplemental Indenture have been complied with including, without limitation, the closing of each of the transactions described in the definition of "Fourth Supplemental Closing Date" in the Indenture and including such other matters as the Trustee may reasonably require; whereupon, pursuant to Section 9.02 and 9.05 of the Indenture, this Fifth Supplemental shall be binding only upon each Holder of a Note who has consented to the amendments and supplements to the Indenture and the agreements contained in this Fifth Supplemental Indenture and every subsequent Holder of a Note or a portion of a Note that evidences the same debt as the consenting Holder's Note. 8. The Company hereby represents and warrants that: (a) The execution, delivery and performance by the Company of this Fifth Supplemental Indenture have been duly authorized by all necessary corporate action on the part of the Company; and this Fifth Supplemental Indenture has been duly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability now or hereinafter in effect relating to or affecting creditors' rights and to general equity principles. -8- (b) The execution, delivery and performance by the Company of this Fifth Supplemental Indenture does not and will not (i) conflict with or result in a breach of the terms, conditions or provisions of, (ii) constitute a default under, (iii) give any Person the right to accelerate any obligation under, or (iv) result in a violation of, (x) the constituent documents of the Company, (y) any law, statute, rule, regulation, instrument, order, judgment or decree to which the Company is subject, including without limitation, any federal or state securities laws or comparable laws of any Governmental Body or (z) any agreement, note, mortgage, indenture, arrangement or other obligation to which the Company is a party or by which it is bound. (c) On or prior to the Fourth Supplemental Closing Date, the Company shall deliver to the Trustee, for the benefit of the Holders of the Notes, an Opinion of Counsel, stating the matters required to be stated in an Opinion of Counsel pursuant to Section 13.05 of the Indenture and to the effect set forth in subsections (a) and (b) above (and in giving such opinion, Counsel may rely on an Officer's Certificate as to the matters set forth in clause (z) of subsection (b) above) and to the effect that the Indenture and this Fifth Supplemental Indenture (including provisions hereof included in the Inter-Creditor Agreement) comply with the TIA (as defined in the Indenture) as in effect on the date hereof. 9. For the purposes of this Fifth Supplemental Indenture, the Company hereby affirms its duty to indemnify and hold the Trustee harmless pursuant to Section 7.07 of the Indenture. Nothing herein shall be read or interpreted to limit or otherwise adversely affect the Trustee's rights, protections and immunities under the Indenture, as amended and supplemented from time to time. In furtherance and not in limitation of any provision of this Indenture, the Trustee, the Collateral Agent, their agents, employees, stockholders, directors, officers and attorneys make no representations or warranties and shall not be responsible for any recital, statement, representation or warranty (which shall in all cases be taken as recitals, statements, representations and warranties of the Company or the Consenting Holders of Notes, as applicable), in this Fifth Supplemental Indenture or the Inter-Creditor Agreement (except as otherwise expressly provided in the Inter-Creditor Agreement), any solicitation of consents by the Company of Holders to this Fifth Supplemental Indenture or the Inter-Creditor Agreement, or for any disclosure materials provided to any Person in connection therewith or in connection with the incurrence of any Indebtedness or for the compliance by the Company with any of the provisions of the Indenture, including without limitation, section 4.07 of the Indenture, or with any federal or state securities laws or any comparable laws of any Governmental Body, or for the validity, sufficiency, effectiveness, adequacy or priority, as applicable, of this Fifth Supplemental Indenture, the Inter-Creditor Agreement (except as otherwise expressly provided in Section 8.1 of the Inter-Creditor Agreement) and the security granted or purported to be granted thereunder or any other instrument involved in this transaction, or for the validity of the execution by the Company of any such documents, instruments or agreements. The Company hereby affirms its duty to indemnity and hold -9- the Trustee, the Collateral Agent and their agents, employees, stockholders, directors and officers harmless pursuant to Section 7.07 of the Indenture. 10. The Holders, by their consents to this Fifth Supplemental Indenture, hereby authorize the Trustee to exercise the standard of care in entering into this Fifth Supplemental Indenture as described in Section 7.01(b) (but not 7.01(a)) of the Indenture and hereby acknowledge and confirm that the Trustee has made no statements, representations or warranties to any Holder in connection with the solicitation of such Holder's consent, that the Trustee has relied hereunder upon the authorization and directions of the Holders contained herein and in their consents and upon Officer's Certificates and Opinions of Counsel delivered to the Trustee, that the Holders who have consented have had the opportunity to request such information from the Company and other sources as they have considered material to such consent and have been, or have had the opportunity to have been, represented by counsel and/or financial advisors in negotiating the terms of this Fifth Supplemental Indenture and the Inter-Creditor Agreement, and that it is not the intention of such Holders that the Trustee shall incur financial or other risk or liability as a result of entering into this Fifth Supplemental Indenture or the Inter-Creditor Agreement at the request and direction of the Holders. In furtherance and not in limitation hereof, the terms of Article Seven of the Indenture are hereby affirmed with respect to the Indenture and the Inter-Creditor Agreement. The Trustee shall have no duty or responsibility to any Persons under the Consents given by any Holder in respect of this Fifth Supplemental Indenture. IN WITNESS WHEREOF, the parties hereto have caused this Fifth Supplemental Indenture to be duly executed and effective all as of the date first written above. ROYAL OAK MINES INC. By: /s/ James H. Wood ---------------------------- Name: James H. Wood Title: C.F.O. CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE By: /s/ Cheryl McDonald ---------------------------- Name: Cheryl McDonald Title: Authorized Signatory EX-4.4 5 EXHIBIT 4.4 SECURITIES PURCHASE AGREEMENT BETWEEN: ROYAL OAK MINES INC., - and - AGENT made the 17th day of April, 1998 T A B L E O F C O N T E N T S 1 - DEFINITIONS AND INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . 2 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2 Monetary References. . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.4 Use of Singular and Plural . . . . . . . . . . . . . . . . . . . . . . 9 1.5 Invalidity of Provisions . . . . . . . . . . . . . . . . . . . . . . . 9 1.6 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.7 Generally Accepted Accounting Principles . . . . . . . . . . . . . . . 10 1.8 Interpretation Not Affected by Headings. . . . . . . . . . . . . . . . 10 1.9 Computation of Time Periods. . . . . . . . . . . . . . . . . . . . . . 10 1.10 Day Not A Business Day . . . . . . . . . . . . . . . . . . . . . . . . 10 2 - TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.1 Issuance of Debentures to the Lenders. . . . . . . . . . . . . . . . . 11 2.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.3 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.4 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3 - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . 13 3.1 Representations and Warranties by the Corporation. . . . . . . . . . . 13 3.2 Survival Representations and Warranties by the Corporation . . . . . . 26 4 - CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 4.1 Conditions to the Obligations of the Agent re: the Initial Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 4.2 Conditions to the Obligations of the Agent re: Additional Purchase Price Payments. . . . . . . . . . . . . . . . . . . . . . . . 31 4.3 Waiver or Termination by the Agent . . . . . . . . . . . . . . . . . . 33 5 - CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 5.1 Closing Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . 33 5.2 Documents to be Delivered. . . . . . . . . . . . . . . . . . . . . . . 33 6 - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 6.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . 34 6.2 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . 34 6.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 6.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 6.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.6 Announcements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 6.9 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . 38 6.10 Reliance and Non-Merger. . . . . . . . . . . . . . . . . . . . . . . . 38 6.11 Judgment Currency. . . . . . . . . . . . . . . . . . . . . . . . . . . 38 6.12 Time of the Essence. . . . . . . . . . . . . . . . . . . . . . . . . . 39 6.13 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 6.14 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 6.15 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECURITIES PURCHASE AGREEMENT THIS AGREEMENT is made the 17th day of April, 1998 BETWEEN: ROYAL OAK MINES INC., a corporation amalgamated under the laws of the Province of Ontario (the "Corporation") - and - AGENT, as defined herein WHEREAS the Corporation carries on business, inter alia, as an owner and operator of the Kemess South Mine (as hereinafter defined); AND WHEREAS the Agent has agreed to cause the Lenders (as hereinafter defined) to subscribe for and purchase from the Corporation, and the Corporation has agreed to issue to the Lenders, senior secured debentures of the Corporation in the aggregate principal amount of One Hundred and Twenty Million United States Dollars (U.S.$120,000,000) upon and subject to the terms and conditions hereinafter set out; AND WHEREAS the indebtedness of the Corporation to the Lenders under the Debentures (as hereinafter defined) is being incurred by the Corporation in connection with the construction, development and operation of the Kemess South Mine; NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual covenants hereinafter contained, the parties hereto agree as follows: ARTICLE 1 - DEFINITIONS AND INTERPRETATION 1.1 DEFINITIONS In this Agreement, unless the subject matter or context is inconsistent therewith, the following terms and expressions will have the following meanings: (a) "Additional Purchase Price Payment" and "Additional Purchase Price" have the meanings given to such terms, respectively, in Section 2.2(b) hereof; (b) "Agent" means Trilon Financial Corporation; (c) "Aggregate Additional Purchase Price" means U.S.$30,000,000; (d) "Agreement" means this Securities Purchase Agreement made the 17th day of April, 1998 between the Corporation and the Agent, including all schedules hereto, as it may be amended, modified, restated or supplemented from time to time; (e) "APM" means Arctic Precious Metals, Inc., a company incorporated under the laws of Nevada; (f) "Associate" has the meaning ascribed thereto in the BUSINESS CORPORATIONS ACT (Ontario) and shall include any entity which is an Associate of an Associate, and so on; (g) "Audited Financial Statements" means the audited consolidated financial statements of the Corporation as at and for the 12 month fiscal period ended December 31, 1997, consisting of a balance sheet, an income statement and a statement of changes in financial position, together with the notes thereto, copies of which have been provided to the Agent; (h) "Business Day" means any day other than Saturday, Sunday or any statutory holiday in Toronto, Canada; 2 (i) "Change of Control of the Corporation" has the same meaning as is given to that term in the Debentures; (j) "Closing Date" means April 30th, 1998 or such other date as the Agent and the Corporation may agree upon as the Closing Date; (k) "Closing Time" means 3:00 p.m. (Toronto time) on the Closing Date or such other time as the Agent and the Corporation may agree upon as the Closing Time; (l) "Common Shares" means the common shares in the capital of the Corporation; (m) "Consent" has the meaning as is given to that term in Section 3.1(g) hereof; (n) "Copperstone Property" has the same meaning as is given to that term in the Debentures; (o) "Corporation" means Royal Oak Mines Inc., and includes any predecessors or successors of the Corporation; (p) "Debentures" mean the Series A Senior Secured Debentures ("Series A Debentures") of the Corporation in the aggregate principal amount of U.S.$85,000,000 and the Series B Secured Debentures ("Series B Debentures") of the Corporation in the aggregate principal amount of U.S.$35,000,000 to be issued to the Lenders pursuant to Section 2.1, which debentures are in the forms attached as SCHEDULE A-1 AND A-2 respectively to this Agreement; (q) "Debt" has the same meaning as is given to that term in the Debentures; 3 (r) "Default" has the same meaning as is given to that term in the Debentures; (s) "Disclosed Defaults" has the meaning given to such term in Section 3.1(f) hereof; (t) "Documents" has the same meaning as is given to that term in the Debentures but includes this Agreement, the Royalty Agreement and the Royalty Debenture; (u) "Event of Default" has the same meaning as is given to that term in the Debentures; (v) "Existing Encumbrances" has the same meaning as is given to that term in the Debentures; (w) "Excluded Assets" means the Windy Craggy Property; (x) "generally accepted accounting principles" means the accounting principles so described and promulgated by the Canadian Institute of Chartered Accountants which are applicable as at the date on which any calculation made hereunder is to be effective or as at the date of any financial statements referred to herein, as the case may be; (y) "Glencore Agreement" means the letter agreement dated November 5, 1997 between the Corporation and Glencore Ltd. relating to the sale by the Corporation of copper concentrate; (z) "Governmental Body" has the same meaning as is given to that term in the Debentures; (aa) "Initial Purchase Price" has the meaning given to such term in Section 2.2(a) hereof; 4 (bb) "Intellectual Property" means all trade marks, trade names, patents, patent applications, copyrights, trade secrets, logos, processes, computer systems and application software which are owned or used by, or which relate to the business of, the Corporation or the Subsidiaries; (cc) "Interim Financial Statements" means the unaudited consolidated financial statements of the Corporation as at and for the 2 month period ended February 28, 1998 consisting of a balance sheet, an income statement and a statement of changes in financial position together with any notes thereto, a copy of which has been provided to the Agent; (dd) "Kemess Mine" means the Kemess North Property and the Kemess South Mine; (ee) "Kemess North Property" means all present and future property and assets comprising or relating to what is generally referred to as the Kemess North Property in British Columbia, Canada including, without limitation, all mineral claims and leases referred to in SCHEDULE B-1 hereto, all buildings, equipment, fixtures and other property and assets owned or leased by the Corporation (or in which the Corporation otherwise has an interest) situated or used at the Kemess North Property site, all operations, exploration and other activities carried on at such site and all permits, authorizations, licenses and similar approvals relating thereto; (ff) "Kemess South Mine" means all present and future property and assets comprising or relating to what is generally referred to as the Kemess South Mine property in British Columbia, Canada including, without limitation, all mineral claims and leases referred to in SCHEDULE B-2 hereto, all buildings, equipment, fixtures and other property and assets owned or leased by the Corporation (or in which the Corporation otherwise has an interest) situated or used at the Kemess South Mine site, all operations, exploration and other activities carried on at such site and all permits, authorizations, licenses and similar approvals relating thereto; (gg) "Kemess Mine Production Date" has the same meaning as is given to that term in the Debentures; 5 (hh) "Knowledge" of a party means the best knowledge of the senior management of that party (which in the case of the Corporation specifically includes but is not limited to the Kemess Mine Project Manager, the Kemess Mine Project Director and the Kemess Mine Manager of Project Accounting, after having made all reasonable inquiries; (ii) "Lenders" means such Person or Persons who purchase the Debentures at the Closing Time or from time to time thereafter; (jj) "Lien" has the same meaning as is given to that term in the Debentures; (kk) "Material Authorizations" has the same meaning as is given to that term in the Debentures; (ll) "Material Contracts" has the meaning given to that term in Section 3.1(x) hereof; (mm) "Material Subsidiaries" means APM and all Subsidiaries each of which has total assets exceeding a fair market value of Can.$2,000,000; (nn) "Materiality Threshold" means that the representation, warranty, covenant or other obligation in question shall apply only to subject matter which individually or in the aggregate is or should reasonably be expected, as determined by the Agent and the Lenders, acting reasonably, to be material to: (i) the business, property or affairs of the Corporation taken as a whole; (ii) the construction, ownership or operation of the Kemess Mine or the requirement that the Kemess Mine Production Date occur on or before December 31, 1998; 6 (iii) the Lenders, in their capacity as secured creditors of the Corporation under the Documents; or (iv) the Agent in its capacity as a party to the Royalty Agreement and the Royalty Debenture; (oo) "Mikwam Property" has the same meaning as is given to that term in the Debentures; (pp) "Mortgaged Property" has the same meaning as is given to that term in the Debentures; (qq) "Payment Certificate" has the meaning given to that term in Section 4.2(c) hereof; (rr) "Payment Date" has the meaning given to that term in Section 2.2(b) hereof; (ss) "Permitted Encumbrances" has the same meaning as is given to that term in the Debentures; (tt) "Permitted Hedging Indebtedness" has the same meaning as is given to that term in the Debentures; (uu) "Person" has the same meaning as is given to that term in the Debentures; (vv) "Proceeds Conditions" means the conditions precedent in favour of the Agent that (i) the Kemess South Mine has produced concentrate over the immediately preceding 30 day period, and is able to sustain and maintain such production thereafter, of not less than 7500 short tons of concentrate yielding mineral content that is acceptable to Glencore Ltd. pursuant to the Glencore Agreement (without giving effect to any amendments thereof), (ii) at such time the Kemess South Mine accounts payable of the Corporation do not exceed 7 U.S.$15,000,000 and (iii) at such time the Kemess South Mine accounts payable of the Corporation are not overdue in accordance with their respective terms; (ww) "Proposed Leaseback Assets" has the same meaning as is given to that term in the Debentures; (xx) "Purchase Price" means (i) the Initial Purchase Price plus (ii) the aggregate of the Additional Purchase Price Payments, if any; (yy) "Reorganization Undertaking" has the meaning given to that term in Section 4.1(1) hereof; (zz) "Royalty Agreement" means the royalty agreement relating to the Kemess South Mine, between the Agent and the Corporation in the form attached as SCHEDULE C to this Agreement; (aaa) "Royalty Debenture" means the debenture in favour of the Agent which, inter alia, secures the Corporation's obligations to the Agent pursuant to the Royalty Agreement in form and substance satisfactory to the Agent; (bbb) "Sale" has the same meaning as is given to that term in the Debentures; (ccc) "Security" has the same meaning as is given to that term in the Debentures; (ddd) "Security Documents" has the same meaning as is given to that term in the Debentures; (eee) "Senior Secured Debenture Facility" means the senior secured debenture facility in the original principal amount of Can.$19,500,000 and U.S.$30,700,000 provided to the Corporation by DDJ Canadian High Yield Fund, Goldman, Sachs & Co. and Mellon Bank; 8 (fff) "Series A Debentures" and "Series B Debentures" have the meanings ascribed thereto in Section 1.1(p) hereof; (ggg) "Subordinated Notes" means the outstanding 11% Series B Senior Subordinated Notes of the Corporation due 2006 in the aggregate principal amount of U.S.$175,000,000; (hhh) "Subordinated Note Trust Indenture" means the Trust Indenture dated as of August 12, 1996 among the Corporation, Kemess Mines Inc. and Mellon Bank, F.S.B. relating to the Subordinated Notes, as amended by (i) the First Supplemental Indenture dated and effective as of December 31, 1997 by and between the Corporation and Chase Manhattan Trust Company, National Association, the successor to Mellon Bank, F.S.B. as Trustee, (ii) the Second Supplemental Indenture dated and effective as of January 31, 1998 by and between the Corporation and Chase Manhattan Trust Company, National Association, as Trustee and, (iii) such other amendments as may be required in connection with the transaction contemplated by this Agreement and the other Documents; (iii) "Subsidiaries" means all of the corporations listed on SCHEDULE E and any other corporations or limited liability companies which are or hereafter become directly or indirectly controlled by the Corporation and for the purposes of this definition the Corporation shall be deemed to control a corporation if the Corporation beneficially owns, directly or indirectly, shares to which are attached more than 50% of the voting rights ordinarily exercisable at meetings of shareholders of such corporation and/or 50% or more of the issued and outstanding fully participating shares of such corporation and the Corporation shall be deemed to own beneficially shares beneficially owned by a corporation controlled by it, and so on indefinitely, and the Corporation shall be deemed to control a limited liability company where it owns more than 50% of the equity interests in such limited liability company; (jjj) "Taxes" means all taxes of any kind or nature whatsoever including, without limitation, income taxes, sales or value-added taxes, levies, stamp taxes, royalties, duties, and all fees, deductions, compulsory loans and withholdings imposed, levied, collected, withheld or assessed as of the date hereof or at any time in the future, by any governmental authority of or within Canada or any other jurisdiction whatsoever having power to tax, together 9 with penalties, fines, additions to tax and interest thereon; and (kkk) "Windy Craggy Property" means the mineral claims in and around Windy Craggy mountain in the Tatshenshini/Alsek region of northwestern British Columbia, more particularly described in SCHEDULE F hereto. 1.2 MONETARY REFERENCES Any reference in this Agreement to "Canadian dollars" or "Can. $" or similar terms shall be deemed to be a reference to lawful money of Canada and any reference in this Agreement to "United States of America dollars", "United States dollars" or "U.S. $" or similar terms shall be deemed to be a reference to lawful money of the United States of America. If no such references are made with respect to any particular sum or obligation, the sum or obligation in question shall be deemed to refer to lawful money of Canada. 1.3 GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein. The Corporation submits to the jurisdiction of the courts of Ontario to determine all issues whether at law or in equity, arising from this Agreement. 1.4 USE OF SINGULAR AND PLURAL Words importing the singular include the plural and vice versa and words importing gender include all genders. 1.5 INVALIDITY OF PROVISIONS Each of the provisions contained in this Agreement is distinct and severable and a declaration of invalidity, illegality or unenforceability of any such provision or part thereof by a court of competent jurisdiction shall not affect the validity or enforceability of any other provision hereof or thereof. Without limiting the generality of the foregoing, if any amounts on account of fees or otherwise payable by the Corporation to the Agent hereunder exceed the maximum amount recoverable under applicable law, the amounts so payable hereunder shall be reduced to the maximum amount recoverable under applicable law. 10 1.6 REFERENCES Except as otherwise specifically provided, reference in this Agreement to any contract, agreement or any other instrument shall be deemed to include references to the same as varied, amended, supplemented or replaced from time to time and reference in this Agreement to any enactment, including without limitation any statute, law, by-law, regulation, ordinance or order, shall be deemed to include references to such enactment as re-enacted, amended or extended from time to time. 1.7 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Unless otherwise specifically provided herein, all accounting terms shall be applied and construed in accordance with generally accepted accounting principles consistently applied. 1.8 INTERPRETATION NOT AFFECTED BY HEADINGS The division of this Agreement into articles, sections, paragraphs, subsections and clauses and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. The terms "this Agreement", "hereof", "herein", "hereunder" and similar expressions refer to this Agreement and the schedules hereto and not to any particular article, section, paragraph, clause or other portion hereof and include any agreement or instrument supplementary or ancillary hereto. 1.9 COMPUTATION OF TIME PERIODS In this Agreement, in the computation of periods of time from a specified date to a later specified date, unless otherwise expressly stated, the word "from" means "from and including", and the words "to" and "until" each mean "to but excluding". 1.10 DAY NOT A BUSINESS DAY In the event that any day on or before which any action is required to be taken hereunder is not a Business Day, then such action shall be required to be taken at or before the requisite time on the next succeeding day that is a Business Day. 11 ARTICLE 2 - TRANSACTIONS 2.1 ISSUANCE OF DEBENTURES TO THE LENDERS On the terms and subject to the conditions hereof, at the Closing Time the Agent will cause the Lenders to purchase from the Corporation and the Corporation will issue and sell to the Lenders, the Series A Debentures and the Series B Debentures substantially in the form attached hereto as SCHEDULES A-1 AND A-2 respectively. 2.2 PURCHASE PRICE (a) Subject to compliance with the conditions precedent set forth in Section 4.1 hereof and the terms hereof, on the Closing Date, the Agent shall cause the Lenders to deliver to the Corporation, on account of the purchase price for the Debentures, certified cheques, bank drafts or wire transfers in an amount equal to U.S.$90,000,000 (the "Initial Purchase Price") less any unpaid fees and expenses payable by the Corporation to the Lenders or the Agent pursuant to Section 2.3 hereof. The Corporation hereby irrevocably directs the Lenders to pay such fees and expenses to the Agent or the Lenders, as the case may be, on its behalf. The Initial Purchase Price shall be allocated first to the Series B Debentures and second, to the Series A Debentures. (b) The Additional Purchase Price shall be paid as hereinafter set forth. Subject to compliance with the conditions precedent set forth in Section 4.2 hereof and the terms hereof, on the 5th Business Day following the Corporation providing to the Agent a notice in writing requesting an Additional Purchase Price Payment, which notice shall set out the amount thereof, the Agent shall cause the applicable Lenders to deliver to the Corporation a certified cheque, bank draft or wire transfer in the amount set forth in such notice (the amount of each such payment made by the Lenders under this Section 2.2(b) being referred to as an "Additional Purchase Price Payment" and the date of each payment to be made hereunder being referred to as a "Payment Date"). The aggregate of all Additional Purchase Price Payments hereunder shall be the "Additional Purchase Price". Each Additional Purchase Price Payment shall be in a minimum amount equal to the lesser of (i) U.S.$10,000,000 (and in denominations in excess thereof in multiples of U.S.$100,000.00) and (ii) the unpaid portion of the Aggregate Additional Purchase Price. The Corporation hereby irrevocably directs the Lenders to deduct from any Additional Purchase Price Payment payable to the Corporation the amount of any unpaid fees and expenses payable by the Corporation to the 12 Lenders or the Agent pursuant to Section 2.3 hereof and hereby directs the Lenders to pay such fees and expenses to the Agent or the Lenders, as the case may be, on its behalf. Notwithstanding anything to the contrary contained in this Agreement or any of the Documents, neither the Agent nor the Lenders shall have any obligation to make any Additional Purchase Price Payments if any of the conditions precedent set forth in Section 4.2 hereof shall not have been satisfied within the time limited therefor. For greater certainty, neither the Agent nor the Lenders will have any obligation to make any Additional Purchase Price Payments on or after August 15, 1998, or which in the aggregate will exceed the Agregate Additional Purchase Price. 2.3 FEES AND EXPENSES (a) The Corporation acknowledges that the Agent and Lenders have earned a non-refundable fee of U.S.$2,400,000 (which is payable as to U.S.$1,200,000 to the Agent, as to U.S.$840,000.00 to the Lenders purchasing Series A Debentures on a pro rata basis, and as to U.S.$360,000.00 to the Lenders purchasing Series B Debentures on a pro rata basis, which the Corporation will pay on the Closing Date. The Corporation acknowledges and agrees that it will be responsible for and will pay such fee whether or not the transactions hereunder are completed and even if it is the Agent who terminates its obligations under this Agreement pursuant to Section 4.3 hereof, unless such termination is as a result of the Agent expressly terminating its obligations hereunder solely pursuant to and in reliance on Section 4.1(n) hereof, in which event the fee provided for in this Section 2.3(a) shall be reduced to U.S.$100,000 which shall thereupon be payable upon demand by the Corporation to the Agent. Any fee payable by the Corporation to the Agent under this Section 2.3(a) may be made by the Lenders paying the amount of such fees out of the Initial Purchase Price in accordance with Section 2.2(a) hereof; (b) The Corporation acknowledges and agrees that on the Closing Date, the Agent will have earned and the Corporation will pay to the Agent an additional fee, by executing and delivering to the Agent the Royalty Agreement; and (c) The Corporation acknowledges and agrees that in addition to the fees payable pursuant to Section 2.3(a) and (b) hereof, it will be responsible for and will pay or reimburse each of the Agent and the Lenders forthwith on demand for all reasonable fees, expenses and other out-of-pocket expenses paid or incurred by each of the Agent and the Lenders, its representatives and 13 consultants relating to their investigation of the Corporation, the Subsidiaries and their respective businesses, the negotiation, preparation and review of this Agreement and the other Documents and all other matters pertaining to the transactions hereby contemplated, including, without limitation, all reasonable fees, expenses and other out-of-pocket expenses paid or incurred by each of the Agent and the Lenders for legal advice and services in connection with such transactions. The Corporation acknowledges and agrees that it will be responsible for and will pay all such reasonable fees, expenses and other out-of-pocket expenses whether or not the transactions hereunder are completed and even if it is the Agent who terminates this Agreement pursuant to Section 4.3 hereof. The Agent acknowledges receipt of the sum of U.S.$100,000 and Can.$100,000 on account of the Corporation's obligation under this Section 2.3(c). 2.4 USE OF PROCEEDS The Corporation hereby covenants, agrees, represents and warrants with and to the Agent and the Lenders that the Corporation will use the proceeds from the issuance and sale of Debentures to the Lenders: (a) to repay all amounts outstanding under the Senior Secured Debenture Facility; (b) to repay those Kemess South Mine accounts payable of the Corporation listed in SCHEDULE G; and (c) to fund capital and non-capital expenses of the Corporation in connection with the construction, development and operation of the Kemess South Mine. In addition to the foregoing, and until the occurrence of a Default or Event of Default hereunder: (d) the Corporation may use such proceeds for general corporate purposes in an amount not to exceed the aggregate of U.S.$20,000,000; and (e) to the extent that the amounts referred to in Section 2.4(d) hereof are insufficient to satisfy the general corporate purposes of the Corporation, and provided that the Proceeds Conditions have then been and remain satisfied, the Corporation may then use such proceeds for general corporate purposes. 14 ARTICLE 3 - REPRESENTATIONS AND WARRANTIES 3.1 REPRESENTATIONS AND WARRANTIES BY THE CORPORATION The Corporation hereby represents and warrants to the Agent and to the Lenders as follows and acknowledges that each of the Agent and the Lenders is relying on such representations and warranties in connection with its entering into this Agreement, the Lenders's purchase of the Debentures pursuant to this Agreement, and in entering into the other transactions contemplated by this Agreement: (a) INCORPORATION AND STATUS OF THE CORPORATION. The Corporation is the successor corporation resulting from the amalgamation on December 29, 1997 of the former Royal Oak Mines Inc. and Kemess Mines Inc., is duly amalgamated and organized under the laws of its jurisdiction of incorporation, is in good standing in each jurisdiction where, by reason of its business or assets, it is required to be qualified or licensed and has, subject to the Materiality Threshold, all powers, licenses, franchises and permits required to own its assets and carry on its business as the same is presently carried on. (b) POWER AND CAPACITY. The Corporation has the corporate power to enter into each of this Agreement and the other Documents and to do all acts and things as are required or contemplated hereunder or thereunder to be done, observed and performed by it. (c) DUE AUTHORIZATION, NO CONTRAVENTION. The entering into and the performance by the Corporation of this Agreement, the other Documents and the transactions contemplated herein and therein (i) have been duly authorized by all necessary corporate action on the part of the Corporation and (ii) do not and will not contravene, violate, breach or result in any default under the articles, by-laws, constating documents or other organizational documents of the Corporation, or, other than the Senior Secured Debenture Facility and the Subordinated Note Trust Indenture, any agreement to which the Corporation is a party or, subject to the Materiality Threshold, any term or provision of any regulatory license or permit or any order of any court, governmental authority or regulatory body or any law or regulation of any jurisdiction in which the Corporation carries on its business. (d) BINDING AGREEMENT. This Agreement and the other Documents have 15 been duly executed and delivered by the Corporation and constitute legal, valid and binding obligations enforceable against the Corporation in accordance with their terms, subject only to the availability of equitable remedies and the effect of bankruptcy, insolvency and similar laws affecting the rights of creditors generally. (e) NO PROCEEDINGS. As of the date of execution of this Agreement, except as is disclosed in SCHEDULE H and subject to the Materiality Threshold there is no litigation, arbitration or administrative proceedings, actions, suits or investigations outstanding, pending or, to the Knowledge of the Corporation, threatened against the Corporation or any of its properties. None of the transactions contemplated hereby or by the other Documents have been enjoined by any Governmental Body and no suit or other proceeding challenging the transactions contemplated hereby or by the other Documents has been instituted or, to the Knowledge of the Corporation, threatened, and no investigative demand on the Corporation or any Subsidiary related to such transactions has been made by any Governmental Body and no Governmental Body or Person has, to the Knowledge of the Corporation, threatened to take any such action. (f) COMPLIANCE WITH APPLICABLE DOCUMENTS AND LAWS. Except as may be expressly set out in SCHEDULE I (the "Disclosed Defaults") (which Disclosed Defaults, other than amounts owed to the holders of those Existing Encumbrances set out in Part I of SCHEDULE C1 to the Debentures, will have been remedied on or before the Closing Date), the Corporation is not in violation of, or in default under (and there does not exist any event or condition which, after notice or lapse of time or both, would constitute such a default under), any term of its articles, by-laws, constating documents or other organizational documents, or, subject to the Materiality Threshold, under any term of any agreement, instrument, judgment, decree, order, statute, injunction, governmental regulation, rule or ordinance (including, without limitation, those relating to zoning, city planning or similar matters) applicable to the Corporation, or to which the Corporation is bound or which may otherwise be applicable to any property of the Corporation. (g) NO CONSENTS REQUIRED. Except as may be expressly set out in SCHEDULE J hereto (the "Consents") there are no consents, permits, approvals, confirmations and acknowledgements required in order for the Corporation to carry out the transactions contemplated hereby and by the Documents, provided that the granting of fixed and specific Liens or assignments which the 16 Lenders may request following the Closing Date pursuant to its right to do so under the Documents may require consents or approval of other Persons so as not to constitute events of default under any agreements with such Persons. (h) SHARES. SCHEDULE E sets out the name and jurisdiction of incorporation, continuance or amalgamation of the Corporation and each Subsidiary, and SCHEDULE K accurately describes the respective authorized and issued share capital as of the date hereof of the Corporation and each Material Subsidiary. Other than as disclosed in Section 3.1(i) hereof, there are no shareholders' agreements, pooling agreements, voting trusts or other similar agreements with respect to the ownership or voting of any of the shares of the Corporation or of Material Subsidiaries or pursuant to which any person may have any right or claim in connection with any existing or past equity interest in the Corporation or such Material Subsidiaries. (i) NO OBLIGATION TO ISSUE SHARES. Except for (i) agreements, options, warrants, rights and conversion or other rights granted to current or former directors and employees of the Corporation in respect of which no more than 10 million Common Shares of the Corporation may be acquired, (ii) agreements to issue to the Corporation shares of APM (which shares when issued will be subject to the Security and all share certificates in respect thereof will, at the request of the Lenders, be delivered to the Lenders), and (iii) special warrants and common shares which may be issued by the Corporation to its creditors, in lieu of partial payment to such creditors, and to other Persons, there are no agreements, options, warrants, rights of conversion or other rights pursuant to which the Corporation or any of the Subsidiaries is or may become obligated to issue any shares or any securities convertible into, or exchangeable for, shares. (j) FINANCIAL STATEMENTS. The Audited Financial Statements and the Interim Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied (subject to usual year-end adjustments in the case of the Interim Financial Statements) and fairly present the financial position of the Corporation and the Subsidiaries and the results of their operations at the times and for the periods indicated. The Corporation and each of the Subsidiaries has no outstanding liabilities, contingent or otherwise, other than those disclosed in the Audited Financial Statements and the Interim Financial Statements and other than trade or business obligations subsequently incurred in the ordinary course of business, which such trade and business obligations are currently in good standing in accordance with their respective terms, other than as set forth in SCHEDULE L. 17 (k) PERMITS, COMPLIANCE WITH LAWS. This section 4.1(k) shall be subject to the Materiality Threshold. The Corporation has all licences, permits, approvals and franchises that it requires, or is required to have, to own its properties and assets and to carry on its business as presently conducted including, without limitation, in respect of the construction and development of the Kemess South Mine. All such licences, permits, approvals and franchises are in good standing and, except as is disclosed in item 11 of SCHEDULE H, no actions, proceedings, investigations or other steps of any kind are in process, pending, to the Knowledge of the Corporation threatened, or reasonably foreseeable which might result in any such licence, permit, approval or franchise being terminated, revoked, withdrawn, suspended or otherwise made unavailable to the Corporation for any period of time. The Corporation has applications pending for all additional licences, permits, approvals and franchises necessary or desirable for the commencement of mining operations at the Kemess Mine in the manner and to the full extent contemplated in plans and projections disclosed to the Lenders (a list of which additional licenses are attached hereto as SCHEDULE M) and has no reason to believe that any or all such additional licences, permits, approvals and franchises will not be granted to prevent, impair or interfere with the Kemess Mine Production Date occurring on or before December 31, 1998. Except as is disclosed in item 11 of SCHEDULE H, the Corporation is conducting its business in compliance with all applicable laws, regulations, by-laws and ordinances of each jurisdiction in which its business is carried on, including without limitation all laws, regulations, by-laws and ordinances relating to mining concessions. (l) NO RESTRICTIONS. Except as may be provided for in agreements between the Province of British Columbia and the Corporation respecting economic assistance, copies of which have been provided to the Agent, the Corporation is not a party to or bound by any agreement which would restrict or limit its right to carry on any business or activity or to solicit business from any Person or in any geographical area or otherwise to conduct the business of the Corporation. The Corporation is not subject to any legislation or any judgment, order or requirement of any court or governmental authority which is not of general application to persons carrying on a business similar to the business of the Corporation. (m) LIMITATION ON PAYMENT RESTRICTIONS. Except for restrictions contained herein, in the Senior Secured Debenture Facility and in the Subordinated Note Trust Indenture, neither the Corporation nor any Subsidiary is subject to any 18 consensual restriction on its ability (a) to pay dividends or make any other distributions on its equity securities to, or pay any indebtedness owing to, or repurchase or redeem any equity securities from, the holders of such equity securities, the Corporation or any other Subsidiary, (b) to make any loans or advances to the Corporation or any other Subsidiary, or (c) to transfer any of its property or assets to the Corporation or any other Subsidiary. (n) NO MATERIAL ADVERSE CHANGES, DAMAGE OR ACCIDENTS. Since March 1, 1998, the Corporation has operated its business diligently and only in the ordinary course of business and except for the Disclosed Defaults, there has not been any material adverse change in the condition (financial or otherwise), assets, liabilities, affairs, business or operations of the Corporation, any substantial loss of or damage to the assets of the Corporation, or any accident (subject to the Materiality Threshold) relating to the mines, properties or mining operations of the Corporation in which any employee of the Corporation was injured. For greater certainty, since March 1, 1998 the Corporation has not: (i) incurred any liabilities other than in the ordinary course of business consistent with past practice; (ii) sold, encumbered, assigned or transferred any assets or properties of the Corporation, other than for fair market value, to purchasers at arms length to the Corporation and in the ordinary course of business consistent with past practice; (iii) created, incurred, assumed or guaranteed any Debt except in the ordinary course of business consistent with past practice or subjected any of its assets to any Lien except for Existing Encumbrances; (iv) changed or amended its governing documents in any respect; (v) declared, set aside, paid or made any distributions in cash or property on its equity securities including its Common Shares; (vi) directly or indirectly redeemed, purchased or otherwise acquired any of its equity securities; 19 (vii) other than the resignations of John May, Nancy Deshaw and Scott Lampe, suffered any resignation or termination of employment of any key officers or directors or become aware of any impending resignation or termination of employment of any such key officers or directors; (viii) except in the ordinary course of its business, or as disclosed in writing to the Agent prior to the date hereof, materially increased the compensation payable or to become payable to any of its officers or directors or materially increased any bonus, insurance, pension or other employee benefit plan, payment or arrangement made for or with any such officers or directors; (ix) materially changed its accounting methods, principles or practices; or (x) entered into any agreement or commitment to do any of the things described in this section. (o) NO WORK ORDERS. Except as is disclosed in item 11 of SCHEDULE H and subject to the Materiality Threshold, no work orders, directions or notices have been issued pursuant to any applicable law relating to the business of the Corporation or any part of the Mortgaged Property or relating to or pursuant to any environmental matters affecting the foregoing and the Corporation has not received any notification from any Governmental Body that any work, repairs, construction or capital expenditures are required to be made in respect of the Mortgaged Property or any part thereof as a condition of continued compliance with any applicable law or any Material Authorizations issued thereunder. (p) NO DEFAULT. Subject to the Materiality Threshold, the Corporation is not in default or breach under any material commitment or obligation under the terms and conditions relating to any Material Authorizations and there exists no state of facts which, after notice or the passage of time or both, would constitute such a default or breach and there are no proceedings in progress, pending or, to the Knowledge of the Corporation, threatened which may result in the revocation, cancellation, suspension, non-grant or any adverse 20 modification of any Material Authorization except as is disclosed in item 11 of SCHEDULE H. The Corporation has obtained all Material Authorizations necessary or desirable to carry on all activities currently and previously carried on at the Kemess Mine. (q) NON-ARM'S LENGTH TRANSACTIONS. Except as is described in employment agreements and correspondence delivered to the Agent prior to the date hereof, the Corporation is not a party to any contract, commitment or transaction (including by way of loan) with any officer, director or shareholder of the Corporation, any of the Subsidiaries, or any of their respective affiliates or associates, other than as disclosed in the Audited Financial Statements and the Interim Financial Statements and other than employment contracts in the ordinary course of business. (r) TAX MATTERS. (i) The Corporation has prepared and filed on a timely basis with all appropriate Governmental Bodies all returns with respect to Taxes and other documents that it is required to file in respect of any Taxes for all fiscal periods ending on or prior to the Closing Date and all such returns or other documents are correct and complete in all material respects; (ii) The Corporation has paid in full all Taxes due on or before the Closing Date and, in the case of Taxes accruing on or before the Closing Date that are not due on or before the Closing Date, the Corporation will have made adequate provision in its books and records and financial statements for such payment; and the Corporation does not have any liability for Taxes other than those provided for in the Audited Financial Statements and the Interim Financial Statements and those arising subsequently in the ordinary course of the operation of its business; (iii) The Corporation has withheld from each payment made to any of its present or former employees, officers, directors and to all persons who are non-residents of the applicable jurisdictions all amounts required pursuant to Applicable Law to be withheld or remitted and will continue to do so until the Closing Date and furthermore has remitted such amounts within the applicable periods to the appropriate Governmental Body; the Corporation has remitted all Canada Pension Plan 21 contributions, unemployment insurance premiums, employer health taxes and other Taxes payable by it in respect of its employees and has or will have remitted such amounts to the appropriate Governmental Body within the time required under the applicable legislation; and the Corporation has charged, collected and remitted on a timely basis all Taxes as required under applicable legislation on any sale, supply, or delivery whatsoever, made by the Corporation; (iv) Except for a disputed assessment of fuel taxes payable by the Corporation to the government of Canada in the approximate amount of Can.$100,000, there are no reassessments of the Corporation with respect to Taxes that have been issued and are outstanding; no Governmental Body has challenged, disputed or questioned the Corporation in respect of Taxes or in respect of any returns, filings or other reports filed under any statute providing for Taxes; the Corporation has not received any indication from any Governmental Body that an assessment or a reassessment in respect of the Corporation is proposed; and the Corporation has not executed or filed any agreement extending the period for assessment, reassessment or collection of any Taxes. (s) NO ENCUMBRANCES. Each of the Corporation and APM owns and has good and marketable title, free and clear of all Liens except Existing Encumbrances, to all assets used in connection with its business including, without limitation, all assets reflected on the balance sheet included in the Audited Financial Statements and the Interim Financial Statements or acquired by it after the date of such balance sheet except for changes in such assets in the ordinary course of business subsequent to that date. All material operating facilities, equipment and other material items of tangible property and assets owned by the Corporation are in good operating condition and repair, subject to normal wear and maintenance and having regard to their respective ages, are usable in the regular and ordinary course of business and conform to all Applicable Laws relating to their construction, use and operation, except where such failure, individually or in the aggregate, would not have a material adverse effect on the Corporation. The Corporation's annual report on Form 10-K for the fiscal year ended December 31, 1997 filed with the United States Securities And Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended contains a complete and accurate description of all material property and assets owned by the Corporation except that since the date of such annual report, the Proposed Leaseback Assets have been sold and leased back by the Corporation pursuant to an operating lease. SCHEDULE 22 N contains a complete and accurate description of all material property and assets owned by the Corporation relating to the Kemess Mine. Subject to the Materiality Threshold, all equipment or other tangible assets or property situated on the premises of the Corporation, or necessary to the operation of the business of the Corporation, which is leased under a capital lease or under a material operating lease is listed in SCHEDULE O. Subject to the Materiality Threshold, the Corporation is in compliance with all terms of agreements and arrangements governing the leased items listed in SCHEDULE O. (t) MATERIAL INDEBTEDNESS. SCHEDULE P contains a list of all material indebtedness of the Corporation in excess of Can$1,000,000 and the identity of the Persons to whom it is owed. The accounts payable of the Corporation listed in SCHEDULE G relate only to the construction, development and operation of the Kemess South Mine. (u) SECURITY DOCUMENTS (i) At the Closing Time, the Security Documents and the other Documents (other than this Agreement, the Royalty Agreement and the Royalty Debenture) will create a valid and enforceable security interest and Lien upon the Mortgaged Property securing the payment and satisfaction of all obligations of the Corporation and APM to the Lenders. At the Closing Time, such security interests will be perfected security interests subject to no prior Liens or Liens ranking senior in priority to the Liens in favour of the Lenders, except for such Liens in favour of the Agent pursuant to the Royalty Agreement and the Royalty Debenture and except for such Liens relating to or securing Debt of the Corporation not in excess of Can.$10,000,000 as may be held by holders of those Existing Encumbrances set out in Part 1 of SCHEDULE C1 to the Debentures. (ii) At the Closing Time, the Royalty Agreement and the Royalty Debenture will create a valid and enforceable security interest and Lien upon the Kemess South Mine securing the payment and satisfactions of all obligations thereunder of the Corporation to the Agent. At the Closing Time, such security interests will be perfected security interests subject to no prior Liens or Liens ranking senior in priority to the Liens in favour of the Agent, except for such Liens relating to or securing Debt of the Corporation not in excess of Can.$10,000,000 as may be held by holders of those Existing Encumbrances set out in Part 1 of SCHEDULE C1 to the Debentures. 23 (v) EMPLOYMENT MATTERS. Except as is disclosed in SCHEDULE Q, the Corporation is not a party to or is not bound by any: (i) written contract or commitment for the employment of any employee or officer providing for an annual salary (including benefits) of in excess of Can.$200,000 or a payment on termination of in excess of six months salary and benefits; (ii) oral contract or commitment for the employment of any employee or officer, except for contracts of indefinite hire terminable by the Corporation without cause on reasonable notice; (iii) in the case of the Kemess Mine only, contract with or commitment to any trade union, council of trade unions, employee bargaining agent or affiliated bargaining agent (collectively called "labour representatives") and the Corporation has not conducted negotiations with respect to any such future contracts or commitments; no labour representatives hold bargaining rights with respect to any employees of the Corporation relating to the Kemess Mine; no labour representatives have applied to have the Corporation declared a related employer pursuant to the applicable labour legislation; and, to the Knowledge of the Corporation, there are no current or threatened attempts to organize or establish any trade union or employee association with respect to the Kemess Mine project provided, however, that the Corporation anticipates that steps may be taken by its employees to unionize and negotiate collective bargaining agreements for the Kemess Mine at some time in the future; or (iv) except as is disclosed in financial information made available to the Agent prior to the date hereof and subject to the Materiality Threshold, bonus, pension, multi-employer, profit sharing, deferred compensation, retirement, disability, health insurance or similar benefit plan, with respect to any of its employees or others (including without limitation any agreements in respect of employee share ownership plans), other than Canada Pension Plan, the Ontario Health Insurance Plan and other similar health plans established and administered by any other governmental authority or workers' compensation insurance 24 provided pursuant to statute. Subject to the Materiality Threshold, there is no work stoppage or other concerted action, grievance or dispute existing or, to the Knowledge of the Corporation, threatened against the Corporation, and there is no material complaint, grievance, claim, work order or investigation that has been filed, made, commenced or, to the Knowledge of the Corporation, threatened against the Corporation pursuant to any human rights, occupational health and safety, workers compensation, employment standards or pay equity legislation or any similar legislation of any jurisdiction in which the Corporation carries on its business. (w) INTELLECTUAL PROPERTY. The Corporation owns and has good and marketable title, free and clear of all Liens except Existing Encumbrances, to the Intellectual Property. The conduct of the business of, and the use of the Intellectual Property by the Corporation does not infringe, and the Corporation has not received any notice, complaint, threat or claim alleging infringement of, any patent, trade mark, trade name, copyright, industrial design, trade secret or other propriety right of any other Person. To the Knowledge of the Corporation, the Intellectual Property which is not owned by the Corporation is being used with the consent of, and in accordance with the consent or licence from, the rightful owner thereof. The Corporation has taken all necessary steps to establish, preserve and protect its rights in the Intellectual Property which is material to the Corporation. (x) MATERIAL CONTRACTS. SCHEDULE R contains a complete list of all agreements of the Corporation which are material to the Kemess Mine and which have not yet been fully performed by the parties thereto, including without limitation agreements which relate to construction underway or proposed at the Kemess Mine and including, without limitation, royalty, refining and shipping agreements (the "Material Contracts"). Subject to the Materiality Threshold, and other than the Disclosed Defaults (which Disclosed Defaults, other than amounts owed to those holders of the Existing Encumbrances set out in Part I of SCHEDULE C1 to the Debentures, will have been remedied on or before the Closing Date), each of the Material Contracts is in full force and effect without amendment, and there has been no default under any of them, or under any other material commitment or obligation, by the Corporation or, to the Knowledge of the Corporation, any other party, nor has any event occurred that, with the giving of notice, lapse of time or any other condition subsequent, would constitute a default under or would 25 otherwise allow the termination of any Material Contract. (y) MINING CONCESSIONS. SCHEDULES B-1 AND B-2 contains a complete and accurate list of all material mining claims, concessions and leases in which the Corporation has an interest relating in any way to the Kemess Mine, including, without limitation, all mining claims, concessions and leases in respect of which the Corporation has any obligation to contribute funds or make payments, other than fees or taxes payable in the ordinary course under the regulations governing such claims, concessions or leases. The Corporation is the absolute beneficial owner of, and has good and marketable title to, such mining claims, concessions and leases in accordance with governing laws and regulations, free of all Liens except for such rights as may be held by Kemess South Resources Limited Partnership as disclosed in item (a) of Part II of SCHEDULE C1 to the Debenture, by the Lenders under the Senior Secured Debenture Facility and by the holders of the Existing Encumbrances. (z) PRICING, HEDGING PROTECTION. Subject to the Materiality Threshold, SCHEDULE S contains a complete and accurate list and description of all hedging or related arrangements to which the Corporation is a party or by which it is bound including, without limitation, forward sale contracts, options, interest rate swap agreements, currency swap agreements, derivative agreements and similar arrangements. None of the hedging or related arrangements entered into by the Corporation provides for the granting of (i) any Lien against the property, assets and undertaking of the Corporation other than the Permitted Encumbrances described in Section (b) of the definition thereof, or (ii) production advances or any other disposition of any property, assets or undertaking of the Corporation in consideration for advance or accelerated payment or other manner of prepayment or payment not contemporaneous with delivery other than for the sales of up to U.S.$10,000,000 of copper concentrate pursuant to the Glencore Agreement. (aa) ENVIRONMENTAL MATTERS. Except as is disclosed in item 11 of SCHEDULE H regarding the sediment concerns at the Kemess South Mine and subject to the Materiality Threshold, the Corporation is not in violation of any applicable federal, provincial, state, municipal or local laws, regulations, orders, governmental decrees or ordinances with respect to environmental, health or safety matters (collectively, "Environmental Laws") and no actions, proceedings, investigations or other steps of any kind are in process, pending, to its Knowledge threatened, or reasonably foreseeable with respect to any such existing or past violation or alleged violation or other liability whatsoever 26 on the part of the Corporation under Environmental Laws. For greater certainty, subject to the same qualifications and without limiting the generality of the foregoing: (i) the Corporation has carried on its business and at all times has received, handled, used, stored, treated, shipped and disposed at all times of all contaminants in compliance with all Environmental Laws; (ii) there have been no releases, deposits or discharges, in violation of Environmental Laws, of any hazardous or toxic substances, materials, pollutants, contaminants or wastes into the earth, air or into any river, stream, lake or other body of water or into any municipal or other sewer or drain water systems; (iii) no orders, directions or notices have been issued pursuant to any Environmental Laws relating to the business or assets of the Corporation; and (iv) the Corporation has not failed to report to the proper Governmental Body the occurrence of any event which is required to be so reported by any Environmental Laws. (bb) PLACES OF BUSINESS. The registered office of the Corporation is situated at BCE Place, P.O. Box 747, Suite 2500, 181 Bay Street, Toronto, Ontario, Canada M5J 2T7, and the chief executive office of the Corporation is situated at 5501 Lakeview Drive, Kirkland, Washington, U.S.A. 98033. 27 (cc) ALL MATERIAL INFORMATION SUPPLIED. The Corporation has provided to the Agent all material information relating to the financial condition, business and prospects of the Corporation and all information provided to the Agent is true, accurate and complete in all material respects and omits no material fact necessary to make such information not misleading provided, however, that the Corporation is not representing and warranting that the financial and operating projections made by it will accurately correspond to actual future results notwithstanding that they are based on the best information currently available to the Corporation. For greater certainty, all documents provided to the Agent in the course of investigating, negotiating and preparing the Documents and the property, assets and affairs of the Corporation are complete and, subject to the proviso in the immediately preceding sentence, accurate in every respect and copies of all such documents provided to the Agent conform in every respect to the originals thereof. (dd) DEBENTURE COVENANTS. No event or circumstance has occurred or exists which is inconsistent with the covenants and agreements of the Corporation set out in the Debentures or which would, immediately or with the passage of time or giving of notice or taking of any other prerequisite step, constitute a Default or Event of Default thereunder. (ee) SUBORDINATED NOTES. Other than the Disclosed Defaults, the Corporation is in compliance with all terms and conditions and agreements applicable to the Subordinated Notes, and the Corporation will after giving effect to the transactions contemplated by this Agreement and the other Documents, be in compliance with all terms and conditions and agreements applicable to the Subordinated Notes. The indebtedness under the Debentures, the Royalty Agreement and the Royalty Debenture will fully constitute "Permitted Indebtedness" and the Security and the Royalty Debenture will in each and every respect constitute "Permitted Liens" under the Subordinated Note Trust Indenture. The Corporation has delivered to the Agent complete and accurate copies of all agreements and documents relating to the Subordinated Notes including, without limitation, the Subordinated Note Trust Indenture. The Subordinated Notes will be at the Closing Date and thereafter remain in accordance with their terms, fully subordinated and postponed to the obligations of the Corporation to the Agent and the Lenders under the Documents, which obligations constitute "Senior Indebtedness" under the Subordinated Note Trust Indenture. 28 (ff) SUBSIDIARIES OF THE CORPORATION. SCHEDULE E contains a list of all of the Subsidiaries of the Corporation, including the jurisdiction of incorporation, continuance and amalgamation for each such Subsidiary. (gg) PROVINCIAL ECONOMIC ASSISTANCE. The Province of British Columbia has unconditionally and irrevocably advanced to the Corporation approximately, Can.$154,000,000 of the previously committed economic assistance, compensation and investment. All such economic assistance, compensation and investment is completely and accurately described in SCHEDULE T and the Agent has been provided with true, complete and accurate copies of all agreements and other documents relating thereto. Except for annual payments of Can.$1,000,000 for each of the 12 successive years commencing in 1999, as identified in SCHEDULE T, there are no further outstanding commitments of economic assistance, compensation or investment which remain to be completed and there are no commitments, agreements or arrangements with any Governmental Body which would be breached or otherwise adversely impacted by the transactions contemplated by the Documents or which could in any way preclude, hinder, prejudice or delay the exercise of the Lenders's or Agent's rights and remedies hereunder and thereunder. (hh) WINDY CRAGGY PROPERTY. The inability of the Corporation to incur expenditures on and maintain in good standing the Windy Craggy Property will not result in: (i) any diminution in the amounts of payments from the government of British Columbia pursuant to the agreement of June 27, 1997; (ii) revocation of any permits issued by the government of British Columbia in connection with the Kemess Mine; or (iii) any material adverse effect on the ability of the Corporation to conduct mining operations at, and to maintain good title to, the Kemess Mine; and the Windy Craggy Property does not include or in any way comprise to the property and assets comprising the Kemess Mine. 3.2 SURVIVAL REPRESENTATIONS AND WARRANTIES BY THE CORPORATION The representations and warranties made by the Corporation pursuant to Section 3.1 hereof will survive the closing of the issuance of the Debentures and the other transactions provided for herein and, notwithstanding such closing or any investigation made by or on behalf of the Agent or the Lenders or any other person or any knowledge of the Agent or the Lenders or any other person, shall continue in full force and effect for the benefit of the Agent and the Lenders. 29 ARTICLE 4 - CONDITIONS 4.1 CONDITIONS TO THE OBLIGATIONS OF THE AGENT RE: THE INITIAL PURCHASE PRICE Notwithstanding anything herein contained, the obligation of the Agent to complete the transactions provided for herein and to cause the Lenders to pay the Initial Purchase Price will be subject to the fulfilment of the following conditions at or prior to the Closing Time, and the Corporation covenants to use its best efforts to ensure that such conditions are fulfilled. (a) ACCURACY OF REPRESENTATIONS AND WARRANTIES AND PERFORMANCE OF COVENANTS. The representations and warranties of the Corporation contained herein or in any other Document shall be true and accurate at the Closing Time. In addition, the Corporation shall have complied with all covenants and agreements herein agreed to be performed or caused to be performed by it at or prior to the Closing Time. At the Closing Time, the Corporation shall have delivered to each of the Agent and the Lenders certificates in form acceptable to each of the Agent and the Lenders confirming the facts with respect to each of the representations and warranties, confirming that all such covenants and agreements have been performed and confirming that all conditions set forth in this Section 4.1 have been satisfied or waived. (b) DEFAULT OR EVENT OF DEFAULT. No Default or Event of Default shall have occurred and be continuing nor shall there be any Default or Event of Default which will or will likely occur as a result of the transactions contemplated by this Agreement or the Documents. (c) CONSENTS. The Consents and all other consents, permits, agreements, confirmations and acknowledgements, determined by the Agent to be required or necessary to be obtained in order to effectively complete the transactions contemplated herein, shall have been obtained. (d) LEGAL OPINIONS. The Agent and the Lenders shall have received such legal opinions all in the form and content, and from counsel satisfactory to the Agent and the Lenders regarding the validity, enforceability and priority of the Documents and the Liens created thereby and regarding such other matters as the Agent and the Lenders may require to evidence compliance with the terms of the Documents and shall have also received any other legal opinions 30 contemplated by the Debentures. (e) SECURITY DOCUMENTS. The Lenders shall have received duly executed and delivered originals of the Security Documents and evidence satisfactory to the Agent and the Lenders of the Corporation's compliance with the provisions of Article 3 of the Debentures. (f) PAYMENT OF FEES. The Corporation shall have executed and delivered to the Agent the Royalty Agreement and the Royalty Debenture which shall have been registered against the Kemess South Mine and in all public registries where such registration is necessary or desirable to perfect the security interest granted in favour of the Agent, senior in priority to all Liens except for such Liens as may be held by holders of those Existing Encumbrances set out in Part 1 of SCHEDULE C1 to the Debenture, and the Corporation shall have paid to the Agent and the Lenders all fees and expenses referred to in Section 2.3, and shall have unconditionally waived and released, in form and content satisfactory to the Agent, any right to contest the reasonableness of such agreement, fees and expenses or otherwise challenge the entitlement of the Agent thereto. Notwithstanding such payment, the Corporation will remain liable for any other fees and expenses referred to in Section 2.3 hereof which relate to the transactions hereunder but which have not been invoiced to, paid or incurred by the Agent or the Lenders as of the Closing Date. (g) SUBORDINATED NOTES. The Corporation shall have delivered to the Agent and the Lenders complete and accurate copies of all documents relating to the Subordinated Notes. The Agent and the Lenders shall each have received evidence satisfactory to it that the Corporation is in compliance with all terms and conditions of the Subordinated Notes and that all necessary actions, steps and documents have been taken and obtained to ensure that all transactions contemplated by this Agreement and the other Documents (including, without limitation, the Royalty Agreement and the Reorganization Undertaking) do not breach or contravene any such terms or conditions, and have been consented to by the holders of the Subordinated Notes. Each of the Agent and the Lenders shall also have received evidence satisfactory to it that the obligations of the Corporation in respect of the Subordinated Notes are fully subordinated and postponed to its obligations to the Agent and the Lenders under the Documents. (h) SENIOR SECURED DEBENTURE FACILITY. The Corporation shall have delivered to the Agent and the Lenders complete and unconditional releases, 31 reconveyances and discharges from the lenders pursuant to the Senior Secured Debenture Facility of all indebtedness, liabilities and obligations owed by the Corporation or any Subsidiaries to such lenders and any and all Liens granted by the Corporation or any of its Subsidiaries to secure any such indebtedness, liabilities or obligations in exchange for payment to such lenders of an amount not to exceed the aggregate of the principal sum of Can.$19,500,000 and U.S.$30,700,000, interest thereon pursuant to and in accordance with the Senior Secured Debenture Facility and a prepayment amount not to exceed 1% of the principal amount being repaid to such lenders. (i) PERFECTION OF SECURITY. All steps necessary or desirable (including without limitation, the registration of the security interests created by the Security Documents in all public registries where such registration is necessary or desirable to perfect the security interest granted in favour of the Agent and the Lenders) shall have been taken to constitute the Liens under the Security as valid, enforceable and prior ranking to all other Liens, claims and interests in the Mortgaged Property except for such Liens relating to or securing Debt of the Corporation not in excess of Can.$10,000,000 as may be held by holders of those Existing Encumbrances set out in Part 1 of SCHEDULE C1 to the Debentures. (j) GOVERNMENT CONSENTS. The Agent and the Lenders shall have received consents and acknowledgements of various agencies and departments of the governments of British Columbia and Canada substantially in the form attached as SCHEDULE V. (k) RECEIPT OF CLOSING DOCUMENTATION. All documentation relating to the due authorization and completion of the issuance of the Debentures provided for herein and the due execution and delivery of all the Documents, and all actions and proceedings taken on or prior to Closing Time in connection with the performance by the Corporation of its obligations hereunder shall be satisfactory to the Agent and the Lenders, and the Agent and the Lenders shall have each received copies of all such documentation or other evidence as it may reasonably request in order to establish the consummation of the transactions contemplated hereby and the taking of all corporate proceedings in connection therewith in compliance with these conditions, in form and substance satisfactory to the Agent and the Lenders. (l) UNDERTAKING. The Corporation shall have executed and delivered to each 32 of the Agent and the Lenders: (i) an undertaking (the "Reorganization Undertaking") in form and substance satisfactory to the Agent and the Lenders to forthwith, following receipt of written notice from the Agent, cause the Kemess Mine and all Material Contracts to be transferred to and assumed by a newly incorporated wholly-owned Subsidiary of the Corporation ("Kemess Newco"), cause Kemess Newco to assume and guarantee to the Lenders and the Agent all of the Corporation's obligations, liabilities and indebtedness under or pursuant to the Documents, pledge to the Lenders all of the Corporation's shares in the capital of Kemess Newco, provide to the Lenders and the Agent such additional security, agreements and assurances as each may reasonably request to ensure that the Liens in favour of the Lenders and the Agent on such assets are valid, enforceable and prior ranking to all other Liens, claims and interests in such assets except for such Liens relating to or securing Debt of the Corporation not in excess of Can.$10,000,000 as may be held by holders of those Existing Encumbrances set out in Part I of SCHEDULE C1 to the Debentures, and obtain and deliver all legal opinions, consents and authorizations required in connection with the foregoing. Such undertaking shall include a covenant that, for so long as any Event of Default exists under any of the Debentures, no payments or distributions will be made from Kemess Newco to the Corporation or any of its Associates except with the consent of the Lenders; and (ii) such other undertakings as it may reasonably request regarding the taking of actions and delivery of documents following the Closing Time necessary or desirable to give effect to the terms and conditions of this Agreement and the other Documents. (m) NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse change in the financial condition, business and prospects of the Corporation and of the Kemess Mine. (n) DUE DILIGENCE. The Agent shall have been satisfied in its absolute discretion with its due diligence review of the Corporation and its prospects including, without limitation, in connection with the Kemess Mine. 33 (o) TIME FRAME. All of the conditions set out in this Section 4.1 shall have been satisfied, each in accordance with the provisions of this Agreement, on or prior to April 30, 1998. (p) LENDERS INTER-CREDITOR AGREEMENT. The Lenders, the Corporation and APM shall have entered into an inter-creditor agreement in form and substance satisfactory to the Lenders. (q) PERMITTED HEDGING CREDITOR AGREEMENTS. The Lenders, the Agent and the Corporation shall have entered into (i) an inter-creditor agreement with each of the holders of Permitted Hedging Indebtedness if and to the extent such holder has been granted the Permitted Encumbrances described in Section (b) of the definition thereof at or prior to the Closing Time, in form and substance satisfactory to the Lenders; and (ii) an agreement with each of the holders of Permitted Hedging Indebtedness pursuant to which such holders will agree to deal with such indebtedness and with any defaults of the Corporation in form and substance satisfactory to the Lenders. 4.2 CONDITIONS TO THE OBLIGATIONS OF THE AGENT RE: ADDITIONAL PURCHASE PRICE PAYMENTS Notwithstanding anything herein contained, the obligation of the Agent to cause the Lenders to make Additional Purchase Price Payments to the Corporation will be subject to the fulfilment of the following conditions at or prior to the Payment Date applicable thereto and the Corporation covenants to use its best efforts to ensure that such conditions are fulfilled. (a) SATISFACTION OF CONDITIONS SET OUT IN SECTION 4.1. All of the conditions set out in Section 4.1 (other than the conditions set out in Section 4.1(n) and (o)) shall have been satisfied and shall remain satisfied, provided that the defined terms "Closing Time" or "Closing Date" used in any such conditions in Section 4.1 shall for the purposes of this Section 4.2(a) be amended to read "Payment Date". (b) DEFAULT OR EVENT OF DEFAULT. No Default or Event of Default shall have occurred and be continuing nor shall there be any Default or Event of Default which will or will likely occur as a result of the transactions contemplated by this Agreement or the Documents or the payment of the Additional Purchase Price Payments. 34 (c) PAYMENT CERTIFICATE. The Agent and the Lenders shall have received two Business Days prior to the Payment Date a certificate (a "Payment Certificate") dated as of the applicable Payment Date, in form and substance satisfactory to the Agent and the Lenders: (i) certifying either: (1) that there have been no amendments or changes to the articles and by-laws of the Corporation since the later of the Closing Date and the date of the last Payment Certificate, or (2) that attached thereto are true and correct copies of all amendments and/or changes to the articles and by-laws of the Corporation; (ii) certifying either: (1) that the most recently delivered certificate setting forth the names of the directors and officers of the Corporation, including sample signatures of such directors and officers of the Corporation who have executed any of the Documents, is in full force and effect, unamended, or (2) that attached thereto is an amended certificate setting forth the names of the directors and officers of the Corporation including sample signatures of such directors and officers who are authorized to execute any Documents; (iii) confirming the truth, accuracy and compliance of and with Sections 4.2(a) and 4.2(b) hereof and, to the extent there is any non-compliance and/or untruth, specifying such non-compliance and/or untruth; (iv) setting forth the proposed use of the proceeds of the Additional Purchase Price Payment and specifically tying such payment to the cash flow statements delivered to the Lenders pursuant to the Debentures; and (v) certifying that the Initial Purchase Price and any previous Additional Purchase Price Payments were used in accordance with and for the purposes set forth in this Agreement, the Debentures and any previously delivered Payment Certificates. 35 (d) NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse change in the financial condition, business and prospects of the Corporation and of the Kemess Mine. (e) USE OF ADDITIONAL PURCHASE PRICE PAYMENT. The proposed use of the Additional Purchase Price Payment is in accordance with the provisions of this Agreement, the Debentures and the cash flow statement delivered to the Lenders pursuant to the Debentures. (f) SECURITY. The Lenders shall be satisfied that upon and after making the Additional Purchase Price Payment the Liens under the Security are and will remain valid and enforceable and will rank senior in priority to all other Liens, claims and interests in the Mortgaged Property securing repayment of the Purchase Price for the Debentures, except for such Liens relating to or securing Debt of the Corporation not in excess of Can.$10,000,000 as may be held by holders of those Existing Encumbrances set out in Part 1 of SCHEDULE C1 to the Debentures; (g) TIME FRAME. All of the conditions set out in this Section 4.2 shall have been satisfied, each in accordance with the provisions of this Agreement, on or prior to August 15, 1998. 36 4.3 WAIVER OR TERMINATION BY THE AGENT Each of the conditions contained in Section 4.1 and Section 4.2 hereof are inserted for the exclusive benefit of the Agent and may be waived in whole or in part by the Agent at any time. The Corporation acknowledges that the waiver by the Agent of any condition or any part of any condition shall constitute a waiver only of such condition or such part of such condition, as the case may be, and shall not constitute a waiver of any covenant, agreement, representation or warranty made by the Corporation herein that corresponds or is related to such condition or such part of such condition, as the case may be. If any of the conditions contained in Section 4.1 hereof are not fulfilled or complied with as herein provided, the Agent may, at or prior to the Closing Time at its option, be released from any and all of its obligations, covenants, agreements and liabilities pursuant to this Agreement by notice in writing to the Corporation and in such event the Agent shall be released from all of its obligations, covenants, agreements and liabilities hereunder and, unless the condition or conditions which have not been fulfilled are reasonably capable of being fulfilled or caused to be fulfilled by the Corporation, then the Corporation shall also be released from all obligations hereunder, except that the Corporation will remain liable for the payment of all fees and expenses referred to in Sections 2.3(a) and (c) hereof. If any of the conditions contained in Section 4.2 hereof are not fulfilled or complied with as herein provided, the Agent and the Lenders shall be released from any and all of their obligations, covenants, agreements and liabilities pursuant to this Agreement including the obligation of the Agent to cause the Lenders to make any Additional Purchase Price Payments. ARTICLE 5 - CLOSING 5.1 CLOSING ARRANGEMENTS Subject to the terms and conditions hereof, the transactions contemplated herein shall be closed at the Closing Time at the offices of Goodman and Carr or at such other place or places as may be mutually agreed upon by the Corporation and the Agent. 37 5.2 DOCUMENTS TO BE DELIVERED At or before the Closing Time, the Corporation shall execute, or cause to be executed, and shall deliver, or cause to be delivered, to the Agent and the Lenders all payments, documents, instruments and things which are to be delivered by the Corporation pursuant to the provisions of this Agreement, including the Debentures, and the Agent shall execute, or cause to be executed, and shall deliver, or cause to be delivered, to the Corporation all payments and all documents, instruments and things which the Agent is to deliver or to cause to be delivered pursuant to the provisions of this Agreement. ARTICLE 6 - GENERAL PROVISIONS 6.1 FURTHER ASSURANCES Each of the Corporation and the Agent hereby covenants and agrees that at any time and from time to time after the Closing Date it will, upon the request of the other, do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered all such further acts, deeds, assignments, transfers, conveyances and assurances as may be required for the better carrying out and performance of all the terms of this Agreement including, without limitation, such further and other security interests as the Agent or the Lenders may request. 6.2 REMEDIES CUMULATIVE The rights and remedies of the parties under this Agreement are cumulative and in addition to and not in substitution for any rights or remedies provided by law. Any single or partial exercise by any party hereto of any right or remedy for default or breach of any term, covenant or condition of this Agreement does not waive, alter, affect or prejudice any other right or remedy to which such party may be lawfully entitled for the same default or breach. 38 6.3 INDEMNIFICATION The Corporation covenants and agrees that it will indemnify and hold harmless each of the Agent and the Lenders and its members, managers, shareholders, partners, officers, directors, employees, affiliates, consultants and agents and their respective successors and assigns, from and after the date of this Agreement, against any and all losses, damages, assessments, fines, penalties, adjustments, liabilities, claims, deficiencies, costs, expenses (including specifically, but without limitation, reasonable legal fees and expenses and expenditures) with respect to any misrepresentation, breach of warranty, or nonfulfillment of any agreement or covenant on the part of the Corporation pursuant to the terms of this Agreement or any other Document or any misrepresentation in or omission from any schedule, list, certificate, or other instrument furnished or to be furnished by the Corporation to the Agent or the Lenders pursuant to the terms of this Agreement or any other Document or with respect to all actions, suits, proceedings, demands, assessments, adjustments, costs and expenses incident to any of the foregoing or in connection with the enforcement of rights hereunder or thereunder, regardless of whether, in the case of a breach of a representation or a warranty, the Agent or the Lenders relied on the truth of such representation or warranty or had any knowledge of any breach thereof. 6.4 NOTICES Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be given by facsimile or other means of electronic communication or by delivery as hereafter provided. Any such notice or other communication, if sent by facsimile or other means of electronic communication, shall be deemed to have been received on the Business Day following the sending, or, if delivered by hand, shall be deemed to have been received at the time it is delivered to the applicable address noted below either to the individual designated below or to an individual at such address having apparent authority to accept deliveries on behalf of the addressee. Notice of change of address shall also be governed by this section. Notices and other communications shall be addressed as follows: 39 (a) if to the Corporation: Royal Oak Mines Inc. c/o Arctic Precious Metals, Inc. Royal Oak Mines (U.S.A.) Inc. 5501 Lakeview Drive Kirkland, Washington U.S.A. 98033 Attention: President Facsimile Number: (425) 822-3349 with a copy to: Lang Michener BCE Place, Box 747 2500 - 181 Bay Street Toronto, Ontario Attention: William Sheridan and David Thring Facsimile Number: (416) 365-1719 (b) if to the Agent: Trilon Financial Corporation BCE Place 181 Bay Street Suite 4420, P.O. Box 771 Toronto, Ontario M5J 2T3 Attention: Sam Pollock Facsimile Number: (416) 365-9642 40 with a copy to: Goodman and Carr Suite 2300 200 King Street West Toronto, Ontario M5H 3W5 Attention: Jeffrey Blidner and Lorne Segal Facsimile No.: (416) 595-0567 6.5 COUNTERPARTS This Agreement may be executed in several counterparts, each of which so executed shall be deemed to be an original, and such counterparts together shall constitute but one and the same instrument. 6.6 ANNOUNCEMENTS No announcement with respect to this Agreement, including any disclosure of the identity of the Agent or the Lenders, will be made by any party hereto without the prior approval of the other party. The foregoing will not apply to any announcement by any party required in order to comply with laws pertaining to timely disclosure, provided that such party consults with the other parties before making any such announcement. The Corporation acknowledges and confirms its rights and obligations under the Confidentiality Agreement entered into between it and an affiliate of the Agent on February 19, 1998. The Agent confirms that it is bound by and is subject to all of the obligations and entitled to all of the rights of such affiliate under such Confidentiality Agreement provided that such Confidentiality Agreement is hereby amended to the extent necessary to enable and permit the Agent to use and disclose any and all information and documentation in its possession regarding the property, assets and affairs of the Corporation and the Subsidiaries (i) to any of the Lenders and (ii) for the purpose of assessing, receiving advice on, exercising, enforcing or prosecuting its rights and remedies under the Documents or representing in any proceedings its interests in respect thereof except that, prior to the occurrence of a Default, the Agent may not publicly disclose material non-public information and documentation provided to it by the Corporation regarding hedging arrangements. 41 6.7 ASSIGNMENT The rights and obligations of the Corporation hereunder shall not be assignable. Each of the Agent and the Lenders may, at its discretion, assign its rights and obligations hereunder or under any of the Documents at any time (including, without limitation, by the grant or conveyance of participation in its interests hereunder). For greater certainty and without limitation, each of the Lenders may assign its rights in respect of any portion of the Corporation's obligations under the Debentures, and corresponding rights under the other Documents and/or the Agent may assign its rights in respect of any portion of the Corporation's obligations under this Agreement, the Royalty Agreement, and corresponding rights under the other Documents, and in such event the Corporation will at the assignor's request execute new documentation, including new Documents, to and in favour of the assignee substantially in the same form and content as the assigned documentation, including the Documents. Each of the Agent and the Lenders may provide to any proposed assignee or participant such information concerning the financial position and the operations of the Corporation and its Subsidiaries as, in its opinion, may be relevant or useful in connection with this Agreement or any other Document or any portion thereof proposed to be acquired by such assignee or participant. Notwithstanding anything else in this section 6.7, if no Default or Event of Default has occurred, neither the Agent nor the Lenders may assign this Agreement or the Documents to any corporation whose principal business is the exploration for or mining of precious and base metals (other than such Persons in which the Agent or the Lenders or their respective Associates or affiliates has a direct or indirect interest which Persons may be an assignee of this Agreement or the Documents). Following a Default or an Event of Default, there shall be no restrictions on the Agent's or the Lenders' ability to assign this Agreement or any of the Documents. 6.8 RIGHT OF FIRST OPPORTUNITY TO REFINANCE If the Corporation determines, at any time within a period of three years from the date hereof, to refinance the principal amount outstanding pursuant to the Debentures through the issuance or incurring of any indebtedness in any manner (other than the issuance or incurring of any indebtedness that is convertible to or exchangeable for equity of the Corporation), the Corporation shall offer to the Agent the first right of opportunity to arrange such financing as is required to refinance the principal amount outstanding pursuant to the Debentures, on market terms. 42 6.9 SUCCESSORS AND ASSIGNS This Agreement shall be binding upon and enure to the benefit of the parties hereto and their respective successors and permitted assigns. Subject to the last sentence of Section 6.10, nothing herein, express or implied, is intended to confer upon any person, other than the parties hereto and their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. 6.10 RELIANCE AND NON-MERGER All covenants, agreements, representations and warranties of the Corporation made herein or in any other Document or in any certificate or other document signed by any of its directors or officers and delivered by or on behalf of any of them pursuant hereto or thereto are material, shall be deemed to have been relied upon by the Agent and the Lenders notwithstanding any investigation heretofore or hereafter made by the Agent or the Lenders, or their respective counsel or any employee or other representative of the Agent or the Lenders and shall survive the execution and delivery of this Agreement and the other Documents until the Corporation shall have satisfied and performed all of its obligations hereunder and thereunder. Notwithstanding anything to the contrary herein contained, the Lenders may rely upon all of the representations, warranties, agreements, covenants and indemnities given by or on behalf of the Corporation pursuant to this Agreement and upon all of the conditions in favour of the Agent in this Agreement and may pursue and enforce any and all remedies resulting from any non-compliance therewith or breach thereof notwithstanding that the Lenders are not a party to this Agreement. Nothing contained in this Agreement shall operate to subordinate the Security provided in favour of the Lenders or the Agent to or in favour of any Permitted Encumbrances or other Liens, or to postpone any of the obligations owing by the Corporation to the Lenders or the Agent to any of the obligations, indebtedness or liabilities owed by the Corporation to the holders of the Permitted Encumbrances or other Liens. 6.11 JUDGMENT CURRENCY If for the purpose of obtaining judgment in any court, it is necessary to convert an amount due under this Agreement or any other of the Documents or under any instrument delivered thereunder from a currency in which it is due (the "Original Currency") into another currency (the "Second Currency") the parties hereto agree, to the fullest extent permitted by law, that the rate of exchange used shall be that at which, in accordance with normal banking procedures, the Agent could purchase the 43 Original Currency with the Second Currency on the date two Business Days preceding that on which judgment is given. The obligation of the Corporation in respect of any Original Currency due from it to the Agent or the Lenders under this Agreement or any other Documents or under any instrument delivered thereunder shall, notwithstanding any judgment in the Second Currency, be discharged by a payment made to the Agent or the Lenders entitled thereto on account thereof in the Second Currency only to the extent that, on the Business Day following receipt of such payment in the Second Currency, the Agent may, in accordance with normal banking procedures, purchase the Original Currency with the amount of the Second Currency so paid; and if the amount of the Original Currency which may be so purchased is less than the amount originally due in the Original Currency, the Corporation agrees as a separate and independent obligation and notwithstanding any such payment or judgment to indemnify the Agent and the Lenders against such deficiency. 6.12 TIME OF THE ESSENCE Time shall be of the essence of this Agreement. 6.13 ENTIRE AGREEMENT This Agreement, the schedules referred to herein, and the other Documents constitute the entire agreement between the parties hereto pertaining to the matters therein set forth and supersede all prior agreements, representations, warranties, statements, promises, information, arrangements and understandings, whether oral or written, express or implied, with respect to the subject matter thereof. Neither party hereto shall be bound or charged with any oral or written agreements, representations, warranties, statements, promises, information, arrangements or understandings not specifically set forth in this Agreement or the schedules or the other Documents. The parties hereto further acknowledge and agree that, in entering into this Agreement and in delivering the schedules and the other Documents, they have not in any way relied, and will not in any way rely, upon any oral or written agreements, representations, warranties, statements, promises, information, arrangements or understandings, express or implied, not specifically referenced or set forth in this Agreement or in such schedules or other Documents. 44 6.14 WAIVER Any party hereto which is entitled to the benefits of this Agreement may, and has the right to, waive any term or condition hereof at any time on or prior to the Closing Time; provided, however, that such waiver shall be evidenced by written instrument duly executed on behalf of such party and that no waiver of any provision shall constitute a waiver of any other provision and that no waiver will constitute a continuing waiver unless otherwise expressly provided. 6.15 AMENDMENTS No modification or amendment to this Agreement may be made unless agreed to by the parties hereto in writing. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement under seal as of the day and year first above written. ROYAL OAK MINES INC. By: /s/ James H. Wood ------------------------------- Name: James H. Wood Title: Chief Financial Officer TRILON FINANCIAL CORPORATION By: /s/ Sam Pollock ------------------------------- Name: Sam Pollock Managing Partner By: /s/ Bruce Robertson ------------------------------- Name: Bruce Robertson Vice President 45 EX-4.5 6 EXHIBIT 4.5 SECURITIES PURCHASE FIRST AMENDING AGREEMENT THIS AGREEMENT is made this 15th day of May, 1998 BETWEEN: ROYAL OAK MINES INC., a corporation amalgamated under the laws of the Province of Ontario (the "Corporation") - and - TRILON FINANCIAL CORPORATION, (the "Agent") WHEREAS the Corporation and the Agent entered into a Securities Purchase Agreement dated as of the 17th day of April, 1998 (the "Agreement); AND WHEREAS capitalized terms not otherwise defined herein shall have the meanings given them respectively in the Agreement; AND WHEREAS pursuant to the Agreement, the Closing Date was April 30th, 1998 or such other date as the Agent and the Corporation may agree upon as the Closing Date; AND WHEREAS the Corporation has requested that the Agent agree to extend the Closing Date to May 28, 1998, and the Agent has agreed to extend the Closing Date to May 28, 1998; AND WHEREAS pursuant to Section 2.3(a) of the Agreement, the Corporation acknowledged and agreed, among other things, that the Agent and the Lenders earned a non-refundable fee of U.S.$2,400,000 (which is payable as to U.S.$1,200,000 to the Agent, as to U.S.$840,000.00 to the Lenders purchasing Series A Debentures on a pro rata basis, and as to U.S.$360,000.00 to the Lenders purchasing Series B Debentures on a pro rata basis, which fee was payable in full on April 30, 1998; AND WHEREAS the Corporation has agreed to pay interest to the Agent and the Lenders at the Interest Rate (as defined in the Debentures) on the U.S.$2,400,000 fee payable pursuant to Section 2.3(a) of the Agreement from and after April 30, 1998, on the terms and conditions hereinafter set out; NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual covenants hereinafter contained, the Agent agreeing to extend the Closing Date as aforesaid, the payment by each party hereto to the other party hereto of the sum of Can. $10 and other good and valuable consideration, the receipt and sufficiency of which being hereby acknowledged, the parties hereto agree as follows: 1. Section 1.1(j) of the Agreement is hereby deleted and replaced with the following: "(j) "Closing Date" means May 28, 1998 or such other date as the Agent and the Corporation may agree upon as the Closing Date;" 2. Section 2.3(a) of the Agreement is hereby deleted and replaced with the following: "2.3(a)(i) The Corporation acknowledges that the Agent and Lenders have earned a non-refundable fee of U.S.$2,400,000 (which is payable as to U.S.$1,200,000 to the Agent, as to U.S.$840,000.00 to the Lenders purchasing Series A Debentures on a pro rata basis) and as to U.S.$360,000 to the Lenders purchasing Series B Debentures on a pro rata basis, which was due and payable on April 30, 1998. The Corporation acknowledges and agrees that it is responsible for and will pay such fee on the earlier of the Closing Date or the date of demand by the Agent (provided that if the Agent makes such demand prior to the Closing Date, the entire fee shall be paid directly to the Agent and not to the Lenders), and even if it is the Agent who subsequently terminates its obligations under this Agreement pursuant to Section 4.3 hereof; provided that if such termination is as a result of the Agent expressly terminating its obligations hereunder solely pursuant to and in reliance on Section 4.1(n) hereof, the fee provided for in this Section 2.3(a)(i) shall be reduced to U.S.$100,000 which shall thereupon be payable upon demand by the Corporation to the Agent. Any fee payable by the Corporation to the Agent under this Section 2.3(a)(i) may, at the option of the Agent and the Lenders, be made by the Lenders paying the amount of such fees out of the Initial Purchase Price in accordance with Section 2.2(a) hereof." 2 3. The following is hereby added to the Agreement as new Section 2.3(a)(ii): "2.3(a)(ii) The Corporation shall pay interest to the Agent at the Interest Rate (as defined in the Debentures) from and after April 30, 1998 and before and after judgment, on the outstanding principal amount of the U.S.$2,400,000 fee payable pursuant to Section 2.3(a)(ii), calculated and compounded daily, which interest shall be payable by the Corporation to the Agent on the earlier of the Closing Date or the date of demand by the Agent. The Corporation shall pay such interest on demand without deduction or set-off, by wire transfer of immediately available funds to such account and address of the Agent as may be provided by the Agent from time to time." 4. Section 4.1(o) of the Agreement is hereby deleted and replaced with the following: "(o) TIME FRAME. All of the conditions set out in this Section 4.1 shall have been satisfied, each in accordance with the provisions of this Agreement, on or prior to May 28, 1998." 5. The Corporation hereby acknowledges that (i) the fee payable by the Corporation pursuant to Section 2.3(a)(ii) of the Agreement became due and payable in full to the Agent on April 30, 1998, (ii) such fee bears interest at the rate and upon the terms and conditions provided for in Section 2.3(a)(ii) of the Agreement, (iii) such interest is payable on the earlier of the Closing Date or the date of demand by the Agent, and (iv) except as herein provided, neither the Agent nor the Lenders have waived or extended the time for payment of such fee or interest thereon. 6 This agreement may be executed in several counterparts, each of which so executed shall be deemed to be an original, and such counterparts together shall constitute but one and the same instrument. 7. This agreement shall be binding upon and enure to the benefit of the parties hereto and their respective successors and permitted assigns. Subject to the last sentence of Section 6.10 of the Agreement, nothing herein, express or implied, is intended to confer upon any person, other than the parties hereto and their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this agreement. 8. Time shall be of the essence of this agreement. 3 9. Subject to the provisions hereof, the parties hereto hereby ratify and confirm the provisions of the Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this agreement under seal as of the day and year first above written. ROYAL OAK MINES INC. By: /s/ James H. Wood ------------------------------ Name: James H. Wood Title: Chief Financial Officer TRILON FINANCIAL CORPORATION By: /s/ Sam Pollock ------------------------------ Name: Sam Pollock Managing Partner By: ------------------------------ Name: 4 EX-4.6 7 EXHIBIT 4.6 SECURITIES PURCHASE SECOND AMENDING AGREEMENT THIS AGREEMENT is made as of the 22nd day of June, 1998 BETWEEN: ROYAL OAK MINES INC., a corporation amalgamated under the laws of the Province of Ontario (the "Corporation") - and - TRILON FINANCIAL CORPORATION, (the "Agent") WHEREAS the Corporation and the Agent entered into a Securities Purchase Agreement dated as of the 17th day of April, 1998, which agreement was amended by a Securities Purchase Amending Agreement made the 15th day of May, 1998 (collectively, the "Agreement); AND WHEREAS capitalized terms not otherwise defined herein shall have the meanings given them respectively in the Agreement; AND WHEREAS pursuant to the Agreement, the Closing Date was May 28, 1998 or such other date as the Agent and the Corporation may agree upon as the Closing Date; AND WHEREAS the Corporation has requested that the Agent agree to extend the Closing Date to June 23rd, 1998, and the Agent has agreed to extend the Closing Date to June 23rd, 1998, subject to the other terms and conditions hereinafter set out; NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual covenants hereinafter contained, the Agent agreeing to extend the Closing Date as aforesaid and other good and valuable consideration, the receipt and sufficiency of which being hereby acknowledged, the parties hereto agree as follows: 1. Section 1.1(c) of the Agreement is hereby deleted in its entirety and is replaced with the following: "(c) "Aggregate Available Purchase Price" means the difference if any between U.S.$120,000,000 and the amount of the Initial Purchase Price;" 2. Section 1.1(j) of the Agreement is hereby deleted in its entirety and is replaced with the following: "(j) "Closing Date" means June 23, 1998 or such other date as the Agent and the Corporation may agree upon as the Closing Date;" 3. Section 1.1(bg) of the Agreement is hereby deleted in its entirety and is replaced with the following: "(bg) "Subordinated Notes" means the outstanding Secured 12.75% Senior Subordinated Notes due 2006 in the aggregate principal amount of U.S.$175,000,000;" 4. Section 1.1(bh) of the Agreement is hereby deleted in its entirety and is replaced with the following: "(bh) "Subordinated Note Trust Indenture" means the Trust Indenture dated as of August 12, 1996 among the Corporation, Kemess Mines Inc. and Mellon Bank, F.S.B. relating to the Subordinated Notes, as amended by (i) the First Supplemental Indenture dated and effective as of December 31, 1997, (ii) the Second Supplemental Indenture dated and effective as of January 31, 1998, (iii) the Third Supplemental Indenture dated and effective as of May 19, 1998, (iv) the Fourth Supplemental Indenture dated and effective the date hereof, and (v) the Fifth Supplemental Indenture dated and effective the date hereof, each by and between the Corporation and Chase Manhattan Trust Company, National Association, the successor to Mellon Bank, F.S.B. as Trustee;" 5. The following is added to Agreement as new Section 1.1(bl): "(bl) "Bank Working Capital Facility" means a working capital facility provided to the Corporation by the Bank of Nova Scotia pursuant to a credit agreement dated February 15, 1996 as amended by agreements dated August 5, 1996 and May 30, 1997 in a maximum principal amount not to exceed Can. $1,900,000 pursuant to which the Bank of Nova Scotia has outstanding letters of credit on behalf of the Corporation and in respect of which the 2 Corporation has provided to the Bank of Nova Scotia cash collateral as security therefor in the approximate amount of Can. $2,012,126 as at May 19, 1998 plus interest thereon." 6. Section 2.2(a) of the Agreement is hereby amended to delete reference therein to "U.S.$90,000,000" and to replace this reference with "US$115,000,000". 7. The first sentence of Section 2.2(b) of the Agreement is hereby deleted in its entirety and is replaced with the following: "(b) Subject to Section 2.2(c) hereof and Section 2.2(d) hereof, the Additional Purchase Price shall be paid as hereinafter set forth." 8. Section 2.2(b) of the Agreement is hereby amended to delete any reference therein to "Aggregate Additional Purchase Price" and to replace each such reference with "Aggregate Available Purchase Price". 9. The following is added to the Agreement as new Section 2.2(c): "(c) The Corporation shall not at any time be entitled to and shall not request an Additional Purchase Price Payment, and neither the Lenders nor the Agent shall have any obligation to the Corporation or otherwise to make an Additional Purchase Price Payment if at such time or if as a result of the proposed Additional Purchase Price Payment the Aggregate Available Purchase Price is or would be U.S.$5,000,000 or less and if at such time Trilon Bancorp Inc. is the owner of the Proposed Leaseback Assets. If Trilon Bancorp Inc. is not the owner of the Proposed Leaseback Assets as a result of a sale thereof, the provisions of this Section 2.2(c) shall thereafter no longer apply." 10. The following is added to the Agreement as new Section 2.2(d): "(d) The Corporation shall not at any time be entitled to and shall not request an Additional Purchase Price Payment, and neither the Lenders nor the Agent shall have any obligation to the Corporation or otherwise to make an Additional Purchase Price Payment if at such time or if as a result of the proposed Additional Purchase Price Payment the Aggregate Available Purchase Price is or would be U.S.$2,000,000 or less unless at such time the Agent and the Lenders are satisfied in their absolute discretion that, the Corporation has no outstanding obligations or liabilities to the Bank of Nova Scotia pursuant to or in connection with the Bank Working Capital Facility including any reimbursement or indemnification obligations that constitute, or could constitute with the passage of time, the giving of notice or the occurrence of a default, "Permitted Indebtedness" as defined in and pursuant to clause (v) of 3 the definition of "Permitted Indebtedness" in the Subordinated Note Trust Indenture. For the purposes of this Section 2.2(d), the Corporation will be deemed to have outstanding obligations or liabilities to the Bank of Nova Scotia pursuant to or in connection with the Bank Working Capital Facility that constitutes Permitted Indebtedness pursuant to clause (v) of the definition of "Permitted Indebtedness" in the Subordinated Note Trust Indenture until such time that the Corporation has delivered to the Agent and the Lenders either (i) an irrevocable confirmation in writing from the Bank of Nova Scotia or (ii) an opinion of counsel acceptable to the Agent and the Lenders in their absolute and unfettered discretion, that in each case, the Corporation's obligations and liabilities to the Bank of Nova Scotia pursuant to or in connection with the Bank Working Capital Facility have been paid in full and that the Corporation has outstanding no obligations or liabilities to the Bank of Nova Scotia that constitute Permitted Indebtedness pursuant to clause (v) of the definition of "Permitted Indebtedness" in the Subordinated NoteTrust Indenture." 11. The following is added to the Agreement as new Section 2.3(d): "(d) The Corporation will pay to the Lenders on the Closing Date a fee equal to 2% of the amount by which the Permitted Encumbrances set out in Part I of SCHEDULE C1 of the Debentures exceeds Can.$10,000,000 at the Closing Time (the "Lien Fee"); provided that no Default or Event of Default has occurred and is continuing and provided further that the Permitted Encumbrances set out in Part I of SCHEDULE C1 of the Debentures have been permanently reduced by the Corporation to Can.$10,000,000 or less as at December 31, 1998, (and the Corporation shall have provided to the Lenders information and particulars to this effect satisfactory to the Lenders) the Lenders shall refund to the Corporation on January 15, 1999 an amount equal to 1/2 of the Lien Fee without any interest thereon. The Lien Fee shall be paid by the Corporation as to 70.8% thereof to the Lenders purchasing Series A Debentures and as to 29.2% thereof to the Lenders purchasing Series B Debentures." 12. Section 3.1(i) of the Agreement is hereby deleted in its entirety and is replaced with the following: "(i) NO OBLIGATION TO ISSUE SHARES. Except for (i) agreements, options, warrants, rights and conversion or other rights granted to current or former directors and employees of the Corporation in respect of which no more than 10 million Common Shares of the Corporation may be acquired, (ii) agreements to issue to the Corporation shares of APM (which shares when issued will be subject to the Security and all share certificates in respect thereof will, at the request of the Lenders, be delivered to the Lenders), (iii) special warrants and common shares which may be issued by the Corporation to its creditors, in lieu 4 of partial payment to such creditors, and to other Persons, and (iv) 10,000,000 common shares being issued to the consenting holders of the Subordinated Notes, there are no agreements, options, warrants, rights of conversion or other rights pursuant to which the Corporation or any of the Subsidiaries is or may become obligated to issue any shares or any securities convertible into, or exchangeable for, shares." 13. Section 3.1(m) of the Agreement is hereby deleted in its entirety and is replaced with the following: "(m) LIMITATION ON PAYMENT RESTRICTIONS. Except for restrictions contained herein, in the Senior Secured Debenture Facility and in the Subordinated Note Trust Indenture, and restrictions in favour of the holders of the Permitted Hedging Indebtedness to the extent such restrictions herein and in the Subordinated Note Trust Indenture have been agreed to and adopted by the Corporation and such holders, neither the Corporation nor any Subsidiary is subject to any consensual restriction on its ability (a) to pay dividends or make any other distributions on its equity securities to, or pay any indebtedness owing to, or repurchase or redeem any equity securities from, the holders of such equity securities, the Corporation or any other Subsidiary, (b) to make any loans or advances to the Corporation or any other Subsidiary, or (c) to transfer any of its property or assets to the Corporation or any other Subsidiary." 14. Section 3.1(s) of the Agreement is hereby amended to delete reference therein to the "annual report on Form 10-K for the fiscal year ended December 31, 1997" and to replace this reference with the "quarterly report on Form 10-Q for the fiscal quarter ended March 31, 1998 and to delete reference therein to the "annual report" and to replace this reference with the "quarterly report". 15. Section 3.1(u)(i) of the Agreement is hereby amended to delete reference therein to "Can.$10,000,000" and to replace this reference with "Can.$15,000,000". 16. Section 3.1(u)(ii) of the Agreement is hereby amended to delete reference therein to "Can.$10,000,000" and to replace this reference with "Can.$15,000,000". 17. Section 3.1(ae) of the Agreement is hereby deleted in its entirety and is replaced with the following: "(ae) SUBORDINATED NOTES. Other than the Disclosed Defaults, the Corporation is in compliance with all terms and conditions and agreements applicable to the 5 Subordinated Notes, and the Corporation will after giving effect to the transactions contemplated by this Agreement and the other Documents, be in compliance with all terms and conditions and agreements applicable to the Subordinated Notes. The indebtedness under the Debentures, the Royalty Agreement and the Royalty Debenture will fully constitute "Permitted Indebtedness" and the Security and the Royalty Debenture will in each and every respect constitute "Permitted Liens" under the Subordinated Note Trust Indenture. The indebtedness under the Debentures and the amounts if any from time to time outstanding on account of the Royalty Agreement will constitute "Senior Indebtedness" under the Subordinated Note Indenture. The indebtedness under the Debentures will constitute "Designated Senior Indebtedness" under the Subordinated Note Indenture. The indebtedness of any Subsidiary under or on account of the Debentures will constitute "Guarantor Senior Indebtedness" under the Subordinated Note Indenture. The Lenders will be entitled to the benefit of and can rely on the provisions of the Subordinated Note Indenture relating to "Senior Indebtedness", "Designated Senior Indebtedness" and "Guarantor Senior Indebtedness" and the holder of the royalty pursuant to the Royalty Agreement will be entitled to the benefit of and will be entitled to rely on the provisions of the Subordinated Note Indenture relating to "Senior Indebtedness" to the extent of the amounts if any from time to time outstanding on account of the Royalty Agreement. Each of the Lenders and the holder of the royalty pursuant to the Royalty Agreement, to the extent of the amounts if any from time to time outstanding on account of the Royalty Agreement, will be entitled to enforce such provisions as are applicable to it directly against the Corporation and any other Subsidiary. The Corporation has delivered to the Agent coplete and accurate copies of all agreements and documents relating to the Subordinated Notes including, without limitation, the Subordinated Note Trust Indenture. The Subordinated Notes will be at the Closing Date and thereafter remain in accordance with their terms, fully subordinated and postponed to the obligations of the Corporation to the Agent and the Lenders under the Documents." 18. The following is added to the Agreement as new Section 3.1(ai): "3.1 (ai) SCHEDULE W lists particulars, including bank, branch address, account type and account number, of each bank account maintained by the Corporation and by each of the Subsidiaries." 19. Section 4.1(i) of the Agreement is hereby amended to delete reference therein to "Can.$10,000,000" and to replace this reference with "Can.$15,000,000". 20. Section 4.1(l)(i) of the Agreement is hereby amended to delete reference therein to "Can.$10,000,000" and to replace this reference with 6 "Can.$15,000,000". 21. Section 4.1(o) of the Agreement is hereby deleted in its entirety and replaced with the following: "(o) TIME FRAME. All of the conditions set out in this Section 4.1 shall have been satisfied, each in accordance with the provisions of this Agreement, on or prior to June 23, 1998." 22. The following is added to the Agreement as new Section 4.1(r): "(r) SUBORDINATED NOTEHOLDERS INTER-CREDITOR AGREEMENT. The Lenders, the Agent and the Corporation shall have entered into an inter-creditor agreement with Chase Manhattan Trust Company, National Association as trustee under the Subordinated Note Indenture and with any collateral agent appointed by it if and to the extent they have been granted the Permitted Encumbrances described in Section (l) of the definition thereof at or prior to the Closing Time, in form and substance satisfactory to the Lenders, including provisions that notwithstanding the granting of such security the consenting holders of the Subordinated Notes will take reasonable steps to ensure that they are placed in a separate class of creditors than the Lenders in any insolvency proceedings relating to the Corporation and if notwithstanding the foregoing they are placed in the same class of creditors they will assign their votes to the Lenders so as to permit the Lenders to vote against and defeat any restructuring plan in such insolvency proceedings." 23. Section 4.2(f) of the Agreement is hereby deleted in its entirety and is replaced with the following: "(f) SECURITY. The Lenders shall be satisfied that upon and after making the Additional Purchase Price Payment the Liens under the Security are and will remain valid and enforceable and will rank senior in priority to all other Liens, claims and interests in the Mortgaged Property, except for such Liens relating to or securing Debt of the Corporation not in excess of Can.$15,000,000 as may be held by holders of those Existing Encumbrances set out in Part 1 of SCHEDULE C1 to the Debentures;" 24. The Series A Debenture attached as Schedule A-1 to the Agreement is hereby deleted in its entirety and is replaced with the Series A Debenture attached as Schedule A-1 to this agreement. 25. The Series B Debenture attached as Schedule A-2 to the Agreement is hereby deleted in its entirety and is replaced with the Series B Debenture attached as 7 Schedule A-2 to this agreement. 26. The Royalty Agreement attached as Schedule C to the Agreement is hereby deleted in its entirety and is replaced with the Royalty Agreement attached as Schedule C to this agreement. 27. This agreement may be executed in several counterparts, each of which so executed shall be deemed to be an original, and such counterparts together shall constitute but one and the same instrument. 28. This agreement shall be binding upon and enure to the benefit of the parties hereto and their respective successors and permitted assigns. Subject to the last sentence of Section 6.10 of the Agreement, nothing herein, express or implied, is intended to confer upon any person, other than the parties hereto and their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this agreement. 29. Time shall be of the essence of this agreement. 30. Subject to the provisions hereof, the parties hereto hereby ratify and confirm the provisions of the Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this agreement under seal as of the day and year first above written. ROYAL OAK MINES INC. By: /s/ James H. Wood -------------------------------- Name: James H. Wood Title: Chief Financial Officer TRILON FINANCIAL CORPORATION By: /s/ Sam Pollock -------------------------------- Name: Sam Pollock Managing Partner By: /s/ Bruce Robertson -------------------------------- Name: Bruce Robertson Vice President 8 EX-4.7 8 EXHIBIT 4.7 ROYAL OAK MINES INC. - ------------------------------------------------------------------------------- SENIOR SECURED DEBENTURE - SERIES A - ------------------------------------------------------------------------------- JUNE 22, 1998 File #9801032.TRI - SENR15B.DEB LWS:wpc GOODMAN AND CARR Suite 2300 200 King Street West Toronto, Ontario M5H 3W5 TABLE OF CONTENTS
ARTICLE NO. DESCRIPTION PAGE NO. 1 - INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Use of Singular and Plural . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.3 Interpretation Not Affected by Headings, etc.. . . . . . . . . . . . . . . . . . . . 1 1.4 Monetary References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.5 Day Not a Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.6 Invalidity of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.7 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.8 Debenture to Govern. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.9 Generally Accepted Accounting Principles . . . . . . . . . . . . . . . . . . . . . . 2 1.10 Computation of Time Periods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.11 Debentures in Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2 - PRINCIPAL AND INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.2 Payment of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.3 Repayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.4 Optional Prepayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3 - SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.1 Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.2 No Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.3 Further Assurances - Security. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4 - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.1 Representations and Warranties by the Corporation. . . . . . . . . . . . . . . . . . 9 4.2 Survival of Representations and Warranties by the Corporation. . . . . . . . . . . . 20 5 - COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 5.1 Affirmative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 5.2 Holder's Right to Decline to Receive Information . . . . . . . . . . . . . . . . . . 27 5.3 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 6 - DEFAULT AND ACCELERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.2 Acceleration on Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.3 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.4 Debenture Not Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 7 - MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 7.1 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 7.2 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 7.3 Exchange of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.4 Reliance and Non-Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.5 Amendment, Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.6 No Set-Off by the Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.7 Employment of Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.8 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 7.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 7.10 Payment of Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 7.11 Judgment Currency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 7.12 Payment Agreements for Debenture . . . . . . . . . . . . . . . . . . . . . . . . . . 41 7.13 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ROYAL OAK MINES INC. (Amalgamated under the laws of Ontario) SENIOR SECURED DEBENTURE - SERIES A Royal Oak Mines Inc. (the "Corporation") for value received hereby acknowledges itself indebted and promises to pay to or to the order of the Holder on the Final Maturity Date, each as defined herein, or such dates as all or any part of the principal amount hereof may become due in accordance with the provisions hereof, the principal sum of EIGHTY-FIVE MILLION UNITED STATES DOLLARS (U.S. $85,000,000) (or such parts thereof as may become due), on presentation and surrender of this Debenture (in the case of payment of all of the principal amount hereof) to the Corporation at its registered office or at such place as the Corporation may direct, and to pay interest on the principal amount of this Debenture outstanding from time to time at the rates and times and in the amounts set forth herein. ARTICLE 1 - INTERPRETATION 1.1 DEFINITIONS In this Debenture, unless otherwise defined in this Debenture, the terms set out in SCHEDULE A shall have the meanings ascribed to them in that schedule. 1.2 USE OF SINGULAR AND PLURAL Words importing the singular include the plural and vice versa and words importing gender include all genders. 1.3 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC. The division of this Debenture into Articles, Sections, subsections and paragraphs and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Debenture. 1.4 MONETARY REFERENCES Any reference in this Debenture to "Canadian dollars" or "Can. $" or similar terms shall be deemed to be a reference to lawful money of Canada and any reference in this Debenture to "United States of America dollars", "United States dollars" or "U.S. $" or similar terms shall be deemed to be a reference to lawful money of the United States of America. If no such references are made with respect to any particular sum or obligation, the sum or obligation in question shall be deemed to refer to lawful money of Canada. 1.5 DAY NOT A BUSINESS DAY In the event that any day on or before which any action is required to be taken hereunder is not a Business Day, then such action shall be required to be taken on or before the requisite time on the first Business Day thereafter. 1.6 INVALIDITY OF PROVISIONS Each of the provisions contained in this Debenture is distinct and severable and a declaration of invalidity, illegality or unenforceability of any such provision or part thereof by a court of competent jurisdiction shall not affect the validity or enforceability of any other provisions hereof or thereof. Without limiting the generality of the foregoing, if any amounts on account of interest or fees or otherwise payable by the Corporation to the Holder hereunder exceed the maximum amount recoverable under Applicable Law, the amounts so payable hereunder shall be reduced to the maximum amount recoverable under Applicable Law. 1.7 REFERENCES Except as otherwise specifically provided, reference in this Debenture to any contract, agreement or any other instrument shall be deemed to include references to the same as varied, amended, supplemented or replaced from time to time and reference in this Debenture to any enactment, including without limitation any statute, law, by-law, regulation, ordinance or order, shall be deemed to include references to such enactment as re-enacted, amended or extended from time to time. 1.8 DEBENTURE TO GOVERN If there is any inconsistency between the terms of this Debenture and the terms of any Security Document, the provisions hereof shall prevail to the extent of the inconsistency, but the foregoing shall not apply to limit or restrict in any way the rights and remedies of the Holder under the terms of the Security Documents after the Liens thereby constituted shall have become enforceable. 2 1.9 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Unless otherwise specifically provided herein, all accounting terms shall be applied and construed in accordance with Canadian generally accepted accounting principles consistently applied. For the purpose of determining compliance with the financial covenants set forth in Section 5.1(t), all computations shall be calculated on a consolidated basis, where applicable, and shall be adjusted to eliminate the effect of any discretionary change by the Corporation in the application of generally accepted accounting principles since the date of its most recent audited consolidated financial statements prior to the date hereof. 1.10 COMPUTATION OF TIME PERIODS In this Debenture, in the computation of periods of time from a specified date to a later specified date, unless otherwise expressly stated, the word "from" means "from and including", and the words "to" and "until" each mean "to but excluding". 1.11 DEBENTURES IN SERIES The Series A Senior Secured Debentures of the Corporation (the "Series A Debentures") may be issued to one or more holders. The aggregate principal amount of Series A Debentures which shall be issued shall be U.S. $85,000,000. The Corporation shall also issue Series B Senior Secured Debentures of the Corporation (the "Series B Debentures"), the aggregate principal amount of which shall be U.S. $35,000,000. This Debenture and all other Series A Debentures now or hereafter issued shall be rateably secured by a Lien on the property, assets and undertaking of the Corporation and shall rank pari passu inter se for payment (whether such payment is a payment, repayment and/or prepayment and whether same is voluntary or mandatory) of principal and/or interest hereunder and all such payments shall be made pro rata to each holder of Series A Debentures in accordance with the principal amount outstanding under the debenture held by such holder at the time of such payment. For as long as a Default or an Event of Default has occurred and is continuing, all amounts realized pursuant to the enforcement or the exercise of collection or other remedial action pursuant to or with respect to the Security for the Series A Debenture or the Security (as defined in the Series B Debenture) for the Series B Debenture shall be applied first to pay in full any and all amounts outstanding pursuant to the Series A Debenture, and shall not be applied to pay any or all amounts outstanding pursuant to the Series B Debenture unless and until all amounts outstanding pursuant to the 3 Series A Debenture have been paid in full. At all times prior to the occurrence of a Default or an Event of Default, and at all times after a Default or an Event of Default which has occurred has been cured, provided that no other Default or Event of Default has occurred which is continuing, all amounts realized pursuant to the enforcement or the exercise of collection or other remedial action pursuant to or with respect to the Security for the Series A Debenture or the Security (as defined in the Series B Debenture) for the Series B Debenture shall be applied pro rata in accordance with the relative amounts outstanding under the Series A Debenture and the Series B Debenture at the time of such payment. The Holder, by its acceptance of this Debenture, agrees to be bound by the provisions contained herein. 1.12 REPAYMENT AMOUNT For the purposes of (i) the repayment and prepayment of the principal amounts outstanding hereunder, (ii) the payment of interest thereon and (iii) the payment of fees contemplated in Sections 2.3 and 2.4 hereof, the amount outstanding hereunder at any time shall be the aggregate of the Initial Purchase Price paid by the Holder, the Additional Purchase Price paid by the Holder if any, any and all compounded interest at such time, and such other fees, expenses and other amounts as may be payable by the Corporation to the Holder pursuant to the Documents at such time. 1.13 USE OF PROCEEDS The Corporation hereby covenants, agrees, represents and warrants with and to the Holder that the Corporation will use the proceeds from the issuance and sale of Debentures: (a) to repay all amounts outstanding under the Senior Secured Debenture Facility (as defined in the Purchase Agreement); (b) to repay those Kemess South Mine accounts payable of the Corporation listed in SCHEDULE G; (c) to fund capital and non-capital expenses of the Corporation in connection with the construction, development and operation of the Kemess South Mine. In addition to the foregoing, and until the occurrence of a Default or Event of Default hereunder: 4 (d) the Corporation may use such proceeds for general corporate purposes in an amount not to exceed the aggregate of U.S. $20,000,000; and (e) to the extent that the amounts referred to in Section 1.13(d) hereof are insufficient to satisfy the general corporate purposes of the Corporation, and provided the Proceeds Conditions have then been and remain satisfied, the Corporation may then use such proceeds for general corporate purposes. ARTICLE 2 - PRINCIPAL AND INTEREST 2.1 INTEREST Interest shall accrue from the date hereof, before and after the occurrence of an Event of Default, demand, maturity or judgment, on the outstanding principal amount of this Debenture, and on all overdue costs, expenses and interest payable hereunder, at the Interest Rate and shall be calculated and compounded monthly on the first day of each calendar month, and shall be payable on the first day of the calendar month occurring after the earlier of (i) July 31, 1998, and (ii) the Kemess Mine Production Date, and thereafter shall be calculated and compounded monthly and payable monthly in arrears on the first calendar day of each month in each year (each an "Interest Payment Date") and on the Maturity Date. Notwithstanding the foregoing sentence, any accrued or accruing interest hereunder shall become and shall be immediately due and payable in full in the event that the principal amount outstanding hereunder has become due and payable. 2.2 PAYMENT OF INTEREST Except as otherwise provided for herein, as interest on this Debenture becomes due (except interest payable on the Maturity Date, which shall be paid upon presentation and surrender of this Debenture for payment), the Corporation shall pay to the Holder the interest due and payable on each Interest Payment Date, without deduction or set-off, by wire transfer of immediately available funds to such account and address of the Holder as may be provided by the Holder from time to time. 2.3 REPAYMENT (a) Subject to the terms and conditions of this Debenture including the provisions of Section 6.2 hereof, the principal amount of this Debenture and all accrued interest thereon and any other amounts payable hereunder in connection with this Debenture shall be repaid in full on the date that is two years from the date hereof (the "Final Maturity Date"). 5 (b) In addition to any other amounts payable by the Corporation hereunder, the Corporation shall pay: (i) on February 15, 1999, a non-refundable fee equal to 2% of the amount by which the aggregate amount then outstanding under the Debentures (including principal and accrued interest and unpaid fees and expenses) exceeds U.S. $80,000,000; and (ii) On October 15, 1999, a non-refundable fee equal to 2% of the amount by which the aggregate principal amount then outstanding under the Debentures (including principal and accrued interest and unpaid fees and expenses) exceeds U.S. $50,000,000. Such fees shall be payable to the holders of the Debentures pro rata and pari passu, in accordance with the provisions of Section 1.11. 2.4 OPTIONAL PREPAYMENT Subject to the terms and conditions of this Debenture and provided no Default or Event of Default has occurred hereunder, under any other Series A Debentures or under any of the Series B Debentures, the Corporation shall have the privilege of prepaying from time to time, on any Business Day, all or any part of the principal amount of this Debenture on payment to the Holder of the Prepayment Amount provided that: (a) any such prepayment shall only be made on at least five Business Days' notice to the Holder, which notice, once given, shall be irrevocable and binding upon the Corporation; (b) any such prepayment shall be in an amount of at least U.S. $5,000,000; (c) any such prepayment shall be accompanied by payment of all interest, fees and other amounts accrued in respect of the principal amount being so prepaid to the date of prepayments as well as all other amounts due and payable under this Debenture on the date of prepayment; (d) each such prepayment shall be in accordance with Section 1.11; and (e) no such prepayment will be permitted at any time that the Permitted Encumbrances set out in Part I of SCHEDULE C1 exceeds Can.$10,000,000. 6 2.5 SUBORDINATED NOTE TRUST INDENTURE The Corporation hereby designates the Debt payable hereunder by the Corporation to the Holder as "Designated Senior Indebtedness" pursuant to and in accordance with the Subordinated Note Trust Indenture. ARTICLE 3 - SECURITY 3.1 SECURITY (a) As security for the due and punctual payment of all of its obligations to the Holder under or in respect of this Debenture and the other Documents, the Corporation shall execute and deliver to the Holder, contemporaneous with the delivery of this Debenture to the Holder, valid and enforceable Liens against all present and after-acquired property, undertaking and assets of the Corporation except the Excluded Assets, all in form and substance satisfactory to the Holder and its Counsel, including without limitation the following: (i) a security debenture by the Corporation creating a fixed and floating Lien on all of the Corporation's present and after-acquired property and assets including, without limitation, fixed and specific Liens on all property and assets comprising the Kemess Mine; (ii) a general security agreement by the Corporation creating a Lien on all of the Corporation's present and after-acquired property and assets; (iii) a limited guarantee by APM of the obligations of the Corporation to the Holder; (iv) a general security agreement by APM creating a Lien on all of APM's present and after-acquired property and assets; (v) assignments of the Corporation's interests in all material mining claims, concessions and leases in any way relating to the Kemess Mine; (vi) an assignment by the Corporation of its rights and interest in the Kemess South Resources Limited Partnership; (vii) if and to the extent required by the Holder, an assignment (and, where required, consents to such assignment) by the Corporation of its 7 rights and interest in the Kemess Mine Construction Contracts; (viii) an assignment (and, where required, consent to such assignment) by the Corporation of its rights and interest in such of the Material Contracts as the Holder may designate; (ix) pledges of all of the shares in the capital of APM held by the Corporation; (x) a deed of moveable hypothec for use in the province of Quebec; and (xi) such other agreements and documents as may, in the sole discretion of the Holder, be necessary or desirable to grant to the Holder valid and enforceable Liens on all of the property, undertaking and assets of the Corporation other than the Excluded Assets. Notwithstanding anything to the contrary contained in the foregoing but subject always to the provisions of Section 5.1(v), the Corporation shall not be obligated to register the Security against any real property or mineral claims comprising: (i) the Pamour Mine, the Nighthawk Lake Mine and the mines generally known as Giant, Hope Brook and Colomac; and (ii) the Corporation's currently existing exploration properties not in any way relating to the Kemess Mine. (b) Contemporaneous with the delivery of the Security Documents contemplated by Section 3.1(a), the Corporation shall deliver to the Holder legal opinions in form and content, and from legal counsel, satisfactory to the Holder regarding the validity, enforceability and priority of all Liens created by such Security Documents and regarding such other matters as the Holder may require to evidence compliance with the terms of this Debenture and the other Documents. (c) The Corporation shall ensure that all of the Security Documents are executed and delivered in accordance with this Article 3 and the Liens created thereby are perfected in all jurisdictions and at all times reasonably required by the Holder. 8 3.2 NO MERGER The Security Documents shall not merge in any other security. No judgment obtained by the Holder shall in any way affect any of the provisions of this Debenture or any of the Security Documents. For greater certainty, no judgment obtained by the Holder shall in any way affect the obligation of the Corporation to pay principal, fees and interest at the rates, times and in the manner provided in this Debenture. 3.3 FURTHER ASSURANCES - SECURITY From time to time following the Closing Date, the Corporation shall at the expense of the Corporation take such action (including, without limitation, the provision of information and access to property) and execute and deliver to the Holder such agreements, conveyances, deeds and other documents and instruments as the Holder shall reasonably request in furtherance of granting to the Holder valid and enforceable first priority Liens on all of the Corporation's present and after acquired property, undertaking and assets other than the Excluded Assets, and the Corporation shall at the expense of the Corporation register, file or record the same (or a notice or financing statement in respect thereof) in all offices where such registration, filing or recording is, in the opinion of the Holder, necessary or advisable to constitute, perfect and maintain such Liens in all jurisdictions reasonably required by the Holder, subject only to Permitted Encumbrances, provided that (subject always to the provisions of Section 5.1(v)) the Corporation shall not be obligated to register the Security against any real property or mineral claims comprising: (i) the Pamour Mine, the Nighthawk Lake Mine and the mines generally known as Giant, Hope Brook and Colomac; and (ii) the Corporation's currently existing exploration properties not in any way relating to the Kemess Mine. The Corporation shall deliver opinions of its Counsel in respect of such matters, in each case within a reasonable time after the request therefor by the Holder, and in each case in form and substance reasonably satisfactory to the Holder. ARTICLE 4 - REPRESENTATIONS AND WARRANTIES 4.1 REPRESENTATIONS AND WARRANTIES BY THE CORPORATION The Corporation hereby represents and warrants to the Holder and so long as this Debenture remains in effect shall be deemed to continuously represent and warrant as follows and acknowledges that the Holder is relying on such representations and warranties in connection with its purchase of the Debenture: (a) INCORPORATION AND STATUS OF THE CORPORATION. The Corporation is the 9 successor corporation resulting from the amalgamation on December 29, 1997 of the former Royal Oak Mines Inc. and Kemess Mines Inc., is duly amalgamated and organized under the laws of its jurisdiction of incorporation, is in good standing in each jurisdiction where, by reason of its business or assets, it is required to be qualified or licensed and has, subject to the Materiality Threshold, all powers, licenses, franchises and permits required to own its assets and carry on its business as the same is presently carried on. (b) POWER AND CAPACITY. The Corporation has the corporate power to enter into each of this Debenture and the other Documents and to do all acts and things as are required or contemplated hereunder or thereunder to be done, observed and performed by it. (c) DUE AUTHORIZATION, NO CONTRAVENTION. The entering into and the performance by the Corporation of this Debenture, the other Documents and the transactions contemplated herein and therein (i) have been duly authorized by all necessary corporate action on the part of the Corporation and (ii) do not and will not contravene, violate, breach or result in any default under the articles, by-laws, constating documents or other organizational documents of the Corporation, or any agreement to which the Corporation is a party or, subject to the Materiality Threshold, any term or provision of any regulatory license or permit or any order of any court, governmental authority or regulatory body or any law or regulation of any jurisdiction in which the Corporation carries on its business. (d) BINDING AGREEMENT. This Debenture and the other Documents have been duly executed and delivered by the Corporation and constitute legal, valid and binding obligations enforceable against the Corporation in accordance with their terms, subject only to the availability of equitable remedies and the effect of bankruptcy, insolvency and similar laws affecting the rights of creditors generally. (e) NO PROCEEDINGS. As of the date of execution of this Debenture, except as is disclosed in SCHEDULE H and subject to the Materiality Threshold there is no material litigation, arbitration or administrative proceedings, actions, suits or investigations outstanding, pending or, to the Knowledge of the Corporation, threatened against the Corporation or any of its properties. None of the transactions contemplated hereby or by the other Documents have been enjoined by any Governmental Body and no suit or other proceeding challenging the transactions contemplated hereby or by the other Documents has been instituted or, to the Knowledge of the Corporation, threatened, and no investigative demand on the Corporation or any Subsidiary related to such transactions has been made by any Governmental Body and no Governmental 10 Body or Person has, to the Knowledge of the Corporation, threatened to take any such action. (f) COMPLIANCE WITH APPLICABLE DOCUMENTS AND LAWS. The Corporation is not in violation of, or in default under (and there does not exist any event or condition which, after notice or lapse of time or both, would constitute such a default under), any term of its articles, by-laws, constating documents or other organizational documents, or, subject to the Materiality Threshold and other than amounts owed to the holders of the Existing Encumbrances, under any term of any agreement, instrument, judgment, decree, order, statute, injunction, governmental regulation, rule or ordinance (including, without limitation, those relating to zoning, city planning or similar matters) applicable to the Corporation, or to which the Corporation is bound or which may otherwise be applicable to any property of the Corporation other than as is disclosed in item 11 of SCHEDULE H. (g) NO CONSENTS REQUIRED. Except as may be expressly set out in SCHEDULE J hereto (the "Consents"), there are no consents, permits, approvals, confirmations and acknowledgements required in order for the Corporation to carry out the transactions contemplated hereby and by the Documents, provided that the granting of fixed and specific Liens or assignments which the Holder may request following the date hereof pursuant to its right to do so hereunder or under the Documents may require consents or approval of other Persons so as not to constitute events of default under any agreements with such Persons. (h) SHARES. SCHEDULE E sets out the name and jurisdiction of incorporation, continuance or amalgamation of the Corporation and each Subsidiary, and SCHEDULE K accurately describes the respective authorized and issued share capital as of the date hereof of the Corporation and each Material Subsidiary. Other than as disclosed in Section 4.1(i) hereof, there are no shareholders' agreements, pooling agreements, voting trusts or other similar agreements with respect to the ownership or voting of any of the shares of the Corporation or of Material Subsidiaries or pursuant to which any person may have any right or claim in connection with any existing or past equity interest in the Corporation or such Material Subsidiaries. (i) NO OBLIGATION TO ISSUE SHARES. Except for (i) agreements, options, warrants, rights and conversion or other rights granted to current or former directors and employees of the Corporation in respect of which no more than 10 million common shares of the Corporation may be acquired, (ii) agreements to issue to the Corporation shares of APM (which shares when issued will be subject to the Security and all share certificates in respect thereof will, at the 11 request of the Holder, be delivered to the Holder), (iii) special warrants and common shares which may be issued by the Corporation to its creditors, in lieu of partial payment to such creditors, and to other Persons, and (iv) 10,000,000 common shares being issued to the consenting holders of the Subordinated Notes, there are no agreements, options, warrants, rights of conversion or other rights pursuant to which the Corporation or any of the Subsidiaries is or may become obligated to issue any shares or any securities convertible into, or exchangeable for, shares. (j) FINANCIAL STATEMENTS. The Audited Financial Statements and the Interim Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied (subject to usual year-end adjustments in the case of the Interim Financial Statements) and fairly present the financial position of the Corporation and the Subsidiaries and the results of their operations at the times and for the periods indicated. The Corporation and each of the Subsidiaries has no outstanding liabilities, contingent or otherwise, other than those disclosed in the Audited Financial Statements and the Interim Financial Statements and other than trade or business obligations subsequently incurred in the ordinary course of business, which such trade and business obligations are currently in good standing in accordance with their respective terms, other than as set forth in SCHEDULE L. (k) PERMITS, COMPLIANCE WITH LAWS. This section 4.1(k) shall be subject to the Materiality Threshold. The Corporation has all licences, permits, approvals and franchises that it requires, or is required to have, to own its properties and assets and to carry on its business as presently conducted including, without limitation, in respect of the construction and development of the Kemess South Mine. All such licences, permits, approvals and franchises are in good standing and, except as is disclosed in item 11 of SCHEDULE H, no actions, proceedings, investigations or other steps of any kind are in process, pending, to the Knowledge of the Corporation threatened, or reasonably foreseeable which might result in any such licence, permit, approval or franchise being terminated, revoked, withdrawn, suspended or otherwise made unavailable to the Corporation for any period of time. The Corporation has applications pending for all additional licences, permits, approvals and franchises necessary or desirable for the commencement of mining operations at the Kemess Mine in the manner and to the full extent contemplated in plans and projections disclosed to the Holder (a list of which additional licenses are attached here as SCHEDULE M) and has no reason to believe that any or all such additional licences, permits, approvals and franchises will not be granted to prevent, impair or interfere with the Kemess Mine Production Date occurring on or before December 31, 1998. Except as is disclosed in item 11 of SCHEDULE H, the Corporation is conducting its business in compliance with all applicable 12 laws, regulations, by-laws and ordinances of each jurisdiction in which its business is carried on, including without limitation all laws, regulations, by-laws and ordinances relating to mining concessions. (l) NO RESTRICTIONS. Except as may be provided for in agreements between the Province of British Columbia and the Corporation respecting economic assistance, copies of which have been provided to the Holder, the Corporation is not a party to or bound by any agreement which would restrict or limit its right to carry on any business or activity or to solicit business from any Person or in any geographical area or otherwise to conduct the business of the Corporation. The Corporation is not subject to any legislation or any judgment, order or requirement of any court or governmental authority which is not of general application to persons carrying on a business similar to the business of the Corporation. (m) LIMITATION ON PAYMENT RESTRICTIONS. Except for restrictions contained herein and in the Subordinated Note Trust Indenture and restrictions in favour of the holders of the Permitted Hedging Indebtedness to the extent such restrictions herein and in the Subordinated Note Trust Indenture have been agreed to and adopted by the Corporation and such holders, neither the Corporation nor any Subsidiary is subject to any consensual restriction on its ability (a) to pay dividends or make any other distributions on its equity securities to, or pay any indebtedness owing to, or repurchase or redeem any equity securities from, the holders of such equity securities, the Corporation or any other Subsidiary, (b) to make any loans or advances to the Corporation or any other Subsidiary, or (c) to transfer any of its property or assets to the Corporation or any other Subsidiary. (n) NO MATERIAL ADVERSE CHANGES, DAMAGE OR ACCIDENTS. Since June 1, 1998, the Corporation has operated its business diligently and only in the ordinary course of business and except for the defaults set out in SCHEDULE I (the "Disclosed Defaults"), (which Disclosed Defaults have been remedied), and except for the Corporation committing events of default pursuant to the Subordinated Note Trust Indenture (which have since been cured), there has not been any material adverse change in the condition (financial or otherwise), assets, liabilities, affairs, business or operations of the Corporation, any substantial loss of or damage to the assets of the Corporation, or any accident (subject to the Materiality Threshold) relating to the mines, properties or mining operations of the Corporation in which any employee of the Corporation was injured. For greater certainty, since June 1, 1998 the Corporation has not: (i) incurred any liabilities other than in the ordinary course of business consistent with past practice; 13 (ii) sold, encumbered, assigned or transferred any assets or properties of the Corporation, other than for fair market value, to purchasers at arms length to the Corporation and in the ordinary course of business consistent with past practice; (iii) created, incurred, assumed or guaranteed any obligations, liabilities or indebtedness except in the ordinary course of business consistent with past practice or subjected any of its assets to any Lien except for Existing Encumbrances; (iv) changed or amended its governing documents in any respect; (v) declared, set aside, paid or made any distributions in cash or property on its equity securities including its common shares; (vi) directly or indirectly redeemed, purchased or otherwise acquired any of its equity securities; (vii) other than the resignations of John May, Matthew Gaasenbeek, Michael Lalonde, Nancy Deshaw and Scott Lampe, suffered any resignation or termination of employment of any key officers or directors or become aware of any impending resignation or termination of employment of any such key officers or directors; (viii) except in the ordinary course of its business, or as disclosed in writing to the Holder prior to the date hereof, materially increased the compensation payable or to become payable to any of its officers or directors or materially increased any bonus, insurance, pension or other employee benefit plan, payment or arrangement made for or with any such officers or directors; (ix) materially changed its accounting methods, principles or practices; or (x) entered into any agreement or commitment to do any of the things described in this section. (o) NO WORK ORDERS. Except as is disclosed in item 11 of SCHEDULE H and subject to the Materiality Threshold, no work orders, directions or notices have been issued pursuant to any applicable law relating to the business of the Corporation or any part of the Mortgaged Property or relating to or pursuant to any environmental matters affecting the foregoing and the Corporation has not 14 received any notification from any Governmental Body that any work, repairs, construction or capital expenditures are required to be made in respect of the Mortgaged Property or any part thereof as a condition of continued compliance with any applicable law or any Material Authorizations issued thereunder. (p) NO DEFAULT. Subject to the Materiality Threshold, the Corporation is not in default or breach under any material commitment or obligation under the terms and conditions relating to any Material Authorizations and there exists no state of facts which, after notice or the passage of time or both, would constitute such a default or breach and there are no proceedings in progress, pending or, to the Knowledge of the Corporation, threatened which may result in the revocation, cancellation, suspension, non-grant or any adverse modification of any Material Authorization except as is disclosed in item 11 of SCHEDULE H. The Corporation has obtained all Material Authorizations necessary or desirable to carry on all activities currently and previously carried on at the Kemess Mine. (q) NON-ARM'S LENGTH TRANSACTIONS. Except as is described in employment agreements and correspondence delivered to the Holder prior to the date hereof, the Corporation is not a party to any contract, commitment or transaction (including by way of loan) with any officer, director or shareholder of the Corporation, any of the Subsidiaries, or any of their respective affiliates or associates, other than as disclosed in the Audited Financial Statements and the Interim Financial Statements and other than employment contracts in the ordinary course of business. (r) TAX MATTERS. (i) The Corporation has prepared and filed on a timely basis with all appropriate Governmental Bodies all returns with respect to Taxes and other documents that it is required to file in respect of any Taxes for all fiscal periods ending on or prior to the date hereof and all such returns or other documents are correct and complete in all material respects; (ii) The Corporation has paid in full all Taxes due on or before the date hereof and, in the case of Taxes accruing on or before the date hereof that are not due on or before the date hereof, the Corporation will have made adequate provision in its books and records and financial statements for such payment; and the Corporation does not have any liability for Taxes other than those provided for in the Audited Financial Statements and the Interim Financial Statements and those arising subsequently in the ordinary course of the operation of its business; 15 (iii) The Corporation has withheld from each payment made to any of its present or former employees, officers, directors and to all persons who are non-residents of the applicable jurisdictions all amounts required pursuant to Applicable Law to be withheld or remitted and will continue to do so until the Maturity Date and furthermore has remitted such amounts within the applicable periods to the appropriate Governmental Body; the Corporation has remitted all Canada Pension Plan contributions, unemployment insurance premiums, employer health taxes and other Taxes payable by it in respect of its employees and has or will have remitted such amounts to the appropriate Governmental Body within the time required under the applicable legislation; and the Corporation has charged, collected and remitted on a timely basis all Taxes as required under applicable legislation on any sale, supply, or delivery whatsoever, made by the Corporation; (iv) Except for a disputed assessment of fuel taxes payable by the Corporation to the government of Canada in the approximate amount of Can. $100,000, there are no reassessments of the Corporation with respect to Taxes that have been issued and are outstanding; no Governmental Body has challenged, disputed or questioned the Corporation in respect of Taxes or in respect of any returns, filings or other reports filed under any statute providing for Taxes; the Corporation has not received any indication from any Governmental Body that an assessment or a reassessment in respect of the Corporation is proposed; and the Corporation has not executed or filed any agreement extending the period for assessment, reassessment or collection of any Taxes. (s) NO ENCUMBRANCES. The Corporation owns and has good and marketable title, free and clear of all Liens except Existing Encumbrances, to all assets used in connection with its business including, without limitation, all assets reflected on the balance sheet included in the Audited Financial Statements and the Interim Financial Statements or acquired by it after the date of such balance sheet except for changes in such assets in the ordinary course of business subsequent to that date. All material operating facilities, equipment and other material items of tangible property and assets owned by the Corporation are in good operating condition and repair, subject to normal wear and maintenance and having regard to their respective ages, are usable in the regular and ordinary course of business and conform to all Applicable Laws relating to their construction, use and operation, except where such failure, individually or in the aggregate, would not have a material adverse effect on the Corporation. The Corporation's quarterly report on Form 10-Q for the 16 fiscal quarter ended March 31, 1998 filed with the United States Securities And Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, contains a complete and accurate description of all material property and assets owned by the Corporation. SCHEDULE N contains a complete and accurate description of all material property and assets owned by the Corporation relating to the Kemess Mine. Subject to the Materiality Threshold, all equipment or other tangible assets or property situated on the premises of the Corporation, or necessary to the operation of the business of the Corporation, which is leased under a capital lease or under a material operating lease is listed in SCHEDULE O. Subject to the Materiality Threshold, the Corporation is in compliance with all terms of agreements and arrangements governing the leased items listed in SCHEDULE O. (t) MATERIAL INDEBTEDNESS. SCHEDULE P contains a list of all material indebtedness of the Corporation in excess of Can. $1,000,000 and the identity of the Persons to whom it is owed. The accounts payable of the Corporation listed in SCHEDULE G relate only to the construction, development and operation of the Kemess South Mine. (u) SECURITY DOCUMENTS. The Security Documents and the other Documents create a valid and enforceable security interest and Lien upon the Mortgaged Property securing the payment and satisfaction of all obligations of the Corporation and APM to the Holder. Such security interests are perfected security interests subject to no prior Liens or Liens ranking senior in priority to the Liens in favour of the Holder, except for such Liens (i) granted pursuant to the Royalty Debenture, and (ii) relating to or securing Debt of the Corporation not in excess of Can. $15,000,000 as may be held by holders of Existing Encumbrances set out in Part I of SCHEDULE C1. (v) EMPLOYMENT MATTERS. Except as is disclosed in SCHEDULE Q, the Corporation is not a party to or is not bound by any: (i) written contract or commitment for the employment of any employee or officer providing for an annual salary (including benefits) of in excess of Can. $200,000 or a payment on termination of in excess of six months salary and benefits; (ii) oral contract or commitment for the employment of any employee or officer, except for contracts of indefinite hire terminable by the Corporation without cause on reasonable notice; (iii) in the case of the Kemess Mine only, contract with or commitment to any trade union, council of trade unions, employee 17 bargaining agent or affiliated bargaining agent (collectively called "labour representatives") and the Corporation has not conducted negotiations with respect to any such future contracts or commitments; no labour representatives hold bargaining rights with respect to any employees of the Corporation relating to the Kemess Mine; no labour representatives have applied to have the Corporation declared a related employer pursuant to the applicable labour legislation; and, to the Knowledge of the Corporation, there are no current or threatened attempts to organize or establish any trade union or employee association with respect to the Kemess Mine project provided, however, that the Corporation anticipates that steps may be taken by its employees to unionize and negotiate collective bargaining agreements for the Kemess Mine at some time in the future; or (iv) except as is disclosed in financial information made available to the Holder prior to the date hereof and subject to the Materiality Threshold, bonus, pension, multi-employer, profit sharing, deferred compensation, retirement, disability, health insurance or similar benefit plan, with respect to any of its employees or others (including without limitation any agreements in respect of employee share ownership plans), other than Canada Pension Plan, the Ontario Health Insurance Plan and other similar health plans established and administered by any other governmental authority or workers' compensation insurance provided pursuant to statute. Subject to the Materiality Threshold, there is no work stoppage or other concerted action, grievance or dispute existing or, to the Knowledge of the Corporation, threatened against the Corporation, and there is no material complaint, grievance, claim, work order or investigation that has been filed, made, commenced or, to the Knowledge of the Corporation, threatened against the Corporation pursuant to any human rights, occupational health and safety, workers compensation, employment standards or pay equity legislation or any similar legislation of any jurisdiction in which the Corporation carries on its business. (w) INTELLECTUAL PROPERTY. The Corporation owns and has good and marketable title, free and clear of all Liens except Existing Encumbrances, to the Intellectual Property. The conduct of the business of, and the use of the Intellectual Property by the Corporation does not infringe, and the Corporation has not received any notice, complaint, threat or claim alleging infringement of, any patent, trade mark, trade name, copyright, industrial design, trade secret or other propriety right of any other Person. To the Knowledge of the Corporation, the Intellectual Property which is not owned by the Corporation is 18 being used with the consent of, and in accordance with the consent or licence from, the rightful owner thereof. The Corporation has taken all necessary steps to establish, preserve and protect its rights in the Intellectual Property which is material to the Corporation. (x) MATERIAL CONTRACTS. SCHEDULE R contains a list of all agreements of the Corporation which are material to the Kemess Mine and which have not been fully performed by the parties thereto, including, without limitation, agreements which relate to construction underway or proposed at the Kemess Mine and including, without limitation, royalty, refining and shipping agreements (the "Material Contracts"). SCHEDULE Z contains a list of all material agreements of the Corporation relating to the construction or development of the Kemess Mine or relating to the supply of equipment to the Kemess Mine, which agreements have been performed by the parties thereto but the warranty periods in respect of which have not yet expired (the "Kemess Mine Construction Contracts"). Subject to the Materiality Threshold, and other than amounts owed to holders of the Existing Encumbrances, each of the Material Contracts and the Kemess Mine Construction Contracts is in full force and effect without amendment, and there has been no default under any of them, or under any other material commitment or obligation, by the Corporation or, to the Knowledge of the Corporation, any other party, nor has any event occurred that, with the giving of notice, lapse of time or any other condition subsequent, would constitute a default or would otherwise allow the termination of any Material Contract or Kemess Mine Construction Contract. (y) MINING CONCESSIONS. SCHEDULES B-1 AND B-2 contain a complete and accurate list of all material mining claims, concessions and leases in which the Corporation has an interest relating in any way to the Kemess Mine, including, without limitation, all mining claims, concessions and leases in respect of which the Corporation has any obligation to contribute funds or make payments, other than fees or taxes payable in the ordinary course under the regulations governing such claims, concessions or leases. The Corporation is the absolute beneficial owner of, and has good and marketable title to, such mining claims, concessions and leases in accordance with governing laws and regulations, free of all Liens except for such rights as may be held by Kemess South Resources Limited Partnership as disclosed in item (a) of Part II of SCHEDULE C1 to this Debenture and by the holders of the Existing Encumbrances. (z) PRICING, HEDGING PROTECTION. Subject to the Materiality Threshold, SCHEDULE S contains a complete and accurate list and description of all hedging or related arrangements to which the Corporation is a party or by which it is bound including, without limitation, forward sale contracts, options, interest 19 rate swap agreements, currency swap agreements, derivative agreements and similar arrangements. None of the hedging or related arrangements entered into by the Corporation provides for the granting of (i) any Lien against the property, assets and undertaking of the Corporation other than the Permitted Encumbrances described in Section (b) of the definition thereof, or (ii) production advances or any other disposition of any property, assets or undertaking of the Corporation in consideration for advance or accelerated payment or other manner of prepayment or payment not contemporaneous with delivery other than for the sales of up to U.S. $10,000,000 of copper concentrate pursuant to the Glencore Agreement. (aa) ENVIRONMENTAL MATTERS. Except as is disclosed in item 11 of SCHEDULE H regarding the sediment concerns at the Kemess South Mine and subject to the Materiality Threshold, the Corporation is not in violation of any applicable federal, provincial, state, municipal or local laws, regulations, orders, governmental decrees or ordinances with respect to environmental, health or safety matters (collectively, "Environmental Laws") and no actions, proceedings, investigations or other steps of any kind are in process, pending, to its Knowledge threatened, or reasonably foreseeable with respect to any such existing or past violation or alleged violation or other liability whatsoever on the part of the Corporation under Environmental Laws. For greater certainty, subject to the same qualifications and without limiting the generality of the foregoing: (i) the Corporation has carried on its business and at all times has received, handled, used, stored, treated, shipped and disposed at all times of all contaminants in compliance with all Environmental Laws; (ii) there have been no releases, deposits or discharges, in violation of Environmental Laws, of any hazardous or toxic substances, materials, pollutants, contaminants or wastes into the earth, air or into any river, stream, lake or other body of water or into any municipal or other sewer or drain water systems; (iii) no orders, directions or notices have been issued pursuant to any Environmental Laws relating to the business or assets of the Corporation; and (iv) the Corporation has not failed to report to the proper Governmental Body the occurrence of any event which is required to be so reported by any Environmental Laws. (bb) PLACES OF BUSINESS. The registered office of the Corporation is situated 20 at BCE Place, P.O. Box 747, Suite 2500, 181 Bay Street, Toronto, Ontario, Canada M5J 2T7, and the chief executive office of the Corporation is situated at 5501 Lakeview Drive, Kirkland, Washington, U.S.A. 98033. (cc) ALL MATERIAL INFORMATION SUPPLIED. The Corporation has provided to the Holder all material information relating to the financial condition, business and prospects of the Corporation and all information provided to the Holder is true, accurate and complete in all material respects and omits no material fact necessary to make such information not misleading provided, however, that the Corporation is not representing and warranting that the financial and operating projections made by it will accurately correspond to actual future results notwithstanding that they are based on the best information currently available to the Corporation. For greater certainty, all documents provided to the Holder in the course of investigating, negotiating and preparing the Documents and the property, assets and affairs of the Corporation are complete and, subject to the proviso in the immediately preceding sentence, accurate in every respect and copies of all such documents provided to the Holder conform in every respect to the originals thereof. (dd) DEBENTURE COVENANTS. No event or circumstance has occurred or exists which is inconsistent with the covenants and agreements of the Corporation set out in this Debenture or which would, immediately or with the passage of time or giving of notice or taking of any other prerequisite step, constitute a Default or Event of Default hereunder. (ee) SUBORDINATED NOTES. The Corporation is, and will after giving effect to the transactions contemplated by this Debenture and the other Documents be, in compliance with all terms and conditions and agreements applicable to the Subordinated Notes. The indebtedness under the Debenture will fully constitute "Permitted Indebtedness" and the Security will in every respect constitute "Permitted Liens" under the Subordinated Note Trust Indenture. The indebtedness under the Debentures and the amounts if any from time to time outstanding on account of the Royalty Agreement constitute "Senior Indebtedness" under the Subordinated Note Indenture. The indebtedness under the Debentures constitute "Designated Senior Indebtedness" under the Subordinated Note Indenture. The indebtedness of any Subsidiary under or on account of the Debentures constitute "Guarantor Senior Indebtedness" under the Subordinated Note Indenture. The Lender is entitled to the benefit of and can rely on the provisions of the Subordinated Note Indenture relating to "Senior Indebtedness", "Designated Senior Indebtedness" and "Guarantor Senior Indebtedness" and the holder of the royalty pursuant to the Royalty Agreement is entitled to the benefit of and can rely on the provisions of the Subordinated Note Indenture relating to "Senior Indebtedness" to the extent of 21 the amounts if any from time to time outstanding on account of the Royalty Agreement. Each of the Lenders and the holder of the royalty pursuant to the Royalty Agreement, to the extent of the amounts if any from time to time outstanding on account of the Royalty Agreement, can enforce such provisions as are applicable to it directly against the Corporation and any other Subsidiary. The Corporation has delivered to the Holder complete and accurate copies of all agreements and documents relating to the Subordinated Notes including, without limitation, the Subordinated Note Trust Indenture. The Subordinated Notes are, in accordance with their terms, fully subordinated and postponed to the obligations of the Corpoation to the Holder under the Documents, which obligations constitute "Senior Indebtedness" under the Subordinated Note Trust Indenture. (ff) SUBSIDIARIES OF THE CORPORATION. SCHEDULE E contains a list of all of the Subsidiaries of the Corporation, including the jurisdiction of incorporation, continuance and amalgamation for each such Subsidiary. (gg) PROVINCIAL ECONOMIC ASSISTANCE. The Province of British Columbia has unconditionally and irrevocably advanced to the Corporation approximately Can. $154,000,000 of the previously committed economic assistance, compensation and investment. All such economic assistance, compensation and investment is completely and accurately described in SCHEDULE T and the Holder has been provided with true, complete and accurate copies of all agreements and other documents relating thereto. Except for annual payments of Can. $1,000,000 for each of the 12 successive years commencing in 1999, both as identified in SCHEDULE T, there are no further outstanding commitments of economic assistance, compensation or investment which remain to be completed and there are no commitments, agreements or arrangements with any Governmental Body which would be breached or otherwise adversely impacted by the transactions contemplated by the Documents or which could in any way preclude, hinder, prejudice or delay the exercise of the Holder's rights and remedies hereunder and thereunder. (hh) WINDY CRAGGY PROPERTY. The inability of the Corporation to incur expenditures on and maintain in good standing the Windy Craggy Property will not result in: (i) any diminution in the amounts of payments from the government of British Columbia pursuant to the agreement of June 27, 1997; (ii) revocation of any permits issued by the government of British Columbia in connection with the Kemess Mine; or (iii) any material adverse effect on the ability of the Corporation to conduct mining operations at, and to maintain good title to, the Kemess Mine; and the Windy Craggy Property does not include or in any way comprise the property and assets comprising the Kemess Mine. 22 (ii) BANKS. SCHEDULE T1 lists particulars, including bank, branch address, account type and account number, of each bank account maintained by the Corporation and by each of the Subsidiaries. 4.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES BY THE CORPORATION The representations and warranties made by the Corporation pursuant to Section 4.1 hereof will survive the closing of the issuance of this Debenture and the other transactions provided for herein and, notwithstanding such closing or any investigation made by or on behalf of the Holder or any other person or any knowledge of the Holder or any other person, shall continue in full force and effect for the benefit of the Holder. ARTICLE 5 - COVENANTS 5.1 AFFIRMATIVE COVENANTS So long as the Debenture or any obligation of the Corporation to the Holder under the Debenture or any other Document remains outstanding, the Corporation covenants and agrees with the Holder that: (a) PUNCTUAL PAYMENT AND PERFORMANCE OF DEBENTURE. The Corporation shall pay or cause to be paid all amounts payable to the Holder hereunder and under the other Documents on the dates and in the manner specified therein and the Corporation shall perform and carry out all of the acts or things to be done by the Corporation as provided in the Debenture and the other Documents; (b) CONDUCT OF BUSINESS. The Corporation shall do or cause to be done all things necessary to maintain its corporate existence in its present jurisdiction of incorporation and to maintain its corporate power and capacity to own its properties and assets; (c) PRESERVATION OF MATERIAL AUTHORIZATIONS. The Corporation and each Material Subsidiary shall preserve and maintain all Material Authorizations including, without limitation, all licenses, permits, approvals and franchises necessary or desirable to carry on mining operations at the Kemess Mine in the manner and to the full extent contemplated in plans and projections disclosed to the Holder. (d) PRESERVATION OF MINING CLAIMS, CONCESSIONS AND LEASES. The Corporation shall preserve and maintain: (i) all mining claims subject to the 23 Materiality Threshold, and all concessions and leases necessary or desirable to carry on mining operations at the Kemess Mine in the manner and to the full extent contemplated in plans and projections disclosed to the Holder, and (ii) subject to the Materiality Threshold, all other material mining claims, concessions and leases. (e) COMPLIANCE WITH APPLICABLE LAW AND CONTRACTS. The Corporation and each Material Subsidiary shall comply with: (i) the requirements of all Applicable Laws; (ii) all obligations which, if contravened, could give rise to a Lien (other than Permitted Encumbrances) over any of its property; and (iii) all insurance policies and all contracts to which the Corporation or such Material Subsidiary is a party or by which it or its properties are bound, non-compliance with which would, singly or in the aggregate, have a material adverse effect upon the business, property or financial condition of the Corporation or such Material Subsidiary or upon its ability to perform its obligations under this Debenture or any of the other Documents; (f) INSURANCE. The Corporation and each Material Subsidiary shall: (i) keep its properties and assets insured with reputable insurers, in amounts not less than the replacement cost thereof and against such losses as are insured against by comparable corporations engaged in comparable businesses or which the Holder may reasonably require including without limitation, if requested by the Holder acting reasonably, sudden and accidental pollution liability insurance; (ii) maintain public liability insurance in such amounts and against such risks as is normally carried by comparable corporations engaged in comparable businesses or which the Holder may reasonably require; (iii) provide the Holder with certificates for all insurance policies; and (iv) provide that any loss under all such insurance policies (other than policies in respect of third party liability and business interruption insurance) in excess of Can. $500,000 shall be payable to the Holder subject only to any prior rights which may be specifically held in such proceeds by the holders of Permitted Encumbrances, provided that if a Default or Event of Default has not occurred, the Corporation or such Material Subsidiary shall, provided prior notice thereof shall have been given to the Holder, be entitled to receive such loss payment directly if the entire amount thereof is: (A) used to repair or replace the lost or damaged property in 24 question if the lost or damaged property relates to the Kemess Mine; or (B) if the lost or damaged property does not in any way relate to the Kemess Mine either (x) used to repair or replace the lost or damaged property in question or (y) after applying such loss payment or a portion thereof to the reasonable costs of any required remediation of the lost or damaged property, used and distributed as the proceeds of a "Sale" pursuant to and in accordance with Section 5.3(e) hereof; (g) ACCOUNTING METHODS AND FINANCIAL RECORDS. The Corporation shall, and shall cause each of its Subsidiaries to, maintain a system of accounting which is established and administered in accordance with generally accepted accounting principles and keep adequate records and books of account in which accurate and complete entries shall be made in accordance with such accounting principles reflecting all transactions required to be reflected by such accounting principles; (h) MAINTENANCE OF MORTGAGED PROPERTY. The Corporation shall maintain the Mortgaged Property comprising the Kemess Mine and all other Mortgaged Property used by the Corporation or a Material Subsidiary from time to time in good repair, working order and condition (reasonable wear and tear excepted) and from time to time make or cause to be made all necessary and appropriate repairs, renewals, replacements, additions and improvements thereto; (i) PAYMENT OF TAXES AND CLAIMS. The Corporation and each Material Subsidiary shall: (i) pay and discharge all lawful claims for labour, material and supplies; (ii) pay and discharge all Taxes payable by it; (iii) withhold and collect all Taxes required to be withheld and collected by it and remit such Taxes to the appropriate Government Body at the time and in the manner required; and (iv) pay and discharge all obligations incidental to any trust imposed upon it by statute which, if unpaid, might become a Lien upon any of the Mortgaged Property; (j) INSPECTIONS. The Corporation and each Material Subsidiary shall permit 25 the Holder and its authorized employees, representatives and agents to: (i) visit and inspect its properties during normal business hours, (ii) inspect and make extracts from and copies of its books and records, and (iii) discuss with its senior management its businesses, property, financial condition and prospects, all on a reasonable basis and frequency; (k) NOTICE OF LITIGATION AND OTHER MATTERS. The Corporation shall, as soon as practicable after it shall become aware of the same, give notice to the Holder of the following events: (i) the commencement or threat of a material nature of any action, proceeding, arbitration or investigation against or in any other way relating adversely to the Corporation or the Subsidiaries or any of their respective properties, assets or businesses which, if adversely determined, would singly or when aggregated with all other such actions, proceedings, arbitrations and investigations have a material adverse effect on the business, property or financial condition of the Corporation or on the ability of the Corporation to perform its obligations under this Debenture or any of the other Documents; (ii) any amendment of its articles, by-laws or other organizational documents; (iii) any actual or threatened revocation, termination, modification, amendment, substitution, issuance or other material event relating to Material Authorizations or to mining claims, concessions or leases respecting the Kemess Mine and, following any such event, the Corporation shall at the request of the Holder use its best efforts to obtain from the appropriate Governmental Body or other Persons such consents, approvals, acknowledgements or other documents as the Holder may consider necessary, acting reasonably, to ensure that the Holder has valid and enforceable first priority Liens on all such Material Authorizations, mining claims, concessions or leases and may avail itself of the rights and privileges of the Corporation thereunder and assign such rights and privileges should the Holder enforce its rights and remedies in respect of the Security and the other Documents; (iv) any development which has had or will have a material adverse effect upon its business, property or financial condition or its ability to perform its obligations under this Debenture or any of the other Documents or which should reasonably be expected to be of material interest to the Holder, other than any changes in the market prices of gold or copper or changes in the Can. $/U.S.$ currency exchange rate; 26 (v) any development which would lead the Corporation to reasonably believe that the Kemess Mine Production Date will not be on or before December 31, 1998; (vi) any Default or Event of Default; and (vii) any default or event of default, or the occurrence or non-occurrence of any event which constitutes, or which with the passage of time or giving of notice or both would constitute, a material default under any other agreement to which the Corporation or any Subsidiary is a party or by which they or any of their properties may be bound which has a material adverse effect on the business, property or financial condition of the Corporation or its ability to perform its obligations under this Debenture or any other Document; giving in each case the details thereof and specifying the action proposed to be taken with respect thereto. (l) QUARTERLY CASHFLOW STATEMENTS. On or prior to the date hereof and on the 25th day following the end of each calendar quarter thereafter the Corporation shall deliver to the Holder in form and substance acceptable to the Holder a cashflow statement on a line item basis for the ensuing twelve (12) month period, all in such detail as the Holder may reasonably require. (m) MONTHLY FINANCIAL STATEMENTS. The Corporation shall, as soon as practicable and in any event within 25 days after the end of each month, deliver to the Holder the monthly unaudited consolidated financial statements of the Corporation for the previous monthly period including in each case a balance sheet, statement of profit and loss and a statement of changes in financial position, together with comparative figures for the corresponding month in the previous Financial Year; (n) INTERIM FINANCIAL STATEMENTS. The Corporation shall, as soon as practicable and in any event within 60 days after the end of each of the first three Financial Quarters of each Financial Year, deliver to the Holder the interim unaudited consolidated financial statements of the Corporation and, at the request of the Holder, interim unaudited unconsolidated financial statements of the Corporation and of the Subsidiaries, including in each case a balance sheet, statement of profit and loss and a statement of changes in financial position, together with comparative figures for the corresponding period in the previous Financial Year; 27 (o) ANNUAL FINANCIAL STATEMENTS. The Corporation shall, as soon as practicable and in any event within 120 days after the end of each Financial Year, deliver to the Holder the annual audited consolidated financial statements of the Corporation and, at the request of the Holder, annual unaudited unconsolidated financial statements of the Corporation and of each Subsidiary including in each case a balance sheet, statement of profit and loss, a statement of changes in financial position and a statement of retained earnings, together with comparative figures for the previous Financial Year; (p) OFFICER'S CERTIFICATE. The Corporation shall deliver to the Holder, together with the financial statements referred to in Sections 5.1(l), (n) and (o), an officers' certificate certifying (i) that such financial statements were prepared in accordance with generally accepted accounting principles (subject to normal year-end adjustments in the case of interim unaudited financial statements) and fairly present the financial condition of the Corporation and the other Subsidiaries and the financial information presented therein for the period and as at the date thereof, (ii) that no Default or Event of Default has occurred hereunder or, if any Default or Event of Default has occurred, specifying the relevant particulars and the period of existence thereof and the action taken or proposed to be taken by the Corporation with respect thereto, and (iii) demonstrating in reasonable detail compliance (or, as the case may be, non-compliance) with the covenants contained in Section 5.1(t); (q) PUBLIC AND OTHER INFORMATION. The Corporation shall from time to time deliver to the Holder copies of all reports, financial statements, information or proxy circulars and other information or notices sent by the Corporation (i) to its shareholders at the same time as the Corporation sends such material to its shareholders, and (ii) pursuant to the Subordinated Note Trust Indenture at the same time as Corporation sends such material to the recipient thereof, and (iii) the Corporation shall deliver to the Holder copies of all press releases, material change reports and similar disclosures filed by the Corporation with any securities regulatory authority or stock exchange, provided that, if any such reports or disclosures under this paragraph (iii) are filed on a confidential basis, then the Corporation shall not be required to deliver the same to the Holder until such time as they are no longer filed on a confidential basis; (r) CHANGE OF CONTROL. The Corporation shall immediately notify the Holder in the event of a Change of Control of the Corporation; (s) OTHER INFORMATION. The Corporation shall furnish to the Holder, as soon as practicable following a request therefor from the Holder, such other information as the Holder may reasonably request from time to time; 28 (t) FINANCIAL COVENANTS. The Corporation shall ensure that: (i) EBITDA shall not be less than: (A) for the Financial Quarter ending March 31, 1999, Can. $9,000,000; (B) for the two Financial Quarters ending June 30, 1999, Can. $18,000,000; (C) for the three Financial Quarters ending September 30, 1999, Can. $27,000,000; and (ii) following September 30, 1999, Can. $36,000,000 as at the end of each Financial Quarter and calculated in each case for the preceding 12 months; (u) KEMESS MINE PRODUCTION DATE. The Corporation shall keep the Holder informed as to the progress of the construction, development and operation of the Kemess South Mine and when the Kemess Mine Production Date has occurred and shall deliver to the Holder a certificate (together with reasonable backup) of a senior officer to that effect; (v) PAMOUR MINE AND NIGHTHAWK LAKE MINE. The Corporation shall, and shall cause each Subsidiary, as required to, forthwith following a request therefor from the Holder and at the expense of the Corporation deliver to the Holder valid and enforceable first priority Liens against the Pamour Mine and the Nighthawk Lake Mine all in form and substance satisfactory to the Holder and its Counsel together with legal opinions in form and content, and from legal counsel, satisfactory to the Holder regarding the validity, enforceability and priority of such Liens and regarding such other matters as the Holder may require to evidence compliance with the terms of this Debenture; provided that the Holder may only request such Liens at a time that the aggregate amount then outstanding under the Debentures (including principal and accrued interest and unpaid fees and expenses) exceeds U.S.$60,000,000; and (w) PROPOSED LEASEBACK ASSETS. The Corporation will pay or cause to be paid all amounts payable to Trilon Bancorp Inc. pursuant to an equipment lease dated April 6, 1998 between the Corporation and Trilon Bancorp Inc. (Lease Number L-RY001) on the dates and in the manner specified therein and the Corporation will comply with, perform and carry out all of its obligations provided under such equipment lease. 29 (x) PERMITTED PAYMENTS SECURITY. The Corporation will provide 10 days prior written notice to the Holder of any proposed Permitted Payments together with detailed particulars of the Permitted Payments. The Corporation will provide or cause to be provided to the Holder prior to or contemporaneous with the making of any such Permitted Payments: (i) a guarantee from each Subsidiary receiving such Permitted Payments pursuant to which the Subsidiary guarantees to the Holder all of the obligations of the Corporation to the Holder; (ii) such agreements, conveyances, deeds and other documents and instruments as the Holder shall reasonably request in furtherance of granting to the Holder valid and enforceable first priority Liens on all of the present and after acquired property, undertaking and assets of each Subsidiary receiving such Permitted Payments and the Corporation shall at the expense of the Corporation register, file or record the same (or a notice or financing statement in respect thereof) in all offices where such registration, filing or recording is, in the opinion of the Holder, necessary or advisable to constitute, perfect and maintain such Liens in all jurisdictions reasonably required by the Holder, subject only to Permitted Encumbrances, provided that (subject always to the provisions of Section 5.1(v)) the Corporation shall not be obligated to register the Security against any real property or mineral claims comprising the Pamour Mine, the Nighthawk Lake Mine and the mines generally known as Giant, Hope Brook and Colomac, and the Corporation's currently existing exploration properties not in any way relating to the Kemess Mine; and (iii) legal opinions in form and content, and from legal counsel, satisfactory to the Holder regarding the validity, enforceability and priority of all Liens created by such Security Documents and regarding such other matters as the Holder may require to evidence compliance with the terms of this Debenture and the other Documents. 5.2 HOLDER'S RIGHT TO DECLINE TO RECEIVE INFORMATION Notwithstanding the obligations of the Corporation to provide the notices, documents and information referred to in Sections 5.1(k), (l), (m), (n), (o), (p) and (u), the Holder shall be entitled to decline to receive any or all such notices, documents and information by giving written notice thereof to the Corporation. In the event the Holder gives any such notice to the Corporation, the Corporation shall withhold the 30 notices, documents and information expressly stated in the written notice of the Holder for such periods of time and on such terms as the Holder may direct. The Holder may at any time supplement, revoke or otherwise change its directions to the Corporation under this Section 5.2 by further written notice to the Corporation. Nothing in this Section 5.2 or in any written notice given by the Holder hereunder in any way reduces or otherwise affects the obligation of the Corporation to provide to the Holder the information referred to in Sections 5.1(q) and (r). 5.3 NEGATIVE COVENANTS So long as this Debenture or any obligations of the Corporation under this Debenture or any other Document remain outstanding, the Corporation covenants and agrees that without the prior written consent of the Holder neither the Corporation nor any Material Subsidiary shall: (a) ENCUMBER PROPERTY. Create, grant, assume or suffer to exist any Lien upon any of its properties or assets other than Permitted Encumbrances; (b) LOANS AND INVESTMENTS. Except for (i) loans by the Corporation and APM to existing employees not at any time exceeding in the aggregate U.S. $2,250,000 and loans by the Corporation and APM to new employees employed after the date hereof not at any time exceeding in the aggregate U.S. $750,000, (ii) APM Transactions, (iii) payments of up to Can. $1,500,000 in the aggregate made by the Corporation to purchase shares in the capital of Asia Minerals Corp. and of Highwood Resources Ltd., and (iv) Permitted Payments, make any loans to, or acquire or invest in any securities issued by, any Person other than currently existing loans by the Corporation to any Subsidiaries of which notice in writing has been provided to the Holder; (c) NON-ARM'S LENGTH TRANSACTIONS. Except for (i) loans by the Corporation and APM to existing employees not at any time exceeding in the aggregate U.S. $2,250,000 and loans by the Corporation and APM to new employees employed after the date hereof not at any time exceeding in the aggregate U.S. $750,000, (ii) APM Transactions, (iii) the acquisition by the Corporation of the Mikwam Property from Highwood Resources Ltd. on the terms disclosed to the Holder in writing prior to the date hereof, (iv) the sale by the Corporation of the Copperstone Property to a purchaser not dealing at arm's length to the Corporation, and (v) Permitted Payments, repay any indebtedness or liabilities owed to, transfer assets to, purchase assets from, lease property to or from, pay any monies to, guarantee Debt of, provide other financial assistance to, or otherwise enter into any transaction or agreement to do any of the foregoing (other than as may be expressly contemplated by the Documents) with or in respect of any Affiliate (or any corporation which, after the transaction in 31 question becomes effective, would become an Affiliate) or with any officer, director, employee, shareholder or other related Person of the Corporation or any Subsidiary, provided that if the Corporation has not committed an Event of Default, the Corporation may pay ordinary course compensation to officers, directors and employees consistent with past practice and additional ordinary course compensation under the Corporation's head office employee plans, in an aggregate amount not exceeding U.S.$5,000,000 in any Financial Year. (d) RESTRICTED DISTRIBUTIONS. Except for APM Transactions and Permitted Payments, declare, pay or make any dividend or other distribution on any shares in its capital or purchase, redeem, retire, cancel or acquire (i) any shares in the capital of the Corporation or any Subsidiary (except shares acquired upon the conversion thereof into other shares in its capital), (ii) any option, warrant or other right to acquire shares in the capital of the Corporation or any Subsidiary, or (iii) any debt or equity security of the Corporation or any Subsidiary, provided that the Corporation shall be entitled to declare and pay stock dividends and to wind-up Witteck Development Inc. and transfer to the Corporation all the property and assets of Witteck Development Inc.; (e) DISPOSITION OF ASSETS. Except for Permitted Payments, sell, lease, consign or otherwise dispose of or agree to sell, lease, consign or otherwise dispose of, any assets or property. Notwithstanding the foregoing so long as no Default or Event of Default has occurred or would occur as a result of any such sale, lease, consignment or other disposition (collectively a "Sale"): (i) at any time prior to the Kemess Mine Production Date, assets of the Corporation, other than assets which comprise or are in any way material to the Kemess Mine, may be sold by the Corporation for proceeds equal to their fair market value to purchasers dealing at arm's length with the Corporation provided that: (a) if the proceeds from all such Sales in the aggregate are equal to or less than Can. $15,000,000, such proceeds shall be used solely for prepayments of principal hereunder in accordance with the provisions of Section 2.4 hereof, regular debt service payments pursuant to the Subordinated Notes, payment of capital and non-capital expenses of the Corporation in connection with the construction, development and operation of Kemess Mine and/or general corporate purposes; and (b) if the proceeds from all such Sales in the aggregate exceed Can. $15,000,000, such excess proceeds shall be used 32 solely for prepayments of principal hereunder in accordance with the provisions of Section 2.4 hereof and/or for payment of capital and non-capital expenses of the Corporation in connection with the construction, development and operation of the Kemess Mine; (ii) at any time following the Kemess Mine Production Date, provided that EBITDA of the Corporation for the consecutive three (3) calendar month period immediately prior to the date of such Sale is Can. $9,000,000 or more, assets of the Corporation, other than assets which comprise or are in any way material to the Kemess Mine, may be sold by the Corporation at fair market value to purchasers dealing at arm's length to the Corporation and the proceeds of such Sales may be used for general corporate purposes of the Corporation; and (iii) at any time, assets of the Corporation which comprise or were in any way material to the Kemess Mine but which fall below the Materiality Threshold as a result of them being or becoming obsolete or redundant, provided that if saleable they are sold or disposed of by the Corporation for proceeds equal to their fair market value to purchasers at arm's length with the Corporation and the proceeds of such Sale are used in connection with the construction, development and operation of the Kemess Mine. In addition to the foregoing, and notwithstanding the Security, the Corporation may without the consent of the Holder at any time prior to the occurrence of a Default or Event of Default sell: (iv) the Proposed Leaseback Assets for cash consideration as part of an operating leaseback agreement or as part of an agreement comprising an Eligible Capital Lease Obligation and Purchase Money Security Interest; (v) the Corporation's interest in the Copperstone Property to a purchaser not dealing at arm's length to the Corporation for consideration of shares in or a royalty interest from the purchaser thereof; and (vi) the Corporation's interest in the Mikwam Property to a purchaser not dealing at arm's length to the Corporation for consideration of shares in or a royalty interest from the purchaser thereof; 33 provided, in such cases, that the transaction is with an arm's length Person (or to a non-arm's length Person but on arm's-length terms in the case of a Sale of the Copperstone Property and the Mikwam Property) and on reasonable commercial terms and that the proceeds of disposition become immediately subject to the Liens in favour of the Holder created pursuant to the Security Documents. In the event of any disposition or sale referred to in the immediately preceding sentence, the Holder will deliver such acknowledgements and discharges of the Security as the Corporation may reasonably request for the purpose of giving effect to such sale rights on the part of the Corporation. (f) DEBT. Create, incur, assume or suffer to exist, contingently or otherwise, Debt other than Permitted Debt. (g) REPAYMENT OF DEBT. Pay any principal, interest, fees or any other amounts in respect of Debt other than Permitted Payments and other than, if no Default or Event of Default has occurred: (i) payments of interest on the Subordinated Notes ordinarily due and payable in accordance with the terms and conditions contained in the Subordinated Note Trust Indenture; and (ii) other amounts ordinarily due and payable in respect of Permitted Debt provided that such payments shall not be inconsistent with the terms and conditions of applicable documents provided to the Holder prior to the date hereof. (h) GUARANTEES. Other than as may constitute Permitted Debt, guarantee, give financial assistance to or render itself liable in any manner whatsoever, directly or indirectly, conditionally or otherwise for any Debt or obligation whatsoever of a third party. (i) AMALGAMATIONS, ETC. Enter into any transaction (including by way of reorganization, consolidation, amalgamation, merger, reconstruction, liquidation, transfer, sale, lease or otherwise) whereby all or any material portion or significant operating division of the undertaking, property and assets of the Corporation or a Material Subsidiary would become the property of any other Person or, in the case of any such amalgamation, of the continuing corporation resulting therefrom without the Holder's prior written consent, provided that the Holder will provide its consent if the Holder, acting reasonably, determines that such transaction will not impair or prejudice the ability of the Corporation or the Material Subsidiaries to pay the indebtedness owing hereunder, to perform its covenants hereunder or impair or prejudice the Holder's Security. 34 (j) CHANGE IN BUSINESS. (i) Enter into any contract, agreement or commitment out of the ordinary course of its business or (ii) acquire or establish any business unrelated to the current business of the Corporation or (iii) make any material change in, or terminate or suspend (other than in the ordinary course of its operations) any material part of, the construction, development and operation of the Kemess South Mine. (k) PRICING, HEDGING PROTECTION. Enter into any hedging or related arrangements (including, without limitation, forward sale contracts, options, currency swap agreements, interest swap agreements, and similar arrangements) which provide for (i) the granting of any Lien against the property, assets and undertaking of the Corporation or a Material Subsidiary other than Permitted Encumbrances or (ii) production advances or any other disposition of any property, assets or undertaking of the Corporation or a Material Subsidiary in consideration for advance or accelerated payment or other manner of prepayment or payment not contemporaneous with delivery, other than the sales by the Corporation of not more than U.S. $10,000,000 of copper concentrate pursuant to the Glencore Agreement. (l) ENVIRONMENTAL MATTERS (i) The Corporation shall maintain, and shall cause each of the Subsidiaries to maintain, a system to assure and monitor continued compliance with all Applicable Laws relating to the environment, which system shall include periodic reviews of such compliance. (ii) Subject to the Materiality Threshold, if the Corporation or any Subsidiary (a) receives written notice that any violation of any Applicable Law relating to the environment may have been committed or is about to be committed by it, (b) receives written notice that any administrative or judicial complaint or order has been filed or is about to be filed against it alleging violations of any Applicable Law relating to the environment or requiring it to take any action in connection with the release of Hazardous Substances into the environment, or (c) receives any written notice from a Governmental Body or other Person alleging that it may be liable or responsible for costs associated with a response to or clean-up of a release of a Hazardous Substance into the environment or any damages caused thereby, the Corporation or Subsidiary, as the case may be, shall provide the Holder with a copy of such notice within ten days of receipt thereof. Subject to the Materiality Threshold, the Corporation or Subsidiary, as the case may be, shall also provide to the Holder, as soon as practicable after it becomes available, 35 a copy of any environmental site assessment or audit report required to be submitted to any Governmental Body. (iii) The Corporation shall indemnify the Holder and its officers, directors, employees, agents and shareholders, and shall hold each of them harmless, from and against any and all losses, liabilities, damages, costs, expenses and claims (including legal fees on a solicitor and his own client basis) suffered or incurred by such party in respect of (a) any violation by the Corporation or any Subsidiary of Applicable Law related to the environment including the assertion of any Lien thereunder, (b) the presence of any Hazardous Substance affecting the Mortgaged Property or any adjacent real estate, or (c) the release of any Hazardous Substance by the Corporation or any Subsidiary into the environment, provided that the foregoing indemnity shall not apply in connection with any negligence, willful misconduct or violation of any Applicable Law relating to the environment affecting the Mortgaged Property by the Holder or its agents after taking possession of the Mortgaged Property. The Corporation's obligations and indemnification under this section shall survive the satisfaction and release of the Security Documents and the repayment of this Debenture. The Holder shall hold the benefit of this indemnity in trust for those indemnified parties who are not parties to this Debenture. (m) CAPITAL EXPENDITURES. Make or permit any of its Subsidiaries, on a consolidated basis, to make any Capital Expenditures in any Financial Year in excess of Can. $12,000,000 if such Capital Expenditures do not directly relate to the construction, development or operation of the Kemess South Mine. (n) BANKING. Open or operate or permit any of its Subsidiaries to open or operate a bank account anywhere other than in the provinces of Ontario, British Columbia or Quebec and other than as set out in SCHEDULE T1. (o) GRANT OR AMEND SECURITY. Grant or permit any of its Subsidiaries to grant any Liens to any of the holders of Permitted Encumbrances set out in Section (b) or Section (l) of the definition thereof other than in such form and on such property, assets or undertaking of the Corporation or such Subsidiary that has been previously provided to the Holder hereunder, or amend or permit any of its Subsidiaries to amend any of the agreements, instruments or documents which provide Liens to any of the holders of Permitted Encumbrances set out in Section (b) or Section (l) of the definition thereof and which have been granted on or prior to the date hereof. (p) AMEND SUBORDINATED NOTE TRUST INDENTURE. Amend the Subordinated 36 Note Trust Indenture. (q) BANK WORKING CAPITAL FACILITY. Amend the Bank Working Capital Facility or increase the principal amount that may from time to time be outstanding under the Bank Working Capital Facility to an amount in excess of Can. $1,900,000. ARTICLE 6 - DEFAULT AND ACCELERATION 6.1 EVENTS OF DEFAULT The occurrence of any of the following events shall constitute an Event of Default: (a) if the Corporation defaults in payment of (i) all or any part of the principal of this Debenture when due, or (ii) all or any part of the fees provided for in Section 2.3 hereof when due; or (b) if the Corporation defaults in payment of any interest or any other amount due hereunder; or (c) if the Corporation defaults in observing or performing any other covenant or condition of this Debenture, the Purchase Agreement, the Security Documents, any other Debentures, or any other Document on its part to be observed or performed, and, if the default in question is one which is reasonably capable of being cured or remedied, such default continues for a period of 20 days after notice has been given to the Corporation by the Holder specifying such default and requiring the Corporation to rectify the same or cause to be rectified the same; or (d) if any representation and warranty made by the Corporation in any Document is found to be false or incorrect in any material respect; or (e) if an order is made or an effective resolution is passed for the winding-up or liquidation of the Corporation, or in the event of any other dissolution of the Corporation by operation of law; or (f) if the Corporation defaults after the expiry of any applicable cure period thereunder in any way in the performance of any obligations to any holders of (i) Subordinated Notes or (ii) any of the Permitted Encumbrances referred to in clause (b) of the definition of Permitted Encumbrances; or if any such holder 37 asserts any claim or takes any proceeding against the Corporation and such claim or proceeding is not being contested in good faith by all appropriate actions or, if proceedings are commenced against the Corporation, the rights of such holders are at any time unstayed or undismissed; or (g) if the Corporation shall generally not pay its debts as such debts become due, or shall admit its inability to pay its debts generally as they become due or otherwise acknowledge its insolvency, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by the Corporation seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts, or a proposal is made by the Corporation under any Applicable Law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property, including without limitation any such proceeding under the Companies' Creditors Arrangement Act (Canada); or the Corporation shall take any action to consider, approve or authorize any of the actions set forth above; or (h) if any proceeding shall be instituted against the Corporation seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of it or its Debts, or a proposal is made against the Corporation under any Applicable Law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property, including without limitation any such proceeding under the COMPANIES' CREDITORS ARRANGEMENT ACT (Canada), and such proceeding is at any time not being contested in good faith by all appropriate proceedings or, if so contested, remains outstanding, undismissed and unstayed, more than 30 days from the institution of such proceeding; or (i) if any execution, distress or other enforcement process, whether by court order or otherwise, involving indebtedness of the Corporation individually or in the aggregate in excess of Can. $2,000,000 becomes enforceable against any property of the Corporation and if such execution, distress or other enforcement process shall have been commenced by a creditor before obtaining judgment, such execution, distress or other enforcement process shall not have been stayed or vacated within 3 Business Days from the commencement thereof, or if any judgment or order for the payment of money in excess of Can. $2,000,000 shall be rendered against the Corporation and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period during which a stay of enforcement of 38 such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (j) if any event or proceeding is taken with respect to any part of the Mortgaged Property in any jurisdiction outside Canada which has an effect equivalent or similar to any of the events described in sections 6.1(e), 6.1(g) or 6.1(h); or (k) if the Corporation fails to make to any Person when due any payment (whether at scheduled maturity or by required prepayment, acceleration, demand or otherwise, but excluding trade payables incurred in the ordinary course of business which are not overdue by 90 days or more or are being contested in good faith by all appropriate proceedings promptly instituted and diligently conducted by the Corporation) in respect of indebtedness which exceeds individually Can. $3,000,000 or in the aggregate Can. $7,000,000; or any other event shall occur or condition shall exist specified in any agreement or instrument relating to any such indebtedness or liability of the Corporation if the effect of such event or condition is to accelerate, or to permit the acceleration of the maturity of such indebtedness or liability of the Corporation; or any such indebtedness or liability of the Corporation which is outstanding shall be declared to be due and payable prior to the stated maturity thereof and in each such case such failure or event is not remedied within 20 days of such failure or event; or (l) If the Corporation allows, permits, consents to or becomes subject to a Change of Control of the Corporation without the prior written consent of the Holder, provided that it shall not be an Event of Default hereunder and the Holder will consent to a Change of Control of the Corporation if prior to such Change of Control of the Corporation the Holder, acting reasonably, determines that such Change of Control of the Corporation (i) will not impair or prejudice the ability of the Corporation to pay any indebtedness owing hereunder or to perform its covenants hereunder, and (ii) will not impair or prejudice the Holder's Security; or (m) if the Kemess Mine Production Date is not on or before December 31, 1998; or (n) if any Material Subsidiary commits an event of default (after any applicable cure period) in any agreement with or obligation owing to the Holder including pursuant to any of the Documents; or (o) If the Corporation commits a default under or is in breach of the equipment lease dated April 6, 1998 between the Corporation and Trilon Bancorp Inc. (Lease Number L-RY001). 6.2 ACCELERATION ON DEFAULT 39 Upon the occurrence of an Event of Default, the Holder may, in its discretion: (a) declare the principal amount of this Debenture then outstanding, all accrued and unpaid interest hereunder and any other moneys payable hereunder to be immediately due and payable by the Corporation to the Holder; and (b) realize upon all or any part of the Security constituted by the Security Documents; and (c) take such actions and commence such proceedings as may be contemplated by the Documents or permitted at law or in equity (whether or not provided for herein or in the Security Documents or other Documents) at such times and in such manner as the Holder in its sole discretion may consider expedient; all without, except as may be required by Applicable Law, any additional notice, presentment, demand, protest, notice of protest, dishonour or any other action. 6.3 REMEDIES CUMULATIVE No remedy conferred upon or reserved to the Holder herein or in the Security Documents or any other Document is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing by law or by statute. 6.4 DEBENTURE NOT REQUIRED All rights of action under the Security Documents or hereunder may be enforced by the Holder without the possession of this Debenture or the production thereof on the trial or other proceedings relating thereto. 40 ARTICLE 7 - MISCELLANEOUS 7.1 NOTICE Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be given by facsimile or other means of electronic communication or by delivery as hereafter provided. Any such notice or other communication, if sent by facsimile or other means of electronic communication, shall be deemed to have been received on the Business Day following the sending, or, if delivered by hand, shall be deemed to have been received at the time it is delivered to the applicable address noted below either to the individual designated below or to an individual at such address having apparent authority to accept deliveries on behalf of the addressee. Notice of change of address shall also be governed by this section. Notices and other communications shall be addressed as follows: (a) if to the Corporation: Royal Oak Mines Inc. c/o Arctic Precious Minerals, Inc., d.b.a Royal Oak Mines (U.S.A.) Inc. 5501 Lakeview Drive Kirkland, Washington U.S.A. 98033 Attention: President Facsimile Number: (425) 822-3349 with a copy to: Lang Michener BCE Place, Box 747 2500 - 181 Bay Street Toronto, Ontario M5J 2T7 Attention: William Sheridan and David Thring Facsimile No.: (416) 365-1719 41 (b) if to the Holder: Northgate Exploration Limited 1 First Canadian Place Suite 2630, P.O. Box 143 Toronto, Ontario M5X 1C7 Attention: Terry Lyons Facsimile Number: (416) 363-2856 with a copy to: Goodman and Carr Suite 2300 200 King Street West Toronto, Ontario M5H 3W5 Attention: Jeffrey Blidner and Lorne Segal Facsimile No.: (416) 595-0567 42 7.2 ASSIGNMENT The Corporation may not assign this Debenture. This Debenture and the Holder's rights hereunder may be assigned at any time by the Holder in whole or in part (including, without limitation, by the grant or conveyance of participations in its interests hereunder), together with, at its discretion, its corresponding rights in any or all of the Security Documents and other Documents. Upon an assignment pursuant to this section, the Corporation shall, at the request of the assignee, issue a replacement Debenture registered in the name of the assignee (and, in the case of a partial assignment, shall also issue a replacement Debenture to the Holder in respect of the principal balance held by it), upon surrender and cancellation of the existing Debenture, and shall also, at the Holder's request, execute and deliver new Security Documents and other Documents to and in favour of the assignee. The Corporation shall also, and shall cause the Subsidiaries to, execute and deliver such other agreements, documents and instruments as the Holder or the assignee may request in connection with such assignment. The Holder may provide to any proposed assignee or participant such information concerning the financial position and the operations of the Corporation and its Subsidiaries as, in the opinion of the Holder, may be relevant or useful in connection with this Debenture or any other Document or any portion thereof proposed to be acquired by such assignee or participant. Notwithstanding anything else in this Section 7.2, if no Default or Event of Default has occurred the Holder shall not be entitled to assign this Debenture to any corporation whose principal business is the exploration for or mining of precious or base metals (other than to such Persons in which the Holder or their respective Associates and Affiliates has a direct or indirect interest, which Persons may be an assignee of this Debenture or the Documents). Following a Default or an Event of Default, there shall be no restrictions on the Holder's ability to assign tis Debenture or any of the Documents. 7.3 EXCHANGE OF INFORMATION The Holder may provide to any proposed assignee or participant such information concerning the financial position and the operations of the Corporation and its Subsidiaries as, in the opinion of the Holder, may be relevant or useful in connection with this Debenture or any other Document or any portion thereof proposed to be acquired by such assignee or participant. 43 7.4 RELIANCE AND NON-MERGER All covenants, agreements, representations and warranties of the Corporation made herein or in any other Document or in any certificate or other document signed by any of its directors or officers and delivered by or on behalf of either of them pursuant hereto or thereto are material, shall be deemed to have been relied upon by the Holder notwithstanding any investigation heretofore or hereafter made by the Holder or the Holder's Counsel or any employee or other representative of the Holder and shall survive the execution and delivery of this Debenture and the other Documents until the Corporation shall have satisfied and performed all of its obligations hereunder and thereunder. Nothing contained in this Debenture shall operate to subordinate the Security provided in favour of the Holder to or in favour of any Permitted Encumbrance or other Liens, or to postpone any of the obligations owing by the Corporation to the Holder to any of the obligations, indebtedness or liabilities owed by the Corporation to the holders of the Permitted Encumbrances or other Liens. 7.5 AMENDMENT, WAIVER No amendment or waiver of this Debenture shall be binding unless executed in writing by the Corporation if it is to be bound thereby, or by the Holder if the Holder is to be bound thereby (any such amendment or waiver to be contemporaneously made in respect of the Debenture). No waiver of any provision of this Debenture will constitute a waiver of any other provision nor will any waiver of any provision of this Debenture constitute a continuing waiver unless otherwise expressly provided. 7.6 NO SET-OFF BY THE CORPORATION The amounts payable by the Corporation under this Debenture or any other Document shall not be subject to any deduction, withholding, set-off or counterclaim by the Corporation for any reason whatsoever. 7.7 EMPLOYMENT OF EXPERTS The Holder may, at any time and from time to time, when a Default or Event of Default has occurred and is continuing, retain and employ legal counsel, independent accountants, consultants and other experts in order to perform or assist it in the performance of its rights and powers under this Debenture or the other Documents, and the Corporation shall pay to the Holder on demand all proper and reasonable compensation paid or payable to such counsel, accountant, consultant or other expert retained or employed pursuant to this provision. 44 7.8 FURTHER ASSURANCES Whether before or after the happening of a Default or Event of Default, the Corporation shall at its own expense do, make, execute or deliver, or cause to be done, made, executed or delivered by its Subsidiaries or other Persons, all such further acts, documents and things in connection with this Debenture and the other Documents as the Holder may reasonably require from time to time for the purpose of giving effect to the Documents including, without limitation, for the purpose of facilitating the enforcement of the Security, all immediately upon the request of the Holder. 7.9 GOVERNING LAW This Debenture shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. The Corporation submits to the jurisdiction of the courts of Ontario to determine all issues whether at law or in equity arising from this Debenture. 7.10 PAYMENT OF COSTS AND EXPENSES The Corporation shall pay to the Holder on demand all reasonable costs and expenses of the Holder, its agents, officers and employees, and any receiver or receiver-manager appointed by the Holder or by a court, in connection with this Debenture, the Security Documents and the other Documents including, without limitation: (a) the preparation, execution, filing and registration of the Debenture, the Security Documents, and the other Documents (including, without limitation, any Security Documents and other Documents to be delivered following the date hereof pursuant to Article 3 hereof) and any actual or proposed amendment or modification hereof or thereof or any waiver hereunder or thereunder and all instruments supplemental or ancillary thereto; (b) obtaining advice as to the Holder's rights and responsibilities under this Debenture, the Security Documents and the other Documents at any time after an Event of Default; and (c) the defence, establishment, protection or enforcement of any of the rights or remedies of the Holder under this Debenture, any of the Security Documents or any other Documents including, without limitation, all costs and expenses of establishing the validity and enforceability of, or of collection of amounts owing under, this Debenture, any of the Security Documents or any other Documents or of any enforcement of the Security, 45 and all of the fees, expenses and disbursements of any advisors to the Holder including, Counsel to the Holder on a solicitor and his own client basis, incurred in connection therewith, and including all sales or value-added taxes payable by the Holder (whether refundable or not) on all such costs and expenses. 7.11 JUDGMENT CURRENCY If for the purpose of obtaining judgment in any court, it is necessary to convert an amount due under this Debenture or any other of the Documents or under any instrument delivered thereunder from a currency in which it is due (the "Original Currency") into another currency (the "Second Currency") the parties hereto agree, to the fullest extent permitted by law, that the rate of exchange used shall be that at which, in accordance with normal banking procedures, the Holder could purchase the Original Currency with the Second Currency on the date two Business Days preceding that on which judgment is given. The obligation of the Corporation in respect of any Original Currency due from it to the Holder under this Debenture or any other Documents or under any instrument delivered thereunder shall, notwithstanding any judgment in the Second Currency, be discharged by a payment made to the Holder entitled thereto on account thereof in the Second Currency only to the extent that, on the Business Day following receipt of such payment in the Second Currency, the Holder may, in accordance with normal banking procedures, purchase the amount due in the Original Currency with the amount of the Second Currency so paid; and if the amount of the Original Currency which may be so purchased is less than the amount originally due in the Original Currency, the Corporation agrees as a separate and independent obligation and notwithstanding any such payment or judgment to indemnify the Holder against such deficiency. 7.12 PAYMENT AGREEMENTS FOR DEBENTURE Notwithstanding anything contained herein, the Corporation may enter into an agreement with the Holder, in the absolute discretion of the Holder, providing for the payment to such Holder of the principal of and interest on this Debenture at a place and in a manner other than the place and manner specified herein as the place and manner for such payment. Any payment of the principal of and interest on this Debenture at such other place and in such other manner pursuant to such agreement shall, notwithstanding any other provision of this Debenture, be valid and binding on the Corporation and the Holder. 46 7.13 ENTIRE AGREEMENT The Documents constitute the entire agreement between the parties hereto pertaining to the matters therein set forth and supersede and replace any prior understandings or arrangements pertaining to such matters. There are no warranties, representations or agreements between the parties in connection with such matters except as specifically set forth or referred to in the Documents. IN WITNESS WHEREOF the Corporation has executed this Debenture on the date first above written. ROYAL OAK MINES INC. By: /s/ James H. Wood -------------------------------------- Name: James H. Wood Title: Chief Financial Officer Dated as of June 22, 1998 47 SCHEDULE "A" DEFINITIONS "ADDITIONAL PURCHASE PRICE" has the same meaning given to such term in the Purchase Agreement; "AFFILIATE" has the meaning ascribed thereto in the BUSINESS CORPORATIONS ACT (Ontario) and includes, for greater certainty, all Subsidiaries; "APM" means Arctic Precious Metals, Inc., a company incorporated under the laws of Nevada; "APM TRANSACTIONS" means ordinary course transactions between the Corporation and APM in accordance with past practice and generally as described in SCHEDULE B hereto provided, however that such transactions shall not in any one Financial Year involve transactions of the kind referred to in sections 5.3(b)(i),(ii) and (iii), 5.3(c) and 5.3(d) hereof aggregating more than Can. $13,500,000 and provided further that such transactions shall be permitted only prior to an Event of Default; "APPLICABLE LAW" means, in respect of any Person, property, transaction or event, all applicable laws, statutes, rules, by-laws and regulations, and all applicable official written directives, orders, judgments and decrees of Governmental Bodies; "ASSOCIATE" has the meaning ascribed thereto in the BUSINESS CORPORATIONS ACT (Ontario) and shall include any entity which is an Associate of an Associate, and so on; "AUDITED FINANCIAL STATEMENTS" means the audited consolidated financial statements of the Corporation as at and for the 12 month fiscal period ended December 31, 1997, consisting of a balance sheet, an income statement and a statement of changes in financial position, together with the notes thereto, copies of which have been provided to the Holder; "BANK WORKING CAPITAL FACILITY" means a working capital facility provided to the Corporation by the Bank of Nova Scotia pursuant to a credit agreement dated February 15, 1996 as amended by agreements dated August 5, 1996 and May 30, 1997 in a maximum principal amount not to exceed Can. $1,900,000 pursuant to which the Bank of Nova Scotia has outstanding letters of credit on behalf of the Corporation and in respect of which the Corporation has provided to the Bank of Nova Scotia cash collateral as security therefor in the approximate amount of Can. $2,012,126 as at May 19, 1998 plus interest thereon. "BUSINESS DAY" means any day, other than Saturday, Sunday or any statutory holiday in Toronto, Canada; "CAPITAL EXPENDITURES" means, for any period, those expenditures of the Corporation (on a consolidated basis) which would, in accordance with generally accepted accounting principles, be considered expenditures for capital assets of the Corporation (on a consolidated basis) for such period; "CAPITAL LEASE OBLIGATIONS" of the Corporation means the obligations of the Corporation to pay rent or other amounts under a lease (or other agreement conveying the right to use) of real or personal property, which obligations are required to be classified and accounted for as a capital lease on a balance sheet under generally accepted accounting principles and, for purposes of this Debenture, the amount of such obligations shall in each case be the capitalized amount thereof, determined in accordance with generally accepted accounting principles; "CHANGE OF CONTROL OF THE CORPORATION" means if any Person acquires or becomes the beneficial owner of, or a combination of Persons acting jointly acquire or become the beneficial owners of, directly or indirectly more than 35% of the common shares of the Corporation or any shares of the Corporation which in the aggregate represent 35% of the voting shares of the Corporation, whether through the acquisition of previously issued and outstanding shares, or of shares that have not been previously issued, or any combination thereof, or any other transaction having a similar effect; "CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreement dated February 19, 1998 between the Corporation and BC Pacific Capital Corporation; "CONSENT" has the meaning attributed to such term in Section 4.1(g); "COPPERSTONE PROPERTY" has the meaning ascribed thereto in SCHEDULE U; "COUNSEL" means a barrister or solicitor or firm of barristers and solicitors retained by the Holder or retained by the Corporation and acceptable to the Holder acting reasonably; "DEBENTURE" means this Senior Secured Debenture - Series B of the Corporation as it may be amended, modified, restated or replaced from time to time; "DEBENTURES" means all Senior Secured Debentures of the Corporation (whether Series A or Series B) sold pursuant to the Purchase Agreement as same may be amended, modified, restated or replaced from time to time. "DEBT" of any Person means all indebtedness including, without limitation (i) all indebtedness of such Person for and in respect of borrowed money, including obligations with respect to bankers' acceptances, letters of credit and letters of guarantee or indemnity; (ii) all indebtedness of such Person for the deferred purchase price of property or services represented by a note or other evidence of indebtedness or other security; (iii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to the possession or sale of such property); (iv) all obligations under leases which, in accordance with generally accepted accounting principles (or accounting principles generally accepted in the jurisdiction of incorporation or organization of such Person), are recorded as capital leases, in respect of which such Person is liable as lessee; (v) all 2 indebtedness or obligations of such Person pursuant to any interest rate swaps, currency swaps, commodity agreements and similar hedging agreements; and (vi) all Debt Guaranteed by such Person; "DEBT GUARANTEED" by any Person means Debt of the kinds referred to in (i) through (v) of the definition of Debt which is directly or indirectly guaranteed by such Person or which such Person has agreed (contingently or otherwise) with the creditor to purchase or otherwise acquire or assume, or in respect of which such Person has otherwise assured a credit against loss by means of an indemnity, security or bond; "DEFAULT" means any event which, but for the lapse of time, giving of notice or both, would constitute an Event of Default; "DISCLOSED DEFAULTS" has the meaning given to such term in Section 4.1(n) hereof; "DOCUMENTS" means, collectively, the Debenture, the Security Documents and any other document now or hereafter delivered to the Holder by the Corporation or any Subsidiary pursuant to or in connection therewith including any document, agreement or guarantee delivered to the Holder pursuant to or in connection with the Reorganization Undertaking (as defined in the Purchase Agreement); "EBITDA" means, for any period, Net Income for such period, plus (i) consolidated interest expense of the Corporation and its Subsidiaries for such period, plus (ii) provision for income taxes of the Corporation and its Subsidiaries for such period, plus (iii) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash charges (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period) of the Corporation and its Subsidiaries to the extent that such depreciation, amortization and other non-cash charges were deducted in computing Net Income for such period, minus (iv) non-cash items increasing consolidated revenues of the Corporation and its Subsidiaries in determining Net Income for such period, in each case on a consolidated basis and determined in accordance with generally accepted accounting principles; provided that the following shall not be included in the calculation of EBITDA as either a charge or revenue: (a) non-cash changes in the carrying value of the Subordinated Notes and other Debt which is not denominated in Canadian dollars and is translated to Canadian dollars at the balance sheet date; and (b) non-cash changes resulting from the marking to market of foreign currency and commodity contracts; and provided further that premiums paid or received on options, warrants or similar instruments shall be recognized, for the purposes of EBITDA, as expenses or revenue, as the case may be, only on the date on which the option, warrant or other instrument in question expires, matures, is exercised or otherwise terminates; "ELIGIBLE CAPITAL LEASE OBLIGATIONS AND PURCHASE MONEY SECURITY INTERESTS" means (a) Capital Lease Obligations and Purchase Money Security Interests existing as at the date hereof 3 or any renewals or replacements thereof on materially the same terms and in amounts not materially exceeding those existing as at the date hereof; and (b) Capital Lease Obligations and Purchase Money Security Interests incurred following the date hereof if the claims of the lessor or creditor thereunder are limited to recovery or repossession of the leased or financed property in question and if such leased or financed property is newly acquired by the Corporation; "EVENT OF DEFAULT" has the meaning attributed to such term in section 6.1; "EXCLUDED ASSETS" means the Windy Craggy Property; "EXISTING ENCUMBRANCES" means the Liens specifically described in SCHEDULE C1; "FINAL MATURITY DATE" has the meaning given to such term in Section 2.3(a) hereof; "FINANCIAL QUARTER" means, in relation to the Corporation or any Subsidiary, the four periods each consisting of three months in each Financial Year of the Corporation or such Subsidiary ending on the last day of each of the third, sixth, ninth and twelfth months in such Financial Year; "FINANCIAL YEAR" means, in relation to the Corporation or any Subsidiary, the period beginning on January l and ending on December 31 of each calendar year; "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means the accounting principles so described and promulgated by the Canadian Institute of Chartered Accountants from time to time; "GLENCORE AGREEMENT" means the letter agreement dated November 5, 1997 between the Corporation and Glencore Ltd. relating to the sale by the Corporation of copper concentrate; "GOVERNMENTAL BODY" means any government, parliament, legislature, or any regulatory, authority, agency, commission or board of any government, parliament or legislature, or any court or (without limitation to the foregoing) any other law, regulation or rule-making entity (including, without limitation, any central bank, fiscal or monetary authority or authority regulating banks), having jurisdiction in the relevant circumstances, or any Person acting under the authority of any of the foregoing (including, without limitation, any arbitrator); "HAZARDOUS SUBSTANCE" includes but is not limited to any contaminants, pollutants, dangerous substances, liquid wastes, industrial wastes, toxic substances, hazardous wastes, hazardous materials of whatsoever nature or kind or any other hazardous substance within the meaning of any Applicable Law including without limitation the HAZARDOUS PRODUCTS ACT (Canada), the CANADIAN ENVIRONMENTAL PROTECTION ACT (Canada), the ENVIRONMENTAL PROTECTION ACT (Ontario) and the WASTE MANAGEMENT ACT (B.C.); "HOLDER" means Trilon Financial Corporation and its successors and permitted assigns; 4 "INITIAL PURCHASE PRICE" has the same meaning given to such term in the Purchase Agreement; "INTELLECTUAL PROPERTY" means all trade marks, trade names, patents, patent applications, copyrights, trade secrets, logos, processes, computer systems and application software which are owned or used by, or which relate to the business of, the Corporation or the Subsidiaries; "INTEREST PAYMENT DATE" means each day on which interest is payable hereunder pursuant to section 2.1; "INTEREST RATE" means the LIBOR Rate plus 6.0% per annum; "INTERIM FINANCIAL STATEMENTS" means the unaudited consolidated financial statements of the Corporation as at and for the 4 month period ended April 30, 1998 consisting of a balance sheet, an income statement and a statement of changes in financial position, a copy of which has been provided to the Holder; "KEMESS MINE" means the Kemess North Property and the Kemess South Mine; "KEMESS NORTH PROPERTY" means all present and future property and assets comprising or relating to what is generally referred to as the Kemess North Property in British Columbia, Canada including, without limitation, all mineral claims and leases referred to in SCHEDULE B-1 hereto, all buildings, equipment, fixtures and other property and assets owned or leased by the Corporation (or in which the Corporation otherwise has an interest) situated or used at the Kemess North Property site all operations, exploration and other activities carried on at such site and all permits, authorizations, licenses and similar approvals relating thereto; "KEMESS SOUTH MINE" means all present and future property and assets comprising or relating to what is generally referred to as the Kemess South Mine property in British Columbia, Canada including, without limitation, all mineral claims and leases referred to in SCHEDULE B-2 hereto, all buildings, equipment, fixtures and other property and assets owned or leased by the Corporation (or in which the Corporation otherwise has an interest) situated or used at the Kemess South Mine site, all operations, exploration and other activities carried on at such site and all permits, authorizations, licenses and similar approvals relating thereto; "KEMESS MINE PRODUCTION DATE" means the date that the Kemess South Mine has produced concentrate over the immediately preceding 30 day period, and is able to sustain and maintain such production thereafter, of not less than 8500 short tons of concentrate yielding mineral content that is acceptable to Glencore Ltd. pursuant to the Glencore Agreement (without giving effect to any amendments thereof); "KEMESS MINE CONSTRUCTION CONTRACTS" has the meaning given to such term in Section 4.1(x); 5 "KNOWLEDGE" means the best knowledge of the senior management of that party (which in the case of the Corporation specifically includes but is not limited to the Kemess Mine Project Manager, the Kemess Mine Project Director and the Kemess Mine Manager of Project Accounting, after having made all reasonable inquiries; "LIBOR RATE" means the rate of interest per annum, calculated on the basis of a year of 360 days, determined by the Holder for a 30 day period to be (i) the rate per annum, calculated on the basis of a year of 360 days, which appears on the Reuters Telerate Page 3750 as of 11:00 a.m. (London time) on the second Business Day prior to the commencement of such 30 day period in an amount of U.S. dollars equal to the principal amount then outstanding under the Debenture and for a 30 day deposit period, or (ii) if such rate does not appear on the Reuters Telerate Page 3750 as and when contemplated herein, the arithmetic average (rounded upwards to the nearest 1/16th of 1%) of the rates of interest per annum, calculated on the basis of a year of 360 days, at which any three prime banks in the London inter-bank market are offering deposits at approximately 11:00 a.m. (London time) on the second Business Day prior to the commencement of such 30 day period in an amount of U.S. dollars equal to the principal amount then outstanding under this Debenture and for a 30 day deposit period; "LIEN" means any mortgage, lien, pledge, assignment, charge, security interest, lease intended as security, title retention agreement, rights reserved in any Governmental Body, registered lease of real property, hypothec, levy, execution, seizure, attachment, garnishment or other similar encumbrance and includes any contractual restriction which, if contravened, may give rise to an encumbrance; "MATERIAL AUTHORIZATION" means, with respect to the Corporation or any Subsidiary, any approval, permit, licence or similar authorization from, and any filing or registration with, any Governmental Body required by such Person to own its property and assets or to carry on its business in each jurisdiction in which it does so or is contemplated to do so, where the failure to have such approval, permit, licence, authorization, filing or registration would have a material adverse effect upon its business, financial condition or prospects; "MATERIAL CONTRACTS" has the meaning given to such term in Section 4.1(x); "MATERIAL SUBSIDIARIES" means APM and all Subsidiaries each of which has total assets exceeding a fair market value of Can. $2,000,000; "MATERIALITY THRESHOLD" means that the representation, warranty, covenant or other obligation in question shall apply only to subject matter which individually or in the aggregate is or should reasonably be expected as determined by the Holder, acting reasonably, to be material to: (a) the business, property or affairs of the Corporation taken as a whole; (b) the construction, ownership or operation of the Kemess Mine or the requirement 6 that the Kemess Mine Production Date occur on or before December 31, 1998; or (c) the Holder, in its capacity as a secured creditor of the Corporation under the Documents; "MIKWAM PROPERTY" has the meaning ascribed thereto in SCHEDULE V; "MORTGAGED PROPERTY" means all of the property, assets and undertaking of the Corporation and APM of every nature and kind, both present and future, real and personal, tangible and intangible, other than Excluded Assets, including without limitation all proceeds of disposition of any such property, assets and undertaking; "NET INCOME" means, for any period, the aggregate of the net income of the Corporation and its Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles (for greater certainty, after Taxes), but excluding therefrom (i) extraordinary items, (ii) any gains or losses from the sale of any assets (other than inventory sold in the ordinary course of business) of the Corporation or its Subsidiaries, (iii) the net income of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that net income is not permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its shareholders, or is not permitted without prior governmental approval (that has not been obtained), and (iv) the income or loss from any entity in which the Corporation's or its Subsidiary's, as applicable, investment is classified pursuant to generally accepted accounting principles as a minority interest; "NIGHTHAWK LAKE MINE" has the meaning ascribed thereto in SCHEDULE W; "PAMOUR MINE" has the meaning ascribed thereto in SCHEDULE X; "PERMITTED DEBT" means, collectively, the indebtedness pursuant to the Debentures and: (a) indebtedness of the Corporation under the Subordinated Notes; (b) indebtedness of the Corporation which, pursuant to agreements and confirmations delivered by the applicable creditor to and in favour of the Corporation and the Holder in form and content satisfactory to the Holder, is fully subordinated and postponed to the obligations of the Corporation to the Holder under the Debenture and the other Documents, provided that at the time any or all such indebtedness is incurred or reincurred no Default or Event of Default has occurred; (c) indebtedness of the Corporation to Persons under interest rate swaps, currency swaps, commodity agreements and similar hedging agreements (the "Permitted Hedging Indebtedness"); 7 (d) Debt under or secured by Eligible Capital Lease Obligations and Purchase Money Security Interests, not at any time exceeding the aggregate of (A) Can. $30,000,000 plus (B) for so long as the Proposed Leaseback Assets are leased to the Corporation pursuant to the April 6, 1998 lease between the Corporation and Trilon Bancorp Inc. (Lease Number L-RY001) and in the event of a sale and leaseback of the Proposed Leaseback Assets and solely for those purposes, the amount by which the Debt under or secured by an Eligible Capital Lease Obligation or Purchase Money Security Interest relating to the Proposed Leaseback Assets exceeds the difference between (1) Can. $30,000,000, and (2) the amount of Debt under all Eligible Capital Lease Obligations and Purchase Money Security Interests existing as at the date hereof; (e) Debt by way of trade payables or the endorsement of negotiable instruments incurred or created in the ordinary course of business for the purpose of carrying on same. "PERMITTED ENCUMBRANCES" means Liens granted to secure indebtedness under the Debentures and other Documents, Liens granted to Trilon Financial Corporation to secure obligations owing to it under a Royalty Agreement and a Royalty Debenture each dated the date hereof; and: (a) the Existing Encumbrances set out in Parts I and II of SCHEDULE C1 hereto and extensions, renewals or refinancings thereof on materially the same terms and in amounts not materially exceeding those existing at the date hereof; (b) Liens on the Mortgaged Property granted by the Corporation to holders of Permitted Hedging Indebtedness in an aggregate amount not at any time exceeding U.S. $50,000,000 to secure the Corporation's obligations in respect of Permitted Hedging Indebtedness in an aggregate amount not at any time exceeding U.S. $50,000,000, provided that each such holder delivers to and in favour of the Corporation and the Holder an inter-creditor agreement, in form and content satisfactory to the Holder, providing for, among other things, the subordination by such holders of Permitted Hedging Indebtedness Note of any Liens granted to them to and in favour of the Security until such time as all of the obligations of the Corporation to the Holder are satisfied in full; (c) cash collateral accounts for the letters of credit specifically described in SCHEDULE Y and extensions, renewals or refinancings thereof on materially the same terms and in amounts not materially exceeding those existing at the date hereof; 8 (d) Liens for taxes, assessments or governmental charges incurred in the ordinary course of business that are not yet due and payable (taking into account any relevant grace periods), in respect of which the Corporation or a Subsidiary, as the case may be, has established on its books reserves to the extent required by generally accepted accounting principles considered by it and its auditors to be adequate therefor; (e) rights reserved to or vested in any Governmental Body by the terms of any lease, licence, franchise, grant or permit, or by any statutory provision, to terminate the same, to take action which results in an expropriation, to designate a purchaser of any Mortgaged Property or to require annual or other payments as a condition to the continuance thereof; (f) construction, contractors', mechanics', carriers', warehousemen's, suppliers' and materialmen's Liens and Liens in respect of vacation pay, workers' compensation, unemployment insurance or similar statutory obligations, provided the obligations secured by such Liens are not yet due and payable and, in the case of construction Liens, which have not yet been filed or for which the Corporation or a Subsidiary has not received written notice of a Lien, provided that in any case the Corporation may permit to exist construction Liens (in addition to those included in the definition of Existing Encumbrances and listed in Part I of SCHEDULE C1) which do not individually or in the aggregate relate to indebtedness exceeding Can. $10,000,000, which the Corporation is contesting in good faith by all appropriate proceedings promptly instituted and diligently conducted, and in respect of which, notice in writing has been given by the Corporation to the Holder, with full particulars thereof; (g) zoning restrictions, easements, rights of way, leases or other similar encumbrances or privileges in respect of real property which in the aggregate do not materially impair the use of such property by the Corporation or a Subsidiary in the operation of its business; (h) Liens in connection with any Eligible Capital Lease Obligations and Purchase Money Security Interests in respect of Debt not at any time exceeding in the aggregate of (A) Can. $30,000,000 plus (B) for so long as the Proposed Leaseback Assets are leased to the Corporation pursuant to the April 6, 1998 lease between the Corporation and Trilon Bancorp Inc. (Lease Number L-RY001) and in the event of a sale and leaseback of the Proposed Leaseback Assets and solely for those purposes, the amount by which the Debt under or secured by an Eligible Capital Lease Obligation or Purchase Money Security Interest relating to the Proposed Leaseback Assets exceeds the difference between (1) Can. $30,000,000 and (2) the amount of the Debt under all Eligible Capital lease Obligations and Purchase Money Security Interests existing as at the date hereof; (i) security given by the Corporation or a Subsidiary to a public utility or any 9 Governmental Body, when required by such utility or Governmental Body in connection with the operations of the Corporation or Subsidiary in the ordinary course of its business, which singly or in the aggregate do not materially detract from the value of the asset concerned or materially impair its use in the operation of the business of the Corporation or Subsidiary; (j) the reservation in any original grants from the Crown of any land or interest therein and statutory exceptions to title; (k) title defects or irregularities which are of a minor nature and which do not materially detract from the value of the assets of the Corporation or its Subsidiaries encumbered thereby; (l) Liens on the Mortgaged Property granted by the Corporation to or on behalf of holders of the Subordinated Notes in an aggregate principal amount not at any time exceeding U.S. $175,000,000 to secure the Corporation's obligations in respect of the Subordinated Note Trust Indenture in an aggregate principal amount not at any time exceeding U.S. $175,000,000, provided that Chase Manhattan Trust Company, National Association, as trustee thereunder and any other collateral agent appointed by it delivers to and in favour of the Corporation and the Holder an inter-creditor agreement, in form and content satisfactory to the Holder, providing for, among other things, the subordination by such holders of Subordinated Notes of any Liens granted to them to and in favour of the Security until such time as all of the obligations of the Corporation to the Holder are satisfied in full, and providing that notwithstanding the granting of such Liens the holders of the Subordinated Notes will take reasonable steps to ensure that they are placed in a separate class of creditors than the Holder in any insolvency proceedings relating to the Corporation and if notwithstanding the foregoing they are placed in the same class of creditors they will assign their votes to the Holder so as to permit the Holder to vote against and defeat any restructuring plan in such insolvency proceedings; and (m) any other Lien which the Holder after the date hereof approves in writing as a Permitted Encumbrance; provided that nothing herein shall constitute or be interpreted as a postponement or subordination of the Security to any security granted by the Corporation in connection with such Permitted Encumbrances. "PERMITTED HEDGING INDEBTEDNESS" has the meaning given to it in paragraph (c) of the definition of Permitted Debt; "PERMITTED PAYMENTS" means any payment, distribution, loan, advance or transfer by a Restricted Subsidiary (as defined in the Subordinated Note Trust Indenture) to the Corporation or to another Restricted Subsidiary contemplated in paragraphs 4.13(a),(b) and (c) of the 10 Subordinated Note Trust Indenture that, and only to the extent that, cannot be subject to a Payment Restriction pursuant to and as defined in Section 4.13 of the Subordinated Note Trust Indenture; "PERSON" means any individual, partnership, limited partnership, joint venture, syndicate. sole proprietorship, company or corporation with or without share capital, unincorporated association, trust, trustee, executor, administrator or other legal personal representative, government or governmental authority or entity, however designated or constituted; "PREPAYMENT AMOUNT" means the principal amount of this Debenture which the Corporation proposes to prepay under Section 2.4 plus a non-refundable fee of one per cent (1%) of such principal amount being prepaid; "PROCEEDS CONDITIONS" means the conditions precedent in favour of the Holder that (i) the Kemess South Mine has produced concentrate over the immediately preceding 30 day period, and is able to sustain and maintain such production thereafter, of not less than 7500 short tons of concentrate yielding mineral content that is acceptable to Glencore Ltd. pursuant to the Glencore Agreement (without giving effect to any amendments thereof), (ii) at such time the Kemess South Mine accounts payable of the Corporation do not exceed U.S.$15,000,000 and (iii) at such time the Kemess South Mine accounts payable of the Corporation are not overdue in accordance with their respective terms; "PROPOSED LEASEBACK ASSETS" means one P & H model 2800XPB Electric Mining Shovel (Serial No.28127) and one P & H model 100XP Rotary Blast Hole Drill (Serial No.10036); "PURCHASE AGREEMENT" means the Securities Purchase Agreement dated April 17, 1998 entered into by Trilon Financial Corporation and the Corporation in respect of, inter alia, the purchase of the Debentures, as amended from time to time; "PURCHASE MONEY SECURITY INTEREST" means any Lien given, assumed or arising by operation of law, including capital leases, to provide or secure, or to provide the obliger with funds to pay, the whole or any part of the consideration for the acquisition of property where the principal amount of the obligation secured by such Lien (i) is not in excess of the cost to the obliger of the property encumbered thereby and (ii) is secured only by the property being acquired by the obliger, and includes the renewal or refinancing of any such Lien upon the same property provided that the indebtedness secured and the security therefor are not increased thereby; "ROYALTY AGREEMENT" has the same meaning given to such term in the Purchase Agreement; "ROYALTY DEBENTURE" has the same meaning given to such term in the Purchase Agreement; 11 "SALE" has the meaning attributed to such term in section 5.3(e); "SECURITY" means the Liens created by the Security Documents; "SECURITY DOCUMENTS" means, collectively, the agreements, instruments and documents delivered from time to time (both before and after the date of this Debenture) to the Holder by the Corporation and APM and by any Subsidiary for the purpose of creating, perfecting, preserving or protecting the security of the Holder in respect of the Debenture and in respect of amounts outstanding thereunder (including, without limitation, the documents referred to in Article 3, Section 5.1(v) and Section 5.1(x)); "SUBORDINATED NOTES" means the outstanding Secured 12.75% Senior Subordinated Notes due 2006 in the aggregate principal amount of U.S.$175,000,000; "SUBORDINATED NOTE TRUST INDENTURE" means the Trust Indenture dated as of August 12, 1996 among the Corporation, Kemess Mines Inc. and Mellon Bank, F.S.B. relating to the Subordinated Notes, as amended by (i) the First Supplemental Indenture, dated and effective as of December 31, 1997, (ii) the Second Supplemental Indenture dated and effective as of January 31, 1998, (iii) the Third Supplemental Indenture dated and effective as of May 19, 1998, (iv) the Fourth Supplemental Indenture dated and effective the date hereof, and (v) the Fifth Supplemental Indenture dated and effective the date hereof, each by and between the Corporation and Chase Manhattan Trust Company, National Association, the successor to Mellon Bank, F.S.B. as Trustee; "SUBSIDIARIES" means all of the corporations listed on SCHEDULE E and any other corporation or limited liability company which is or hereafter becomes directly or indirectly controlled by the Corporation, and for the purposes of this definition, the Corporation shall be deemed to control a corporation if the Corporation beneficially owns, directly or indirectly, shares to which are attached more than 50% of the voting rights ordinarily exercisable at meetings of shareholders of such corporation, and the Corporation shall be deemed to own beneficially shares beneficially owned by a corporation controlled by it, and so on indefinitely, and the Corporation shall be deemed to control a limited liability company where it owns more than 50% of the equity interests in such limited liability company; "TAXES" means all taxes of any kind or nature whatsoever including, without limitation, income taxes, sales or value-added taxes, levies, stamp taxes, royalties, duties, and all fees, deductions, compulsory loans and withholdings imposed, levied, collected, withheld or assessed as of the date hereof or at any time in the future, by any Governmental Body of or within Canada or any other jurisdiction whatsoever having power to tax, together with penalties, fines, additions to tax and interest thereon; "THIS DEBENTURE" and "THE DEBENTURE" refer to this Debenture and, unless otherwise expressly provided, not to any particular Article, section, subsection, paragraph, clause, subdivision or other portion hereof, and includes any and every instrument supplemental or ancillary hereto or in implementation hereof; 12 "WINDY CRAGGY PROPERTY" means the mineral claims in and around Windy Craggy mountain in the Tatshenshini/Alsek region of northwestern British Columbia, more particularly described in SCHEDULE F hereto. 13 EX-4.8 9 EXHIBIT 4.8 ROYAL OAK MINES INC. - ------------------------------------------------------------------------------- SENIOR SECURED DEBENTURE - SERIES B - ------------------------------------------------------------------------------- JUNE 22, 1998 File #9801032.TRI - SENR12B.DEB LWS:wpc GOODMAN AND CARR Suite 2300 200 King Street West Toronto, Ontario M5H 3W5 TABLE OF CONTENTS
ARTICLE NO. DESCRIPTION PAGE NO. 1 - INTERPRETATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Use of Singular and Plural . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.3 Interpretation Not Affected by Headings, etc.. . . . . . . . . . . . . . . . . . . . 1 1.4 Monetary References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.5 Day Not a Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.6 Invalidity of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.7 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.8 Debenture to Govern. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.9 Generally Accepted Accounting Principles . . . . . . . . . . . . . . . . . . . . . . 2 1.10 Computation of Time Periods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.11 Debentures in Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2 - PRINCIPAL AND INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.2 Payment of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.3 Repayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.4 Optional Prepayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3 - SECURITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.1 Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.2 No Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.3 Further Assurances - Security. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4 - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.1 Representations and Warranties by the Corporation. . . . . . . . . . . . . . . . . . 9 4.2 Survival of Representations and Warranties by the Corporation. . . . . . . . . . . . 20 5 - COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 5.1 Affirmative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 5.2 Holder's Right to Decline to Receive Information . . . . . . . . . . . . . . . . . . 27 5.3 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 6 - DEFAULT AND ACCELERATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.2 Acceleration on Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.3 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.4 Debenture Not Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 7 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 7.1 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 7.2 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 7.3 Exchange of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.4 Reliance and Non-Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.5 Amendment, Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.6 No Set-Off by the Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.7 Employment of Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.8 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 7.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 7.10 Payment of Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 7.11 Judgment Currency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 7.12 Payment Agreements for Debenture . . . . . . . . . . . . . . . . . . . . . . . . . . 41 7.13 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ROYAL OAK MINES INC. (Amalgamated under the laws of Ontario) SENIOR SECURED DEBENTURE - SERIES B Royal Oak Mines Inc. (the "Corporation") for value received hereby acknowledges itself indebted and promises to pay to or to the order of the Holder on the Final Maturity Date, each as defined herein, or such dates as all or any part of the principal amount hereof may become due in accordance with the provisions hereof, the principal sum of THIRTY-FIVE MILLION UNITED STATES DOLLARS (U.S. $35,000,000) (or such parts thereof as may become due), on presentation and surrender of this Debenture (in the case of payment of all of the principal amount hereof) to the Corporation at its registered office or at such place as the Corporation may direct, and to pay interest on the principal amount of this Debenture outstanding from time to time at the rates and times and in the amounts set forth herein. ARTICLE 1 - INTERPRETATION 1.1 DEFINITIONS In this Debenture, unless otherwise defined in this Debenture, the terms set out in SCHEDULE A shall have the meanings ascribed to them in that schedule. 1.2 USE OF SINGULAR AND PLURAL Words importing the singular include the plural and vice versa and words importing gender include all genders. 1.3 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC. The division of this Debenture into Articles, Sections, subsections and paragraphs and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Debenture. 1.4 MONETARY REFERENCES Any reference in this Debenture to "Canadian dollars" or "Can. $" or similar terms shall be deemed to be a reference to lawful money of Canada and any reference in this Debenture to "United States of America dollars", "United States dollars" or "U.S. $" or similar terms shall be deemed to be a reference to lawful money of the United States of America. If no such references are made with respect to any particular sum or obligation, the sum or obligation in question shall be deemed to refer to lawful money of Canada. 1.5 DAY NOT A BUSINESS DAY In the event that any day on or before which any action is required to be taken hereunder is not a Business Day, then such action shall be required to be taken on or before the requisite time on the first Business Day thereafter. 1.6 INVALIDITY OF PROVISIONS Each of the provisions contained in this Debenture is distinct and severable and a declaration of invalidity, illegality or unenforceability of any such provision or part thereof by a court of competent jurisdiction shall not affect the validity or enforceability of any other provisions hereof or thereof. Without limiting the generality of the foregoing, if any amounts on account of interest or fees or otherwise payable by the Corporation to the Holder hereunder exceed the maximum amount recoverable under Applicable Law, the amounts so payable hereunder shall be reduced to the maximum amount recoverable under Applicable Law. 1.7 REFERENCES Except as otherwise specifically provided, reference in this Debenture to any contract, agreement or any other instrument shall be deemed to include references to the same as varied, amended, supplemented or replaced from time to time and reference in this Debenture to any enactment, including without limitation any statute, law, by-law, regulation, ordinance or order, shall be deemed to include references to such enactment as re-enacted, amended or extended from time to time. 1.8 DEBENTURE TO GOVERN If there is any inconsistency between the terms of this Debenture and the terms of any Security Document, the provisions hereof shall prevail to the extent of the inconsistency, but the foregoing shall not apply to limit or restrict in any way the rights and remedies of the Holder under the terms of the Security Documents after the Liens thereby constituted shall have become enforceable. 2 1.9 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Unless otherwise specifically provided herein, all accounting terms shall be applied and construed in accordance with Canadian generally accepted accounting principles consistently applied. For the purpose of determining compliance with the financial covenants set forth in Section 5.1(t), all computations shall be calculated on a consolidated basis, where applicable, and shall be adjusted to eliminate the effect of any discretionary change by the Corporation in the application of generally accepted accounting principles since the date of its most recent audited consolidated financial statements prior to the date hereof. 1.10 COMPUTATION OF TIME PERIODS In this Debenture, in the computation of periods of time from a specified date to a later specified date, unless otherwise expressly stated, the word "from" means "from and including", and the words "to" and "until" each mean "to but excluding". 1.11 DEBENTURES IN SERIES The Series A Senior Secured Debentures of the Corporation (the "Series A Debentures") may be issued to one or more holders. The aggregate principal amount of Series A Debentures which shall be issued shall be U.S. $85,000,000. The Corporation shall also issue Series B Senior Secured Debentures of the Corporation (the "Series B Debentures"), the aggregate principal amount of which shall be U.S. $35,000,000. This Debenture and all other Series B Debentures now or hereafter issued shall be rateably secured by a Lien on the property, assets and undertaking of the Corporation and shall rank pari passu inter se for payment (whether such payment is a payment, repayment and/or prepayment and whether same is voluntary or mandatory) of principal and/or interest hereunder and all such payments shall be made pro rata to each holder of Series B Debentures in accordance with the principal amount outstanding under the debenture held by such holder at the time of such payment. For as long as a Default or an Event of Default has occurred and is continuing, all amounts realized pursuant to the enforcement or the exercise of collection or other remedial action pursuant to or with respect to the Security (as defined in the Series A Debenture) for the Series A Debenture or the Security for the Series B Debenture shall be applied first to pay in full any and all amounts outstanding pursuant to the Series A Debenture, and shall not be applied to pay any or all amounts outstanding pursuant to this Series B Debenture unless and until all amounts outstanding pursuant 3 to the Series A Debenture have been paid in full. At all times prior to the occurrence of a Default or an Event of Default, and at all times after a Default or an Event of Default which has occurred has been cured, provided that no other Default or Event of Default has occurred which is continuing, all amounts realized pursuant to the enforcement or the exercise of collection or other remedial action pursuant to or with respect to the Security (as defined in the Series A Debenture) for the Series A Debenture or the Security for the Series B Debenture shall be applied pro rata in accordance with the relative amounts outstanding under the Series A Debenture and the Series B Debenture at the time of such payment. The Holder, by its acceptance of this Debenture, agrees to be bound by the provisions contained herein. 1.12 REPAYMENT AMOUNT For the purposes of (i) the repayment and prepayment of the principal amounts outstanding hereunder, (ii) the payment of interest thereon and (iii) the payment of fees contemplated in Sections 2.3 and 2.4 hereof, the amount outstanding hereunder at any time shall be the aggregate of the Initial Purchase Price paid by the Holder, the Additional Purchase Price paid by the Holder if any, any and all compounded interest at such time, and such other fees, expenses and other amounts as may be payable by the Corporation to the Holder pursuant to the Documents at such time. 1.13 USE OF PROCEEDS The Corporation hereby covenants, agrees, represents and warrants with and to the Holder that the Corporation will use the proceeds from the issuance and sale of Debentures: (a) to repay all amounts outstanding under the Senior Secured Debenture Facility (as defined in the Purchase Agreement); (b) to repay those Kemess South Mine accounts payable of the Corporation listed in SCHEDULE G; (c) to fund capital and non-capital expenses of the Corporation in connection with the construction, development and operation of the Kemess South Mine. In addition to the foregoing, and until the occurrence of a Default or Event of Default hereunder: 4 (d) the Corporation may use such proceeds for general corporate purposes in an amount not to exceed the aggregate of U.S. $20,000,000; and (e) to the extent that the amounts referred to in Section 1.13(d) hereof are insufficient to satisfy the general corporate purposes of the Corporation, and provided the Proceeds Conditions have then been and remain satisfied, the Corporation may then use such proceeds for general corporate purposes. ARTICLE 2 - PRINCIPAL AND INTEREST 2.1 INTEREST Interest shall accrue from the date hereof, before and after the occurrence of an Event of Default, demand, maturity or judgment, on the outstanding principal amount of this Debenture, and on all overdue costs, expenses and interest payable hereunder, at the Interest Rate and shall be calculated and compounded monthly on the first day of each calendar month, and shall be payable on the first day of the calendar month occurring after the earlier of (i) July 31, 1998, and (ii) the Kemess Mine Production Date, and thereafter shall be calculated and compounded monthly and payable monthly in arrears on the first calendar day of each month in each year (each an "Interest Payment Date") and on the Maturity Date. Notwithstanding the foregoing sentence, any accrued or accruing interest hereunder shall become and shall be immediately due and payable in full in the event that the principal amount outstanding hereunder has become due and payable. 2.2 PAYMENT OF INTEREST Except as otherwise provided for herein, as interest on this Debenture becomes due (except interest payable on the Maturity Date, which shall be paid upon presentation and surrender of this Debenture for payment), the Corporation shall pay to the Holder the interest due and payable on each Interest Payment Date, without deduction or set-off, by wire transfer of immediately available funds to such account and address of the Holder as may be provided by the Holder from time to time. 2.3 REPAYMENT (a) Subject to the terms and conditions of this Debenture including the provisions of Section 6.2 hereof, the principal amount of this Debenture and all accrued interest thereon and any other amounts payable hereunder in connection with this Debenture shall be repaid in full on the date that is two years from the date hereof (the "Final Maturity Date"). 5 (b) In addition to any other amounts payable by the Corporation hereunder, the Corporation shall pay: (i) on February 15, 1999, a non-refundable fee equal to 2% of the amount by which the aggregate amount then outstanding under the Debentures (including principal and accrued interest and unpaid fees and expenses) exceeds U.S. $80,000,000; and (ii) On October 15, 1999, a non-refundable fee equal to 2% of the amount by which the aggregate principal amount then outstanding under the Debentures (including principal and accrued interest and unpaid fees and expenses) exceeds U.S. $50,000,000. Such fees shall be payable to the holders of the Debentures pro rata and pari passu, in accordance with the provisions of Section 1.11. 2.4 OPTIONAL PREPAYMENT Subject to the terms and conditions of this Debenture and provided no Default or Event of Default has occurred hereunder, under any other Series B Debentures or under any of the Series A Debentures, the Corporation shall have the privilege of prepaying from time to time, on any Business Day, all or any part of the principal amount of this Debenture on payment to the Holder of the Prepayment Amount provided that: (a) any such prepayment shall only be made on at least five Business Days' notice to the Holder, which notice, once given, shall be irrevocable and binding upon the Corporation; (b) any such prepayment shall be in an amount of at least U.S. $5,000,000; (c) any such prepayment shall be accompanied by payment of all interest, fees and other amounts accrued in respect of the principal amount being so prepaid to the date of prepayments as well as all other amounts due and payable under this Debenture on the date of prepayment; (d) each such prepayment shall be in accordance with Section 1.11; and (e) no such prepayment will be permitted at any time that the Permitted Encumbrances set out in Part I of SCHEDULE C1 exceeds Can.$10,000,000. 6 2.5 SUBORDINATED NOTE TRUST INDENTURE The Corporation hereby designates the Debt payable hereunder by the Corporation to the Holder as "Designated Senior Indebtedness" pursuant to and in accordance with the Subordinated Note Trust Indenture. ARTICLE 3 - SECURITY 3.1 SECURITY (a) As security for the due and punctual payment of all of its obligations to the Holder under or in respect of this Debenture and the other Documents, the Corporation shall execute and deliver to the Holder, contemporaneous with the delivery of this Debenture to the Holder, valid and enforceable Liens against all present and after-acquired property, undertaking and assets of the Corporation except the Excluded Assets, all in form and substance satisfactory to the Holder and its Counsel, including without limitation the following: (i) a security debenture by the Corporation creating a fixed and floating Lien on all of the Corporation's present and after-acquired property and assets including, without limitation, fixed and specific Liens on all property and assets comprising the Kemess Mine; (ii) a general security agreement by the Corporation creating a Lien on all of the Corporation's present and after-acquired property and assets; (iii) a limited guarantee by APM of the obligations of the Corporation to the Holder; (iv) a general security agreement by APM creating a Lien on all of APM's present and after-acquired property and assets; (v) assignments of the Corporation's interests in all material mining claims, concessions and leases in any way relating to the Kemess Mine; (vi) an assignment by the Corporation of its rights and interest in the Kemess South Resources Limited Partnership; (vii) if and to the extent required by the Holder, an assignment (and, where required, consents to such assignment) by the Corporation of its rights and interest in the Kemess Mine Construction Contracts; 7 (viii) an assignment (and, where required, consent to such assignment) by the Corporation of its rights and interest in such of the Material Contracts as the Holder may designate; (ix) pledges of all of the shares in the capital of APM held by the Corporation; (x) a deed of moveable hypothec for use in the province of Quebec; and (xi) such other agreements and documents as may, in the sole discretion of the Holder, be necessary or desirable to grant to the Holder valid and enforceable Liens on all of the property, undertaking and assets of the Corporation other than the Excluded Assets. Notwithstanding anything to the contrary contained in the foregoing but subject always to the provisions of Section 5.1(v), the Corporation shall not be obligated to register the Security against any real property or mineral claims comprising: (i) the Pamour Mine, the Nighthawk Lake Mine and the mines generally known as Giant, Hope Brook and Colomac; and (ii) the Corporation's currently existing exploration properties not in any way relating to the Kemess Mine. (b) Contemporaneous with the delivery of the Security Documents contemplated by Section 3.1(a), the Corporation shall deliver to the Holder legal opinions in form and content, and from legal counsel, satisfactory to the Holder regarding the validity, enforceability and priority of all Liens created by such Security Documents and regarding such other matters as the Holder may require to evidence compliance with the terms of this Debenture and the other Documents. (c) The Corporation shall ensure that all of the Security Documents are executed and delivered in accordance with this Article 3 and the Liens created thereby are perfected in all jurisdictions and at all times reasonably required by the Holder. 3.2 NO MERGER The Security Documents shall not merge in any other security. No judgment obtained by the Holder shall in any way affect any of the provisions of this Debenture or any of the Security Documents. For greater certainty, no judgment obtained by the Holder shall in any way affect the obligation of the Corporation to pay principal, fees and interest at the rates, times and in the manner provided in this Debenture. 8 3.3 FURTHER ASSURANCES - SECURITY From time to time following the Closing Date, the Corporation shall at the expense of the Corporation take such action (including, without limitation, the provision of information and access to property) and execute and deliver to the Holder such agreements, conveyances, deeds and other documents and instruments as the Holder shall reasonably request in furtherance of granting to the Holder valid and enforceable first priority Liens on all of the Corporation's present and after acquired property, undertaking and assets other than the Excluded Assets, and the Corporation shall at the expense of the Corporation register, file or record the same (or a notice or financing statement in respect thereof) in all offices where such registration, filing or recording is, in the opinion of the Holder, necessary or advisable to constitute, perfect and maintain such Liens in all jurisdictions reasonably required by the Holder, subject only to Permitted Encumbrances, provided that (subject always to the provisions of Section 5.1(v)) the Corporation shall not be obligated to register the Security against any real property or mineral claims comprising: (i) the Pamour Mine, the Nighthawk Lake Mine and the mines generally known as Giant, Hope Brook and Colomac; and (ii) the Corporation's currently existing exploration properties not in any way relating to the Kemess Mine. The Corporation shall deliver opinions of its Counsel in respect of such matters, in each case within a reasonable time after the request therefor by the Holder, and in each case in form and substance reasonably satisfactory to the Holder. ARTICLE 4 - REPRESENTATIONS AND WARRANTIES 4.1 REPRESENTATIONS AND WARRANTIES BY THE CORPORATION The Corporation hereby represents and warrants to the Holder and so long as this Debenture remains in effect shall be deemed to continuously represent and warrant as follows and acknowledges that the Holder is relying on such representations and warranties in connection with its purchase of the Debenture: (a) INCORPORATION AND STATUS OF THE CORPORATION. The Corporation is the successor corporation resulting from the amalgamation on December 29, 1997 of the former Royal Oak Mines Inc. and Kemess Mines Inc., is duly amalgamated and organized under the laws of its jurisdiction of incorporation, is in good standing in each jurisdiction where, by reason of its business or assets, it is required to be qualified or licensed and has, subject to the Materiality Threshold, all powers, licenses, franchises and permits required to own its assets and carry on its business as the same is presently carried on. 9 (b) POWER AND CAPACITY. The Corporation has the corporate power to enter into each of this Debenture and the other Documents and to do all acts and things as are required or contemplated hereunder or thereunder to be done, observed and performed by it. (c) DUE AUTHORIZATION, NO CONTRAVENTION. The entering into and the performance by the Corporation of this Debenture, the other Documents and the transactions contemplated herein and therein (i) have been duly authorized by all necessary corporate action on the part of the Corporation and (ii) do not and will not contravene, violate, breach or result in any default under the articles, by-laws, constating documents or other organizational documents of the Corporation, or any agreement to which the Corporation is a party or, subject to the Materiality Threshold, any term or provision of any regulatory license or permit or any order of any court, governmental authority or regulatory body or any law or regulation of any jurisdiction in which the Corporation carries on its business. (d) BINDING AGREEMENT. This Debenture and the other Documents have been duly executed and delivered by the Corporation and constitute legal, valid and binding obligations enforceable against the Corporation in accordance with their terms, subject only to the availability of equitable remedies and the effect of bankruptcy, insolvency and similar laws affecting the rights of creditors generally. (e) NO PROCEEDINGS. As of the date of execution of this Debenture, except as is disclosed in SCHEDULE H and subject to the Materiality Threshold there is no material litigation, arbitration or administrative proceedings, actions, suits or investigations outstanding, pending or, to the Knowledge of the Corporation, threatened against the Corporation or any of its properties. None of the transactions contemplated hereby or by the other Documents have been enjoined by any Governmental Body and no suit or other proceeding challenging the transactions contemplated hereby or by the other Documents has been instituted or, to the Knowledge of the Corporation, threatened, and no investigative demand on the Corporation or any Subsidiary related to such transactions has been made by any Governmental Body and no Governmental Body or Person has, to the Knowledge of the Corporation, threatened to take any such action. (f) COMPLIANCE WITH APPLICABLE DOCUMENTS AND LAWS. The Corporation is not in violation of, or in default under (and there does not exist any event or condition which, after notice or lapse of time or both, would constitute such a default under), any term of its articles, by-laws, constating documents or other organizational documents, or, subject to the Materiality Threshold and other 10 than amounts owed to the holders of the Existing Encumbrances, under any term of any agreement, instrument, judgment, decree, order, statute, injunction, governmental regulation, rule or ordinance (including, without limitation, those relating to zoning, city planning or similar matters) applicable to the Corporation, or to which the Corporation is bound or which may otherwise be applicable to any property of the Corporation other than as is disclosed in item 11 of SCHEDULE H. (g) NO CONSENTS REQUIRED. Except as may be expressly set out in SCHEDULE J hereto (the "Consents"), there are no consents, permits, approvals, confirmations and acknowledgements required in order for the Corporation to carry out the transactions contemplated hereby and by the Documents, provided that the granting of fixed and specific Liens or assignments which the Holder may request following the date hereof pursuant to its right to do so hereunder or under the Documents may require consents or approval of other Persons so as not to constitute events of default under any agreements with such Persons. (h) SHARES. SCHEDULE E sets out the name and jurisdiction of incorporation, continuance or amalgamation of the Corporation and each Subsidiary, and SCHEDULE K accurately describes the respective authorized and issued share capital as of the date hereof of the Corporation and each Material Subsidiary. Other than as disclosed in Section 4.1(i) hereof, there are no shareholders' agreements, pooling agreements, voting trusts or other similar agreements with respect to the ownership or voting of any of the shares of the Corporation or of Material Subsidiaries or pursuant to which any person may have any right or claim in connection with any existing or past equity interest in the Corporation or such Material Subsidiaries. (i) NO OBLIGATION TO ISSUE SHARES. Except for (i) agreements, options, warrants, rights and conversion or other rights granted to current or former directors and employees of the Corporation in respect of which no more than 10 million common shares of the Corporation may be acquired, (ii) agreements to issue to the Corporation shares of APM (which shares when issued will be subject to the Security and all share certificates in respect thereof will, at the request of the Holder, be delivered to the Holder), (iii) special warrants and common shares which may be issued by the Corporation to its creditors, in lieu of partial payment to such creditors, and to other Persons, and (iv) 10,000,000 common shares being issued to the consenting holders of the Subordinated Notes, there are no agreements, options, warrants, rights of conversion or other rights pursuant to which the Corporation or any of the Subsidiaries is or may become obligated to issue any shares or any securities convertible into, or exchangeable for, shares. 11 (j) FINANCIAL STATEMENTS. The Audited Financial Statements and the Interim Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied (subject to usual year-end adjustments in the case of the Interim Financial Statements) and fairly present the financial position of the Corporation and the Subsidiaries and the results of their operations at the times and for the periods indicated. The Corporation and each of the Subsidiaries has no outstanding liabilities, contingent or otherwise, other than those disclosed in the Audited Financial Statements and the Interim Financial Statements and other than trade or business obligations subsequently incurred in the ordinary course of business, which such trade and business obligations are currently in good standing in accordance with their respective terms, other than as set forth in SCHEDULE L. (k) PERMITS, COMPLIANCE WITH LAWS. This section 4.1(k) shall be subject to the Materiality Threshold. The Corporation has all licences, permits, approvals and franchises that it requires, or is required to have, to own its properties and assets and to carry on its business as presently conducted including, without limitation, in respect of the construction and development of the Kemess South Mine. All such licences, permits, approvals and franchises are in good standing and, except as is disclosed in item 11 of SCHEDULE H, no actions, proceedings, investigations or other steps of any kind are in process, pending, to the Knowledge of the Corporation threatened, or reasonably foreseeable which might result in any such licence, permit, approval or franchise being terminated, revoked, withdrawn, suspended or otherwise made unavailable to the Corporation for any period of time. The Corporation has applications pending for all additional licences, permits, approvals and franchises necessary or desirable for the commencement of mining operations at the Kemess Mine in the manner and to the full extent contemplated in plans and projections disclosed to the Holder (a list of which additional licenses are attached here as SCHEDULE M) and has no reason to believe that any or all such additional licences, permits, approvals and franchises will not be granted to prevent, impair or interfere with the Kemess Mine Production Date occurring on or before December 31, 1998. Except as is disclosed in item 11 of SCHEDULE H, the Corporation is conducting its business in compliance with all applicable laws, regulations, by-laws and ordinances of each jurisdiction in which its business is carried on, including without limitation all laws, regulations, by-laws and ordinances relating to mining concessions. (l) NO RESTRICTIONS. Except as may be provided for in agreements between the Province of British Columbia and the Corporation respecting economic assistance, copies of which have been provided to the Holder, the Corporation is not a party to or bound by any agreement which would restrict or limit its 12 right to carry on any business or activity or to solicit business from any Person or in any geographical area or otherwise to conduct the business of the Corporation. The Corporation is not subject to any legislation or any judgment, order or requirement of any court or governmental authority which is not of general application to persons carrying on a business similar to the business of the Corporation. (m) LIMITATION ON PAYMENT RESTRICTIONS. Except for restrictions contained herein and in the Subordinated Note Trust Indenture, and restrictions in favour of the holders of the Permitted Hedging Indebtedness to the extent such restrictions herein and in the Subordinated Note Trust Indenture have been agreed to and adopted by the Corporation and such holders, neither the Corporation nor any Subsidiary is subject to any consensual restriction on its ability (a) to pay dividends or make any other distributions on its equity securities to, or pay any indebtedness owing to, or repurchase or redeem any equity securities from, the holders of such equity securities, the Corporation or any other Subsidiary, (b) to make any loans or advances to the Corporation or any other Subsidiary, or (c) to transfer any of its property or assets to the Corporation or any other Subsidiary. (n) NO MATERIAL ADVERSE CHANGES, DAMAGE OR ACCIDENTS. Since June 1, 1998, the Corporation has operated its business diligently and only in the ordinary course of business and except for the defaults set out in SCHEDULE I (the "Disclosed Defaults"), (which Disclosed Defaults have been remedied), and except for the Corporation committing events of default pursuant to the Subordinated Note Trust Indenture (which have since been cured), there has not been any material adverse change in the condition (financial or otherwise), assets, liabilities, affairs, business or operations of the Corporation, any substantial loss of or damage to the assets of the Corporation, or any accident (subject to the Materiality Threshold) relating to the mines, properties or mining operations of the Corporation in which any employee of the Corporation was injured. For greater certainty, since June 1, 1998 the Corporation has not: (i) incurred any liabilities other than in the ordinary course of business consistent with past practice; (ii) sold, encumbered, assigned or transferred any assets or properties of the Corporation, other than for fair market value, to purchasers at arms length to the Corporation and in the ordinary course of business consistent with past practice; (iii) created, incurred, assumed or guaranteed any obligations, liabilities or indebtedness except in the ordinary course of business 13 consistent with past practice or subjected any of its assets to any Lien except for Existing Encumbrances; (iv) changed or amended its governing documents in any respect; (v) declared, set aside, paid or made any distributions in cash or property on its equity securities including its common shares; (vi) directly or indirectly redeemed, purchased or otherwise acquired any of its equity securities; (vii) other than the resignations of John May, Matthew Gaasenbeek, Michael Lalonde, Nancy Deshaw and Scott Lampe, suffered any resignation or termination of employment of any key officers or directors or become aware of any impending resignation or termination of employment of any such key officers or directors; (viii) except in the ordinary course of its business, or as disclosed in writing to the Holder prior to the date hereof, materially increased the compensation payable or to become payable to any of its officers or directors or materially increased any bonus, insurance, pension or other employee benefit plan, payment or arrangement made for or with any such officers or directors; (ix) materially changed its accounting methods, principles or practices; or (x) entered into any agreement or commitment to do any of the things described in this section. (o) NO WORK ORDERS. Except as is disclosed in item 11 of SCHEDULE H and subject to the Materiality Threshold, no work orders, directions or notices have been issued pursuant to any applicable law relating to the business of the Corporation or any part of the Mortgaged Property or relating to or pursuant to any environmental matters affecting the foregoing and the Corporation has not received any notification from any Governmental Body that any work, repairs, construction or capital expenditures are required to be made in respect of the Mortgaged Property or any part thereof as a condition of continued compliance with any applicable law or any Material Authorizations issued thereunder. (p) NO DEFAULT. Subject to the Materiality Threshold, the Corporation is not in default or breach under any material commitment or obligation under the terms and conditions relating to any Material Authorizations and there exists 14 no state of facts which, after notice or the passage of time or both, would constitute such a default or breach and there are no proceedings in progress, pending or, to the Knowledge of the Corporation, threatened which may result in the revocation, cancellation, suspension, non-grant or any adverse modification of any Material Authorization except as is disclosed in item 11 of SCHEDULE H. The Corporation has obtained all Material Authorizations necessary or desirable to carry on all activities currently and previously carried on at the Kemess Mine. (q) NON-ARM'S LENGTH TRANSACTIONS. Except as is described in employment agreements and correspondence delivered to the Holder prior to the date hereof, the Corporation is not a party to any contract, commitment or transaction (including by way of loan) with any officer, director or shareholder of the Corporation, any of the Subsidiaries, or any of their respective affiliates or associates, other than as disclosed in the Audited Financial Statements and the Interim Financial Statements and other than employment contracts in the ordinary course of business. (r) TAX MATTERS. (i) The Corporation has prepared and filed on a timely basis with all appropriate Governmental Bodies all returns with respect to Taxes and other documents that it is required to file in respect of any Taxes for all fiscal periods ending on or prior to the date hereof and all such returns or other documents are correct and complete in all material respects; (ii) The Corporation has paid in full all Taxes due on or before the date hereof and, in the case of Taxes accruing on or before the date hereof that are not due on or before the date hereof, the Corporation will have made adequate provision in its books and records and financial statements for such payment; and the Corporation does not have any liability for Taxes other than those provided for in the Audited Financial Statements and the Interim Financial Statements and those arising subsequently in the ordinary course of the operation of its business; 15 (iii) The Corporation has withheld from each payment made to any of its present or former employees, officers, directors and to all persons who are non-residents of the applicable jurisdictions all amounts required pursuant to Applicable Law to be withheld or remitted and will continue to do so until the Maturity Date and furthermore has remitted such amounts within the applicable periods to the appropriate Governmental Body; the Corporation has remitted all Canada Pension Plan contributions, unemployment insurance premiums, employer health taxes and other Taxes payable by it in respect of its employees and has or will have remitted such amounts to the appropriate Governmental Body within the time required under the applicable legislation; and the Corporation has charged, collected and remitted on a timely basis all Taxes as required under applicable legislation on any sale, supply, or delivery whatsoever, made by the Corporation; (iv) Except for a disputed assessment of fuel taxes payable by the Corporation to the government of Canada in the approximate amount of Can. $100,000, there are no reassessments of the Corporation with respect to Taxes that have been issued and are outstanding; no Governmental Body has challenged, disputed or questioned the Corporation in respect of Taxes or in respect of any returns, filings or other reports filed under any statute providing for Taxes; the Corporation has not received any indication from any Governmental Body that an assessment or a reassessment in respect of the Corporation is proposed; and the Corporation has not executed or filed any agreement extending the period for assessment, reassessment or collection of any Taxes. (s) NO ENCUMBRANCES. The Corporation owns and has good and marketable title, free and clear of all Liens except Existing Encumbrances, to all assets used in connection with its business including, without limitation, all assets reflected on the balance sheet included in the Audited Financial Statements and the Interim Financial Statements or acquired by it after the date of such balance sheet except for changes in such assets in the ordinary course of business subsequent to that date. All material operating facilities, equipment and other material items of tangible property and assets owned by the Corporation are in good operating condition and repair, subject to normal wear and maintenance and having regard to their respective ages, are usable in the regular and ordinary course of business and conform to all Applicable Laws relating to their construction, use and operation, except where such failure, individually or in the aggregate, would not have a material adverse effect on the Corporation. The Corporation's quarterly report on Form 10-Q for the 16 fiscal quarter ended March 31, 1998 filed with the United States Securities And Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, contains a complete and accurate description of all material property and assets owned by the Corporation. SCHEDULE N contains a complete and accurate description of all material property and assets owned by the Corporation relating to the Kemess Mine. Subject to the Materiality Threshold, all equipment or other tangible assets or property situated on the premises of the Corporation, or necessary to the operation of the business of the Corporation, which is leased under a capital lease or under a material operating lease is listed in SCHEDULE O. Subject to the Materiality Threshold, the Corporation is in compliance with all terms of agreements and arrangements governing the leased items listed in SCHEDULE O. (t) MATERIAL INDEBTEDNESS. SCHEDULE P contains a list of all material indebtedness of the Corporation in excess of Can. $1,000,000 and the identity of the Persons to whom it is owed. The accounts payable of the Corporation listed in SCHEDULE G relate only to the construction, development and operation of the Kemess South Mine. (u) SECURITY DOCUMENTS. The Security Documents and the other Documents create a valid and enforceable security interest and Lien upon the Mortgaged Property securing the payment and satisfaction of all obligations of the Corporation and APM to the Holder. Such security interests are perfected security interests subject to no prior Liens or Liens ranking senior in priority to the Liens in favour of the Holder, except for such Liens (i) granted pursuant to the Royalty Debenture, (ii) relating to or securing Debt of the Corporation not in excess of Can. $15,000,000 as may be held by holders of Existing Encumbrances set out in Part I of SCHEDULE C1. (v) EMPLOYMENT MATTERS. Except as is disclosed in SCHEDULE Q, the Corporation is not a party to or is not bound by any: (i) written contract or commitment for the employment of any employee or officer providing for an annual salary (including benefits) of in excess of Can. $200,000 or a payment on termination of in excess of six months salary and benefits; (ii) oral contract or commitment for the employment of any employee or officer, except for contracts of indefinite hire terminable by the Corporation without cause on reasonable notice; (iii) in the case of the Kemess Mine only, contract with or commitment to any trade union, council of trade unions, employee 17 bargaining agent or affiliated bargaining agent (collectively called "labour representatives") and the Corporation has not conducted negotiations with respect to any such future contracts or commitments; no labour representatives hold bargaining rights with respect to any employees of the Corporation relating to the Kemess Mine; no labour representatives have applied to have the Corporation declared a related employer pursuant to the applicable labour legislation; and, to the Knowledge of the Corporation, there are no current or threatened attempts to organize or establish any trade union or employee association with respect to the Kemess Mine project provided, however, that the Corporation anticipates that steps may be taken by its employees to unionize and negotiate collective bargaining agreements for the Kemess Mine at some time in the future; or (iv) except as is disclosed in financial information made available to the Holder prior to the date hereof and subject to the Materiality Threshold, bonus, pension, multi-employer, profit sharing, deferred compensation, retirement, disability, health insurance or similar benefit plan, with respect to any of its employees or others (including without limitation any agreements in respect of employee share ownership plans), other than Canada Pension Plan, the Ontario Health Insurance Plan and other similar health plans established and administered by any other governmental authority or workers' compensation insurance provided pursuant to statute. Subject to the Materiality Threshold, there is no work stoppage or other concerted action, grievance or dispute existing or, to the Knowledge of the Corporation, threatened against the Corporation, and there is no material complaint, grievance, claim, work order or investigation that has been filed, made, commenced or, to the Knowledge of the Corporation, threatened against the Corporation pursuant to any human rights, occupational health and safety, workers compensation, employment standards or pay equity legislation or any similar legislation of any jurisdiction in which the Corporation carries on its business. (w) INTELLECTUAL PROPERTY. The Corporation owns and has good and marketable title, free and clear of all Liens except Existing Encumbrances, to the Intellectual Property. The conduct of the business of, and the use of the Intellectual Property by the Corporation does not infringe, and the Corporation has not received any notice, complaint, threat or claim alleging infringement of, any patent, trade mark, trade name, copyright, industrial design, trade secret or other propriety right of any other Person. To the Knowledge of the Corporation, the Intellectual Property which is not owned by the Corporation is 18 being used with the consent of, and in accordance with the consent or licence from, the rightful owner thereof. The Corporation has taken all necessary steps to establish, preserve and protect its rights in the Intellectual Property which is material to the Corporation. (x) MATERIAL CONTRACTS. SCHEDULE R contains a list of all agreements of the Corporation which are material to the Kemess Mine and which have not been fully performed by the parties thereto, including, without limitation, agreements which relate to construction underway or proposed at the Kemess Mine and including, without limitation, royalty, refining and shipping agreements (the "Material Contracts"). SCHEDULE Z contains a list of all material agreements of the Corporation relating to the construction or development of the Kemess Mine or relating to the supply of equipment to the Kemess Mine, which agreements have been performed by the parties thereto but the warranty periods in respect of which have not yet expired (the "Kemess Mine Construction Contracts"). Subject to the Materiality Threshold, and other than amounts owed to holders of the Existing Encumbrances, each of the Material Contracts and the Kemess Mine Construction Contracts is in full force and effect without amendment, and there has been no default under any of them, or under any other material commitment or obligation, by the Corporation or, to the Knowledge of the Corporation, any other party, nor has any event occurred that, with the giving of notice, lapse of time or any other condition subsequent, would constitute a default or would otherwise allow the termination of any Material Contract or Kemess Mine Construction Contract. (y) MINING CONCESSIONS. SCHEDULES B-1 AND B-2 contain a complete and accurate list of all material mining claims, concessions and leases in which the Corporation has an interest relating in any way to the Kemess Mine, including, without limitation, all mining claims, concessions and leases in respect of which the Corporation has any obligation to contribute funds or make payments, other than fees or taxes payable in the ordinary course under the regulations governing such claims, concessions or leases. The Corporation is the absolute beneficial owner of, and has good and marketable title to, such mining claims, concessions and leases in accordance with governing laws and regulations, free of all Liens except for such rights as may be held by Kemess South Resources Limited Partnership as disclosed in item (a) of Part II of SCHEDULE C1 to this Debenture and by the holders of the Existing Encumbrances. (z) PRICING, HEDGING PROTECTION. Subject to the Materiality Threshold, SCHEDULE S contains a complete and accurate list and description of all hedging or related arrangements to which the Corporation is a party or by which it is bound including, without limitation, forward sale contracts, options, interest 19 rate swap agreements, currency swap agreements, derivative agreements and similar arrangements. None of the hedging or related arrangements entered into by the Corporation provides for the granting of (i) any Lien against the property, assets and undertaking of the Corporation other than the Permitted Encumbrances described in Section (b) of the definition thereof, or (ii) production advances or any other disposition of any property, assets or undertaking of the Corporation in consideration for advance or accelerated payment or other manner of prepayment or payment not contemporaneous with delivery other than for the sales of up to U.S. $10,000,000 of copper concentrate pursuant to the Glencore Agreement. (aa) ENVIRONMENTAL MATTERS. Except as is disclosed in item 11 of SCHEDULE H regarding the sediment concerns at the Kemess South Mine and subject to the Materiality Threshold, the Corporation is not in violation of any applicable federal, provincial, state, municipal or local laws, regulations, orders, governmental decrees or ordinances with respect to environmental, health or safety matters (collectively, "Environmental Laws") and no actions, proceedings, investigations or other steps of any kind are in process, pending, to its Knowledge threatened, or reasonably foreseeable with respect to any such existing or past violation or alleged violation or other liability whatsoever on the part of the Corporation under Environmental Laws. For greater certainty, subject to the same qualifications and without limiting the generality of the foregoing: (i) the Corporation has carried on its business and at all times has received, handled, used, stored, treated, shipped and disposed at all times of all contaminants in compliance with all Environmental Laws; (ii) there have been no releases, deposits or discharges, in violation of Environmental Laws, of any hazardous or toxic substances, materials, pollutants, contaminants or wastes into the earth, air or into any river, stream, lake or other body of water or into any municipal or other sewer or drain water systems; (iii) no orders, directions or notices have been issued pursuant to any Environmental Laws relating to the business or assets of the Corporation; and (iv) the Corporation has not failed to report to the proper Governmental Body the occurrence of any event which is required to be so reported by any Environmental Laws. (bb) PLACES OF BUSINESS. The registered office of the Corporation is situated 20 at BCE Place, P.O. Box 747, Suite 2500, 181 Bay Street, Toronto, Ontario, Canada M5J 2T7, and the chief executive office of the Corporation is situated at 5501 Lakeview Drive, Kirkland, Washington, U.S.A. 98033. (cc) ALL MATERIAL INFORMATION SUPPLIED. The Corporation has provided to the Holder all material information relating to the financial condition, business and prospects of the Corporation and all information provided to the Holder is true, accurate and complete in all material respects and omits no material fact necessary to make such information not misleading provided, however, that the Corporation is not representing and warranting that the financial and operating projections made by it will accurately correspond to actual future results notwithstanding that they are based on the best information currently available to the Corporation. For greater certainty, all documents provided to the Holder in the course of investigating, negotiating and preparing the Documents and the property, assets and affairs of the Corporation are complete and, subject to the proviso in the immediately preceding sentence, accurate in every respect and copies of all such documents provided to the Holder conform in every respect to the originals thereof. (dd) DEBENTURE COVENANTS. No event or circumstance has occurred or exists which is inconsistent with the covenants and agreements of the Corporation set out in this Debenture or which would, immediately or with the passage of time or giving of notice or taking of any other prerequisite step, constitute a Default or Event of Default hereunder. (ee) SUBORDINATED NOTES. The Corporation is, and will after giving effect to the transactions contemplated by this Debenture and the other Documents be, in compliance with all terms and conditions and agreements applicable to the Subordinated Notes. The indebtedness under the Debenture will fully constitute "Permitted Indebtedness" and the Security will in every respect constitute "Permitted Liens" under the Subordinated Note Trust Indenture. The indebtedness under the Debentures and the amounts if any from time to time outstanding on account of the Royalty Agreement constitute "Senior Indebtedness" under the Subordinated Note Indenture. The indebtedness under the Debentures constitute "Designated Senior Indebtedness" under the Subordinated Note Indenture. The indebtedness of any Subsidiary under or on account of the Debentures constitute "Guarantor Senior Indebtedness" under the Subordinated Note Indenture. The Lender is entitled to the benefit of and can rely on the provisions of the Subordinated Note Indenture relating to "Senior Indebtedness", "Designated Senior Indebtedness" and "Guarantor Senior Indebtedness" and the holder of the royalty pursuant to the Royalty Agreement is entitled to the benefit of and can rely on the provisions of the Subordinated Note Indenture relating to "Senior Indebtedness" to the extent of 21 the amounts if any from time to time outstanding on account of the Royalty Agreement. Each of the Lenders and the holder of the royalty pursuant to the Royalty Agreement, to the extent of the amounts if any from time to time outstanding on account of the Royalty Agreement, can enforce such provisions as are applicable to it directly against the Corporation and any other Subsidiary. The Corporation has delivered to the Holder complete and accurate copies of all agreements and documents relating to the Subordinated Notes including, without limitation, the Subordinated Note Trust Indenture. The Subordinated Notes are, in accordance with their terms, fully subordinated and postponed to the obligations of the Corpoation to the Holder under the Documents, which obligations constitute "Senior Indebtedness" under the Subordinated Note Trust Indenture. (ff) SUBSIDIARIES OF THE CORPORATION. SCHEDULE E contains a list of all of the Subsidiaries of the Corporation, including the jurisdiction of incorporation, continuance and amalgamation for each such Subsidiary. (gg) PROVINCIAL ECONOMIC ASSISTANCE. The Province of British Columbia has unconditionally and irrevocably advanced to the Corporation approximately Can. $154,000,000 of the previously committed economic assistance, compensation and investment. All such economic assistance, compensation and investment is completely and accurately described in SCHEDULE T and the Holder has been provided with true, complete and accurate copies of all agreements and other documents relating thereto. Except for annual payments of Can. $1,000,000 for each of the 12 successive years commencing in 1999, both as identified in SCHEDULE T, there are no further outstanding commitments of economic assistance, compensation or investment which remain to be completed and there are no commitments, agreements or arrangements with any Governmental Body which would be breached or otherwise adversely impacted by the transactions contemplated by the Documents or which could in any way preclude, hinder, prejudice or delay the exercise of the Holder's rights and remedies hereunder and thereunder. (hh) WINDY CRAGGY PROPERTY. The inability of the Corporation to incur expenditures on and maintain in good standing the Windy Craggy Property will not result in: (i) any diminution in the amounts of payments from the government of British Columbia pursuant to the agreement of June 27, 1997; (ii) revocation of any permits issued by the government of British Columbia in connection with the Kemess Mine; or (iii) any material adverse effect on the ability of the Corporation to conduct mining operations at, and to maintain good title to, the Kemess Mine; and the Windy Craggy Property does not include or in any way comprise the property and assets comprising the Kemess Mine. 22 (ii) BANKS. SCHEDULE T1 lists particulars, including bank, branch address, account type and account number, of each bank account maintained by the Corporation and by each of the Subsidiaries. 4.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES BY THE CORPORATION The representations and warranties made by the Corporation pursuant to Section 4.1 hereof will survive the closing of the issuance of this Debenture and the other transactions provided for herein and, notwithstanding such closing or any investigation made by or on behalf of the Holder or any other person or any knowledge of the Holder or any other person, shall continue in full force and effect for the benefit of the Holder. ARTICLE 5 - COVENANTS 5.1 AFFIRMATIVE COVENANTS So long as the Debenture or any obligation of the Corporation to the Holder under the Debenture or any other Document remains outstanding, the Corporation covenants and agrees with the Holder that: (a) PUNCTUAL PAYMENT AND PERFORMANCE OF DEBENTURE. The Corporation shall pay or cause to be paid all amounts payable to the Holder hereunder and under the other Documents on the dates and in the manner specified therein and the Corporation shall perform and carry out all of the acts or things to be done by the Corporation as provided in the Debenture and the other Documents; (b) CONDUCT OF BUSINESS. The Corporation shall do or cause to be done all things necessary to maintain its corporate existence in its present jurisdiction of incorporation and to maintain its corporate power and capacity to own its properties and assets; (c) PRESERVATION OF MATERIAL AUTHORIZATIONS. The Corporation and each Material Subsidiary shall preserve and maintain all Material Authorizations including, without limitation, all licenses, permits, approvals and franchises necessary or desirable to carry on mining operations at the Kemess Mine in the manner and to the full extent contemplated in plans and projections disclosed to the Holder. (d) PRESERVATION OF MINING CLAIMS, CONCESSIONS AND LEASES. The 23 Corporation shall preserve and maintain: (i) all mining claims subject to the Materiality Threshold, and all concessions and leases necessary or desirable to carry on mining operations at the Kemess Mine in the manner and to the full extent contemplated in plans and projections disclosed to the Holder, and (ii) subject to the Materiality Threshold, all other material mining claims, concessions and leases. (e) COMPLIANCE WITH APPLICABLE LAW AND CONTRACTS. The Corporation and each Material Subsidiary shall comply with: (i) the requirements of all Applicable Laws; (ii) all obligations which, if contravened, could give rise to a Lien (other than Permitted Encumbrances) over any of its property; and (iii) all insurance policies and all contracts to which the Corporation or such Material Subsidiary is a party or by which it or its properties are bound, non-compliance with which would, singly or in the aggregate, have a material adverse effect upon the business, property or financial condition of the Corporation or such Material Subsidiary or upon its ability to perform its obligations under this Debenture or any of the other Documents; (f) INSURANCE. The Corporation and each Material Subsidiary shall: (i) keep its properties and assets insured with reputable insurers, in amounts not less than the replacement cost thereof and against such losses as are insured against by comparable corporations engaged in comparable businesses or which the Holder may reasonably require including without limitation, if requested by the Holder acting reasonably, sudden and accidental pollution liability insurance; (ii) maintain public liability insurance in such amounts and against such risks as is normally carried by comparable corporations engaged in comparable businesses or which the Holder may reasonably require; (iii) provide the Holder with certificates for all insurance policies; and (iv) provide that any loss under all such insurance policies (other than policies in respect of third party liability and business interruption insurance) in excess of Can. $500,000 shall be payable to the Holder subject only to any prior rights which may be specifically held in such proceeds by the holders of Permitted Encumbrances, provided that if a Default or Event of Default has not occurred, the Corporation or such Material Subsidiary shall, provided prior notice thereof shall have been given to the Holder, be entitled to receive such loss payment directly if the entire amount thereof is: 24 (A) used to repair or replace the lost or damaged property in question if the lost or damaged property relates to the Kemess Mine; or (B) if the lost or damaged property does not in any way relate to the Kemess Mine either (x) used to repair or replace the lost or damaged property in question or (y) after applying such loss payment or a portion thereof to the reasonable costs of any required remediation of the lost or damaged property, used and distributed as the proceeds of a "Sale" pursuant to and in accordance with Section 5.3(e) hereof; (g) ACCOUNTING METHODS AND FINANCIAL RECORDS. The Corporation shall, and shall cause each of its Subsidiaries to, maintain a system of accounting which is established and administered in accordance with generally accepted accounting principles and keep adequate records and books of account in which accurate and complete entries shall be made in accordance with such accounting principles reflecting all transactions required to be reflected by such accounting principles; (h) MAINTENANCE OF MORTGAGED PROPERTY. The Corporation shall maintain the Mortgaged Property comprising the Kemess Mine and all other Mortgaged Property used by the Corporation or a Material Subsidiary from time to time in good repair, working order and condition (reasonable wear and tear excepted) and from time to time make or cause to be made all necessary and appropriate repairs, renewals, replacements, additions and improvements thereto; (i) PAYMENT OF TAXES AND CLAIMS. The Corporation and each Material Subsidiary shall: (i) pay and discharge all lawful claims for labour, material and supplies; (ii) pay and discharge all Taxes payable by it; (iii) withhold and collect all Taxes required to be withheld and collected by it and remit such Taxes to the appropriate Government Body at the time and in the manner required; and (iv) pay and discharge all obligations incidental to any trust imposed upon it by statute which, if unpaid, might become a Lien upon any of the Mortgaged Property; 25 (j) INSPECTIONS. The Corporation and each Material Subsidiary shall permit the Holder and its authorized employees, representatives and agents to: (i) visit and inspect its properties during normal business hours, (ii) inspect and make extracts from and copies of its books and records, and (iii) discuss with its senior management its businesses, property, financial condition and prospects, all on a reasonable basis and frequency; (k) NOTICE OF LITIGATION AND OTHER MATTERS. The Corporation shall, as soon as practicable after it shall become aware of the same, give notice to the Holder of the following events: (i) the commencement or threat of a material nature of any action, proceeding, arbitration or investigation against or in any other way relating adversely to the Corporation or the Subsidiaries or any of their respective properties, assets or businesses which, if adversely determined, would singly or when aggregated with all other such actions, proceedings, arbitrations and investigations have a material adverse effect on the business, property or financial condition of the Corporation or on the ability of the Corporation to perform its obligations under this Debenture or any of the other Documents; (ii) any amendment of its articles, by-laws or other organizational documents; (iii) any actual or threatened revocation, termination, modification, amendment, substitution, issuance or other material event relating to Material Authorizations or to mining claims, concessions or leases respecting the Kemess Mine and, following any such event, the Corporation shall at the request of the Holder use its best efforts to obtain from the appropriate Governmental Body or other Persons such consents, approvals, acknowledgements or other documents as the Holder may consider necessary, acting reasonably, to ensure that the Holder has valid and enforceable first priority Liens on all such Material Authorizations, mining claims, concessions or leases and may avail itself of the rights and privileges of the Corporation thereunder and assign such rights and privileges should the Holder enforce its rights and remedies in respect of the Security and the other Documents; (iv) any development which has had or will have a material adverse effect upon its business, property or financial condition or its ability to perform its obligations under this Debenture or any of the other Documents or which should reasonably be expected to be of material interest to the Holder, other than any changes in the market prices of 26 gold or copper or changes in the Can. $/U.S.$ currency exchange rate; (v) any development which would lead the Corporation to reasonably believe that the Kemess Mine Production Date will not be on or before December 31, 1998; (vi) any Default or Event of Default; and (vii) any default or event of default, or the occurrence or non-occurrence of any event which constitutes, or which with the passage of time or giving of notice or both would constitute, a material default under any other agreement to which the Corporation or any Subsidiary is a party or by which they or any of their properties may be bound which has a material adverse effect on the business, property or financial condition of the Corporation or its ability to perform its obligations under this Debenture or any other Document; giving in each case the details thereof and specifying the action proposed to be taken with respect thereto. (l) QUARTERLY CASHFLOW STATEMENTS. On or prior to the date hereof and on the 25th day following the end of each calendar quarter thereafter the Corporation shall deliver to the Holder in form and substance acceptable to the Holder a cashflow statement on a line item basis for the ensuing twelve (12) month period, all in such detail as the Holder may reasonably require. (m) MONTHLY FINANCIAL STATEMENTS. The Corporation shall, as soon as practicable and in any event within 25 days after the end of each month, deliver to the Holder the monthly unaudited consolidated financial statements of the Corporation for the previous monthly period including in each case a balance sheet, statement of profit and loss and a statement of changes in financial position, together with comparative figures for the corresponding month in the previous Financial Year; (n) INTERIM FINANCIAL STATEMENTS. The Corporation shall, as soon as practicable and in any event within 60 days after the end of each of the first three Financial Quarters of each Financial Year, deliver to the Holder the interim unaudited consolidated financial statements of the Corporation and, at the request of the Holder, interim unaudited unconsolidated financial statements of the Corporation and of the Subsidiaries, including in each case a balance sheet, statement of profit and loss and a statement of changes in financial position, together with comparative figures for the corresponding period in the previous Financial Year; 27 (o) ANNUAL FINANCIAL STATEMENTS. The Corporation shall, as soon as practicable and in any event within 120 days after the end of each Financial Year, deliver to the Holder the annual audited consolidated financial statements of the Corporation and, at the request of the Holder, annual unaudited unconsolidated financial statements of the Corporation and of each Subsidiary including in each case a balance sheet, statement of profit and loss, a statement of changes in financial position and a statement of retained earnings, together with comparative figures for the previous Financial Year; (p) OFFICER'S CERTIFICATE. The Corporation shall deliver to the Holder, together with the financial statements referred to in Sections 5.1(l), (n) and (o), an officers' certificate certifying (i) that such financial statements were prepared in accordance with generally accepted accounting principles (subject to normal year-end adjustments in the case of interim unaudited financial statements) and fairly present the financial condition of the Corporation and the other Subsidiaries and the financial information presented therein for the period and as at the date thereof, (ii) that no Default or Event of Default has occurred hereunder or, if any Default or Event of Default has occurred, specifying the relevant particulars and the period of existence thereof and the action taken or proposed to be taken by the Corporation with respect thereto, and (iii) demonstrating in reasonable detail compliance (or, as the case may be, non-compliance) with the covenants contained in Section 5.1(t); (q) PUBLIC AND OTHER INFORMATION. The Corporation shall from time to time deliver to the Holder copies of all reports, financial statements, information or proxy circulars and other information or notices sent by the Corporation (i) to its shareholders at the same time as the Corporation sends such material to its shareholders, and (ii) pursuant to the Subordinated Note Trust Indenture at the same time as Corporation sends such material to the recipient thereof, and (iii) the Corporation shall deliver to the Holder copies of all press releases, material change reports and similar disclosures filed by the Corporation with any securities regulatory authority or stock exchange, provided that, if any such reports or disclosures under this paragraph (iii) are filed on a confidential basis, then the Corporation shall not be required to deliver the same to the Holder until such time as they are no longer filed on a confidential basis; (r) CHANGE OF CONTROL. The Corporation shall immediately notify the Holder in the event of a Change of Control of the Corporation; (s) OTHER INFORMATION. The Corporation shall furnish to the Holder, as soon as practicable following a request therefor from the Holder, such other information as the Holder may reasonably request from time to time; 28 (t) FINANCIAL COVENANTS. The Corporation shall ensure that: (i) EBITDA shall not be less than: (A) for the Financial Quarter ending March 31, 1999, Can. $9,000,000; (B) for the two Financial Quarters ending June 30, 1999, Can. $18,000,000; (C) for the three Financial Quarters ending September 30, 1999, Can. $27,000,000; and (ii) following September 30, 1999, Can. $36,000,000 as at the end of each Financial Quarter and calculated in each case for the preceding 12 months; (u) KEMESS MINE PRODUCTION DATE. The Corporation shall keep the Holder informed as to the progress of the construction, development and operation of the Kemess South Mine and when the Kemess Mine Production Date has occurred and shall deliver to the Holder a certificate (together with reasonable backup) of a senior officer to that effect; (v) PAMOUR MINE AND NIGHTHAWK LAKE MINE The Corporation shall, and shall cause each Subsidiary, as required to, forthwith following a request therefor from the Holder and at the expense of the Corporation deliver to the Holder valid and enforceable first priority Liens against the Pamour Mine and the Nighthawk Lake Mine all in form and substance satisfactory to the Holder and its Counsel together with legal opinions in form and content, and from legal counsel, satisfactory to the Holder regarding the validity, enforceability and priority of such Liens and regarding such other matters as the Holder may require to evidence compliance with the terms of this Debenture; provided that the Holder may only request such Liens at a time that the aggregate amount then outstanding under the Debentures (including principal and accrued interest and unpaid fees and expenses) exceeds U.S.$60,000,000; and (w) PROPOSED LEASEBACK ASSETS. The Corporation will pay or cause to be paid all amounts payable to Trilon Bancorp Inc. pursuant to an equipment lease dated April 6, 1998 between the Corporation and Trilon Bancorp Inc. (Lease Number L-RY001) on the dates and in the manner specified therein and the Corporation will comply with, perform and carry out all of its obligations provided under such equipment lease. 29 (x) PERMITTED PAYMENTS SECURITY. The Corporation will provide 10 days prior written notice to the Holder of any proposed Permitted Payments together with detailed particulars of the Permitted Payments. The Corporation will provide or cause to be provided to the Holder prior to or contemporaneous with the making of any such Permitted Payments: (i) a guarantee from each Subsidiary receiving such Permitted Payments pursuant to which the Subsidiary guarantees to the Holder all of the obligations of the Corporation to the Holder; (ii) such agreements, conveyances, deeds and other documents and instruments as the Holder shall reasonably request in furtherance of granting to the Holder valid and enforceable first priority Liens on all of the present and after acquired property, undertaking and assets of each Subsidiary receiving such Permitted Payments and the Corporation shall at the expense of the Corporation register, file or record the same (or a notice or financing statement in respect thereof) in all offices where such registration, filing or recording is, in the opinion of the Holder, necessary or advisable to constitute, perfect and maintain such Liens in all jurisdictions reasonably required by the Holder, subject only to Permitted Encumbrances, provided that (subject always to the provisions of Section 5.1(v)) the Corporation shall not be obligated to register the Security against any real property or mineral claims comprising the Pamour Mine, the Nighthawk Lake Mine and the mines generally known as Giant, Hope Brook and Colomac, and the Corporation's currently existing exploration properties not in any way relating to the Kemess Mine; and (iii) legal opinions in form and content, and from legal counsel, satisfactory to the Holder regarding the validity, enforceability and priority of all Liens created by such Security Documents and regarding such other matters as the Holder may require to evidence compliance with the terms of this Debenture and the other Documents. 5.2 HOLDER'S RIGHT TO DECLINE TO RECEIVE INFORMATION Notwithstanding the obligations of the Corporation to provide the notices, documents and information referred to in Sections 5.1(k), (l), (m), (n), (o), (p) and (u), the Holder shall be entitled to decline to receive any or all such notices, documents and information by giving written notice thereof to the Corporation. In the event the Holder gives any such notice to the Corporation, the Corporation shall withhold the 30 notices, documents and information expressly stated in the written notice of the Holder for such periods of time and on such terms as the Holder may direct. The Holder may at any time supplement, revoke or otherwise change its directions to the Corporation under this Section 5.2 by further written notice to the Corporation. Nothing in this Section 5.2 or in any written notice given by the Holder hereunder in any way reduces or otherwise affects the obligation of the Corporation to provide to the Holder the information referred to in Sections 5.1(q) and (r). 5.3 NEGATIVE COVENANTS So long as this Debenture or any obligations of the Corporation under this Debenture or any other Document remain outstanding, the Corporation covenants and agrees that without the prior written consent of the Holder neither the Corporation nor any Material Subsidiary shall: (a) ENCUMBER PROPERTY. Create, grant, assume or suffer to exist any Lien upon any of its properties or assets other than Permitted Encumbrances; (b) LOANS AND INVESTMENTS. Except for (i) loans by the Corporation and APM to existing employees not at any time exceeding in the aggregate U.S. $2,250,000 and loans by the Corporation and APM to new employees employed after the date hereof not at any time exceeding in the aggregate U.S. $750,000, (ii) APM Transactions, (iii) payments of up to Can. $1,500,000 in the aggregate made by the Corporation to purchase shares in the capital of Asia Minerals Corp. and of Highwood Resources Ltd., and (iv) Permitted Payments, make any loans to, or acquire or invest in any securities issued by, any Person other than currently existing loans by the Corporation to any Subsidiaries of which notice in writing has been provided to the Holder; (c) NON-ARM'S LENGTH TRANSACTIONS. Except for (i) loans by the Corporation and APM to existing employees not at any time exceeding in the aggregate U.S. $2,250,000 and loans by the Corporation and APM to new employees employed after the date hereof not at any time exceeding in the aggregate U.S. $750,000, (ii) APM Transactions, (iii) the acquisition by the Corporation of the Mikwam Property from Highwood Resources Ltd. on the terms disclosed to the Holder in writing prior to the date hereof, (iv) the sale by the Corporation of the Copperstone Property to a purchaser not dealing at arm's length to the Corporation, and (v) Permitted Payments, repay any indebtedness or liabilities owed to, transfer assets to, purchase assets from, lease property to or from, pay any monies to, guarantee Debt of, provide other financial assistance to, or otherwise enter into any transaction or agreement to do any of the foregoing (other than as may be expressly contemplated by the Documents) with or in respect of any Affiliate (or any corporation which, after the transaction in 31 question becomes effective, would become an Affiliate) or with any officer, director, employee, shareholder or other related Person of the Corporation or any Subsidiary, provided that if the Corporation has not committed an Event of Default, the Corporation may pay ordinary course compensation to officers, directors and employees consistent with past practice and additional ordinary course compensation under the Corporation's head office employee plans, in an aggregate amount not exceeding U.S.$5,000,000 in any Financial Year. (d) RESTRICTED DISTRIBUTIONS. Except for APM Transactions and Permitted Payments, declare, pay or make any dividend or other distribution on any shares in its capital or purchase, redeem, retire, cancel or acquire (i) any shares in the capital of the Corporation or any Subsidiary (except shares acquired upon the conversion thereof into other shares in its capital), (ii) any option, warrant or other right to acquire shares in the capital of the Corporation or any Subsidiary, or (iii) any debt or equity security of the Corporation or any Subsidiary, provided that the Corporation shall be entitled to declare and pay stock dividends and to wind-up Witteck Development Inc. and transfer to the Corporation all the property and assets of Witteck Development Inc.; (e) DISPOSITION OF ASSETS. Except for Permitted Payments, sell, lease, consign or otherwise dispose of or agree to sell, lease, consign or otherwise dispose of, any assets or property. Notwithstanding the foregoing so long as no Default or Event of Default has occurred or would occur as a result of any such sale, lease, consignment or other disposition (collectively a "Sale"): (i) at any time prior to the Kemess Mine Production Date, assets of the Corporation, other than assets which comprise or are in any way material to the Kemess Mine, may be sold by the Corporation for proceeds equal to their fair market value to purchasers dealing at arm's length with the Corporation provided that: (a) if the proceeds from all such Sales in the aggregate are equal to or less than Can. $15,000,000, such proceeds shall be used solely for prepayments of principal hereunder in accordance with the provisions of Section 2.4 hereof, regular debt service payments pursuant to the Subordinated Notes, payment of capital and non-capital expenses of the Corporation in connection with the construction, development and operation of Kemess Mine and/or general corporate purposes; and (b) if the proceeds from all such Sales in the aggregate exceed Can. $15,000,000, such excess proceeds shall be used 32 solely for prepayments of principal hereunder in accordance with the provisions of Section 2.4 hereof and/or for payment of capital and non-capital expenses of the Corporation in connection with the construction, development and operation of the Kemess Mine; (ii) at any time following the Kemess Mine Production Date, provided that EBITDA of the Corporation for the consecutive three (3) calendar month period immediately prior to the date of such Sale is Can. $9,000,000 or more, assets of the Corporation, other than assets which comprise or are in any way material to the Kemess Mine, may be sold by the Corporation at fair market value to purchasers dealing at arm's length to the Corporation and the proceeds of such Sales may be used for general corporate purposes of the Corporation; and (iii) at any time, assets of the Corporation which comprise or were in any way material to the Kemess Mine but which fall below the Materiality Threshold as a result of them being or becoming obsolete or redundant, provided that if saleable they are sold or disposed of by the Corporation for proceeds equal to their fair market value to purchasers at arm's length with the Corporation and the proceeds of such Sale are used in connection with the construction, development and operation of the Kemess Mine. In addition to the foregoing, and notwithstanding the Security, the Corporation may without the consent of the Holder at any time prior to the occurrence of a Default or Event of Default sell: (iv) the Proposed Leaseback Assets for cash consideration as part of an operating leaseback agreement or as part of an agreement comprising an Eligible Capital Lease Obligation and Purchase Money Security Interest; (v) the Corporation's interest in the Copperstone Property to a purchaser not dealing at arm's length to the Corporation for consideration of shares in or a royalty interest from the purchaser thereof; and (vi) the Corporation's interest in the Mikwam Property to a purchaser not dealing at arm's length to the Corporation for consideration of shares in or a royalty interest from the purchaser thereof; 33 provided, in such cases, that the transaction is with an arm's length Person (or to a non-arm's length Person but on arm's-length terms in the case of a Sale of the Copperstone Property and the Mikwam Property) and on reasonable commercial terms and that the proceeds of disposition become immediately subject to the Liens in favour of the Holder created pursuant to the Security Documents. In the event of any disposition or sale referred to in the immediately preceding sentence, the Holder will deliver such acknowledgements and discharges of the Security as the Corporation may reasonably request for the purpose of giving effect to such sale rights on the part of the Corporation. (f) DEBT. Create, incur, assume or suffer to exist, contingently or otherwise, Debt other than Permitted Debt. (g) REPAYMENT OF DEBT. Pay any principal, interest, fees or any other amounts in respect of Debt other than Permitted Payments and other than, if no Default or Event of Default has occurred: (i) payments of interest on the Subordinated Notes ordinarily due and payable in accordance with the terms and conditions contained in the Subordinated Note Trust Indenture; and (ii) other amounts ordinarily due and payable in respect of Permitted Debt provided that such payments shall not be inconsistent with the terms and conditions of applicable documents provided to the Holder prior to the date hereof. (h) GUARANTEES. Other than as may constitute Permitted Debt, guarantee, give financial assistance to or render itself liable in any manner whatsoever, directly or indirectly, conditionally or otherwise for any Debt or obligation whatsoever of a third party. (i) AMALGAMATIONS, ETC. Enter into any transaction (including by way of reorganization, consolidation, amalgamation, merger, reconstruction, liquidation, transfer, sale, lease or otherwise) whereby all or any material portion or significant operating division of the undertaking, property and assets of the Corporation or a Material Subsidiary would become the property of any other Person or, in the case of any such amalgamation, of the continuing corporation resulting therefrom without the Holder's prior written consent, provided that the Holder will provide its consent if the Holder, acting reasonably, determines that such transaction will not impair or prejudice the ability of the Corporation or the Material Subsidiaries to pay the indebtedness owing hereunder, to perform its covenants hereunder or impair or prejudice the Holder's Security. 34 (j) CHANGE IN BUSINESS. (i) Enter into any contract, agreement or commitment out of the ordinary course of its business or (ii) acquire or establish any business unrelated to the current business of the Corporation or (iii) make any material change in, or terminate or suspend (other than in the ordinary course of its operations) any material part of, the construction, development and operation of the Kemess South Mine. (k) PRICING, HEDGING PROTECTION. Enter into any hedging or related arrangements (including, without limitation, forward sale contracts, options, currency swap agreements, interest swap agreements, and similar arrangements) which provide for (i) the granting of any Lien against the property, assets and undertaking of the Corporation or a Material Subsidiary other than Permitted Encumbrances or (ii) production advances or any other disposition of any property, assets or undertaking of the Corporation or a Material Subsidiary in consideration for advance or accelerated payment or other manner of prepayment or payment not contemporaneous with delivery, other than the sales by the Corporation of not more than U.S. $10,000,000 of copper concentrate pursuant to the Glencore Agreement. (l) ENVIRONMENTAL MATTERS (i) The Corporation shall maintain, and shall cause each of the Subsidiaries to maintain, a system to assure and monitor continued compliance with all Applicable Laws relating to the environment, which system shall include periodic reviews of such compliance. (ii) Subject to the Materiality Threshold, if the Corporation or any Subsidiary (a) receives written notice that any violation of any Applicable Law relating to the environment may have been committed or is about to be committed by it, (b) receives written notice that any administrative or judicial complaint or order has been filed or is about to be filed against it alleging violations of any Applicable Law relating to the environment or requiring it to take any action in connection with the release of Hazardous Substances into the environment, or (c) receives any written notice from a Governmental Body or other Person alleging that it may be liable or responsible for costs associated with a response to or clean-up of a release of a Hazardous Substance into the environment or any damages caused thereby, the Corporation or Subsidiary, as the case may be, shall provide the Holder with a copy of such notice within ten days of receipt thereof. Subject to the Materiality Threshold, the Corporation or Subsidiary, as the case may be, shall also provide to the Holder, as soon as practicable after it becomes 35 available, a copy of any environmental site assessment or audit report required to be submitted to any Governmental Body. (iii) The Corporation shall indemnify the Holder and its officers, directors, employees, agents and shareholders, and shall hold each of them harmless, from and against any and all losses, liabilities, damages, costs, expenses and claims (including legal fees on a solicitor and his own client basis) suffered or incurred by such party in respect of (a) any violation by the Corporation or any Subsidiary of Applicable Law related to the environment including the assertion of any Lien thereunder, (b) the presence of any Hazardous Substance affecting the Mortgaged Property or any adjacent real estate, or (c) the release of any Hazardous Substance by the Corporation or any Subsidiary into the environment, provided that the foregoing indemnity shall not apply in connection with any negligence, willful misconduct or violation of any Applicable Law relating to the environment affecting the Mortgaged Property by the Holder or its agents after taking possession of the Mortgaged Property. The Corporation's obligations and indemnification under this section shall survive the satisfaction and release of the Security Documents and the repayment of this Debenture. The Holder shall hold the benefit of this indemnity in trust for those indemnified parties who are not parties to this Debenture. (m) CAPITAL EXPENDITURES. Make or permit any of its Subsidiaries, on a consolidated basis, to make any Capital Expenditures in any Financial Year in excess of Can. $12,000,000 if such Capital Expenditures do not directly relate to the construction, development or operation of the Kemess South Mine. (n) BANKING. Open or operate or permit any of its Subsidiaries to open or operate a bank account anywhere other than in the provinces of Ontario, British Columbia or Quebec and other than as set out in SCHEDULE T1. (o) GRANT OR AMEND SECURITY. Grant or permit any of its Subsidiaries to grant any Liens to any of the holders of Permitted Encumbrances set out in Section (b) or Section (l) of the definition thereof other than in such form and on such property, assets or undertaking of the Corporation or such Subsidiary that has been previously provided to the Holder hereunder, or amend or permit any of its Subsidiaries to amend any of the agreements, instruments or documents which provide Liens to any of the holders of Permitted Encumbrances set out in Section (b) or Section (l) of the definition thereof and which have been granted on or prior to the date hereof. (p) AMEND SUBORDINATED NOTE TRUST INDENTURE. Amend the Subordinated Note 36 Trust Indenture. (q) BANK WORKING CAPITAL FACILITY. Amend the Bank Working Capital Facility or increase the principal amount that may from time to time be outstanding under the Bank Working Capital Facility to an amount in excess of Can. $1,900,000. ARTICLE 6 - DEFAULT AND ACCELERATION 6.1 EVENTS OF DEFAULT The occurrence of any of the following events shall constitute an Event of Default: (a) if the Corporation defaults in payment of (i) all or any part of the principal of this Debenture when due, or (ii) all or any part of the fees provided for in Section 2.3 hereof when due; or (b) if the Corporation defaults in payment of any interest or any other amount due hereunder; or (c) if the Corporation defaults in observing or performing any other covenant or condition of this Debenture, the Purchase Agreement, the Security Documents, any other Debentures, or any other Document on its part to be observed or performed, and, if the default in question is one which is reasonably capable of being cured or remedied, such default continues for a period of 20 days after notice has been given to the Corporation by the Holder specifying such default and requiring the Corporation to rectify the same or cause to be rectified the same; or (d) if any representation and warranty made by the Corporation in any Document is found to be false or incorrect in any material respect; or (e) if an order is made or an effective resolution is passed for the winding-up or liquidation of the Corporation, or in the event of any other dissolution of the Corporation by operation of law; or (f) if the Corporation defaults after the expiry of any applicable cure period thereunder in any way in the performance of any obligations to any holders of (i) Subordinated Notes or (ii) any of the Permitted Encumbrances referred to in clause (b) of the definition of Permitted Encumbrances; or if any such holder asserts any claim or takes any proceeding against the Corporation and such claim or proceeding is not being contested in good faith by all appropriate actions or, if 37 proceedings are commenced against the Corporation, the rights of such holders are at any time unstayed or undismissed; or (g) if the Corporation shall generally not pay its debts as such debts become due, or shall admit its inability to pay its debts generally as they become due or otherwise acknowledge its insolvency, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by the Corporation seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts, or a proposal is made by the Corporation under any Applicable Law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property, including without limitation any such proceeding under the Companies' Creditors Arrangement Act (Canada); or the Corporation shall take any action to consider, approve or authorize any of the actions set forth above; or (h) if any proceeding shall be instituted against the Corporation seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of it or its Debts, or a proposal is made against the Corporation under any Applicable Law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property, including without limitation any such proceeding under the COMPANIES' CREDITORS ARRANGEMENT ACT (Canada), and such proceeding is at any time not being contested in good faith by all appropriate proceedings or, if so contested, remains outstanding, undismissed and unstayed, more than 30 days from the institution of such proceeding; or (i) if any execution, distress or other enforcement process, whether by court order or otherwise, involving indebtedness of the Corporation individually or in the aggregate in excess of Can. $2,000,000 becomes enforceable against any property of the Corporation and if such execution, distress or other enforcement process shall have been commenced by a creditor before obtaining judgment, such execution, distress or other enforcement process shall not have been stayed or vacated within 3 Business Days from the commencement thereof, or if any judgment or order for the payment of money in excess of Can. $2,000,000 shall be rendered against the Corporation and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; 38 (j) if any event or proceeding is taken with respect to any part of the Mortgaged Property in any jurisdiction outside Canada which has an effect equivalent or similar to any of the events described in sections 6.1(e), 6.1(g) or 6.1(h); or (k) if the Corporation fails to make to any Person when due any payment (whether at scheduled maturity or by required prepayment, acceleration, demand or otherwise, but excluding trade payables incurred in the ordinary course of business which are not overdue by 90 days or more or are being contested in good faith by all appropriate proceedings promptly instituted and diligently conducted by the Corporation) in respect of indebtedness which exceeds individually Can. $3,000,000 or in the aggregate Can. $7,000,000; or any other event shall occur or condition shall exist specified in any agreement or instrument relating to any such indebtedness or liability of the Corporation if the effect of such event or condition is to accelerate, or to permit the acceleration of the maturity of such indebtedness or liability of the Corporation; or any such indebtedness or liability of the Corporation which is outstanding shall be declared to be due and payable prior to the stated maturity thereof and in each such case such failure or event is not remedied within 20 days of such failure or event; or (l) If the Corporation allows, permits, consents to or becomes subject to a Change of Control of the Corporation without the prior written consent of the Holder, provided that it shall not be an Event of Default hereunder and the Holder will consent to a Change of Control of the Corporation if prior to such Change of Control of the Corporation the Holder, acting reasonably, determines that such Change of Control of the Corporation (i) will not impair or prejudice the ability of the Corporation to pay any indebtedness owing hereunder or to perform its covenants hereunder, and (ii) will not impair or prejudice the Holder's Security; or (m) if the Kemess Mine Production Date is not on or before December 31, 1998; or (n) if any Material Subsidiary commits an event of default (after any applicable cure period) in any agreement with or obligation owing to the Holder including pursuant to any of the Documents; or (o) If the Corporation commits a default under or is in breach of the equipment lease dated April 6, 1998 between the Corporation and Trilon Bancorp Inc. (Lease Number L-RY001). 39 6.2 ACCELERATION ON DEFAULT Upon the occurrence of an Event of Default, the Holder may, in its discretion: (a) declare the principal amount of this Debenture then outstanding, all accrued and unpaid interest hereunder and any other moneys payable hereunder to be immediately due and payable by the Corporation to the Holder; and (b) realize upon all or any part of the Security constituted by the Security Documents; and (c) take such actions and commence such proceedings as may be contemplated by the Documents or permitted at law or in equity (whether or not provided for herein or in the Security Documents or other Documents) at such times and in such manner as the Holder in its sole discretion may consider expedient; all without, except as may be required by Applicable Law, any additional notice, presentment, demand, protest, notice of protest, dishonour or any other action. 6.3 REMEDIES CUMULATIVE No remedy conferred upon or reserved to the Holder herein or in the Security Documents or any other Document is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing by law or by statute. 6.4 DEBENTURE NOT REQUIRED All rights of action under the Security Documents or hereunder may be enforced by the Holder without the possession of this Debenture or the production thereof on the trial or other proceedings relating thereto. 40 ARTICLE 7 - MISCELLANEOUS 7.1 NOTICE Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be given by facsimile or other means of electronic communication or by delivery as hereafter provided. Any such notice or other communication, if sent by facsimile or other means of electronic communication, shall be deemed to have been received on the Business Day following the sending, or, if delivered by hand, shall be deemed to have been received at the time it is delivered to the applicable address noted below either to the individual designated below or to an individual at such address having apparent authority to accept deliveries on behalf of the addressee. Notice of change of address shall also be governed by this section. Notices and other communications shall be addressed as follows: (a) if to the Corporation: Royal Oak Mines Inc. c/o Arctic Precious Minerals, Inc., d.b.a Royal Oak Mines (U.S.A.) Inc. 5501 Lakeview Drive Kirkland, Washington U.S.A. 98033 Attention: President Facsimile Number: (425) 822-3349 with a copy to: Lang Michener BCE Place, Box 747 2500 - 181 Bay Street Toronto, Ontario M5J 2T7 Attention: William Sheridan and David Thring Facsimile No.: (416) 365-1719 (b) if to the Holder: Northgate Exploration Limited 1 First Canadian Place Suite 2630, P.O. Box 143 Toronto, Ontario M5X 1C7 Attention: Terry Lyons Facsimile Number: (416) 363-2856 41 with a copy to: Goodman and Carr Suite 2300 200 King Street West Toronto, Ontario M5H 3W5 Attention: Jeffrey Blidner and Lorne Segal Facsimile No.: (416) 595-0567 42 7.2 ASSIGNMENT The Corporation may not assign this Debenture. This Debenture and the Holder's rights hereunder may be assigned at any time by the Holder in whole or in part (including, without limitation, by the grant or conveyance of participations in its interests hereunder), together with, at its discretion, its corresponding rights in any or all of the Security Documents and other Documents. Upon an assignment pursuant to this section, the Corporation shall, at the request of the assignee, issue a replacement Debenture registered in the name of the assignee (and, in the case of a partial assignment, shall also issue a replacement Debenture to the Holder in respect of the principal balance held by it), upon surrender and cancellation of the existing Debenture, and shall also, at the Holder's request, execute and deliver new Security Documents and other Documents to and in favour of the assignee. The Corporation shall also, and shall cause the Subsidiaries to, execute and deliver such other agreements, documents and instruments as the Holder or the assignee may request in connection with such assignment. The Holder may provide to any proposed assignee or participant such information concerning the financial position and the operations of the Corporation and its Subsidiaries as, in the opinion of the Holder, may be relevant or useful in connection with this Debenture or any other Document or any portion thereof proposed to be acquired by such assignee or participant. Notwithstanding anything else in this Section 7.2, if no Default or Event of Default has occurred the Holder shall not be entitled to assign this Debenture to any corporation whose principal business is the exploration for or mining of precious or base metals (other than to such Persons in which the Holder or their respective Associates and Affiliates has a direct or indirect interest, which Persons may be an assignee of this Debenture or the Documents). Following a Default or an Event of Default, there shall be no restrictions on the Holder's ability to assign tis Debenture or any of the Documents. 7.3 EXCHANGE OF INFORMATION The Holder may provide to any proposed assignee or participant such information concerning the financial position and the operations of the Corporation and its Subsidiaries as, in the opinion of the Holder, may be relevant or useful in connection with this Debenture or any other Document or any portion thereof proposed to be acquired by such assignee or participant. 43 7.4 RELIANCE AND NON-MERGER All covenants, agreements, representations and warranties of the Corporation made herein or in any other Document or in any certificate or other document signed by any of its directors or officers and delivered by or on behalf of either of them pursuant hereto or thereto are material, shall be deemed to have been relied upon by the Holder notwithstanding any investigation heretofore or hereafter made by the Holder or the Holder's Counsel or any employee or other representative of the Holder and shall survive the execution and delivery of this Debenture and the other Documents until the Corporation shall have satisfied and performed all of its obligations hereunder and thereunder. Nothing contained in this Debenture shall operate to subordinate the Security provided in favour of the Holder to or in favour of any Permitted Encumbrance or other Liens, or to postpone any of the obligations owing by the Corporation to the Holder to any of the obligations, indebtedness or liabilities owed by the Corporation to the holders of the Permitted Encumbrances or other Liens. 7.5 AMENDMENT, WAIVER No amendment or waiver of this Debenture shall be binding unless executed in writing by the Corporation if it is to be bound thereby, or by the Holder if the Holder is to be bound thereby (any such amendment or waiver to be contemporaneously made in respect of the Debenture). No waiver of any provision of this Debenture will constitute a waiver of any other provision nor will any waiver of any provision of this Debenture constitute a continuing waiver unless otherwise expressly provided. 7.6 NO SET-OFF BY THE CORPORATION The amounts payable by the Corporation under this Debenture or any other Document shall not be subject to any deduction, withholding, set-off or counterclaim by the Corporation for any reason whatsoever. 7.7 EMPLOYMENT OF EXPERTS The Holder may, at any time and from time to time, when a Default or Event of Default has occurred and is continuing, retain and employ legal counsel, independent accountants, consultants and other experts in order to perform or assist it in the performance of its rights and powers under this Debenture or the other Documents, and the Corporation shall pay to the Holder on demand all proper and reasonable compensation paid or payable to such counsel, accountant, consultant or other expert retained or employed pursuant to this provision. 44 7.8 FURTHER ASSURANCES Whether before or after the happening of a Default or Event of Default, the Corporation shall at its own expense do, make, execute or deliver, or cause to be done, made, executed or delivered by its Subsidiaries or other Persons, all such further acts, documents and things in connection with this Debenture and the other Documents as the Holder may reasonably require from time to time for the purpose of giving effect to the Documents including, without limitation, for the purpose of facilitating the enforcement of the Security, all immediately upon the request of the Holder. 7.9 GOVERNING LAW This Debenture shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. The Corporation submits to the jurisdiction of the courts of Ontario to determine all issues whether at law or in equity arising from this Debenture. 7.10 PAYMENT OF COSTS AND EXPENSES The Corporation shall pay to the Holder on demand all reasonable costs and expenses of the Holder, its agents, officers and employees, and any receiver or receiver-manager appointed by the Holder or by a court, in connection with this Debenture, the Security Documents and the other Documents including, without limitation: (a) the preparation, execution, filing and registration of the Debenture, the Security Documents, and the other Documents (including, without limitation, any Security Documents and other Documents to be delivered following the date hereof pursuant to Article 3 hereof) and any actual or proposed amendment or modification hereof or thereof or any waiver hereunder or thereunder and all instruments supplemental or ancillary thereto; (b) obtaining advice as to the Holder's rights and responsibilities under this Debenture, the Security Documents and the other Documents at any time after an Event of Default; and (c) the defence, establishment, protection or enforcement of any of the rights or remedies of the Holder under this Debenture, any of the Security Documents or any other Documents including, without limitation, all costs and expenses of establishing the validity and enforceability of, or of collection of amounts owing under, this Debenture, any of the Security Documents or any other Documents or of any enforcement of the Security, 45 and all of the fees, expenses and disbursements of any advisors to the Holder including, Counsel to the Holder on a solicitor and his own client basis, incurred in connection therewith, and including all sales or value-added taxes payable by the Holder (whether refundable or not) on all such costs and expenses. 7.11 JUDGMENT CURRENCY If for the purpose of obtaining judgment in any court, it is necessary to convert an amount due under this Debenture or any other of the Documents or under any instrument delivered thereunder from a currency in which it is due (the "Original Currency") into another currency (the "Second Currency") the parties hereto agree, to the fullest extent permitted by law, that the rate of exchange used shall be that at which, in accordance with normal banking procedures, the Holder could purchase the Original Currency with the Second Currency on the date two Business Days preceding that on which judgment is given. The obligation of the Corporation in respect of any Original Currency due from it to the Holder under this Debenture or any other Documents or under any instrument delivered thereunder shall, notwithstanding any judgment in the Second Currency, be discharged by a payment made to the Holder entitled thereto on account thereof in the Second Currency only to the extent that, on the Business Day following receipt of such payment in the Second Currency, the Holder may, in accordance with normal banking procedures, purchase the amount due in the Original Currency with the amount of the Second Currency so paid; and if the amount of the Original Currency which may be so purchased is less than the amount originally due in the Original Currency, the Corporation agrees as a separate and independent obligation and notwithstanding any such payment or judgment to indemnify the Holder against such deficiency. 7.12 PAYMENT AGREEMENTS FOR DEBENTURE Notwithstanding anything contained herein, the Corporation may enter into an agreement with the Holder, in the absolute discretion of the Holder, providing for the payment to such Holder of the principal of and interest on this Debenture at a place and in a manner other than the place and manner specified herein as the place and manner for such payment. Any payment of the principal of and interest on this Debenture at such other place and in such other manner pursuant to such agreement shall, notwithstanding any other provision of this Debenture, be valid and binding on the Corporation and the Holder. 46 7.13 ENTIRE AGREEMENT The Documents constitute the entire agreement between the parties hereto pertaining to the matters therein set forth and supersede and replace any prior understandings or arrangements pertaining to such matters. There are no warranties, representations or agreements between the parties in connection with such matters except as specifically set forth or referred to in the Documents. IN WITNESS WHEREOF the Corporation has executed this Debenture on the date first above written. ROYAL OAK MINES INC. By: /s/ James H. Wood ------------------------------------- Name: James H. Wood Title: Chief Financial Officer Dated as of June 22, 1998. 47 SCHEDULE "A" DEFINITIONS "ADDITIONAL PURCHASE PRICE" has the same meaning given to such term in the Purchase Agreement; "AFFILIATE" has the meaning ascribed thereto in the BUSINESS CORPORATIONS ACT (Ontario) and includes, for greater certainty, all Subsidiaries; "APM" means Arctic Precious Metals, Inc., a company incorporated under the laws of Nevada; "APM TRANSACTIONS" means ordinary course transactions between the Corporation and APM in accordance with past practice and generally as described in SCHEDULE B hereto provided, however that such transactions shall not in any one Financial Year involve transactions of the kind referred to in sections 5.3(b)(i),(ii) and (iii), 5.3(c) and 5.3(d) hereof aggregating more than Can. $13,500,000 and provided further that such transactions shall be permitted only prior to an Event of Default; "APPLICABLE LAW" means, in respect of any Person, property, transaction or event, all applicable laws, statutes, rules, by-laws and regulations, and all applicable official written directives, orders, judgments and decrees of Governmental Bodies; "ASSOCIATE" has the meaning ascribed thereto in the BUSINESS CORPORATIONS ACT (Ontario) and shall include any entity which is an Associate of an Associate, and so on; "AUDITED FINANCIAL STATEMENTS" means the audited consolidated financial statements of the Corporation as at and for the 12 month fiscal period ended December 31, 1997, consisting of a balance sheet, an income statement and a statement of changes in financial position, together with the notes thereto, copies of which have been provided to the Holder; "BANK WORKING CAPITAL FACILITY" means a working capital facility provided to the Corporation by the Bank of Nova Scotia pursuant to a credit agreement dated February 15, 1996 as amended by agreements dated August 5, 1996 and May 30, 1997 in a maximum principal amount not to exceed Can. $1,900,000 pursuant to which the Bank of Nova Scotia has outstanding letters of credit on behalf of the Corporation and in respect of which the Corporation has provided to the Bank of Nova Scotia cash collateral as security therefor in the approximate amount of Can. $2,012,126 as at May 19, 1998 plus interest thereon. "BUSINESS DAY" means any day, other than Saturday, Sunday or any statutory holiday in Toronto, Canada; "CAPITAL EXPENDITURES" means, for any period, those expenditures of the Corporation (on a consolidated basis) which would, in accordance with generally accepted accounting principles, be considered expenditures for capital assets of the Corporation (on a consolidated basis) for such period; "CAPITAL LEASE OBLIGATIONS" of the Corporation means the obligations of the Corporation to pay rent or other amounts under a lease (or other agreement conveying the right to use) of real or personal property, which obligations are required to be classified and accounted for as a capital lease on a balance sheet under generally accepted accounting principles and, for purposes of this Debenture, the amount of such obligations shall in each case be the capitalized amount thereof, determined in accordance with generally accepted accounting principles; "CHANGE OF CONTROL OF THE CORPORATION" means if any Person acquires or becomes the beneficial owner of, or a combination of Persons acting jointly acquire or become the beneficial owners of, directly or indirectly more than 35% of the common shares of the Corporation or any shares of the Corporation which in the aggregate represent 35% of the voting shares of the Corporation, whether through the acquisition of previously issued and outstanding shares, or of shares that have not been previously issued, or any combination thereof, or any other transaction having a similar effect; "CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreement dated February 19, 1998 between the Corporation and BC Pacific Capital Corporation; "CONSENT" has the meaning attributed to such term in Section 4.1(g); "COPPERSTONE PROPERTY" has the meaning ascribed thereto in SCHEDULE U; "COUNSEL" means a barrister or solicitor or firm of barristers and solicitors retained by the Holder or retained by the Corporation and acceptable to the Holder acting reasonably; "DEBENTURE" means this Senior Secured Debenture - Series B of the Corporation as it may be amended, modified, restated or replaced from time to time; "DEBENTURES" means all Senior Secured Debentures of the Corporation (whether Series A or Series B) sold pursuant to the Purchase Agreement as same may be amended, modified, restated or replaced from time to time. "DEBT" of any Person means all indebtedness including, without limitation (i) all indebtedness of such Person for and in respect of borrowed money, including obligations with respect to bankers' acceptances, letters of credit and letters of guarantee or indemnity; (ii) all indebtedness of such Person for the deferred purchase price of property or services represented by a note or other evidence of indebtedness or other security; (iii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to the possession or sale of such property); (iv) all obligations under leases which, in accordance with generally accepted accounting principles (or accounting principles generally accepted in the jurisdiction of incorporation or organization of such Person), are recorded as capital leases, in respect of which such Person is liable as lessee; (v) all 2 indebtedness or obligations of such Person pursuant to any interest rate swaps, currency swaps, commodity agreements and similar hedging agreements; and (vi) all Debt Guaranteed by such Person; "DEBT GUARANTEED" by any Person means Debt of the kinds referred to in (i) through (v) of the definition of Debt which is directly or indirectly guaranteed by such Person or which such Person has agreed (contingently or otherwise) with the creditor to purchase or otherwise acquire or assume, or in respect of which such Person has otherwise assured a credit against loss by means of an indemnity, security or bond; "DEFAULT" means any event which, but for the lapse of time, giving of notice or both, would constitute an Event of Default; "DISCLOSED DEFAULTS" has the meaning given to such term in Section 4.1(n) hereof; "DOCUMENTS" means, collectively, the Debenture, the Security Documents and any other document now or hereafter delivered to the Holder by the Corporation or any Subsidiary pursuant to or in connection therewith including any document, agreement or guarantee delivered to the Holder pursuant to or in connection with the Reorganization Undertaking (as defined in the Purchase Agreement); "EBITDA" means, for any period, Net Income for such period, plus (i) consolidated interest expense of the Corporation and its Subsidiaries for such period, plus (ii) provision for income taxes of the Corporation and its Subsidiaries for such period, plus (iii) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash charges (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period) of the Corporation and its Subsidiaries to the extent that such depreciation, amortization and other non-cash charges were deducted in computing Net Income for such period, minus (iv) non-cash items increasing consolidated revenues of the Corporation and its Subsidiaries in determining Net Income for such period, in each case on a consolidated basis and determined in accordance with generally accepted accounting principles; provided that the following shall not be included in the calculation of EBITDA as either a charge or revenue: (a) non-cash changes in the carrying value of the Subordinated Notes and other Debt which is not denominated in Canadian dollars and is translated to Canadian dollars at the balance sheet date; and (b) non-cash changes resulting from the marking to market of foreign currency and commodity contracts; and provided further that premiums paid or received on options, warrants or similar instruments shall be recognized, for the purposes of EBITDA, as expenses or revenue, as the case may be, only on the date on which the option, warrant or other instrument in question expires, matures, is exercised or otherwise terminates; "ELIGIBLE CAPITAL LEASE OBLIGATIONS AND PURCHASE MONEY SECURITY INTERESTS" means (a) Capital Lease Obligations and Purchase Money Security Interests existing as at the date hereof 3 or any renewals or replacements thereof on materially the same terms and in amounts not materially exceeding those existing as at the date hereof; and (b) Capital Lease Obligations and Purchase Money Security Interests incurred following the date hereof if the claims of the lessor or creditor thereunder are limited to recovery or repossession of the leased or financed property in question and if such leased or financed property is newly acquired by the Corporation; "EVENT OF DEFAULT" has the meaning attributed to such term in section 6.1; "EXCLUDED ASSETS" means the Windy Craggy Property; "EXISTING ENCUMBRANCES" means the Liens specifically described in SCHEDULE C1; "FINAL MATURITY DATE" has the meaning given to such term in Section 2.3(a) hereof; "FINANCIAL QUARTER" means, in relation to the Corporation or any Subsidiary, the four periods each consisting of three months in each Financial Year of the Corporation or such Subsidiary ending on the last day of each of the third, sixth, ninth and twelfth months in such Financial Year; "FINANCIAL YEAR" means, in relation to the Corporation or any Subsidiary, the period beginning on January l and ending on December 31 of each calendar year; "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means the accounting principles so described and promulgated by the Canadian Institute of Chartered Accountants from time to time; "GLENCORE AGREEMENT" means the letter agreement dated November 5, 1997 between the Corporation and Glencore Ltd. relating to the sale by the Corporation of copper concentrate; "GOVERNMENTAL BODY" means any government, parliament, legislature, or any regulatory, authority, agency, commission or board of any government, parliament or legislature, or any court or (without limitation to the foregoing) any other law, regulation or rule-making entity (including, without limitation, any central bank, fiscal or monetary authority or authority regulating banks), having jurisdiction in the relevant circumstances, or any Person acting under the authority of any of the foregoing (including, without limitation, any arbitrator); "HAZARDOUS SUBSTANCE" includes but is not limited to any contaminants, pollutants, dangerous substances, liquid wastes, industrial wastes, toxic substances, hazardous wastes, hazardous materials of whatsoever nature or kind or any other hazardous substance within the meaning of any Applicable Law including without limitation the HAZARDOUS PRODUCTS ACT (Canada), the CANADIAN ENVIRONMENTAL PROTECTION ACT (Canada), the ENVIRONMENTAL PROTECTION ACT (Ontario) and the WASTE MANAGEMENT ACT (B.C.); "HOLDER" means Northgate Exploration Limited and its successors and permitted assigns; 4 "INITIAL PURCHASE PRICE" has the same meaning given to such term in the Purchase Agreement; "INTELLECTUAL PROPERTY" means all trade marks, trade names, patents, patent applications, copyrights, trade secrets, logos, processes, computer systems and application software which are owned or used by, or which relate to the business of, the Corporation or the Subsidiaries; "INTEREST PAYMENT DATE" means each day on which interest is payable hereunder pursuant to section 2.1; "INTEREST RATE" means the LIBOR Rate plus 6.0% per annum; "INTERIM FINANCIAL STATEMENTS" means the unaudited consolidated financial statements of the Corporation as at and for the 4 month period ended April 30, 1998 consisting of a balance sheet, an income statement and a statement of changes in financial position, a copy of which has been provided to the Holder; "KEMESS MINE" means the Kemess North Property and the Kemess South Mine; "KEMESS NORTH PROPERTY" means all present and future property and assets comprising or relating to what is generally referred to as the Kemess North Property in British Columbia, Canada including, without limitation, all mineral claims and leases referred to in SCHEDULE B-1 hereto, all buildings, equipment, fixtures and other property and assets owned or leased by the Corporation (or in which the Corporation otherwise has an interest) situated or used at the Kemess North Property site all operations, exploration and other activities carried on at such site and all permits, authorizations, licenses and similar approvals relating thereto; "KEMESS SOUTH MINE" means all present and future property and assets comprising or relating to what is generally referred to as the Kemess South Mine property in British Columbia, Canada including, without limitation, all mineral claims and leases referred to in SCHEDULE B-2 hereto, all buildings, equipment, fixtures and other property and assets owned or leased by the Corporation (or in which the Corporation otherwise has an interest) situated or used at the Kemess South Mine site, all operations, exploration and other activities carried on at such site and all permits, authorizations, licenses and similar approvals relating thereto; "KEMESS MINE PRODUCTION DATE" means the date that the Kemess South Mine has produced concentrate over the immediately preceding 30 day period, and is able to sustain and maintain such production thereafter, of not less than 8500 short tons of concentrate yielding mineral content that is acceptable to Glencore Ltd. pursuant to the Glencore Agreement (without giving effect to any amendments thereof); "KEMESS MINE CONSTRUCTION CONTRACTS" has the meaning given to such term in Section 4.1(x); 5 "KNOWLEDGE" means the best knowledge of the senior management of that party (which in the case of the Corporation specifically includes but is not limited to the Kemess Mine Project Manager, the Kemess Mine Project Director and the Kemess Mine Manager of Project Accounting, after having made all reasonable inquiries; "LIBOR RATE" means the rate of interest per annum, calculated on the basis of a year of 360 days, determined by the Holder for a 30 day period to be (i) the rate per annum, calculated on the basis of a year of 360 days, which appears on the Reuters Telerate Page 3750 as of 11:00 a.m. (London time) on the second Business Day prior to the commencement of such 30 day period in an amount of U.S. dollars equal to the principal amount then outstanding under the Debenture and for a 30 day deposit period, or (ii) if such rate does not appear on the Reuters Telerate Page 3750 as and when contemplated herein, the arithmetic average (rounded upwards to the nearest 1/16th of 1%) of the rates of interest per annum, calculated on the basis of a year of 360 days, at which any three prime banks in the London inter-bank market are offering deposits at approximately 11:00 a.m. (London time) on the second Business Day prior to the commencement of such 30 day period in an amount of U.S. dollars equal to the principal amount then outstanding under this Debenture and for a 30 day deposit period; "LIEN" means any mortgage, lien, pledge, assignment, charge, security interest, lease intended as security, title retention agreement, rights reserved in any Governmental Body, registered lease of real property, hypothec, levy, execution, seizure, attachment, garnishment or other similar encumbrance and includes any contractual restriction which, if contravened, may give rise to an encumbrance; "MATERIAL AUTHORIZATION" means, with respect to the Corporation or any Subsidiary, any approval, permit, licence or similar authorization from, and any filing or registration with, any Governmental Body required by such Person to own its property and assets or to carry on its business in each jurisdiction in which it does so or is contemplated to do so, where the failure to have such approval, permit, licence, authorization, filing or registration would have a material adverse effect upon its business, financial condition or prospects; "MATERIAL CONTRACTS" has the meaning given to such term in Section 4.1(x); "MATERIAL SUBSIDIARIES" means APM and all Subsidiaries each of which has total assets exceeding a fair market value of Can. $2,000,000; "MATERIALITY THRESHOLD" means that the representation, warranty, covenant or other obligation in question shall apply only to subject matter which individually or in the aggregate is or should reasonably be expected as determined by the Holder, acting reasonably, to be material to: (a) the business, property or affairs of the Corporation taken as a whole; (b) the construction, ownership or operation of the Kemess Mine or the requirement that the Kemess Mine Production Date occur on or before December 31, 1998; or 6 (c) the Holder, in its capacity as a secured creditor of the Corporation under the Documents; "MIKWAM PROPERTY" has the meaning ascribed thereto in SCHEDULE V; "MORTGAGED PROPERTY" means all of the property, assets and undertaking of the Corporation and APM of every nature and kind, both present and future, real and personal, tangible and intangible, other than Excluded Assets, including without limitation all proceeds of disposition of any such property, assets and undertaking; "NET INCOME" means, for any period, the aggregate of the net income of the Corporation and its Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles (for greater certainty, after Taxes), but excluding therefrom (i) extraordinary items, (ii) any gains or losses from the sale of any assets (other than inventory sold in the ordinary course of business) of the Corporation or its Subsidiaries, (iii) the net income of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that net income is not permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its shareholders, or is not permitted without prior governmental approval (that has not been obtained), and (iv) the income or loss from any entity in which the Corporation's or its Subsidiary's, as applicable, investment is classified pursuant to generally accepted accounting principles as a minority interest; "NIGHTHAWK LAKE MINE" has the meaning ascribed thereto in SCHEDULE W; "PAMOUR MINE" has the meaning ascribed thereto in SCHEDULE X; "PERMITTED DEBT" means, collectively, the indebtedness pursuant to the Debentures and: (a) indebtedness of the Corporation under the Subordinated Notes; (b) indebtedness of the Corporation which, pursuant to agreements and confirmations delivered by the applicable creditor to and in favour of the Corporation and the Holder in form and content satisfactory to the Holder, is fully subordinated and postponed to the obligations of the Corporation to the Holder under the Debenture and the other Documents, provided that at the time any or all such indebtedness is incurred or reincurred no Default or Event of Default has occurred; (c) indebtedness of the Corporation to Persons under interest rate swaps, currency swaps, commodity agreements and similar hedging agreements (the "Permitted Hedging Indebtedness"); 7 (d) Debt under or secured by Eligible Capital Lease Obligations and Purchase Money Security Interests, not at any time exceeding the aggregate of (A) Can. $30,000,000 plus (B) for so long as the Proposed Leaseback Assets are leased to the Corporation pursuant to the April 6, 1998 lease between the Corporation and Trilon Bancorp Inc. (Lease Number L-RY001) and in the event of a sale and leaseback of the Proposed Leaseback Assets and solely for those purposes, the amount by which the Debt under or secured by an Eligible Capital Lease Obligation or Purchase Money Security Interest relating to the Proposed Leaseback Assets exceeds the difference between (1) Can. $30,000,000, and (2) the amount of Debt under all Eligible Capital Lease Obligations and Purchase Money Security Interests existing as at the date hereof; (e) Debt by way of trade payables or the endorsement of negotiable instruments incurred or created in the ordinary course of business for the purpose of carrying on same. "PERMITTED ENCUMBRANCES" means Liens granted to secure indebtedness under the Debentures and other Documents, Liens granted to Trilon Financial Corporation to secure obligations owing to it under a Royalty Agreement and a Royalty Debenture each dated the date hereof; and: (a) the Existing Encumbrances set out in Parts I and II of SCHEDULE C1 hereto and extensions, renewals or refinancings thereof on materially the same terms and in amounts not materially exceeding those existing at the date hereof; (b) Liens on the Mortgaged Property granted by the Corporation to holders of Permitted Hedging Indebtedness in an aggregate amount not at any time exceeding U.S. $50,000,000 to secure the Corporation's obligations in respect of Permitted Hedging Indebtedness in an aggregate amount not at any time exceeding U.S. $50,000,000, provided that each such holder delivers to and in favour of the Corporation and the Holder an inter-creditor agreement, in form and content satisfactory to the Holder, providing for, among other things, the subordination by such holders of Permitted Hedging Indebtedness Note of any Liens granted to them to and in favour of the Security until such time as all of the obligations of the Corporation to the Holder are satisfied in full; (c) cash collateral accounts for the letters of credit specifically described in SCHEDULE Y and extensions, renewals or refinancings thereof on materially the same terms and in amounts not materially exceeding those existing at the date hereof; 8 (d) Liens for taxes, assessments or governmental charges incurred in the ordinary course of business that are not yet due and payable (taking into account any relevant grace periods), in respect of which the Corporation or a Subsidiary, as the case may be, has established on its books reserves to the extent required by generally accepted accounting principles considered by it and its auditors to be adequate therefor; (e) rights reserved to or vested in any Governmental Body by the terms of any lease, licence, franchise, grant or permit, or by any statutory provision, to terminate the same, to take action which results in an expropriation, to designate a purchaser of any Mortgaged Property or to require annual or other payments as a condition to the continuance thereof; (f) construction, contractors', mechanics', carriers', warehousemen's, suppliers' and materialmen's Liens and Liens in respect of vacation pay, workers' compensation, unemployment insurance or similar statutory obligations, provided the obligations secured by such Liens are not yet due and payable and, in the case of construction Liens, which have not yet been filed or for which the Corporation or a Subsidiary has not received written notice of a Lien, provided that in any case the Corporation may permit to exist construction Liens (in addition to those included in the definition of Existing Encumbrances and listed in Part I of SCHEDULE C1) which do not individually or in the aggregate relate to indebtedness exceeding Can. $10,000,000, which the Corporation is contesting in good faith by all appropriate proceedings promptly instituted and diligently conducted, and in respect of which, notice in writing has been given by the Corporation to the Holder, with full particulars thereof; (g) zoning restrictions, easements, rights of way, leases or other similar encumbrances or privileges in respect of real property which in the aggregate do not materially impair the use of such property by the Corporation or a Subsidiary in the operation of its business; (h) Liens in connection with any Eligible Capital Lease Obligations and Purchase Money Security Interests in respect of Debt not at any time exceeding in the aggregate of (A) Can. $30,000,000 plus (B) for so long as the Proposed Leaseback Assets are leased to the Corporation pursuant to the April 6, 1998 lease between the Corporation and Trilon Bancorp Inc. (Lease Number L-RY001) and in the event of a sale and leaseback of the Proposed Leaseback Assets and solely for those purposes, the amount by which the Debt under or secured by an Eligible Capital Lease Obligation or Purchase Money Security Interest relating to the Proposed Leaseback Assets exceeds the difference between (1) Can. $30,000,000 and (2) the amount of the Debt under all Eligible Capital lease Obligations and Purchase Money Security Interests existing as at the date hereof; (i) security given by the Corporation or a Subsidiary to a public utility or any 9 Governmental Body, when required by such utility or Governmental Body in connection with the operations of the Corporation or Subsidiary in the ordinary course of its business, which singly or in the aggregate do not materially detract from the value of the asset concerned or materially impair its use in the operation of the business of the Corporation or Subsidiary; (j) the reservation in any original grants from the Crown of any land or interest therein and statutory exceptions to title; (k) title defects or irregularities which are of a minor nature and which do not materially detract from the value of the assets of the Corporation or its Subsidiaries encumbered thereby; (l) Liens on the Mortgaged Property granted by the Corporation to or on behalf of holders of the Subordinated Notes in an aggregate principal amount not at any time exceeding U.S. $175,000,000 to secure the Corporation's obligations in respect of the Subordinated Note Trust Indenture in an aggregate principal amount not at any time exceeding U.S. $175,000,000, provided that Chase Manhattan Trust Company, National Association, as trustee thereunder and any other collateral agent appointed by it delivers to and in favour of the Corporation and the Holder an inter-creditor agreement, in form and content satisfactory to the Holder, providing for, among other things, the subordination by such holders of Subordinated Notes of any Liens granted to them to and in favour of the Security until such time as all of the obligations of the Corporation to the Holder are satisfied in full, and providing that notwithstanding the granting of such Liens the holders of the Subordinated Notes will take reasonable steps to ensure that they are placed in a separate class of creditors than the Holder in any insolvency proceedings relating to the Corporation and if notwithstanding the foregoing they are placed in the same class of creditors they will assign their votes to the Holder so as to permit the Holder to vote against and defeat any restructuring plan in such insolvency proceedings; and (m) any other Lien which the Holder after the date hereof approves in writing as a Permitted Encumbrance; provided that nothing herein shall constitute or be interpreted as a postponement or subordination of the Security to any security granted by the Corporation in connection with such Permitted Encumbrances. "PERMITTED HEDGING INDEBTEDNESS" has the meaning given to it in paragraph (c) of the definition of Permitted Debt; "PERMITTED PAYMENTS" means any payment, distribution, loan, advance or transfer by a Restricted Subsidiary (as defined in the Subordinated Note Trust Indenture) to the Corporation 10 or to another Restricted Subsidiary contemplated in paragraphs 4.13(a),(b) and (c) of the Subordinated Note Trust Indenture that, and only to the extent that, cannot be subject to a Payment Restriction pursuant to and as defined in Section 4.13 of the Subordinated Note Trust Indenture; "PERSON" means any individual, partnership, limited partnership, joint venture, syndicate. sole proprietorship, company or corporation with or without share capital, unincorporated association, trust, trustee, executor, administrator or other legal personal representative, government or governmental authority or entity, however designated or constituted; "PREPAYMENT AMOUNT" means the principal amount of this Debenture which the Corporation proposes to prepay under Section 2.4 plus a non-refundable fee of one per cent (1%) of such principal amount being prepaid; "PROCEEDS CONDITIONS" means the conditions precedent in favour of the Holder that (i) the Kemess South Mine has produced concentrate over the immediately preceding 30 day period, and is able to sustain and maintain such production thereafter, of not less than 7500 short tons of concentrate yielding mineral content that is acceptable to Glencore Ltd. pursuant to the Glencore Agreement (without giving effect to any amendments thereof), (ii) at such time the Kemess South Mine accounts payable of the Corporation do not exceed U.S.$15,000,000 and (iii) at such time the Kemess South Mine accounts payable of the Corporation are not overdue in accordance with their respective terms; "PROPOSED LEASEBACK ASSETS" means one P & H model 2800XPB Electric Mining Shovel (Serial No.28127) and one P & H model 100XP Rotary Blast Hole Drill (Serial No.10036); "PURCHASE AGREEMENT" means the Securities Purchase Agreement dated April 17, 1998 entered into by Trilon Financial Corporation and the Corporation in respect of, inter alia, the purchase of the Debentures, as amended from time to time; "PURCHASE MONEY SECURITY INTEREST" means any Lien given, assumed or arising by operation of law, including capital leases, to provide or secure, or to provide the obliger with funds to pay, the whole or any part of the consideration for the acquisition of property where the principal amount of the obligation secured by such Lien (i) is not in excess of the cost to the obliger of the property encumbered thereby and (ii) is secured only by the property being acquired by the obliger, and includes the renewal or refinancing of any such Lien upon the same property provided that the indebtedness secured and the security therefor are not increased thereby; "ROYALTY AGREEMENT" has the same meaning given to such term in the Purchase Agreement; "ROYALTY DEBENTURE" has the same meaning given to such term in the Purchase Agreement; 11 "SALE" has the meaning attributed to such term in section 5.3(e); "SECURITY" means the Liens created by the Security Documents; "SECURITY DOCUMENTS" means, collectively, the agreements, instruments and documents delivered from time to time (both before and after the date of this Debenture) to the Holder by the Corporation and APM and by any Subsidiary for the purpose of creating, perfecting, preserving or protecting the security of the Holder in respect of the Debenture and in respect of amounts outstanding thereunder (including, without limitation, the documents referred to in Article 3, Section 5.1(v) and Section 5.1(x)); "SUBORDINATED NOTES" means the outstanding Secured 12.75% Senior Subordinated Notes due 2006 in the aggregate principal amount of U.S. $175,000,000; "SUBORDINATED NOTE TRUST INDENTURE" means the Trust Indenture dated as of August 12, 1996 among the Corporation, Kemess Mines Inc. and Mellon Bank, F.S.B. relating to the Subordinated Notes, as amended by (i) the First Supplemental Indenture, dated and effective as of December 31, 1997, (ii) the Second Supplemental Indenture dated and effective as of January 31, 1998, (iii) the Third Supplemental Indenture dated and effective as of May 19, 1998, (iv) the Fourth Supplemental Indenture dated and effective the date hereof, and (v) the Fifth Supplemental Indenture dated and effective the date hereof, each by and between the Corporation and Chase Manhattan Trust Company, National Association, the successor to Mellon Bank, F.S.B., as Trustee; "SUBSIDIARIES" means all of the corporations listed on SCHEDULE E and any other corporation or limited liability company which is or hereafter becomes directly or indirectly controlled by the Corporation, and for the purposes of this definition, the Corporation shall be deemed to control a corporation if the Corporation beneficially owns, directly or indirectly, shares to which are attached more than 50% of the voting rights ordinarily exercisable at meetings of shareholders of such corporation, and the Corporation shall be deemed to own beneficially shares beneficially owned by a corporation controlled by it, and so on indefinitely, and the Corporation shall be deemed to control a limited liability company where it owns more than 50% of the equity interests in such limited liability company; "TAXES" means all taxes of any kind or nature whatsoever including, without limitation, income taxes, sales or value-added taxes, levies, stamp taxes, royalties, duties, and all fees, deductions, compulsory loans and withholdings imposed, levied, collected, withheld or assessed as of the date hereof or at any time in the future, by any Governmental Body of or within Canada or any other jurisdiction whatsoever having power to tax, together with penalties, fines, additions to tax and interest thereon; "THIS DEBENTURE" and "THE DEBENTURE" refer to this Debenture and, unless otherwise expressly provided, not to any particular Article, section, subsection, paragraph, clause, subdivision or other portion hereof, and includes any and every instrument supplemental or 12 ancillary hereto or in implementation hereof; "WINDY CRAGGY PROPERTY" means the mineral claims in and around Windy Craggy mountain in the Tatshenshini/Alsek region of northwestern British Columbia, more particularly described in SCHEDULE F hereto. 13 EX-4.9 10 EXHIBIT 4.9 ROYAL OAK MINES INC. as Corporation and MONTREAL TRUST COMPANY OF CANADA as Trustee - -------------------------------------------------------------------------------- TRUST INDENTURE PROVIDING FOR THE ISSUE OF U.S. $50 MILLION 15% DEMAND BONDS JUNE 22, 1998 - -------------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE 1 INTERPRETATION Section 1.1. Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.2. Meaning of "outstanding" for Certain Purposes. . . . . . . . 11 Section 1.3. Headings, etc. . . . . . . . . . . . . . . . . . . . . . . . 11 Section 1.4. Deemed Notice of Indenture . . . . . . . . . . . . . . . . . 12 Section 1.5. Judgment Currency. . . . . . . . . . . . . . . . . . . . . . 12 Section 1.6. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 2 THE BONDS Section 2.1. Terms, Form and Denomination of Bonds. . . . . . . . . . . . 13 Section 2.2. Issue of Bonds . . . . . . . . . . . . . . . . . . . . . . . 13 Section 2.3. Signing of Bonds . . . . . . . . . . . . . . . . . . . . . . 14 Section 2.4. Certification. . . . . . . . . . . . . . . . . . . . . . . . 14 Section 2.5. Replacement of Bonds . . . . . . . . . . . . . . . . . . . . 15 Section 2.6. Ownership of Bonds . . . . . . . . . . . . . . . . . . . . . 15 Section 2.7. Payment of Principal and Interest. . . . . . . . . . . . . . 15 Section 2.8. Taxes and Other Taxes. . . . . . . . . . . . . . . . . . . . 16 Section 2.9. Exchange of Bonds. . . . . . . . . . . . . . . . . . . . . . 17 Section 2.10. Registration . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 3 REPLEDGING OF BONDS Section 3.1. Repledging of Bonds. . . . . . . . . . . . . . . . . . . . . 18 Section 3.2. Outstanding. . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 4 SECURITY Section 4.1. Security . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 4.2. Effect of Liens. . . . . . . . . . . . . . . . . . . . . . . 20 Section 4.3. Security Effective Notwithstanding Date of Advance . . . . . 20 Section 4.4. Title to Collateral. . . . . . . . . . . . . . . . . . . . . 20 Section 4.5. Further Assurances . . . . . . . . . . . . . . . . . . . . . 20 Section 4.6. Registration . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 4.7. Release from Charge. . . . . . . . . . . . . . . . . . . . . 22 Section 4.8. Application of Insurance Proceeds. . . . . . . . . . . . . . 22 Section 4.9. Expropriation. . . . . . . . . . . . . . . . . . . . . . . . 22 Section 4.10. Priority of Liens. . . . . . . . . . . . . . . . . . . . . . 23 Section 4.11. Disposition of Assets. . . . . . . . . . . . . . . . . . . . 23
-i- Section 4.12. Royalty Interest . . . . . . . . . . . . . . . . . . . . . . 24 Section 4.13. Restricted Payments. . . . . . . . . . . . . . . . . . . . . 24 Section 4.14. Security . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 4.15. Conflicts. . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 5 COVENANTS OF THE CORPORATION Section 5.1. Payment of Principal and Interest. . . . . . . . . . . . . . 25 Section 5.2. Trustee's Remuneration and Expenses. . . . . . . . . . . . . 25 Section 5.3. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 5.4. Reorganization . . . . . . . . . . . . . . . . . . . . . . . 26 Section 5.5. Limitation on Liens. . . . . . . . . . . . . . . . . . . . . 26 Section 5.6. Performance of Covenants by Trustee. . . . . . . . . . . . . 26
ARTICLE 6 DEFAULT AND ENFORCEMENT Section 6.1. Events of Default. . . . . . . . . . . . . . . . . . . . . . 28 Section 6.2. Acceleration on Default. . . . . . . . . . . . . . . . . . . 28 Section 6.3. Enforcement by Trustee . . . . . . . . . . . . . . . . . . . 29 Section 6.4. Enforcement by Bondholders . . . . . . . . . . . . . . . . . 29 Section 6.5. Entry by Trustee . . . . . . . . . . . . . . . . . . . . . . 29 Section 6.6. Appointment of Receiver. . . . . . . . . . . . . . . . . . . 30 Section 6.7. Sale by Trustee. . . . . . . . . . . . . . . . . . . . . . . 31 Section 6.8. Applying Bonds in Payment. . . . . . . . . . . . . . . . . . 31 Section 6.9. Application of Proceeds of Sale or Realization . . . . . . . 32 Section 6.10. Distribution of Proceeds. . . . . . . . . . . . . . . . . . 32 Section 6.11. Persons Dealing with Trustee. . . . . . . . . . . . . . . . 33 Section 6.12. Trustee Appointed Attorney. . . . . . . . . . . . . . . . . 33
ARTICLE 7 SATISFACTION AND DISCHARGE Section 7.1. Cancellation and Destruction . . . . . . . . . . . . . . . . 34 Section 7.2. Release from Covenants . . . . . . . . . . . . . . . . . . . 34
ARTICLE 8 SUCCESSOR CORPORATIONS Section 8.1. Certain Requirements in Respect of Merger, etc . . . . . . . 35 Section 8.2. Vesting of Powers in Successor . . . . . . . . . . . . . . . 35 Section 8.3. Opinion of Counsel to be Given to Trustee. . . . . . . . . . 35
-ii- ARTICLE 9 EXTRAORDINARY RESOLUTIONS Section 9.1. Powers Exercisable by Extraordinary Resolution . . . . . . . 36 Section 9.2. Meaning of "Extraordinary Resolution". . . . . . . . . . . . 37 Section 9.3. Powers Cumulative. . . . . . . . . . . . . . . . . . . . . . 37 Section 9.4. Binding Effect of Resolutions. . . . . . . . . . . . . . . . 37
ARTICLE 10 SUPPLEMENTAL INDENTURES Section 10.1. Execution of Supplemental Indentures. . . . . . . . . . . . 38
ARTICLE 11 CONCERNING THE TRUSTEE Section 11.1. Conditions Precedent to Trustee's Obligation to Act . . . . 39 Section 11.2. Evidence. . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 11.3. Experts and Advisers. . . . . . . . . . . . . . . . . . . . 40 Section 11.4. Action by Trustee to Protect Interests. . . . . . . . . . . 40 Section 11.5. Trustee Not Required to Give Security . . . . . . . . . . . 40 Section 11.6. Protection of Trustee . . . . . . . . . . . . . . . . . . . 40 Section 11.7. Replacement of Trustee. . . . . . . . . . . . . . . . . . . 41 Section 11.8. Conflict of Interest. . . . . . . . . . . . . . . . . . . . 41 Section 11.9. Cash Collateral Held by the Trustee . . . . . . . . . . . . 42 Section 11.10. Certificate of Compliance . . . . . . . . . . . . . . . . . 42 Section 11.11. Legislation Relating to Indentures. . . . . . . . . . . . . 42 Section 11.12. Acceptance of Trust . . . . . . . . . . . . . . . . . . . . 42
ARTICLE 12 MISCELLANEOUS Section 12.1 Communications . . . . . . . . . . . . . . . . . . . . . . . 43 Section 12.2. Address of Record. . . . . . . . . . . . . . . . . . . . . . 43 Section 12.3. Indemnification of Trustee . . . . . . . . . . . . . . . . . 43 Section 12.4. Deposit of Securities. . . . . . . . . . . . . . . . . . . . 44 Section 12.5. Change of Name . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE 13 FORM OF BONDS Section 13.1. Form of Bonds . . . . . . . . . . . . . . . . . . . . . . . 46
-iii- ARTICLE 14 EXECUTION Section 14.1. Notarial Trust Deed . . . . . . . . . . . . . . . . . . . . 49 Section 14.2. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 49 Section 14.3. Formal Date . . . . . . . . . . . . . . . . . . . . . . . . 49
-iv- TRUST INDENTURE TRUST INDENTURE dated June 22, 1998 between ROYAL OAK MINES INC. (the "CORPORATION") and MONTREAL TRUST COMPANY OF CANADA (the "TRUSTEE"). WHEREAS the Corporation deems it necessary for its corporate purposes to deliver security to certain parties who have or may in future enter into hedging transactions with the Corporation; AND WHEREAS it is desirable to grant such security through a trustee acting under a trust indenture; AND WHEREAS in order to give effect to such security the Corporation proposes to issue bonds under the trust indenture; AND WHEREAS the Corporation under the laws relating to it is duly authorized to create, issue and secure the Bonds to be issued as provided in this Indenture; AND WHEREAS all things necessary have been done and performed to make the Bonds, when issued by the Corporation and certified by the Trustee, valid, binding and legal obligations of the Corporation with the benefits and subject to the terms of this Indenture and to make this Indenture a valid and binding indenture in accordance with its terms; AND WHEREAS the foregoing recitals and any statements contained in this Indenture or in the Bonds (except the representations in the certificate of the Trustee on the Bonds) are and shall be deemed to be made as representations and statements of fact by the Corporation; NOW THEREFORE, in consideration of the foregoing, the sum of $10.00 and other good and valuable consideration, the receipt and sufficiency of which are acknowledged by the Corporation, the Corporation agrees as follows: ARTICLE 1 INTERPRETATION SECTION 1.1. DEFINED TERMS. (1) As used in this Indenture and the Bonds, the following terms have the following meanings: "APM" means Arctic Precious Metals, Inc., a Nevada corporation. "AFFILIATE" has the meaning specified in the BUSINESS CORPORATIONS ACT (Ontario). "BONDS" means the bonds of the Corporation issued and certified under this Indenture and for the time being outstanding. -2- "BONDHOLDERS" means the holders of the Bonds for the time being and from time to time. "BUSINESS DAY" means any day of the year, other than a Saturday, Sunday or other day on which banks are required or authorized to close in Toronto, Ontario. "CANADIAN DOLLARS" and "CDN. $" each mean lawful money of Canada. "CAPITAL LEASE OBLIGATIONS" means, as to any Person, the obligations of such Person to pay rent or other amounts under a lease that are required to be classified and accounted for as capital lease obligations in accordance with GAAP. "CERTIFICATE OF THE CORPORATION", "ORDER OF THE CORPORATION" and "REQUEST OF THE CORPORATION" mean, respectively, a written certificate, order and request signed in the name of the Corporation by any one of its Chairman, President, Chief Financial Officer or Secretary. "CERTIFIED RESOLUTION" means a copy of a resolution certified by the Secretary or any Assistant Secretary of the Corporation to have been duly passed by the Directors and to be in full force and effect on the date of the certification. "COLLATERAL" means the property, assets and undertaking of the Corporation and its Restricted Subsidiaries charged or in which the Trustee is granted a Lien pursuant to the Security and all replacements, substitutions and additions thereto and all income, gains and distributions thereon and proceeds thereof, of whatsoever nature and kind. "CORPORATION" means Royal Oak Mines Inc. and every Successor Corporation which has complied with the provisions of Article 8. "COUNSEL" means an attorney, barrister or solicitor or a firm of attorneys or barristers and solicitors retained by the Trustee or retained by the Corporation and acceptable to the Trustee. "DEBT" of any Person means all indebtedness including, without limitation (i) all indebtedness of such Person for and in respect of borrowed money, including obligations with respect to bankers' acceptances, letters of credit and letters of guarantee or indemnity; (ii) all indebtedness of such Person for the deferred purchase price of property or services represented by a note or other evidence of indebtedness or other security; (iii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to the possession or sale of such property); (iv) all obligations under leases which, in accordance with GAAP (or accounting principles generally accepted in the jurisdiction of incorporation or organization of such Person), are recorded as capital leases, in respect of which such Person is liable as lessee; (v) all indebtedness or obligations of such Person pursuant to any interest rate swaps, currency swaps, commodity agreements and similar hedging agreements; and (vi) all Debt Guaranteed by -3- such Person. "DEBT GUARANTEED" by any Person means Debt of the kinds referred to in (i) through (v) of the definition of Debt which is directly or indirectly guaranteed by such Person or which such Person has agreed (contingently or otherwise) with the creditor to purchase or otherwise acquire or assume, or in respect of which such Person has otherwise assured a credit against loss by means of an indemnity, security or bond. "DIRECTOR" means a director of the Corporation for the time being, and reference without more to action by the Directors means action by the directors of the Corporation as a board or, whenever duly empowered, action by a committee of the board. "DOCUMENTS" means the Security Documents and any other document delivered to the Bondholders by the Corporation or any Subsidiary pursuant to or in connection therewith. "ELIGIBLE CAPITAL LEASE OBLIGATIONS AND PURCHASE MONEY SECURITY INTERESTS" means (a) Capital Lease Obligations and Purchase Money Security Interests existing as at the date hereof or any renewals or replacements thereof on materially the same terms and in amounts not materially exceeding those existing as at the date hereof; and (b) Capital Lease Obligations and Purchase Money Security Interests incurred following the date hereof if the claims of the lessor or creditor thereunder are limited to recovery or repossession of the leased or financed property in question and if such leased or financed property is newly acquired by the Corporation. "ELIGIBLE HEDGING INDEBTEDNESS" means (i) Existing Hedging Indebtedness; and (ii) Indebtedness which is Permitted Indebtedness described in clauses (iii) or (iv) of the definition of "Permitted Indebtedness" in the Subordinated Indenture, as in effect on the date hereof. "EQUIVALENT CDN. $ AMOUNT" means, with respect to any amount of any currency other than Canadian Dollars, the amount of Canadian Dollars determined by using the quoted spot rate at which The Bank of Nova Scotia's principal office in Toronto, Ontario offers to provide Canadian Dollars in exchange for such other currency at 12:00 noon (Toronto time) on the date which such Equivalent Cdn. $ Amount is to be determined. "EVENT OF DEFAULT" has the meaning specified in Section 6.1. "EXCLUDED ASSETS" means the Windy Craggy Property. "EXISTING HEDGING INDEBTEDNESS" has the meaning ascribed to that term in the Subordinated Indenture, as in effect on the date hereof. "EXTRAORDINARY RESOLUTION" has the meaning specified in Section 9.2. "FISCAL YEAR" means a fiscal year of the Corporation commencing on -4- January 1 of each calendar year and ending on December 31 of the same calendar year. "GAAP" means at any time, accounting principles generally accepted in Canada as recommended in the Handbook of the Canadian Institute of Chartered Accountants at the relevant time applied on a consistent basis. "GOVERNMENTAL ENTITY" means any (i) multinational, federal, provincial, state, municipal, local or other government, governmental or public department, central bank, court, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) any subdivision or authority of any of the foregoing, or (iii) any quasi-governmental or private body exercising any regulatory, expropriation or taxing authority under or for the account of any of the foregoing. "HEDGING COUNTERPARTY" means Bankers Trust Company, Macquarie Bank Limited, The Bank of Nova Scotia, and their respective successors and assigns, and any other Person with whom from time to time the Corporation has entered, or is proposing to enter into or incur Currency Agreements, Interest Swap Obligations, Foreign Exchange Obligations or Commodity Agreements, as such terms are defined in the Subordinated Indenture, as in effect on the date hereof. "IN AGREED FORM" means, with respect to any documents to be delivered by the Corporation or any Restricted Subsidiary to the Trustee under or pursuant to this Indenture, that such document is in substantially the same form and substance as the comparable document, if any, previously delivered or to be delivered contemporaneously by the Corporation or such Restricted Subsidiary to the Senior Bondholders. "INDENTURE", "HEREIN", "HEREBY", "HEREOF" and similar expressions mean and refer to this Indenture as supplemented or amended by any indenture, deed or instrument supplemental or ancillary hereto; and the expressions "ARTICLE" and "SECTION" followed by a number mean and refer to the specified Article or Section of this Indenture. "INSIDER" has the meaning specified in Section 1(1) of the SECURITIES ACT (Ontario). "KEMESS MINE" means the Kemess North Property and Kemess South Mine. "KEMESS NEWCO" means the wholly owned subsidiary of the Corporation to which, at the request of the Senior Bondholders, the Corporation will transfer ownership of the Kemess Mine and related assets. "KEMESS NEWCO GUARANTEE AND ASSUMPTION" means the guarantee and assumption to be given by Kemess Newco, in compliance with Section 5.4 of the Indenture, which guarantee and assumption shall be In Agreed Form and in form and substance satisfactory to the Trustee, based on the advice of Counsel, pursuant to which Kemess Newco will guarantee the obligations of the Corporation pursuant to the Bonds. "KEMESS NEWCO LIENS" means the present and future fixed and floating -5- Liens to be granted by Kemess Newco to the Trustee in all of its property, assets and undertaking, including the Kemess Mine and related assets, which Lien shall be In Agreed Form and in form and substance satisfactory to the Trustee, based on the advice of Counsel, and which will secure the payment and performance by Kemess Newco of its obligations under the Kemess Newco Guarantee and Assumption. "KEMESS NORTH PROPERTY" means all present and future property, assets and undertaking comprising or relating to what is generally referred to as the Kemess North property in British Columbia, Canada, including, without limitation, all mineral claims and leases referred to in Schedule "B-1" to the Secured Debenture, all buildings, equipment, fixtures and other property and assets owned or leased by the Corporation (or in which the Corporation otherwise has an interest) situated or used at the Kemess North Property site, all operations, exploration and other activities carried on at such site and all permits, authorizations, licenses and similar approvals relating thereto. "KEMESS SOUTH MINE" means all present and future property, assets and undertaking comprising or relating to what is generally referred to as the Kemess South property in British Columbia, Canada, including, without limitation, all mineral claims and leases referred to in Schedule "B-2" to the Secured Debenture hereto, all buildings, equipment, fixtures and other property and assets owned or leased by the Corporation (or in which the Corporation otherwise has an interest) situated or used at the Kemess South Mine site, all operations, exploration and other activities carried on at such site and all permits, authorizations, licenses and similar approvals relating thereto. "KEMESS SOUTH RESOURCES LIMITED PARTNERSHIP" means the limited partnership of that name formed under the laws of the Province of British Columbia, and its successors and assigns. "LIEN" means any mortgage, pledge, security interest, encumbrance, lien, charge or deposit arrangement or other arrangement or condition that in substance secures payment or performance of an obligation and shall include the interest of a vendor or lessor under any conditional sale agreement, capitalized lease or other title retention agreement. "NIGHTHAWK LAKE MINE" means the property covering approximately 11,726 acres representing 254 claims in both Cody and Macklem Townships, Ontario, with most of the property held outright by the Corporation as staked mineral claims and the remaining property held through various agreements and subsidiary companies. "ORIGINAL CURRENCY" has the meaning specified in Section 1.5(1). "OTHER CURRENCY" has the meaning specified in Section 1.5(1). "OTHER TAXES" has the meaning specified in Section 2.8(2). "PAMOUR MINE" means the property (exclusive of the Hoyle properties) located in Whitney Township approximately 15 miles east of Timmins, Ontario which consisted of 38 patented mining claims and one license of occupation covering -6- approximately 1,531 acres of mining and surface rights. "PERMITTED LIENS" mean (a) Liens on the property, assets or undertaking of the Corporation or of a Restricted Subsidiary that, in each case, secure indebtedness under the Senior Indentures in a principal amount not in excess of U.S.$120,000,000; (b) Liens securing indebtedness of a Person existing at the time that such Person is merged into or consolidated with the Corporation or a Restricted Subsidiary, provided that such Liens were in existence prior to the completion of such merger or consolidation and do not extend to any assets other than those of such Person; (c) Liens on property acquired by the Corporation or a Restricted Subsidiary, provided that such Liens were in existence prior to the contemplation of such acquisition and do not extend to any other property; (d) Liens on property, assets or undertaking of the Corporation that, in each case, secure the royalty payments to be made by the Corporation or a Restricted Subsidiary to Kemess South Resources Limited Partnership or, upon dissolution to the partners thereof, in respect of copper extracted and processed from the Kemess South property; (e) Liens on the property, assets or undertaking of the Corporation or a Restricted Subsidiary that, in each case, secure Capital Lease Obligations or Purchase Money Obligations; (f) Liens incurred, or pledges and deposits in connection with, workers' compensation, unemployment insurance and other social security benefits, and leases, appeal bonds and other obligations of like nature incurred by the Corporation or any Restricted Subsidiary in the ordinary course of business; (g) Liens imposed by law, including, without limitation, mechanics', carriers' warehousemen's, materialmen's, suppliers' and vendors' Liens, incurred by the Corporation or any Restricted Subsidiary in the ordinary course of business in a principal amount not in excess of at any time of Cdn. $15,000,000; (h) Liens for AD VALOREM, income or property taxes or assessments and similar charges which either are not delinquent or are being contested in good faith by appropriate proceedings for which the Corporation has set aside on its books reserves to the extent required by GAAP; (i) Liens on the property, assets or undertaking of the Corporation that, in each case, secure the obligations of the Corporation under the Royalty Agreement, including pursuant to the Royalty Debenture; (j) Liens on the property, assets or undertaking of Kemess Newco that secure indebtedness of the Corporation assumed by Kemess -7- Newco on the transfer of Kemess Newco of ownership of the Kemess Mine and related assets; (k) Liens granted by the Corporation and its Restricted Subsidiaries to the Trustee pursuant to the terms hereof and the Security Documents; (l) the Subordinated Liens; (m) rights reserved to or vested in any Governmental Entity by the terms of any lease, licence, franchise, grant or permit, or by any statutory provision, to terminate the same, to take action which results in an expropriation, to designate a purchase of any property subject thereto or to require annual or other payments as a condition to the continuance thereof; (n) zoning restrictions, easements, rights of way, leases or other similar encumbrances or privileges in respect of real property which in the aggregate do not materially impair the use of such property by the Corporation or any Restricted Subsidiary in the operation of its business; (o) security given by the Corporation or a Restricted Subsidiary to a public utility or any Governmental Entity, when required by such utility or Governmental Entity in connection with the operations of the Corporation or such Restricted Subsidiary in the ordinary course of its business, which singly or in the aggregate do not materially detract from the value of the asset concerned or materially impair its use in the operation of the business of the Corporation or such Restricted Subsidiary; (p) the reservation in any original grants from any Governmental Entity of any land or interest therein and statutory exceptions to title; and (q) title, defects or irregularities which are of a minor nature and which do not materially detract from the value of the assets of the Corporation or its Restricted Subsidiaries encumbered thereby. "PERSON" means a natural person, partnership, corporation, joint-stock company, trust, unincorporated association, joint venture or other entity or Governmental Entity and pronouns which have a similarly extended meaning. "PLEDGE AGREEMENT" means an agreement between the Corporation and a Bondholder, pursuant to which a Bond issued hereunder is pledged to the Bondholder as security for the obligations specified therein. "PROPOSED LEASEBACK ASSETS" means one P & H model 2800 x PB Electric Mining Shovel and one P & H model 100 x P Rotary Blast Hole Drill. "PURCHASE MONEY OBLIGATIONS" means indebtedness of the Corporation and its Restricted Subsidiaries incurred in connection with the purchase of assets; provided that any Lien so created in connection with such incurrence is limited solely to the property or assets so purchased. -8- "PURCHASE MONEY SECURITY INTEREST" means any Lien given, assumed or arising by operation of law, including capital leases, to provide or secure, or to provide the obliger with funds to pay, the whole or any part of the consideration for the acquisition of property where the principal amount of the obligation secured by such Lien (i) is not in excess of the cost to the obliger of the property encumbered thereby and (ii) is secured only by the property being acquired by the obliger, and includes the renewal or refinancing of any such Lien upon the same property provided that the indebtedness secured and the security therefor are not increased thereby. "RECEIVER'S CERTIFICATE" has the meaning specified in Section 6.6. "RESTRICTED SUBSIDIARY" means any Subsidiary of the Corporation that is not an Unrestricted Subsidiary. "ROYALTY AGREEMENT" means the agreement between the Corporation and Trilon Financial Corporation to be dated the date hereof pursuant to which Trilon Financial Corporation has been granted a royalty interest in the Kemess South Mine, as amended from time to time (other than amendments which violate Section 4.12 hereof). "ROYALTY DEBENTURE" means the debenture dated June 22, 1998, securing the obligations of the Corporation under the Royalty Agreement. "SALE" has the meaning specified in Section 4.11. "SECURED DEBENTURE" means the secured debenture to be delivered to the Trustee pursuant to Section 4.1(i) hereof. "SECURITY" means the security granted pursuant to Section 4.1 and any other security from time to time held by the Trustee for the benefit of the Bondholders. "SECURITY DOCUMENTS" means, collectively, the agreements, instruments and documents delivered from time to time to the Trustee by the Corporation, Kemess Newco and APM for the purpose of creating, perfecting, preserving or protecting the Liens in favour of the Trustee for the benefit of the Bondholders which secure the payment and performance by the Corporation and its Restricted Subsidiaries of their respective obligations under the Indenture, the Bonds and the Security Documents. The Security Documents as the date hereof are described in Section 4.1(i) to (ix), hereof. "SENIOR BONDHOLDERS" means the holders of the Senior Security. "SENIOR INDENTURES" means the senior secured debenture, Series A, dated as of June 22, 1998 issued by the Corporation to Trilon Financial Corporation and the senior secured debenture, Series B, dated as of June 22, 1998, issued by the Corporation to Northgate Exploration Limited, as from time to time amended (other than amendments which increase the principal amount due thereunder) and any debentures or other agreements which refinance or renew the amounts outstanding thereunder (provided that the principal amount outstanding thereunder is not increased). -9- "SENIOR SECURITY" means the security from time to time granted by the Corporation or any of its Subsidiaries to secure the obligations of the Corporation or such Subsidiaries pursuant to the Senior Indentures. "SINGLE BONDHOLDER REQUEST" means an instrument signed in one or more counterparts by a Bondholder or Bondholders holding not less than U.S. $1 million in aggregate principal amount of the Bonds at the time outstanding. "SUBORDINATED INDENTURE" means the indenture dated as of August 12, 1996 made by the Corporation as issuer, Kemess Mines Inc., as guarantor, and Mellon Bank, F.S.B., as trustee, as amended by supplemental indentures dated December 31, 1997, January 31, 1998 and May 19, 1998 and the date hereof, between the Corporation and Chase Manhattan Trust Company, National Association, as successor trustee, as further amended from time to time. "SUBORDINATED LIENS" means the present and future Liens held by a trustee or a collateral agent for and on behalf of the Subordinated Noteholders to secure payment and performance of the obligations of the Corporation and its Restricted Subsidiaries under the Subordinated Indenture, the Subordinated Notes and the Subordinated Security. "SUBORDINATED NOTES" means the notes issued pursuant to the Subordinated Indenture. "SUBORDINATED NOTEHOLDERS" means the holders from time to time of Subordinated Notes pursuant to the Subordinated Indenture. "SUBORDINATED SECURITY" means the security from time to time granted by the Corporation or any Subsidiary to secure the obligations of the Corporation pursuant to the Subordinated Indenture. "SUCCESSOR CORPORATION" has the meaning specified in Section 8.1. "SUBSIDIARIES" means all of the corporations listed on Schedule E to the Senior Indentures and any other corporation or limited liability company which is or hereafter becomes directly or indirectly controlled by the Corporation, and for the purposes of this definition, the Corporation shall be deemed to control a corporation if the Corporation beneficially owns, directly or indirectly, shares to which are attached more than 50% of the voting rights ordinarily exercisable at meetings of shareholders of such corporation, and the Corporation shall be deemed to own beneficially shares beneficially owned by a corporation controlled by it, and so on indefinitely, and the Corporation shall be deemed to control a limited liability company where it owns more than 50% of the equity interests in such limited liability company. "TAXES" has the meaning specified in Section 2.8(1). "TRUSTEE" means Montreal Trust Company of Canada and its successors for the time being in the trusts hereby created. -10- "U.S. DOLLARS" and "U.S. $" each mean lawful money of the United States of America. "UNANIMOUS BONDHOLDERS' REQUEST" means an instrument signed in one or more counterparts by the Bondholders holding not less than 100% in aggregate principal amount of the Bonds at the time outstanding (excluding any such held by Affiliates or Insiders of the Corporation) requesting the Trustee to take some action or proceeding specified therein. "UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Corporation designated as an Unrestricted Subsidiary by the board of directors of the Corporation; PROVIDED, HOWEVER, that (i) the Subsidiary to be so designated (x)(I) has total assets with a fair market value at the time of such designation of U.S. $1,000,000 or less, or (II) is being so designated prior to the acquisition by the Corporation of such Subsidiary by merger or consolidation with an Unrestricted Subsidiary, and (y) does not own any capital stock of the Corporation or any Restricted Subsidiary, (ii) if such Subsidiary is acquired by the Corporation, such Subsidiary is designated as an Unrestricted Subsidiary prior to the consummation of such acquisition, (iii) no Event of Default shall have occurred and be continuing, (iv) no portion of any Debt or any other obligation (contingent or otherwise) of such Subsidiary (a) is guaranteed by or is otherwise the subject of credit support provided by the Corporation or any of its Restricted Subsidiaries, (b) is recourse to or obligates the Corporation or any of its Restricted Subsidiaries in any way, or (c) subjects any property or asset of the Corporation or any of its Restricted Subsidiaries directly or indirectly, contingently or otherwise, to the satisfaction of such Debt or other obligation, (v) neither the Corporation nor any of its Restricted Subsidiaries has any contract, agreement, arrangement or understanding with such Subsidiary other than on terms as favourable to the Corporation or such Restricted Subsidiary as those that might be obtained at the time from Persons that are not Affiliates of the Corporation, and (vi) neither the Corporation nor any of its Restricted Subsidiaries has any obligations (a) to subscribe for additional shares of the capital stock of such Subsidiary, or (b) to maintain or preserve such Subsidiary's financial condition or to cause such Subsidiary to achieve certain levels of operating results. Any such designation by the Corporation's board of directors shall be evidenced to the Trustee by filing with the Trustee a certified certificate stating that such designation complies with the foregoing conditions. The Corporation's board of diectors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect to such designation, no event of default shall have occurred and be continuing under the Senior Indentures or the Subordinated Indenture, assuming the incurrence by the Corporation and its Restricted Subsidiaries at the time of such designation of all existing Debt and Liens of the Unrestricted Subsidiary to be so designated as a Restricted Subsidiary. In the event of any transaction described in Article 8 involving the Corporation in which the Corporation is not the Successor Corporation, the board of directors of the Successor Corporation may (x) prior to such transaction, designate any of its Subsidiaries, and any of the Corporation's Subsidiaries being acquired pursuant to such transaction that are not Restricted Subsidiaries, as Unrestricted Subsidiaries, and (y) after such transaction, designate any of its direct or indirect Subsidiaries as an Unrestricted Subsidiary under the same conditions and in the same manner as the Corporation under the terms of this -11- Indenture. "WINDY CRAGGY PROPERTY" means the mineral claims in and around Windy Craggy mountain in the Tatshenshini/Alsek region of northwestern British Columbia. (2) Reference to any statute shall be deemed to be a reference to such statute as amended or re-enacted from time to time. (3) Any references in this Indenture or in a Bond to gender includes all genders and words importing the singular number only shall include the plural and vice versa. SECTION 1.2. MEANING OF "OUTSTANDING" FOR CERTAIN PURPOSES. Every Bond certified and delivered by the Trustee shall be deemed to be outstanding until it shall be cancelled or delivered to the Trustee for cancellation, provided, however, that: (a) where a new Bond has been issued in substitution for a Bond which has been lost, destroyed or stolen, only one of them shall be counted for the purpose of determining the aggregate principal amount of Bonds outstanding; and (b) for the purpose of any provision of this Indenture entitling Bondholders to vote, sign consents, requests or other instruments or take any other action under this Indenture, Bonds owned by the Corporation or any Affiliate shall be disregarded, except that (i) for the purpose of determining whether the Trustee shall be protected in relying on any such vote, consent, request, instrument or other action, only the Bonds which the Trustee knows are so owned shall be so disregarded, and (ii) Bonds so owned which have been pledged in good faith other than to the Corporation or any Affiliate shall not be so disregarded if the pledgee establishes to the satisfaction of the Trustee the pledgee's right to vote such Bonds in its discretion free from the control of the Corporation or any Affiliate. SECTION 1.3. HEADINGS, ETC. The provision of a Table of Contents, the division of this Indenture into Articles and Sections and the insertion of headings are for convenient reference only and are not to affect the interpretation of this Indenture. SECTION 1.4. DEEMED NOTICE OF INDENTURE. Bondholders and all Persons claiming through or under them, respectively, shall be deemed to have notice of, and shall be bound by, the provisions of this Indenture. SECTION 1.5. JUDGMENT CURRENCY. (1) If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder or under a Bond in any currency (the "ORIGINAL CURRENCY") into another currency (the "OTHER CURRENCY"), the Corporation agrees, to the fullest extent that it may effectively do so, that the rate of exchange used shall be that at which, in accordance with normal banking procedures, the Trustee or the relevant Bondholder, as the case may be, could purchase the Original Currency with the Other Currency on the Business Day preceding that on which final judgment is given or, if permitted by applicable laws, on the day on which such judgment -12- is paid or satisfied. (2) The obligations of the Corporation in respect of any sum due in the Original Currency from it hereunder or under a Bond shall, notwithstanding any judgment in any Other Currency, be discharged only to the extent that on the Business Day following receipt by the Trustee or the relevant Bondholder of any sum adjudged to be so due in such Other Currency, the Trustee or such Bondholder may, in accordance with normal banking procedures, purchase the Original Currency with such Other Currency. If the amount of the Original Currency so purchased is less than the sum originally due to the Trustee or such Bondholder in the Original Currency, the Corporation shall, as a separate obligation and notwithstanding any such judgment, indemnify the Trustee or such Bondholder, against such loss, and if the amount of the Original Currency so purchased exceeds the sum originally due to the Trustee or such Bondholder in the Original Currency, the Trustee or such Bondholder shall remit such excess to the Corporation. SECTION 1.6. APPLICABLE LAW. This Indenture and the Bonds shall be governed by and interpreted and enforced in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. -13- ARTICLE 2 THE BONDS SECTION 2.1. TERMS, FORM AND DENOMINATION OF BONDS. (1) The Bonds authorized to be issued pursuant to this Indenture shall consist of and be limited to an aggregate principal amount of U.S. $50 Million and shall be designated as the "U.S. $50 MILLION 15% DEMAND BONDS". (2) The Bonds shall (i) be dated their issue date, (ii) be due and payable on demand, and (iii) bear interest (both before and after demand and judgment) from and including their issue date to but excluding the date of their payment in full at the rate of 15% per annum (including, in case of default, interest at the same rate on all amounts overdue payable on demand) calculated and compounded monthly in arrears from the issue date, and shall be paid in arrears on the last Business Day of each month beginning January of 1999. (3) The Bonds shall (i) be issuable in registered form in integral multiples of U.S. $1 Million, (ii) be substantially in the form set out in Article 13 with appropriate insertions, and (iii) bear such distinguishing letters and numbers as the Trustee approves. (4) Subject to this Indenture, all Bonds shall rank PARI PASSU among themselves and shall be secured equally and rateably. SECTION 2.2. ISSUE OF BONDS. (1) Bonds in the aggregate principal amount of U.S. $50 Million, in definitive form, are hereby created and may immediately be executed by the Corporation, certified by or on behalf of the Trustee and delivered by it to or upon the order of the Corporation. (2) No Bond shall be issued, unless and until the Corporation and the Bondholder to whom the Bond is to be issued have certified to the Trustee as follows: (i) the Bondholder is a Hedging Counterparty; and (ii) upon issuance, the Bond will be pledged to the Bondholder pursuant to a Pledge Agreement to be held as security only for the obligations of the Corporation or its affiliates to the Bondholder pursuant to Eligible Hedging Indebtedness. (3) A Bond shall only be obligatory or entitle the Bondholder to any benefit if, and to the extent, that such Bond is pledged to secure Eligible Hedging Indebtedness. (4) Each of the Bondholders acknowledges that the indebtedness owed to a Hedging Counterparty is separate and unrelated to the indebtedness owed to any other Hedging Counterparty. In the event that the Security, to the extent it secures any indebtedness to a Hedging Counterparty or any Bond pledged to such Hedging -14- Counterparty to secure such indebtedness (the "Affected Security"), is for any reason subordinated to any security for any other indebtedness (the "Other Security"), to which the Security, to the extent it secures Hedging Indebtedness to other Hedging Counterparties or the Bond pledged to such other Hedging Counterparties, (the "Unaffected Security") is not subordinated, then, notwithstanding subsection 2.1(4) or Section 4.2, the priority of the Unaffected Security shall not be affected and the Unaffected Security shall maintain its priority over the Other Security, and the holders of the Unaffected Security shall be entitled to participate in a distribution as if the Affected Security had not been subordinated. (5) Except for the Bonds issued or to be issued to Bankers Trust Company, Macquarie Bank Limited and The Bank of Nova Scotia on or about the date hereof, no Bond shall be issued, or, if issued, shall be obligatory, unless the Trustee shall have received either (i) the consent of the existing Bondholders to such issuance expressed by way of Extraordinary Resolution; or (ii) each of the following: (i) an acknowledgment of the trustee under the Subordinated Indenture, substantially in the form of the acknowledgment received by the Trustee and Bankers Trust Company, Macquarie Bank Limited and The Bank of Nova Scotia on or about the date hereof; (ii) an opinion of Counsel that new Bonds will rank equally and rateably with the existing Bonds and will not prejudice the priority of the existing Bonds; and (iii) a certificate of The Bank of Nova Scotia or an opinion of counsel providing evidence that the principal amount of the Bonds outstanding after the issuance will not exceed U.S. $50 million less 150% of The Bank of Nova Scotia cash collateral. SECTION 2.3. SIGNING OF BONDS. The Bonds shall be under the corporate seal of the Corporation and shall be signed in the name and on behalf of the Corporation by any one of the Chairman or the President or the Chief Financial Officer, together with any one of the Secretary or any Assistant Secretary of the Corporation. Notwithstanding that any of the individuals whose signature appears on any Bond as one of such officers may no longer hold office at the date of this Indenture, the date of the Bond or the date of certification and delivery, any Bond signed as aforesaid shall be valid and binding upon the Corporation. SECTION 2.4. CERTIFICATION. (1) No Bond shall be issued, or, if issued, shall be obligatory or entitle the Bondholder to any benefit, until it has been certified by or on behalf of the Trustee substantially in the form of the certificate set out in Article 13, or in some other form approved by the Trustee, and such certification by the Trustee upon any Bond shall be conclusive evidence as against the Corporation that the Bond so certified has been duly issued and is a valid obligation of the Corporation. (2) The certificate of the Trustee on the Bonds shall not be construed as a representation or warranty by the Trustee as to the validity of this Indenture or of the Bonds (except the due certification and any other warranties implied by law) and the Trustee shall not, in any respect, be liable or answerable for the use made of the Bonds or any of them or of the proceeds of the Bond. -15- SECTION 2.5. REPLACEMENT OF BONDS. (1) If any of the Bonds are mutilated, defaced, lost, destroyed or stolen, the Corporation, subject to applicable law, shall issue and the Trustee, at its principal office in Toronto, Ontario or its principal office in Vancouver, British Columbia, shall certify and deliver a new Bond of like date and tenor as the one mutilated, defaced, lost, destroyed or stolen in exchange for, and in place of, and upon cancellation of, the mutilated or defaced Bond and in lieu of, and in substitution for, the lost, destroyed or stolen Bond. The new Bond shall be entitled to the Security and rank equally in accordance with its terms with all other Bonds issued under this Indenture. (2) The applicant for the issue of a new Bond pursuant to this Section 2.5 shall bear the cost of issue and, in the case of loss, destruction or theft shall, as a condition precedent to the issue, furnish the Corporation and the Trustee with such evidence of ownership and of the loss, destruction or theft as shall be satisfactory to the Corporation and the Trustee in their discretion. The applicant may also be required to furnish an indemnity and surety bond in amount and form satisfactory to the Corporation and the Trustee in their discretion, and shall pay the reasonable charges of the Corporation and the Trustee. SECTION 2.6. OWNERSHIP OF BONDS. (1) A Bondholder may not transfer a Bond. (2) Unless otherwise required by law, the Corporation and the Trustee may deem and treat the Bondholder of any Bond as the person entitled to the benefit thereof and neither the Corporation nor the Trustee shall be affected by any notice to the contrary, and payment of, or on account of the principal of, or any interest on, any Bond shall be made only to or upon the order in writing of the registered Bondholder. (3) The Bondholder of any Bond shall be entitled to the principal or interest, or both, evidenced by the Bond, free from all equities or rights of set-off or counterclaim between the Corporation and the original or any intermediate Bondholder and all Persons may act accordingly. The receipt of any Bondholder for any principal or interest shall be a good discharge to the Corporation and the Trustee for the same and neither the Corporation nor the Trustee shall be bound to inquire into the title of any Bondholder. SECTION 2.7. PAYMENT OF PRINCIPAL AND INTEREST. (1) The principal of the Bonds will be payable at the principal office of the Trustee in Vancouver, British Columbia on the Business Day after demand for payment has been made by a Bondholder. (2) Interest accrued on the principal amount of any Bond, and interest on overdue interest, will be paid by the Corporation directly to the Bondholder of such Bond. Upon request, the Corporation shall provide to the Trustee written confirmation of any amounts so paid. (3) Interest shall be calculated at the rate mentioned in Section 2.1(2) on the basis of the number of days elapsed in the year (which shall consist of three hundred and sixty-five (365) or three hundred and sixty-six (366) days, as the case may be). -16- (4) If the day on which interest on the Bonds falls due is not a Business Day, a Bondholder shall not be entitled to payment until the next following Business Day or to any interest or other sums in respect of the postponed payment. SECTION 2.8. TAXES AND OTHER TAXES. (1) All payments to a Bondholder under the Bond shall be made free and clear of and without deduction or withholding for any and all taxes, levies, imposts, deductions, charges or withholdings and all related liabilities (all such taxes, levies, imposts, deductions, charges, withholdings and liabilities being referred to as "Taxes") imposed by Canada (or any political subdivision or taxing authority of it), unless such Taxes are required by applicable Law to be deducted or withheld. If the Corporation shall be required by applicable Law to deduct or withhold any such Taxes from or in respect of any amount payable under any Bond except, as provided in the next sentence, (i) the amount payable shall be increased (and for greater certainty, in the case of interest, the amount of interest shall be increased) as may be necessary so that after making all required deductions or withholdings (including deductions or withholdings applicable to any additional amounts paid under this Section 2.8), the Bondholder receives an amount equal to the amount it would have received if no such deduction or withholding had been made, (ii) the Corporation shall make such deductions or withholdings, and (iii) the Corporation shall immediately pay the full amount deducted or withheld to the relevant governmental entity in accordance with applicable Law. The Corporation will not be required to pay any such additional amounts to any Bondholder by reason of that Bondholder being connected with Canada otherwise than merely by lending money to the Corporation pursuant to this Indenture. (2) The Corporation agrees to immediately pay any present or future stamp or documentary taxes or any other excise or property taxes, charges, financial institutions duties, debits taxes or similar levies (all such taxes, charges, duties and levies being referred to as "Other Taxes") which arise from any payment made by the Corporation under any of the Bonds or from the execution, delivery or registration of, or otherwise with respect to, this Indenture or any of the Bonds. (3) The Corporation shall indemnify the Bondholder for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable by the Corporation under this Section 2.8) paid by the Bondholder and any liability (including penalties, interest and expenses) arising from or with respect to such Taxes or Other Taxes, whether or not they were correctly or legally asserted, excluding, in the case of any Bondholder, taxes imposed on its net income or capital taxes or receipts and franchise taxes. The Corporation will not be required to indemnify a Bondholder for any Taxes or Other Taxes imposed by reason of a Bondholder being connected with Canada otherwise than merely by lending money to the Corporation pursuant to this Indenture. Payment under this indemnification shall be made within 30 days from the date the Bondholder makes written demand for it. A certificate as to the amount of such Taxes or Other Taxes submitted to the Corporation by the Bondholder shall be conclusive evidence, absent manifest error, of the amount due from the Corporation to the Bondholder, as the case may be. (4) The Corporation shall furnish to the Bondholder the original or a certified copy of a receipt evidencing payment of Taxes or Other Taxes made by the Corporation within 30 days after the date of any payment of Taxes or Other Taxes. -17- (5) The provisions of this Section 2.8 shall survive the termination of the Indenture and the repayment of all amounts secured by this Indenture. SECTION 2.9. EXCHANGE OF BONDS. (1) Bonds may be exchanged for other Bonds of the same aggregate outstanding principal amount as the Bonds so exchanged. (2) Bonds may be exchanged only at the principal office of the Trustee in Toronto, Ontario or the principal office of the Trustee in Vancouver, British Columbia or at such other place or places (if any) as may from time to time be designated by the Corporation with the approval of the Trustee. Any Bond tendered for exchange shall be surrendered to the Trustee. The Corporation shall execute and the Trustee shall certify all Bonds necessary to carry out exchanges as aforesaid. All Bonds surrendered for exchange shall be cancelled. (3) The Corporation and a Bondholder may agree to reduce the principal amount of a Bond held by such Bondholder (without payment thereon) and the Trustee shall adjust the Bond and its records accordingly. (4) The Trustee shall not charge a Bondholder for its services in connection with any transfer, exchange or adjustment of a Bond. Payment of any applicable stamp or transfer tax or other governmental charge shall be made by the party requesting such exchange, transfer or adjustment as a condition precedent. SECTION 2.10. REGISTRATION. (1) The Corporation shall cause to be kept by and at the principal office of the Trustee in Toronto, Ontario or in Vancouver, British Columbia a register in which shall be entered the names and addresses of Bondholders and particulars of the Bonds held by each of them. Such registration shall be noted on the Bonds by the Trustee or a new Bond shall have been issued by the Trustee. (2) No transfer of a Bond shall be valid unless made on the register by the registered holder, its legal representatives or its attorney duly appointed by an instrument in writing in form and execution satisfactory to the Trustee, in compliance with such reasonable requirements as the Trustee may prescribe, and such transfer shall have been noted on such Bond by the Trustee or a new Bond shall have been issued by the Trustee. (3) The transferee of a Bond shall, after the Bond together with any necessary endorsement on it or on any appropriate form of transfer is lodged with the Trustee, accompanied by a written designation, in form reasonably satisfactory to the Trustee, of the telecopy number or mailing address of the transferee and upon compliance with all other conditions in that behalf required by this Indenture or by law, be entitled to be entered on the register as the owner of such Bond. (4) The register maintained pursuant to this Section 2.10 shall at all reasonable times be open for inspection by the Corporation, the Trustee or any Bondholder. -18- ARTICLE 3 REPLEDGING OF BONDS SECTION 3.1. REPLEDGING OF BONDS. Bonds issued by the Corporation hereunder and acquired by the Corporation upon the release of a pledge may be cancelled or may be repledged to a Hedging Counterparty pursuant to a Pledge Agreement to secure Eligible Hedging Indebtedness of the Corporation provided, in any event, that the requirements of this Indenture are met. SECTION 3.2. OUTSTANDING. For purposes of determining whether a Bond can be issued within the limit set out in Section 2.1(1) hereof, (i) where the principal amount of a Bond has been reduced pursuant to Section 2.9(3), only the reduced principal amount shall be taken into account; and (ii) the principal amount of a Bond which has been acquired by the Corporation upon the release of a pledge shall not be taken into account against the limit set out in Section 2.1(1) hereof, unless and until such Bond is repledged. -19- ARTICLE 4 SECURITY SECTION 4.1. SECURITY. As security for the due and punctual payment and performance of all of its obligations to the Trustee and the Bondholders under and in respect of this Indenture and the Bonds, the Corporation and its Subsidiaries, as applicable, shall execute and deliver to the Trustee in each case for the benefit of the Trustee and the Bondholders and in form and substance satisfactory to the Trustee, valid and enforceable Liens against all present and after acquired property, assets and undertaking of the Corporation and the Restricted Subsidiary, except the Excluded Assets, all In Agreed Form, including without limitation, the following: (i) a secured debenture by the Corporation creating a fixed and floating Lien on all of the Corporation's present and after acquired property, assets and undertaking including, without limitation, fixed and specific Liens on all property, assets and undertaking comprising the Kemess Mine, and assignments of the Corporation's interests in all material mining claims, concessions and leases in any way relating to the Kemess Mine; (ii) a general security agreement by the Corporation creating a Lien on all of the Corporation's present and after acquired property, assets and undertaking; (iii) a limited guarantee by APM of the obligations of the Corporation hereunder to the Bondholders; (iv) a general security agreement by APM creating a Lien on all of APM's present and after acquired property, assets and undertaking; (v) an assignment by the Corporation of its rights and interests in its right to receive distributions from the Kemess South Resources Limited Partnership; (vi) an assignment by the Corporation of its rights and interests in the Hydro contracts relative to the Kemess Mine; (vii) a pledge of all the shares in the capital of APM held by the Corporation; (viii) a moveable hypothec in form suitable for registration in Quebec; and (ix) such other agreements and documents as may be necessary or desirable to grant to the Trustee or the Collateral Agent valid and enforceable Liens on all of the property, assets and undertaking of the Corporation other than the Excluded Assets. Notwithstanding anything to the contrary contained in the foregoing, the Corporation shall not be obligated to register the Liens against any real property or mineral claims consisting of: (a) the Pamour Mine, the Nighthawk Lake Mine and the mines generally -20- known as Giant, HopeBrook and Colomac; and (b) the Corporation's currently existing exploration properties not in any way related to the Kemess Mine. The Corporation shall register Liens against the Pamour Mine and the Nighthawk Lake Mine in favour of the Trustee In Agreed Form should the Corporation grant or register Liens against (either or both) such mines in favour of the Senior Bondholders. The Corporation shall ensure that all of the Security Documents are executed and delivered in accordance with this Section 4.1 such that the Liens created thereby are perfected in all jurisdictions and at all times required to maintain such perfection by the Trustee for the benefit of the Bondholders. SECTION 4.2. EFFECT OF LIENS. The Trustee shall have and hold the Security Documents and the Collateral and all rights hereby and thereby conferred unto the Trustee and its successors and assigns forever, but in trust, nevertheless, for the equal benefit and security of the Bondholders (subject to Section 2.2(4) hereof) without any preference or priority between them, subject to this Indenture, and with the powers and authorities and subject to the terms and conditions set forth in this Indenture and in the Security Documents. The Corporation shall furnish to the Trustee, promptly after the execution and delivery of the Security Documents and promptly after the execution and delivery of any amendment hereto or thereto or any instrument of further assurance, an opinion of Counsel stating that, in the opinion of such Counsel, subject to customary exclusions and exceptions reasonably acceptable to the Trustee, either (i) the Security Documents, any such amendment and all other instruments of further assurance have been properly recorded, registered and filed and all such other action has been taken to the extent necessary to make effective the Liens intended to be created by the Security Documents and to perfect such Liens, and reciting the details of such action or referring to prior opinions of Counsel in which such details are given, or (ii) no such action is necessary to make the Liens intended to be created by the Security Documents effective. SECTION 4.3. SECURITY EFFECTIVE NOTWITHSTANDING DATE OF ADVANCE. The Security shall be effective whether the moneys secured by this Indenture are advanced before or after or at the same time as the issue of any of the Bonds intended to be secured or before or after or upon the date of the execution of this Indenture. SECTION 4.4. TITLE TO COLLATERAL. The Corporation covenants with the Trustee and the Bondholders that (i) it lawfully owns and is lawfully possessed of that part of the Collateral described as the Kemess Mine and, except for Permitted Liens, will lawfully own and be lawfully possessed of all other property hereafter subjected to the Security, (ii) it has good right and lawful authority to mortgage, pledge, charge and grant a security interest in the same, (iii) such property is and will remain free and clear of any Lien except Permitted Liens, and (iv) it will warrant and defend its title to such property against the claims and demands of all Persons. SECTION 4.5. FURTHER ASSURANCES. The Corporation covenants with the Trustee that: (a) it shall from time to time execute all such assurances and do all such things as, in the opinion of Counsel, are necessary or of advantage for validly giving to the Trustee (so far as may be possible under applicable laws) the specific mortgage, pledge and charge intended to be created pursuant to the Security upon the Collateral, whether -21- now owned or hereafter acquired by the Corporation; and (b) it shall from time to time, after the Security has become enforceable and the Trustee has determined or become bound to enforce it, execute and give all such assurances and do all things as the Trustee may reasonably require for facilitating the realization of the Collateral and for exercising all the powers, authorities and discretions conferred upon the Trustee and for confirming to any purchaser of any of the Collateral, whether sold by the Trustee or by judicial proceedings, title to the assets so sold. SECTION 4.6. REGISTRATION. The Corporation covenants with the Trustee that: (a) immediately after the execution of the Security Documents and each supplemental instrument, the Corporation shall register, file or record the same (or a deed in notarial form or a financing statement or such other document as may be appropriate under applicable law) in all offices where such registration, filing or recording is necessary or of advantage to perfect the Security created or intended so to be and the Corporation shall deliver to the Trustee certificates establishing each such registration, filing or recording, and shall do, observe and perform all matters and things necessary or expedient to be done, observed and performed for the purpose of creating and maintaining the Security as valid and effective security; (b) notwithstanding anything contained in Section 4.6(a), but subject to the last paragraph of Section 4.1, the Corporation shall not be required to register or record the Security Documents or any other instrument against the title to any real or immoveable property of the Corporation or in which the Corporation has any interest other than the Kemess Mine unless the Trustee (upon the request of Bondholders holding a majority in the principal amount of the Bonds) shall so request, in which event, and provided that the Corporation has first registered or recorded Liens in favour of the Senior Bondholders, the Corporation (so far as may be possible under the local laws of the places where the real or immoveable property is situate) shall immediately register or record the Security Documents and any supplemental instrument which may be required for such purpose, against the title to the real or immoveable property in respect of which the request has been made; (c) the Corporation shall not register, record or file the security in favour of the Subordinated Noteholders in any office, or against the title to any real or immovable property, or register any financing statement in respect of the security in favour of the Subordinated Noteholders, or consent to any of such actions, unless the Corporation has registered the Security Documents in priority to the security in favour of the Subordinated Noteholders; and (d) the Corporation shall, within five Business Days of the registration, recordation or filing of any security in favour of the Senior Bondholders, notify the Trustee of the particulars of any such registration, recordation or filing. SECTION 4.7. RELEASE FROM CHARGE. Until the Security has become enforceable and the Trustee has determined or become bound to enforce the same, the -22- Trustee shall upon the Request of the Corporation execute and deliver to the Corporation such documents as, in the opinion of Counsel, may be necessary or desirable to release from the Security any lands, buildings, plant, machinery or equipment, whether moveable or immoveable, licenses or rights, or any interest therein, or any other property or assets sold or disposed of by the Corporation in accordance with Section 4.11(b), (c), (d) or (e) without payment to the Trustee of any proceeds. Any Request of the Corporation shall be accompanied by a Certificate of the Corporation evidencing that the sale or disposition is not in breach of any provision of this Indenture. SECTION 4.8. APPLICATION OF INSURANCE PROCEEDS. The Corporation shall, from time to time until payment in full of the Bonds and the satisfaction and discharge of this Indenture, within 10 days following the receipt by the Corporation of any payment of proceeds of any insurance required to be maintained pursuant to Section 5.3 on account of each separate loss, damage or injury to any tangible property subject to the Security (unless such proceeds (or an equivalent amount) have been (i) expended or committed by the Corporation for the repair or replacement of the damaged property, with the prior written consent of the Trustee, and the Corporation has furnished to the Trustee evidence satisfactory to the Trustee of the expenditure or commitment, or (ii) paid to or for the benefit of the Senior Bondholders or any other holder of a Permitted Lien in the damaged or lost property ranking prior to the Security) apply, or to the extent the Trustee is loss payee under any insurance policy, irrevocably direct the Trustee to apply, without premium or penalty, the proceeds to the payment of principal or interest, or both, under the Bonds in the Trustee's sole discretion. No consent of the Trustee shall be required for the application by the Corporation of insurance proceeds to the repair or replacement of property unless (i) the aggregate amount of insurance proceeds on account of loss, damage or injury in any twelve-month period exceed Can. $5,000,000, or (ii) an Event of Default (or any circumstance exists which, with the giving of notice, the lapse of time, or both, would constitute an Event of Default) has occurred and is continuing. SECTION 4.9. EXPROPRIATION. In the event of any expropriation or similar taking of any part of the Collateral or of any sale or conveyance by the Corporation in lieu of an expropriation or similar taking and in reasonable anticipation of such event, the Trustee may release the property so taken, sold or conveyed upon the deposit with the Trustee of a sum equal to (i) the net proceeds of, or compensation for, the expropriation or similar taking, or (ii) in case of a sale or conveyance in lieu of and in reasonable anticipation of such taking, the greater of (y) the net proceeds of the sale of the property to be released, or (z) the fair market value of the property as appraised by an independent appraiser acceptable to the Trustee. For purposes hereof "net proceeds" shall mean proceeds after costs of disposition and payments to the Senior Bondholders and any other holder of a Permitted Lien in the subject property ranking prior to the Security. The Trustee shall be fully protected in giving a release upon being furnished with an opinion of Counsel to the effect that the property has been lawfully expropriated or taken or, in the case of an anticipatory sale or conveyance, sold or conveyed as aforesaid, and in case of any anticipatory sale or conveyance, upon being furnished with a Certified Resolution stating that, in the opinion of the Directors, such sale or conveyance was in lieu of and in reasonable anticipation of expropriation or similar taking and was in the best interests of the Corporation. In any proceedings for the taking of any part of the Collateral by expropriation or similar taking the Trustee may be represented by Counsel. -23- SECTION 4.10. PRIORITY OF LIENS. Notwithstanding the time of grant of Liens, or the time of registering, filing or recording the same (or a notice or financing statement in respect thereof) (i) the Liens and beneficial rights of each of the Senior Bondholders in the assets and properties of the Corporation and its Restricted Subsidiaries and the proceeds thereof shall be senior and prior to the Liens and beneficial rights of the Trustee and any Bondholder therein, and (ii) the Liens and beneficial rights of the Trustee and any Bondholder in the assets and properties of the Corporation and its Restricted Subsidiaries shall be and are hereby subordinated and postponed to the Liens and beneficial rights of each of the Senior Bondholders therein. Each Bondholder, by its acceptance of Bonds issued hereunder, authorizes and expressly directs the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate, as between the Senior Bondholders and the Bondholders, the aforesaid subordination and postponement of the Liens and beneficial rights of the Trustee and any Bondholder therein, and appoints the Trustee its attorney-in-fact for such purposes. SECTION 4.11. DISPOSITION OF ASSETS. The Corporation shall not and shall not permit any of its Restricted Subsidiaries to consummate any sale, lease, consignment or other disposition (collectively a "Sale") of assets or property other than: (a) Any Sale of properties or assets of the Corporation or a Restricted Subsidiary to a direct or indirect wholly-owned Restricted Subsidiary of the Corporation; (b) (i) any Sale of machinery, equipment, other personal property or other similar property that has become worn out, obsolete or unserviceable; (ii) any Sale or abandonment of any personal property the use of which is no longer necessary or desirable in or material to the conduct of the business of the Corporation and its Restricted Subsidiaries; (iii) any Sale of any real property or an interest therein which is undeveloped and held by the Corporation or a Restricted Subsidiary for exploration purposes and is not material to the conduct of the business of the Corporation and its Restricted Subsidiaries; and (iv) any Sale of any assets and properties of the Corporation or a Restricted Subsidiary, other than assets and properties described in clauses (i), (ii) and (iii) above, and other than assets which comprise or are in any way material to the Kemess South Mine, if the proceeds from all such Sales in aggregate do not exceed U.S. $15,000,000 in any calendar year; (c) any Sale of the Proposed Leaseback Assets in connection with a sale-leaseback transaction; (d) any Sale of inventory of the ordinary course of business; and (e) any Sale of properties or assets not described in Sections 4.14 (a), (b), (c) or (d) above, provided that the Corporation obtains the prior written consent of the Bondholders expressed by Extraordinary Resolution of any such Sale. SECTION 4.12. ROYALTY INTEREST. The Corporation shall not, without the prior written consent of the Trustee, amend the Royalty Agreement so as to increase the Initial Royalty Rate (as described therein) or amend Section 2.2 and 7.2(c) thereof. -24- SECTION 4.13. RESTRICTED PAYMENTS. The Corporation and its Subsidiaries shall not, directly or indirectly, pay principal, interest, fees or any other amount in respect of any Debt of the Corporation or a Subsidiary other than on account of the Senior Indentures, the Eligible Hedging Indebtedness or other Debt secured by Liens ranking prior to the Security on liquidation, provided that if no Event of Default has occurred and is continuing, the foregoing shall not prohibit the Corporation, or a Restricted Subsidiary, from (i) paying interest on the Subordinated Notes in accordance with the terms and conditions contained in the Subordinated Indenture, (ii) paying amounts due and payable in the ordinary course in respect of other Debt other than Debt under the Subordinated Indenture; or (iii) in the case of a Restricted Subsidiary, from making payment to the Corporation or another Restricted Subsidiary. The Corporation will not establish, designate or allow to exist a Restricted Subsidiary unless the property and undertaking of such Restricted Subsidiary is charged in favour of the Trustee with security with the same or better priority as the charges granted by the Corporation to the Trustee. SECTION 4.14. SECURITY. Each Bondholder, by its acceptance of a Bond hereunder, represents and warrants that it does not hold security in respect of Eligible Hedging Indebtedness of the Corporation or of a Restricted Subsidiary other than (i) pursuant to or in connection with the Bond or Bonds pledged to such Bondholder, this Indenture and the Security, and any other security which may now or hereafter be granted hereunder; and (ii) in the case of The Bank of Nova Scotia, cash collateral which does not and will not exceed U.S. $3,000,000. SECTION 4.15. CONFLICTS. In the event of any conflict or inconsistency between a provision of this Indenture and a provision of the Security Documents, the provision of this Indenture shall prevail. -25- ARTICLE 5 COVENANTS OF THE CORPORATION SECTION 5.1. PAYMENT OF PRINCIPAL AND INTEREST. The Corporation covenants that it will punctually pay or cause to be paid the principal of and interest on each of the Bonds at the place, at the respective times and in the manner provided in this Indenture and in the Bonds. SECTION 5.2. TRUSTEE'S REMUNERATION AND EXPENSES. The Corporation covenants that it will pay to the Trustee from time to time reasonable remuneration for its services and will pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in the administration or execution of these trusts (including the reasonable compensation and the disbursements of its Counsel and all other advisors and assistants not regularly in its employ), both before and after any Event of Default, until all duties of the Trustee shall be finally and fully performed and paid, except any such expense, disbursement or advance as may arise from the wilful misconduct or bad faith of the Trustee. Any amount due under this Section 5.2 and unpaid 30 days after request for payment shall bear interest from the expiration of such 30 days at a rate per annum equal to the prime rate from time to time reported by The Bank of Nova Scotia or its successor. After the occurrence and during the continuance of an Event of Default, all amounts so payable and the interest on such amounts shall be payable out of any funds coming into the possession of the Trustee in priority to any payments on the Bonds. SECTION 5.3. INSURANCE. (1) The Corporation shall (i) keep all of its properties adequately insured against loss or damage by fire and other hazards, at all times with responsible insurance carriers, in amounts and on terms as are customary in the mining industry, (ii) maintain adequate insurance at all times with responsible insurance carriers, in amounts and on such terms as are customary in the mining industry against liability on account of damage to persons and property, and (iii) maintain adequate insurance covering such other risks as are customary in the mining industry. All insurance covering tangible property subject to the Security shall provide that, in the case of each separate loss, the full amount of insurance proceeds in excess of U.S. $500,000 shall be payable to the Trustee as secured party or otherwise as its interest may appear and subject to the rights of any prior encumbrancer, to be applied in accordance with Section 4.8, and shall further (iv) provide for at least 30 days' prior written notice to the Trustee of its cancellation or substantial modification, (v) provide that, in respect of the interests of the Trustee, the insurance shall not be invalidated by any action or inaction of the Corporation or any other Person, (vi) insure the Trustee's interests regardless of any breach of or violation by the Corporation or any other person of any warranties, declarations, or conditions contained in the insurance, and (vii) provide that the Trustee shall have the right (but not the obligation) to cure any default by the Corporation under the insurance. Each liability policy required pursuant to this Section 5.3 shall name the Trustee as an additional insured and shall be primary without right of contribution from any other insurance which is carried by the Trustee to the extent that the other insurance provides it with contingent or excess liability insurance, or both, with respect to its interest in the Collateral and shall expressly provide that all of its provisions, except the limits of liability (which shall be applicable to all insureds as a group) and except liability -26- for premiums (which shall be solely a liability of the Corporation), shall operate in the same manner as if there were a separate policy covering each insured. (2) The Corporation shall, from time to time upon request by the Trustee, promptly furnish or cause to be furnished to the Trustee evidence, in form and substance satisfactory to the Trustee, of the maintenance of all insurance required to be maintained by Section 5.3(1), including, but not limited to, originals or copies as the Trustee may request of policies, certificates of insurance, riders and endorsements relating to such insurance and proof of premium payments. SECTION 5.4. REORGANIZATION. Except as set forth herein, the Corporation shall not dispose of any interest in the Kemess Mine or the right to the production or income thereof. The Corporation may transfer Kemess Mine to Kemess Newco on the terms set out herein. If the Corporation proposes to transfer all or a material interest in the Kemess Mine and the rights and benefits associated therewith to Kemess Newco, the Corporation shall, prior to, or contemporaneously with, any such transfer(s), cause Kemess Newco to assume and guarantee to the Trustee on behalf of the Bondholders all of the Corporation's obligations, liabilities and indebtedness under or pursuant to the Indenture and the Bonds, pledge (subject to the prior Liens held by the Senior Bondholders) to the Trustee on behalf of the Bondholders all of the Corporation's shares in the capital of Kemess Newco and any debt, equity or other consideration received by the Corporation in respect of such transfer, provide to the Trustee on behalf of the Bondholders such additional security, agreements and assurances (including a confirmation from the Trustee under the Subordinated Indenture that any acknowledgment of subordination and postponement will continue to apply after such transfer) as it may reasonably request to ensure that the Liens in favour of the Trustee on such assets are valid, enforceable and prior ranking to all other Liens, claims and interests in such assets except for such Liens as are held by the Senior Bondholders or as ranked prior to the Security immediately prior to the disposition, and obtain and deliver an opinion of counsel as to the enforceability of the Kemess Newco Guarantee and Assumption and validity and perfection of the Kemess Newco Liens and such other consents, certificates and authorizations as the Trustee, on the advice of Counsel, may require in connection with the foregoing. SECTION 5.5. LIMITATION ON LIENS. The Corporation shall not, and shall not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or permit or suffer to exist or remain in effect any Liens (other than Permitted Liens) upon any properties or assets of the Corporation or of any of its Restricted Subsidiaries whether owned or hereafter acquired, or on any income or profits therefrom, or assign or otherwise convey any right to receive income or profits thereon. SECTION 5.6. PERFORMANCE OF COVENANTS BY TRUSTEE. If the Corporation fails to perform any of its covenants in this Indenture, the Trustee may itself perform any of the covenants capable of being performed by it, but shall be under no obligation to do so. All sums so expended or advanced by the Trustee shall be repayable as provided in Section 5.2. No such performance or advance by the Trustee shall be deemed to relieve the Corporation of any default. -27- ARTICLE 6 DEFAULT AND ENFORCEMENT SECTION 6.1. EVENTS OF DEFAULT. The Security shall become enforceable in each and every of the following events (each of which is an "EVENT OF DEFAULT"): (a) if the Corporation fails to pay forthwith upon demand the principal or interest of any Bond; (b) if the Subordinated Indenture is amended in any way which purports to have the effect of prejudicing the priority of the Security, or any action is taken in furtherance of any such amendment; (c) if any registration, recordation or filing is effected in respect of the Subordinated Security, in respect of any asset or in any jurisdiction, and no such registration, recordation or filing has been made in priority to such in respect of the Security in favour of the Trustee hereunder; (d) if the Corporation fails to comply with its obligations under Section 5.4 or 5.5; (e) if the Corporation fails to observe or perform any other covenant or condition on its part to be observed or performed and, after notice in writing has been given by the Trustee to the Corporation specifying the default and requiring the Corporation to cure it, the Corporation fails to cure the default within a period of 30 days unless the Trustee has agreed to a longer period, (having regard to the subject matter of default) and in such event, within the period agreed to by the Trustee. SECTION 6.2. ACCELERATION ON DEFAULT. If any Event of Default shall occur and be continuing, the Trustee may, in its discretion, and shall, upon receipt of a Single Bondholders Request requiring it to do so, declare the principal of, and interest on, the Bonds and other monies secured by this Indenture to be due and payable and the same shall immediately become due and payable to the Trustee on demand (and without any further demand being required under any of the Bonds). The Corporation shall on such demand immediately pay to the Trustee, for the benefit of the Bondholders, the principal of, and accrued and unpaid interest on, amounts in default, in each case in accordance with Article 2, on the Bonds and all other moneys secured by this Indenture, together with subsequent interest at the rates borne by the Bonds from the date of the declaration until payment is received by the Trustee, such subsequent interest to be payable at the times and places and in the moneys mentioned in and according to the tenor of the Bonds. Such payment when made shall be deemed to have been made in discharge of the Corporation's obligations under this Indenture and any moneys so received by the Trustee shall be applied in the same manner as if they were proceeds of realization of the Collateral. SECTION 6.3. ENFORCEMENT BY TRUSTEE. Whenever the Security has become enforceable and so long as the Security remains enforceable, but subject to the provisions of any Extraordinary Resolution: -28- (a) the Trustee, in the exercise of its discretion, may proceed to realize the Security and enforce the rights of the Trustee and the Bondholders under the Security by entry as provided in Section 6.5; or by the appointment of a receiver or receiver and manager under the provisions of Section 6.6; or by sale under the provisions of Section 6.7; or by proceedings in any court of competent jurisdiction for the appointment of a receiver or receiver and manager or for sale of all or any part of the Collateral or for foreclosure; or by any other action, suit, remedy or proceedings authorized or permitted by this Indenture or by law or by equity; and may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Bondholders lodged in any bankruptcy, winding-up or other judicial proceedings relative to the Corporation; and no such remedy for the realization of the Security or for the enforcement of the rights of the Trustee or the Bondholders shall be exclusive of or dependent on any other remedy but any one or more of the remedies may from time to time be exercised independently or in combination; (b) all rights of action may be enforced by the Trustee without the possession of any of the Bonds or their production at any trial or other related proceedings; and (c) upon receipt of a Unanimous Bondholders' Request and upon being indemnified and funded to its satisfaction as provided in Section 11.1, the Trustee shall exercise or take such one or more of the aforesaid remedies as the Unanimous Bondholders' Request may direct or, if such Unanimous Bondholders' Request contains no direction, as the Trustee may deem expedient. SECTION 6.4. ENFORCEMENT BY BONDHOLDERS. A Bondholder who has requested that the other Bondholders execute and deliver a Unanimous Bondholders Request, but has failed to obtain the consent of one or more of the other Bondholders may, acting for the benefit of itself and all the other Bondholders, take proceedings in any court of competent jurisdiction such as the Trustee might have taken under Section 6.3, but (subject to the foregoing right to take proceedings in a court of competent jurisdiction for the appointment of a receiver or receiver and manager or any other remedy) in no event shall a Bondholder or combination of Bondholders have any right to take or exercise any power of sale or appoint a receiver or receiver and manager or exercise or take any other remedy or proceedings out of court; it being understood and intended that no one or more Bondholders shall have any right in any manner whatsoever to affect, disturb or prejudice the Security by its or their action or enforce any right under this Indenture or under any Bond except subject to the conditions and in the manner herein provided, and that all powers and trusts shall be exercised and all proceedings at law which are instituted and maintained by the Trustee shall be instituted and maintained for the equal and rateable benefit of all Bondholders. SECTION 6.5. ENTRY BY TRUSTEE. Whenever the Security has become enforceable and so long as the Security remains enforceable, the Trustee shall have the right by its officers, agents or attorneys to enter into and upon and to take possession of all or any part of the Collateral and possess and use the same subject to the Security, with full power to carry on and manage the business operations of the Corporation to receive the rents, incomes and profits of such property and business, to pay all expenses of -29- operating the property and of carrying on the business and all charges against the property and business ranking in priority to the Bonds or payment of which may be necessary to preserve or protect the property. The remainder of the moneys so received and not required for any of the above purposes shall be applied by the Trustee in the manner provided in Section 6.10. The foregoing is, however, subject to the condition that the Trustee shall, if all Events of Default existing to the knowledge of the Trustee have been cured, restore such property and business to the Corporation, and pay to it the remainder of the moneys so received after payment of all interest then due in accordance with Article 2 upon the Bonds. In case of any return of property to the Corporation, the Security shall no longer be or be deemed to be enforceable by reason of the Event of Default whereby the right of entry became vested in the Trustee, and any declaration that may have been made by the Trustee pursuant to Section 6.2 as a result of such Event of Default shall be cancelled. Any part of the Collateral which has become subject to a fixed charge solely by reason of the crystallization of a floating charge shall be freed from the fixed charge, but shall subsequently be subject to the floating charge provided for in the Security, as fully and to the same extent as though no Event of Default had occurred. SECTION 6.6. APPOINTMENT OF RECEIVER. Whenever the Trustee determines under the applicable provisions of the Security and the provisions of Section 6.3 to appoint a receiver (which term shall include a receiver and manager) the following provisions shall apply: (a) the appointment shall be made by resolution of the board of directors of the Trustee or an executive committee of the Trustee and a copy of the resolution, certified by an officer of the Trustee under its corporate seal, shall be evidence for all purposes of such appointment; the Trustee may from time to time in the same manner remove any receiver so appointed and appoint another in its stead; in making any such appointment the Trustee shall be deemed to be acting as the attorney of the Corporation; (b) any appointment may be limited to a part or parts of the Collateral or may extend to the whole of the Collateral; (c) every receiver may, in the discretion of the Trustee, be vested with all or any of the powers and discretions of the Trustee; (d) the Trustee may from time to time fix the remuneration of every receiver and direct its payment out of the Collateral; (e) the Trustee may from time to time require any receiver to give security for the performance of its duties and may fix the nature and amount of such security, but shall not be bound to require such security; (f) every receiver may, with the consent in writing of the Trustee, borrow money for the purposes of carrying on the business of the Corporation or for the maintenance, protection or preservation of the Collateral, and the receiver may issue certificates (the "RECEIVER'S CERTIFICATES") for such sums as will, in the opinion of the Trustee, be sufficient for obtaining, upon the security of the Collateral, the amounts from time to time required; the Receiver's Certificates may be payable either to order or to -30- bearer and may be payable at such time or times as to the Trustee may appear expedient, and shall bear interest as therein provided; the receiver may sell, pledge or otherwise dispose of the same in such manner as to the Trustee may seem advisable, and may pay a reasonable commission on a sale; the amounts from time to time payable pursuant to the Receiver's Certificates shall form a charge upon the Collateral in priority to the Bonds; (g) every receiver shall, so far as concerns responsibility for its acts or omissions, be deemed to be the agent of the Corporation, and in no event the agent of the Trustee, and the Trustee shall not, in making or consenting to such appointment, incur any liability to the receiver for its remuneration or otherwise; (h) except as may be otherwise directed by the Trustee, all moneys from time to time received by a receiver shall be paid over to the Trustee to be held by it on the trusts of these presents; and (i) the Trustee may pay to a receiver any moneys constituting part of the Collateral to be applied for the purposes of this Indenture, and the Trustee may from time to time determine what funds the receiver may keep in hand with a view to the performance of its duty as a receiver. SECTION 6.7. SALE BY TRUSTEE. If the Trustee decides to realize on the Security by sale, the Trustee shall have the right with or without entry to sell and dispose of all or any part of the Collateral en bloc or in parcels, at public auction or by tender or by private contract and at such time or times and on such terms and conditions, which shall, at the Trustees option, include, in case of sale by auction or tender, a reasonable reserve bid, as the Trustee shall determine. The Trustee may make any such sale, whether by auction, tender or private contract, either for cash or upon credit or partly for one and partly for the other, upon such reasonable conditions as to terms of payment as it may deem proper; it may also rescind or vary any contract of sale that may have been entered into and resell with or under any of the powers conferred herein; it may also stop, suspend or adjourn any sale from time to time and hold the sale as adjourned without further notice; also deliver to the purchaser or purchasers of all or any part the Collateral a good and sufficient deed or deeds for the same. SECTION 6.8. APPLYING BONDS IN PAYMENT. Upon any sale of all or any part of the Collateral, whether made under power of sale or pursuant to foreclosure or other judicial proceedings, the Trustee or any one or more of the Bondholders or any agent or representative may become purchasers and may, in paying the purchase price, deliver the Bonds in place of cash to the amount which would, upon distribution of the net proceeds of such sale, be payable; and in case the amounts so payable are less than the amount due, the Bonds shall be returned after being properly marked or stamped to show partial payment; provided, however, that any such purchaser shall pay in cash the amount necessary to provide for the payments mentioned in Section 6.9(a). SECTION 6.9. APPLICATION OF PROCEEDS OF SALE OR REALIZATION. Except as otherwise expressly provided, the moneys arising from any sale or other realization of the whole or any part of the Collateral, whether through a sale by the Trustee or by judicial process or otherwise, shall be held by the Trustee and applied, together with any other -31- moneys in the hands of the Trustee available for such purposes as follows: (a) firstly, in payment of all charges on the Collateral (except those subject to which the sale or realization was made), ranking in priority to the Bonds; (b) secondly, in payment of the expenses referred to in Section 5.2; (c) thirdly, reasonable costs of realization not included in (a), above; (d) fourthly, in payment of the principal of the Bonds and, after payment of such principal, any accrued and unpaid interest on the Bonds, in that order, or in such other order of priority as between principal and interest as may be directed by Extraordinary Resolution; and (e) the surplus (if any) shall be paid to the Corporation or its assigns, unless otherwise provided by law. SECTION 6.10. DISTRIBUTION OF PROCEEDS. Payments to Bondholders pursuant to Section 6.9 shall be made as follows: (a) at least 10 days' notice of each payment shall be given in the manner provided in Article 12 specifying the time when and the place where the Bonds are to be presented, the amount of the payment and the application of the payment as between principal and interest; (b) payment of any Bond shall be made upon presentation of the Bond at any one of the places specified in the notice and any Bond paid in full shall be surrendered, otherwise a memorandum of the payment shall be endorsed on it; but the Trustee may, in its discretion, dispense with presentation and surrender or endorsement in any special case upon receipt of an indemnity acceptable to it; (c) from and after the date of payment specified in the notice, interest shall accrue only on the amount owing on each Bond after giving credit for the amount of the payment specified in such notice unless it is properly presented on or after the date so specified and payment is not made; (d) the Trustee shall not be required to make any interim payment to Bondholders unless the moneys in its hands, after reserving such amount as the Trustee may think necessary to provide for the payments mentioned in Section 6.9(a), exceeds 5% of the principal amount of the Bonds; (e) payments on account of the Bonds shall be made rateably to each Bondholder based on the lesser of (i) the Eligible Hedging Indebtedness which is owed to such Bondholder and is secured by a pledge of such Bond pursuant to the applicable Pledge Agreement; and (ii) the principal amount of the Bond held by such Bondholder; (f) if as a result of distributions made in accordance with paragraph (e), above, (i) the Eligible Hedging Indebtedness of any Hedging Counterparty has been paid -32- in full, (ii) one or more other Hedging Counterparties have received the full amount of the Bond pledged to such Hedging Counterparty but have not received payment in full of their Eligible Hedging Indebtedness, and (iii) the Hedging Counterparties pursuant to a Secondary Pledge Agreement hold a security interest in the Bond held by the Hedging Counterparty whose claim has been paid in full, then, distributions shall thereafter be made rateably to the remaining Bondholders based upon the lesser of their remaining Eligible Hedging Indebtedness and the amount of the Bond held by them, whether by way of primary or secondary pledge (provided that a secondary pledge will only be taken into account where the primary pledge has been fully discharged); and (g) no Bondholder who is the Corporation or a Subsidiary or an Affiliate or Insider of the Corporation or a Subsidiary shall be entitled to participate in any distribution until the claims of all other Bondholders have been satisfied in full. SECTION 6.11. PERSONS DEALING WITH TRUSTEE. No person dealing with the Trustee or its agents shall be concerned to enquire whether the Security has become enforceable, or whether the powers which the Trustee is purporting to exercise have become exercisable, or whether any money remains due, or as to the necessity or expediency of the stipulations and conditions subject to which any sale has been made, or otherwise as to the propriety or regularity of any sale or of any other dealing by the Trustee with the Collateral, or to see to the application of any money paid to the Trustee. SECTION 6.12. TRUSTEE APPOINTED ATTORNEY. Effective from and after an Event of Default and so long as such Event of Default is continuing, the Corporation irrevocably appoints the Trustee to be the attorney of the Corporation in the name and on behalf of the Corporation to execute and do any deeds, transfers conveyances, assignments, assurances and things which the Corporation ought to execute and do, and has not executed or done, under the covenants and provisions contained in this Indenture and generally to use the name of the Corporation in the exercise of all or any of the powers conferred on the Trustee. -33- ARTICLE 7 SATISFACTION AND DISCHARGE SECTION 7.1. CANCELLATION AND DESTRUCTION. All matured Bonds shall be cancelled and delivered to or to the order of the Trustee immediately after payment. All Bonds (whether in temporary or definitive form) cancelled or required to be cancelled under this or any other provision of this Indenture may be destroyed by or under the direction of the Trustee (in the presence of a representative of the Corporation, if the Corporation requests) and the Trustee shall prepare or cause to be prepared and shall retain a certificate of such destruction and deliver a duplicate copy to the Corporation. SECTION 7.2. RELEASE FROM COVENANTS. Upon proof being given to the reasonable satisfaction of the Trustee that (i) the principal of all the Bonds and interest thereon and other moneys payable hereunder have been paid or satisfied, or (ii) all the Bonds have matured or have been called for redemption, or upon the Trustee having been given irrevocable instructions by the Corporation to give notice of redemption of all the Bonds, and (iii) such payment or redemption, or both, has been duly and effectually provided for by payment to the Trustee or otherwise, and (iv) upon payment of all costs, charges and expenses properly incurred by the Trustee in relation and the remuneration of the Trustee has been paid, or upon provision satisfactory to the Trustee being made for such payment, the Trustee shall, at the request and at the expense of the Corporation, execute and deliver to the Corporation such deeds or other instruments as shall be required to (v) evidence the satisfaction and discharge of the Security in accordance with Section 4.11, and (vi) release the Corporation from its covenants except pursuant to Section 2.8 and those relating to the indemnification of the Trustee. -34- ARTICLE 8 SUCCESSOR CORPORATIONS SECTION 8.1. CERTAIN REQUIREMENTS IN RESPECT OF MERGER, ETC. The Corporation shall not enter into any transaction (whether by way of reconstruction, reorganization, amalgamation, transfer, sale, lease or otherwise) whereby all or substantially all of its undertaking, property and assets would become the property of any other person or, in the case of any such amalgamation, of the continuing Corporation unless, but may do so if: (a) such other person or continuing corporation (the "SUCCESSOR CORPORATION") is a corporation incorporated under the laws of Canada or any of its provinces; (b) the Successor Corporation executes, prior to or contemporaneously with the completion of the transaction, a supplemental indenture and such other instruments (if any) as are satisfactory to the Trustee and, in the opinion of Counsel, are necessary or advisable to evidence the assumption by the Successor Corporation of the Corporation's liability for the due and punctual payment of all the Bonds and any interest thereon and all other moneys payable under this Indenture and the covenant of the Successor Corporation to pay the same and its agreement to observe and perform all the covenants and obligations of the Corporation under this Indenture; (c) such transaction shall, to the satisfaction of the Trustee and in the opinion of Counsel, be upon such terms as preserve and do not impair in any respect the rights and powers of the Trustee or of the Bondholders; and (d) no condition or event shall exist in respect of the Successor Corporation at the time of such transaction and after giving full effect to the transaction which constitutes or would constitute an Event of Default. SECTION 8.2. VESTING OF POWERS IN SUCCESSOR. Whenever the conditions of Section 8.1 have been observed and performed, the Trustee shall execute and deliver the supplemental indenture provided for in Article 10 and the Successor Corporation shall possess and from time to time may exercise each and every right and power of the Corporation under this Indenture in the name of the Corporation or otherwise and any act or proceeding by any provision of this Indenture required to be done or performed by any directors or officers of the Corporation may be done and performed with like force and effect by the like directors or officers of such Successor Corporation. SECTION 8.3. OPINION OF COUNSEL TO BE GIVEN TO TRUSTEE. The Trustee shall receive an opinion of Counsel as conclusive evidence that any such reorganization, consolidation, amalgamation, sale, conveyance or lease and any such assumption complies with the provisions of this Article 8. -35- ARTICLE 9 EXTRAORDINARY RESOLUTIONS SECTION 9.1. POWERS EXERCISABLE BY EXTRAORDINARY RESOLUTION. In addition to all other powers stated in this Indenture to be exercisable by Extraordinary Resolution, the Bondholders shall have the following powers exercisable from time to time by Extraordinary Resolution: (a) the power to agree to any modification, abrogation or compromise or arrangement of the rights of the Bondholders or the Trustee against the Corporation or against the undertaking, property and assets of the Corporation, whether such rights arise under this Indenture, the Bonds or otherwise; (b) the power to direct or authorize the Trustee to exercise any power, right, remedy or authority given to it by this Indenture or the Bonds in any manner specified in such Extraordinary Resolution or to refrain from exercising any such power, right, remedy or authority; (c) the power to assent to any modification or change in, or omission from, these provisions or any supplemental instrument which shall be agreed to by the Corporation and to authorize the Trustee to concur in or execute any deed or supplemental instrument embodying the modification, change or omission; (d) the power, with the approval of the Corporation, to sanction the exchange of the whole or any part of the Bonds for other obligations of the Corporation or another corporation; (e) the power to waive and direct the Trustee to waive any default of the Corporation either unconditionally or upon any conditions specified in such Extraordinary Resolution whether or not the Security has become enforceable, and where a Bondholder has commenced a proceeding to enforce the Security by reason of such default, to restrain the Bondholder from continuing the proceeding and to stay or discontinue the same, upon payment of the costs, charges or expenses reasonably and properly incurred by the Bondholder in that connection; (f) the power to restrain any Bondholder from taking or instituting any suit, action or proceeding for the purpose of enforcing payment of the principal of or interest on the Bonds, or for the appointment of a liquidator or a receiver or a trustee in bankruptcy or to have the Corporation wound-up or for any other remedy under this Indenture; (g) the power to sanction any scheme for the reorganization of the Corporation or for the consolidation, amalgamation or merger of the Corporation with any other corporation and for the selling or leasing of all or substantially all of the undertaking, property and assets of the Corporation; (h) the power to approve the form and content of any document to be delivered to or by the Trustee, including the form of any Security to be delivered to the -36- Trustee pursuant to Section 4.1 or otherwise; (i) the power to direct the Trustee as to the adequacy of the insurance maintained by the Corporation; (j) the power to authorize and direct the Trustee to execute and deliver such subordinations, priorities agreements, inter-creditor agreements and acknowledgments as the Extraordinary Resolution may specify; and (k) the power to amend, alter and repeal any Extraordinary Resolution previously adopted by the Bondholders. SECTION 9.2. MEANING OF "EXTRAORDINARY RESOLUTION". The expression "EXTRAORDINARY RESOLUTION" when used in this Indenture means an instrument in writing signed in one or more counterparts by both (a) the Bondholders of a principal amount of the Bonds of not less than 75% of the Bonds which are outstanding at such time, excluding any of such as are then held by Affiliates or Insiders of the Corporation, and (b) each of Bankers Trust Company, Macquarie Bank Limited and The Bank of Nova Scotia, if they are then Bondholders. SECTION 9.3. POWERS CUMULATIVE. Any one or more of the powers or any combination of the powers in this Indenture stated to be exercisable by the Bondholders by Extraordinary Resolution or otherwise may be exercised from time to time and the exercise of any one or more of such powers or any combination of powers from time to time shall not be deemed to exhaust the right of the Bondholders to exercise such power or powers or combination of powers then or any power or powers or combination of powers thereafter from time to time. SECTION 9.4. BINDING EFFECT OF RESOLUTIONS. Every Extraordinary Resolution adopted in accordance with Section 9.2 shall be binding upon all the Bondholders, whether they are signatories or not, and each and every Bondholder and the Trustee (subject to any provisions for its indemnity) shall be bound to give effect accordingly to every such Extraordinary Resolution. -37- ARTICLE 10 SUPPLEMENTAL INDENTURES SECTION 10.1. EXECUTION OF SUPPLEMENTAL INDENTURES. From time to time the Corporation (when authorized by a resolution of its Directors) and the Trustee may, subject to the provisions of this Indenture, and the Corporation and the Trustee shall, when so directed by or pursuant to this Indenture, execute and deliver indentures or other supplemental instruments, which shall form a part of this Indenture, for any one or more or all of the following purposes: (a) evidencing the succession of Successor Corporations to the Corporation and the covenants of and obligations assumed by such Successor Corporations in accordance with the provisions of Article 8; (b) giving effect to any Extraordinary Resolution; (c) providing for the issue of Bonds in forms or denominations other than those herein provided for and for the exchange of Bonds of different forms and denominations, and making modifications in the form of the Bonds which, in the opinion of the Trustee, does not affect their substance; (d) making any additions to, deletions from or alterations in the provisions of this Indenture which, in the opinion of Counsel, may from time to time be necessary or advisable to conform the same to legislation or to the requirements of any stock exchange; (e) adding such additional covenants, enforcement provisions, release provisions and other provisions as, in the opinion of Counsel, are necessary or advisable, provided that, in the opinion of the Trustee, the rights of the Trustee and of the Bondholders are not materially prejudiced; (f) correcting or rectifying any ambiguities, defective provisions, errors or omissions, provided that, in the opinion of the Trustee, the rights of the Trustee and of the Bondholders are not materially prejudiced; and (g) any other purpose not inconsistent with the terms of this Indenture, provided that, in the opinion of the Trustee, the rights of the Trustee and of the Bondholders are not materially prejudiced. -38- ARTICLE 11 CONCERNING THE TRUSTEE SECTION 11.1. CONDITIONS PRECEDENT TO TRUSTEE'S OBLIGATION TO ACT. (1) The Trustee is not bound to give any notice or do or take any act, action or proceeding by virtue of the powers conferred on it unless and until it is required so to do under the terms of this Indenture; nor shall the Trustee be required to take notice of any default other than in payment of any moneys required to be paid to it, unless and until notified in writing of such default. In the absence of any such notice, the Trustee may, for all purposes of this Indenture, conclusively assume that the Corporation is not in default with respect to the payment of principal of, or interest on, the Bonds or in the observance or performance of any of its covenants, agreements or conditions. Any such notice shall in no way limit any discretion given to the Trustee to determine whether or not it shall take any action with respect to any default. (2) The obligation of the Trustee to commence or continue any action or proceeding for the purpose of enforcing its or the Bondholders' rights shall be conditional upon the Bondholders providing, when required by notice in writing from the Trustee, (i) sufficient funds to commence or continue the action or proceeding, and (ii) an indemnity satisfactory to the Trustee to protect and hold harmless the Trustee against the cost, charges, expenses and liabilities to be incurred and any loss and damage it may suffer. (3) None of the provisions contained in this Indenture shall require the Trustee to spend or risk its own funds or otherwise incur financial liability in the performance of any of its duties or in the exercise of any of its rights or powers unless indemnified and funded pursuant to Section 11.1(2). (4) The Trustee may, before commencing or at any time during the continuance of any such action or proceeding, require the Bondholders at whose instance it is acting to deposit with the Trustee the Bonds held by them provided the Trustee issues receipts to the relevant Bondholders. SECTION 11.2. EVIDENCE. (1) Whenever it is provided in this Indenture, with reference to any application to the Trustee for the certification and delivery of Bonds or other action, that the Corporation deposit with the Trustee resolutions, certificates, opinions, requests, orders or other documents, it is intended that the truth, accuracy and good faith at the time of the granting of such application (or on the effective date of any such certificate or report, as the case may be) of the facts and opinions stated in all documents so deposited shall, in each and every such case, be conditions precedent to the right of the Corporation to have such application granted. The Trustee may rely and shall be protected in acting upon documents deposited with it in purported compliance with any such provision or for any other purpose, but may in its discretion require further evidence before acting or relying on them. (2) The Trustee may rely and shall be protected in acting upon any Certified Resolution, Certificate of the Corporation, Order of the Corporation, Request of the Corporation or any other resolution, certificate, order, request, statement, instrument, -39- opinion, report, notice, consent, letter, telecopy or other paper or document believed by it to be genuine and to have been signed, sent or presented by or on behalf of the proper party or parties. SECTION 11.3. EXPERTS AND ADVISERS. (1) The Trustee may employ or retain such Counsel, accountants, appraisers or other experts or advisers as it may reasonably require for the purpose of discharging its duties and shall not be responsible for any misconduct on the part of any of them. (2) The Trustee may act and shall be protected in acting in good faith on the advice of, or information obtained from, any Counsel, accountant, appraiser or other expert or adviser, whether retained or employed by the Corporation or by the Trustee, in relation to any moneys held by the Trustee, which under the trusts of this Indenture may be placed in the deposit vaults of the Trustee or of any Canadian chartered bank or deposited for safekeeping with any such bank. Unless otherwise expressly provided, any moneys so held, pending its application or withdrawal under any provisions of this Indenture, may be deposited in the name of the Trustee in any Canadian chartered bank, at the rate of interest (if any) then current on similar deposits or, with the consent of the Corporation, may be (i) deposited in the deposit department of the Trustee or any other loan or trust company authorized to accept deposits under the laws of Canada or a province thereof, or (ii) invested in securities issued or guaranteed by the Government of Canada or any province thereof or any Canadian chartered bank or loan or trust company, maturing not more than one year from the date of investment. Unless an Event of Default shall have occurred and be continuing, all interest or other income received by the Trustee in respect of the deposits and investments shall belong to the Corporation. SECTION 11.4. ACTION BY TRUSTEE TO PROTECT INTERESTS. The Trustee shall have power to institute and to maintain such actions and proceedings as it may consider necessary or expedient to preserve, protect or enforce its interests and the interests of the Bondholders. SECTION 11.5. TRUSTEE NOT REQUIRED TO GIVE SECURITY. The Trustee shall not be required to give any bond or security in respect of the execution of the trusts and powers of this Indenture or otherwise. SECTION 11.6. PROTECTION OF TRUSTEE. By way of supplement to the provisions of any law for the time being relating to trustees: (a) the Trustee shall not be liable for or by reason of any statements of fact or recitals in this Indenture or in the Bonds (except the representation contained in Section 11.10 and in the certificate of the Trustee on the Bonds) or required to verify the same, but all such statements or recitals are and shall be deemed to be made by the Corporation; (b) the Trustee shall have no obligation to see to or to require evidence of the registration or filing (or renewal) of this Indenture or any supplemental or ancillary instrument; -40- (c) the Trustee shall not be bound to notify any Person of the execution of this Indenture; and (d) the Trustee shall have no liability or responsibility whatsoever or be in any way responsible for the consequence of any breach on the part of the Corporation of any of the covenants or of any other acts of the agents or servants of the Corporation. SECTION 11.7. REPLACEMENT OF TRUSTEE. The Trustee may resign its trust and be discharged from all further duties and liabilities under this Indenture by giving the Corporation not less than 90 days' notice in writing or such shorter notice as may be acceptable to the Corporation. The Bondholders, by Extraordinary Resolution, may at any time remove the Trustee and appoint a new Trustee. In the event of the Trustee resigning or being removed or being dissolved, becoming bankrupt, going into liquidation or otherwise becoming incapable of acting, the Corporation shall immediately appoint a new Trustee unless a new Trustee has already been appointed by the Bondholders by Extraordinary Resolution; failing such appointment by the Corporation, the retiring Trustee or any Bondholder may apply to a Judge of the Ontario Court of Justice (General Division), for the appointment of a new Trustee. Any new Trustee appointed by the Corporation or by the Court shall be subject to removal as aforesaid by the Bondholders. Any new Trustee shall be a corporation authorized to carry on the business of a trust company in the Province of Ontario. On any new appointment, the new Trustee shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Trustee without any further assurance, conveyance, act or deed, but there shall be immediately executed, at the expense of the Corporation, all such conveyances or other instruments as, in the opinion of Counsel, may be necessary or advisable for the purpose of assuring the same to the new Trustee. At the request of the Corporation or the new Trustee, the retiring Trustee, upon payment of the amounts, if any, due to it pursuant to Section 5.2, shall assign, transfer and deliver to the new Trustee all property and money held and all records kept by the retiring Trustee in connection with this Indenture. SECTION 11.8. CONFLICT OF INTEREST. (1) The Trustee represents to the Corporation that, at this date, no material conflict of interest exists in the Trustee's role as a fiduciary under this Indenture and agrees that in the event of a material conflict of interest arising it will, within 90 days after ascertaining that it has such material conflict of interest, either eliminate the conflict or resign these trusts. (2) Subject to Section 11.8(1), the Trustee, in its personal or any other capacity, may buy, lend upon and deal in securities of the Corporation or any of its Affiliates and generally may contract and enter into financial transactions with the Corporation or any of its Affiliates without being liable to account for any profit. (3) The Bondholders acknowledge that the Trustee is a wholly-owned subsidiary of The Bank of Nova Scotia and agree that such fact is not, in and of itself, a conflict of interest. SECTION 11.9. CASH COLLATERAL HELD BY THE TRUSTEE. The Trustee, the Corporation and by its acceptance of a Bond hereunder, each Bondholder acknowledge that (i) the Trustee is holding in safekeeping cash or cash equivalents equal to -41- Cdn. $12,000,000 (the "Cash Collateral") on behalf of Her Majesty the Queen in Right of the Province of British Columbia (the "Province"), as represented by the Minister of Finance and Corporate Relations, as security for certain obligations of the Corporation under Permit M-206, issued to the Corporation under the MINES ACT (British Columbia) in connection with the Kemess Mine; (ii) the Trustee, both in its personal capacity and its capacity as the holder of the Cash Collateral on behalf of the Province, does not have any lien, charge, or right of set-off against the Cash Collateral or the proceeds thereof from the sale or redemption of the Cash Collateral (the foregoing does not however apply to or limit any existing lien, charge or right of set-off held by the province against the Cash Collateral or the proceeds thereof); (iii) any residual right, title or interest of the Corporation in the Cash Collateral is subject to the Senior Security, the Security, the Subordinated Security and any other security interests granted by the Corporation therein from time to time; (iv) the priority of any of the aforesaid security will be determined in accordance with inter-creditor agreements entered into between the holders of such security from time to time and applicable law; (v) the Trustee, the Corporation and each Bondholder hereby acknowledge that the Trustee will not be in conflict or breach of its duties and obligations hereunder by virtue of holding the Cash Collateral on behalf of the Province; and (vi) the Trustee may, upon receipt of a valid direction or instruction from the Province, deliver the Cash Collateral to the Province free and clear of any Lien created by the Security. SECTION 11.10. CERTIFICATE OF COMPLIANCE. At least once in each twelve-month period beginning on the date of this Indenture and at any other time upon the demand of the Trustee, the Corporation shall furnish the Trustee with a certificate that the Corporation has complied with all requirements contained in the Indenture that, if not complied with, would, with the giving of notice, lapse of time or otherwise, constitute an Event of Default, or, if there has been failure to comply, giving particulars of such failure. SECTION 11.11. LEGISLATION RELATING TO INDENTURES. The provisions of this Indenture are subject to the BUSINESS CORPORATIONS ACT (Ontario) and any other legislation applicable from time to time relating to trust indentures and to the rights, duties and obligations of trustees under trust indentures and of corporations issuing debt obligations under trust indentures. In the event of any conflict between the provisions of this Indenture and the provisions of the BUSINESS CORPORATIONS ACT (Ontario) or any other such legislation, such legislation shall govern. SECTION 11.12. ACCEPTANCE OF TRUST. Montreal Trust Company of Canada accepts the trusts of this Indenture declared and provided for and agrees to perform the same upon the terms and conditions herein set forth. -42- ARTICLE 12 MISCELLANEOUS SECTION 12.1 COMMUNICATIONS. Any notice, direction or other communication required or permitted to be given under this Indenture shall, except as otherwise permitted, be in writing and given by delivering it or sending it by telecopy or other similar form of recorded communication addressed, if to the Corporation, to it at: 5501 Lakeview Drive, Kirkland, Washington 98033, Attention: President, Telephone: (425) 822-8992, Telecopier: (425) 822-3349, if to the Trustee, to it at: 4th Floor, 510 Burrard Street, Vancouver, British Columbia V6C 3B9, Telephone: (604) 661-9591, Telecopier: (604) 685-4079, and, if to the Bondholders, at the addresses shown in the records of the Trustee. Any communication shall be deemed to have been validly and effectively given (i) if personally delivered, on the date of such delivery if such date is a Business Day and such delivery was made prior to 4:00 p.m. (Toronto time), otherwise on the next Business Day, (ii) if transmitted by facsimile or similar means of recorded communication on the Business Day following the date of transmission. SECTION 12.2. ADDRESS OF RECORD. The Corporation and each Bondholder shall notify the Trustee of their respective telecopy number and mailing address and the Trustee shall furnish the same information with respect to itself to the Corporation and each of the Bondholders at the date of issue of the Bonds. From time to time, the Corporation and any Bondholder may notify the Trustee and the Trustee may notify the Corporation and each Bondholder of a change in its telecopy number or mailing address, as the case may be, in the manner set forth in subsection 12.1. Such number or address, until changed by a similar notice, shall be the address of record of such party for all purposes of this Indenture. SECTION 12.3. INDEMNIFICATION OF TRUSTEE. (1) The Corporation will at all times keep the Trustee indemnified and save the Trustee harmless from and against all claims, demands, losses, actions, causes of action, costs, charges, expenses, damages and liabilities whatsoever arising in connection with this Indenture including, without limitation, those arising out of or related to actions taken or omitted to be taken by the Trustee contemplated hereby, legal fees and disbursements of counsel engaged by the Trustee on a solicitor and client basis and costs and expenses incurred in connection with the enforcement of this indemnity (unless such enforcement is unsuccessful), which the Trustee may suffer or incur, whether at law or in equity, in any way caused by or arising, directly or indirectly, in respect of any act, deed, matter or thing whatsoever made, done, acquiesced in or omitted in or about or in relation to the execution of its duties as trustee and including any deed, matter or thing in relation to the registration, perfection, release or discharge of security. The foregoing provisions of this Section 12.3(1) do not apply to the extent that the Trustee or its employees have acted fraudulently or negligently. (2) The Corporation hereby agrees to indemnify the Trustee, its directors, officers, employees, and agents, and all of their successors and assigns (collectively the "Indemnified Parties") against any loss, expenses, claim, liability or asserted liability (including strict liability and including costs and expenses of abatement and remediation of spills or releases of contaminants and including liabilities of the Indemnified Parties to third parties (including governmental agencies) in respect of bodily -43- injuries, property damage, damage to or impairment of the environment or any other injury or damage and including liabilities of the Indemnified Parties to third parties for the third parties' foreseeable and unforeseeable consequential damages) incurred as a result of: (a) the administration of the trust created hereby; or (b) the exercise by the Trustee of any rights hereunder or under the Security; which result from or relate, directly or indirectly, to: (i) the presence or release of any contaminants, by any means or for any reason, on the property subject to the Security, whether or not release or presence of the contaminants was under the control, care or management of the Corporation or of a previous owner, or of a tenant; (ii) any contaminant present on or released from any contiguous property to the property subject to the Security; or (iii) the breach or alleged breach of any environmental laws by the Corporation. For purposes of this Section 12.3(2), "liability" shall include (i) liability of an Indemnified Party for costs and expenses of abatement and remediation of spills and releases of contaminants, (ii) liability of an Indemnified Party to a third party to reimburse the third party for bodily injuries, property damages and other injuries or damages which the third party suffers, including (to the extent, if any, that the Indemnified Party is liable therefor) foreseeable and unforeseeable consequential damages suffered by the third party and (iii) liability of the Indemnified Party for damage to or impairment of the environment. SECTION 12.4. DEPOSIT OF SECURITIES. The Trustee shall not be responsible or liable in any manner whatsoever for the sufficiency, correctness, genuineness or validity of any security deposited with it. SECTION 12.5. CHANGE OF NAME. The Corporation shall not change its name or amalgamate with another corporation under a different name without giving at least 10 day's prior notice to the Trustee of the new name and the date upon which such change of name or amalgamation is to take effect and, within five Business Days of the change of name or amalgamation, the Corporation shall proved the Trustee with: (a) a notarial or certified copy of the articles of amendment or articles of amalgamation effecting the change of name; and (b) an opinion from legal counsel satisfactory to the Trustee as to the correct name of the Corporation and confirming that all appropriate registrations, filings or recordings have been made on behalf of the Trustee to fully and effectively maintain the perfection and priority of the Security created hereby. -44- -45- ARTICLE 13 FORM OF BONDS SECTION 13.1. FORM OF BONDS. The form of the Bonds and the related certificate of the Trustee, registration panel and panel for the notation of payments on account of principal shall be substantially as follows: No. ........ U.S. $................ ROYAL OAK MINES INC. (incorporated under the laws of the Province of Ontario) 15% DEMAND BONDS Royal Oak Mines Inc. (the "CORPORATION"), for value received, acknowledges itself indebted and promises to pay to the registered holder on demand, or on such earlier date as the principal amount may become due in accordance with the Indenture hereinafter mentioned, the sum of - UNITED STATES DOLLARS (U.S. $-) and to pay interest on principal sum from this date in like money calculated and compounded monthly in arrears and payable on the last Business Day of January of 1999 and thereafter on the last Business Day of each month in each year at the rate of FIFTEEN (15%) PER CENT PER ANNUM, with interest on amounts overdue payable on demand at the same rate and in like currency. This Bond is one of the U.S. $50 Million 15% Demand Bond of the Corporation issued under an Indenture made June 22, 1998 between the Corporation and Montreal Trust Company of Canada, as Trustee (which, together, with all supplementary instruments is referred to as the "INDENTURE"). Terms used in this Bond which are defined in the Indenture have the meanings specified in the Indenture. The Bonds issuable under the Indenture are limited to an aggregate principal amount of U.S. $50 million outstanding at any time. The principal amount of this Bond shall be payable at the principal office of Montreal Trust Company of Canada, as Trustee under the Indenture, in Vancouver, British Columbia. Interest on the Bonds and on overdue interest shall be paid directly by the Corporation to the registered holder. -46- Subject to the terms of the Indenture, This Bond and all other Bonds now or hereafter certified and issued under the Indenture rank PARI PASSU and are secured equally and rateably by the Indenture. This Bond shall not become obligatory for any purpose until certified by or on behalf of the Trustee. IN WITNESS WHEREOF the Corporation has caused this Bond to be executed by its duly authorized officers. ROYAL OAK MINES INC. Per: --------------------------- Authorized Signing Officer c/s Per: --------------------------- Authorized Signing Officer (FORM OF TRUSTEE'S CERTIFICATE) This is one of the U.S. $50 Million 15% Demand Bonds referred to in the Indenture within mentioned. MONTREAL TRUST COMPANY OF CANADA Per: --------------------------- Authorized Signing Officer (FORM OF REGISTRATION PANEL) (No writing here except by the Trustee)
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DATE OF NAME AND ADDRESS OF AUTHORIZED REGISTRATION REGISTERED BONDHOLDER SIGNATURES - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
-47- (FORM OF PANEL FOR NOTATION OF PAYMENTS ON ACCOUNT OF PRINCIPAL OR REDUCTIONS OF PRINCIPAL) Payments on Account of Principal
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AUTHORIZED AMOUNT PAID BALANCE OF PRINCIPAL SIGNATURE DATE OR REDUCED AMOUNT UNPAID - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
-48- ARTICLE 14 EXECUTION SECTION 14.1. NOTARIAL TRUST DEED. The Corporation, in conformity with the laws of the Province of Quebec in which part of the Collateral may at any time be situate, will execute, in notarial form, a Trust Deed of Hypothec, Mortgage and Pledge hypothecating, mortgaging, pledging, charging, ceding and transferring all its undertaking, property and assets situate in the Province of Quebec as security for the Bonds, such Trust Deed being substantially of the same tenor and to the same effect as this Indenture, such Trust Deed and this Indenture constituting and to be read as one and the same instrument. SECTION 14.2. COUNTERPARTS. This Indenture may be executed in any number of counterparts and all such counterparts together shall be deemed to constitute one and the same instrument. SECTION 14.3. FORMAL DATE. This Indenture may be referred to as bearing formal date of June 22, 1998 notwithstanding its actual date of execution. IN WITNESS WHEREOF the parties have caused this Indenture to be executed by their respective duly authorized officers. ROYAL OAK MINES INC. Per: /s/ James H. Wood ----------------------------- Authorized Signing Officer c/s Per: ----------------------------- Authorized Signing Officer MONTREAL TRUST COMPANY OF CANADA Per: /s/ Robert McKenzie ----------------------------- Robert McKenzie Corporate Trust Officer Per: /s/ Sean Pigott ----------------------------- Sean Pigott Senior Trust Officer Corporate Trust Services ROYAL OAK MINES INC. NOTICE OF ADDRESS TO: MONTREAL TRUST COMPANY OF CANADA, as Trustee - ------------------------------------------------------------------------------- The undersigned, Royal Oak Mines Inc. (the "CORPORATION") gives notice to Montreal Trust Company of Canada, pursuant to Section 12.2 of the trust indenture dated June 22, 1998 (the "INDENTURE") between the Corporation and the Trustee of its address of record for communications under the Indenture as follows: 5501 Lakeview Drive Kirkland, Washington 98033 Attention: President Telecopier: (425) 822-3349 DATED at Toronto this 22nd day of June, 1998. ROYAL OAK MINES INC. Per: /s/ James H. Wood ---------------------------- Authorized Signing Officer Per: ---------------------------- Authorized Signing Officer ROYAL OAK MINES INC. ORDER OF THE CORPORATION TO: MONTREAL TRUST COMPANY OF CANADA, as Trustee - -------------------------------------------------------------------------------- Royal Oak Mines Inc. (the "CORPORATION"), pursuant to the provisions of Section 2.2 of the trust indenture dated June 22, 1998 between the Corporation and you, as trustee, orders you to certify and issue a 15% Demand Bond in the principal amount of U.S. $15,000,000, to Macquarie Bank Limited of Level 26, 20 Bond Street, Sydney, N.S.W. Australia and to deliver the same on this date to the representative of Macquarie Bank Limited at the offices of Stikeman, Elliott, Suite 5300, Commerce Court West, Toronto, Ontario, without receiving any consideration for such certification, issuance and delivery. DATED at Toronto this 22nd day of June, 1998. ROYAL OAK MINES INC. Per: /s/ James H. Wood ---------------------------- Authorized Signing Officer Per: ---------------------------- Authorized Signing Officer ROYAL OAK MINES INC. ORDER OF THE CORPORATION TO: MONTREAL TRUST COMPANY OF CANADA, as Trustee - -------------------------------------------------------------------------------- Royal Oak Mines Inc. (the "CORPORATION"), pursuant to the provisions of Section 2.2 of the trust indenture dated June 22, 1998 between the Corporation and you, as trustee, orders you to certify and issue a 15% Demand Bond in the principal amount of U.S. $21,000,000, to Bankers Trust Company of 130 Liberty Street, New York, New York 10006 and to deliver the same on this date to the representative of Bankers Trust Company at the offices of Stikeman, Elliott, Suite 5300, Commerce Court West, Toronto, Ontario, without receiving any consideration for such certification, issuance and delivery. DATED at Toronto this 22nd day of June, 1998. ROYAL OAK MINES INC. Per: /s/ James H. Wood ---------------------------- Authorized Signing Officer Per: ---------------------------- Authorized Signing Officer ROYAL OAK MINES INC. ORDER OF THE CORPORATION TO: MONTREAL TRUST COMPANY OF CANADA, as Trustee - -------------------------------------------------------------------------------- Royal Oak Mines Inc. (the "CORPORATION"), pursuant to the provisions of Section 2.2 of the trust indenture dated June 22, 1998 between the Corporation and you, as trustee, orders you to certify and issue a 15% Demand Bond in the principal amount of U.S. $5,000,000, to The Bank of Nova Scotia of One Financial Place, 1 Adelaide Street East, 9th Floor, Toronto, Ontario and to deliver the same on this date to the representative of The Bank of Nova Scotia at the offices of Stikeman, Elliott, Suite 5300, Commerce Court West, Toronto, Ontario, without receiving any consideration for such certification, issuance and delivery. DATED at Toronto this 22nd day of June, 1998. ROYAL OAK MINES INC. Per: James H. Wood ---------------------------- Authorized Signing Officer Per: ---------------------------- Authorized Signing Officer ROYAL OAK MINES INC. CERTIFICATE OF COMPLIANCE TO: MONTREAL TRUST COMPANY OF CANADA, as Trustee - -------------------------------------------------------------------------------- Pursuant to the provisions of Article 1 and Section 2.2 of the Indenture (as hereinafter defined) the undersigned, James H. Wood, duly appointed Chief Financial Officer of Royal Oak Mines Inc. (the "CORPORATION"), certifies for and on behalf of the Corporation and not in my personal capacity, intending that the same may be relied upon by you without further enquiry, that: (a) I have read and understand the provisions of the trust indenture dated June 22, 1998 (the "INDENTURE") between the Corporation and Montreal Trust Company of Canada (the "TRUSTEE"), as trustee, relating to the issue, certification and delivery of 15% Demand Bonds (the "BONDS") (defined terms used herein have the respective meanings ascribed thereto in the Indenture); (b) I have examined the order of the Corporation dated June 22, 1998 (the "ORDER") ordering the Trustee to issue, certify, and deliver Bonds to Bankers Trust Company, Macquarie Bank Limited and The Bank of Nova Scotia in accordance with Section 2.2 of the Indenture; (c) to the best of my knowledge, after such examination and investigation as I have deemed necessary with regard to such actions, no further or other actions are required to be taken by the Corporation or by any other person in order to enable the Trustee to act in accordance with the Order; (d) each of Bankers Trust Company, Macquarie Bank Limited and The Bank of Nova Scotia is a Hedging Counterparty within the meaning of the Indenture; and (e) the Bonds are to be pledged to Bankers Trust Company, Macquarie Bank Limited and The Bank of Nova Scotia, respectively, to be held as security for the obligations of the Corporation or an affiliate pursuant to Eligible Hedging Indebtedness. DATED at Toronto this 22nd day of June, 1998. /s/ James H. Wood ---------------------------- James H. Wood EX-27 11 EXHIBIT 27 - FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME FOUND IN THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT. 1,000 CANADIAN 6-MOS DEC-31-1998 JUN-30-1998 0.6953 16,423 560 8,891 0 15,447 46,254 886,083 98,343 903,876 94,800 426,764 0 0 397,375 (95,404) 903,876 45,050 45,050 35,247 50,963 3,496 0 1,066 (32,057) 841 (32,742) 0 0 0 (32,742) (0.24) (0.24) Using US GAAP and SFAS 128, Basic and Diluted EPS are both $(0.35).
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